CBO/JCT

CBO Estimates Economic Effects of the President's Final Budget

In addition to producing its own estimate of the budgetary effects of the President's budget, CBO typically estimates the economic effects of the budget as well, in essence producing a dynamic score of the President's proposals. This year's Macroeconomic Analysis of the President's Budget draws a similar conclusion as the previous few: the labor supply effect of immigration reform increases the size of the economy somewhat while other factors on net slightly reduce it, leaving higher Gross National Product (GNP) overall but lower GNP per capita. Overall, the budget would increase real GNP per 1 percent on average over the next ten years (and by about 2.5 percent in the last year), but GNP per capita would be about 0.7 percent lower over the same time period. Dynamic effects not already accounted for would increase deficits by $32 billion over ten years.

It's worth noting that CBO's previous estimate of the President's budget already incorporated the effect of immigration reform on labor supply (from increased population) into its numbers, finding $101 billion of deficit reduction over ten years as a result. The economic analysis incorporates more indirect effects of the increased labor supply, specifically that the larger labor force would increase the return to capital, which in turn would increase productivity by 0.7 percent in 2026. The increased return to capital would, however, also raise interest rates on federal debt.

Other factors would hurt economic growth. In particular, the budget's net tax increases, which are larger than in years past, would raise marginal tax rates by around 3 percent on labor income and around 3.5 percent on capital income when the increases are fully phased in. CBO also finds that the budget's investments would reduce economic growth in the short term, particularly since the increased higher education spending would encourage people to drop out of the labor force and attend school. Most of the investments' effects on productivity would occur beyond the ten-year window.

Halfway Through the Year, FY 2016 Leads FY 2015 in Deficits

The Congressional Budget Office (CBO) released its Monthly Budget Review for March recently, so we now have data for the first half of Fiscal Year (FY) 2016. CBO shows that the deficit so far in FY 2016 is $457 billion, $18 billion higher than the FY 2015 deficit over the same time period. Both outlays and revenue have grown by 4.1 percent so far, but with spending at a higher starting point, that means higher deficits. Looking closer at the numbers reveals some trends about how the budget is changing this year.

The higher deficit that CBO has found so far in FY 2016 is not a surprise since in their most recent budget projections, they expected a $95 billion higher deficit for the year. Granted, about $37 billion of this increase is due to the fact that the start of FY 2017 falls on a weekend so some payments will be shifted into FY 2016, but the rest of the increase is due to the deficit-increasing legislation lawmakers have passed recently. That will reverse the trend of falling deficits since 2009 and send them back up almost continuously over the next decade. Note that the deficit in the first half of the year is almost all of the way to the projected full year deficit of $534 billion because April, June, and September tend to be big surplus months.

CBO also presents data on the major spending and revenue categories and how they have grown in the first six months of the fiscal year. Some of the more interesting trends are:

CBO's New One-Stop Shop for Federal Spending on Health Insurance Coverage

CBO's March baseline is typically a brief update of budget projections for the next decade, but this year CBO has provided a new comprehensive look at insurance coverage for the non-elderly population. The report (and tables) evaluates the sources of health insurance and federal insurance subsidies for people under age 65.

Employer-based coverage remains the largest source of insurance coverage, accounting for 155 million of the 244 million insured in 2016, or nearly two-thirds, while Medicaid and the Children's Health Insurance Program ("CHIP") cover 68 million people, or just over one-quarter of the insured population. Although the Affordable Care Act ("Obamacare") expanded coverage through Medicaid and the health insurance exchanges it only increased net insurance coverage by 23 million, accounting for 9 percent of the insured. Other sources, including Medicare, cover the remaining 15 million insured. Twenty seven million people are currently uninsured. CBO expects this distribution of coverage to remain relatively stable over the next decade albeit with a slight shift from employer coverage to individual coverage.

Breaking Down CBO's Analysis of the President's Budget

The Congressional Budget Office (CBO) released its own estimate of the FY 2017 President's budget yesterday, a document that includes a 16-page report and several supplemental analyses. Our report on CBO's analysis breaks down the key budgetary takeaways, namely that while the budget does include substantive deficit reduction, it does not do enough to bring debt down as a share of GDP.

CBO Releases Its Own Take on the President's Budget

The Congressional Budget Office (CBO) today released its analysis of the Fiscal Year 2017 President's budget, finding that under the President's policies, the debt would rise slightly from today's post-World War II record-high 75 percent of Gross Domestic Product (GDP) to 77.4 percent by 2026. This is a significant improvement from CBO's current law baseline, which projects debt will rise to nearly 86 percent of GDP, but is worse than the Office of Management and Budget's (OMB) estimate that the President's budget would stabilize the debt at about 75 percent of GDP. Regardless which numbers are correct, it is clear the budget does too little to put the debt on a sustainable downward path.

