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Unless otherwise indicated, all years referred to in Chapter 1 and Appendix E are calendar years, and all years in other chapters and appendixes are fiscal years. Some figures in this report indicate periods of recession by using shaded vertical bars. The bars extend from the peak to the trough of the recession. Unemployment rates throughout the report are calculated on the basis of the civilian labor force. Numbers in the text and tables may not add up to totals because of rounding. |
This volume is one of a series of reports on the state of the economy and the budget that the Congressional Budget Office (CBO) issues each year. It satisfies the requirement of section 202(e) of the Congressional Budget Act of 1974 for CBO to submit periodic reports to the Committees on the Budget with respect to fiscal policy and to provide five-year baseline projections of the federal budget. In accordance with CBO's mandate to provide objective and impartial analysis, the report contains no recommendations.
The analysis of the economic outlook presented in Chapter 1 was prepared by the Macroeconomic Analysis Division under the direction of Robert Dennis and John F. Peterson. Juann Hung was the lead author for the chapter. John F. Peterson, Michael Simpson, and Robert Arnold carried out the economic forecast and projections. David Brauer, Douglas Hamilton, Kim Kowalewski, Mark Lasky, Randy Mariger, Angelo Mascaro, Benjamin Page, Frank Russek, Matthew Salomon, John Sturrock, and Christopher Williams contributed to the analysis. David Arnold, Ezra Finkin, and Michael Simpson provided research assistance.
The baseline spending projections were prepared by the staff of the Budget Analysis Division under the supervision of Paul N. Van de Water, Robert Sunshine, Priscilla Aycock, Thomas Bradley, Paul Cullinan, Peter Fontaine, James Horney, and Michael Miller. The revenue estimates were prepared by the staff of the Tax Analysis Division under the supervision of Thomas Woodward and Richard Kasten. Jeffrey Holland wrote Chapter 2 with assistance from Benjamin Page. Thomas Woodward and Richard Kasten wrote Chapter 3; Jennifer Winkler wrote Chapter 4; and Kim Kowalewski, Robert Sunshine, and Thomas Woodward wrote Chapter 5 using calculations made by Mark Booth, Jeffrey Holland, Mark Lasky, Larry Ozanne, and Matthew Salomon. Jennifer Winkler wrote Appendixes A and D; James Horney wrote Appendix B; Taman Morris wrote Appendixes C and F; and John F. Peterson wrote Appendix E. Jennifer Smith coordinated the revision of the glossary. James Horney wrote the summary of the report.
An early version of the economic forecast underlying this report was discussed at a meeting of CBO's Panel of Economic Advisers. Members of the panel are Alan Auerbach, Martin Baily, Jagdish Bhagwati, Michael Boskin, Barry P. Bosworth, Robert Dederick, Martin Feldstein, Robert J. Gordon, Robert E. Hall, Marvin Kosters, Anne Krueger, N. Gregory Mankiw, Allan Meltzer, William Nordhaus, Rudolph Penner, James Poterba, Robert Reischauer, Sherwin Rosen, Joel Slemrod, and John Taylor. William Brown, William Dudley, Franklin Edwards, Robert Litan, and Neal Soss attended as guests. Although these outside advisers provided considerable assistance, they are not responsible for the contents of this document.
Sherry Snyder supervised the editing of the report, and Kathryn Quattrone
supervised production. Major portions were edited by Sherry Snyder, Leah
Mazade, Christian Spoor, and Liz Williams. The authors owe thanks to Marion
Curry, Linda Lewis Harris, Denise Jordan, Dorothy Kornegay, and Simone
Thomas, who assisted in the preparation of the report. Kathryn Quattrone
prepared the report for final publication, and Laurie Brown prepared the
electronic versions for CBO's World Wide Web site, both assisted by Martina
Wojak-Piotrow.
