At a Glance
The Congressional Budget Office regularly publishes reports presenting its baseline projections of what the federal budget and the economy would look like in the current year and over the next 10 years if current laws governing taxes and spending generally remained unchanged. This report is the latest in that series.
The Budget. CBO projects a federal budget deficit of $1.4 trillion for 2023. (Deficits and spending have been adjusted to exclude the effects of shifts that occur in the timing of certain payments when October 1 falls on a weekend.) In the agency’s projections, deficits generally increase over the coming years; the shortfall in 2033 is $2.7 trillion. The deficit amounts to 5.3 percent of gross domestic product (GDP) in 2023, swells to 6.1 percent of GDP in 2024 and 2025, and then declines in the two years that follow. After 2027, deficits increase again, reaching 6.9 percent of GDP in 2033—a level exceeded only five times since 1946 (see Chapter 1).
In CBO’s projections, outlays and revenues measured as a percentage of GDP equal or exceed their 50-year averages through 2033. Outlays increase from 23.7 percent of GDP in 2023 (a high level by historical standards) to 24.9 percent in 2033, largely because of rising interest costs and greater spending on programs that provide benefits to elderly people. Revenues amount to 18.3 percent of GDP in 2023. They then decline over the next two years before increasing after 2025, when certain provisions of the 2017 tax act expire. Revenues are roughly stable after 2027; they total 18.1 percent of GDP in 2033.
Debt held by the public is projected to rise in relation to the size of the economy each year, reaching 118 percent of GDP by 2033—which would be the highest level ever recorded. Debt would continue to grow beyond 2033 if current laws generally remained unchanged.
Changes in CBO’s Budget Projections. CBO’s projection of the deficit for 2023 is now $0.4 trillion more than it was in May 2022; the projection of the cumulative deficit over the 2023–2032 period is now $3.1 trillion (or about 20 percent) more, largely because of newly enacted legislation and changes in CBO’s economic forecast, including higher projected inflation and interest rates (see Appendix A).
The Economy. To combat high inflation, the Federal Reserve sharply increased the target range for the federal funds rate in 2022. In CBO’s projections, inflation gradually slows in 2023 as pressures ease from factors that, since mid-2020, have caused demand to grow more rapidly than supply. Output stagnates and unemployment rises in 2023, partially as a result of tighter monetary policy. After that, inflation slowly returns to the Federal Reserve’s long-run goal of 2 percent, and output grows at a more robust pace as interest rates decrease (see Chapter 2).
Changes in CBO’s Economic Projections. The agency projects much weaker growth of real GDP for 2023 than it did last May, stronger growth during the 2024–2026 period, and similar rates of growth over the remainder of the projection period. CBO now projects higher inflation for 2023 and 2024 than it did last May, mainly for two reasons: Recent data suggest that inflation has been more persistent across many sectors of the economy than CBO anticipated, and supply-side disruptions have remained greater than the agency previously forecast. CBO now expects both short- and long-term interest rates to be higher, on average, over the next five years than forecast last May, mostly because of higher projected inflation.
By the Numbers
Budget Outlook, by Fiscal Year
See Chapter 1. When October 1 falls on a weekend, certain payments that would have ordinarily been made on that day are instead made at the end of September and thus are shifted into the previous fiscal year. Mandatory outlays, discretionary outlays, and deficits have been adjusted to exclude the effects of those timing shifts.
Economic Outlook, by Calendar Year
Percent
See Table 2-1. Actual values for 2022 reflect data available from the Bureau of Economic Analysis and the Bureau of Labor Statistics in early February 2023. The data contain values for the fourth quarter of 2022, which were not available when CBO developed its current projections.
Notes
The budget projections in this report include the effects of legislation enacted through January 9, 2023, and are based on the Congressional Budget Office’s economic projections. Those economic projections reflect economic developments and information as of December 6, 2022, and are available on CBO’s website (www.cbo.gov/data/budget-economic-data#4).
Unless this report indicates otherwise, the historical data shown in figures, tables, and text describing the economic forecast reflect more recent fourth-quarter data available from the Bureau of Economic Analysis and other sources in early February 2023.
