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1 Answers to Questions for the Record following a Hearing Conducted by the House Committee on the Budget on CBO Oversight: Economic Assumptions, Baseline Construction, Cost Estimating, and Scoring 1 (July 26, 2018)

handle is hein.congrec/cboawqrc0001 and id is 1 raw text is: JULY 26, 2018 Answers to Questions for the Record Following a Hearing Conducted by the House Committee on the Budget on CB0 Oversight: Economic Assumptions, Baseline Construction, Cost Estimating, and Scoring On February 6, 2018, the House Committee on the Budget convened a hearing at which Mark Hadley, Deputy Director of the Congressional Budget Office, testified about CBO's baseline projections and cost estimates along with Wendy Edelberg, Associate Director for Economic Analysis, and Theresa Gullo, Assistant Director for Budget Analysis.' After the hearing, Chairman Womack submitted questions for the record. This document provides CBO's answers. It is available at www.cbo.gov/publication/54205. Macroeconomic Analysis Question. Your economic growth forecast has changed dramatically in recent years. In 2012, CBO expected that the economy would grow by an average of 3.0 percent over the 10-year budget window, consistent with the long-term average of annual real GDP growth in the U.S. With every passing year, however, that growth assumption has been ratcheted down. Last year, you predicted that U.S. economic growth would average just 1.9 percent over the next 10 years. Why did your growth assumption fall so rapidly in such a short period of time? Answer. More than half of the difference between CBO's growth projections in 2012 and 2018 reflects differences in business-cycle conditions that existed when the projections were made, and the remainder reflects differences in the growth of potential (maximum sustain- able) output. Differences in Business Cycles. In 2012, the American economy was still recovering from the 2007-2009 recession and financial crisis, and there was still substantial room for relatively rapid growth as the economy returned to full employment. Therefore, CBO projected that actual output would grow by about 2.9 percent per year over the following decade (2012 to 2022), more than 0.5 percentage points faster per year than its 2.3 percent projection for potential output. In contrast, in 2018 the economy is very near full employment and there is little scope for recovery-driven expansion. As a consequence, over the coming decade (2018 to 2028) CBO expects actual output to grow at the same rate as potential output. 1. See testimony of Mark Hadley, Deputy Director, Congressional Budget Office, before the House Committee on the Budget, The Congressional Budget Office) Baseline Projections and Cost Estimates: Process and Principles (February 6, 2018), www.cbo.gov/publication/53539.

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