Def i cits or Surpluses
January 2012 http://go.usa.gov/nPi(Percentage of GDP) 4 Actual Projected 2 0 CBO’s Baseline Projection -2 Alternative Fiscal Scenario -4 -6 -8 -10 -12 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 C ONGRESSIONAL B UDGET O FFICE

Congressional Budget O iceThe Budget
and Economic Outlook January 2012 The Budget Outlook

Def i cits or Surpluses
Since 1946 January 2012 http://go.usa.gov/nPi(Percentage of GDP) 6 4 2 Projected 0 -2 -4 -6 -8 -10 -12 1946 1952 1958 1964 1970 1976 1982 1988 1994 2000 2006 2012As a percentage of GDP, the federal budget will show a de cit of 7.0 percent in 2012, according to CBO’s current-law baseline, nearly2 percentage points below the shortfall recorded last year but still higher (in percentage terms) than any de cit between 1947 and 2008. C ONGRESSIONAL B UDGET O FFICE

Outlays Recorded for the January
2012 http://go.usa.gov/nPiTroubled Asset Relief Program(Billions of dollars) 200 Actual Projected 150 100 2009 50 0 2012 2011 -50 2010 -100 -150Adjustments to the estimated costs of the TARP have had a signi cant impact on budget de cits since 2009. Initial estimates of the costof transactions in 2009 under the program turned out to be too high and were reduced in both 2010 and 2011. Adjustments recordedin 2012 will increase the de cit by $23 billion, CBO estimates. C ONGRESSIONAL B UDGET O FFICE

Def i cits or Surpluses,
Historically and January 2012 http://go.usa.gov/nPiAs Projected in CBO’s Baseline and Under anAlternative Fiscal Scenario(Percentage of GDP) 4 Actual Projected 2 0 CBO’s Baseline Projection -2 -4 -6 Alternative -8 Fiscal Scenario -10 -12 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022Under current law, CBO projects that de cits will drop markedly, averaging only 1.5 percent of GDP over the 2013-2022 period.But under an alternative scal scenario, in which some changes speci ed in current law would not occur and certain current policieswould continue instead, annual de cits from 2013 through 2022 would be much higher—averaging 5.4 percent of GDP. C ONGRESSIONAL B UDGET O FFICE

Def i cits Projected in
CBO’s Baseline and Under an January 2012 http://go.usa.gov/nPiAlternative Fiscal Scenario(Percentage of GDP) 8 7 6 Additional Debt Service 5 Prevent Spending Cuts 4 3 Extend Tax Policies 2 1 Baseline 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022Preventing certain spending cuts scheduled under current law (the automatic spending reductions scheduled for 2013 and reductionsin Medicares payment rates for physicians) and extending certain expiring or recently expired tax provisions would boost de citssubstantially relative to the baseline. C ONGRESSIONAL B UDGET O FFICE

Federal Debt Held by the
Public, Historically and January 2012 http://go.usa.gov/nPiAs Projected in CBO’s Baseline and Under anAlternative Fiscal Scenario(Percentage of GDP) 140 Actual Projected 120 Alternative 100 Fiscal Scenario 80 60 CBO’s Baseline Projection 40 20 0 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020With modest de cits anticipated for much of the 10-year projection period of CBO’s current-law baseline, debt held by the publicrecedes as a percentage of GDP. However, if some of the changes speci ed in current law did not occur and certain current policieswere continued instead, debt held by the public would rise to 94 percent of GDP by the end of 2022, the highest gure since just C ONGRESSIONAL B UDGET O FFICEafter World War II.

Congressional Budget O iceThe Budget
and Economic Outlook January 2012 The Economic Outlook

Real Gross Domestic Product January
2012 http://go.usa.gov/nPi( Trillions of 2005 dollars) 18 Actual Projected 16 Potential GDP 14 GDP 12 10 8 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018Although CBO projects the growth in real (in ation-adjusted) GDP to pick up after 2013, the agency expects that the economy’s outputwill remain below its potential—a level that corresponds to a high rate of use of labor and capital—until the rst half of 2018. C ONGRESSIONAL B UDGET O FFICE

Gap Between GDP and Potential
GDP January 2012 http://go.usa.gov/nPi( Trillions of 2005 dollars) 0.4 Actual Projected 0.2 $2.6 $3.1 Trillion Trillion 0 -0.2 -0.4 -0.6 -0.8 -1.0 -1.2 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018A large portion of the economic and human costs of the recession and slow recovery remains ahead. From the rst quarter of therecession through the third quarter of 2011, the cumulative di erence between GDP and estimated potential GDP amounted to$2.6 trillion; by the time the nation’s output rises back to its potential level, the cumulative shortfall is expected to equal $5.7 trillion C ONGRESSIONAL B UDGET O FFICE(the tan-shaded areas in the chart).