June E. O'Neill
Director
January 1999
FIVE - UNCERTAINTY IN BUDGET PROJECTIONS
APPENDIXES
A - Sequestration Preview
Report for Fiscal Year 2000
B - Budget Resolution Targets
and Actual Outcomes: 1980-1998
C - How the Economy Affects
the Budget
D - The Federal Sector
of the National Income and Product Accounts
E - Changes in Calculating
the Consumer Price Indexes
F - Historical Budget
Data
G - Major Contributors
to the Revenue and Spending Projections
| TABLES | |
| S-1. | The Budget Outlook Under Current Policies |
| S-2. | Comparison of CBO Economic Projections for Calendar Years 1999-2009 |
| S-3. | CBO Baseline Budget Projections, Assuming Compliance with the Discretionary Spending Caps |
| S-4. | Changes in CBO Budget Projections Since August 1998 |
| 1-1. | The CBO Forecast for 1999 and 2000 |
| 1-2. | Net Amounts Owed to U.S. Banks by the Rest of the World During the First Half of 1998 |
| 1-3. | Measures of Fiscal Policy Under Baseline Assumptions |
| 1-4. | CBO Economic Projections for Calendar Years 1999-2009 |
| 1-5. | CBO Economic Projections for Fiscal Years 1999-2009 |
| 1-6. | Comparison of CBO and Blue Chip Forecasts for 1999 and 2000 |
| 1-7. | Comparison of CBO Economic Projections for Calendar Years 1999-2009 |
| 1-8. | Accounting for Growth in Real GDP |
| 2-1. | The Budget Outlook Under Current Policies |
| 2-2. | Changes in Baseline Surpluses Since August 1998 |
| 2-3. | CBO Projections of Federal Debt |
| 2-4. | Trust Fund Surpluses |
| 2-5. | Projections of Federal Receipts and Expenditures Under CBO's Base Scenario, 1998-2060 |
| 3-1. | CBO Revenue Projections |
| 3-2. | Share of Returns, AGI, and Tax Liabilities for High-Income Taxpayers, 1993-1997 |
| 3-3. | Actual Federal Revenues in Fiscal Year 1998, by Source, Compared with CBO's January 1998 Projections |
| 3-4. | CBO Projections of Individual Income Tax Receipts and Tax Base |
| 3-5. | CBO Projections of Corporate Income Tax Receipts and Tax Base |
| 3-6. | CBO Projections of Social Insurance Tax Receipts and Tax Base |
| 3-7. | CBO Projections of Social Insurance Tax Receipts, by Category |
| 3-8. | CBO Projections of Excise Tax Receipts, by Category |
| 3-9. | Effect of Extending Tax Provisions That Will Expire Before 2009 |
| 4-1. | CBO Outlay Projections, Assuming Compliance with the Discretionary Spending Caps |
| 4-2. | CBO Projections of Discretionary Outlays, Assuming Compliance with the Spending Caps |
| 4-3. | How Tight Are the Discretionary Caps in Fiscal Year 2000? |
| 4-4. | CBO Projections of Mandatory Spending, Including Deposit Insurance |
| 4-5. | Sources of Growth in Mandatory Spending |
| 4-6. | Program Continuations Assumed in the CBO Baseline |
| 4-7. | CBO Projections of Offsetting Receipts |
| 4-8. | CBO Projections of Federal Interest Outlays |
| 5-1. | Illustrative Economic Scenarios and Resulting Federal Surpluses |
| 5-2. | Federal Surpluses Under Alternative Trend Growth Rates of the Tax Base |
| 5-3. | Illustrative Effects on Revenues of Alternative Assumptions About Capital Gains Realizations and the Effective Tax Rate |
| A-1. | CBO Estimates of Discretionary Spending Limits for Fiscal Years 1999-2002 |
| A-2. | Budgetary Effects of Direct Spending or Receipt Legislation Enacted Since the Budget Enforcement Act of 1997 |
| B-1. | Comparison of the 1998 Budget Resolution and the Actual Budget Totals for Fiscal Year 1998 |
| B-2. | Sources of Differences Between the Actual Budget Totals for Fiscal Year 1998 and the 1998 Budget Resolution |
| B-3. | Sources of Differences Between Actual Budget Totals and Budget Resolution Estimates, Fiscal Years 1980-1998 |
