AV Issue Brief
The impending expiration of key provisions of the 2017 Tax Cuts and Jobs Act (TCJA) has ignited a critical debate about the use of current law baseline estimates from the Congressional Budget Office (CBO) — specifically, whether it makes sense to consider an alternative “current policy” baseline to assess fiscal impacts. This issue brief delves into the origins of CBO’s baseline, exploring the laws, principles, and rules guiding its construction, and the important role it plays in the legislative process. Given the potential for an alternative baseline to significantly obscure the reported fiscal effects on taxpayers, it is imperative that Congress understand how baselines are developed and used in the context of extending expiring tax cuts.
How Is The Baseline Developed?
Most of the federal budgeting rules flow from provisions contained in the Congressional Budget and Impoundment Control Act of 1974 (Budget Act) and frequent amendments to that statute through the years. (The history and performance of the Budget Act is explored in a 2024 Arnold Ventures report.) That legislation reflects the intent of Congress to assert its constitutional power of the purse by establishing a detailed process for making informed budgetary decisions. The process includes substantial executive branch involvement and begins with the president submitting a consolidated funding request each year for the entire government. Then Congress begins its deliberations with the active involvement of appropriations, authorizing, and revenue-raising committee members and staff.
The Budget Act established several key offices in the legislative branch to strengthen the ability of Congress to serve as a counterweight to the substantial policy and analytical expertise resident at the Office of Management and Budget (OMB) and across the executive branch. Professionally staffed budget committees were created in the Senate and the House of Representatives to lead the consideration of tax and spending policies. The act also directed the establishment of CBO to assist those committees in discharging their duties by providing, among other things, an annual report on federal spending, revenues, and deficits or surpluses, as well as subsequent revisions to that report as may be necessary.
To meet that requirement, CBO periodically develops a baseline projection showing 10-year fiscal outcomes if existing tax and spending laws generally remain in place. That forecast includes estimates of major tax and other revenue sources, as well as spending from programs in permanent law and those funded through annual appropriations. Economic conditions and fiscal outcomes are projected including annual deficits, or surpluses, and public debt impacts.
That current law baseline has become an indispensable tool for the budget committees and CBO to assess (or score) the budgetary effects of legislative proposals, as well as revisions to and extensions of existing programs and policies.
Current Law Baseline
Not only does CBO’s current law baseline serve as a benchmark for scoring legislation, it also helps lawmakers understand the nation’s overall fiscal condition. (CBO’s most recent baseline projection can be found here.) That knowledge then informs decisions on revenue and spending policies. Accordingly, the legal framework and principles governing baseline development constitute critical components of sound budget-making.
There is no single set of instructions for baseline development. Instead, its composition has evolved over time from various provisions of law — as noted, the Budget Act, as amended, is foundational — guidance in budget resolutions, rules of the House or the Senate, conference reports from budget-related legislation, and findings from a 1960’s‑era budget concepts commission. It also reflects dialogue and collaboration among key players in the federal budget process, including the budget committees, CBO, OMB, and the Government Accountability Office.
Significant baseline development direction was provided in one of the first major legislative efforts to revise the Budget Act. That statute, the Balanced Budget and Emergency Deficit Control Act of 1985, often referred to as Gramm-Rudman-Hollings (or GRH), aimed to reduce budget deficits by establishing a maximum deficit amount that could be incurred in specific years.
Given its focus on deficit reduction, GRH includes specific procedures and mechanisms related to that goal — including provisions directing baseline development to set annual deficit targets and across-the-board spending cuts if those targets are missed. That law directs CBO to follow rules that has, at times, led to a different budgetary treatment for certain types of programs.
For mandatory programs — generally those items not funded through the annual appropriations process — GRH stipulates four assumptions to be used in baseline development: 1) current laws will continue; 2) entitlement authority will be fully funded; 3) taxes dedicated to trust funds will continue; and 4) certain expiring programs will continue.
Much of GRH has been altered and superseded, including that last assumption revised by the Balanced Budget Act of 1997 (1997 BBA). That act compels CBO to assume and project the continuation of expiring mandatory programs, with annual outlays greater than $50 million, created on or before August 5, 1997. That has generally been a safe assumption because expiring mandatory programs are often extended. Consequently, when CBO scores legislation to extend such programs, the spending associated with them has generally already been accounted for in the underlying baseline and, therefore, will not score as having additional cost.
For programs created after August 5, 1997, CBO is required to consult with the budget committees to determine treatment. Importantly, it has become common for the budget committees to advise CBO to treat mandatory programs established since the 1997 BBA in the opposite way and assume they will expire as scheduled. Under this approach, because the spending is not already accounted for in the baseline when Congress first enacts the spending, it is instead accounted for in the score for any subsequent legislation to extend such a program.
