These days, it seems that a mysterious group called “the CBO” rules the world, or at least Washington, D.C. Unfortunately, it’s not very good at predicting things, and its bad calls can lead to bad policy results.
The Congressional Budget Office and the Joint Committee on Taxation predict what will happen with spending, tax revenues, and deficits from new bills and congressional budgets.
They have made headlines with their absurd warning that the Trump tax bill to extend the 2017 tax cuts and other reforms, like eliminating taxes on tips, would add trillions to the debt over 10 years.
But we know this is wrong. The flaw is that the models don’t take account of the improved economy from keeping tax rates low and providing tax relief for small businesses and workers. The White House estimates that this bill, combined with pro-America energy policies and deregulation, can raise the economic growth rate to nearly 3% — which would mean at least another $2 trillion in added revenues.
When I pointed this out in The Wall Street Journal two weeks ago, House Speaker Mike Johnson reiterated these defects in the CBO predictions.
Then, Washington Post’s “fact checker,” Glenn Kessler, claimed that the CBO is accurate and Johnson’s claim is “nonsense.”
Oh, really? It turns out that it’s the self-proclaimed fact-checker who is getting the numbers all wrong.
The Post argued that the CBO really does dynamic scoring and adjusts for the changes in tax laws. Wrong. The CBO does NOT fully measure the economywide benefits of lower tax rates and thus doesn’t adjust for higher employment and growth — which happens every time we cut tax rates.
We also know that the 2017 scoring of the Trump tax cut has ALREADY underestimated the revenues from the first six years of the law by a massive $1 trillion or more.
Yet Kessler notes that no one in 2017 could have predicted the COVID-19 pandemic and the ensuing lockdowns. That is absolutely true. But the pandemic actually REDUCED revenues from what they would have otherwise been by at least $1 trillion because commerce slowed to a crawl during the lockdowns. Yet even with the unexpected pandemic, the CBO STILL managed to underestimate the revenues generated from the tax cut.
Sounds like the speaker was right and the fact-checkers struck out.
Everyone makes mistakes. But the CBO and JCT have a habit of overstating the benefits of raising taxes and underestimating the benefits to the economy from cutting tax rates. The CBO and JCT, for example, have almost always lowballed the economic effects of cutting the capital gains tax.
My colleague Tomas Philipson, who served on the Council of Economic Advisers under President Donald Trump in his first term, notes that the JCT never opens its books to show how it makes its “garbage in, garbage out” projections.
Maybe Johnson should demand they do that immediately. Or maybe it’s time for a new model based on real-world scoring. It’s time to put accuracy over ideology.
Big decisions that have enormous trillion-dollar consequences for our economy are being made with a cracked crystal ball.
Stephen Moore is a cofounder of Unleash Prosperity and a former senior economic adviser to Donald Trump. His new book, coauthored with Arthur Laffer, is “The Trump Economic Miracle.”
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The vast majority of the CBO is populated by Democrats. Just look at which party the members of the CBO all contribute to like clockwork. Multiple studies have been done over the years that highlight this fact. They also all happen to be all Keynesians in terms of economics, so everything they model is based on static versus dynamic scoring methods. Static scoring is notoriously inaccurate when it comes to financial modeling, which is why no one in the real world relies on it in the private sector. Thus, the reason why the estimates put out by the CBO are almost always so far off from reality.
It is utterly amazing that whenever the Republicans control both the Senate and the House, that they don’t simply clean out the CBO, Thune and Johnson after all lead the Legislative Branch that the CBO falls under, when the new Congress is sworn in, and summarily replace the existing CBO personnel with personnel not so completely aligned with the Democrat centric view of things.
“Fact Checkers” hmm, who fact checks the so-called “fact checkers”?
Honest intentions never seem to be a part of the primary management practices of the CBO. THey are merely numbers-crunchers and master manipulators of facts and figures to tell stories they want published. Just consider the source and ignore it.
why does anyone listen to the CBO anymore?
Are you saying that the Federal Government does not operate using standard accounting methods or are you saying they make up their own rules? Does this article have a conclusion on what should be done. Does the Fed know what an audit is and what it is for?
I think it is really wrong to not tax tips. Today meals and drinks are so much more costly then before. Some places actually put tip on the bill and may be 20%. this is wrong. Servers had to claim 8% of the total goods sold. this is how it was when I waitress and it was more than fair. Some people are making $400 or $500 in tips and should pay their fair share of taxes. Just my opinion
I think we need to reassign the CBO people now foretelling the future to become auditors, accounting for every expenditure, purpose, outcome. Let the taxpayers decide from the results – do we continue doing this?
These creatures “estimates” are simple lies. Time after time after time. Nothing but narrative forming propaganda that has the rest of the globe believing that the Soviet Union didn’t fall, it just creeped across the Atlantic.
The Dems didn’t like their scores on Obamacare and Biden’s Inflation Reduction Act. How is that politicized?
The non-partisan CBO gets criticized by both sides. Democrats didn’t like CBO scores on Obamacare and Biden’s Inflation Reduction Act. The $2.4 trillion that the CBO says will be added to the debt by the current budget bill is actually low compared to other estimates which go as high as $5 trillion. If both sides don’t like CBO scores, maybe they’re doing something right.