CBO Shows "Interest" in Greater Transparency
The Congressional Budget Office (CBO) took another step last week towards greater transparency when it published an interactive workbook that allows users to see how changes in revenues or spending would affect net interest costs based on CBO’s July 2020 economic forecast.
This release also bodes well for the greater goal of CBO including net interest effects in its cost estimates for individual pieces of legislation. In January, a bipartisan and bicameral group of 68 lawmakers – led by Senator Mike Lee (R-UT), as well as Representatives Ed Case (D-HI) and Michael Cloud (R-TX) – sent a letter to the leaders of the House and Senate Budget Committees requesting that debt service costs be included in all future CBO scores of legislation. While the committee chairs have not yet done so, the interactive workbook CBO released allows individuals to make those calculations themselves.
Every piece of legislation has two aspects to its potential cost. The first involves how the bill would directly affect spending or revenues, known as the “primary deficit effect.” The second aspect has to do with how the bill would affect the cost of servicing our national debt, currently $21 trillion and growing. If a piece of legislation would require the federal government to borrow more, then it will inevitably increase overall net interest payments. Likewise, bills that would reduce deficits will also reduce net interest payments. Even bills that have no net effect over ten years can affect interest if the timing of deficit increases and deficit reduction is different.
Omitting debt service costs therefore obscures the impact of bills that affect the debt in either direction. Not considering interest costs can be a gimmick that lawmakers use to hide the real cost of legislation, enabling them to justify deficit increases in the near-term with long-term offsets that won't truly cover the cost when interest is considered. Including net interest costs in CBO scores is one of several common sense reforms we previously recommended as part of our Better Budget Process Initiative.
Interest itself makes up a significant share of the federal budget. Last year, the government spent $375 billion on debt service, nearly as much as it spent on Medicaid. Over the coming decade, interest costs will roughly double, growing to $664 billion in 2030. By 2046, debt service will surpass Social Security to become the most expensive line-item in the federal budget.
We commend CBO for taking this meaningful and helpful step towards increasing transparency into its own methodology, while simultaneously empowering everyday Americans to understand the true cost of legislation and better hold elected officials accountable.