Gordon
Gray August 21, 2019
The
Congressional Budget Office (CBO) released its Update to the Budget and Economic
Outlook: 2019 to 2029, which provides Congress with
an update to its 10-year baseline budget projection to evaluate the costs of
potential legislation. Underpinning the budgetary estimate is CBO’s updated
economic forecast for the next decade, which incorporates the assumed economic
effects of federal laws currently in force.
By the
Numbers
Taxes: By the
end of the 10-year budget window, tax revenues will amount to 18.2 percent of
gross domestic product (GDP). Tax revenues will average 17.3 percent of GDP
over the next 10 years, which is slightly below CBO’s previous projected
10-year average of 17.5 percent projected in CBO’s May update, and the 17.4 percent historical
average. It is important to note that significant elements of the Tax Cuts and
Jobs Act sunset in 2025, helping to drive up revenue as a share of the economy
in the budget window’s last 4 years.
Spending: CBO
estimates that, by the end of the budget window, overall spending will total
22.7 percent of GDP, and average 22.1 percent over the 2020-2029 period. In
nominal terms, federal spending will total $57.8 trillion over this period. The
topline spending number is remarkably unchanged from CBO’s previous forecast,
which belies the $1.7 trillion increase in projected discretionary spending and
the $1.1 trillion decrease in projected net interest costs. Total entitlement,
or mandatory, spending will continue to grow as a share of the federal budget,
comprising 64 percent of federal expenditures in 2029, up from 61 percent in
2019 and 29 percent in 1969.
Deficits: Projected
budget deficits will grow substantially over the budget window, reaching over
$1 trillion in 2020 at a time when CBO forecasts unemployment of 3.7 percent.
For context, the last time the deficit exceeded $1 trillion was in 2012, when
unemployment was 8.2 percent for the year – more than twice the rate forecast
for 2022.
Interest
Payments: Interest payments on the debt will reach $807 billion in 2029.
This figure reflects a more than doubling of debt service costs of $325 billion
in FY2018. Despite the increase over time, this projection reflects a
substantial downward revision from CBO’s May projection, owing to a reduction
in CBO’s interest rate forecast. While the downward revision in interest costs
is good news for the budget, the magnitude of the revision belies the budget
risk from interest rate fluctuations.
Debt Held
by the Public: Borrowing from the public is projected to increase as a
share of the economy under current law, reaching 95.1 percent of
GDP in 2029. Only in 1945 and 1946 was the debt held by the public higher.
Economic
Projections
CBO’s
economic outlook is broadly similar to its January
2019 estimates. The 10-year economic forecast from CBO therefore
reflects the agency’s somewhat consistent view that the U.S. economy gradually
moderate to a long-run average of real growth of below 2 percent per year. This
outlook is generally consistent with those of the Blue Chip forecast
and those published by members of the Federal Reserve. The most significant
change from CBO’s economic projections from January is a downward revision in
interest rates.
https://www.americanactionforum.org/insight/highlights-of-the-august-2019-cbo-budget-and-economic-outlook/#ixzz5xoOZS3cv
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