An Evaluation of CBO’s Past Deficit and Debt Projections

CBO regularly publishes baseline projections of federal revenues, spending, deficits, and debt held by the public under the assumption that current laws generally do not change. Those projections typically underlie the budget resolutions prepared by the House and Senate Budget Committees, as well as CBO’s cost estimates for proposed legislation, and can also be useful to policymakers seeking to identify and address budgetary trends.

CBO routinely assesses its past estimates to refine its methods and improve its projections. For this analysis, CBO reviewed the baseline projections of deficits and debt held by the public that it made each spring beginning in 1984. Each of those projections spans the current year (that is, the fiscal year already under way) and either five or 10 subsequent years. In this report, CBO reviews its projections for the first and fifth of those subsequent years. The former is called the budget year and typically begins about six months after a spring baseline is released; the latter is referred to as the sixth year of the projection period (counting the current year as the first).

Because CBO does not incorporate the effects of possible legislative changes into its baseline projections, this report focuses on differences between projected and actual deficits that result from nonlegislative factors, such as economic conditions and technical factors. (The effects of legislative changes on deficits and debt are analyzed in Appendix A.) To make the differences easier to compare across years, CBO measured the errors as a percentage of gross domestic product (GDP).

How Do CBO’s Projections Compare With Actual Outcomes?

In evaluating its projections, CBO focused on three characteristics.

• Centeredness, or the tendency of a set of projections to not err in the same direction, as measured by the average error:
  
  On average, CBO has overestimated deficits by 0.2 percent of GDP for the budget year and underestimated deficits by 0.1 percent of GDP for the sixth year. In its debt projections, CBO has overestimated by an average of 0.3 percent of GDP for the budget year and underestimated by 0.6 percent of GDP for the sixth year. (Measured in terms of GDP in 2018, which was $20.2 trillion, 0.1 percent was $20 billion, 0.2 percent was $40 billion, and so on.)
   
• Accuracy, or how close projected values are to actual amounts, as measured by the average absolute error and the root mean square error (RMSE):
  
  The average absolute error of CBO’s budget-year and sixth-year projections—that is, the average of all errors without regard to whether they are positive or negative—exceeds the average error because overestimates and underestimates do not offset each other for that measure, as they do in the calculation of average errors. For deficits, the average absolute error in CBO’s budget-year projections was 1 percent of GDP, compared with 2 percent of GDP for the sixth-year projections. (In 2018, 1 percent of GDP was about $200 billion.) For debt, the average absolute error in CBO’s budget-year projections was 1.7 percent of GDP, compared with 7.1 percent of GDP for the sixth-year projections. The errors in CBO’s projections of debt held by the public for both the budget year and the sixth year have been larger than those in its deficit projections because the errors in the projections of debt are largely the cumulative effect of multiple years of errors in deficit projections.
  
  For deficits, the RMSE of CBO’s projections was 1.3 percent of GDP for the budget year and 2.5 percent of GDP for the sixth year. For the projections of debt, the RMSE was 2.3 percent of GDP for the budget year and 8.8 percent of GDP for the sixth year.
   
• Dispersion, or the size of the range of the projection errors, as indicated by the two-thirds spread of errors:
  
  The two-thirds spread of errors in CBO’s deficit and debt projections is larger for the sixth-year projections than for the budget-year ones. In addition, the twothirds spread of errors for CBO’s debt projections is significantly larger than that for projected deficits— again, because errors in projections of debt held by the public compound each year.

What Factors Have Contributed to Differences Between CBO’s Projections and Actual Outcomes?

Two factors that have a significant bearing on the differences between CBO’s projections and actual deficits are whether a projection was made at the start of a recession and whether the errors in revenue and outlay projections had offsetting effects. Errors in the budget-year projections of the deficit were significantly larger when they were made during years near the beginning of economic downturns. Those larger errors occurred mostly because CBO overestimated revenues for the following years. And the sixth-year deficit projections CBO made for 1989 to 2002, when the outlay and revenue errors compounded, tended to have larger errors than those made for 2009 to 2018, when the outlay and revenue errors tended to offset each other. Overall, for both the budget-year and sixth-year projections, the outlay errors and the revenue errors have partly offset each other, on average, leading to smaller errors in the deficit projections.

How Do CBO’s Projections Compare With Those of the Administration?

To assess its estimates, CBO compared its budget-year projections with those of the Administration. For years in which CBO could make a comparison, CBO’s and the Administration’s projection errors were close in size, followed similar patterns, and were larger for years near the beginning of economic downturns. CBO could not compare errors for certain years or for longer periods because of limitations in the available data.