The new budget and economic outlook from the Congressional Budget Office (CBO) should be a stark wake up call to lawmakers about the unsustainable budget path. In FY 2020, CBO expects that federal spending will exceed revenues by over $1 trillion. By 2030, the deficit will top $1.7 trillion, adding more than $13 trillion to the debt over the decade. As in all recent budget outlooks, the rise in spending is driven by mandatory spending for programs like Medicare, Medicaid, and Social Security. Total mandatory outlays are projected to nearly double from $2.9 billion last year to $4.9 billion in 2030.
More significantly, deficits and spending are growing as a share of the economy. Over the next ten years, revenues will total 17.4 percent of GDP per year on average while spending will average over 22 percent of GDP annually.
As horrific as these figures are, they likely understate total deficits by billions of dollars. Under budget rules, CBO is required to construct the budget baseline assuming that current laws governing taxes and spending generally remained unchanged. For example, the baseline counts on tax receipts that, under a more realistic view, won't occur. The lower individual tax rates enacted in the Tax Cuts and Jobs Act are set to expire after 2025. But if the past is a guide, similar tax cuts in past decades were eventually kept in place in order to prevent steep rate hikes from hitting taxpayers. Additionally, the current-law baseline includes certain unpopular taxes originally passed in the Affordable Care Act whose implementation has already been delayed several times.
The official baseline also tends to under-report spending levels. Last year, CBO published a review of the accuracy of its past baseline projections and the findings showed that the biggest source of errors was not analyst error or even shifting economic fortunes; it was Congress itself, through subsequent changes to policy that rendered CBO’s analysis inaccurate. For example, the new outlook reports that legislation enacted since CBO's budget outlook update published last August "increased projected deficits by $505 billion through 2029."
The past several budget outlooks have included chapters examining Alternative Fiscal Scenarios (AFS) such as those above considering lower revenues from extending tax breaks beyond their expiration and spending levels that would run higher than projected under statutory budget caps that Congress had already overridden several times. While the newest outlook does not include a discussion of these more accurate alternatives, a CBO staffer told NTUF that they would be releasing a separate AFS report at a later date. These alternative projections are a crucial supplement to the official baseline, providing a more realistic, and even more grim picture of the federal government's severe budgetary challenges.