Office 2033 Free Download

[Samantha Figueredo]

TheCongressional Budget Office regularly publishes reports presenting its baseline projections of what the federal budget and the economy would look like in the current year and over the next 10 years if current laws governing taxes and spending generally remained unchanged. This report is the latest in that series.

Unless this report indicates otherwise, the historical data shown in figures, tables, and text describing the economic forecast reflect more recent fourth-quarter data available from the Bureau of Economic Analysis and other sources in early February 2023.

Unless the report indicates otherwise, all years referred to in describing the budget outlook are federal fiscal years, which run from October 1 to September 30 and are designated by the calendar year in which they end. Years referred to in describing the economic outlook are calendar years.

CBO prepares its baseline budget projections in accordance with provisions set forth in the Balanced Budget and Emergency Deficit Control Act of 1985 (the Deficit Control Act, Public Law 99-177) and the Congressional Budget and Impoundment Control Act of 1974 (P.L. 93-344). Those laws require CBO to construct its baseline under the assumptions that current laws governing revenues and spending will generally stay the same and that discretionary funding provided in appropriation acts in future years will match current funding, with adjustments for inflation.

Discretionary Spending. Discretionary spending encompasses an array of federal activities that are funded through or controlled by appropriations. That category includes most defense spending; spending for many nondefense activities, such as elementary and secondary education, housing assistance, international affairs, and the administration of justice; and outlays for highway programs.11 In any year, some discretionary outlays arise from budget authority provided in the same year, and some arise from appropriations made in previous years.12

The individual income tax system is thus not indexed for real growth (that is, growth beyond the rate of inflation). Instead, it is partially indexed for inflation, and the indexing occurs with a lag. Together, those features of the system cause projected annual revenues measured as a percentage of GDP to rise by 0.5 percentage points from 2024 to 2033.

Second, a pandemic-related tax provision allowed employers to defer payment of some of their payroll taxes in 2020 and 2021; they paid half of the deferred amounts in 2022 and the other half in 2023.23 That provision boosted tax receipts in 2022 and 2023 but will have no effect in future years, causing receipts measured as a share of GDP to drop by 0.2 percentage points after 2023.

Provisions of the 2017 Tax Act. Several provisions of the 2017 tax act affect corporate income tax receipts over the next decade and are estimated to reduce such receipts as a share of GDP by 0.2 percentage points, on net, from 2023 to 2033.

In 2022, firms were required to begin capitalizing and amortizing certain expenditures for research and experimentation over a five-year period as they are incurred; previously, they could immediately deduct such expenses. That change will boost receipts in 2023 and for the next several years as firms take fewer deductions up front, but it will not significantly affect receipts in later years. Additionally, provisions allowing firms to immediately deduct 100 percent of their investments in equipment from their taxable income are scheduled to phase out from 2023 to 2026. By reducing the deduction that can be taken on new investments in the first year such an investment is made, that change will add to receipts to varying degrees during the phase-down period but will not significantly affect receipts by 2033.

Finally, changes to rules related to the taxation of foreign profits are scheduled to occur in 2026. Those changes will increase revenues in subsequent years, but those increases will be more than offset by the reductions stemming from the previously described changes.

Receipts from all revenue sources other than individual income taxes, payroll taxes, and corporate income taxes totaled $356 billion, or 1.4 percent of GDP, in 2022 (see Table 1-7). Those receipts are projected to decline to 1.0 percent of GDP in 2023 and to range between 0.9 percent and 1.1 percent of GDP during the next decade.

Many exclusions, deductions, credits, and preferential rates in the federal tax system cause revenues to be lower than they would be otherwise for any underlying set of tax rates. Such provisions resemble federal spending and contribute to the budget deficit; thus, they are known as tax expenditures.24

Tax expenditures have a large effect on the federal budget. In fiscal year 2023, the value of the more than 200 tax expenditures in the individual and corporate income tax systems (including their effects on payroll taxes) is estimated to be $1.9 trillion, or 7.4 percent of GDP.27 That amount, which was calculated by CBO on the basis of estimates prepared by JCT, equals about 40 percent of all federal revenues in 2023 and exceeds projected outlays for all discretionary programs combined (see Figure 1-6).

