CBO Explains Common Sources of Uncertainty in Cost Estimates for Legislation

The Congressional Budget Act of 1974 requires the Congressional Budget Office to prepare a cost estimate for nearly every bill that is approved by a full committee of either the House or Senate. For those estimates, CBO produces a point estimate—that is, a specific amount—rather than a range. The estimates specify the legislation's likely effects on federal outlays and revenues compared with the agency's projections of what would occur under current law over a 10-year period (projections often referred to as CBO's baseline). Lawmakers can use CBO's cost estimates to inform their deliberations and enforce budgetary rules. Those estimates generally reflect the middle of the distribution of the most likely budgetary outcomes that would result if a piece of legislation was enacted. Though representing the agency's best assessment of the legislation's budgetary effects, estimates can be subject to uncertainty arising from various sources. This document describes how CBO addresses the most common sources of uncertainty in its cost estimates.

Although uncertainty has many sources, this document addresses six.

• Broad legislative language
• Insufficient data or research material
• Behavioral responses
• Budget projections under current law
• Varied eligible population
• Dependence on a future event