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Updated Budget Projections: Fiscal Years 2012 to 2022 1 (March 2012)

handle is hein.congrec/cbo10659 and id is 1 raw text is: MARCH 2012 Updated Budget Projections: Fiscal Years 2012 to 2022 In conjunction with its analysis of the President's budget, which will be issued in a few days, the Congressional Budget Office (CBO) has updated the baseline budget projections that it released in January.' CBO has not revised its assessment of the economic outlook since Jan- uary; however, the new baseline projections incorporate the budgetary effects of recently enacted legislation and updated technical assumptions based on new information (such as data about spending and revenues so far this year and program details released in conjunction with the President's budget). This report summarizes CBO's updated baseline budget projections and describes how they differ from the projections that the agency published two months earlier.2 CBO's current estimate of the budget deficit for fiscal year 2012-$1.2 trillion-is $93 billion larger than the deficit projected in January. Conversely, CBO's baseline projection of the cumulative deficit for the l0-year period from 2013 to 2022 is $186 billion smaller than the amount projected in January-a decrease equal to about 0.1 percent of gross domestic product (GDP) over that period. The fundamental story about the federal budget has not changed: Although the deficit is starting to shrink, it remains very large by historical standards. How much and how quickly it declines will depend in part on how well the economy performs over the next few years. Probably more critical, though, will be the fiscal policy choices made by lawmakers as they face the substantial changes to tax and spending policies that are slated to take effect within the next year under current law. 1. Those projections were published in Congressional Budget Office, The Budget and E1fconomlic Outlook: Fiscal 1ars 2012 to 2022 (January 2012). 2. Supplemental information about CBO's new baseline is available on the agency's Web site (ww.cbo.gov). CBO's Baseline Budget Projections As specified in law, and to provide a benchmark against which potential legislation can be measured, CBO con- structs its baseline estimates of federal revenues and spending under the assumption that current laws gener- ally remain unchanged. On that basis, the federal budget is projected to show a deficit of nearly $1.2 trillion in 2012 (see Table 1). Relative to the nation's gross domestic product, that shortfall will equal 7.6 percent-about 1 percentage point less than the deficit recorded last year but still higher than any deficit between 1946 and 2008. In CBO's baseline, deficits are projected to drop mark- edly in the next few years and to average 1.4 percent of GDP over the 2013-2022 period. With deficits small relative to the size of the economy, the amount of federal debt held by the public is projected to drop from nearly 76 percent of GDP in 2013 to 61 percent in 2022-still higher than in any year between 1953 and 2009. Much of that projected decline occurs because, under current law, revenues will rise considerably as a share of GDP-from 15.8 percent in 2012 to 19.8 percent in 2014 and 21.2 percent in 2022. In particular, in CBO's baseline, revenues shoot up by more than 30 percent over the next two years, mostly because of the recent or sched- uled expirations of tax provisions-such as those that reduce income and payroll tax rates and limit the reach of the alternative minimum tax (AMT)-and the imposi- tion of new taxes, fees, and penalties that are scheduled to go into effect. Revenues are projected to keep rising rela- tive to GDP after 2014 under current law, largely because increases in taxpayers' real (inflation-adjusted) income will push more income into higher tax brackets and because more taxpayers will become subject to the AMT. (An alternative fiscal scenario, which incorporates the assumptions that almost all expiring tax provisions are extended, that the AMT continues to be indexed for

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