Additional Information About the Updated Budget and Economic Outlook: 2021 to 2031 — CBO
Summary
Additional Information About the Updated Budget and Economic Outlook: 2021 to 2031 is a Congressional Budget Office report dated July 2021 that details the agency's baseline budget and economic projections under current law. CBO projects a federal deficit of $3.0 trillion in 2021, or 13.4 percent of GDP, and says the increase since February 2021 stems mostly from the American Rescue Plan Act. It projects federal debt held by the public at 103 percent of GDP at the end of 2021, reaching 106 percent of GDP in 2031, and a cumulative 2022–2031 deficit of $12.1 trillion. On the economy, it projects real GDP growth of 7.4 percent in 2021 and a 10-year Treasury note rate of 3.5 percent in 2031. The report has two chapters, on the budget and economic outlooks, plus three appendixes, and it closes with staff credits for writing, reviewing and publishing.
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Additional Information
About the Updated Budget
and Economic Outlook:
2021 to 2031
40
cted
Proje
30 Projected
Average Out
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− 2001
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− 1990 2031
1974 Projected
− 1981
0 1950 d Expansion s
1973 Range of All Recessions an
it
5 Primary Defic 16
or Surplus
12
ds of the Range
0 8 Middle Two-Thir and Expansions
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−5 Total Deficit 0
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1971
JULY | 2021
At a Glance
The Congressional Budget Office regularly publishes 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 provides additional detail
about the agency’s latest baseline projections, which were published earlier this month.
• The Budget. CBO projects a federal budget deficit of $3.0 trillion in 2021 as the economic
disruption caused by the 2020–2021 coronavirus pandemic and the legislation enacted in response
continue to boost the deficit (which was large by historical standards even before the pandemic).
At 13.4 percent of gross domestic product (GDP), the deficit in 2021 would be the second largest
since 1945, exceeded only by the 14.9 percent shortfall recorded last year.
In CBO’s projections, deficits fall over the next few years as pandemic-related spending wanes.
They increase in most years thereafter—boosted by rising interest costs and greater spending for
entitlement programs—and reach 5.5 percent of GDP in 2031. (Revenues remain largely stable
relative to GDP over the projection period.)
With such deficits, federal debt held by the public totals 103 percent of GDP at the end of
2021 in CBO’s projections. Debt then falls modestly through 2024 and rises thereafter, reaching
106 percent of GDP in 2031—about equal to its previous peak, recorded in 1946.
• Changes in CBO’s Budget Projections Since February 2021. Compared with the baseline
projections that CBO published in February 2021, the agency’s estimate of the deficit for this year
is now $0.7 trillion (or 33 percent) larger, and its current projection of the cumulative deficit for
the 2022–2031 period, $12.1 trillion, is $0.2 trillion (or 1 percent) smaller. In 2021, the costs
of recently enacted legislation are partly offset by the effects of a stronger economy and technical
changes (changes that are neither legislative nor economic). In later years, technical changes that
reduce projected deficits more than offset the effects of recently enacted legislation and revisions to
the economic forecast.
• The Economy. As the pandemic eases and demand for consumer services surges, real (inflation-
adjusted) GDP in CBO’s projections grows by 7.4 percent this year and surpasses its potential
(maximum sustainable) level by the end of the year. Annual output growth averages 2.8 percent
from 2021 to 2025, exceeding the 2.0 percent growth rate of real potential GDP. Over the
2026–2031 period, real GDP growth averages 1.6 percent annually.
Employment grows quickly in the second half of 2021 in CBO’s projections and surpasses its
prepandemic level in mid-2022. Inflation rises in 2021 to its highest rate since 2008 as increases
in the supply of goods and services lag behind increases in the demand for them. By 2022, supply
adjusts more quickly, and inflation falls but remains above its prepandemic rate through 2025. As
the economy continues to expand over the forecast period, the interest rate on 10-year Treasury
notes rises, reaching 2.7 percent in 2025 and 3.5 percent in 2031—still low by historical standards.
