Numbers fascinate me. Always have. My inner-geek manifesting itself. Numbers are unemotional. They behave in predictable ways. Numbers have a unique combination of perfect memory and no memory at all. They give the same answers, regardless of who asks. Numbers are incapable of hubris, or shame, or guile. Like a Vulcan on Star Trek, numbers don’t care about our feelings.
When it comes to the Big Beautiful Bill (BBB), we hear vastly different numbers coming from D.C. One government agency claims the BBB will result in an additional $2.4 trillion in deficit spending. Another government body claims the BBB will result in a $6.7 trillion positive variance. This is a $9.1 trillion swing. Wildly different numbers supposedly answering the same question. How can this be? What numbers should we believe?
All Budgets Are Wrong. Some Are Useful.
A budget is only as good as the inputs. If we make incorrect assumptions, or misapply formulas, or ask the wrong questions, then the budget isn’t useful. Congress has engaged in budgeting for more than two centuries. While the budget has increased in complexity, the basic exercise remains the same. Estimate tax revenue based on a certain set of assumptions regarding tax rates and economic activity. Estimate expenditures from different government agencies and programs. Then subtract expenditures from revenue. It is complex, but it is not complicated. After more than 200 years of budgeting, we might think Congress had gotten pretty good at it. Yet here we stand with a $9.1 trillion disagreement.
Beware Of Budgets With Big Swings In The Out Years
When the federal government publishes a budget, it includes a ten-year forecast of revenue and spending. In my opinion, we should focus on years 1-2 in the budget. We should not ignore years 3-10, but we should not rely on them too much either. As a general matter, a budget becomes less reliable the further out it goes. This is intuitive. We can predict what might happen in years 1-2 better than we can for years 3-10. At some point in the out years, we substitute informed budgeting with educated guessing. It becomes more guess and less educated the further out we go.
In the context of federal budgets specifically, the underlying tax and spend policies can change in two-year increments. We have congressional elections every two years. We have presidential elections every four years. When the balance of power flips from one party to the other, policies change. These policy changes can impact tax rates, or loopholes, or economic growth, or discretionary spending, or social welfare programs. We have mid-terms in 2026. If the balance of power flips in the House or Senate or both, policies impacting the federal budget will change.
The CBO Provides A Conservative Analysis
The Congressional Budget Office (CBO) reports that the BBB will add $2.4 trillion in deficit spending over ten years. This is on top of $21 trillion in deficits already projected over ten years. The $2.4 trillion includes an increase in deficit spending of $485 billion in 2026 and $536 billion in 2027. This is just over $1 trillion in increased deficit spending in the first two years alone. Per the CBO, increases in deficit spending moderate in the out years but never turn positive. We continue in the wrong direction throughout the ten-year period.
It is en vogue for politicians who do not like the CBO’s analysis to accuse it of partisanship. The House Speaker and other proponents of the BBB have adopted this approach in recent days. When members of Congress criticize the CBO, keep in mind that the CBO is itself a congressional agency. Congress created the CBO in 1974. The CBOs primary purpose is to provide objective, nonpartisan information to support the congressional budget process. Congress sets the CBO’s priorities. Congress gives the CBO its assignments. So when members of Congress point their bony fingers at the CBO, they are pointing at themselves.
CBO reports tend to be sterile and dry. No color. No advocacy. Just cold, hard numbers backed by extensive analysis and 50 years of experience. The CBO does not make policy recommendations. It provides data and analysis so Congress can make policy recommendations. The CBO’s methodology is to conduct a baseline analysis that assumes current tax and spend law will remain in place. It then analyzes how proposed law, like the BBB, would impact those baselines and reports the difference. The CBO discloses its methodology and assumptions. It has teams of experts dedicated to analyzing the impact of policy on revenue and spending.
The OMB Engages In Advocacy, Not Reporting
The Office of Management and Budget (OMB) often serves as a foil to the CBO. The OMB reports to the President and assists in executing the President’s agenda. Unlike the CBO, the OMB is partisan by design. OMB reports read like advocacy pieces, full of colorful adjectives and adverbs and occasional name-calling.
The OMB claims the BBB will result in a $6.7 trillion positive variance to deficit spending. The OMB has two big areas of disagreement with the CBO. First, the OMB claims the CBO’s baseline assumes the 2017 tax cuts will expire at the end of this year. This is true. The CBO has to make this assumption. The tax cuts will in fact expire at the end of this year under existing law. The point of the CBO’s analysis is to understand how changes in the law, e.g., extending tax cuts, impact the deficit. The answer is, per the CBO, extending the tax cuts grows the deficit.
Second, the OMB claims the CBO did not adequately account for increases in tariff revenue. This is misleading. The CBO analyzed the BBB. Tariffs are not part of the BBB or any other proposed legislation. The CBO performed a separate analysis of certain tariffs and found they could generate as much as $2.8 trillion over ten years. (As you know from other posts, I believe US companies and consumers will pay the vast majority of this $2.8 trillion. If I’m right, it will be the largest tax increase in our history.) However, neither the Administration nor Congress has adopted a policy that would support those numbers.
More to the point, we have no idea where the Administration’s tariff policy will land. The Administration chose to implement tariffs through executive action, rather than legislation. This leaves the tariffs exposed to attacks in Court, or legislative action, or future executive action. If the Courts uphold the President’s tariff authority, another party could take control of Congress beginning in 2027. That party could adopt legislation reversing the tariffs and returning to free trade policy. Or the next President could reverse the tariffs with the stroke of a pen in 2029. Presidents frequently begin their terms by reversing the predecessor’s executive action. In short, including tariff revenue when considering the BBB seems dubious.
Wharton Tells It Like It Is
The Penn Wharton School of Business has modeled the BBB. They have updated the model throughout the summer, as recently as June 10. Wharton reports that the BBB will result in $2.8 trillion in additional deficit spending over ten years. When accounting for dynamic effects like GDP growth, this number actually increases to $3.2 trillion. Wharton reports increases in deficit spending of $614 billion in 2026 and $561 billion in 2027. This is over $1.1 trillion in additional deficit spending during the first two years alone. Per Wharton, increases in deficit spending moderate in the out years but never turn positive. In short, Wharton’s analysis is much closer to the CBO than the OMB.
Proponents of the BBB like to remind us that extending tax cuts can spur economic growth. This is true, but it is the wrong question. The correct question is whether extending tax cuts will spur enough economic activity and generate enough tax revenue to offset cuts. Wharton says no.
We Should Return To First Principles
The CBO, OMB and Wharton have approached the BBB very differently. The OMB makes more aggressive assumptions about tariffs and economic growth. The CBO and Wharton make more conservative assumptions. When it comes to budgeting, conservatism is the better approach. If we outperform the budget and have a surprise surplus, great. We can use it to help reduce our debt to a reasonable level. The real trouble comes when we count on the money and then under-perform. That is a recipe for uncontrolled deficit spending.
The OMB and Wharton also disagree about what will happen in the out years. The OMB thinks GDP will explode in the out years, thus, turning the tide on deficit spending. Wharton’s analysis shows otherwise. In truth, Congress and the Administration are just kicking the can down the road. They don’t want to make unpopular decisions, however necessary to secure our financial future. They refuse to do the pesky work of governing by reducing deficit spending. They move money around. They play shell games. But the deficit keeps growing. Now they insist it will work itself out if we just let them add trillions more to the deficit. This is a sucker’s bet. The deficit will not work itself out. Congress and the Administration need to address deficit spending now. Not in 2026 or 2027 or 2034, but now. We can’t afford to keep kicking the can down the road.
We should all call our congressperson and insist that they reduce deficit spending immediately.