RSSSurplus and Deficit Forecast Congressional Budget Office 2008 – 2018
In January of each year the Congressional Budget Office publishes The Budget and Economic Outlook, which contains, among other items, its “baseline projection” for the next ten budget years. The term baseline as used here simply means that the projection serves as a starting point for further discussions. The baseline projection shows the projected path of spending and taxes under current laws and policies. Thus, it assumes that spending for the wars in Afghanistan and Iraq will continue. It also assumes that the tax cuts of 2001 and 2003 will expire as scheduled after 2010 and that tax revenue will therefore rise sharply. Mandatory spending is forecasted to grow at a rate of 1% over the growth in GDP, while discretionary spending is expected to grow at less than the rate of inflation, which is lower than the growth of GDP. As a result, mandatory spending is forecasted to rise as a percentage of GDP (to 12.0%) by 2017, while discretionary spending is expected to fall to 6.4% of GDP by that year. Under these assumptions, the budget would emerge from its chronic deficit state to a series of surplus years beginning in 2012, mostly as a result of increased tax collections.
2 Responses to “Surplus and Deficit Forecast Congressional Budget Office 2008 – 2018”
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June 19th, 2008 at 11:50 pm
I could use a little more independent commentary on this slide. Can we really trust any numbers out of the Congressional Budget Office? Aren’t they constantly projecting a balanced budget? What are the projected numbers for the wars in Afghanistan and Iraq based on? And are they accounting for the growing number of retirees over this time frame?
June 29th, 2008 at 12:09 pm
I think that the CBO is still running under static analysis rules. To illustrate the foolishness of those rules, some congressman asked for a multi-year assessment of a 100% tax rate on revenues. The revenue increase for the 1st year was massive and the 2nd year effect was even larger. The assumption in static analysis is that an increase in rates has zero effect on taxpayer behavior. This is nonsense on stilts but it’s the way the politicians calculate taxation effects.