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Economy

CBO regularly assesses the state of the economy and the impact on the economy of proposed changes in federal spending and taxes. Analysts prepare economic projections that underlie CBO’s projections for the federal budget and cost estimates for proposed legislation; study major aspects of the economy such as trends in productivity and long-term unemployment; and examine the economic impact of changes in the nation’s tax system or reforms to federal programs.

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Energy Security in the United States - Infographic

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May 9, 2012

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  • Energy Security in the United States - Infographic

    May 09, 2012
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Energy Security in the United States

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May 9, 2012

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Criteria for Evaluating Budget Plans

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May 4, 2012


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  • The Economic Impact of the President's 2013 Budget

    April 20, 2012
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CBO Releases Its Analysis of the Economic Impact of the President’s 2013 Budget

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April 20, 2012


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  • An Analysis of the President's 2013 Budget

    March 16, 2012
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The Economic Impact of the President's 2013 Budget

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April 20, 2012

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Highlights

Each year, after the President releases his annual budget request, the Congressional Budget Office (CBO) analyzes the proposals and, using its own estimating procedures and assumptions, projects what the federal budget would look like over the next 10 years if those proposals were adopted. CBO usually provides those results in two parts: The first part presents an examination of the proposals’ budgetary impact without considering their effects on the U.S. economy. The second part, which takes more time to prepare, shows their potential effects on the economy and, in turn, the impact of those macroeconomic effects on the budget. CBO has now completed that second analysis, and this report summarizes the results.

In its analysis of the President’s proposals excluding any macroeconomic effects, which was issued on March 16, CBO concluded that the federal budget deficit would equal $1.3 trillion (or 8.1 percent of gross domestic product, GDP) in fiscal year 2012 and would decline to about $1.0 trillion (or 6.1 percent of GDP) in 2013. The deficit would decline further relative to GDP in subsequent years, reaching 2.5 percent by 2017, but then increase again, reaching 3.0 percent of GDP in 2022.

The projected deficits under the President’s proposals would exceed those in CBO’s baseline—a benchmark showing the outcome if current laws generally remained unchanged—by 0.5 percent of GDP ($82 billion) in 2012, by 2.2 percent of GDP ($365 billion) in 2013, and by between 1.4 percent and 1.9 percent of GDP in each year from 2014 through 2022. In all, between 2013 and 2022, deficits would total $6.4 trillion (or 3.2 percent of total GDP projected for that period), $3.5 trillion more than the cumulative deficit in CBO’s baseline.

Estimates of the macroeconomic effects of those proposals depend on many specific assumptions and judgments, so CBO used several different approaches to estimating those effects, generating a range of possible outcomes. The estimates cover the periods 2013 to 2017 and 2018 to 2022.

CBO estimates that the President’s budgetary proposals would boost overall output initially but reduce it in later years. For the 2013–2017 period, under most of the estimates CBO produced using alternative models and assumptions, the President’s proposals would increase real (inflation-adjusted) output (relative to that under current law) primarily because taxes would be lower than those under current law, and, therefore, people’s disposable income and their demand for goods and services would be greater. Over time, however, the proposals would reduce real output (relative to that under current law) because the deficits would exceed those projected under current law, and the effects of increasing government debt would more than offset the favorable effects of lower marginal tax rates on labor income. When the net impact of those two types of effects would shift from an increase in real output to a decrease would depend on various factors, including the impact of increased aggregate demand on output and the effect of deficits on investment.

By CBO’s estimate, under the President’s proposals, the nation’s real output during the 2013–2017 period would be, on average, between 0.2 percent lower than the amount under current law and 1.4 percent higher than under current law. For the 2018–2022 period, CBO estimates that the President’s proposals would reduce real output, on average, by between 0.5 percent and 2.2 percent compared with what would occur under current law.

Those economic effects would in turn influence the budget through changes in taxable income, in outlays for unemployment insurance and other programs, and in interest payments on government debt, among other factors. According to CBO’s estimates, the effects on the budget would be as follows:

  • For the 2013–2017 period, before accounting for the macroeconomic effects, CBO estimates that the President’s proposals would add a total of $1.5 trillion to deficits, resulting in a cumulative deficit of $3.2 trillion over that period (see Table 1). The economic feedback from the President’s proposals would yield projected deficits totaling between $3.0 trillion and $3.2 trillion over that period.
  • For the 2018–2022 period, before accounting for the macroeconomic effects, CBO estimates that the President’s proposals would add a total of $2.0 trillion to deficits, resulting in a cumulative deficit of $3.2 trillion over that period. The economic feedback from the President’s proposals would yield projected deficits totaling between $3.3 trillion and $3.6 trillion over that period.


