Testimony on CBO’s Budget and Economic Outlook: 2018 to 2028

Testimony by CBO Director Keith Hall before the Committee on the Budget, U.S. Senate.

In CBO’s baseline projections, which incorporate the assumption that current laws governing taxes and spending generally remain unchanged, the federal budget deficit grows substantially over the next few years. Later on, between 2023 and 2028, it stabilizes in relation to the size of the economy, though at a high level by historical standards.

As a result, federal debt is projected to be on a steadily rising trajectory throughout the coming decade. Debt held by the public, which has doubled in the past 10 years as a percentage of gross domestic product (GDP), approaches 100 percent of GDP by 2028 in CBO’s projections. That amount is far greater than the debt in any year since just after World War II. Moreover, if lawmakers changed current law to maintain certain current policies—preventing a significant increase in individual income taxes in 2026 and drops in funding for defense and nondefense discretionary programs in 2020, for example—the result would be even larger increases in debt.

Projected deficits over the 2018–2027 period have increased markedly since June 2017, when CBO issued its previous projections. The increase stems primarily from tax and spending legislation enacted since then—especially Public Law 115-97 (originally called the Tax Cuts and Jobs Act and called the 2017 tax act here), the Bipartisan Budget Act of 2018 (P.L. 115-123), and the Consolidated Appropriations Act, 2018 (P.L. 115-141). The legislation has significantly reduced revenues and increased outlays anticipated under current law.

In CBO’s economic projections, which underlie its budget projections, output grows at a faster pace this year than in 2017, as the recent changes in fiscal policy add to existing momentum in spending on goods and services. Growth in actual GDP outpaces growth in potential (that is, maximum sustainable) GDP both this year and next, pushing the unemployment rate down. After 2019, economic growth is projected to slow, eventually matching CBO’s estimate of the economy’s maximum sustainable rate of growth.

Real GDP (that is, GDP adjusted to remove the effects of inflation) and real potential GDP are now projected to be greater throughout the coming decade than projected last June, in part because of the significant recent changes in fiscal policy. Also, interest rates are projected to be higher and the unemployment rate lower in the next few years than CBO projected previously.

Even if federal laws did generally remain in place, budgetary and economic outcomes would be difficult to predict and thus uncertain. CBO’s projections, especially its economic projections, are even more uncertain than usual this year, because they incorporate estimates of the economic effects of the recent changes in fiscal policy—and those estimates are themselves uncertain. CBO aims to formulate projections that fall in the middle of the distribution of possible outcomes.