CRFB's Newest Realistic Baseline

With the release of CBO's updated budget and economic outlook, we at CRFB have the opportunity to update our Realistic baseline. Recall that our baseline assumes that the 2001/2003/2010 tax cuts are extended, the Alternative Minimum Tax is patched to prevent it from hitting millions more taxpayers, the "doc fix" prevents a dramatic reduction in Medicare physician payments, the sequester is repealed, and war spending is drawn down as scheduled rather than increased with inflation.

Mirroring the slightly better CBO current law baseline, our baseline has also improved somewhat. Our previous iteration had 2013-2022 deficits at $8.75 trillion and debt as a percent of GDP sitting at 85 percent. Now, ten-year deficits are projected to total $7.94 trillion and debt is projected to reach 81 percent. That improvement is due to the underlying changes in CBO's baseline in addition to slightly lower projected costs for the policies mentioned above and lower interest paid on those mostly deficit-increasing policies.

 

CRFB Realistic Baseline Deficits (billions)
  2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2013-2022
Current Law Deficit -$641 -$387 -$213 -$186 -$123 -$79 -$130 -$142 -$144 -$213 -$2,258
Extend Tax Cuts and AMT Patch* -$247 -$319 -$372 -$404 -$439 -$474 -$511 -$548 -$588 -$630 -$4,532
Extend Doc Fix -$10 -$16 -$18 -$20 -$22 -$24 -$28 -$32 -$36 -$40 -$245
Reduce Troops in Afghanistan $22 $46 $72 $88 $95 $100 $103 $106 $108 $111 $852
Repeal Sequester -$54 -$96 -$102 -$104 -$105 -$105 -$105 -$105 -$104 -$93 -$972
Net Interest -$1 -$4 -$7 -$20 -$42 -$75 -$107 -$140 -$176 -$214 -$786
CRFB Realistic Deficit -$931 -$774 -$640 -$646 -$635 -$658 -$777 -$860 -$938 -$1,079 -$7,941
                       
Deficit (% GDP) -5.9% -4.7% -3.7% -3.5% -3.2% -3.2% -3.6% -3.8% -4.0% -4.4% -3.9%
Debt (% GDP) 78% 81% 80% 79% 78% 78% 78% 79% 80% 81% N/A
                       
Spending (% GDP) 22.7% 22.6% 22.1% 22.1% 21.9% 21.9% 22.3% 22.6% 22.9% 23.4% 22.5%
Revenue (% GDP) 16.8% 17.9% 18.4% 18.6% 18.7% 18.7% 18.8% 18.8% 18.9% 19.0% 18.5%

Sources: CBO and CRFB calculations
*Of ten-year cost, $2.74 trillion is for cost of extending the 2001/2003/2010 tax cuts, $864 billion is for AMT patch, and $931 billion is for interaction between the two.

As you can see, deficits do fall in nominal terms and as a percent of GDP for the next five years, but they never get below three percent of GDP, generally thought of as a minimum criterion for achieving fiscal sustainability. And as the effects of health care costs and demographics kick in, deficits, debt, and spending rise again over the last five years of the projection.

Source: CBO and CRFB calculations

In short, our baseline shows that the budget is still not on a sustainable path, even if it has improved a little bit since March. We will need a fiscal plan to get on that path.

Note: Table updated to reflect CBO's August projections.

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