This presentation provides an overview of the Congressional Budget Office’s most recent budget and economic projections, which were published on January 28. In those projections, the federal budget deficit is about $900 billion in 2019 and exceeds $1 trillion each year beginning in 2022. Because of persistently large deficits, federal debt held by the public is projected to grow steadily, reaching 93 percent of gross domestic product (GDP) in 2029. Real GDP is projected to grow by 2.3 percent in 2019—down from 3.1 percent in 2018—as the effects of the 2017 tax act on the growth of business investment wane and federal purchases decline sharply in the fourth quarter of the year. Economic growth is projected to slow to an average of 1.7 percent through 2023 and to average 1.8 percent from 2024 to 2029. Presentation by Christina Hawley Anthony, Chief of the Projections Unit in CBO’s Budget Analysis Division, Robert Arnold, Chief of the Projections Unit in CBO’s Macroeconomic Analysis Division, and Joshua Shakin, Chief of the Revenue Estimating Unit in CBO’s Tax Analysis Division, at a joint seminar with the Congressional Research Service.

1. Congressional Budget Office
A Joint Seminar by the Congressional Budget Office
and the Congressional Research Service
January 31, 2019
Christina Hawley Anthony, Chief, Projections Unit, Budget Analysis Division
Robert Arnold, Chief, Projections Unit, Macroeconomic Analysis Division
Joshua Shakin, Chief, Revenue Estimating Unit, Tax Analysis Division
An Overview of
The Budget and Economic Outlook:
2019 to 2029
For more details, see www.cbo.gov/publication/54918.

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CBO
The Congressional Budget Office

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CBO
To provide the Congress with objective, nonpartisan, and timely analyses of
legislative proposals and of budgetary and economic issues to support the
Congressional budget process
CBO’s Role

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CBO
CBO’s Process for Developing the
Budget Baseline

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CBO
 A detailed projection for the current year and the ensuing 10 years of federal spending,
revenues, net spending for interest, and the resulting deficits and surpluses
 Based on CBO’s economic forecast
 Incorporates the assumption that current laws governing taxes and spending generally
remain in place
 Not a forecast of future budgetary outcomes; those depend on future Congressional
action and other factors
 Generally provided two or three times a year
 Reported in the annual Budget and Economic Outlook and subsequent reports
What Is CBO’s Baseline?

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CBO
 Principles and rules mainly come from law, budget resolutions, House and Senate rules,
and the 1967 Report of the President’s Commission on Budget Concepts.
 A key law is the Balanced Budget and Emergency Deficit Control Act, section 257.
– Defines the baseline
– Sets out rules for projecting spending and receipts
– Requires an assumption of full funding for entitlements
– Directs the treatment of expiring programs and certain excise taxes
How Is the Baseline Constructed?

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CBO
 A neutral benchmark for measuring the budgetary effects of proposed changes in
federal revenues and mandatory spending
 Basis for:
– Cost estimates for proposed legislation
– CBO’s analyses of the President’s annual budget
– CBO’s budget options volume
– Other reports (including those describing CBO’s long-term budget projections)
– Assessments of multiyear budget trends
 Often a starting point for budget resolutions
How Do CBO and the Congress Use the Baseline?

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CBO
CBO’s Current
Budget and Economic Outlook

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CBO
 Deficits and debt
 Economic projections
 Revenues
 Spending
 Policy alternatives
Baseline Projections

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CBO
Deficits and Debt

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CBO
Values are adjusted to exclude the effects of shifts in the timing of payments that occur when October 1 (the first day of the fiscal year) falls on a weekend.
Deficits

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CBO
Values are adjusted to exclude the effects of shifts in the timing of payments that occur when October 1 (the first day of the fiscal year) falls on a weekend.
Revenues and Outlays

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CBO
Debt Held by the Public

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CBO
Changes in CBO’s Baseline Projection of the 10-Year Deficit
Since Spring 2018

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CBO
Economic Projections

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CBO
GDP = gross domestic product.
Real GDP and Potential Real GDP

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CBO
GDP = gross domestic product.
The Output Gap

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CBO
GDP = gross domestic product.
Factors Underlying the Growth of Potential GDP

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CBO
The Unemployment Rate and the Natural Rate of Unemployment

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CBO
Inflation

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CBO
Interest Rates

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CBO
Revenues

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CBO
Total Revenues

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CBO
Other revenue sources consist of excise taxes, remittances from the Federal Reserve System, customs duties, estate and gift taxes, and miscellaneous fees and fines.
Revenues, by Major Source

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CBO
Real bracket creep is the process in which, as income rises faster than inflation, an ever-larger proportion of income becomes subject to higher tax rates.
Growth in Individual Income Tax Receipts
in CBO’s Baseline Projections

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CBO
Source: Congressional Budget Office, using estimates by the staff of the Joint Committee on Taxation.
Outlays, Revenues, and Tax Expenditures in 2019

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CBO
Source: Congressional Budget Office, using estimates by the staff of the Joint Committee on Taxation.
Budgetary Effects of the Largest Tax Expenditures in 2019

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CBO
Spending

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CBO
Values are adjusted to exclude the effects of shifts in the timing of payments that occur when October 1 (the first day of the fiscal year) falls on a weekend.
Federal Outlays, by Category

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CBO
Values are adjusted to exclude the effects of shifts in the timing of payments that occur when October 1 (the first day of the fiscal year) falls on a weekend.
Major Changes in Projected Outlays From 2019 to 2029

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CBO
Values are adjusted to exclude the effects of shifts in the timing of payments that occur when October 1 (the first day of the fiscal year) falls on a weekend.
Outlays for People Age 65 or Older
as a Share of Total Noninterest Outlays

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CBO
Policy Alternatives

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CBO
Alternative Paths for Discretionary Budget Authority

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CBO
Sources: Congressional Budget Office; staff of the Joint Committee on Taxation.
This table shows detail from Table 5-1.
Alternatives That Affect Revenues

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CBO
Values are adjusted to exclude the effects of shifts in the timing of payments that occur when October 1 (the first day of the fiscal year) falls on a weekend.
Projected Deficits Under CBO’s Baseline
and an Alternative Fiscal Scenario