Basing Budget Baselines

Measuring the cost of legislation or even projecting the course of the federal budget requires defining a budget baseline—a starting point capturing the current state of the budget. Budget baselines underlie most measures employed in federal budget debates and enforcement rules. Yet, despite their widespread use, budget baselines engender considerable confusion and abuse. For instance, when legislators enact temporary tax breaks, the breaks are officially estimated to cost far less than they likely will because of a loophole in federal budget baseline rules. Then, later efforts to extend the tax cuts are counted as increasing deficits when, in fact, by more reasonable metrics, they do nothing of the sort and might even reduce deficits. In response to such problems and the relative lack of scholarly attention, this Article seeks to ground budget baselines in a theoretical framework and then apply this framework to some of the leading debates involving baselines. For example, after presenting this new framework for understanding budget baselines, the Article proposes a way to fix the official baseline so that temporary tax cuts no longer appear less expensive than they really are and extensions no longer appear more expensive. This Article also uses this framework to describe why the long-term fiscal shortfall is smaller than often depicted and why a long-term budget metric now under consideration should be rejected. By arriving at a better understanding of budget baselines, this Article helps to inform a number of key fiscal debates and makes recommendations for how to improve budget measures going forward