The Congressional Budget Office (CBO) projects that if current laws and policies remained unchanged, the federal budget would show a deficit of $1.35 trillion for fiscal year 2010 (see Table 1-1). At 9.2 percent of gross domestic product (GDP), that deficit would be slightly smaller than the shortfall of 9.9 percent of GDP posted in 2009. Last year’s deficit was the largest as a share of GDP in nearly 65 years, and the deficit expected for 2010 would be the second-largest shortfall over that period. Moreover, if legislation is enacted in the next several months that either boosts spending or reduces revenues, the 2010 deficit could equal or exceed last year’s shortfall.
The large 2009 and 2010 deficits reflect a combination of factors: an imbalance between revenues and spending that predates the recession and the recent turmoil in financial markets; sharply lower revenues and elevated spending associated with those economic conditions; and the costs of various federal policies implemented in response to the conditions. Such policies include the fiscal stimulus legislation enacted in February 2009; aid for the financial, housing, and automotive sectors of the economy; and the expansion and extension of unemployment insurance benefits.
CBO’s estimates for 2010—and the projections that make up its 10-year budgetary baseline—reflect an assumption that no further legislation affecting the budget will be enacted. Accordingly, the projections exclude the effects of potential policy changes to spending or revenues, including any steps that lawmakers may take in the future to boost employment, provide additional funding for military operations in Afghanistan, or reform the health care system. CBO estimates that under that assumption, total outlays will change little from 2009 to 2010, but revenues will increase by 3.3 percent.
Under current law, the federal fiscal outlook beyond this year is daunting: Projected deficits average about $600 billion per year over the 2011–2020 period despite an anticipated economic recovery, albeit a slow and tentative one. (CBO’s outlook for the economy is described in detail in Chapter 2.) In the baseline projections, deficits drop markedly in the next few years but remain high—at 6.5 percent of GDP in 2011 and 4.1 percent in 2012, the first full fiscal year after certain tax provisions originally enacted in 2001, 2003, and 2009 are scheduled to expire.1 Thereafter, deficits in CBO’s baseline are projected to range between 2.6 percent and 3.2 percent of GDP through 2020 (see Figure 1-1).
Those accumulating deficits will push total federal debt held by the public to significantly higher levels. In 2009, debt held by the public jumped from $5.8 trillion to $7.5 trillion. CBO projects that by the end of 2010, that figure will rise to $8.8 trillion—at 60 percent of GDP, the highest level since 1952. Under the assumptions of the baseline, federal debt is projected to continue its upward climb, reaching $15 trillion (67 percent of GDP) by the end of 2020. With such a large increase in debt, plus an expected rise in interest rates as the economic recovery strengthens, interest payments on the debt are likely to skyrocket. CBO projects that the government’s annual net interest spending will more than triple between 2010 and 2020 in nominal terms (from $207 billion a year to $723 billion) and will more than double as a share of GDP (from 1.4 percent to 3.2 percent).2
Projected Deficits and Surpluses in CBO’s Baseline
Source: Congressional Budget Office.
Note: GDP = gross domestic product; n.a. = not applicable.
b. Debt held at the end of the year.
CBO’s baseline projections are not intended to be a forecast of future budgetary outcomes; rather they serve as a neutral benchmark that legislators and others can use to assess the potential effects of policy decisions. Under the current-law assumptions of the baseline, various tax provisions are assumed to expire as scheduled, boosting revenues substantially. Similarly, the baseline projections reflect the assumption that cuts in Medicare’s payments for physicians’ services will occur as scheduled under current law. In addition, spending for discretionary programs is generally assumed to continue at the levels most recently enacted by the Congress, with annual adjustments only for inflation.
Future discretionary appropriations are likely to differ from the amounts assumed in the baseline, and lawmakers will almost certainly enact changes to spending and tax policies. Although CBO’s baseline does not incorporate such potential changes, this chapter shows how some alternative policy assumptions would affect the budget over the next 10 years. For example, if all of the tax provisions that are set to expire in the coming decade were extended and the alternative minimum tax (AMT) was indexed for inflation, annual revenues would average 16 percent of GDP through 2020 rather than the 19.5 percent projected in the baseline, and the total deficit for the 2011–2020 period would be more than $7 trillion higher. Under that scenario, the deficits from 2011 to 2020 would average about 7 percent of GDP, and debt held by the public would reach 98 percent of GDP by the end of 2020, the highest level since 1946. In the other direction, if funding for the wars in Iraq and Afghanistan and related activities was assumed to fall rapidly through 2013 rather than grow at the rate of inflation, the total deficit for the 2011–2020 period would be $1.1 trillion lower than the amount projected in the baseline.
Throughout the coming decade, spending on the government’s health care and retirement programs will increasingly strain the federal budget. In CBO’s baseline, outlays for Medicare and Medicaid (excluding funding provided by the 2009 stimulus legislation) are projected to increase at an average rate of about 7 percent a year between 2011 and 2020. Moreover, as growing numbers of baby boomers become eligible for Social Security retirement benefits, costs for that program will rise significantly. Although low inflation will restrain Social Security’s growth in the short term, future cost-of-living adjustments to benefits and increases in the number of beneficiaries will help boost the annual growth rate of Social Security spending from just over 3 percent this year to an estimated 6 percent in 2020.
The Total Deficit or Surplus, 1970 to 2020
(Percentage of gross domestic product)
Source: Congressional Budget Office.
Those trends will accelerate after the 10-year projection period. Under current law, federal health care costs are likely to keep growing faster than GDP—as they have for the past 40 years. In addition, the share of the population age 65 or older will continue to expand rapidly. As a consequence, the growth of spending for Medicare, Medicaid, and Social Security will speed up from its already rapid rate. To keep annual deficits and total federal debt from reaching levels that would substantially harm the economy, lawmakers would have to increase revenues significantly as a percentage of GDP, decrease projected spending sharply, or enact some combination of the two.3
The budget deficit surged to $1.4 trillion in 2009, the largest shortfall on record in dollar terms and nearly $1 trillion greater than the deficit recorded the previous year. As a percentage of GDP, the deficit more than tripled in 2009 to 9.9 percent, its highest level since the end of World War II. Revenues fell to their lowest level as a percentage of GDP since 1950 (14.8 percent), and outlays climbed to their highest share of GDP since 1946 (24.7 percent).
Last year, every major category of revenues declined (see Table 1-2). As a result, total revenues plunged by 17 percent, or nearly $420 billion, to $2.1 trillion.
