Budgetary Outcomes Under Alternative Assumptions About Fiscal Policy
In this report, CBO provides information about how its most recent budget projections would change under alternative assumptions about future fiscal policies and estimates the possible budgetary outcomes.
CBO regularly publishes baseline budget projections that show how federal spending, revenues, and deficits would look if current laws governing spending and taxes generally remained unchanged. Those projections are not intended to be a forecast of budgetary outcomes; rather, they are meant to provide a benchmark that policymakers can use to assess the potential effects of policy decisions.
To provide additional information about possible budgetary outcomes, CBO has estimated how its most recent budget projections would change under alternative assumptions about future fiscal policies, as follows:
Discretionary Spending. In CBO’s baseline projections, discretionary outlays average 6.3 percent of gross domestic product (GDP) from 2019 through 2021, before falling to 5.6 percent of GDP by 2029, which would be the lowest percentage recorded since the inception of the modern Congressional budget process. As one alternative policy, CBO projected what discretionary spending would be if it remained at about 6.3 percent of GDP through 2029. As a second alternative path for discretionary spending, CBO also estimated the budgetary effects of freezing all discretionary appropriations at the 2019 amounts through 2029.
Tax and Trade Promotion Policies. CBO’s projections of revenues reflect the assumption that individual income tax rates will rise in calendar year 2026, as scheduled under current law. CBO and the staff of the Joint Committee on Taxation (JCT) have estimated the budgetary effects of instead making the rates currently in effect permanent and extending other expiring revenue provisions, including expiring trade promotion programs.
Tariffs. CBO’s projections also reflect the assumption that certain U.S. tariffs in effect on July 25, 2019, will continue permanently. CBO estimated the effects on revenues of implementing some changes that have been announced since that date—but have not yet taken effect—as well as an alternative policy of returning tariffs to their historical levels.
Using some of those assumptions, CBO developed an alternative fiscal scenario that illustrates the effects of maintaining certain major policies that are currently in place. That scenario examines the budgetary outcomes if discretionary outlays remained at about 6.3 percent of GDP from 2022 through 2029 and if revenue provisions that are currently scheduled to expire did not. There are no changes to tariffs in the alternative scenario; tariffs remain as they are in the baseline (that is, at the levels in place on July 25). If that alternative fiscal scenario became law, federal debt held by the public would reach 104 percent of GDP by 2029, versus the 95 percent projected in CBO’s baseline. The estimates for each policy alternative and the estimates for the alternative fiscal scenario do not incorporate any economic effects of changes in discretionary spending, tax policies, or trade policies relative to current law.