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Domitrovic: History Shows CBO Is Partisan

The reason for these absurdities was that the private forecasting companies contracted by the CBO epitomized the partisan nature of the whole endeavor. They made sure to tweak their econometric models such that they told the CBO what it wanted to hear. The budget resolution of February 1977 proved to be a turning point, however. The outcry against the preposterous CBO forecast of the 5 percent tax cut proposal was so great that the modelers, in particular Otto Eckstein of Data Resources Inc., set to figuring out how the theory of supply-side economics might be fit into his model, just in case the Republicans won control of the CBO some day. Surely one of the reasons Eckstein successfully sold the DRI model in 1979 for a cool $100 million is that it had shown itself “flexible” in being able to appease whatever majority happened to be in control of the CBO.

The biggest laugher in the old DRI model that the CBO swore by in the mid-1970s was that a decline in the corporate tax rate would result in a decrease in economic growth. The idea was that corporations would reach their “target” profit more quickly without high taxes, and then shut down operations, to the detriment of growth and jobs. Nonsense like this is what got the CBO off the ground back in the 1970s. The case that the CBO has shaken such stuff out of its DNA by now, as it pronounces on a megatrillion-dollar health bill, has yet to be made.

Brian Domitrovic teaches at Sam Houston State University in Huntsville, Texas, and is author of “Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity.” (ISI Books, 2009)

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