Unemployment Rate January 2012 http://go.usa.gov/nPi(Percent)
12 Actual Projected 10 8 6 4 2 0 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022In CBO’s forecast, the unemployment rate in 2012 and 2013 remains largely unchanged from its value last year. However, in the forecast,as growth picks up after 2013, the unemployment rate falls to 6.9 percent by the end of 2015 and 5.6 percent by the end of 2017. C ONGRESSIONAL B UDGET O FFICE

In ation January 2012 http://go.usa.gov/nPi(Percentage
change in prices from previous year) 12 3.5 Actual Projected Actual Projected 3.0 10 2.5 2.0 8 1.5 6 1.0 0.5 4 Overall Core 0 2010 2011 2012 2013 2 0 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022According to the agency’s projections, the price index for personal consumption expenditures (PCE) will increase by 1.2 percent in 2012(as measured by the change from the fourth quarter of the previous year) and by 1.3 percent in 2013. The core PCE price index—whichexcludes prices for food and energy—is projected to increase by a similar amount. C ONGRESSIONAL B UDGET O FFICE

Interest Rates January 2012 http://go.usa.gov/nPi(Percent)
16 Actual Projected 14 12 10 10-Year Treasury Notes 8 6 4 2 3-Month Treasury Bills 0 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022CBO projects that interest rates will remain very low for the next several years and then will rise tomore-normal levels as output approaches its potential. C ONGRESSIONAL B UDGET O FFICE

Vacant Housing Units January 2012
http://go.usa.gov/nPi(Percentage of total units) 16 14 12 10 8 0 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011The number of vacancies remains very high. For that reason, among others, CBO projects weak near-term growthin residential investment. C ONGRESSIONAL B UDGET O FFICE

Net Business Fixed Investment January
2012 http://go.usa.gov/nPi(Percentage of GDP) 6 Actual Projected 5 4 3 2 2.2% 1958 1.8% 1.7% 1992 2003 1 0.6% 2009 0 1950 1960 1970 1980 1990 2000 2010 2020CBO’s forecast of solid growth in business investment in structures, equipment, and software, especially after 2013,re ects the very low level of net investment (gross investment minus depreciation) in those items relative to GDP. C ONGRESSIONAL B UDGET O FFICE

Labor Income January 2012 http://go.usa.gov/nPi(Percentage
of gross domestic income) 70 Actual Projected 65 61.6 60.1 60 59.6 55 50 0 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022Labor income has fallen sharply as a share of gross domestic income (GDI) since 2009. In CBO’s projections, labor income grows fasterthan GDI over the next decade, bringing its share from about 59 percent of GDI in late 2011 to about 62 percent by 2022, approachingits historical average since 1980. C ONGRESSIONAL B UDGET O FFICE

Economic Growth in the United
States and Among January 2012 http://go.usa.gov/nPiIts Leading Trading Partners(Percentage change from same quarter of previous year) 6 Actual Projected 5 4 Leading Trading Partners 3 2 United States 1 0 2010 2012 2014 2016 2018 2020 2022CBO expects that an increase in real net exports will make a small contribution to the growth of real GDP this year and next, onaverage. A primary reason for that projection is that average growth among the nation’s leading trading partners will probably bestronger than that in the United States over the period. C ONGRESSIONAL B UDGET O FFICE

Congressional Budget O iceThe Budget
and Economic Outlook January 2012 The Spending Outlook

Outlays Projected in CBO’s Baseline
and Under an January 2012 http://go.usa.gov/nPiAlternative Fiscal Scenario(Percentage of GDP) 28 Actual Projected 26 Alternative Fiscal Scenario 24 22 CBO’s Baseline 20 Projection 18 16 14 0 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022In CBO’s baseline, annual spending averages 21.9 percent of GDP from 2013 through 2022, a percentage that is elevated by historicalstandards. Under an alternative scal scenario, in which some changes speci ed in current law would not occur and certain currentpolicies would continue instead, outlays between 2013 and 2022 would be higher by 1.4 percent, or $2.9 trillion, than those presented C ONGRESSIONALin the baseline. B UDGET O FFICE

Outlays, by Category January 2012
http://go.usa.gov/nPi(Percentage of GDP) 16 Actual Projected 14 Mandatory 12 10 8 6 Discretionary 4 2 Net Interest 0 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022In CBO’s baseline projections, the biggest di erence in federal spending relative to GDP in the coming decade—as compared withoutlays over the past 40 years—will be the widening gap between mandatory and discretionary spending. C ONGRESSIONAL B UDGET O FFICE

Outlays for Income Security Programs
January 2012 http://go.usa.gov/nPi(Billions of dollars) 500 Actual Projected 400 300 Unemployment Compensation Refundable Tax Credits 200 Supplemental Nutrition Assistance Program 100 Other Income Security Programs 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Federal spending for income security programs peaked in 2010 at $438 billion; in contrast, such spending totaled $202 billion in 2007,before the economic downturn. The surge in spending occurred partly because outlays for many of those programs tend to riseautomatically when the economy falters (and ebb later as the economy recovers) and partly because lawmakers enacted temporary C ONGRESSIONALmeasures to augment payments to needy populations. B UDGET O FFICE

