The Congressional Budget Office (CBO) released its new budget and economic outlook this week. On the plus side, the deficit between 2024 and 2033 will be 7 percent smaller than CBO projected in last year's outlook. CBO explains that this will be largely due to the passage of the Fiscal Responsibility Act of 2023, which increased the statutory debt limit in exchange for spending reductions, and the short-term continuing resolutions (CR) enacted since then. At the time it was being considered, NTUF wrote that it was the most significant debt ceiling deal brokered by lawmakers since the Budget Control Act of 2011. CBO's outlook notes that together, the FRA and the CRs shaved $2.6 trillion over the next ten years.
The bad news is that a lot more spending reforms are needed to set the budget on a sustainable path. CBO projects that the federal budget deficit will top $1.5 trillion this year and is on track to reach $2.6 trillion in 2034.
Over the decade, the government is on track to spend $20 trillion more than it will collect in taxes and other receipts. Federal debt held by the public will surpass the size of the nation's GDP in 2025 and will only continue to grow relative to the economy, swelling to 116 percent of GDP in 2034.
Moreover, Congress still has not yet finalized funding for FY 2024 that began last October 1. The current short term CRs are set to expire in early March. In addition, lawmakers are considering an emergency supplemental package and a major tax package. CBO might very soon have to issue a revised projection if these proposals become law. Looking ahead, several of the reform provisions in the Tax Cuts and Jobs Act face expiration after 2025, there will be continuing pressures to spend more money, and higher interest rates over the next few years will increase the costs of financing the federal debt.
The baseline is an important product showing how spending and revenues might play out if current laws are kept in place. A lot of work goes into producing it. CBO reports that the agency spends around two months completing its budget outlook and baseline, "About half of that time is needed to update and revise all spending and revenue projections. The other half is needed for analysis of the information, writing, and production of accompanying reports." Before that work is begun, CBO needs to finalize its economic projection. For the current outlook, that part of the process was completed on December 5.
The House Budget Committee held its first oversight hearing about the CBO last week, discussing ways that CBO could be improved to provide more transparent and accurate budgetary analysis and legislative cost estimates. Congress could help this process by enacting annual spending bills in a timely manner, not 4 to 5 months into a new fiscal year. This would enable CBO to lock down its budgetary baseline in an efficient manner and to provide more analysis in the outlook of what spending and revenues would look like under alternative, more realistic scenarios.
Moreover, as the debt projections show, the FRA helped but a lot more work is needed to continue that progress towards a sustainable budget. Congress could also help tame the debt threat by establishing a fiscal commission to provide cross-partisan solutions and stop passing the buck down to future generations of taxpayers.