charts from cbo's january 2012 budget and economic outlook

C ONGRESSIONAL B UDGET O FFICE

January 2012Deficits or Surpluses(Percentage of GDP)

4

2

0

-2

-4

-6

-8

-10

-12

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

ProjectedActual

CBO’s BaselineProjection

AlternativeFiscal Scenario

http://go.usa.gov/nPi

The Budget and Economic OutlookJanuary 2012

The Budget Outlook

Congressional Budget O�ice

As a percentage of GDP, the federal budget will show a de�cit of 7.0 percent in 2012, according to CBO’s current-law baseline, nearly

2 percentage points below the shortfall recorded last year but still higher (in percentage terms) than any de�cit between 1947 and 2008.

Deficits or Surpluses Since 1946(Percentage of GDP)


January 2012


6

4

2

0

-2

-4

-6

-8

-10

-12

Projected

1946 1952 1958 1964 1970 1976 1982 1988 1994 2000 2006 2012

Adjustments to the estimated costs of the TARP have had a signi�cant impact on budget de�cits since 2009. Initial estimates of the cost

of transactions in 2009 under the program turned out to be too high and were reduced in both 2010 and 2011. Adjustments recorded

in 2012 will increase the de�cit by $23 billion, CBO estimates.

Outlays Recorded for the Troubled Asset Relief Program(Bill ions of dollars)


January 2012


2009

2010

2011

2012

200

150

100

50

0

-50

-100

-150

ProjectedActual

Under current law, CBO projects that de�cits will drop markedly, averaging only 1.5 percent of GDP over the 2013-2022 period.

But under an alternative �scal scenario, in which some changes speci�ed in current law would not occur and certain current policies

would continue instead, annual de�cits from 2013 through 2022 would be much higher—averaging 5.4 percent of GDP. C ONGRESSIONAL B UDGET O FFICE

January 2012


4

2

0

-2

-4

-6

-8

-10

-121972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022

ProjectedActual

CBO’s BaselineProjection

AlternativeFiscal Scenario

Deficits or Surpluses, Historically and As Projected in CBO’s Baseline and Under an Alternative Fiscal Scenario (Percentage of GDP)

Preventing certain spending cuts scheduled under current law (the automatic spending reductions scheduled for 2013 and reductions

in Medicare's payment rates for physicians) and extending certain expiring or recently expired tax provisions would boost de�cits

substantially relative to the baseline.

Deficits Projected in CBO’s Baseline and Under an Alternative Fiscal Scenario(Percentage of GDP)


January 2012http://go.usa.gov/nPi

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

8

7

6

5

4

3

2

1

0

Additional Debt Service

Prevent Spending Cuts

Extend Tax Policies

Baseline

With modest de�cits anticipated for much of the 10-year projection period of CBO’s current-law baseline, debt held by the public

recedes as a percentage of GDP. However, if some of the changes speci�ed in current law did not occur and certain current policies

were continued instead, debt held by the public would rise to 94 percent of GDP by the end of 2022, the highest �gure since just

after World War II.

Federal Debt Held by the Public, Historically and As Projected in CBO’s Baseline and Under an Alternative Fiscal Scenario (Percentage of GDP)


January 2012


ProjectedActual

Alternative Fiscal Scenario

CBO’s Baseline Projection

140

120

100

80

60

40

20

01940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020


The Economic Outlook


Although CBO projects the growth in real (in�ation-adjusted) GDP to pick up after 2013, the agency expects that the economy’s output

will remain below its potential—a level that corresponds to a high rate of use of labor and capital—until the �rst half of 2018.

Real Gross Domestic Product( Trill ions of 2005 dollars)


January 2012


18

16

14

12

10

8

02000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Projected

Potential GDP

GDP

Actual

A large portion of the economic and human costs of the recession and slow recovery remains ahead. From the �rst quarter of the

recession through the third quarter of 2011, the cumulative di�erence between GDP and estimated potential GDP amounted to

$2.6 trillion; by the time the nation’s output rises back to its potential level, the cumulative shortfall is expected to equal $5.7 trillion

(the tan-shaded areas in the chart).

Gap Between GDP and Potential GDP( Trill ions of 2005 dollars)


January 2012


0.4

0.2

0

-0.2

-0.4

-0.6

-0.8

-1.0

-1.22000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Projected

$2.6Trillion

$3.1Trillion

Actual

In CBO’s forecast, the unemployment rate in 2012 and 2013 remains largely unchanged from its value last year. However, in the forecast,

as growth picks up after 2013, the unemployment rate falls to 6.9 percent by the end of 2015 and 5.6 percent by the end of 2017.