• Changes in CBO’s Economic Projections Since February 2021. CBO now projects stronger
economic growth than it projected in February 2021 because of recently enacted legislation, the
diminishing effects of social distancing, and increased consumer spending. As a result, the agency’s
projections of inflation and interest rates are now higher than they were in February.
www.cbo.gov/publication/57263
Contents
Visual Summary 1
Chapter 1: The Budget Outlook 5
Overview 5
Assumptions Underlying CBO’s Baseline Budget Projections 5
Deficits 5
Debt Held by the Public 7
Outlays and Revenues in 2021 7
Outlays and Revenues From 2022 to 2031 17
Uncertainty in the Budget Outlook 23
Chapter 2: The Economic Outlook 25
Overview 25
Current Conditions: Recovery From the Pandemic-Induced Recession 28
Policy Responses to the Pandemic 32
The Economic Outlook for 2021 to 2025 33
The Economic Outlook for 2026 to 2031 42
Projections of Income for 2021 to 2031 45
Uncertainty in the Economic Outlook 45
Comparison With CBO’s February 2021 Economic Projections 48
Comparison With Other Economic Projections 52
Appendix A: Changes in CBO’s Baseline Projections Since February 2021 57
Overview 57
Legislative Changes 59
Economic Changes 63
Technical Changes 67
Appendix B: The Short-Term Economic Effects of Recently Enacted Legislation 71
Effects on Output and Employment 71
Effects on Inflation and Interest Rates 73
Appendix C: CBO’s Economic Projections for 2021 to 2031 75
List of Tables and Figures 77
About This Document 79
Box
2-1. Effects of the Pandemic on the Employment of Men and Women, by Race and Ethnicity 30
Notes
The budget and economic projections in this Congressional Budget Office report include the effects
of legislation enacted through May 18, 2021, and reflect economic developments as of that date. The
projections do not include budgetary or economic effects of subsequent legislation, economic devel-
opments, administrative actions, or regulatory changes.
A short report describing these projections was published on July 1, 2021, to provide the Congress
with information as promptly as possible (www.cbo.gov/publication/57218).
Unless this 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.
Numbers in the text, tables, and figures may not add up to totals because of rounding.
Some of the figures in this report use shaded vertical bars to indicate periods of recession. (A recession
extends from the peak of a business cycle to its trough.)
Supplemental data for this analysis are available on CBO’s website (www.cbo.gov/publication/57263#data),
as are a glossary of common budgetary and economic terms (www.cbo.gov/publication/42904), a
description of how CBO prepares its baseline budget projections (www.cbo.gov/publication/53532),
a description of how CBO prepares its economic forecast (www.cbo.gov/publication/53537), and
previous editions of this report (https://go.usa.gov/xQrzS).
Visual Summary
In this report, the Congressional Budget Office describes its projections of the federal budget and the U.S. economy
under current law for this year and the decade that follows. The projected deficit for 2021 is $3.0 trillion, about
$0.7 trillion larger than CBO estimated in February. That increase stems mostly from the enactment of the American
Rescue Plan Act (ARPA). Over the 2022–2031 period, projected deficits are much smaller, though still large by
historical standards. CBO projects stronger economic growth in the near term than it did in February 2021 because
of recently enacted fiscal policies and because the agency now projects the effects of social distancing to be weaker and
consumer spending to be greater than it forecast at that time.
Deficits In CBO’s projections, this year’s deficit equals 13.4 percent of gross domestic product (GDP)—
smaller than the shortfall of 14.9 percent of GDP recorded in 2020 but larger than the deficit
in any other year since 1945. The budget shortfall decreases to 4.7 percent of GDP in 2022 and
to 2.9 percent of GDP in 2024 as the direct budgetary effects of ARPA fade and the economy
improves. Thereafter, deficits begin to rise again. By 2031, the deficit reaches 5.5 percent of GDP,
significantly larger than the 3.3 percent of GDP that deficits have averaged over the past 50 years.