The deep recession that began in December 2007 caused substantial drops in corporate profits and taxable personal income. Consequently, receipts from corporate income taxes fell by 55 percent ($166 billion) in 2009, and receipts from individual income taxes declined by 20 percent ($230 billion). Even revenues from social insurance taxes (primarily the payroll taxes for Social Security and Medicare) decreased by 1 percent ($9 billion), the first decline since 1946.
Revenues from the remaining, smaller, sources fell by almost 8 percent ($14 billion) in 2009, following an average annual increase of nearly 3 percent over the preceding 10 years. Declines in receipts from excise taxes, estate and gift taxes, and customs duties were only slightly offset by small increases in the amount of money that the Federal Reserve System remitted to the Treasury and in receipts from miscellaneous fees and fines. The declines in those taxes and duties resulted from the recession, decreases in wealth, and a jump in excise tax credits taken for alcohol-fuel mixtures. (For more details about past and future revenues, see Chapter 4.)
Federal spending rose even faster last year than revenues fell—by 18 percent ($536 billion), to a total of $3.5 trillion. That rate of increase was nearly three times the average growth rate of federal outlays over the previous 10 years (see Table 1-2).
Mandatory Outlays. Much of the rise in outlays in 2009 came from mandatory programs. After growing by an average of about 6 percent a year from 1999 to 2008, mandatory spending (excluding net interest) soared by 31 percent ($499 billion) last year, to $2.1 trillion. Three initiatives accounted for nearly two-thirds of that increase. Outlays recorded for the Troubled Asset Relief Program (TARP) totaled $152 billion in 2009; net payments to Fannie Mae and Freddie Mac accounted for another $91 billion; and fiscal stimulus legislation, the American Recovery and Reinvestment Act of 2009 (ARRA), increased mandatory outlays by $80 billion (largely for Medicaid, unemployment benefits, payments to Social Security beneficiaries, and supplemental nutrition assistance).
Average Annual Rates of Growth in Revenues and Outlays Since 1999 and as Projected in CBO’s Baseline
Source: Congressional Budget Office.
Note: * = between -0.05 percent and zero.
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a. |
When constructing its baseline, CBO uses the employment cost index for wages and salaries to inflate discretionary spending related to federal personnel and the gross domestic product price index to adjust other discretionary spending. |
c. Includes offsetting receipts (funds collected by government agencies from other government accounts or from the public in businesslike or market-oriented transactions that are recorded as offsets to outlays).
Outlays for Social Security, Medicaid, and Medicare grew at a combined rate of 13 percent (or by $154 billion) in 2009, with nearly one-third of the increase coming from ARRA funding. With that stimulus funding excluded, Social Security outlays rose by 9 percent ($53 billion) last year, primarily because the 5.8 percent cost-of-living adjustment that took effect in January 2009 was the largest annual adjustment since 1982. Medicaid spending (excluding stimulus funding) increased by 9 percent ($18 billion) in 2009—exceeding its 7 percent average annual growth rate of the previous 10 years—largely because higher unemployment boosted enrollment in the program. Medicare outlays (including an offset for premium payments) also rose at a faster rate than the average of the past decade, growing by 10 percent ($39 billion).
In addition, payments for unemployment benefits rose by $76 billion in 2009, pushing outlays for that program to more than double the level recorded in 2008. The jump was caused by substantially higher unemployment as well as increased and extended benefits to unemployed workers ($27 billion from ARRA and $17 billion from other legislation). As a whole, all other mandatory spending rose by 5 percent ($17 billion) in 2009. (For a more detailed discussion of spending programs, see Chapter 3.)
Discretionary Outlays. On the discretionary side of the budget, outlays grew last year by 9 percent ($102 billion). Spending for defense rose by a total of $43 billion; of that increase, $15 billion was for operations and maintenance (which grew by 6 percent), $12 billion was for procurement (which grew by 10 percent), and $7 billion was for personnel (which grew by 6 percent). CBO estimates that roughly one-third of the total increase in discretionary outlays for defense in 2009 was associated with military operations in Iraq and Afghanistan. (Funding for those operations is discussed in more detail in Box 1-1.)
Nondefense discretionary outlays rose by $59 billion in 2009. Slightly more than half of that increase resulted from funding that lawmakers provided in ARRA. The new State Fiscal Stabilization Fund (which provides money to state and local governments, primarily for their education expenses) spent more than $12 billion in 2009. Additional ARRA funding boosted outlays for student financial aid by more than $6 billion. Outlays for ground transportation programs rose by a total of $7 billion in 2009, with $3 billion of the increase coming from ARRA funds. (For a detailed breakdown of ARRA spending in 2009 and projections for 2010 through 2020, see Appendix A.)
Some other categories of discretionary spending saw large increases in outlays unrelated to stimulus funding. They included veterans’ affairs (which increased by $6 billion, primarily for medical care) and international affairs (which rose by $5 billion, primarily for global health programs and international peacekeeping).
Net Interest. Partly offsetting those increases in outlays, net interest payments declined by 26 percent ($65 billion) last year, despite the fact that federal debt held by the public grew by $1.7 trillion. The government’s net interest spending fell mainly because of lower short-term interest rates and lower costs for inflation-indexed securities.
CBO’s Baseline Projections for 2010
Under the assumptions of CBO’s baseline, the budget deficit will decline in 2010 by $65 billion (or by 0.7 percent of GDP). Total outlays are projected to remain virtually the same as last year, increasing by just $5 billion, and revenues are projected to rise by $70 billion (see Table 1-3).
Given the economic and financial turmoil that existed in 2009 and the improvement anticipated for 2010, why is the deficit projected for this year not significantly smaller? The short answer is that an expected decline in federal aid to the financial sector in 2010 will be offset by increases in other outlays—particularly spending from last year’s stimulus legislation; outlays for income support programs, health care programs, and Social Security; and net interest spending. At the same time, revenues are expected to increase only modestly this year, primarily because of the slow projected pace of the economic recovery and the lagged effect of the recession on revenues.
Under the assumption that current laws and policies remain unchanged, revenues are projected to rise by $70 billion, or roughly 3 percent, in 2010. Relative to the size of the economy, the increase is slight: from 14.8 percent of GDP in 2009 to 14.9 percent in 2010. More than $40 billion of the projected rise in revenues this year stems from remittances to the Treasury by the Federal Reserve System, which are expected to increase sharply as a result of the Federal Reserve’s recent actions to support the economy. Together, receipts from individual income taxes and social insurance taxes will grow by $18 billion in 2010, and receipts from corporate income taxes will rise by $9 billion. With remittances from the Federal Reserve excluded, projected revenues increase by only 1 percent.