Simply adding up the estimates for specific tax expenditures does not account for the interactions that may occur among those tax provisions. For instance, the total tax expenditure for all itemized deductions would be smaller than the sum of the separate tax expenditures for each deduction. The reason is that all taxpayers would claim the standard deduction if there were no itemized deductions; but if only one or a few itemized deductions were removed, many taxpayers would still choose to itemize. The progressive structure of the tax brackets ensures that the opposite would be the case with income exclusions. In other words, the tax expenditure for all exclusions considered together would be greater than the sum of the separate tax expenditures for each exclusion. In 2023, those and other factors are expected to be approximately offsetting, so the total amount of tax expenditures is projected to roughly equal the sum of the individual tax expenditures.

As a result of mounting deficits, federal debt held by the public rises from 118 percent of GDP in 2033 to 195 percent of GDP in 2053. Debt that is high and rising as a percentage of GDP tends to slow economic growth, push up interest payments to foreign holders of U.S. debt, heighten the risk of a fiscal crisis, and make the U.S. fiscal position more vulnerable to an increase in interest rates. Concern about those consequences puts pressure on future decisions about tax and spending policies.

Real GDP grew more slowly in each quarter of 2022 than the agency expected.2 An upward revision to GDP in 2021 mitigated some of the effect of slower growth in 2022 on the level of GDP at the end of 2022.

CBO currently projects higher inflation in 2023 and 2024 than it did last May. Inflation in 2022 reached the highest rates seen in the past four decades by some measures; it was higher than CBO forecast last spring mainly because of higher-than-expected food and energy prices resulting from the war in Ukraine and higher inflation in shelter costs following a surge in house prices. As a result, projections of nominal GDP and national income have increased through most of the forecast period, even though real GDP is lower than the agency projected last May. Expected growth of labor compensation has also increased.

CBO now expects short-term interest rates to be higher in 2023 and 2024 than it did in its previous forecast. That upward revision reflects the upward revision to inflation as well as higher-than-expected short-term interest rates during 2022. After 2024, short-term rates are similar to those forecast last spring. CBO expects higher long-term interest rates over the first five years of the projection period.

Inflation remained high in 2022 as the war in Ukraine added to upward price pressures in an economy already experiencing high inflation from buoyant demand, tight labor markets, and supply constraints. In response, the Federal Reserve sharply raised interest rates. Real GDP showed little net growth during the year because a downturn in housing construction and a cooling of inventory accumulation offset higher consumer spending. In addition, the recovery of labor force participation was slow. Even so, employment grew at a strong pace, the unemployment rate hovered near 60-year lows throughout much of the year, and job vacancies remained high.

Other price increases, in addition to those for food and energy, were broad-based. For example, in the PCE price index, the price of shelter services rose by 7.4 percent in 2022.3 That increase followed a rapid appreciation of home values in 2021, which put upward pressure on rents.

Other prices that had contributed disproportionately to high inflation in 2021 began to cool in 2022. For instance, the index for new and used motor vehicles grew by 3.8 percent in 2022, a historically high inflation rate for the index but well below its 2021 growth rate of 16.8 percent.

In 2022, the Federal Reserve tightened monetary policy in response to high inflation. The Federal Reserve raised the target range for the federal funds rate at each meeting of the Federal Open Market Committee since last March; in December 2022, the federal funds rate was 4.1 percent, the highest rate since December 2007. The interest rate on 10-year Treasury notes increased from 1.5 percent in December 2021 to 3.6 percent in December 2022.

The demand for workers, as indicated by the number of job openings, increased at a faster pace, on average, than did the number of available workers in 2022. The shortfall of available workers relative to the demand for them contributed to strong growth of compensation.

Three recently enacted major pieces of legislation will affect the economy. The Honoring our PACT Act expands health care and benefits for veterans exposed to burn pits and toxic substances. The CHIPS Act provides funding for semiconductor manufacturing, research, and development. Some of the roughly 150 provisions of the 2022 reconciliation act increase health insurance subsidies and provide energy-related subsidies. Those increases in government purchases and financial support to households and businesses will add to overall demand. In addition, the 2022 reconciliation act will raise tax revenues through a new alternative minimum tax on corporations and increased funding for tax-enforcement activities, thereby reducing overall demand. CBO estimates that the positive effects on overall demand resulting from increases in government spending will be larger than the negative effects from increases in revenues. On net, the increase in overall demand will boost real GDP by an average of 0.1 percent over the next two years, CBO estimates.

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