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Uncertainties in Projecting Budget Surpluses: A Discussion of Data Methods: A Supplement to the Budget and Economic Outlook: FY 2003-2012 [i] (February 2002)

handle is hein.congrec/cbo0702 and id is 1 raw text is: Uncertainties in Projecting Budget Surpluses: A Discussion of Data and Methods A Supplement to The Budget and Economic Outlook: Fiscal Years 2003-2012 February 2002 On January 31, 2002, the Congressional Budget Office (CBO) released The Budget and Economdc Outlook: Fiscal Years 2003-2012, which presents CBO's latest projections of federal revenues and outlays for that period. Chapter 5 of that report discusses the uncertainties in CBO's baseline projection of the total budget surplus and includes a chart (reproduced here as Figure 1) illustrating how those uncertainties increase over six years. This supplementary report describes the data and methods used to construct the chart. In brief, CBO calculated measures of uncertainty using the inaccuracies in its past projections that arose from economic and technical factors, not from legislation. Figure 1. Uncertainty In CBO's Projection of the Total Budget Surplus Under Current Policies Trillions of Dollars 1.4 1.2 - 1.0 0.8 - 0.6- OA- OA - 0. 0 .0.4 .0.6 -0.- 1111111 1993 1815 1997 1M 2001 2003 2006'2007 SOURCE: Congressional Budget Office. NOTES: This figure shows the estimated likelihood of alternative projections of the surplus under current policies. The calculations are based on CBO's past track record. CBO's baseline projection falls in the middle of the darkest area. Under the assumption that current policies do not change, the probability is 10 percent that actual surpluses will fall in the darkest area and 90 percent that they will fall within the whole shaded area. Actual surpluses will of course be affected by legislation enacted during the next five years, including decisions about discretionary spending. The effects of future legislation are not included in this figure. Figure 1 presents CBO's baseline projection of the budget surplus as a fan of probabilities around the mean projection for fiscal years 2002 through 2007. The Ian widens as the projection extends. The baseline projection falls in the middle of the highest-probability area--the darkest part of the figure. But the figure makes clear that nearby projections--other paths in the darkest part of the figure--have nearly the same probability as the baseline. Moreover, projections that are quite different from the

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