Percentage of GDP
5 Primary Deficit Projected
or Surplus
Primary deficits (which exclude net interest
0 costs) hover at about 2 percent of GDP from
2023 to 2029 and increase to 3 percent in the
years that follow. Despite mounting federal
−5 Net Interest debt, low interest rates cause interest payments
Total Deficit to fall in relation to GDP through 2023. Net
or Surplus
−10 interest costs then increase in relation to the
size of the economy—from 1.3 percent of GDP in
−15 2024 to 2.7 percent of GDP in 2031.
1971 1981 1991 2001 2011 2021 2031
See Figure 1-1 on page 8
Trillions of Dollars
2021 The projected deficit for
2021 has increased by a
2021 Deficit in
2.3 third, mostly because of
CBO’s February 2021 Baseline
recently enacted legislation.
2021 Deficit in The projected cumulative
3.0
CBO’s July 2021 Baseline
deficit for the 2022–
2031 period is slightly
2022 to 2031
smaller than it was in CBO’s
2022–2031 Deficit in February baseline; updates
12.3
CBO’s February 2021 Baseline to projections of revenues
2022–2031 Deficit in and mandatory outlays
12.1
CBO’s July 2021 Baseline were largely offsetting.
See Figure A-1 on page 58
2 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
Debt Federal debt held by the public is projected to drop from 103 percent of GDP at the end of
2021 to 99 percent in 2023 and 2024 as growth in the economy outpaces rising debt. Starting
in 2025, debt steadily rises in relation to the size of the economy in CBO’s projections.
Percentage of GDP
120 Projected
100
Federal Debt Held by the Public
80
At the end of 2031, debt
is projected to reach
60
106 percent of GDP—about
equal to its previous peak,
40 recorded in 1946.
20
0
1941 1951 1961 1971 1981 1991 2001 2011 2021 2031
See Figure 1-2 on page 10
Outlays and Outlays in 2021 are projected to total 31 percent of GDP—the second highest that they
Revenues have been in any year since 1945, behind only outlays in 2020. In CBO’s projections,
outlays decline in the near term, falling below 21 percent of GDP in 2024, and then rise,
reaching 23 percent of GDP in 2031; outlays remain above their 50-year average for the
entire projection period. Revenues hover around 18 percent of GDP, just above their
historical average.
Percentage of GDP
40 Projected
Boosted by increased
spending for Social Security
30 and the major health care
Average Outlays,
1971 to 2020 Outlays programs and by rising
(20.6%)
interest rates on federal
20 debt, outlays climb in
relation to GDP after 2024
in CBO’s projections. The
Average Revenues, Revenues
1971 to 2020 wider-than-average gap
10
(17.3%) between outlays and
revenues results in growing
deficits and rising debt.
0
1971 1981 1991 2001 2011 2021 2031
See Figure 1-3 on page 11
VISUAL SUMMARY ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 3
Economic In CBO’s projections, the economy expands rapidly over the next two years. In 2021, real
Output and the (inflation-adjusted) GDP grows by 7.4 percent, largely because of increased consumer
Labor Market: spending and a rebound in business fixed investment. Thereafter, as conditions in labor and
2021 to 2025 product markets remain strong, growth in real GDP moderates.
Percentage Change
8 Projected
The annual growth of
real GDP exceeds that of
real potential (maximum
4 sustainable) GDP until 2023
Real Potential
GDP Growth in CBO’s projections. That
growth slows thereafter as
Real GDP Growth real GDP returns to a level
0
slightly below potential
GDP—in accordance with
their historical average
−4 relationship.