Because the financial system is stabilizing, CBO anticipates that the federal outlays recorded for programs to aid that sector of the economy will fall in 2010. Many financial institutions that received federal assistance through the TARP have already repaid their funding, and it appears that the program will not use the full $700 billion authority it was originally granted to buy so-called troubled assets. As a result, total outlays over the life of the program are now expected to be substantially lower than previously anticipated. Because of those lower costs,
Funding for Operations in Iraq and Afghanistan and for Related Activities
| Since September 2001, lawmakers have provided a total of nearly $1.1 trillion in budget authority for operations in Iraq and Afghanistan and related activities. That amount includes funding for military and diplomatic operations in Iraq, Afghanistan, and other regions; for some veterans’ benefits and services; and for related activities of the Department of Justice (see the table at right). Appropriations specifically designated for those activities averaged about $100 billion a year from 2003 through 2006, rose to $187 billion in 2008, and then declined to $155 billion last year. So far, lawmakers have appropriated $130 billion for such activities for 2010, although further appropriations may be needed later this year as a result of the Administration’s decision to increase U.S. forces in Afghanistan. Of the nearly $1.1 trillion in budget authority provided between 2001 and 2010, funding for military operations and related defense activities totals $973 billion, most of which has gone to the Department of Defense (DoD). Lawmakers have also provided more than $49 billion to train and equip indigenous security forces in Iraq and Afghanistan.1 Thus, a total of $1,022 billion has been appropriated since September 2001 for military operations in Iraq and Afghanistan and for other war-related activities. In addition, $51 billion has been provided for diplomatic activities and aid to Iraq, Afghanistan, and various countries that are assisting the United States in fighting terrorism. DoD reports that in 2009, obligations for operations in Iraq and Afghanistan and related activities averaged slightly more than $11 billion per month—about $2 billion less than the monthly average in 2008. Operation Iraqi Freedom accounted for about 65 percent of those obligations (down from 80 percent in 2008 and 85 percent in 2007). Operation Enduring Freedom (in and around Afghanistan) accounted for another 35 percent in 2009. Additional security missions that have taken place in the United States since the terrorist attacks of September 11, 2001—such as combat air patrols over Washington, D.C., and New York City, known as Operation Noble Eagle—accounted for less than 1 percent in 2009. Because most appropriations for operations in Iraq and Afghanistan and for related activities appear in the same budget accounts as appropriations for DoD’s other functions, it is impossible to determine precisely how much of the funding provided for those activities has actually been spent. The Congressional Budget Office (CBO) estimates that budget authority for military operations in Iraq and Afghanistan and for related defense activities resulted in outlays of about $730 billion through 2009 ($155 billion of which occurred in 2009). Of the budget authority appropriated for international affairs activities related to the war efforts, about $40 billion was spent through 2009 ($5 billion in 2009), CBO estimates. In all, outlays for operations in Iraq and Afghanistan amounted to about $160 billion last year. On the basis of appropriations to date, outlays in 2010 could total roughly $165 billion, in CBO’s estimation, although outlays will be higher if further appropriations for war-related activities are provided later in the year. Estimated Appropriations Provided for U.S. Operations in  Source: Congressional Budget Office. Note: * = between zero and $500 million. a. CBO estimated funding provided for Operation Iraqi Freedom by allocating funds on the basis of information in budget justification materials from the Department of Defense and in monthly reports on its obligations. b. Includes Operation Enduring Freedom (in and around Afghanistan), Operation Noble Eagle (homeland security missions, such as combat air patrols, in the United States), the restructuring of Army and Marine Corps units, classified activities other than those funded by appropriations for the Iraq Freedom Fund, efforts to increase the size of the Army and Marine Corps, and other operations. (For 2005 through 2009, funding for Operation Noble Eagle has been intermingled with regular appropriations for the Department of Defense; that funding is not included in this table.) c. Funding for indigenous security forces—which was appropriated in accounts for diplomatic operations and foreign aid (budget function 150) in 2004 and in accounts for defense (budget function 050) since 2005—is used to train and equip local military and police units in Iraq and Afghanistan. d. In 2010, funding for diplomatic operations in, and foreign aid to, countries assisting the United States in fighting terrorism is in regular appropriations and cannot be separated from appropriations for activities unrelated to those operations. e. Includes funding for some veterans’ benefits and services and for certain activities of the Department of Justice. Excludes about $5 billion in spending by the Department of Veterans Affairs (VA) for medical care, disability compensation, and survivor benefits for veterans of operations in Iraq and Afghanistan and related activities that CBO estimates has been spent from regular appropriations for the VA but was not explicitly appropriated for war-related expenses. f. The appropriations for 2010 shown here were considered by the House and Senate before the President announced that the number of U.S. troops in Afghanistan would increase. Additional appropriations may be provided for 2010. The $49 billion includes $5 billion provided for Iraqi security forces in 2004 in an appropriation for the State Department’s Iraq Relief and Reconstruction Fund. |
CBO’s Baseline Budget Projections
Source: Congressional Budget Office.
Note: n.a. = not applicable.
CBO estimates that outlays for the TARP will be $218 billion lower in 2010 than they were last year. In addition, net spending on federal deposit insurance is expected to drop by $27 billion this year. And although the housing sector remains weak, CBO estimates that outlays for Fannie Mae and Freddie Mac will be lower as well.4
Spending in other areas, however, is expected to rise noticeably in 2010. In particular, outlays resulting from ARRA will grow by $112 billion as more of the funding provided in the legislation is spent. Furthermore, outlays (excluding ARRA spending) for unemployment compensation are expected to continue growing from their record level of 2009 because of the lagged effect of the recession on unemployment and because of legislation extending emergency benefits. As a result, outlays for regular unemployment benefits will increase from $75 billion last year to $82 billion this year, CBO projects, and emergency benefits will boost spending in 2010 by another $3 billion. Excluding the effects of ARRA, outlays for the Supplemental Nutrition Assistance Program will rise from $51 billion in 2009 to $60 billion in 2010 as a result of increased enrollment.
Spending for Social Security, Medicare, and Medicaid (excluding outlays resulting from ARRA funding) will continue to grow faster than the economy as a whole, rising by $78 billion, or nearly 6 percent, this year for the three programs combined. In addition, outlays for retirement, disability, and education benefits for veterans will grow by $8 billion, or 16 percent. Together, outlays for all other mandatory programs are projected to increase by $14 billion, or 6 percent, in 2010.
Discretionary outlays (excluding those stemming from ARRA) are projected to grow by $67 billion, or about 6 percent. Nondefense discretionary outlays rise by nearly 7 percent, slightly above their average growth rate of the previous 10 years, whereas defense outlays increase by less than 5 percent, well below their average growth rate over the past decade. Outlays for net interest (excluding the effects of ARRA) are expected to be $16 billion higher this year than last year, largely because of additional government borrowing.