Unless the report indicates otherwise, all years referred to in describing the budget outlook are federal fiscal years, which run from October 1 to September 30 and are designated by the calendar year in which they end. Years referred to in describing the economic outlook are calendar years.
Numbers in the text, tables, and figures may not add up to totals because of rounding.
Some of the figures in this report use shaded vertical bars to indicate periods of recession. (A recession extends from the peak of a business cycle to its trough.)
Previous editions of this report often included an appendix of historical budget data. Those data and other supplemental data for this analysis are available on CBO’s website (www.cbo.gov/publication/58848#data), as are a glossary of common budgetary and economic terms (www.cbo.gov/publication/42904), a description of how CBO prepares its baseline budget projections (www.cbo.gov/publication/53532), a description of how CBO prepares its economic forecast (www.cbo.gov/publication/53537), and previous editions of this report (https://tinyurl.com/4dt4hshv).
Visual Summary
In this report, the Congressional Budget Office describes its projections of the federal budget and the U.S. economy under current law for this year and the decade that follows. The deficit is projected to total $1.4 trillion in 2023; annual deficits average $2.0 trillion over the 2024–2033 period. CBO expects economic growth to stagnate and inflation to slow in 2023 in response to the sharp rise in interest rates during 2022. After that, in CBO’s projections, output grows at a more robust pace as inflation continues to decline toward the Federal Reserve’s long-run goal of 2 percent.
Deficits
In CBO’s projections, the deficit amounts to 5.3 percent of gross domestic product (GDP) in 2023. (Deficits and spending have been adjusted to exclude the effects of shifts that occur in the timing of certain payments when October 1 falls on a weekend.) Deficits fluctuate over the next four years, averaging 5.8 percent of GDP. Starting in 2028, they grow steadily; the projected shortfall in 2033 is 6.9 percent of GDP—significantly larger than the 3.6 percent of GDP that deficits have averaged over the past 50 years.
Total Deficits, Primary Deficits, and Net Interest Outlays
Percentage of Gross Domestic Product
In CBO’s projections, net interest outlays increase by 1.2 percent of GDP from 2023 to 2033 and are a major contributor to the growth of total deficits. Primary deficits (that is, revenues minus noninterest outlays) increase by 0.4 percent of GDP over that period.
See Figure 1-1
Changes in CBO’s Baseline Projections of the 10-Year Deficit Since May 2022
Trillions of Dollars
The cumulative total deficit over the 2023–2032 period is $3.1 trillion larger in CBO’s current baseline projections than it was in the agency’s May 2022 projections, mainly because of newly enacted legislation and changes to the economic forecast that boost projected net interest outlays and spending on mandatory programs, such as Social Security.
See Figure A-1
Debt
Federal debt held by the public is projected to rise from 98 percent of GDP in 2023 to 118 percent in 2033—an average increase of 2 percentage points per year. Over that period, the growth of interest costs and mandatory spending outpaces the growth of revenues and the economy, driving up debt. Those factors persist beyond 2033, pushing federal debt higher still, to 195 percent of GDP in 2053.
Federal Debt Held by the Public, 1900 to 2053
Percentage of Gross Domestic Product
Debt is projected to rise in relation to GDP, mainly because of increasing interest costs and the growth of spending on major health care programs and Social Security.
See Figure 1-2
Outlays and Revenues
In CBO’s projections, federal outlays total $6.2 trillion, or 23.7 percent of GDP, in 2023. They remain below 24.0 percent through 2028 and grow each year thereafter, totaling 24.9 percent of GDP in 2033. Outlays have reached or exceeded that level only twice since 1946: in 2020 and 2021, years in which spending was increased in response to the coronavirus pandemic. In 2023, revenues total $4.8 trillion, or 18.3 percent of GDP—well above their long-run average. They then fall as a percentage of GDP over the next two years but rise again in 2026 and 2027 before stabilizing.
Total Outlays and Revenues
Percentage of Gross Domestic Product
Measured as a percentage of GDP, outlays exceed their 50-year average each year of the projection period. Revenues fall to their 50-year average in 2025 but then exceed it in each subsequent year because of scheduled changes in tax law.
