Thursday, January 30, 2020

Federal Budget Outlook: Worse than CBO

The Congressional Budget Office has released new projections for federal spending and revenues through to 2030.

Spending in 2030 at $7.49 trillion will be 30 percent higher than revenues of $5.75 trillion, as shown in the chart below.

One optimistic CBO assumption is that discretionary spending will decline as a share of GDP in coming years, which seems unlikely given that both parties these days push for higher spending.

So I've included on the chart a "More likely" spending projection that assumes discretionary spending stays at today's share of GDP. On the revenue side, CBO includes the expiration of the GOP tax cuts after 2025, but it is likely that some or all of those cuts will be extended.

So the chart includes a "More likely" revenue line, which assumes the tax cuts are extended, which I roughly calculated by assuming revenues stay at the 2025 share of GDP. The more likely spending line also includes my rough estimate of the higher interest costs created by higher spending and lower revenues.

The more likely scenario has spending in 2030 at $7.79 trillion, which will be 44 percent higher than revenues that year of $5.42 trillion.

The outlook is particularly scary because neither party is even talking about spending reforms.

https://www.cato.org/blog/federal-budget-outlook-worse-cbo

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