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What you should know about the budget outlook

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Jacquelyn Martin/AP/File

(Read caption) Congressional Budget Office Director Douglas Elmendorf is reflected on a table as he speaks about the office's annual Budget and Economic Outlook during a news conference at the Ford House Office Building in Washington. Even if seemingly everything goes right, Gale writes, we are still on the edge of dangerously high debt and deficit levels with little room to spare.

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The Congressional Budget Office released its latest Budget and Economic Outlook earlier this week.  As always, the Outlook provides insight into the fiscal status of the federal government. My three overarching reactions are:

First, because American Taxpayer Relief Act of 2012 (ATRA) instituted tax changes that had been widely expected, the official (“current law”) baseline is now much more reflective of plausible outcomes than it has been in the past. Hence, the baseline is now a more reliable guide to the fiscal outlook.

Second, unlike in long-term budget scenarios – where rising health care spending is the single most important factor – there is no “smoking gun” in the 10-year projections. Mainly, there is “just” an overall continuing imbalance between spending and taxes. Revenue is not projected to collapse, as it did in 2009-12, but rather to grow to higher-than-historical-average levels.  Spending isn’t spiraling out of control—it is at the same share of GDP in 2023 as it was in 2012. Large projected cuts in discretionary spending are offset by net interest rising to historically high levels and increases in mandatory spending.

Third, while we do not face an imminent budget crisis, the data in the Outlook imply that we are not out of the woods. The 10-year budget outlook remains tenuous. Even if seemingly everything goes right – in economic terms and in political terms – we are still on the edge of dangerously high debt and deficit levels with little room to spare. For example, under the current law baseline, even if: 

the implications are, nevertheless, that:

Under CBO’s alternative fiscal policy baseline or my own measure of a current policy baseline, all of the budget projections are worse. Read more»

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