The Congressional Budget and Impoundment Control Act of 1974 (Budget Act) requires the Congressional Budget Office (CBO) to provide the Budget Committees in both chambers of congress with budget and economic projections for the upcoming 10 years. Formally titled the Budget and Economic Outlook, CBO’s annual report, which was released earlier today, is commonly referred to as the “baseline.”
What is the CBO Baseline and how is it used?
The Budget and Economic Outlook is a 10-year, forward-looking projection of federal spending, revenue, deficits, and debt assuming current laws and policies generally remain unchanged. It contains a forecast of key economic indicators such as changes in gross domestic product (GDP), inflation, interest rates, and unemployment, and provides detailed budget estimates for individual programs. CBO’s last projection was released in August 2018.
What are this year’s baseline’s key conclusions?
CBO’s projections are sobering. The baseline projects deficits will rise dramatically, from $779 billion in fiscal year 2018 to $1.4 trillion by fiscal year 2029, if current laws remain unchanged. During the 10-year period, federal debt held by the public will surge from 78 percent to 93 percent of GDP – the highest debt level since just after World War II and more than twice the average level of the past 50 years. The growth of direct, or mandatory, spending and interest on the debt are the major causes of higher deficits. According to CBO, federal spending will consume an ever-expanding share of economic resources, rising from 20.8 percent of GDP in 2019 to 22.7 percent in 2029 – far exceeding the annual average of the past 50 years of 20.3 percent. The baseline also projects strong revenue growth – federal revenues are estimated to be $3.5 trillion in 2019, an increase of $186 billion compared to last year, and will reach $5.7 trillion by 2029. Out-of-control federal spending, and not revenue, is clearly the biggest fiscal challenge the nation faces.
How should Congress respond?
The best way to avoid a future of high federal debt, which will undoubtedly result in a sovereign debt crisis, is for Congress to pass a budget that outlines a long-term, fiscally sustainable path that addresses the underlying problem – mandatory spending. With such dismal projections from CBO regarding the nation’s outlook, it is imperative that the new Majority put together a responsible plan to address these challenges. We look forward to hearing the Democrats’ plan to address the current fiscal crisis we face, which will begin tomorrow Tuesday, January 29th at 10 a.m. when the Committee on the Budget will hold a hearing to review CBO’s new Outlook. Unfortunately, we anticipate the Democrats’ plan will consist of new spending which will only serve to explode the current deficit and debt projections from CBO.