The Congressional Budget Office’s (CBO) new Budget and Economic Outlook: 2025 to 2035 report is a reminder that the most fundamental aspect of the budget process is biased in favor of bigger government.
The CBO baseline is often described as reflecting current law, but this is a myth.
In reality, the CBO is required by law to distort the baseline in favor of higher spending and taxes.
CBO Director: The Baseline is “Not a Neutral Benchmark”
As CBO Director Phil Swagel testified before the House Budget Committee, the official CBO baseline is “not a neutral benchmark.”
Tax and spending programs are treated differently. Reflecting the rules imposed by law, the official CBO baseline follows strict current law for most tax policies, but uses a mix of current policy and current law for spending programs.
This means that the CBO is required to assume that major provisions of the 2017 Tax Cuts and Jobs Act (TCJA) expire at the end of the year while many expiring spending programs are reauthorized and funded in perpetuity.
The Distortions in the Baseline
There are four deviations from current law in the baseline that CBO is required by statute to incorporate: three that make spending look much higher and one that makes revenues look slightly higher than they would actually be if Congress made no further changes in law:
- Discretionary appropriations are assumed to be continued and grow with inflation each year.
- Direct spending programs larger than $50 million are assumed to be extended beyond their statutory expiration.
- Entitlement programs are assumed to make all scheduled benefit payments, even if a program’s trust fund and financing is inadequate to do so.
- Excise taxes dedicated to a trust fund are assumed to be continued beyond their statutory expiration.
About 30 percent of the $89 trillion of spending included in CBO’s fiscal year 2026-2035 baseline are only assumed, not actually provided for under current law.
If Congress simply enacted no new laws, deficits would be about $27.3 trillion lower than what is projected in the official CBO baseline over the next decade.
|
Distortions in the Baseline from Actual Current Law |
|
|
Distortion |
Effect on Official CBO Baseline for FY 2026 – 2035 |
| Appropriations Extended | + $19.5 Trillion |
| Expiring Programs Extended | + $1.8 Trillion |
| Trust Fund Spending Extended | + $2.4 Trillion |
| Expiring Trust Fund Excise Taxes Extended | – $0.4 Trillion |
| Resulting Debt Service | + $4 Trillion |
| Total Change in Deficit | + $27.3 Trillion |
| Source: EPIC calculations based on CBO January 2025 Baseline | |
Why the Baseline is Important
The CBO baseline is important because it is used as the official benchmark against which legislative proposals are scored.
The biases in the baseline allow the true costs of legislation to be hidden from the public and Members of Congress.
The cost estimate for legislation depends on the baseline against which it is compared. The CBO cost estimate can make or break legislation. Budget enforcement points of order are also evaluated using the cost estimates.
The baseline is sometimes misunderstood as being a forecast of what budgetary outcomes will be in the future. But we know that laws, policies, and economic conditions will ultimately be different than the assumptions that the baseline is built upon — in fact most politicians run for office because they want different outcomes than the status quo. Rather, the baseline shows what outcome could be unless the fiscal and economic trajectory is changed.
As CBO itself has stated, “CBO’s baseline is not intended to be a forecast of budgetary outcomes; rather, it is meant to provide a neutral benchmark that policymakers can use to assess the potential effects of policy decisions.” Unfortunately, the official baseline is not neutral.
While proposed legislation should be measured against a current law baseline, the CBO should also produce a variety of informational alternative fiscal scenarios to show what the fiscal outlook could be under different fiscal and economic paths.
How to Fix the Problem
Budgeting is about making tradeoffs, so the rules governing the process should provide transparency about the ramifications of different options.
Congress should remove the distortions throughout Section 257 of the Balanced Budget and Emergency Deficit Control Act of 1985 so that the official CBO budget baseline reflects current law.
A current law baseline would provide the clearest picture of the choices facing lawmakers if they either maintain the de jure status quo or make changes in law. Fixing the baseline to reflect actual current law would make it more obvious that keeping spending high is a policy choice.
The No Bias in the Baseline Act, introduced by Congressman Ben Cline (R-VA) in the 118th Congress, would remove distortions from the baseline. This legislation would provide more consistent, transparent, and realistic cost estimates for legislative proposals.
Additional Background
- Read the EPIC Report: The Myth of the Current Law Baseline: Keeping Spending High is a Policy Choice.
- Download the Myth of the Current Law Baseline One Pager.
- Read the Myth vs. Fact: Fixing the Budget Baseline.
- CBO Testimony: Baseline Is “Not A Neutral Benchmark”
