President Biden released his fiscal year (FY) 2024 budget request on Thursday.
An important factor in any President’s budget request is the economic assumptions their team makes, which in turn informs assumptions about baseline government spending, revenue, debt, and deficit levels for the years ahead.
In a few important respects, the Biden economic team has made different assumptions about the country’s key economic indicators for the next two years than the non-partisan Congressional Budget Office (CBO), which released its own projections just a few weeks ago. While these differences may appear small, they actually could affect billions in spending and revenue collections, as explained below.
2023-24 Economic Projections, CBO and White House | ||
CBO Feb. 2023 |
| White House March 2023 |
0.3% | 2023 Real GDP growth | 0.6% |
4.8% | 2023 CPI-U growth | 3.9% |
4.7% | 2023 Unemployment Avg | 4.3% |
1.8% | 2024 Real GDP growth | 1.5% |
3.0% | 2024 CPI-U growth | 2.4% |
4.9% | 2024 Unemployment Avg | 4.6% |
In short, the White House is projecting:
- Better economic performance in 2023 than CBO: 0.6 percent real GDP growth vs. 0.3 percent real GDP growth; however, the White House is projecting worse economic performance in 2024 than CBO (1.5 percent growth vs. 1.8 percent growth);
- Lower inflation in 2023 and 2024 than CBO: 3.9 percent CPI-U growth in 2023 and 2.4 percent in 2024, compared to 4.8 percent CPI-U growth in 2023 and 3.0 percent in 2024 projected by CBO; and
- Lower unemployment in 2023 and 2024 than CBO: 4.3 percent on average in 2023 and 4.6 percent on average in 2024, compared to 4.7 percent in 2023 and 4.9 percent in 2024 projected by CBO.
Who’s correct? Only time will tell.
These differences may seem like a few tenths of a percentage point, but they have consequences not only for workers and businesses throughout the U.S. economy but taxpayers as well:
- If the economy performs better than the White House or CBO expects in 2023-24, federal revenues could increase relative to expectations due to increased individual and corporate tax receipts associated with the strong performance of the economy, financial markets, and corporate profits – reducing federal deficits in the process;
- Conversely, if the economy performs worse than the White House or CBO expects in 2023, federal revenue could decrease relative to expectations, increasing deficits;
- If inflation runs lower than the White House or CBO expects in 2023 and/or 2024, federal revenues could increase relative to expectations due to the recovery of financial markets and corporate profits; revenues could also decrease relative to expectations if wage growth (and associated individual and payroll tax receipts) is lower than expected;
- Lower inflation could also decrease federal spending relative to expectations, both on mandatory spending that automatically adjusts with inflation (such as Social Security benefits) and on net interest payments on the federal debt, in turn decreasing deficits;
- Higher inflation, conversely, could either increase (individual or payroll) or decrease (corporate or individual) federal revenues relative to expectations, while increasing federal spending on mandatory programs and net interest on the debt, increasing deficits;
- Lower unemployment than expected could decrease federal spending relative to expectations and increase federal revenues, reducing deficits; higher unemployment than expected could increase federal spending and decrease federal revenues, increasing deficits.
The tenths of a percentage point difference between White House and CBO projections for the 2023 and 2024 calendar years – with the White House’s projections generally being more optimistic about U.S. economic performance than CBO’s projections – could affect billions of dollars in federal spending and revenue collections over the next three fiscal years (2023, 2024, and 2025).