Three Scenarios for the Budget as Specified by Senator Graham

As you requested, the Congressional Budget Office has calculated the budgetary outcomes under three scenarios. Specifically, you asked how recently enacted legislation and certain amounts of additional spending would change the budget projections that CBO released on February 11, 2021. This letter details those changes.

CBO’s February 2021 Baseline Projections. In CBO’s most recent baseline, projected deficits amounted to $14.5 trillion over the 2021-2031 period, and debt held by the public was projected to reach $35.3 trillion by the end of 2031, equal to 107 percent of gross domestic product (GDP). Those projections were completed before the enactment of Public Law 117 2, the American Rescue Plan Act (ARPA), which CBO has estimated will add $1.8 trillion to deficits over the 2021-2031 period (excluding interest costs on the added debt). Those effects, along with additional legislative, economic, and technical changes, will be incorporated into CBO’s next set of budget and economic projections.

To provide a benchmark against which the Congress can consider the budgetary effects of legislation, CBO’s baseline is constructed under an assumption that current law remains generally unchanged. Consequently, if the Congress acted to increase spending, CBO’s projections of spending also would increase. The amounts below show how three scenarios might affect the agency’s budget projections.

First Scenario. For Scenario 1, you asked CBO to add the budgetary effects of ARPA to its baseline projections of deficit and debt, including the effects on the government’s interest costs. The legislation will add $1.8 trillion to deficits and to debt held by the public over the 2021-2031 period, CBO estimates. The interest payments made on that additional debt will amount to an estimated $208 billion over that same period. All told, under the scenario, by 2031, deficits and debt would be nearly $2.1 trillion higher than in CBO’s February 2021 baseline and debt held by the public would reach 113 percent of GDP. That amount does not include the budgetary effects that might result from differences in the economy relative to CBO’s February 2021 economic forecast.

Second Scenario. For Scenario 2, you asked CBO to calculate how projections might change if:

• ARPA’s budgetary effects were added and
• Nondefense discretionary budget authority was set at $768 billion for fiscal year 2022 and increased with inflation in subsequent years.

Under this scenario, by 2031, deficits and debt would be $2.7 trillion higher than in CBO’s February 2021 baseline and $665 billion higher than under Scenario 1. Debt held by the public would equal 115 percent of GDP in 2031.

CBO’s baseline projection for nondefense discretionary funding for 2022 amounted to $709 billion. Scenario 2 would add $59 billion in budget authority for nondefense discretionary programs in 2022, increasing to nearly $80 billion in 2031 (after increases for inflation). In total, through 2031, those changes would add $618 billion to discretionary outlays, deficits, and debt. The cost of servicing that additional debt along with the debt resulting from ARPA would amount to $255 billion over the 2021 2031 period ($47 billion more than under Scenario 1).

Third Scenario. For Scenario 3, you asked CBO to calculate the effects of:

• Incorporating the assumptions of Scenario 2,
• Adding $2.7 trillion in funding for new and existing programs in 2022, and
• Increasing noninterest mandatory outlays by $180 billion in each year starting in 2022.

Under this scenario, deficits over the 2021-2031 period and debt in 2031 would be $7.6 trillion higher than the amounts in CBO’s February 2021 baseline and $4.9 trillion higher than under Scenario 2. Debt held by the public would equal 130 percent of GDP in 2031.

Based on how quickly some of the money provided by the American Reinvestment and Recovery Act of 2009 was spent, CBO calculates that adding $2.7 trillion in funding in 2022 would increase the cumulative deficit by $2.6 trillion by 2031. Meanwhile, adding $180 billion in mandatory outlays each year beginning in 2022 would add $1.8 trillion to the deficit over the next 10 years. The interest costs on the additional debt under this scenario would amount to $681 billion by 2031, $426 billion more than under Scenario 2.