Because of the rules that govern CBO’s baseline, the projections for 2010 may omit a significant amount of spending that will occur if other legislation is enacted during the remainder of the fiscal year. Under current law, emergency unemployment benefits will not be available to people who exhaust their regular benefits after February. Such benefits have been extended or enhanced regularly since they were first enacted in June 2008, and they could be continued again. Similarly, fees paid for physicians’ services under Medicare are scheduled to be reduced by 21 percent beginning in March, although cuts in such payments have been delayed several times in the past. Moreover, additional funding for the war in Afghanistan may be provided to support the troop increase there. Whether any such increases in spending will be offset by reductions elsewhere in the budget is uncertain.
CBO’s Baseline Projections for 2011 to 2020
If various tax provisions enacted in the past decade expire as scheduled and other spending and revenue policies are also unchanged, the budget deficit will fall from 9.2 percent of GDP this year to 3.2 percent by 2013, CBO projects. That drop in baseline deficits occurs because the expiration of those tax provisions will boost revenues substantially, the economy is expected to improve, and spending related to the economic downturn will abate. Thereafter, the deficit is projected to remain between 2.6 percent and 3.0 percent of GDP each year through 2020 (see Table 1-3). By comparison, the deficit has averaged 2.6 percent of GDP over the past 40 years.
Revenues in the 2011–2020 Period
Revenues jump substantially in 2011 and 2012 in CBO’s baseline projections as a number of tax provisions enacted in the past decade expire as scheduled and the economic recovery continues. Under those assumptions, revenues would rise by 23 percent next year and by another 11 percent in 2012, CBO projects. At that point, revenues would equal 18.8 percent of GDP, 3.9 percentage points higher than in 2010.
The effects of expiring tax provisions account for about two-thirds of the projected increase in revenues relative to GDP over the next two years. The rest of the increase stems largely from the effects of continued improvement in economic conditions. CBO expects that as economic activity accelerates and prices of financial assets rise, wages and salaries, corporate profits, and other taxable income will grow more rapidly than GDP. Other factors, related to the timing of tax payments, will also help to raise revenues.
In the baseline, revenues edge up each year as a percentage of GDP from 2013 through the end of the projection period, reaching 20.2 percent in 2020. Virtually all of that increase comes from growth in individual income tax receipts, mainly because the structure of the income tax tends to cause revenues to rise faster than GDP over time.
Outlays in the 2011–2020 Period
CBO constructs its baseline in accordance with the provisions set forth in the (now expired) Balanced Budget and Emergency Deficit Control Act of 1985 and the Congressional Budget and Impoundment Control Act of 1974. Under the Deficit Control Act, projections for most mandatory programs assume that present laws continue unchanged.5 Thus, CBO’s baseline projections for mandatory programs reflect expected changes in the economy, demographics, and other factors that affect the implementation of laws that govern those programs. For discretionary spending, the baseline assumes that the most recent year’s budget authority, including any supplemental appropriations, is provided in each future year, with adjustments for projected inflation (as measured by specified indexes) and certain other factors. Using that methodology, CBO projects that total outlays will remain relatively stable as a share of GDP over the next decade, ranging between 22.3 percent and 24.3 percent—well above the average of 20.7 percent of GDP over the past 40 years.
Mandatory spending (including offsetting receipts) is projected to grow by slightly more than 5 percent in 2011 and then decrease by nearly 3 percent the following year, in part because of a shift in the timing of certain benefit payments from 2012 into 2011. Without that shift, outlays would increase by less than 4 percent in 2011 and remain essentially flat in 2012 as spending from ARRA dropped markedly. For the rest of the baseline period, mandatory spending is projected to grow at an average rate of about 5 percent annually, ending the decade at 13.3 percent of GDP, similar to the level projected for this year.
Under the assumptions of the baseline, discretionary outlays are projected to decline over the next two years, to 8.5 percent of GDP in 2012 (slightly below the 2009 level). Thereafter, because discretionary budget authority is assumed simply to keep pace with expected inflation, outlays are projected to grow at an average rate of 1.5 percent a year through 2020 (less than one-third the projected growth rate of nominal GDP). In stark contrast to that baseline projection, actual discretionary spending grew by an average of 7.5 percent a year between 1999 and 2008.
Changes in CBO’s Baseline Since August 2009
CBO’s current estimate of the deficit for 2010 is slightly smaller—by $32 billion, or 2.3 percent—than the one it published in August inThe Budget and Economic Outlook: An Update (see Table 1-4). Both the outlay and revenue projections for this year have been reduced since August, by $121 billion and $89 billion, respectively. The largest change to projected outlays is a $147 billion decrease in the estimated cost of the Troubled Asset Relief Program. (For more details about recent changes in the TARP, see Box 1-2.) Revenue projections for this year have been reduced mainly because recent receipts from individual and corporate income taxes have been smaller than expected.
Changes in CBO’s Baseline Projections of the Deficit Since August 2009
Source: Congressional Budget Office.
Notes: More details about changes in CBO’s projections since August 2009 are presented in Appendix B.
* = between -$500 million and $500 million.
Since August, CBO has also pared $427 billion from its baseline projection of the total deficit for the 2010–2019 period. Changes in CBO’s outlook for the economy (discussed in detail in Chapter 2) more than account for that improvement in the bottom line, reducing the projected 2010–2019 deficit by $626 billion, on net:
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Economic changes, particularly higher projections of growth in corporate profits and wages and salaries, have added $598 billion to baseline revenues over that 10-year period. |
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Lower anticipated interest rates and other revisions to the economic outlook have caused CBO to reduce its estimate of net interest payments through 2019 by $415 billion. |
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In the other direction, higher estimates of inflation, increases in projected unemployment rates, and other economic changes have boosted estimates for outlays other than net interest spending by a total of $388 billion. |
New legislation enacted since August has had only a small effect on the budget outlook, cutting $16 billion from the total deficit projected for the 2010–2019 period.
