The Accuracy of CBO’s Budget Projections for Fiscal Year 2022
In its July 2021 projections for fiscal year 2022, CBO underestimated revenues by 10 percent and outlays by 5 percent. CBO’s projection of the federal budget deficit for 2022 was more than the actual amount by 0.8 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 2022, CBO focused on its July 2021 budget projections and updated them to include the estimated effects of subsequently enacted legislation. Together, 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 revenues by $9 billion (or 0.2 percent) and increased its projections of outlays by $57 billion (or 1 percent).
Because of the unusual size and nature of the Administration’s student loan forgiveness, which was announced in August 2022 and recorded in the budget in September 2022, CBO excluded the estimated budgetary effects of that action from this analysis. CBO also removed outlays for Fannie Mae and Freddie Mac from its projections and from estimates of actual outcomes because CBO and the Administration account for the transactions of those entities differently. Taking those adjustments into account, the overall differences were as follows:
Revenues. CBO’s projection of $4.40 trillion for federal revenues in 2022 was too low—by $497 billion, or 10 percent. That difference was twice the average absolute error of about 5 percent in CBO’s revenue projections for 1983 through 2021. The largest error in projections of revenues, accounting for about 60 percent of the total error in revenue projections, was an underestimate of individual income taxes.
Outlays. CBO’s projection of $5.60 trillion for federal outlays in 2022 was also too low—by $303 billion, or 5 percent. That difference was larger than the average absolute error of 2 percent in outlay projections for 1993 through 2021. An underestimate of net outlays for interest, due almost entirely to higher-than-anticipated inflation and interest rates, accounted for slightly more than half of that difference.
Deficit. The differences in revenue and outlay projections resulted in a deficit projection for 2022 that was $194 billion more than the actual amount: $1.20 trillion rather than $1.00 trillion. That difference was equal to 0.8 percent of gross domestic product (GDP). By comparison, the average absolute error in deficit projections reported for 1985 through 2021 equaled 1.1 percent of GDP.