2001 2006 2011 2016 2021 2026 2031
See Figure 2-1 on page 26
Percentage Change in Real GDP per Potential Worker
From Previous Business-Cycle Peak
16
Range of All Recessions and Expansions The recession caused by the 2020–
12 2021 coronavirus pandemic was
Middle Two-Thirds of
8 the Range of Recessions much sharper and more severe than
and Expansions any recession in recent history, but
4 Mean the recovery has also been unusually
0 strong. In CBO’s projections, real GDP
per potential worker grows more
−4 quickly from its level at the previous
July 2021 business-cycle peak than it did
−8 Pandemic-Induced Projection
Recession and Recovery during most economic recoveries and
−12 expansions since World War II.
0 1 2 3 4 5 6 7 8 9 10 11 12
Quarters Since Previous Peak
See Figure 2-2 on page 34
Percent
10 Projected
The unemployment rate
8 Actual is projected to decline
Unemployment through the remainder
6 of 2021 and the first half
of 2022 before returning
4 Noncyclical Rate to a level slightly above
of Unemployment the noncyclical rate of
2 unemployment—consistent
with their historical average
0 relationship.
2001 2006 2011 2016 2021 2026 2031
See Figure 2-3 on page 39
4 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
Inflation and In CBO’s projections, inflation increases in 2021—as various factors cause supply to grow more
Interest Rates: slowly than demand in product and labor markets—and then falls in 2022. As the economy
2021 to 2025 continues to expand, interest rates on federal borrowing rise but remain low by historical standards.
Percentage Change
4 Projected
PCE Price
After spiking in 2021 and falling in
3
Index 2022, inflation, as measured by the
price index for personal consumption
2
expenditures (PCE), increases in 2023
and remains slightly above the Federal
1 Federal Reserve’s Long-Run Goal
Core PCE Reserve’s long-run goal of 2 percent for
Price Index several years.
0
2001 2006 2011 2016 2021 2026 2031
See Figure 2-4 on page 41
Percent
6 Projected
The interest rate on 3-month Treasury bills
10-Year Treasury remains near zero through early 2023 and
4 Note Rate
then rises as the Federal Reserve raises
the federal funds rate. The interest rate on
2 10-year Treasury notes increases over the
3-Month Treasury next decade but at a slower pace than it
Bill Rate rose in the first few months of 2021.
0
2001 2006 2011 2016 2021 2026 2031
See Figure 2-4 on page 41
The Economy: The economy continues to expand from 2026 to 2031 in CBO’s projections but at a slower
2026 to 2031 pace than it does over the first five years of the forecast period, mostly because the agency
expects monetary policy to become less accommodative. Real GDP grows at an average rate of
1.6 percent per year over the 2026–2031 period.
Average Annual Percentage Change
4 4.0
Projected From 2026 to 2031, real potential GDP
3.2 3.2 3.3 grows in CBO’s projections at roughly
3 0.7
2.3 the same rate as it has since the 2007–
1.6 2.4
2.0 2.0 2009 recession because of faster growth
2 1.7 1.7 Real Potential GDP
1.4 in potential labor force productivity.
2.5 1.2 1.6 Potential Labor Force However, growth in the potential labor
1 1.4
1.6 1.6 Productivity
1.2 1.0 force is projected to be slower than it was
0.5 0.4 0.3 Potential Labor Force
0 in previous periods, largely because of the
1950− 1974− 1982− 1991− 2002− 2008− 2021− 2026− aging of the population.
1973 1981 1990 2001 2007 2020 2025 2031
See Figure 2-5 on page 44
Chapter 1: The Budget Outlook
Overview discretionary budget authority that has been provided for
The Congressional Budget Office now estimates that those purposes so far in 2021.2
if no new legislation affecting revenues or outlays is
enacted after May 18, 2021, the total federal budget defi- CBO’s baseline budget projections are meant to provide
cit for fiscal year 2021 will be $3.0 trillion, $0.7 trillion a benchmark that policymakers can use to assess the
more than the agency estimated when it last issued its potential effects of future policy; they are not intended to
baseline projections for 2021 to 2031 in February 2021. provide a forecast of future budgetary outcomes. Future
That increase results primarily from recent legislation legislative action could lead to markedly different out-
enacted in response to the 2020–2021 coronavirus pan- comes—but even if federal laws remained unaltered for the
demic (see Appendix A). A deficit of that amount would next decade, actual budgetary outcomes would probably
equal 13.4 percent of gross domestic product (GDP), differ from CBO’s baseline projections because of unantic-
about 3 percentage points higher than CBO projected ipated economic conditions and many other factors that
in February. In CBO’s projections, deficits fall for a affect federal revenues and outlays.
