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Budgetary and Economic Outcomes Under Paths for Federal Revenues and Noninterest Spending Specified by Chairman Enzi, March 2015 1 (March 2015)

handle is hein.congrec/cbo2112 and id is 1 raw text is: MARCH 2015 Budgetary and Economic Outcomes Under Paths for Federal Revenues and Noninterest Spending Specified by Chairman Enzi, March 2015 At the request of the Chairman of the Senate Budget Committee, Senator Mike Enzi, the Congressio- nal Budget Office has projected budgetary and economic outcomes over the next decade under paths for federal revenues and spending (excluding interest payments) specified by the Chairman and his staff. The projections do not represent a cost estimate for legislation or an anal- ysis of the effects of any specific policies. In particular, CBO has not considered whether the specified paths are consistent with the policy proposals or budget numbers that Chairman Enzi released on March 18, 2015, as part of his proposed budget resolution. The projections in this report represent CBO's assess- ment of how federal debt and economic output would evolve from 2016 to 2025 under Chairman Enzi's speci- fied paths for revenues and noninterest spending. The projections show how the total amounts of federal reve- nues and spending-and the resulting amount of federal borrowing-under those paths would affect the economy and how those macroeconomic effects (or feedback) in turn would affect the federal budget. The projections do not show any other potential effects of the changes in policies relating to revenues and spending that might be used to generate those paths. The assessment of the paths specified by Chairman Enzi is based on the 10-year budget and economic projections that CBO released in January 2015.1 The amounts of federal debt and economic output estimated under cur- rent law and under the paths specified by Chairman Enzi are highly uncertain. That uncertainty stems from the difficulties inherent in budgetary projections even without regard to their macroeconomic effects and from the difficulties in projecting the effects of federal fiscal policies on the economy. In the short term, policy changes that would decrease fed- eral spending or increase taxes-and thus shrink budget deficits-would generally reduce total demand for goods and services. As a result, such fiscal policies would reduce output and employment below the levels projected in CBO's baseline. Policy changes that would increase fed- eral spending or decrease taxes would generally have the opposite effect. In the long term, policy changes that would decrease federal spending or increase taxes would lower the amount of federal debt held by the public rela- tive to what it would be otherwise. Over time, smaller federal deficits and debt would leave more funds available for private investment and thereby cause output to be higher than it would be otherwise. Larger federal debt would have the opposite effect, crowding out private investment and decreasing output.' 1. See Congressional Budget Office, The Budget and Economic Outlook: 2015 to 2025 anuary 2015), www.cbo.gov/publication/ 49892. CBO recently updated its budget projections; see Congressional Budget Office, Updated Budget Projections: 2015 to 2025 (March 2015), www.cbo.gov/publication/49973. This report does not incorporate those updated projections, but CBO anticipates that if they were incorporated, the estimated effects of Chairman Enzi's specified paths on the economy and the budget would be similar to the estimated effects reported here. 2. For a detailed discussion of CBO's analytical methods, see Congressional Budget Office, How CBO Analyzes the Effects of Changes in Federal iscal Policies on the Economy (November 2014), www.cbo.gov/publication/49494.

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