An Update to the Budget and Economic Outlook: 2017 to 2027

CBO projects that over the next decade, if current laws remained generally unchanged, budget deficits would eventually follow an upward trajectory in relation to the nation’s economic output, and federal debt would rise. Economic growth is projected to remain modest, averaging slightly above 2.0 percent through 2018 and averaging somewhat below that rate for the rest of the period through 2027. The budgetary and economic trends discussed in this report are similar to those CBO described in January, when the agency issued its previous estimates.

Budget Deficits Are Projected to Rise Over the Next Decade

The projected rise in deficits would be the result of rapid growth in spending for federal retirement and health care programs targeted to older people and to rising interest payments on the government’s debt, accompanied by only moderate growth in revenue collections. Those accumulating deficits would drive up debt held by the public from its already high level to its highest percentage of gross domestic product (GDP) since shortly after World War II.

Specifically, in CBO’s baseline, the budget shortfall increases from 3.2 percent of GDP in 2016 to 3.6 percent in 2017. Although it is projected to fall to 2.8 percent of GDP next year, the deficit resumes its upward trajectory thereafter, reaching 5.2 percent of GDP in 2027.

That pattern of generally rising deficits over the coming decade is similar to that reported in CBO’s previous projections. But the agency’s estimate of the shortfall for 2017 has increased since January—largely as a result of tax collections that have been weaker than expected—as has the agency’s projection of the cumulative deficit over the 2018–2027 period. Much of the change over the 10-year period is accounted for by an increase in net interest costs, primarily a result of higher projected interest rates (and related debt-service costs), and by the effects on outlays of legislation enacted after CBO prepared its January baseline.

Economic Growth Is Projected to Settle at 1.9 Percent

CBO’s economic forecast—which underlies its budget projections—indicates that, under current law, the economy will expand through 2018 at a pace that leads to further tightening of the labor market. Greater demand for workers will put downward pressure on the unemployment rate and upward pressure on the rate of labor force participation. As the amount of unused productive resources in the economy shrinks, inflation and interest rates are projected to rise. In the later part of the 10-year projection period, annual output growth is projected to average 1.9 percent, constrained by a relatively slow increase in the size of the nation’s labor force.

Changes to CBO’s economic projections relative to January are generally modest. Short-term interest rates are somewhat higher over the next few years and long-term interest rates on Treasury securities are slightly higher throughout the period. Other revisions chiefly affect the near term.