few years after 2021 before increasing in nearly all the
remaining years in the projection period. Measured as a Deficits
percentage of GDP, federal debt follows a similar pattern, In CBO’s projections, the federal budget deficit in 2021
rising this year, falling over the next few years, and then is $126 billion less than the deficit recorded last year
rising every year thereafter through 2031. but more than triple the shortfall in 2019, before the
onset of the pandemic. Measured relative to the size
Assumptions Underlying CBO’s of the economy, this year’s deficit, at 13.4 percent of
Baseline Budget Projections GDP, is smaller than the shortfall of 14.9 percent of
CBO’s standard procedure is to prepare its baseline bud- GDP recorded in 2020 but larger than the deficit in any
get projections in accordance with provisions set forth other year since 1945. (Before 2020, the largest deficit
in the Balanced Budget and Emergency Deficit Control since the end of World War II was 9.8 percent of GDP,
Act of 1985 (Public Law 99-177, referred to here as the recorded in 2009.) Deficits continue to decline for a few
Deficit Control Act) and the Congressional Budget and years—to 4.7 percent of GDP in 2022 and to 2.9 per-
Impoundment Control Act of 1974 (P.L. 93-344). Those cent in 2024—as spending provided in response to the
laws require CBO to construct its baseline under the pandemic wanes and the economy continues to improve.
assumptions that current laws governing revenues and After 2024, deficits rise, reaching 5.5 percent of GDP by
spending will generally stay the same and that discre- the end of the projection period in 2031 (see Table 1-1).3
tionary budget authority provided in appropriation acts
in future years will match current funding, with adjust- 2. CBO also did not extrapolate into future years $3 billion in
ments for inflation.1 funding provided for 2021 in division N of the Consolidated
Appropriations Act, 2021 (P.L. 116-260). The agency classified
that amount, which was also provided in response to the
However, after consulting with the House and Senate pandemic, as mandatory funding in its cost estimate but
Budget Committees, CBO deviated from that standard reclassified it as discretionary funding in its July 2021 baseline.
procedure when constructing its current baseline for About $8 billion in emergency funding provided for other
discretionary spending. Because of the unusual size and purposes is projected to continue in the future, with increases to
nature of the emergency funding provided in legisla- account for inflation each year after 2021.
tion enacted in response to the pandemic, the agency 3. Because October 1 will fall on a weekend in calendar years 2022,
did not extrapolate into future years the $184 billion in 2023, and 2028, certain payments that are due on those days
will be made at the end of September instead, thus shifting them
into the previous fiscal year. In CBO’s projections, those shifts
noticeably boost outlays and deficits in fiscal years 2022 and
2028 but reduce them in fiscal years 2024 and 2029. If not for
1. Budget authority is the funding provided by federal law to incur those shifts, deficits would decline in each year between 2021
financial obligations that will result in immediate or future and 2023 and increase as a percentage of GDP in all but one year
outlays of federal government funds. between 2024 and 2031.
6 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
Table 1-1 .
