The Accuracy of CBO's Baseline Estimates for Fiscal Year 2018

After each fiscal year has ended, CBO reviews its baseline estimates of federal spending, revenues, and deficits and compares that information with actual budgetary results for that year. By assessing the quality of its projections and identifying the factors that might have led to under- or overestimates of federal revenues and spending in particular categories, CBO seeks to improve the accuracy of its work.

This report reviews CBO’s June 2017 projections for fiscal year 2018 and compares them with actual outcomes. To make the comparison, CBO adjusted its projections to account for legislation that was enacted after the projections were completed. With those adjustments, the overall differences were as follows:

• Outlays: CBO projected that federal outlays in 2018 would total $4.19 trillion—$69 billion, or 1.7 percent, more than actual spending. That difference is smaller than the mean absolute error of 2.3 percent, on average, that was typical of projections made for 1993 to 2017.
• Revenues: CBO’s projection of $3.37 trillion for federal revenues in 2018 also was too high—by $40 billion, or 1.2 percent. The average mean absolute error for revenue projections made for 1983 to 2017 was larger—5.0 percent.
• Deficit: The outlay and revenue differences were partially offsetting. As a result, the projected federal budget deficit for 2018 was just $29 billion, or 3.7 percent, more than the actual amount: $817 billion compared with $789 billion.

How CBO Conducted This Analysis

CBO regularly publishes baseline projections of federal outlays, revenues, and deficits for the current fiscal year and the ensuing decade. Those projections reflect the assumption that current laws governing taxes and spending will generally remain unchanged over the period. This analysis focuses on projections for 2018 from CBO’s June 2017 baseline, primarily because the budgetary effects of legislation that the Congress has considered over the past year typically were measured against that baseline. It also compares estimates in CBO’s adjusted April 2018 baseline with actual 2018 outcomes.

Any comparison of CBO’s projections with actual results is complicated by legislation that is enacted after the projections are completed. CBO does not attempt to predict future legislative changes or their effects on revenues and outlays when it prepares its baseline budget projections, but actual revenues and outlays invariably differ from CBO’s estimates as a result of changes in federal law.

To account for those changes in this retrospective analysis, CBO adjusted its projections to incorporate the estimated effects of subsequent legislation. When major tax legislation (Public Law 115-97) was enacted in December 2017, for example, the staff of the Joint Committee on Taxation (JCT) estimated that it would reduce 2018 revenues—largely from receipts of individual and corporate income taxes—by about $144 billion. For this evaluation, CBO reduced its June 2017 baseline revenue projections by that amount to account for that legislation. (The actual timing of the revenue effects of the legislation, however, is still highly uncertain.)

In total, CBO reduced the revenue projections for 2018 that were made in the June 2017 baseline by $163 billion and increased its outlay projections by $93 billion to incorporate the estimated effects of legislation enacted after the baseline was completed. Those legislative effects reflect the cost estimates that the agency prepared when the legislation was enacted—rather than actual amounts, which cannot be identified in most cases. As a result, any errors in the initial estimates are included in the differences discussed in this analysis. The legislative effects also include the estimated increase in outlays for interest on the federal debt that resulted from enacted legislation, although those effects were not included in the initial cost estimates.

Because CBO and the Administration account differently for transactions of the housing entities Fannie Mae and Freddie Mac, CBO also removed outlays for those entities from its projections and from the actual amounts reported by the Department of the Treasury. That adjustment reduced projected outlays by $1.6 billion and increased actual outlays by $9.5 billion.