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1 Automatic Stabilizers in the Federal Budget: 2022 to 2032 1 (October 27, 2022)

handle is hein.congrec/acssitef0001 and id is 1 raw text is: Federal revenues and outlays regularly respond to cyclical movements in the economy in ways that tend to offset those movements; the budget mechanisms that drive that process are known as automatic stabilizers. Those mech- anisms, which help stabilize the economy automatically, also contribute to short-run fluctuations in the deficit, without any legislated changes in tax or spending policies. In this report, the Congressional Budget Office projects the budgetary effects of those automatic stabilizers-as well as the size of deficits without them-from 2022 to 2032 and provides historical estimates of the stabilizers' effects since 1972, including their effects in the wake of the coronavirus pandemic.1 This report is based on CBO's forecast that was released in May 2022; those projections reflect economic developments through March 2, 2022. The projections in the May 2022 forecast and those pre- sented in this report reflect the assumption that current law will generally remain unchanged.2 The key takeaways from CBO's analysis of the effects of automatic stabilizers are as follows: * Automatic stabilizers added significantly to deficits in 2020 and 2021, though most of the change in the total deficit during those years was the result of temporary provisions in pandemic-related legislation. 1. Data going back to 1965 are available at www.cbo.gov/data/ budget-economic-data#8, as are the agency's previous estimates of the effects of automatic stabilizers. 2. For the agency's current economic forecast and budget projections, see Congressional Budget Office, The Budget and Economic Outlook: 2022 to 2032 (May 2022), www.cbo.gov/ publication/57950. * Automatic stabilizers are projected to reduce federal deficits from 2023 to 2026 and increase federal deficits from 2027 to 2032. * With the effects of automatic stabilizers removed, deficits are projected to average 4.9 percent of potential gross domestic product (GDP) over the next decade, more than one-and-a-half times their 50-year average. (Potential GDP is an estimate of the maximum sustainable output of the economy.) Background When the unemployment rate is above the noncyclical rate of unemployment, automatic stabilizers typically boost federal outlays for transfer programs above what they would be if the unemployment rate was equal to the noncyclical rate. Those programs include unemployment insurance benefits, Medicaid, and the Supplemental Nutrition Assistance Program (SNAP); such programs support household income and thus private spending. Meanwhile, automatic stabilizers tend to reduce federal revenues when output is below potential because wages and salaries, corporate profits, and other tax bases are typically smaller than they would be if the economy was at its potential output. By contrast, when unemploy- ment is below its noncyclical rate and output is above its potential, automatic stabilizers generally decrease federal spending on transfer programs and increase revenues relative to what they would be otherwise, thus restraining private spending. CBO estimates the effects of automatic stabilizers on spending and revenues to inform policymakers and analysts about the extent to which changes in the budget deficit are caused by cyclical fluctuations in the economy rather than policy changes. The effects of automatic sta- bilizers are measured as the estimated changes in federal Notes: Unless this report indicates otherwise, all years referred to are federal fiscal years, which run from October 1 to September 30 and are designated by the calendar year in which they end. Numbers in the text, tables, and figures may not add up to totals because of rounding.

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