From the Director
CBO projects, that if current laws and policies remained unchanged, the federal budget would show a deficit of $1.3 trillion for fiscal year 2010. At 9.2 percent of gross domestic product (GDP), that deficit would be slightly smaller than the shortfall of 9.9 percent of GDP ($1.4 trillion) posted in 2009. Last year's deficit was the largest as a share of GDP since the end of World War II, and the deficit expected for 2010 would be the second largest. Moreover, if legislation is enacted in the next several months that either boosts spending or reduces revenues, the 2010 deficit could equal or exceed last year's shortfall.
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Additional Info
- Budget Projections (xls)
- Budget Projections (pdf)
- Economic Projections
- Supplemental Data on Spending Projections
- CBO's Year-by-Year Forecast and Projections for Calendar Years 2009 to 2020
- Real-Time Data for Potential GDP
- Key Assumptions in CBO's Projection of Potential Output
- Data Underlying Selected Figures
- Expiring Tax Provisions
- Historical Budget Data (xls)
- Historical Budget Data (pdf)
What is a baseline?
A budget baseline is a projection of future spending and revenues based on the general assumption that current laws and policies remain unchanged. For programs that continue automatically from year to year (like Social Security), projected spending reflects anticipated inflation, other increases in benefits, and changes in the population that is eligible for benefits. For most programs that are funded on a year-by-year basis (for example, personnel costs for most federal agencies), CBO’s baseline projections assume that they grow with inflation. As such, CBO’s baseline is not a prediction of future budgetary outcomes. Rather, it serves as a neutral benchmark that lawmakers can use to measure the effects of spending or revenue proposals.
Click here for a longer discussion of CBO's baseline >
Budget Outlook 2010
Effects of Selected Policy Alternatives on the Deficit (In billions of dollars)
The Budget and Economic Outlook: Fiscal Years 2010 to 2020
January 2010
Read the report: Executive SummaryFull ReportPDF
The Congressional Budget Office projects that if current laws and policies remained unchanged, the federal budget would show a deficit of $1.3 trillion for fiscal year 2010. That amount would be slightly smaller than the 2009 deficit but, as a share of the economy as a whole (measured by gross domestic product, or GDP), it would still be the second largest since World War II. The budget picture remains daunting beyond this year, with deficits averaging about $600 billion annually from 2011 through 2020.
Those estimates are not intended to be a prediction of actual budget outcomes; rather, they indicate what CBO estimates would occur if current laws and policies remained in place. Toward that end, CBO’s projections presume no changes in current tax laws or spending programs. Any new legislation that reduced revenues (such as indexing the alternative minimum tax for inflation) or boosted spending (such as providing supplemental funding for military operations in Afghanistan) would increase projected deficits. For example, if all tax provisions that are scheduled to expire in the coming decade were extended and the AMT were indexed for inflation, deficits over the 2011–2020 period would be more than $7 trillion higher. (See the above chart for details on the budgetary impact of some alternative policy actions and see the sidebar for more information on CBO’s baseline.)
Accumulating deficits are pushing federal debt to significantly higher levels. CBO projects that total debt will reach $8.8 trillion by the end of 2010. At 60 percent of GDP, that would be the highest level since 1952. Under current laws and policies, CBO’s projections show that level climbing to 67 percent by 2020. As a result, interest payments on the debt are poised to skyrocket; the government’s spending on net interest will triple between 2010 and 2020, increasing from $207 billion to $723 billion.
Economic growth will probably remain muted for the next few years. The deep recession that began in 2007 appears to have ended in the middle of 2009. The economy grew during the third quarter, and early signs suggest that the labor market strengthened slightly late in 2009. CBO expects that the economy will continue to grow, although at a slower pace than in past recoveries. Hiring rates remain very low, and CBO projects that the unemployment rate will average more than 10 percent during the first half of 2010, before beginning a gradual decline. That pattern is typical of recent recessions, where hiring continues to fall for 6 to 12 months after the economy begins to grow.
Beyond the 10-year projection period, growth of spending for Medicare, Medicaid, and Social Security will speed up from its already rapid rate. To keep federal deficits and debt from reaching levels that would substantially harm the economy, lawmakers would have to significantly increase revenues, decrease projected spending, or enact some combination of the two.
Employment
Hiring rates remain very low, with only faint signs of recovery, even though the recent recession appears to have ended in mid-2009. CBO expects the unemployment rate to average a little over 10 percent for the first half of 2010, and it will probably not dip below 9 percent until 2012. It is projected to fall to 5.3 percent , close to CBO’s estimate of the “natural” rate of unemployment (which reflects the difficulty of immediate matches between job seekers and jobs), in 2014.
Factors affecting labor markets through 2014 >
Unemployment rate >
Troubled Asset Relief Program (TARP)
CBO estimates that the program will have a net cost of $99 billion over its lifetime—much less than originally expected. In March 2009, CBO estimated the cost to be $356 billion, but since then, market conditions have improved, and many institutions, including several large banks, have repurchased the preferred stock that they sold to the government.
Recent activity in the TARP >
Projected spending levels for the TARP >
Debt
Of the more than $7.5 trillion in outstanding public debt at the end of 2009, domestic investors such as mutual funds, state and local governments, Federal Reserve banks, commercial banks, insurance companies, and individuals owned 52 percent ($4.0 trillion), and foreign investors, such as private foreign entities and central banks, held 48 percent ($3.6 trillion). Under current laws governing federal spending and revenues, during this decade debt held by the public is poised to climb to the highest levels recorded since the early 1950s (when measured relative to the size of the U.S. economy).
Who holds the federal debt >
Debt levels since 1970 >
Iraq/Afghanistan
Since September 2001, lawmakers have appropriated about $1.1 trillion (including $130 billion so far in 2010) for operations in Iraq and Afghanistan and for other war-related activities. That figure could rise if additional appropriations are required later this year to support the planned increase in troop deployments to Afghanistan. Outlays this year are expected to total at least $165 billion.
Funding for ongoing wars >
Defecit effects of alternative troop deployments >
ARRA
CBO estimates that the spending increases and tax reductions resulting directly from the American Recovery and Reinvestment Act of 2009 (popularly referred to as “the stimulus bill”) will peak in fiscal year 2010, adding about $400 billion to the deficit this year. That legislation accounted for approximately $200 billion of the 2009 deficit, and CBO expects that it will cost more than $860 billion over the 2009-2019 period. That amount is about $75 billion more than originally estimated.
Analysis of ARRA >
Direct effects of ARRA on the deficit >