The Green Sheet Online Edition
March 11, 2013 • Issue 13:03:01
The CBO's outlook through 2023
In February 2013, the Congressional Budget Office, which does nonpartisan analysis for the United States Congress, released The Budget and Economic Outlook: Fiscal Years 2013 to 2023, a 77-page report forecasting future economic conditions such as gross domestic product (GDP), unemployment rate and federal debt for the next 10 years. The report assumes laws in effect in February will continue to apply. Following are highlights from the report:
- The CBO anticipates economic activity will expand slowly in 2013 and that real GDP will grow by 1.4 percent. This reflects a combination of ongoing improvement in underlying economic factors and fiscal tightening that has already begun or will begin soon.
These include "the expiration of 2 percentage-point cut in the Social Security payroll tax, an increase in tax rates on income above certain thresholds, and scheduled automatic reductions in federal spending."
- The CBO expects interest rates and the rate of inflation will remain low in 2013.
- The U.S. budget deficit will shrink in 2013 to an estimated $845 billion, or 5.3 percent of GDP, its smallest size since 2008 and the first deficit in five years below $1 trillion.
- Deficits will continue to shrink in the next few years, falling to 2.4 percent of GDP by 2015; however, they will increase thereafter because of "pressures of an aging population, rising health care costs, and expansion of federal subsidies for health insurance, and growing interest payments on federal debt."
- By 2023, if laws in effect as of February 2013 remain in place, federal debt "will equal 77 percent of GDP and be on an upward path."
- The deficits projected in the CBO's February 2013 baseline are "significantly larger" than those in its August 2012 baseline, when projected deficits totaled $2.3 trillion for the period from 2013 through 2022. In the current baseline, the total deficit for the same period has risen by $4.6 trillion.
- Factors affecting the CBO's projected deficits include the American Taxpayer Relief Act of 2012, which changed aspects of tax and spending laws that are expected to boost deficits by $4.0 trillion, excluding debt-service costs, during the 2013 through 2022 period.
For the updated baseline the CBO also considered legislative actions occurring after August 2012, a new economic forecast and "technical revisions" to its projections.
- Unemployment will remain above 7.5 percent through 2014; if that occurs, 2014 will be "the sixth consecutive year with unemployment exceeding 7.5 percent of the labor force - the longest such period in the past 70 years."
- The unemployment rate will fall after 2014, as follows:
- Federal revenues are projected to increase by approximately 25 percent between 2013 and 2015 - from 15.8 percent of GDP in 2012 to 19.1 percent of GDP in 2015, compared with an average of 17.9 percent of GDP over the past 40 years.
- Under current law, federal revenues are expected to remain at about 19 percent of GDP from 2015 through 2023.
- The CBO expects federal spending will be restrained by a strengthening economy and by the Budget Control Act of 2011. Outlays, which peaked at 25.2 percent of GDP in 2009, are projected to decline from 22.8 percent of GDP in 2012 to 21.5 percent by 2017, but they will still exceed their 40-year average of 21 percent.
Source: The CBO's The Budget and Economic Outlook: Fiscal Years 2013 to 2023, which is available for free download at www.cbo.gov/publication/43907.
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