Outlays for Unemployment Bene ts
January 2012 http://go.usa.gov/nPi (Billions of dollars) (Percent) 180 12 Actual Projected 160 10 140 120 8 Emergency Unemployment Rate Bene ts and 100 (Right scale) Federal Additional 6 Compensation 80 60 4 40 Regular and 2 20 Extended Bene ts 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Since late 2008, spending for unemployment compensation has been boosted signi cantly by changes in law that temporarily provideadditional bene ts to people who have been out of work for more than 26 weeks. Payments for those temporary programs will start tophase out in March 2012 under current law. C ONGRESSIONAL B UDGET O FFICE

Discretionary Outlays, by Category January
2012 http://go.usa.gov/nPi(Percentage of GDP) 12 Actual Projected Total Discretionary 10 8 Defense 6 4 Nondefense 2 0 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022Discretionary outlays declined from about 10 percent of GDP during much of the 1970s and 1980s to 6.2 percent in 1999. Those outlaysthen began to increase again relative to the size of the economy, reaching 7.0 percent of GDP in 2002 and 7.9 percent in 2008. In 2009,2010, and 2011, such outlays were 8.8, 9.3, and 9.0 percent of GDP, respectively. By 2022, under current law, those outlays will have C ONGRESSIONAL B UDGET O FFICEfallen to 5.6 percent of GDP, CBO projects.

Congressional Budget O iceThe Budget
and Economic Outlook January 2012 The Revenue Outlook

Revenues Projected in CBO’s Baseline
and January 2012 http://go.usa.gov/nPiUnder an Alternative Fiscal Scenario(Percentage of GDP) 28 Actual Projected 26 24 22 Average, CBO’s Baseline 1972-2011 Projection 20 (17.9%) 18 Alternative Fiscal Scenario 16 14 0 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022CBO projects that under current law, total revenues as a percentage of GDP will rise from their recent unusually low levels to well abovetheir historical average of about 18 percent of GDP. Under an alternative scal scenario, in which some changes speci ed in current lawwould not occur and certain current policies would continue instead, projected revenues would be near their historical average. C ONGRESSIONAL B UDGET O FFICE

Revenues, by Major Source January
2012 http://go.usa.gov/nPi(Percentage of GDP) 12 Actual Projected 10 Individual Income Taxes 8 6 Social Insurance (Payroll) Taxes 4 Corporate Income Taxes 2 Other Revenue Sources 0 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022Individual income taxes have uctuated more over the past 40 years than the other major revenue sources—ranging from6.3 percent to 10.2 percent of GDP but showing no clear trend over that period. C ONGRESSIONAL B UDGET O FFICE

Average Corporate Tax Rate and
Corporations’ January 2012 http://go.usa.gov/nPiDomestic Economic Pro ts(Percent) 50 Actual Projected 40 Annual Average Tax Rate (Corporate receipts as a Average Tax Rate percentage of domestic 1987-2008 economic pro ts) (25.6%) 30 20 Domestic Economic Pro ts (As a percentage of gross domestic product) 10 0 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022The average tax rate on corporations’ domestic economic pro ts (taxes as a percentage of pro ts) has been unusually low in recentyears. CBO expects that by 2014, that rate will rise to around the 25.6 percent average seen over the 1987–2008 period. C ONGRESSIONAL B UDGET O FFICE

Selected Major Tax Expenditures in
2012, Compared January 2012 http://go.usa.gov/nPiwith Other Categories of Revenues and Outlays(Percentage of GDP) 8 Revenues Outlays 6 Payroll Tax Expenditures 4 Individual Income Tax Expenditures 2 0 Individual Social Corporate Income Selected Major Medicare Defense Social Income Taxes Insurance Taxes and Tax Expenditures Security Taxes Other RevenuesIn 2012, major tax exclusions, deductions, and other tax expenditures will total 5.3 percent of GDP, CBO projects—equal to aboutone-third of projected revenues for the year and greater than projected spending on Social Security, defense, or Medicare. C ONGRESSIONAL B UDGET O FFICE

E ects of Selected Major
Tax Expenditures January 2012 http://go.usa.gov/nPifrom 2013 to 2022Exclusion of Employers’ Contributions forHealth Care, Health Insurance Premiums, Individual Income Tax E ect Payroll Tax E ectand Long-Term Care Insurance Premiums Net Exclusions of Pension Contributions and Earnings Income Exclusions Exclusion of Capital Gains at Death Exclusion of Untaxed Social Security and Railroad Retirement Bene ts Deduction for Mortgage Interest on Owner-Occupied Residences Deductions Deduction for State and Local Taxes Deduction for Charitable Contributions Reduced Tax Rates on Dividends and Long-Term Capital Gains Preferential Rates Earned Income Tax Credit Credits Child Tax Credit 0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 Percentage of Gross Domestic ProductThe exclusion of employers’ health insurance contributions is the single largest tax expenditure in the individual income tax code.Including e ects on payroll taxes, it is projected to equal 1.8 percent of GDP between 2013 and 2022. C ONGRESSIONAL B UDGET O FFICE