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Alternative Approaches for Reducing Budget Deficits

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March 26, 2012


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Revenues and Spending Under CBO's Extended Baseline Scenario and Two Alternatives Specified by Chairman Ryan

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March 23, 2012

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CBO Releases a Report on the Long-Term Budgetary Impact of Paths for Federal Revenues and Spending Specified by Chairman Ryan

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March 20, 2012


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  • Long-Term Analysis of a Budget Proposal by Chairman Ryan

    April 05, 2011
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The Long-Term Budgetary Impact of Paths for Federal Revenues and Spending Specified by Chairman Ryan

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March 20, 2012

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Highlights

At the request of the Chairman of the House Budget Committee, Congressman Paul Ryan, the Congressional Budget Office (CBO) has calculated the long-term budgetary impact of paths for federal revenues and spending specified by the Chairman and his staff. The calculations presented here represent CBO's assessment of how the specified paths would alter the trajectories of federal debt, revenues, spending, and economic output relative to the trajectories under two scenarios that CBO has analyzed previously. Those calculations do not represent a cost estimate for legislation or an analysis of the effects of any given policies. In particular, CBO has not considered whether the specified paths are consistent with the policy proposals or budget figures released today by Chairman Ryan as part of his proposed budget resolution.

The amounts of revenues and spending to be used in these calculations for 2012 through 2022 were provided by Chairman Ryan and his staff. The amounts for 2023 through 2050 were calculated by CBO on the basis of growth rates, percentages of gross domestic product (GDP), or other formulas specified by Chairman Ryan and his staff. For all years, the Chairman specified that there would be no spending for subsidies to purchase health insurance through new exchanges established under the Affordable Care Act. CBO calculates that, under the specified paths, federal revenues and spending would evolve as follows:

  • Revenues—from 15½ percent of GDP in 2011 to 19 percent in both 2030 and 2050;
  • Medicare—from 3¼ percent of GDP in 2011 to 4¼ percent in 2030 and 4¾ percent in 2050;
  • Medicaid and the Children's Health Insurance Program (CHIP)—from 2 percent of GDP in 2011 to 1¼ percent in 2030 and 1 percent in 2050;
  • Social Security—from 4¾ percent of GDP in 2011 to 6 percent in both 2030 and 2050; and
  • Other mandatory spending and all discretionary spending—from 12½ percent of GDP in 2011 to 5¾ percent in 2030 and 3¾ percent in 2050.

Under those paths for revenues and spending, federal debt held by the public would be 53 percent of GDP at the end of fiscal year 2030 and 10 percent at the end of fiscal year 2050.

Those figures are compared in this report with updated long-term calculations for two budget scenarios examined in CBO's 2011 Long-Term Budget Outlook; both of those scenarios represent extensions of current laws or policies in different forms. Under those scenarios, federal spending in 2050 would be close to 7 percent of GDP for Medicare (including offsetting receipts); more than 4 percent of GDP for Medicaid, CHIP, and subsidies to be provided through insurance exchanges; 6 percent of GDP for Social Security; and about 8 percent of GDP for other mandatory spending and all discretionary spending. Under one of those scenarios, revenues would rise to about 26 percent of GDP in 2050, and debt held by the public would decline to 40 percent of GDP in that year; under the other of those scenarios, in 2050, revenues would be 18½ percent of GDP, and debt held by the public more than 200 percent of GDP.

Higher debt tends to imply lower output and income in the long run than does lower debt, because increased government borrowing generally draws money away from, or "crowds out," private investment in productive capital. As a result, the debt that would occur under the paths specified by the Chairman and his staff would lead to higher national income over the long term than would occur with the higher amounts of debt under the other two scenarios.

The specified paths of revenues and spending would change the federal budget in various ways that differ significantly from historical trends and current policies. The consequences of those changes would depend on both the specific policies that were implemented to generate those paths of revenues and spending and the ways in which the nation's health care and health insurance systems and other parts of the economy evolved in response to those policies.



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Choices for Federal Spending and Taxes

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February 24, 2012

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