CBO’s Baseline Budget Projections, by Category
Total
Actual, 2022– 2022–
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2026 2031
In Billions of Dollars
Revenues
Individual income taxes 1,609 1,952 2,328 2,334 2,353 2,383 2,586 2,792 2,871 2,979 3,091 3,209 11,984 26,926
Payroll taxes 1,310 1,346 1,391 1,504 1,550 1,588 1,644 1,703 1,768 1,834 1,900 1,968 7,677 16,849
Corporate income taxes 212 238 317 379 390 402 401 391 393 393 393 397 1,889 3,857
Other 291 306 355 381 378 359 354 367 364 366 371 382 1,827 3,676
Total 3,421 3,842 4,390 4,597 4,671 4,734 4,984 5,253 5,396 5,572 5,754 5,957 23,376 51,308
On-budget 2,456 2,863 3,401 3,513 3,542 3,566 3,773 3,995 4,091 4,218 4,352 4,506 17,796 38,957
Off-budgeta 965 979 989 1,085 1,128 1,168 1,211 1,258 1,306 1,354 1,402 1,451 5,581 12,351
Outlays
Mandatory 4,577 4,862 3,589 3,461 3,488 3,711 3,907 4,088 4,418 4,446 4,780 5,025 18,155 40,912
Discretionary 1,628 1,652 1,649 1,610 1,592 1,625 1,660 1,701 1,746 1,778 1,827 1,877 8,136 17,065
Net interest 345 331 306 315 344 396 467 541 628 712 808 910 1,826 5,425
Total 6,550 6,845 5,544 5,386 5,423 5,731 6,033 6,330 6,792 6,935 7,415 7,812 28,118 63,402
On-budget 5,598 5,846 4,469 4,231 4,191 4,418 4,642 4,854 5,222 5,268 5,647 5,939 21,950 48,880
Off-budgeta 953 999 1,075 1,155 1,233 1,313 1,391 1,476 1,570 1,667 1,769 1,873 6,167 14,521
Total Deficit -3,129 -3,003 -1,153 -789 -753 -998 -1,049 -1,077 -1,395 -1,363 -1,661 -1,855 -4,741 -12,093
On-budget -3,142 -2,984 -1,067 -718 -648 -852 -869 -859 -1,131 -1,050 -1,294 -1,434 -4,155 -9,923
Off-budgeta 13 -19 -86 -71 -104 -146 -180 -218 -264 -313 -367 -422 -587 -2,170
Primary Deficitb -2,784 -2,672 -848 -474 -409 -602 -582 -536 -768 -652 -853 -946 -2,915 -6,669
Debt Held by the Public 21,017 23,012 24,392 25,156 25,959 26,967 28,062 29,185 30,733 32,119 33,913 35,827 n.a. n.a.
Memorandum:
Gross Domestic Product 21,000 22,401 24,323 25,356 26,191 27,076 28,033 29,103 30,195 31,305 32,449 33,670 130,980 287,702
As a Percentage of Gross Domestic Product
Revenues
Individual income taxes 7.7 8.7 9.6 9.2 9.0 8.8 9.2 9.6 9.5 9.5 9.5 9.5 9.1 9.4
Payroll taxes 6.2 6.0 5.7 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.8 5.9 5.9
Corporate income taxes 1.0 1.1 1.3 1.5 1.5 1.5 1.4 1.3 1.3 1.3 1.2 1.2 1.4 1.3
Other 1.4 1.4 1.5 1.5 1.4 1.3 1.3 1.3 1.2 1.2 1.1 1.1 1.4 1.3
Total 16.3 17.2 18.1 18.1 17.8 17.5 17.8 18.0 17.9 17.8 17.7 17.7 17.8 17.8
On-budget 11.7 12.8 14.0 13.9 13.5 13.2 13.5 13.7 13.5 13.5 13.4 13.4 13.6 13.5
Off-budgeta 4.6 4.4 4.1 4.3 4.3 4.3 4.3 4.3 4.3 4.3 4.3 4.3 4.3 4.3
Outlays
Mandatory 21.8 21.7 14.8 13.7 13.3 13.7 13.9 14.0 14.6 14.2 14.7 14.9 13.9 14.2
Discretionary 7.8 7.4 6.8 6.3 6.1 6.0 5.9 5.8 5.8 5.7 5.6 5.6 6.2 5.9
Net interest 1.6 1.5 1.3 1.2 1.3 1.5 1.7 1.9 2.1 2.3 2.5 2.7 1.4 1.9
Total 31.2 30.6 22.8 21.2 20.7 21.2 21.5 21.7 22.5 22.2 22.9 23.2 21.5 22.0
On-budget 26.7 26.1 18.4 16.7 16.0 16.3 16.6 16.7 17.3 16.8 17.4 17.6 16.8 17.0
