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PDFDATA
     
The Budget and Economic Outlook:
Fiscal Years 2006 to 2015
  January 2005  


Cover Graphic


Notes

Unless otherwise indicated, all years referred to in describing the economic outlook are calendar years; otherwise, the years are federal fiscal years (which run from October 1 to September 30).

Numbers in the text and tables may not add up to totals because of rounding.

Some of the figures in Chapter 2 and Appendix D use shaded vertical bars to indicate periods of recession. A recession extends from the peak of a business cycle to its trough.

Data for real (inflation-adjusted) gross domestic product are based on chained 2000 dollars.

Information supplementing a scenario in Table 1-3 is available in An Alterative Budget Path Assuming Continued Spending for Military Operations in Iraq and Afghanistan and in Support of the Global War on Terrorism (February 2005).

Backup data are available for Table 2-2, "Key Assumptions in CBO's Projection of Potential Output" (Spreadsheet), and Table E-1, "CBO's Year-by-Year Forecast and Projections for Calendar Years 2005 Through 2015" (Spreadsheet).

Detailed projections supplementing Table 3-3, "CBO's Baseline Projections of Mandatory Spending," are also available (Spreadsheet). In addition, CBO has released Detailed Projections for the Old-Age, Survivors, and Disability Insurance Trust Funds Through 2015 (February 2005).





                
Preface

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 baseline projections of the federal budget. In accordance with CBO's mandate to provide impartial analysis, the report makes no recommendations.

The baseline spending projections were prepared by the staff of CBO's 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, with assistance from the Joint Committee on Taxation. (A detailed list of contributors to the spending and revenue projections appears in Appendix G.)

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 Christopher Williams carried out the economic forecast and projections. David Brauer, Ufuk Demiroglu, Tracy Foertsch, Eva de Francisco, Douglas Hamilton, Juann Hung, Kim Kowalewski, Mark Lasky, Angelo Mascaro, Shinichi Nishiyama, Benjamin Page, Frank Russek, Robert Shackleton, and Sven Sinclair contributed to the analysis. Adam Gordon, Brian Mathis, and Amrita Palriwala 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 B. Abel, Alan Blinder, Dan Crippen, William C. Dudley, Martin Feldstein, Robert J. Gordon, Robert E. Hall, Robert Glenn Hubbard, Lawrence Katz, Catherine L. Mann, Allan H. Meltzer, Laurence H. Meyer, William D. Nordhaus, June E. O'Neill, Rudolph G. Penner, James Poterba, Robert Reischauer, and Alice Rivlin. Martin Baily, Nada Eissa, Paul Fronstin, and Casey Mulligan attended the panel's meeting as guests. Although CBO's outside advisers provided considerable assistance, they are not responsible for the contents of this report.

Jeffrey Holland wrote the summary. Barry Blom, Mark Booth, Ann Futrell, and Eric Schatten wrote Chapter 1 (David Newman wrote Box 1-1). Robert Arnold was the lead author for Chapter 2. Gerard Trimarco and Christina Hawley Sadoti authored Chapter 3, with assistance from Thomas Bradley and Eric Schatten. Mark Booth and Thomas Woodward were the lead authors for Chapter 4. Ellen Hays wrote Appendixes A and C; Frank Russek and Barry Blom, Appendix B; and David Brauer, Appendix D. Robert Arnold prepared Appendix E, and Ann Futrell compiled Appendix F. Jennifer Smith produced the glossary.

Christine Bogusz, Janey Cohen, Loretta Lettner, Leah Mazade, John Skeen, and Christian Spoor edited the report. Marion Curry, Linda Lewis Harris, and Denise Jordan-Williams assisted in its preparation. Maureen Costantino designed the cover and prepared the report for publication. Lenny Skutnik and Carter Campbell printed the initial copies, and Annette Kalicki and Simone Thomas, with assistance from Martina Wojak-Piotrow, produced the electronic versions for CBO's Web site.