See Figure 1-3
Outlays, by Category
Percentage of Gross Domestic Product
In CBO’s projections, rising spending on Social Security and Medicare boosts mandatory outlays, but total discretionary spending falls in relation to GDP. As the cost of financing the nation’s debt grows, net outlays for interest increase substantially and, beginning in 2030, exceed their previous peak.
See Figure 1-4
Revenues, by Category
Percentage of Gross Domestic Product
After reaching a historic high in 2022, receipts from individual income taxes are projected to fall in 2023 because collections from taxes on capital gains realizations and other sources, which have been strong in recent years, fall in CBO’s projections. Projected receipts rise after 2025 because of the scheduled expiration of certain provisions of the 2017 tax act.
See Figure 1-5
The Economy
To reduce high inflation, the Federal Reserve sharply raised the target range for the federal funds rate in 2022. In CBO’s projections for 2023, economic activity stagnates, unemployment rises, and inflation slows. From 2024 to 2026, real GDP growth rises as tight financial conditions gradually ease, the unemployment rate slowly falls, and inflation continues to decline. (Shaded vertical bars indicate periods of recession.)
Growth of Real GDP
Percent
In CBO’s projections, real GDP growth comes to a halt in 2023 in response to the sharp rise in interest rates during 2022. Then, as the Federal Reserve reduces the target range for the federal funds rate, real GDP growth rebounds, led by the interest-sensitive sectors of the economy, averaging 2.4 percent from 2024 to 2027 and 1.8 percent from 2028 to 2033.
See Figure 2-1
Overall Inflation and Core Inflation
Percent
Inflation is expected to decline in 2023 as pressures ease from factors that, since mid-2020, have caused demand to grow more rapidly than supply. That decline continues until 2027, when the rate of inflation reaches the Federal Reserve’s long-run goal. (Inflation is measured by the price index for personal consumption expenditures.)
See Figure 2-3
Unemployment
Percent
The unemployment rate rises through early 2024 in CBO’s projections, reflecting the slowdown in economic growth. The rate falls thereafter as output returns to its historical relationship with potential output.
See Figure 2-2
Interest Rates
Percent
In CBO’s projections, the Federal Reserve further increases the target range for the federal funds rate in early 2023 to reduce inflationary pressures in the economy. That rate is projected to fall in 2024 as inflation slows and unemployment rises. The interest rate on 10-year Treasury notes, however, remains at 3.8 percent from 2024 to the end of the projection period.
See Figure 2-4
Chapter 1The Budget Outlook
Overview
In the Congressional Budget Office’s baseline budget projections, the federal budget deficit is $1.4 trillion this year, and annual deficits over the 2024–2033 period average $2.0 trillion. Those projections, which were finalized on January 9, 2023, incorporate the effects of legislation enacted as of that date and generally reflect the assumption that no new legislation affecting outlays or revenues would be enacted thereafter. Measured relative to the size of the economy, the deficit equals 5.4 percent of gross domestic product (GDP) in 2023, and deficits average 6.1 percent of GDP from 2024 to 2033. As a result of those deficits, federal debt increases each year in CBO’s projections, rising from 98 percent of GDP this year to 118 percent in 2033 (see Table 1-1).
Table 1-1.
CBO’s Baseline Budget Projections, by Category
Data source: Congressional Budget Office. See www.cbo.gov/publication/58848#data.
n.a. = not applicable.
a. Consists of excise taxes, remittances from the Federal Reserve System, customs duties, estate and gift taxes, and miscellaneous fees and fines.
b. The revenues and outlays of the Social Security trust funds and the net cash flow of the Postal Service are classified as off-budget.
c. Primary deficits exclude net outlays for interest.
The deficits in CBO’s current projections are significantly larger than those in the agency’s previous baseline projections for 2022 to 2032, which were published in May 2022. The budget shortfall for 2023 is now projected to be $426 billion more—and the cumulative deficit for the 2023–2032 period, $3.1 trillion more—than CBO projected last May. The increases stem from new legislation, changes to the agency’s economic forecast, and other changes (see Appendix A).
If current laws generally remained unchanged, after 2033 deficits would continue to grow in relation to the size of the economy, keeping debt measured as a percentage of GDP on an upward trajectory. Those large budget deficits would arise because outlays—particularly those for interest on federal debt and for Medicare—would grow steadily and revenues would not keep pace.
