Historical perspective on Congressional Budget Office

Hungary has set up an independent fiscal council to look and evaluate the country’s fiscal situation. 

It hosted a conference recently on independent fiscal institutions. The program is here. The conference was highly timely IMF”s PFM Blog covered the event and has a nice summary  of the conference program. All the papers and discussions have still not been posted on the website. However, few have been posted. 

Alice Rivlin was the first director of Congressional Budget Office (CBO) and gives a superb talk on CBO’s history, functions, challenges etc. 

How did CBO come up?

The creation of CBO was a rather accidental result of a confrontation between President Richard Nixon and Congress in the early 1970’s. The two branches of the government were controlled by different political parties and had different budget priorities and divergent concepts of appropriate fiscal policy. The confrontation convinced the congress to establish a more structured set of procedures for making budget decisions and resulted in an elaborate reform of the congressional budget process.

 The creation of the CBO was an incidental piece of this wider set of reforms. The Budget Reform Act also created budget committees in each house and a complex calendar of budget decision points stretching over nine months and leading to the adoption of multiple spending and revenue bills within an agreed budget framework. The budget process reformers set up the CBO to provide non-partisan budget information to the various participants in the decision process, so that they would not have to rely on the executive branch for such information. CBO was supposed to make economic forecasts and project what the budget would look like if current laws continued. It was to provide estimates of the costs of budget proposals under consideration and analysis of budget options.

 How great things are set up an accident. She explains CBO was created and could serve as  an independent institution, as US constitution is different:

The role of the U.S. Congressional Budget Office as an independent fiscal institution can only be understood in the context of the American Constitution which prescribes strict separation of powers between the executive (the president) and legislative (Congress) branches. I would not recommend this constitutional structure to a country drafting a new constitution. It creates enormous impediments to change and slows down needed policy evolution. But we have lived with it for over two hundred years. We are not going to change it. So we have to make it work.

Unlike a parliamentary system in which a prime minister with a working majority in parliament can get a budget adopted without much difficulty, each American budget is adopted only after a protracted negotiation between the president and congress. Congress, even when dominated by the president’s party, is under no obligation to agree to what the president wants and often has very different ideas about desirable fiscal policy and priorities for spending and taxing. The president proposes a budget each year in February for a fiscal year that does not begin until the following October and then tries to get congress to agree to as much of his plan as he can. Without congressional action he can make neither spending nor taxing changes. In this context the CBO, which works for the legislative branch (both houses of Congress), has evolved into an independent, nonpartisan source of budget projections, estimates, and analysis.

 Great insights.

She says US budget process is highly cumbersome but CBO is a real success. It is not liked by politicians but its views are accepted. It is seen as a scorekeeper of govt finances.

  • CBO’s acceptance by the political players rests on four aspects of its structure and history.
  • It has had strong professional leadership and attracted high quality analytical staff.
  • It has been aggressively non-partisan and never allowed politicians to appoint members of the staff.
  • It never makes recommendations on policy matters, but offers estimates of budgetary costs or analysis of options and alternatives. It has always tried to help politicians evaluate their choices and steadfastly refused to tell them how to choose.
  • It makes all of its reports and analyses available to the public the press and tries hard to make them clear and readable.

There were issues and politicians tried to exert their influence:

At the beginning, CBO was a fledgling organization without an established culture. There were members of congress and powerful staff who felt threatened by CBO and did not want it to succeed. Politicians tried to enhance their influence over CBO by recommending people for the new director to hire. Fortunately, the leadership of the budget committees, who were CBO’s principal customers and protectors, understood that a strong nonpartisan staff was necessary and protected me from pressure by their colleagues. I worked hard to hire capable people who cared more about getting the analysis right than achieving a political end. We made a few mistakes, but mostly we were able to attract talented policy analysts, who put a high value on objectivity.

At first we took considerable criticism for publishing–indeed, publicizing–our reports and analyses. Some politicians would have preferred confidential reports. Some were unwilling At first we took considerable criticism for publishing–indeed, publicizing–our reports and analyses. Some politicians would have preferred confidential reports. Some were unwilling to share the limelight and resented the attention given by the press to CBO’s release of independent analyses. On the other hand, they were much more likely to take a report seriously if they read about it in the newspaper than if it simply landed on their desks

As she was appointed by Nixon who was democrat she was accused of carrying a democrat agenda. things changed when Gerlad Ford came who was a Republican:

A turning point in establishing the nonpartisan credibility of the CBO came after about two years when a new president took office. When CBO began operations in 1975 President Gerald Ford (who replaced Nixon) was in office. Ford was a Republican, but the Democrats held a majority of the seats in both the Senate and the House of Representatives. Whenever the CBO was called upon to evaluate a Ford Administration proposal and failed to corroborate the Administration’s claims, the Republican minority in congress would accuse the CBO of Democratic partisan bias. But after President Jimmy Carter, a Democrat, was inaugurated in 1977, the situation changed. Carter launched an ambitious energy plan designed to reduce dependence on imported oil. CBO analysts concluded that the plan would cost more dollars and save less oil than the Administration alleged. Suddenly congressional Republicans were touting the objectivity of the nonpartisan CBO!

By the time the Republicans recaptured the White House with the inauguration of President Reagan in 1981, CBO had established itself as an independent voice.

Superb really. Linkage between politics and economics at its best.

In the end she talks about the concern of growing debt and CBO’s role.

What about India’s CBO? There have been suggestions by media and experts (including me) to have a CBO kind of organisation. As per Rivlin, it will not be easy:

This structure does not translate easily into a parliamentary system. If the United States had a parliamentary system, CBO would have limited credibility unless it were entirely outside the government, as the Hungarian Fiscal Council is, rather than an agency of legislative branch. This point was brought home to me early in CBO’s history, when Margaret Thatcher, then leader of the opposition in the United Kingdom, paid a visit to Washington and asked me to brief her on the CBO. She was enormously enthusiastic about what we were doing and subsequently sent Sir Keith Joseph to CBO to get more details and formulate a plan for a UK version of the CBO. Not long thereafter, however, she became prime minister and her interest evaporated. When she became leader of the government, she must have realized that an independent fiscal office could only cause her grief.

So, there will have to be changes in the structure. It may work like CBO but structure will have to be different. Very useful and timely speech. It has several insights on creating independent institutions. Take a case of a central bank. It is always under pressure from politicians but has to continue to given its independent views. Gradually both people and politicians realise that the c-bank is independent. By simply saying we are independent doesn’t work. As Posen says what matters in central bank independence is c-bank’s deeds and not appearance.

3 Responses to “Historical perspective on Congressional Budget Office”

  1. John Says:

    Just want to point out that Richard Nixon was beyond any doubt whatsoever a Republican and not a Democrat. Other than this, good historical synopsis and good luck

  2. lucrari de diploma Says:

    lucrari de diploma…

    […]Historical perspective on Congressional Budget Office « Mostly Economics[…]…

  3. Lucrari de licenta Says:

    Very useful and timely speech. It has several insights on creating independent institutions.

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