Recent Activity in the Troubled Asset Relief Program
| Much has changed over the past few months in the Troubled Asset Relief Program (TARP). Many institutions have left the program sooner than expected, certain initiatives have gotten off to a slow start or been reduced in scope, and some efforts have been abandoned. As a result, it appears that the costs of the program will be much lower than initially expected. The largest part of the TARP was the Capital Purchase Program, which gave direct support to financial institutions by purchasing preferred stock from them. That program has now been completed, having disbursed $205 billion over the previous 14 months (see the table at right). As of the end of December 2009, seven of the eight original recipients had repurchased their preferred stock; the only exception was Citigroup, which converted its preferred shares to common stock. Nearly $85 billion of the total disbursements under that initiative remain outstanding. In addition to support under the Capital Purchase Program, Bank of America and Citigroup both received another $20 billion from the TARP and a commitment to guarantee certain assets. Both institutions have now repaid the additional funding and terminated the guarantees. (The guarantee agreement with Bank of America was never implemented.) The American International Group (AIG) has also received substantial funding from the TARP. In November 2008, the Treasury purchased $40 billion in preferred stock from AIG, and in April 2009, it created a $30 billion line of credit for the company. Approximately $5 billion of that credit line was outstanding as of the end of December. Besides helping financial institutions, the TARP has provided significant assistance to the U.S. automotive industry—specifically, General Motors (GM), GMAC (GM’s financing company), Chrysler, Chrysler Financial, and various suppliers. The loans to Chrysler Financial have been repaid, as has a small portion of the funding for GM, Chrysler, and the suppliers. As of the middle of December, about $79 billion of that assistance (currently in the form of equity, loans, and preferred stock) was outstanding. Three other programs are currently active in the TARP: the Term Asset-Backed Securities Loan Facility (TALF), the Public-Private Investment Program (PPIP), and the Home Affordable Modification Program (HAMP). The Treasury has allocated $20 billion to cover potential losses from the TALF, which provides financing to investors who buy highly rated securities backed by assets such as auto loans, credit card loans, student loans, and business loans guaranteed by the Small Business Administration. The PPIP is planning to use $30 billion (plus $10 billion provided by private investors) to purchase highly rated commercial mortgage-backed securities (MBSs) as well as residential MBSs not backed by Fannie Mae or Freddie Mac that were issued before 2009. The Treasury has committed $50 billion for the HAMP for direct payments to mortgage servicers to help homeowners avoid foreclosure. Through December, the HAMP had disbursed less than $15 million, and the TALF and PPIP had not declared any losses. All told, the Congressional Budget Office now estimates that the total cost of the TARP will be $99 billion (excluding administrative costs) over the life of the program. Most of that cost is projected to stem from the assistance to the automotive industry, payments from the HAMP, and potential costs for future activities. CBO’s Baseline Estimates of Federal Funding for the TARP (As of mid-December 2009)
 Sources: Congressional Budget Office; Department of the Treasury. Notes: The legislation that created the Troubled Asset Relief Program (TARP) requires that the federal budget display the costs of purchasing or insuring troubled assets using procedures similar to those specified in the Federal Credit Reform Act but adjusting for market risk (in a manner not reflected in that law). In particular, the federal budget should not record the gross cash disbursement for the purchase of a troubled asset (or the cash receipt for its eventual sale); instead, the number recorded in the budget should reflect an estimate of the government’s net cost for the purchase. Broadly speaking, the net cost is the purchase price minus the present value (calculated using an appropriate discount factor that reflects the riskiness of the asset) of any estimated future earnings from holding the asset and the proceeds from the eventual sale of the asset. CBO’s January 2010 baseline was completed in mid-December 2009; after that, the Treasury disbursed another $3.8 billion to GMAC (the financing arm of General Motors) and converted some previous purchases of GMAC’s preferred stock to common stock. * = between -$500 million and zero. a. Amount outstanding as of mid-December 2009. b. Reflects CBO’s assessment that of the funds remaining under the original authority for the TARP, a maximum of $50 billion will be disbursed at a subsidy rate of 50 percent. c. Authority for the TARP was originally set at a maximum of $700 billion outstanding at one time; that total was reduced by nearly $1.3 billion in the Helping Families Save Their Homes Act of 2009 (Public Law 111-22). |
Technical factors (things not directly related to new legislation or revisions to the economic outlook) have increased the projected 10-year deficit by $214 billion. On the revenue side, lower-than-expected income tax receipts in recent months and other factors have reduced revenue projections, primarily for the early years of the projection period. Together, those technical factors decrease projected revenues by $327 billion over 10 years. At the same time, technical changes have reduced outlay projections—mostly for net interest payments and the TARP—by $113 billion over the 2010–2019 period. (Changes to CBO’s baseline projections since August are described in greater detail in Appendix B.)
Uncertainty and Budget Projections
Actual budgetary outcomes will almost certainly differ from CBO’s baseline projections because of future legislative actions, unanticipated changes in economic conditions, and many other factors that affect federal spending and revenues. The full range of potential changes is impossible to determine. However, examining some potential changes shows how sensitive CBO’s current-law projections are to changes in the assumptions underlying them.
Uncertainty About Future Legislative Actions
To illustrate how different fiscal policies might affect the baseline, CBO estimated the budgetary impact of some alternative actions that lawmakers could take. Examples include drawing down U.S. forces in Iraq and Afghanistan at different rates in coming years, increasing or freezing future discretionary appropriations, extending tax provisions that are due to expire, and indexing the alternative minimum tax for inflation (see Table 1-5). The discussion below focuses on how those policy actions would directly affect revenues and outlays. Such changes, however, would also have an impact on the projected costs of servicing the federal debt; those costs are shown separately in Table 1-5.
War-Related Discretionary Spending. CBO’s projections of discretionary spending for the next 10 years include outlays for the wars in Iraq and Afghanistan and for related activities. The outlays projected in the baseline come from budget authority provided for those purposes in 2009 and prior years, from the $130 billion in budget authority already provided for 2010, and from the $1.4 trillion that is projected to be appropriated over the 2011–2020 period, under the assumption that funding each year matches the $130 billion level for 2010 plus adjustments for inflation. (Additional funding may be needed in 2010, however, because of the decision to increase U.S. forces in Afghanistan.)
In coming years, the annual funding required for war-related activities may eventually be smaller than the amounts in the baseline if the number of deployed troops and the pace of operations diminish over time. Considerable uncertainty exists about future military operations. To illustrate it, CBO has formulated two alternative budget scenarios involving the deployment of U.S. forces to Iraq, Afghanistan, or future military actions elsewhere in the world. (Many other scenarios—some costing more and some less—are also possible.)
In 2009, the number of U.S. active-duty, reserve, and National Guard personnel deployed for war-related activities averaged about 220,000, CBO estimates. Under one of the alternative scenarios, that average would fall by 9 percent in 2010; under the other, it would rise by 7 percent. (In both cases, an increase in personnel deployed to Afghanistan this year would be offset to varying degrees by a reduction in personnel deployed to Iraq.) After 2010, total troop levels would decline in both scenarios, but at different rates and to different sustained levels. (Those levels could represent various allocations of forces between Iraq, Afghanistan, and other regions.)