Douglas Holtz-Eakin
Director
January 2005




CONTENTS
 
  Summary
 
1  The Budget Outlook

A Review of 2004

The Concept Behind CBO's Baseline Projections

Uncertainty and Budget Projections

The Long-Term Outlook

Changes to the Budget Outlook Since September 2004

The Outlook for Federal Debt

Trust Funds and the Budget

 
2  The Economic Outlook

Overview of CBO's Two-Year Forecast

The Importance of Productivity Growth for Economic and Budget Projections

The Outlook for 2005 and 2006

The Economic Outlook Through 2015

Taxable Income

Changes in CBO's Outlook Since September 2004

A Comparison of Forecasts

 
3  The Spending Outlook

Mandatory Spending

Discretionary Spending

Net Interest

 
4  The Revenue Outlook

Revenues by Source

Revenue Projections in Detail

Uncertainty in the Revenue Baseline

Revisions to CBO's September 2004 Revenue Projections

The Effects of Expiring Tax Provisions

 
A  How Changes in Economic Assumptions Can Affect Budget Projections

Higher Real Growth

Higher Interest Rates

Higher Inflation

Wages and Salaries as a Higher Percentage of GDP

 
B  The Treatment of Federal Receipts and Expenditures in the National Income and Product Accounts

Conceptual Differences Between the NIPAs' Federal Sector and the Federal Budget

Differences in Accounting for Major Transactions

Presentation of the Federal Government's Receipts and Expenditures in the NIPAs

 
C  Budget Resolution Targets and Actual Outcomes

Elements of the Analysis

Comparing the Budget Resolution and Actual Outcomes for Fiscal Year 2004

Comparing Budget Resolutions and Actual Outcomes for Fiscal Years 1980 Through 2004

Differences as a Percentage of Actual Revenues or Outlays

 
D  Forecasting Employers' Contributions to Defined-Benefit Pensions and Health Insurance

Contributions to Defined-Benefit Pensions

Contributions to Medical Insurance Premiums

Implications for Projecting Income Shares and Revenues

 
E  CBO's Economic Projections for 2005 to 2015

 
F  Historical Budget Data

 
G  Contributors to the Revenue and Spending Projections

Revenue Projections

Spending Projections

 
  Glossary

Tables
   
S-1.  CBO's Baseline Budget Outlook
S-2.  Changes Since September 2004 in CBO's Estimate of the Cumulative Deficit for 2005 to 2014
S-3.  CBO's Economic Projections for Calendar Years 2005 to 2015
1-1.  Comparison of CBO's January 2005 and September 2004 Baseline Deficits or Surpluses
1-2.  CBO's Baseline Budget Projections
1-3.  The Budgetary Effects of Selected Policy Alternatives Not Included in CBO's Baseline
1-4.  Changes in CBO's Baseline Projections of the Deficit Since September 2004
1-5.  CBO's Baseline Projections of Federal Debt
1-6.  CBO's Baseline Projections of Trust Fund Surpluses
2-1.  CBO's Economic Projections for Calendar Years 2004 to 2015
2-2.  Key Assumptions in CBO's Projection of Potential Output
2-3.  CBO's Current and Previous Economic Projections for Calendar Years 2004 to 2014
2-4.  Comparison of CBO, Blue Chip, and Administration Forecasts for 2004 to 2010
3-1.  CBO's Projections of Spending Under Baseline Assumptions
3-2.  Average Annual Rates of Growth in Outlays Under CBO's Baseline
3-3.  CBO's Baseline Projections of Mandatory Spending
3-4.  CBO's Baseline Projections of Offsetting Receipts
3-5.  Sources of Growth in Mandatory Spending
3-6.  Costs for Mandatory Programs That CBO's Baseline Assumes Will Continue Beyond Their Current Expiration Dates
3-7.  Defense and Nondefense Discretionary Outlays, 1985 to 2005
3-8.  Growth in Discretionary Budget Authority, 2004 to 2005
3-9.  CBO's Baseline Projections of Discretionary Spending for Homeland Security
3-10.  CBO's Projections of Discretionary Spending Under Alternative Paths
3-11.  CBO's Baseline Projections of Federal Interest Outlays
4-1.  CBO's Projections of Revenues
4-2.  CBO's Projections of Individual Income Tax Receipts and the NIPA Tax Base
4-3.  Actual and Projected Capital Gains Realizations and Taxes
4-4.  CBO's Projections of Social Insurance Tax Receipts and the Social Insurance Tax Base
4-5.  CBO's Projections of Social Insurance Tax Receipts, by Source
4-6.  CBO's Projections of Corporate Income Tax Receipts and Tax Bases
4-7.  CBO's Projections of Excise Tax Receipts, by Category
4-8.  CBO's Projections of Other Sources of Revenue
4-9.  Changes in CBO's Projections of Revenues Since September 2004
4-10.  Effect of Extending Tax Provisions That Will Expire Before 2015
A-1.  Estimated Effects of Selected Economic Changes on CBO's Baseline Budget Projections
B-1.  Relationship of the Budget to the Federal Sector of the National Income and Product Accounts
B-2.  Projections of Baseline Receipts and Expenditures as Measured by the National Income and Product Accounts
C-1.  Comparison of Budget Resolution Targets and Actual Budget Totals, 2004
C-2.  Sources of Differences Between Budget Resolution Targets and Actual Budget Totals, 2004
C-3.  Sources of Differences Between Budget Resolution Targets and Actual Budget Totals, 1980 to 2004
E-1.  CBO's Year-by-Year Forecast and Projections for Calendar Years 2005 to 2015
E-2.  CBO's Year-by-Year Forecast and Projections for Fiscal Years 2005 to 2015
F-1.  Revenues, Outlays, Deficits, Surpluses, and Debt Held by the Public, 1962 to 2004 (Billions of dollars)
F-2.  Revenues, Outlays, Deficits, Surpluses, and Debt Held by the Public, 1962 to 2004 (Percentage of GDP)
F-3.  Revenues by Major Source, 1962 to 2004 (Billions of dollars)
F-4.  Revenues by Major Source, 1962 to 2004 (Percentage of GDP)
F-5.  Outlays for Major Spending Categories, 1962 to 2004 (Billions of dollars)
F-6.  Outlays for Major Spending Categories, 1962 to 2004 (Percentage of GDP)
F-7.  Discretionary Outlays, 1962 to 2004 (Billions of dollars)
F-8.  Discretionary Outlays, 1962 to 2004 (Percentage of GDP)
F-9.  Outlays for Mandatory Spending, 1962 to 2004 (Billions of dollars)
F-10.  Outlays for Mandatory Spending, 1962 to 2004 (Percentage of GDP)
F-11.  Deficits, Surpluses, Debt, and Related Series, 1962 to 2004
F-12.  Standardized-Budget Deficit or Surplus and Related Series, 1962 to 2004 (Billions of dollars)
F-13.  Standardized-Budget Deficit or Surplus and Related Series, 1962 to 2004 (Percentage of potential GDP)
   
