CBO Has Overestimated Revenues Since 1982

Revenue forecasts from the Congressional Budget Office have averaged “a bit too high” since 1982, the nonpartisan arm of Congress acknowledged on Tuesday, adding the caveat that its overall accuracy has “been similar to that of the projections of other agencies.”

On average, CBO has overestimated total revenues by 1.1 percent in its two-year projections for the coming fiscal year, the agency said in a blog post. “A misestimate of that size in its January 2015 baseline projection, for example, would amount to $37 billion out of the roughly $3.5 trillion in total revenues that CBO projected for fiscal year 2016,” it said.

The projection errors have tended to be larger for longer horizons, such as six-year forecasts, than shorter ones, CBO said.

The arm of Congress is required to constantly reexamine its methods to improve accuracy of revenue forecasts, the cost of legislation and budget deficits. Over time, “overestimates and underestimates offset one another in the mean error measure,” the agency wrote. “The average overestimate of 1.1 percent over the past three decades includes projections for years in the latest recession for which CBO overestimated revenues by as much as 25 percent and projections for the late 1990s and the mid-2000s for which CBO underestimated revenues by nearly 10 percent.”

Estimates for the inaccuracies are also adjusted to reflect legislation enacted after the projections were made.

CBO has been preparing two estimates for the 10-year cost of each piece of major legislation, in compliance with a May budget resolution requiring dynamic scoring, favored by Republicans. This methodology incorporates macroeconomic effects into one of the estimates to project the possible long-term budget impact of a bill that might stimulate greater revenues. CBO has been making public presentations on how dynamic scoring is performed.

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