The Congressional Budget Office has finally released its budget and economic outlook. This release includes the official baseline, an important product which is used for scoring legislative proposals. The baseline is usually released much earlier in the year, but was delayed because Congress did not pass appropriations for 2022 until March, well after the start of the fiscal year last October.
The outlook projects deficits of over $1 trillion for the current fiscal year, only down by $20 billion compared to CBO's projection last year. In FY 2023, the deficit will drop to $984 billion before rising to over $2 trillion per year by 2031. Over the decade, the government is on track to add another $15.7 trillion in deficit spending, driving the national publicly-held debt to over $40 trillion – 110 percent of GDP.
This will also drive up the costs of financing the interest on the national debt. Interest payments will triple in size from $399 billion this year to $1.2 trillion in 2032, consuming 13 percent of federal spending.
As bad as the budget looks on paper, it could turn out to be worse. Congress requires CBO to project its baseline based largely on current law which tends to undercount spending and overcount revenues. This is because of programs that are set to expire under the law but are generally extended. This process opens up the door to use of budget gimmicks to get favorable scores of legislation.
What’s more, while CBO can’t predict the cost of bills that have yet to be passed, Congress’s tendency has been to increase spending well beyond the rate of growth of the economy. After all, had Congress succeeded in passing the Build Back Better bill, the country’s fiscal outlook would be that much worse.
To its credit, CBO included a chapter on alternative fiscal scenarios in this year’s outlook, discussing other outcomes for spending and revenues over the decade that take into account potentially more realistic assumptions. This important analysis was left out of recent budget outlooks due to the economic and fiscal volatility during the pandemic. Among the new findings, CBO estimates that if discretionary funding grows with GDP, outlays will be $1.4 trillion higher over the decade, plus an additional $131 billion in debt-service costs. Extending the individual provisions of the Tax Cuts and Jobs Act would provide $2 trillion in tax relief, and increase debt service costs by $201 billion absent corresponding offsets.
The rising deficits and the insights from the alternative fiscal scenarios highlight the need for scorekeeping reform so that lawmakers and taxpayers have access to budget estimates that are more realistic and remove some of the most egregious budgetary gimmicks from Congress's bag of tricks.
More importantly, Congress needs budget reform to rein in out of control spending. A successor is needed to the expired Budget Control Act of 2012 which helped reset the budget’s trajectory through fiscal restraints. The last substantive attempt to fix Congress’s broken budget process was the Bipartisan Congressional Budget Reform Act of 2019, jointly drafted by Senator Mike Enzi (R-WY) and Sheldon Whitehouse (D-RI). Controlling outlays will not only put the government in a better position to respond to future fiscal and economic emergencies, but it will also reduce the debt burden being lumped onto future generations of taxpayers.