Why the Baseline Locks Congress into Higher Spending
A new bill addresses the hidden figures missing from CBO’s cost estimates.
The CBO baseline is Washington’s primary tool for fiscal comparison. Every budget negotiation, every scoring dispute, every reconciliation fight starts from the baseline. Those rules were written to keep lawmakers from gaming the system. They ended up institutionalizing the problem instead.
The baseline’s exceptions, which were designed to prevent legislative gaming, have made the explosive debt path the default, and any departure from it a scored, deliberate cost.
The rules were meant to keep debt in check, but it’s clear they haven’t worked. The 10-year baseline released by CBO on February 11 projects federal debt held by the public will rise to 120 percent of GDP in 2036, well above the previous peak in World War II. By 2055, debt reaches 156 percent of GDP. That’s dangerously close to the natural debt limit of 160 percent estimated by IMF economists. At that threshold, no fiscal adjustment can bring interest costs under control.
Markets have not collapsed because investors still expect a future Congress to act. But in a narrowly divided Congress, that assumption is no longer guaranteed. The window for an orderly resolution is closing. The later Congress waits to make changes, the more disruptive they will be.
Some have suggested raising revenue as the least disruptive change, but that is not the easy escape hatch it might appear to be. Analysis from economists at the Joint Committee on Taxation shows that the current tax system already operates near the revenue-maximizing top marginal rate. Raising it to 40 percent would increase revenues by only 0.5 percent. Yet, balancing the budget through revenue alone would require total tax collections to rise by more than a third. It’s unlikely that the federal government can collect that much tax. Though federal spending is currently 23 percent of GDP, federal receipts have never topped 20 percent.
That is why balancing the budget will require cuts to spending. And seeing those cuts realized requires understanding why the baseline makes the growth in spending so structurally difficult to check.
The baseline is widely described as a projection of what would happen if Congress made no changes to current law. But the baseline makes a number of exceptions that presume Congress takes some future action.
For instance, mandatory programs established before 1997 are assumed to continue past their expiration dates. This includes projections for income support programs like SNAP, TANF, and CHIP. Those programs are projected to spend $1.8 trillion over the 10-year budget window, or about 3 percent of mandatory spending.
Discretionary spending is presumed to grow with inflation. This keeps real costs constant so that the standard of goods and services purchased remains unaffected by inflation. The adjustment for inflation is not trivial, especially with rising costs in recent years. Simply extending discretionary spending at 2026 levels would reduce the deficit by $2.2 trillion over 10 years.
These exceptions were put in place to prevent legislators from sunsetting programs they intended to reauthorize. The baseline rules force lawmakers to recognize the maximum total cost of a policy when initially putting it in place. But the outcome has been the opposite of the intent. By treating continuation as the default, the baseline rules make extending certain programs appear costless because they are not included in CBO’s score.
The Cost Estimate Clarity Act would make those exceptions an explicit part of every CBO score. The bill would require CBO to disclose the gap between its statutory baseline and true current expectations in every cost estimate. Lawmakers would see both projections side by side, highlighting cases where the baseline rules significantly affect the score.
Congress has many fiscal decisions to make to alter the path of federal debt. The current baseline rules subtly tip the scales toward continuing on the status quo. The Cost Estimate Clarity Act would change that. By requiring CBO to show both projections side by side, it makes the hidden assumptions visible so that lawmakers can make decisions with the full picture in front of them.