| C-1. | Effects of Selected Economic Changes on CBO Budget Projections |
| D-1. | Relationship of the Budget to the Federal Sector of the National Income and Product Accounts |
| D-2. | Projections of Baseline Receipts and Expenditures Measured by the National Income and Product Accounts |
| F-1. | Deficits, Surpluses, Debt, and Related Series, Fiscal Years 1956-1998 |
| F-2. | Standardized-Employment Deficit or Surplus and Related Series, Fiscal Years 1956-1998 (In billions of dollars) |
| F-3. | Standardized-Employment Deficit or Surplus and Related Series, Fiscal Years 1956-1998 (As a percentage of potential GDP) |
| F-4. | Revenues, Outlays, Deficits, Surpluses, and Debt Held by the Public, Fiscal Years 1962-1998 (In billions of dollars) |
| F-5. | Revenues, Outlays, Deficits, Surpluses, and Debt Held by the Public, Fiscal Years 1962-1998 (As a percentage of GDP) |
| F-6. | Revenues by Major Source, Fiscal Years 1962-1998 (In billions of dollars) |
| F-7. | Revenues by Major Source, Fiscal Years 1962-1998 (As a percentage of GDP) |
| F-8. | Outlays for Major Spending Categories, Fiscal Years 1962-1998 (In billions of dollars) |
| F-9. | Outlays for Major Spending Categories, Fiscal Years 1962-1998 (As a percentage of GDP) |
| F-10. | Discretionary Outlays, Fiscal Years 1962-1998 (In billions of dollars) |
| F-11. | Discretionary Outlays, Fiscal Years 1962-1998 (As a percentage of GDP) |
| F-12. | Outlays for Entitlements and Other Mandatory Spending, Fiscal Years 1962-1998 (In billions of dollars) |
| F-13. | Outlays for Entitlements and Other Mandatory Spending, Fiscal Years 1962-1998 (As a percentage of GDP) |
| FIGURES | |
| 1-1. | The Economic Forecast and Projection |
| 1-2. | U.S. Imports and Exports |
| 1-3. | U.S. Private Capital Flows |
| 1-4. | Spreads Between Interest Rates for Corporate Securities and 10-Year Treasury Notes |
| 1-5. | Payroll Employment Growth for the Total Private Sector and for Manufacturing |
| 1-6. | Household Versus Nonfarm Payroll Employment |
| 1-7. | Index of Help-Wanted Advertising in Newspapers |
| 1-8. | Labor Force |
| 1-9. | Profits and Business Fixed Investment |
| 1-10. | Ratio of Debt Service to Net Capital Income for Nonfarm Corporations |
| 1-11. | Commodity and Crude Oil Prices |
| 1-12. | Medical Care Prices as Measured by the CPI and PCE |
| 1-13. | Employment Cost Index |
| 1-14. | Wages and Salaries and Corporate Profits |
| 2-1. | Debt Held by the Public as a Share of GDP |
| 2-2. | Long-Term Projections of Debt as a Share of GDP |
| 3-1. | Annual Growth of Federal Revenues and GDP |
| 3-2. | Total Revenues as a Share of GDP |
| 3-3. | Revenues, by Source, as a Share of GDP |
| 3-4. | Recent Growth in the Effective Income Tax Rate |
| 3-5. | Annual Growth of Taxable Capital Gains Realizations |
| 4-1. | Outlays, by Category, as a Share of GDP |
| 4-2. | Nondefense Discretionary Spending, by Category, Fiscal Year 1999 |
| 5-1. | Growth of Real Wages, Salaries, and Corporate Profits per Member of the Potential Labor Force |
| 5-2. | Growth in Medicaid Outlays |
| B-1. | Differences Between Actual Deficits or Surpluses and Deficits in the Budget Resolution, Fiscal Years 1980-1998 |
| D-1. | A Comparison of NIPA and Unified Budget Deficits and Surpluses, Fiscal Years 1980-2009 |
| BOXES | |
| 1-1. | CBO's Projection for Growth in Labor Productivity |
| 1-2. | Projecting the Difference Between Rates of Inflation in the CPI and in the GDP Price Index |
| 4-1. | CBO's Analysis of Outlay Estimates for Appropriation Bills |
| 4-2. | Caseloads for Nonhealth Means-Tested Entitlements |