CBO prepares its baseline budget projections in accordance with provisions set forth in the Balanced Budget and Emergency Deficit Control Act of 1985 (the Deficit Control Act, Public Law 99-177) and the Congressional Budget and Impoundment Control Act of 1974 (P.L. 93-344). Those laws require CBO to construct its baseline under the assumptions that current laws governing revenues and spending will generally stay the same and that discretionary funding provided in appropriation acts in future years will match current funding, with adjustments for inflation.
CBO’s baseline budget projections are meant to provide a benchmark that policymakers can use to assess the potential effects of changes in policy; they are not intended to provide a forecast of future budgetary outcomes. Future legislative action could lead to markedly different outcomes—but even if federal laws remained unaltered for the next decade, actual budgetary outcomes would probably differ from CBO’s baseline projections, not only because of unanticipated economic conditions, but also because of the many other factors that affect federal revenues and outlays.
Deficits
In CBO’s projections, the federal budget deficit in 2023 is $34 billion more than the deficit recorded last year. That increase would be larger if not for a shift in the timing of certain payments. In 2022, October 1 (the first day of fiscal year 2023) fell on a weekend, so certain payments that would ordinarily have been made on that day were instead made in fiscal year 2022. October 1, 2023, will also fall on a weekend, pushing payments due on that day into fiscal year 2023 (from fiscal year 2024). If not for those shifts, this year’s projected shortfall would be $83 billion larger than the one in 2022 (see Table 1-2).1 (The deficit for 2022 and the projections of outlays and deficits cited throughout the rest of the chapter reflect adjustments to exclude the effects of timing shifts.)
Table 1-2.
CBO’s Baseline Projections of Outlays and Deficits, Adjusted to Exclude Effects of Timing Shifts
Data sources: Congressional Budget Office; Department of the Treasury. See www.cbo.gov/publication/58848#data.
GDP = gross domestic product.
a. When October 1 (the first day of the fiscal year) falls on a weekend, certain payments that would have ordinarily been made on that day are instead made at the end of September and thus are shifted into the previous fiscal year. Those shifts primarily affect mandatory outlays; discretionary outlays are also affected, but to a much lesser degree. Net interest outlays are not affected.
b. Primary deficits exclude net outlays for interest.
Measured relative to the size of the economy, this year’s deficit (adjusted to exclude the effects of timing shifts), at 5.3 percent of GDP, is comparable to last year’s deficit but much smaller than the shortfalls recorded in 2020 and 2021, which included most of the fiscal response to the coronavirus pandemic. Deficits in CBO’s baseline swell to 6.1 percent of GDP in 2024 and 2025 and then decline over the next two years—falling to 5.5 percent of GDP in 2027—primarily because a number of individual income tax provisions contained in P.L. 115-97 (referred to as the 2017 tax act in this report) are scheduled to expire. After 2027, deficits increase again, reaching 6.9 percent of GDP in 2033, the end of the projection period. Since 1946, the deficit has exceeded 6.9 percent of GDP in only five years: from 2009 to 2011 (following the 2007–2009 recession) and in 2020 and 2021.
The cumulative deficit for the 2024–2033 period is projected to total $20.2 trillion, or 6.1 percent of GDP. Since 1973, the annual deficit has averaged 3.6 percent of GDP. In CBO’s projections, deficits equal or exceed 5.5 percent of GDP in every year from 2024 to 2033. Since at least 1930, deficits have not remained that large for more than five years in a row.
Primary deficits—that is, deficits excluding net outlays for interest—increase from 2.9 percent of GDP in 2023 to 3.4 percent in 2024 and 2025 in CBO’s projections. They then decrease and hover around 2.5 percent from 2027 to 2029 before rising again, reaching 3.2 percent of GDP in 2033 (see Figure 1-1). From 2024 to 2033, primary deficits average 2.9 percent of GDP. In the 62 years from 1947 to 2008, such deficits exceeded 2.5 percent of GDP only twice. In the past 14 years, they have exceeded that amount nine times—in large part because of legislation that was enacted in response to the 2007–2009 recession and the pandemic-induced recession of early 2020.