Budgetary and Economic Outcomes Under Paths for Federal Revenues and Noninterest Spending Specified by Chairman Enzi, September 2017
Under budgetary paths (not particular policies) specified by Senator Enzi, deficits would be smaller than projected in CBO’s baseline. Such deficit reductions would lower economic output in the next few years but raise it thereafter.
At the request of the Chairman of the Senate Budget Committee, Senator Mike Enzi, CBO has projected budgetary and economic outcomes over the next decade under paths for federal revenues and spending (excluding interest payments) specified by the Chairman and his staff. The projections do not represent a cost estimate for legislation or an analysis of the effects of any specific policies. In particular, CBO has not considered the effects of any policies on economic growth beyond the effects of changes in federal borrowing resulting from the specified paths. In addition, CBO has not considered whether the specified paths are consistent with the policy proposals or budget numbers that Chairman Enzi released on September 29, 2017, as part of his proposed budget resolution.
The projections in this report represent CBO’s assessment of how federal debt and economic output would evolve from 2018 to 2027 under Chairman Enzi’s specified paths for revenues and noninterest spending. The benchmark for those projections is the 10-year baseline that CBO published in June 2017, which reflects the assumption that current law will generally remain unchanged.
The projections show how the reductions (relative to the baseline) in federal revenues and spending—and the resulting changes in federal borrowing—under those paths would affect the economy and how those macroeconomic effects would, in turn, feed back into the federal budget. The projections do not show any other potential effects on the economy of specific policies that might be used to generate those paths.
In Chairman Enzi’s specified paths, noninterest spending deceases from 18.5 percent of gross domestic product (GDP) in 2018 to 17.2 percent in 2027, and revenues increase from 16.9 percent of GDP to 17.9 percent. In CBO’s 10-year baseline, noninterest spending measured as a share of GDP increases from 19.0 percent in 2018 to 20.7 percent in 2027, and revenues increase from 17.7 percent of GDP to 18.4 percent over the same span.
Over the next decade, the specified paths would result in noninterest spending that was a total of $5.8 trillion less than projected in the baseline and revenues that were a total of $1.6 trillion less. If such changes were made, the federal government would borrow less than it is projected to borrow under current law, reducing interest payments below the amount projected in the baseline by a total of $423 billion over the next decade.
Macroeconomic feedback would reduce the cumulative budget deficit by an additional $178 billion, CBO estimates. Including that effect, the cumulative budget deficit under the specified paths would be $5.4 trillion—$4.7 trillion lower than in CBO’s baseline. The deficit would shrink from $693 billion in 2017 to $424 billion by 2027, which is about $1 trillion less than the amount projected for that year in CBO’s June baseline.
Federal debt held by the public measured as a share of GDP would fall to 74 percent in 2027 under the specified paths, CBO projects; it is 91 percent in that year in the baseline. Economic output would be lower than projected in CBO’s baseline over the next few years because changes in federal spending and revenues relative to amounts projected under current law would reduce total demand for goods and services. By calendar year 2027, output would be about 0.8 percent higher than in the baseline because less federal borrowing would free up resources for private investment.