Similarly, tax provisions scheduled to expire in law are generally assumed to expire in baseline projections.
Current Policy And Extending The TCJA
Alternatively, a current policy baseline can be developed to gain an understanding of the fiscal impacts of continuing existing policies — even if they are statutorily slated to expire. Such a baseline assumes existing spending and tax policies will continue indefinitely. Accordingly, relative to that benchmark, legislation to extend expiring programs would have no budgetary impact.
Using such a baseline may make some intuitive sense, but it can result in anomalous outcomes. For instance, the baseline projection for a law containing temporary tax reductions or credits would be assumed to continue, so that any legislation letting those reductions expire would yield budgetary savings that could be spent elsewhere.
For example, the Employee Retention Tax Credit (ERTC) was created during the Covid pandemic as a refundable payroll tax credit to help firms suffering revenue losses from government-ordered shutdowns. Notwithstanding the program greatly exceeding its initial price tag of $55 billion due to it becoming a magnet for fraudsters, applying a current policy baseline as ERTC expiration approached would have allowed Congress to pay for permanent additional spending of (at least) $55 billion each year — while claiming no deficit increase because ERTC expiration serves as an offset.
Accordingly, while using a current policy baseline can help inform legislative deliberations, it also has distortionary effects that can negatively impact the country’s fiscal condition.
In the present debate on extending the Tax Cuts and Jobs Act of 2017, some have advocated for using a current policy baseline to score extension legislation. Such treatment would present a troubling inconsistency: Scoring of the initial law and the extension would be different. As a result, its initial scoring — relative to what was then current law — would have been far too favorable by assuming the cuts would expire within the 10-year budget window (mostly after eight years).
And scoring now — using current policy treatment — would also be favorable because it would assume the extension would have no cost. Most importantly, neither the 2017 current law score nor the 2025 current policy score would account for hundreds of billions of costs in 2026 and 2027.
Advocates of using a current policy baseline to score TCJA extensions point to the fact that CBO often assumes that mandatory spending programs scheduled to expire will continue in its current law baseline. But, as discussed above, that approach is no longer practiced for programs created in this century. Moreover, for programs predating the 1997 BBA, baseline development is done consistently and in conformance with statutory requirements. That includes using a current policy baseline when spending was initially enacted so that it scores as permanent even if it expires after a few years.
A Pre-1997 BBA Illustration: SNAP
Baseline development for the Supplemental Nutrition Assistance Program (SNAP), which exceeds the $50 million cost threshold, illustrates how the assumption regarding the continuation of expiring pre-1997 BBA programs is used. (Note that while the name “SNAP” is from 2008, Congress merely renamed the Food Stamps program, which existed long before 1997.) Despite only being authorized for five years at a time, the CBO baseline assumes the budgetary costs of SNAP continue over the full 10-year scoring window. In effect, the budget baseline and scoring rules treat the existing SNAP program as being permanent.
Accordingly, when SNAP is reauthorized, that action is scored as having no budgetary impact relative to the baseline. To the extent the reauthorization includes provisions to make the program more generous, additional costs above baseline levels would be scored and assumed to continue even beyond the extension period.
However, the extending legislation could manipulate the scoring system by limiting the additional spending to the first four years of reauthorization, returning to baseline levels in year five. While this allows for favorable initial scoring, with years six through ten reflecting lower spending, this tactic creates a misleading impression of long-term costs. This approach would backfire if Congress later sought to extend the spending, forcing them to acknowledge the full, permanent cost. In other words, the initial scoring advantage would be lost.
Implications For TCJA Extension
If a current policy baseline had been in use at the time the TCJA was enacted, scoring would have made enactment impossible. The price tag would have exceeded the budget resolution reconciliation instruction level of $1.5 trillion and budgetary impacts would have violated rules about adding to deficits beyond the 10-year window.
Those advocating for the use of a current policy baseline are seeking beneficial treatment on both ends of TCJA: Current law treatment when it was enacted, which limited forecast costs given scheduled expirations; and current policy at extension, which fails to recognize the scoring benefit realized at enactment from the expiring provisions.
Double dipping on the good news fails the prudent fiscal management test, particularly given the severe structural fiscal imbalance facing the nation. Never has a spending program or tax cut been scored by using current law to minimize initial costs and then switching to current policy to paper over long-term costs. Such treatment sets a terrible precedent in scoring legislation, obfuscates taxpayer impacts, and further weakens the U.S. fiscal position.
This brief was authored by Doug Criscitello, a program integrity fellow in the Public Finance group at Arnold Ventures.