Figures
   
S-1.  Total Revenues and Outlays as a Percentage of GDP, 1962 to 2015
S-2.  Type of Spending as a Share of Total Outlays, 1970 to 2015
1-1.  The Total Deficit or Surplus as a Percentage of GDP, 1967 to 2015
1-2.  Debt Held by the Public as a Percentage of GDP, 1940 to 2015
1-3.  Uncertainty of CBO's Projections of the Budget Deficit or Surplus Under Current Policies
1-4.  Total Federal Spending for Medicare and Medicaid Under Different Assumptions About Excess Cost Growth
1-5.  Debt Subject to Limit, October 2003 to September 2006
1-6.  Annual Social Security Trust Fund Surpluses, Excluding Interest
2-1.  Total Factor Productivity
2-2.  Business Fixed Investment
2-3.  Corporate Retained Earnings
2-4.  Real Personal Consumption Expenditures
2-5.  Payroll Employment and Real Labor Compensation
2-6.  Real Trade-Weighted Value of the U.S. Dollar
2-7.  Index of Monetary and Financial Conditions
2-8.  Interest Rates
2-9.  The Consumer Price Index: Total and Core Measures
2-10.  The Consumer Price Index: Shelter and Core Measures
2-11.  Total Share of GDP for Income Categories That Affect Revenue Projections
2-12.  Labor Income and Wages and Salaries
3-1.  Major Components of Spending, 1962 to 2004
3-2.  Discretionary Funding and Outlays, 1985 to 2005
3-3.  Nondefense Discretionary Funding, by Budget Function, 2005
4-1.  Total Revenues as a Share of GDP, 1946 to 2015
4-2.  Annual Growth of Federal Revenues and GDP, 1960 to 2015
4-3.  Revenues, by Source, as a Share of GDP, 1960 to 2015
4-4.  Capital Gains Realizations as a Share of GDP, Calendar Years 1990 to 2015
D-1.  Employers' Hourly Health Insurance Costs
   
Boxes
   
1-1.  Appropriations for the Global War on Terrorism
2-1.  Data Revisions and the Productivity Boom of the Late 1990s
2-2.  Is the Price of Oil Going to Fall?
3-1.  Categories of Federal Spending
4-1.  Tax Bases and Tax Liability
4-2.  The Growing Significance of the Alternative Minimum Tax in CBO's Projections
4-3.  Special Factors in the Projections for Corporate Profits and Receipts
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