Unemployment Rate(Percent)


January 2012


12

10

8

6

4

2

ProjectedActual

1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 20220

According to the agency’s projections, the price index for personal consumption expenditures (PCE) will increase by 1.2 percent in 2012

(as measured by the change from the fourth quarter of the previous year) and by 1.3 percent in 2013. The core PCE price index—which

excludes prices for food and energy—is projected to increase by a similar amount.

In�ation(Percentage change in prices from previous year)


January 2012


12

10

8

6

4

2

0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0

ProjectedActual

CoreOverall

ProjectedActual

Overall

Core

1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022

2010 2011 2012 2013

CBO projects that interest rates will remain very low for the next several years and then will rise to

more-normal levels as output approaches its potential.

Interest Rates(Percent)


January 2012


16

14

12

10

8

6

4

2

0

ProjectedActual

10-Year Treasury Notes

3-Month Treasury Bills

1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022

The number of vacancies remains very high. For that reason, among others, CBO projects weak near-term growth

in residential investment.

Vacant Housing Units(Percentage of total units)


January 2012


16

14

12

10

80

1966 1971 1976 1981 1986 1991 1996 2001 2006 2011

CBO’s forecast of solid growth in business investment in structures, equipment, and software, especially after 2013,

re�ects the very low level of net investment (gross investment minus depreciation) in those items relative to GDP.

Net Business Fixed Investment(Percentage of GDP)


January 2012


6

5

4

3

2

1

0

ProjectedActual

2.2%1958

1.8%1992

1.7%2003

0.6%2009

1950 1960 1970 1980 1990 2000 2010 2020

Labor income has fallen sharply as a share of gross domestic income (GDI) since 2009. In CBO’s projections, labor income grows faster

than GDI over the next decade, bringing its share from about 59 percent of GDI in late 2011 to about 62 percent by 2022, approaching

its historical average since 1980.

Labor Income(Percentage of gross domestic income)


January 2012


Projected

59.660.1

61.6

Actual

1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022

70

65

60

55

50

0

CBO expects that an increase in real net exports will make a small contribution to the growth of real GDP this year and next, on

average. A primary reason for that projection is that average growth among the nation’s leading trading partners will probably be

stronger than that in the United States over the period.

Economic Growth in the United States and Among Its Leading Trading Partners(Percentage change from same quarter of previous year)


January 2012


Projected

Leading Trading Partners

United States

Actual6

5

4

3

2

1

02010 2012 2014 2016 2018 2020 2022


The Spending Outlook


In CBO’s baseline, annual spending averages 21.9 percent of GDP from 2013 through 2022, a percentage that is elevated by historical

standards. Under an alternative �scal scenario, in which some changes speci�ed in current law would not occur and certain current

policies would continue instead, outlays between 2013 and 2022 would be higher by 1.4 percent, or $2.9 trillion, than those presented

in the baseline.

Outlays Projected in CBO’s Baseline and Under an Alternative Fiscal Scenario(Percentage of GDP)


January 2012


Projected



Actual

1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022

28

26

24

22

20

18

16

14

0

In CBO’s baseline projections, the biggest di�erence in federal spending relative to GDP in the coming decade—as compared with

outlays over the past 40 years—will be the widening gap between mandatory and discretionary spending.

Outlays, by Category(Percentage of GDP)


January 2012


16

14

12

10

8

6

4

2

0

Net Interest

Mandatory

Discretionary

1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022

ProjectedActual

Federal spending for income security programs peaked in 2010 at $438 billion; in contrast, such spending totaled $202 billion in 2007,

before the economic downturn. The surge in spending occurred partly because outlays for many of those programs tend to rise

automatically when the economy falters (and ebb later as the economy recovers) and partly because lawmakers enacted temporary

measures to augment payments to needy populations.

Outlays for Income Security Programs(Bill ions of dollars)


January 2012


ProjectedActual

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

500

400

300

200

100

0

Unemployment Compensation

Refundable Tax Credits

Supplemental Nutrition Assistance Program

Other Income Security Programs

Since late 2008, spending for unemployment compensation has been boosted signi�cantly by changes in law that temporarily provide

additional bene�ts to people who have been out of work for more than 26 weeks. Payments for those temporary programs will start to

phase out in March 2012 under current law.

