The Congressional Budget Office regularly publishes baseline budget projections that show federal spending, revenues, and deficits over the next decade under the assumption that the laws governing spending and taxes generally remain unchanged. This report shows how different assumptions about future legislated policies would affect those budget projections.
CBO's baseline projections are not intended to be a forecast of budgetary outcomes; rather, they are meant to provide a benchmark that policymakers can use to assess the potential effects of policy decisions. The projections follow procedures set in law as well as long-standing guidelines. For example, laws require the agency to incorporate the assumption that discretionary funding—that is, the budget authority generally controlled by appropriation acts—grows with inflation. (CBO also incorporates limits on such funding established by other laws.) In addition, provisions of law require CBO to construct its projections of mandatory spending to reflect the assumption that laws governing such spending generally continue beyond their statutory expiration. By contrast, CBO's revenue projections generally reflect scheduled changes to provisions affecting the tax code, including changes in statutory tax rates.
This report presents the budgetary implications of alternative assumptions about future funding for discretionary programs and the continuation of certain revenue provisions that recently changed or are currently scheduled to change. Some of those alternatives could result in significant changes to the economy that would, in turn, affect the budget. However, the estimates in this report do not account for such effects.
Changes in spending or revenues can affect the economy through three main channels. First, any change in spending or revenues is likely to alter aggregate demand, which can affect output in the short run. Second, any change in spending or revenues will result in the federal government's borrowing more or less than projected. An increase in federal borrowing would decrease the resources available for private investment (an effect often referred to as crowding out) and thus reduce output. Third, changes to spending or revenues can affect output by altering people's incentives to work, save, and invest. Such effects would depend on the combination of alternative assumptions that were considered because some assumptions would interact in ways that would alter their economic and budgetary impacts.
This report includes 10 alternative assumptions—3 about discretionary spending and 7 about policies affecting revenues. The effects of those assumptions (considered in isolation) on primary deficits over the 2025–2034 period range from a decrease of $1.5 trillion to an increase of $3.3 trillion. (Primary deficits exclude net outlays for interest.) Most of the alternatives examined in this report would increase projected deficits and debt.
