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This volume is one of a series of reports on the state of the budget and the economy 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 to the Committees on the Budget periodic reports about fiscal policy and to provide five-year baseline projections of the federal budget. In accordance with CBO's mandate to provide impartial analysis, the report contains no recommendations.

The baseline spending projections were prepared by the staff of the Budget Analysis Division under the supervision of Robert Sunshine, Peter Fontaine, Janet Airis, Thomas Bradley, Kim Cawley, Paul Cullinan, Jeffrey Holland, and Jo Ann Vines. The revenue estimates were prepared by the staff of the Tax Analysis Division under the supervision of Thomas Woodward, Mark Booth, and David Weiner.

The economic outlook presented in Chapter 2 was prepared by the Macroeconomic Analysis Division under the direction of Robert Dennis. John F. Peterson, Robert Arnold, and Eric Warasta carried out the economic forecast and projections. David Brauer, Ufuk Demiroglu, Douglas Hamilton, Juann Hung, Kim Kowalewski, Mark Lasky, Angelo Mascaro, Shinichi Nishiyama, Benjamin Page, Frank Russek, John Sturrock, and Christopher Williams contributed to the analysis. John McMurray and Eric Warasta provided research assistance.

CBO's Panel of Economic Advisers commented on an early version of the economic forecast underlying this report. Members of the panel are Andrew Abel, Alan J. Auerbach, Michael Boskin, Barry P. Bosworth, Robert Dederick, William C. Dudley, Martin Feldstein, Robert J. Gordon, Robert E. Hall, N. Gregory Mankiw, Allan Meltzer, William Niskanen, William D. Nordhaus, June E. O'Neill, Rudolph Penner, James Poterba, Michael Prell, Robert Reischauer, Joel Slemrod, and Martin B. Zimmerman. Richard Berman attended the panel's meeting as a guest. Although those outside advisers provided considerable assistance, they are not responsible for the contents of this report.

Mark Booth and Ellen Hays wrote Chapter 1. Robert Shackleton was the lead author for Chapter 2. Barry Blom wrote Appendix A, and Adaeze Enekwechi wrote Appendix C. Barry Blom and Felix LoStracco wrote the summary.

Christine Bogusz, Leah Mazade, John Skeen, and Christian Spoor edited the report. Marion Curry, Linda Lewis Harris, Denise Jordan, Dorothy Kornegay, and Simone Thomas assisted in its preparation. Kathryn Winstead prepared the report for publication, Lenny Skutnik printed the initial copies, and Annette Kalicki prepared the electronic versions for CBO's Web site.
 

Dan L. Crippen
Director
August 2001
 
 

SUMMARY

ONE - THE BUDGET OUTLOOK

• Recent Changes to the Budget Outlook
• The Budget Outlook for 2002 Through 2011
• Federal Funds and Trust Funds

TWO - THE ECONOMIC OUTLOOK

• Recent Economic Developments
• CBO's Economic Forecast for 2001 and 2002
• The Outlook Beyond 2002

APPENDIXES

A - The Federal Sector of the National Income and Product Accounts
B - CBO's Economic Forecasts and Projections for 2001 Through 2011
C - Comparing CBO's and the Administration's Budget and Economic Projections
D - Major Contributors to the Revenue and Spending Projections
 

TABLES
S-1.	The Outlook for the Budget Under Current Policies
S-2.	Changes in CBO's Baseline Projections of the Surplus Since May 2001
S-3.	CBO's Current and Previous Economic Projections for Calendar Years 2001 Through 2011
1-1.	The Budget Outlook Under Current Policies
1-2.	CBO's Baseline Budget Projections
1-3.	Changes in CBO's Baseline Projections of the Surplus Since May 2001
1-4.	The Budgetary Effects of the Economic Growth and Tax Relief Reconciliation Act of 2001
1-5.	CBO's Projections of Discretionary Spending Under Alternative Assumptions
1-6.	CBO's Baseline Projections of Mandatory Spending
1-7.	CBO's Baseline Projections of Federal Interest Outlays
1-8.	CBO's Baseline Projections of Federal Debt at the End of the Year
1-9.	CBO's Baseline Projections of Trust Fund Surpluses
2-1.	CBO's Current and Previous Economic Projections for Calendar Years 2001 Through 2011
2-2.	CBO's Forecast for 2001 and 2002
2-3.	Changes in Four Forecasters' Estimates for 2001
2-4.	Comparison of Federal Reserve, CBO, and Blue Chip Midyear Economic Forecasts for 2001 and 2002
2-5.	Comparison of CBO and Blue Chip Forecasts for 2001 and 2002
2-6.	Key Assumptions in CBO's Projection of Potential GDP
A-1.	Relationship of the Budget to the Federal Sector of the National Income and Product Accounts
A-2.	Projections of Baseline Receipts and Expenditures Measured by the National Income and Product Accounts
B-1.	CBO's Year-by-Year Economic Forecasts and Projections for Calendar Years 2001 Through 2011
B-2.	CBO's Year-by-Year Economic Forecasts and Projections for Fiscal Years 2001 Through 2011
C-1.	Comparison of CBO's August 2001 Baseline with OMB's Current-Services Baseline
C-2.	Comparison of CBO's and the Administration's Economic Projections for Calendar Years 2001 Through 2011
FIGURES
1-1.	Why CBO's Projections of the Surplus Have Declined Since May
2-1.	The Economic Forecast and Projections
2-2.	Consumer Sentiment and Spending
2-3.	Investment in Producers' Durable Equipment
2-4.	Change in Inventories
2-5.	Measures of Employment
2-6.	Measures of Labor Costs and Inflation
2-7.	Interest Rate Spreads
2-8.	Exchange Rate
2-9.	Corporate Profits Plus Wages and Salaries
BOXES
1-1.	The Expiration of Revenue Provisions
2-1.	Recent Revisions to the National Income and Product Accounts
2-2.	What Is a Recession?
2-3.	The Long-Term Macroeconomic Effects of the Economic Growth and Tax Relief Reconciliation Act of 2001

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