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1 1 (2020)

handle is hein.congrec/cbohwcec0001 and id is 1 raw text is: : FEBRUARY 2020 How Changes in Economic Conditions Might Affect the Federal Budget: 2020 to 2030 Some of the uncertainty in budget projections stems from the fact that the federal budget is highly sensitive to economic conditions, which are difficult to predict. If conditions differed from those in the Congressional Budget Office's economic forecast, budgetary outcomes could diverge from those in the agency's baseline budget projections) To show how variations in economic conditions might affect the budget, CBO analyzed how the budget might change if values of the following key economic variables differed from those in the agency's forecast: The growth of productivity and, consequently, the growth of real (inflation-adjusted) gross domestic product (GDP); Labor force growth, which would also affect real GDP growth; Interest rates; and Inflation. 1. See Congressional Budget Office, The Budget and Economic Outlook: 2020 to 2030 (January 2020), www.cbo.gov/ publication/56020. In the past, the analysis included in this report has appeared as an appendix in the annual Budget and Economic Outlook. This year, however, it is published separately because the timing of recent legislation did not allow enough time to include it in that report. To illustrate the budgetary effects of economic changes, CBO created and analyzed four scenarios to develop rules of thumb for those variables. The scenarios reflect the following changes from the agency's current eco- nomic forecast: slower productivity growth, slower labor force growth, higher interest rates, and higher inflation. Each of those changes would increase deficits above the amounts in CBO's baseline budget projections; how- ever, the values of any of the variables could be higher or lower than they are in CBO's forecast. Because the rules of thumb are roughly symmetrical, if productivity or the labor force instead increased more quickly than projected, or if interest rates or inflation were lower than projected, deficits would be smaller than they are in the agency's baseline budget projections. Specifically, CBO's analysis yielded the following results: If productivity grew at a rate that was 0.1 percentage point slower each year than it is in the agency's economic forecast, annual deficits would be larger than projected by amounts that would climb to $63 billion by 2030, CBO estimates. Over the 2021-2030 period, the cumulative deficit would be $306 billion larger than it is in CBO's baseline projections. If the labor force grew at a rate that was 0.1 percentage point slower each year than it is in CBO's economic forecast and the unemployment rate Notes: All years referred to in describing the budgetary effects of changes in the economy are federal fiscal years, which run from October 1 to September 30 and are designated by the calendar year in which they end. Years referred to in describing estimated changes to the economy are calendar years. Numbers in the text and tables may not add up to totals because of rounding.

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