Congressional Budget Office: What It Does and Its Impact

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The CBO advises Congress on budgetary impacts.. Photo: ericsphotography/Getty Images

Definition: The Congressional Budget Office (CBO) is a bipartisan agency that analyzes the economy for the U.S. Congress. It also assists the House and Senate Budget Committees. It reviews the President's  annual budget. That's submitted by the Office of Management and Budget (OMB) each February.

The CBO Director reports to the leaders of the House and Senate. He or she serves for four-year terms. The agency employs about 230 people, primarily economists and public policy analysts.

What the CBO Does

In late January of each year, the CBO reports on the economic and budget outlook. That includes estimates of spending and revenue levels for a decade. This baseline gives Congress a neutral benchmark. It's used when comparing the budgetary effect of proposed legislation.

CBO delivers an independent re-estimate of the President's budget a month after it's submitted. It creates a set of economic assumptions. Congress uses that to compare the President's budget to other proposals.

Throughout the year, CBO provides the budget impact of all proposed legislation. For example, it analyzed the budgetary effects of the Affordable Care Act in March 2010. This controversial report said the ACA would lower the budget deficit by $143 billion by 2019. Republicans didn't believe a $940 billion initiative to expand health care could save money. The report showed how ACA taxes and fees more than offset the program's cost.

 For more, see CBO Report on Obamacare.

CBO keeps an eye out for unfunded mandates. These are bills proposed by Congressional committees without funding sources. The CBO identifies any that cost an agency more than $75 million, or a business more than $150 million. An example is raising the U.S. minimum wage.

 Committees that proposed the bill must find funds for it. The CBO releases a report each year that estimates these costs.

How It Affects the U.S. Economy

The CBO affects the economy by bringing a respected, informed viewpoint to public debate. Since it is bilateral, its policy options are taken seriously.

It warns about the future impact of deficit spending. Government spending creates jobs both directly and through government contracts. It also adds to the debt. Although the CBO warns about the negative impact of deficit spending, Congress hasn't listened. That increases U.S. vulnerability to foreign countries who loan the money to finance the U.S. debt.

The CBO explains the impact of current decisions on the future of important government programs. It warned about the future insolvency of Social Security. It also provided policy options to avoid that fate. It examined the long-term effects of the Department of Defense budget and the Navy's Shipbuilding Plan.

The Budget Office played a critical role in resolving the 2008 financial crisis.

It analyzed the Troubled Asset Relief Program, better known as TARP, and the American Recovery and Reinvestment Act, better known as ARRA. Later, it analyzed the impact of sequestration. These programs may never have gotten off the ground without CBOs respected analysis.

How It Affects You

The CBO affects you by monitoring the President’s budget. That provides a bit of a safeguard on government spending. However, the result has still been a budget that continues to increase the national debt through deficit spending.

The CBO also provides you a wealth of information about the economy and the impact of the budget on the economy.

History

Before 1920, the President had little to do with the federal budget. In 1921, the Budget and Accounting Act required him to submit an annual budget proposal to Congress. It created the Office of Management and Budget, which supplied all economic and budget analysis. The Act deprived Congress of the power to establish or enforce budgetary priorities.

In 1974, President Richard Nixon threatened to withhold Congressionally-approved funding for programs he opposed. The Congressional Budget and Impoundment Control Act reasserted the legislative branch's control over the budget.

The Act established a formal budget process. It created the House and Senate Budget Committees to oversee that process. It also created the Congressional Budget Office, which began operating on February 24, 1975. Alice Rivlin was its first Director.  Updated October 8, 2015.

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