In the first scenario, average troop levels would drop significantly over a three-year period—from roughly 200,000 this year to 150,000 in 2011, 65,000 in 2012, and 30,000 by the beginning of 2013.6 The number of deployed troops in 2013 would be maintained through 2020, although not necessarily in Iraq and Afghanistan. This scenario also assumes that additional supplemental appropriations will be provided this year for the troop increase in Afghanistan. Under those assumptions about troop levels and funding, outlays would be $4 billion higher in 2010 than CBO currently projects, but annual outlays would be lower than the amounts in the baseline starting in 2011. Over the 2011–2020 period, total outlays for such military operations would be about $900 billion less than the amount projected in the baseline.
In the second scenario, the number of troops deployed for war-related purposes would rise to an average of about 235,000 in 2010 and then decline more gradually and to a higher sustained level than in the first scenario.7 The average number of military personnel deployed overseas for such purposes would be reduced to 230,000 in 2011, 195,000 in 2012, 135,000 in 2013, 80,000 in 2014, and 60,000 in 2015 and thereafter. This scenario also assumes that further supplemental appropriations will be provided this year for the war in Afghanistan. Under this scenario, outlays would be higher than the baseline projections between 2010 and 2012 but lower than those projections beginning in 2013. Total discretionary outlays over the 2011–2020 period would be about $550 billion less than the amount in the baseline.
Other Discretionary Spending. Many alternative assumptions are possible about the future growth of discretionary spending. For example, if appropriations (excluding those for operations in Iraq and Afghanistan) were assumed to grow each year through 2020 at the same rate as nominal GDP—instead of at the rate of inflation—the total discretionary spending projected for that period would be $1.8 trillion higher than in the baseline. In contrast, if lawmakers did not increase appropriations after 2010 to account for inflation, total discretionary outlays would be $1.1 trillion lower during that 10-year period than in the baseline. Under that scenario (sometimes referred to as a freeze in appropriations), total discretionary spending would fall from 9.4 percent of GDP this year to 5.7 percent in 2020—the lowest level in 50 years.
Revenues. Under the rules that govern CBO’s baseline, major provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, the Jobs and Growth Tax Relief Reconciliation Act of 2003, and the American Recovery and Reinvestment Act of 2009 are assumed to expire as scheduled at the end of calendar year 2010. Those expirations will increase net revenues by raising tax rates, eliminating the 10 percent tax bracket, reducing the child tax credit, discontinuing the Making Work Pay credit, reinstating the estate tax with a lower effective exemption amount, and raising tax rates on capital gains and dividends. Under a scenario in which the expiring provisions were extended, projected revenues would be lower than the amounts in the baseline. For example, if all expiring tax provisions (except those related to the exemption amount for the AMT) were extended, total revenues over the 2011–2020 period would be $4.5 trillion lower, according to estimates by the Joint Committee on Taxation and CBO.8 Under that scenario, the effect of reducing the amount of regular tax that people owed would be partly offset by an increase in the number of taxpayers subject to the AMT.
Another policy change that would affect revenues involves modifying the AMT. The exemption amount and brackets for that alternative tax do not automatically increase with inflation, as the parameters of the regular individual income tax do. Consequently, as people’s income rises over time, more taxpayers become subject to the AMT. That phenomenon is expected to cause the impact of the AMT to grow sharply in coming years. If, instead, the tax was indexed for inflation after 2009 (starting from the 2009 exemption amount), with no other changes to the tax code, federal revenues over the next 10 years would be $558 billion lower than the amount in the baseline, according to CBO and the Joint Committee on Taxation.
The number of taxpayers who are subject to the AMT, however, will depend on whether the expiring tax provisions enacted in the past decade remain in effect. If those provisions were extended and the AMT was indexed for inflation, the combination of the two changes would reduce revenues by more than the sum of the two policy alternatives considered separately. The interaction of those two policy changes would lower revenues by an additional $606 billion between 2011 and 2020. Thus, the total impact of extending all of the tax provisions that are set to expire in the next 10 years and indexing the AMT for inflation would be to reduce revenues over the 2011–2020 period by $5.7 trillion.
Budgetary Effects of Selected Policy Alternatives Not Included in CBO’s Baseline
Sources: Congressional Budget Office; Joint Committee on Taxation.
Note: GDP = gross domestic product; EGTRRA = Economic Growth and Tax Relief Reconciliation Act of 2001; JGTRRA = Jobs and Growth Tax Relief Reconciliation Act of 2003; AMT = alternative minimum tax; * = between -$500 million and $500 million.
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a. |
This alternative does not extrapolate the $130 billion in budget authority for military operations and associated costs in Iraq and Afghanistan provided for 2010. However, it incorporates the assumption that an additional $16 billion in budget authority will be provided in 2010 to carry out operations in those two countries. Future funding for operations in Iraq, Afghanistan, or elsewhere would total $121 billion in 2011, $69 billion in 2012, $40 billion in 2013, and about $25 billion a year from 2014 on—for a total of $395 billion over the 2011–2020 period. |
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c. |
This alternative does not extrapolate the $130 billion in budget authority for military operations and associated costs in Iraq and Afghanistan provided for 2010. However, it incorporates the assumption that an additional $36 billion in budget authority will be provided in 2010 to carry out operations in those two countries. Future funding for operations in Iraq, Afghanistan, or elsewhere would total $158 billion in 2011, $143 billion in 2012, $108 billion in 2013, $71 billion in 2014, $51 billion in 2015, and about $40 billion a year from 2016 on—for a total of $746 billion over the 2011–2020 period. |
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d. |
Under this alternative, appropriations for 2010 for operations in Iraq and Afghanistan are extrapolated according to the rules that govern CBO’s baseline. |
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f. |
These estimates do not include the effects of extending the increased exemption amount or the treatment of personal credits for the AMT that expired at the end of 2009. The effects of that alternative are shown separately. |
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g. |
The estimates include the effects of extending several expiring provisions that were enacted or modified in the American Recovery and Reinvestment Act of 2009, such as the Making Work Pay tax credit, the American Opportunity tax credit, and the exclusion from taxable income of certain amounts of unemployment benefits. The estimates also include the impact of extending other expiring provisions that have been in effect for a number of years. |
h. This alternative incorporates the assumption that the exemption amount for the AMT (which was increased through 2009) is extended at its higher level and, together with the AMT tax brackets, is indexed for inflation after 2009. In addition, the treatment of personal credits against the AMT (which was also continued through the end of 2009) is assumed to be extended. The estimates shown are relative to figures under current law. If this alternative was enacted together with the extension of the expiring tax provisions, an interactive effect would occur after 2010 that would make the combined revenue loss through 2020 greater than the sum of the two separate estimates.
