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The 2020 Budget and Economic Outlook

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CBO estimates that the federal budget deficit in 2020 will be $1.0 trillion, or 4.6 percent of gross domestic product (GDP). It would increase to 5.4 percent of GDP in 2030 if current law did not change. In CBO’s projections, federal debt held by the public reaches $17.9 trillion at the end of 2020. That amount equals 81 percent of GDP—more than twice its average over the past 50 years. By 2030, debt is projected to reach $31.4 trillion, or 98 percent of GDP, a larger percentage than at any time since just after World War II. It would continue to grow after 2030, reaching 180 percent of GDP by 2050.

Inflation-adjusted GDP is projected to grow by 2.2 percent this year, largely because of continued strength in consumer spending and a rebound in business fixed investment. Output is projected to be higher than the economy’s maximum sustainable output in 2020 to a greater degree than it has been in recent years, leading to higher inflation and interest rates after a period in which both were low, on average. CBO projects that continued strength in the demand for labor will keep the unemployment rate low and drive employment and wages higher. Then over the coming decade, the economy is projected to expand at an average annual rate of 1.7 percent, roughly the same rate as its potential rate of growth.

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The 2020 Budget and Economic Outlook

  1. 1. Congressional Budget Office A Presentation to the Tax Council Policy Institute February 13, 2020 Phillip L. Swagel, Director The 2020 Budget and Economic Outlook For more details, see www.cbo.gov/publication/56020.
  2. 2. 1 CBO The Economy
  3. 3. 2 CBO We expect the unemployment rate to remain near historic lows throughout 2020
  4. 4. 3 CBO Source: Federal Reserve Bank of Atlanta, “Wage Growth Tracker” (accessed February 11, 2020), www.frbatlanta.org/chcs/wage-growth-tracker. Gains in hourly wages have been especially strong for low-wage earners since late 2016
  5. 5. 4 CBO GDP = gross domestic product. GDP is projected to grow by 2.2 percent in 2020
  6. 6. 5 CBO We estimate a two-thirds chance that real GDP growth over the next five years averages between 0.5 percent and 3.1 percent annually
  7. 7. 6 CBO Maximum sustainable output growth is projected to be faster than it was from 2008 to 2019 and slower than it was in earlier years
  8. 8. 7 CBO PCE = personal consumption expenditures. We expect strong labor and product markets to contribute to faster inflation in 2020
  9. 9. 8 CBO In our projections, the Federal Reserve begins raising the target range for the federal funds rate to ease inflationary pressures
  10. 10. 9 CBO We expect other interest rates to rise, following a path similar to that of the federal funds rate
  11. 11. 10 CBO The Budget
  12. 12. 11 CBO When October 1 (the first day of the fiscal year) falls on a weekend, certain payments that would have ordinarily been made on that day are instead made at the end of September and thus are shifted into the previous fiscal year. All projections presented here have been adjusted to exclude the effects of those timing shifts. We project a cumulative federal budget deficit of $12.4 trillion from 2020 to 2029
  13. 13. 12 CBO That estimate is $160 billion higher than we projected last August
  14. 14. 13 CBO See Congressional Budget Office, “Recent Changes in CBO’s Projections of Corporate Income Tax Revenues,” CBO Blog (February 7, 2020), www.cbo.gov/publication/56121. The largest of those revisions are related to:  Certain provisions of the 2017 tax act related to international business activities  A onetime tax that the act imposed on the existing foreign earnings of U.S. corporations  A rule in the act about research and experimentation expenditures  New information about corporate profits during the 2016–2018 period We reduced our projections of corporate income tax receipts during the 2020–2029 period by $127 billion
  15. 15. 14 CBO When October 1 (the first day of the fiscal year) falls on a weekend, certain payments that would have ordinarily been made on that day are instead made at the end of September and thus are shifted into the previous fiscal year. All projections presented here have been adjusted to exclude the effects of those timing shifts. The gap between spending and revenues grows in our projections
  16. 16. 15 CBO * = between zero and 0.05 percentage points. Total revenues as a share of GDP are projected to rise, largely because of increasing receipts from individual income taxes
  17. 17. 16 CBO Much of the growth of revenues in our projections stems from the expiration of tax provisions
  18. 18. 17 CBO Increases in projected outlays stem from growth in mandatory spending and in net interest costs
  19. 19. 18 CBO a. Consists of outlays for Medicare (net of premiums and other offsetting receipts), Medicaid, the Children’s Health Insurance Program, premium tax credits, and related spending. Social Security and Medicare are projected to contribute the most to growth in mandatory spending
  20. 20. 19 CBO When October 1 (the first day of the fiscal year) falls on a weekend, certain payments that would have ordinarily been made on that day are instead made at the end of September and thus are shifted into the previous fiscal year. That happened in 1994 and 1995, so values for 1995 have been adjusted to exclude the effects of those timing shifts. Spending and taxes in 2030 are projected to be very different from what they were 50 years ago
  21. 21. 20 CBO By 2050, debt is projected to equal 180 percent of GDP—far higher than it has ever been

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