Federal revenues and outlays regularly respond to cyclical movements in the economy in ways that tend to offset those movements; the budget mechanisms that drive that process are known as automatic stabilizers. Those mechanisms, which help stabilize the economy automatically, also contribute to short-run fluctuations in the deficit, without any legislated changes in tax or spending policies.
In this report, the Congressional Budget Office projects the budgetary effects of those automatic stabilizers—as well as the size of deficits without them—from 2022 to 2032 and provides historical estimates of the stabilizers’ effects since 1972, including their effects in the wake of the coronavirus pandemic. This report is based on CBO’s forecast that was released in May 2022; those projections reflect economic developments through March 2, 2022. The projections in the May 2022 forecast and those presented in this report reflect the assumption that current law will generally remain unchanged.
The key takeaways from CBO’s analysis of the effects of automatic stabilizers are as follows:
Automatic stabilizers added significantly to deficits in 2020 and 2021, though most of the change in the total deficit during those years was the result of temporary provisions in pandemic-related legislation.
Automatic stabilizers are projected to reduce federal deficits from 2023 to 2026 and increase federal deficits from 2027 to 2032.
With the effects of automatic stabilizers removed, deficits are projected to average 4.9 percent of potential gross domestic product (GDP) over the next decade, more than one-and-a-half times their 50-year average. (Potential GDP is an estimate of the maximum sustainable output of the economy.)