Vice President for
Federal Fiscal Policy
The new Congressional Budget Office (CBO) budget estimates are more pessimistic than those it released last May, showing deficits that are $1 trillion higher over 2014 through 2023. This worsening budget outlook reflects lower revenues, not higher spending. In fact, CBO now projects lower spending over the decade than it did last year.
As the chart shows, the $1 trillion increase in CBO’s ten-year deficit forecast reflects a $1.6 trillion drop in CBO’s revenue forecast, partly offset by a $600 billion decline in projected spending.
CBO’s revenue projections have fallen largely because it has lowered its estimates of the size of the economy (gross domestic product or GDP) over the period.
Because of CBO’s lower estimated GDP, spending as a share of the economy is somewhat higher in 2023 than CBO projected last May. To be sure, spending as a share of GDP is the appropriate metric to assess spending over time. But this increase is not due to policy changes or any other developments to boost spending, but, instead, to a smaller projected GDP against which spending is measured. (Stated another way, CBO has lowered its federal spending projection over the next decade, but it has lowered its GDP projection too — and by a larger percentage.)