Baseline Budget Projections Under Alternative Assumptions

Publication Date: February 2006

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Banking and finance

Type:

Abstract:

The Congressional Budget Office (CBO) estimates a baseline budget based on simple rules prescribed by law. Statute requires CBO to project a baseline of revenues and outlays under current law over the next 10 years. Arguably, a "better guess" of the probable path of the federal budget under current policy might be achieved by modifying three assumptions in the CBO baseline. First, that discretionary spending will remain constant as a share of GDP rather than growing at the rate of inflation. Second, that recent tax reductions will be extended rather than allowed to expire. Third, that the alternative minimum tax (AMT) relief will be extended rather than allowing the AMT to "take back" the reductions in regular income tax. Modifying these baseline assumptions and accounting for the additional debt service required to finance these policies yield an estimate that the federal budget deficit is likely to be $5 trillion more over the FY2007 through FY2016 period than that shown by the baseline projection. The effects of the alternative assumptions grow over time: by 2016, the alternative baseline deficit is $861 billion, compared to an official baseline surplus of $67 billion.

This report will be updated periodically.