In addition to being affected by future legislative actions, the federal budget is sensitive to economic and technical factors that are difficult to forecast. When CBO constructs its baseline, it must make projections of such economic variables as interest rates, inflation, and the growth of GDP. Discrepancies between those projections and actual economic conditions can make budgetary outcomes differ significantly from the baseline. For instance, CBO’s economic forecast anticipates that real GDP will grow by 2.2 percent in calendar year 2010, by 1.9 percent in 2011, by an average of 4.4 percent a year from 2012 to 2014, and by 2.4 percent annually from 2015 to 2020. If the actual growth rate of real GDP was 0.1 percentage point higher or lower each year, the cumulative deficit projected for the 2011–2020 period would be higher or lower by about $300 billion. (For further discussion of how various economic assumptions affect budget projections, see Appendix C.)
Uncertainty also surrounds technical factors that affect CBO’s baseline projections. For example, spending per enrollee in Medicare and Medicaid—which has generally grown faster than GDP—is hard to predict, but it will have a large impact on the costs of those two programs in coming years. If per capita costs grew 1 percentage point faster or slower per year over the next decade than CBO has projected, total outlays for Medicare and Medicaid would be about $700 billion higher or lower over that period. In another example, CBO’s baseline projections depend on assumptions about prices and crop yields for agricultural commodities, all of which are volatile and strongly affect how much the government will pay farmers under price- and income-support programs.
Projections of revenues are particularly sensitive to technical uncertainty. Forecasting the total amount of future income is part of CBO’s economic projections, but forecasting the amount of revenue that the government will collect from a given amount of total income requires technical assumptions about the distribution of income and about many subtle aspects of taxpayers’ behavior. Differences between those assumptions and actual outcomes can lead to significant deviations from CBO’s baseline revenue projections.
Federal Debt Held by the Public
Debt held by the public consists of debt securities that the Treasury issues to raise cash to fund the operations and pay off the maturing liabilities of the federal government. (Other measures of debt are discussed in Appendix D.) The Treasury borrows money from the public by selling securities in the capital markets; that debt is purchased by various buyers in the United States and by private investors and central banks in other countries.
Of the $7.5 trillion in federal debt held by the public that was outstanding at the end of 2009, domestic investors owned 52 percent ($4.0 trillion) and foreign investors held 48 percent ($3.6 trillion). Individual households and the Federal Reserve System are the largest U.S. holders of Treasury debt, each accounting for about 10 percent of the total (see Table 1-6). Other U.S. investors that purchase Treasury debt include mutual funds, state and local governments, and pension funds. Among foreign investors, those in China and Japan have the largest holdings of Treasury securities.9 Together, central banks and private entities in those two countries hold about one-fifth of U.S. Treasury debt.
Trends in Debt Held by the Public
The amount of federal debt held by the public has fluctuated markedly over the past few decades. After peaking at nearly 50 percent of GDP in 1993, it fell to 33 percent by 2001 following a string of years with brisk economic growth and with budget surpluses rather than deficits (see Figure 1-2). Debt soon began increasing again relative to GDP, reaching 41 percent in 2008 and 53 percent in 2009. Under the assumptions of the baseline (in particular, that tax provisions expire as scheduled and that discretionary spending grows at the rate of inflation), debt held by the public is projected to rise to 60 percent of GDP this year and 65 percent next year and then remain at about that percentage through 2020 (see Table 1-7). Such levels of debt relative to GDP would be the highest recorded since the early 1950s.
Holders of Federal Debt Held by the Public, 2004 and 2009
Source: Congressional Budget Office based on Board of Governors of the Federal Reserve System, Flow of Funds Accounts of the United States, Table L.209 (for domestic holders and total foreign holders), and the Federal Reserve Board’s Treasury International Capital Survey, January 2010 (for individual foreign holders).
a. Numbers for foreign countries include holdings by individuals, businesses, and government entities. The numbers for individual foreign holders were estimated by the Federal Reserve on the basis of its surveys of holdings.
Changes in policy would produce different amounts of publicly held debt. For example, if the number of U.S. troops involved in war-related activities declined to 30,000 by 2013 (the first alternative scenario discussed above and shown in Table 1-5) but all other policies were consistent with those assumed in the baseline, debt held by the public at the end of 2020 would be $1.1 trillion lower than the $15.0 trillion projected in the baseline. By contrast, if all of the tax provisions that are set to expire over the next 10 years were extended through the projection period, and if the exemption amount and brackets for the AMT were indexed for inflation from their 2009 levels, debt held by the public would be $7 trillion higher in 2020 than the baseline projection. Under that scenario, debt held by the public would equal 98 percent of GDP in 2020.
Why Changes in Debt Held by the Public Do Not Equal Deficits
In many years, the amount of money that the Treasury borrows by selling securities (net of the amount of maturing securities that it redeems) roughly equals the annual budget deficit. However, a number of factors—which are collectively labeled "other means of financing" and are not directly included in budget totals—also affect the government’s need to borrow from the public. Those factors include reductions (or increases) in the government’s cash balances and the cash flows reflected in the financing accounts used for federal credit programs.
For 2009, federal borrowing was $328 billion greater than the size of the deficit, mainly because of funding for the TARP, purchases of mortgage-backed securities by the Treasury, and financing for student loans. In 2010, other means of financing are expected to cause Treasury borrowing to be $96 billion smaller than the deficit (thus reducing publicly held debt by that amount). After 2010, other means of financing will raise the Treasury’s borrowing needs relative to the size of deficits, CBO projects.
Federal Debt Held by the Public, 1970 to 2020
(Percentage of gross domestic product)
Source: Congressional Budget Office.
Note: Data are for debt held by the public at the end of the year.
The Treasury is likely to reduce cash balances considerably in the next few years. Specifically, it is expected to have about $200 billion less in cash at the end of 2010 than at the end of 2009, primarily because of the conclusion of the Supplementary Financing Program, which held $165 billion in cash at the Federal Reserve at the end of last year.10 In addition to that program, the Treasury’s regular cash holdings are projected to decline by $35 billion in 2010 and by the same amount in 2011 before stabilizing at a total balance of $40 billion at the end of each subsequent year.
