The Congressional Budget Act of 1974, often called the Budget Act, established the House and Senate Committees on the Budget to set federal spending policy and identify priorities for allocating budgetary resources. To support those committees in carrying out their responsibilities, it also established CBO and required the agency to prepare cost estimates for legislation at certain points in the legislative process. Various provisions in that act—primarily sections 202, 402, and 424—govern CBO’s preparation of cost estimates. Provisions in other budget laws—for example, section 257 of the Balanced Budget and Emergency Deficit Control Act of 1985—also contain instructions for preparing cost estimates.
CBO’s cost estimates provide information that the Congress can use as it implements rules and procedures in considering legislation that would affect the federal budget. However, cost estimates are advisory only. They can—but need not—be used to enforce budgetary rules or targets. Moreover, CBO does not enforce budgetary rules; the budget committees do.
Cost estimates recognize the fundamental distinctions between the budget’s three primary components:
- Discretionary spending, which is controlled by annual appropriation acts;
- Mandatory (or direct) spending, which is governed by statutory criteria and usually not constrained by the annual appropriation process; and
- Revenues, including taxes, fees, and fines collected by the Treasury or other agencies.
In keeping with its mandate to provide objective, impartial analyses, CBO never makes recommendations in its cost estimates or other products.
This document provides answers to questions that CBO is frequently asked about how it prepares cost estimates.