CBO's projection of rising debt under the President's budget is driven by annual deficits, which would decline over the next two years but then rise nearly continuously thereafter. Under the President's budget, CBO estimates deficits would fall from 2.9 percent of GDP ($529 billion) in 2016 to 1.9 percent ($383 billion) by 2018 before rising to 2.7 percent of GDP ($585 billion) by 2020 and 3.5 percent of GDP ($972 billion) by 2026. Trillion-dollar deficits would likely return by 2027.

How The March Baseline Reiterates Our Distressing Fiscal Path

The Congressional Budget Office's (CBO) updated March baseline confirms the era of declining deficits is over. This year's deficit is expected to rise for the first time in seven years.

Despite deficit reduction enacted in recent years, deficits will approach 2009 levels by 2026, making it the largest nominal-dollar deficit ever outside of a recession.

CBO Updates The Baseline Ahead of President's Budget Estimate

In advance of its scheduled release of an analysis of the President's budget, the Congressional Budget Office (CBO) has updated its budget projections through 2026. Their new estimate shows a very similar picture to their last baseline in January: essentially unchanging debt as a share of Gross Domestic Product (GDP) in the near term but rising debt after that, with $1 trillion deficits still returning by 2022. This blog goes into further detail about CBO's March budget projections and what has changed since January.

Over the next ten years, deficits are projected to total $9.3 trillion, or 4.0 percent of GDP. Deficits will rise nearly every year in dollar terms over this time period. The deficit will stay around 2.9 percent of GDP through 2018 but rise steadily to 4.9 percent by 2026. These widening deficits drive the rapid rise in debt after 2018, when it increases from 75.4 percent in 2018 to 85.6 percent by 2026. The previous projection had debt reaching 86.1 percent in 2026.

Driving the rise in debt over the next decade is rising spending coupled with stagnant revenue. Spending is projected to rise from 21.1 percent of GDP in 2016 to 23.1 percent by 2026, driven entirely by increases in Social Security, health care, and interest spending. At the same time, though, revenue will essentially be flat, falling slightly from 18.2 percent in 2016 to 18.0 percent in 2019 and back up to 18.2 percent in 2026, as growing individual income tax revenue is largely offset by falling corporate revenue and Federal Reserve remittances. Spending and revenue average 22.1 and 18.1 percent of GDP, respectively, over the next ten years, similar to their totals in the January baseline.

Budget Metrics in CBO's Updated Baseline (Percent of GDP)
  2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Ten-Year
Outlays
March 21.0% 20.8% 21.4% 21.8% 22.0% 22.5% 22.5% 22.4% 22.8% 23.1% 22.1%
January 21.1% 20.9% 21.5% 21.8% 22.0% 22.5% 22.4% 22.3% 22.8% 23.1% 22.1%
Revenue
March 18.2% 18.1% 18.0% 18.1% 18.1% 18.1% 18.1% 18.1% 18.2% 18.2% 18.1%
January 18.2% 18.1% 17.9% 18.0% 18.0% 18.0% 18.0% 18.1% 18.1% 18.2% 18.1%
Deficits
March -2.8% -2.7% -3.4% -3.7% -3.9% -4.4% -4.4% -4.3% -4.6% -4.9% -4.0%
January -2.9% -2.8% -3.5% -3.7% -4.0% -4.4% -4.4% -4.3% -4.6% -4.9% -4.0%
Debt
March 75.5% 75.4% 76.2% 77.2% 78.3% 79.8% 81.2% 82.4% 83.9% 85.6% N/A
January 75.7% 75.7% 76.7% 77.8% 78.8% 80.3% 81.7% 82.8% 84.3% 86.1% N/A

Source: CBO

CBO's Analysis of the Distribution of Taxes

In an appearance on C-SPAN this morning, CRFB president Maya MacGuineas referenced a Congressional Budget Office (CBO) analysis that shows that high earners do not pay a particularly high percent of their income in taxes but do pay a large share of taxes.

Moving on Up: Interest Costs in the CBO Baseline

With the Congressional Budget Office releasing its final baseline last week, we know the dire fiscal future facing the country. Thanks to policymakers' disregard for fiscal discipline, the baseline is much worse than it had been in August. Of particular concern is the rapidly increasing interest costs in the baseline.  Interest is the fastest growing type of spending over the next 10 years.

The $223 billion in interest costs during fiscal year (FY) 2015 resulted from servicing the $13.1 trillion debt at an average interest rate of 1.7 percent. Even at record-low interest rates, this is already more than we spend on the Departments of Homeland Security and Veterans Affairs combined. This is also more than current spending on the Departments of Education, Housing and Urban Development, and Transportation combined. Every dollar the United States devotes to interest payments is a dollar that either cannot fund national priorities or that must be collected through higher taxes. As interest rates rise back to more normal levels and debt continues to grow, the Congressional Budget Office (CBO) expects spending on debt service to increase significantly.

Everything You Need to Know About CBO's January 2016 Budget and Economic Outlook

We've published a new chartbook to illustrate the most important facts and figures from this week's report by the Congressional Budget Office (CBO), which shows debt and deficits are now projected to rise much higher than previously projected.

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