Credit financing accounts have a large impact on the government’s borrowing. Direct student loans, the Advanced Technology Vehicles Manufacturing Loan Program, rural housing programs, loans made by the Small Business Administration, and other direct loan programs require the government to disburse money up front in anticipation of repayment later. Those initial disbursements are not counted as budget outlays (such outlays reflect only the programs’ estimated costs for subsidies, defaults, and other items). Each year from 2010 to 2020, the amount of loans disbursed will generally be larger than the amount of repayments and interest collected, CBO projects. Thus, the government’s annual borrowing needs will be $43 billion greater, on average, because of such programs than the annual budget deficits would indicate.
The Treasury will also need to borrow in 2010 to finance some activities of the TARP, final purchases of mortgage-backed securities from the public (under a program that expired at the end of December), and cash payments to Fannie Mae and Freddie Mac. Cash flows for such activities will require the Treasury to borrow nearly $60 billion more this year than CBO’s estimate of the deficit would imply. In later years, those cash flows are likely to be more modest and to have less effect on the Treasury’s borrowing needs.
The severe economic downturn and nearly unprecedented turmoil in the financial system over the past few years—combined with federal policies implemented in response to those conditions—have caused deficits to climb dramatically. However, even after the economy has recovered and the budgetary costs of associated federal policies have waned, the budget outlook will remain daunting. If tax provisions expire as scheduled and discretionary spending grows at the rate of inflation each year (as assumed in CBO’s baseline), budget deficits averaging almost 3 percent of GDP will persist between 2013 and 2020. Federal debt held by the public will reach 67 percent of GDP by 2020, the largest share since the early 1950s. Moreover, if expiring tax provisions are extended or spending grows faster than is assumed in the baseline, those deficits—and the corresponding debt that will result—may be much larger.
Beyond the 10-year projection period, rising health care costs and the aging of the U.S. population will continue to exacerbate the fiscal challenges facing the nation. Recurring large deficits and the resulting increases in federal debt over time will reduce national saving and investment relative to what would otherwise occur, and the reduced pace of capital accumulation, in turn, will lower the long-term growth of productivity, output, wages, and income.
CBO’s Baseline Projections of Federal Debt
Source: Congressional Budget Office.
Note: GDP = gross domestic product.
a. Subtracts from debt held by the public the value of financial assets (such as preferred stock) purchased from institutions participating in the Troubled Asset Relief Program, holdings of preferred stock in Fannie Mae and Freddie Mac, the Treasury’s purchases of mortgage-backed securities, cash balances, and other financial instruments.
The single greatest threat to budget stability is the growth of federal spending on health care—pushed up both by increases in the number of beneficiaries of Medicare and Medicaid (because of the aging of the population) and by growth in spending per beneficiary that outstrips growth in per capita GDP. For the nation’s fiscal situation to be sustainable in future decades, growth in such spending will have to be reduced relative to its historical trend and to CBO’s projected path. Today, outlays for Medicaid and Medicare combined (excluding offsetting receipts) equal about 5.5 percent of GDP. Under current law, spending for those two programs is expected to keep growing faster than the economy, reaching 6.6 percent of GDP by 2020 and potentially reaching 10 percent by 2035.11 Without changes to federal fiscal policy—involving some combination of lower spending and higher revenues than the amounts projected under current law—those rising costs will rapidly drive the size of federal debt held by the public well beyond the 67 percent of GDP projected for 2020.
Those provisions—most of which were originally enacted in the Economic Growth and Tax Relief Reconciliation Act of 2001, the Jobs and Growth Tax Relief Reconciliation Act of 2003, or the American Recovery and Reinvestment Act of 2009—are scheduled to expire at the end of December 2010. The assumption that those expirations will occur as scheduled accounts for about half of the total growth in revenues in dollar terms between 2010 and 2012 in CBO’s baseline projections.
In the federal budget, net interest primarily consists of the government’s interest payments on debt held by the public, offset by interest income that the government receives from various sources.
More details about the nation’s long-term fiscal challenges can be found in Congressional Budget Office, The Long-Term Budget Outlook (June 2009).
In 2009, the Treasury recorded $91 billion in net outlays related to Fannie Mae and Freddie Mac. That amount reflects cash infusions of nearly $96 billion from the Treasury to the two entities (for purchases of their preferred stock) partly offset by about $4 billion in dividends received on that stock. CBO’s estimate of federal costs for Fannie Mae and Freddie Mac in 2010, $21 billion, is an estimate of subsidy costs that reflects the projected net present value of transactions undertaken by the two entities in 2010. In addition, net cash infusions are likely to be substantially smaller this year than they were last year. See Chapter 3 for a more detailed discussion of the estimated budgetary impact of assistance to Fannie Mae and Freddie Mac. For information about the methodology that CBO uses to construct its baseline estimates for the two entities, see Congressional Budget Office, CBO’s Budgetary Treatment of Fannie Mae and Freddie Mac, Background Paper (January 2010).
The Deficit Control Act provided some exceptions. For example, spending programs whose authorizations are set to expire are assumed to continue if they have outlays of more than $50 million in the current year and were established on or before the enactment of the Balanced Budget Act of 1997. Programs established after that law was enacted are not automatically assumed to continue. The Deficit Control Act also required CBO to assume that expiring excise taxes dedicated to trust funds would be extended at their current rates. The law did not provide for the extension of other expiring tax provisions, even if they have been extended routinely in the past.
The average troop level of 200,000 in 2010 reflects an average of about 85,000 personnel in Afghanistan (as the number of troops deployed in that region climbs from about 70,000 at the end of 2009 to about 100,000 by the end of 2010) and an average of 115,000 personnel in Iraq (as the majority of U.S. troops there are withdrawn during the year).
In 2010, troop levels in Afghanistan would be the same as under the first scenario, but the number of personnel in Iraq would drop less sharply, to an average of 150,000 rather than 115,000.
That estimate includes increases in outlays for refundable tax credits, but it excludes any effects that the expiration of the tax provisions would have on the economy. CBO’s baseline projections, in contrast, incorporate such macroeconomic effects.
Information about foreign holders of Treasury debt should be viewed as approximate. In many cases, it is impossible to accurately determine the home country of a foreign holder of U.S. securities because intermediaries may be involved in the custody, management, purchase, or sale of the securities.
The Treasury created the Supplementary Financing Program to help offset the expansion of the Federal Reserve’s activities during the financial crisis. Funding raised by issuing Treasury bills was placed in an account held at the Federal Reserve. For more information, see Board of Governors of the Federal Reserve System, "Credit and Liquidity Programs and the Balance Sheet" (January 13, 2010), available at www.federalreserve.gov/monetarypolicy/bst_frliabilities.htm.
For more details on the fiscal situation after 2020, see Congressional Budget Office, The Long-Term Budget Outlook (June 2009).
