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The Standardized Budget: Details of the Projections 1 (August 2000)

handle is hein.congrec/cbo0670 and id is 1 raw text is: Page 1 of9 THE STANDARDIZED BUDGET: DETAILS OF THE PROJECTIONS August 2000 On July 18, 2000, the Congressional Budget Office (CBO) released The Budget and Economic Outlook.- Fiscal Years 2001-2010--An Update, which presents CBO's latest projections of federal revenues and outlays over that period. In preparing the economic forecast that underlies those projections, CBO considers whether the movements in the budget balance caused by legislation and other factors are restraining or stimulating short-term economic growth. The fiscal policy measure CBO uses for that purpose is the annual change in an adjusted version of the budget balance-- specifically, the change in the standardized-budget surplus (or deficit). This supplement to the update provides projections of the standardized budget through fiscal year 2010 as well as updated historical calculations (see Tables 1 through 6 later in this document). As in the July update, these standardized-budget projections are calculated under three variants of CBO's baseline, each of which reflects a different assumption about discretionary spending. The inflated variation assumes that discretionary spending grows at the rate of inflation after 2000. The freeze variation pegs discretionary budget authority to the level enacted for the current year plus amounts already enacted for 2001. The capped variation assumes that discretionary spending equals CBO's estimates of the statutory caps through 2002 and grows at the rate of inflation thereafter. In calculating the standardized budget, CBO makes several types of adjustments. First, it adjusts revenues and outlays to remove the effects of the business cycle. During economic downturns, revenues automatically fall as income declines, and outlays automatically increase as unemployment rises. Because of those cyclical effects, changes in the actual, or unadjusted, budget surplus can give misleading signals about the stance of fiscal policy. Other adjustments by CBO remove the budgetary effects of factors that have no impact on short-term growth, such as sales of assets and changes by a day or two in the timing of receipts or outlays that effectively shift them from one fiscal year to another. Beginning this year, CBO's calculations of the standardized budget incorporate several new adjustments.0- For the 1996-2000 period, the most important ones are the following: Estimates of capital gains tax collections have been removed from the calculations because large fluctuations in those taxes can distort measures of how the budget affects short-term economic growth. Estimates of the inflation component of federal interest payments are now excluded because that part of the payments is simply an early return of principal to bondholders and is likely to be saved rather than spent. Estimates of large changes in withheld taxes that are not matched by changes in tax liabilities are now largely excluded because for the majority of consumers, such changes are not likely to have

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