On Tuesday, the Congressional Budget Office (CBO) released its updated baseline and budget projections for Fiscal Years 2013-2023. The report is an update of CBO's February projections, and provides a detailed forecast of where economists see tax and spending patterns heading over the next ten years.
You can read the full report by clicking the link above. Below are a few highlights that I thought were worth mentioning in the limited room that a blog post affords me.
The deficit in Fiscal Year 2013 will be lower than it has been in recent years.
CBO lowered its estimate for FY13 deficits to $642 billion, nearly $200 billion lower than its February estimate of $845 billion. This is certainly good news, and indicates a slight shift towards more sustainable deficit levels -- at least in the short term.
However, it represents the effects of certain "extraordinary" circumstances, namely:
- Large dividend payments ($95 billion worth) from Fannie Mae and Freddie Mac to pay back amounts they borrowed from the government, which CBO counts as "negative outlays." These are one-time effects that don't really say much about long-term trends.
- Major increases in tax revenues this past April, probably a result of high-income earners shifting much of their taxable income to 2012 in order to avoid looming higher rates in tax year 2013. Corporate tax receipts were also higher than expected. Again, this effect is much higher on 2013 deficits than in CBO's long-term averages.
By 2015, the deficit will fall to 2.1 percent of GDP. It'll rise again after that.
In 2023, CBO expects the deficit to get back to around 3.5 percent of GDP, higher than historical averages. Debt held by the public should hover in the 71-76 percent of GDP range over that time:
Health care, Social Security, and interest payments will drive future spending.
By CBO's estimates, Medicaid, Medicare, and Social Security spending will be lower over the next 10 years than forecast in February. However, those costs will still be driving government spending in the coming decade even as other discretionary spending decreases as a percentage of GDP:
Of course, with economic forecasts come a degree of uncertainty, so these projections may change as new laws are enacted. However, they offer a useful point of comparison against which various policy proposals can be measured when it comes to their effects on the budget.