The U.S. Chamber of Commerce claims in a TV ad that the Congressional Budget Office says unemployment “could top 9 percent in 2013.” Maybe so, if Congress doesn’t change current law — specifically if it fails to extend tax cuts, fails to patch the Alternative Minimum Tax that threatens to raise taxes on more than 31 million Americans, and also allows big spending cuts to take effect. But CBO also said that wasn’t a prediction of the future. The CBO’s “alternative fiscal scenario” — which considers the impact of Congress acting as it has in the past — projects next year’s unemployment rate could range from 7.4 percent to 8.9 percent.
And after CBO issued its analysis, the unemployment rate unexpectedly dropped to 8.3 percent.
The Chamber, which spends tens of millions each campaign cycle on TV ads, announced on Feb. 9 that it was running TV ads in support of or opposition to candidates and members of Congress in 12 congressional and eight Senate races. The pro-business advocacy group billed the TV blitz as a “voter education” campaign. But voters in Rep. Judy Biggert’s 13th Congressional District in Illinois aren’t getting an education. They are being misled by a 30-second spot called “Judy’s for Jobs.”
The ad, which praises the GOP congresswoman for voting to create jobs, starts with the narrator saying: “Unemployment’s sky high with no end in sight.” As he speaks, a headline from a Jan. 31 U.S. News and World Report article flashes on the screen: “CBO: Unemployment Could Top 9 percent in 2013.” As the story makes clear, that sky-high unemployment rate is not a forecast, but a baseline projection that CBO uses to measure the impact of congressional actions against current law. The story says that “if Congress does nothing,” then unemployment would climb to 9.2 percent.
On the same day CBO released its report, Director Douglas Elmendorf wrote on his blog that Congress is expected to make “substantial changes to tax and spending policies.” So, CBO once again prepared an “alternative fiscal scenario” that projects the impact of possible and likely actions.
We’ll let Elmendorf explain the difference between the projections:
Elmendorf, Jan. 31: Each January, CBO prepares “baseline” budget projections spanning the next 10 years. Those projections are not a forecast of future events; rather, they are intended to provide a benchmark against which potential policy changes can be measured. Therefore, as specified in law, those projections generally incorporate the assumption that current laws are implemented.
But substantial changes to tax and spending policies are slated to take effect within the next year under current law. So CBO has also prepared projections under an “alternative fiscal scenario,” in which some current or recent policies are assumed to continue in effect, even though, by law, they are scheduled to change.
Under the alternative fiscal scenario, for example, CBO assumes that Congress will index the Alternative Minimum Tax to inflation. The AMT, which was designed to make sure wealthy Americans pay a minimum tax, would raise taxes for millions of middle-income Americans, because it was never indexed to inflation on a permanent basis. Congress has fixed this problem every year since 2001. If the AMT took effect as required under current law, then more than 31 million Americans would get hit with a huge tax increase. Nobody believes that Congress would let that happen.
Other assumptions in the alternative fiscal scenario, in the CBO’s own words:
- Expiring tax provisions (other than the payroll tax reduction) are extended;
- Medicare’s payment rates for physicians’ services are held constant at their current level (rather than dropping by 27 percent in March 2012 and more thereafter, as scheduled under current law);
- The automatic spending reductions required by the Budget Control Act in the absence of legislation reported by the Joint Select Committee on Deficit Reduction do not take effect (thereby leaving in place the discretionary caps established by the act, which would otherwise be subject to those reductions).
The CBO report projects a baseline unemployment rate of 9.2 percent. But the unemployment rate under the alternative fiscal scenario ranges from 7.4 percent to 8.9 percent, based on what Congress actually does to change current law on the items singled out by CBO. A 1.8 percent to 0.3 percent deviation from the baseline is a wide range, but of course the CBO has to factor in whether Congress takes action on all or just some of the laws. The very article that the Chamber uses to mislead voters puts the CBO projections in perspective.
U.S. News and World Report, Jan. 31: At a press conference today, CBO Director Doug Elmendorf stressed that the projections are purely based on current law, and are therefore not the same thing as forecasts. In contrast to the CBO projections, Federal Reserve forecasts released last week predict unemployment trending between 7.4 and 8.1 percent next year.
Since CBO issued its report, employment rose by 243,000 jobs in January, and the unemployment rate unexpectedly dropped to 8.3 percent — the lowest since February 2009. Exactly what that means is a matter of debate among economists. As Reuters reported, some economists say unemployment could go up in the short term as discouraged workers seek to re-enter the job market, while others say the unemployment rate could dip below 8 percent by the end of this year.
We’re not in the business of making projections or issuing forecasts. But we can tell you that the Chamber is misusing the CBO report and misleading Illinois voters.
– Eugene Kiely