The Accuracy of CBO’s Budget Projections for Fiscal Year 2021
In its March 2020 projections for fiscal year 2021, CBO underestimated revenues by 15 percent and overestimated outlays by 4 percent. CBO’s projection of the federal budget deficit in 2021 was more than the actual amount by 3.9 percent of GDP.
After each fiscal year has ended, the Congressional Budget Office reviews its projections of federal revenues and outlays and the government’s budget deficit and compares them with actual budgetary outcomes for that year. By assessing the quality of its projections and identifying the factors that might have led to under- or overestimates of particular categories of federal revenues and outlays, CBO seeks to improve the accuracy of its work.
To review its projections for fiscal year 2021, CBO focused on its March 2020 baseline projections and updated them to include the estimated effects of subsequently enacted legislation. The adjustments were particularly large for 2021 because of legislation enacted in response to the coronavirus pandemic. In total, those adjustments—which reflect the estimated budgetary effects reported in cost estimates that CBO and the staff of the Joint Committee on Taxation (JCT) prepared when the legislation was enacted—reduced CBO’s projections of revenue by $0.4 trillion (or 10 percent) and increased its projections of outlays by $2.3 trillion (almost 50 percent). CBO also removed outlays for Fannie Mae and Freddie Mac from both its projections and the actual outcomes because CBO and the Administration account for the transactions of those housing entities differently.
Largely because of the uncertainties associated with the pandemic and the implementation of substantial legislation, some of CBO’s projections for 2021 differed from the actual results by much larger amounts than usual. Taking all adjustments into account, the overall differences were as follows:
Revenues. CBO’s projection of $3.43 trillion for federal revenues in 2021 was too low—by $614 billion, or 15 percent. That difference was three times the mean absolute error of about 5 percent in revenue projections made for the years from 1983 to 2020.
Outlays. CBO’s projection of $7.07 trillion for federal outlays in 2021 was too high—by $250 billion, or 4 percent. That difference of 4 percent was larger than the mean absolute error of 2 percent in outlay projections made for the years from 1993 to 2020.
Deficit. The differences in revenue and outlay projections resulted in a deficit projection for 2021 that was $864 billion more than the actual amount: $3.64 trillion rather than $2.78 trillion. That difference was equal to 3.9 percent of gross domestic product (GDP). By comparison, the mean absolute error in deficit projections reported for 1985 to 2020 equaled 1.0 percent of GDP.
The three categories with the largest misestimates accounted for $789 billion of the deficit difference: individual income taxes, Medicare outlays, and corporate income taxes. By far the largest difference stemmed from an underestimate of receipts from individual income taxes.