We just released our in-depth analysis of CBO's Budget and Economic Outlook, published earlier today. In the paper we explain how CBO's current law projections differ from their March baseline, what underlying economic and policy assumptions they are making in their calculations, and what CBO's projections say about our fiscal situation. We also update our CRFB Realistic Baseline -- our own budget projections that make more realistic assumptions about what lawmakers will do -- and compare the two. And while CBO's current law baseline now shows debt declining (!) as a share of the economy by mid-decade, as you will see, the picture painted by our baseline is much gloomier.
A post on the CBO Director's Blog also explains a bit about why current law projections now show debt declining, and what things might more realistically look like should several current policies be extended.
If some of the changes specified in current law did not occur and current policies were continued instead, much larger deficits and much greater debt could result (see figure below). For example, if most of the provisions in the 2010 tax act that were originally enacted in 2001, 2003, 2009, and 2010 were extended (rather than allowed to expire on December 31, 2012, as scheduled); the alternative minimum tax was indexed for inflation; and cuts to Medicare’s payment rates for physicians’ services were prevented, then annual deficits from 2012 through 2021 would average 4.3 percent of GDP, compared with 1.8 percent in CBO’s baseline projections.
We also wanted to point you to a slideshow from the report posted by CBO. Is it just us, or is the CBO graphics team getting more adventurous? (On a side note -- if you didn't see it, check out the neat infographic on Social Security projections CBO published recently.)