The Accuracy of CBO's Budget Projections for Fiscal Year 2025

After each fiscal year ends, 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. Comparing CBO's projections with actual outcomes is complicated by changes in law and administrative and judicial actions that occur after the projections are made. By statute, CBO's projections do not include forecasts of future changes in law. The agency also does not attempt to predict judicial rulings and nonroutine changes in administrative policy. Following a long-standing agreement between CBO and the House and Senate Budget Committees, if the Administration has not taken a clear, official, and public action that details a proposed change, CBO does not include the budgetary effects of that change in its baseline projections.

The many changes to tariffs in 2025 illustrate the consequences of holding administrative policies unchanged in CBO's baseline. The projections of revenues from customs duties reflect the estimated effects of tariffs in place when the projections were finalized and incorporate the assumption that those tariffs continue without further changes. Specifically, the projection of customs duties in CBO's January 2025 projections is based on the tariffs in place on January 17, 2025. Actual tariff revenues in 2025 were much higher, reflecting the higher tariff rates put in place by administrative action after January 20, 2025. Customs duties accounted for 4 percent of revenue in 2025, whereas they accounted for only 2 percent in 2024. The difference between actual revenues from customs duties ($195 billion) and CBO's January projections ($76 billion) almost entirely stems from those administrative actions. Indeed, customs duties alone account for about half of the difference between actual revenues in 2025 and CBO's January 17, 2025 projection of revenues.

One simplified way to isolate the effects of tariff changes and focus on factors that the agency attempted to estimate is to exclude customs duties from total revenues. Excluding customs duties, the actual federal budget deficit was $95 billion smaller than CBO projected it would be in June 2024. That amount is equal to 0.3 percent of gross domestic product (GDP), which is about three-tenths as large as the average error over the previous 40 years (in absolute terms). The actual deficit excluding customs duties was $13 billion larger than CBO projected it would be in January 2025. The largest contributors to the difference between the actual deficit excluding customs duties and CBO's January projections were an underestimate of revenues from individual income taxes and underestimates of outlays attributable to higher- than-expected outlays for Medicaid and Medicare.

Historically, CBO's measures of accuracy have categorized the effects from nonroutine changes in administrative policy (such as those regarding tariffs) as projection errors because they can be difficult to separate from other effects. The body of this report maintains that convention and includes differences in revenues resulting from changes in customs duties in the measurement of errors. This report also maintains the practice in earlier reports of removing the estimated effects of legislation enacted after the baseline projections were developed.

The differences between CBO's June 2024 baseline projections, its updated January 2025 projections, and those actual outcomes were as follows:

• In 2025, revenues totaled $5.2 trillion. CBO's June 2024 projection of $4.9 trillion for federal revenues in 2025, adjusted for subsequent legislation, was too low—by $334 billion, or 6 percent. That difference was nearly equal to the average absolute error of about 6 percent in CBO's revenue projections for 1983 to 2024. The agency's projection in January 2025 was closer to the actual amount, but still too low by $203 billion (or 4 percent). The largest factor contributing to the underestimate in the January 2025 projection—accounting for about half of the miss—was the increases in tariffs put in place by the Administration beginning in February 2025.
• CBO underestimated total federal outlays for 2025, which were $7.0 trillion. CBO's June 2024 projection of $6.9 trillion, adjusted for subsequent legislation, was too low by $121 billion, or 2 percent. That difference was smaller than the average absolute error of about 3 percent in CBO's outlay projections for 1983 to 2024. The agency's outlay estimate in January 2025 was closer to the actual amount, but still too low by $102 billion (or 1 percent). Most of that underestimate was attributable to higher-than-expected outlays for Medicaid, Medicare, and student loans. CBO's projections of discretionary outlays were close to actual amounts, with an error of less than 1 percent. Errors were slightly larger for mandatory outlays and net outlays for interest.
• In addition to changes to tariffs, the amounts that CBO categorized as errors in revenues and outlays in 2025 include a variety of other administrative and judicial actions that the agency did not attempt to predict. Examples of such administrative actions affecting revenues include immigration policy and changes that affect when taxes are paid.