Outlays for Unemployment Bene�ts


January 2012


Projected

Unemployment Rate(Right scale)

Actual

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

180

160

140

120

100

80

60

40

20

0

12

10

8

6

4

2

0

Regular and Extended Bene�ts

EmergencyBene�ts and

Federal Additional Compensation

(Billions of dollars) (Percent)

Discretionary outlays declined from about 10 percent of GDP during much of the 1970s and 1980s to 6.2 percent in 1999. Those outlays

then began to increase again relative to the size of the economy, reaching 7.0 percent of GDP in 2002 and 7.9 percent in 2008. In 2009,

2010, and 2011, such outlays were 8.8, 9.3, and 9.0 percent of GDP, respectively. By 2022, under current law, those outlays will have

fallen to 5.6 percent of GDP, CBO projects.

Discretionary Outlays, by Category(Percentage of GDP)


January 2012


1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022

ProjectedActual12

10

8

6

4

2

0

Total Discretionary

Defense

Nondefense


The Revenue Outlook


CBO projects that under current law, total revenues as a percentage of GDP will rise from their recent unusually low levels to well above

their historical average of about 18 percent of GDP. Under an alternative �scal scenario, in which some changes speci�ed in current law

would not occur and certain current policies would continue instead, projected revenues would be near their historical average.

Revenues Projected in CBO’s Baseline and Under an Alternative Fiscal Scenario(Percentage of GDP)


January 2012


28

26

24

22

20

18

16

14

01972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022

Average,1972-2011

(17.9%)



ProjectedActual

Individual income taxes have �uctuated more over the past 40 years than the other major revenue sources—ranging from

6.3 percent to 10.2 percent of GDP but showing no clear trend over that period.

Revenues, by Major Source(Percentage of GDP)


January 2012


12

10

8

6

4

2

0

1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022

ProjectedActual

IndividualIncome Taxes

Social Insurance (Payroll) Taxes

Corporate Income Taxes

Other Revenue Sources

The average tax rate on corporations’ domestic economic pro�ts (taxes as a percentage of pro�ts) has been unusually low in recent

years. CBO expects that by 2014, that rate will rise to around the 25.6 percent average seen over the 1987–2008 period.

Average Corporate Tax Rate and Corporations’ Domestic Economic Pro�ts(Percent)


January 2012


50

40

30

20

10

01972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022

ProjectedActual

Annual Average Tax Rate (Corporate receipts as a percentage of domestic

economic pro�ts)

Average Tax Rate 1987-2008

(25.6%)

Domestic Economic Pro�ts(As a percentage of gross domestic product)

In 2012, major tax exclusions, deductions, and other tax expenditures will total 5.3 percent of GDP, CBO projects—equal to about

one-third of projected revenues for the year and greater than projected spending on Social Security, defense, or Medicare.

Selected Major Tax Expenditures in 2012, Compared with Other Categories of Revenues and Outlays(Percentage of GDP)


January 2012


Exclusion of Untaxed Social Security and Railroad Retirement Bene�ts

Deduction for Mortgage Interest on Owner-Occupied Residences

IndividualIncome Taxes

SocialInsurance

Taxes

Corporate IncomeTaxes and

Other Revenues

Selected Major Tax Expenditures

Medicare Defense

OutlaysRevenues

SocialSecurity

8

6

4

2

0

Individual Income Tax

Expenditures

Payroll Tax Expenditures

The exclusion of employers’ health insurance contributions is the single largest tax expenditure in the individual income tax code.

Including e�ects on payroll taxes, it is projected to equal 1.8 percent of GDP between 2013 and 2022.

E�ects of Selected Major Tax Expenditures from 2013 to 2022


January 2012


Income Exclusions

Preferential Rates

Deductions

Credits

0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0Percentage of Gross Domestic Product

Exclusion of Employers’ Contributions for Health Care, Health Insurance Premiums, and Long-Term Care Insurance Premiums

Net Exclusions of Pension Contributions and Earnings

Exclusion of Untaxed Social Security and Railroad Retirement Bene�ts

Deduction for Mortgage Interest on Owner-Occupied Residences

Deduction for State and Local Taxes

Deduction for Charitable Contributions

Reduced Tax Rates on Dividends and Long-Term Capital Gains

Earned Income Tax Credit

Child Tax Credit

Exclusion of Capital Gains at Death

Individual Income Tax E�ect Payroll Tax E�ect

charts from cbo's january 2012 budget and economic outlook

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