How Much Worse are Deficit Projections?
Yesterday, the Congressional Budget Office (CBO) reported a significantly bleaker fiscal picture than they had projected just last year, with debt now rising to 79.2 percent of the economy by 2024. Most reports are stating that deficits have been revised upward by $1 trillion, but on an apples-to-apples basis, the revision was even greater.
Due to a quirk in CBO scoring conventions, last year CBO had to assume that one-time disaster relief funding in the wake of Hurricane Sandy was extended annually forever, which artificially inflated their deficit projections by around $425 billion from 2014-2023. This year, however, CBO no longer has to assume continued funding for Hurricane Sandy.
Therefore, to compare the actual changes between CBO’s deficit projections, the applicable 10-year deficit total projected last May was $5.9 trillion, not $6.3 trillion. Similarly, debt was projected to reach 72.3 percent of GDP in 2023 after accounting for Sandy, rather than 74 percent.
The adjusted numbers imply that total forecasted deficits from 2014-2023 actually rose from $5.9 trillion to $7.3 trillion, a jump of $1.4 trillion. Similarly, projected debt in 2023 rose by nearly 6 percent of the economy that year, from 72.3 percent to 78 percent.
Given that the new 10-year budget window stretches from 2015 to 2024, one could also compare the change in estimated deficits over this period. On an apples-to-apples basis, adjusting for the Hurricane Sandy plug in CBO’s May 2013 projections, cumulative deficits increased by almost $1.7 trillion over this window, and projected debt in 2024 increased by nearly 6.5 percent of the economy.