Off-budgeta 4.5 4.5 4.4 4.6 4.7 4.9 5.0 5.1 5.2 5.3 5.5 5.6 4.7 5.0
Total Deficit -14.9 -13.4 -4.7 -3.1 -2.9 -3.7 -3.7 -3.7 -4.6 -4.4 -5.1 -5.5 -3.6 -4.2
On-budget -15.0 -13.3 -4.4 -2.8 -2.5 -3.1 -3.1 -3.0 -3.7 -3.4 -4.0 -4.3 -3.2 -3.4
Off-budgeta 0.1 -0.1 -0.4 -0.3 -0.4 -0.5 -0.6 -0.7 -0.9 -1.0 -1.1 -1.3 -0.4 -0.8
Primary Deficitb -13.3 -11.9 -3.5 -1.9 -1.6 -2.2 -2.1 -1.8 -2.5 -2.1 -2.6 -2.8 -2.2 -2.3
Debt Held by the Public 100.1 102.7 100.3 99.2 99.1 99.6 100.1 100.3 101.8 102.6 104.5 106.4 n.a. n.a.
Data source: Congressional Budget Office. See www.cbo.gov/publication/57263#data.
n.a. = not applicable.
a. The revenues and outlays of the Social Security trust funds and the net cash flow of the Postal Service are classified as off-budget.
b. Primary deficits exclude net outlays for interest.
CHAPTER 1: THE BUDGET OUTLOOK ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 7
The cumulative deficit for 2022 to 2031 is projected to of $1.8 trillion at the end of fiscal year 2020 to roughly
total $12.1 trillion (or 4.2 percent of GDP); that short- $500 billion at the end of 2021—more in line with
fall is slightly smaller than the cumulative deficit for that historical norms, though still higher than usual. The
period in the baseline projections that CBO published reduction would not affect the deficit but would result in
in February. Until recently, deficits tended to be small a decrease in debt of an equal amount.
by historical standards when the economy was rela-
tively strong over a period of several years. For example, The deficit also excludes some cash disbursements
between 1970 and 2019, deficits averaged 1.7 percent of for credit programs, which increase the amount the
GDP in years when the average unemployment rate for Treasury will add to the debt in 2021 by an estimated
the year was below 6 percent. The unemployment rate is $277 billion. The largest such cash disbursements are
below 6 percent every year from 2022 to 2031 in CBO’s for the Debt Relief Program run by the Small Business
projections, yet the average deficit is about two and a half Administration (SBA). When all other means of financ-
times that historical average. ing that reconcile the estimated deficit with the Treasury’s
borrowing needs are included, the increase in debt held
Primary deficits—that is, deficits excluding net outlays by the public in 2021 will be $1.0 trillion less than the
for interest—fall from 11.9 percent of GDP in 2021 to deficit, CBO projects, primarily because of the reduction
1.6 percent in 2024, remain near 2.0 percent for the next in cash balances (see Table 1-2).
few years, and then increase again and reach 2.8 percent
of GDP in 2031 in CBO’s projections (see Figure 1-1). After all the government’s borrowing needs are accounted
From 2022 to 2031, primary deficits average 2.3 percent for, debt held by the public rises from $21.0 trillion at
of GDP. Net outlays for interest fall from 1.5 percent of the end of 2020 to $35.8 trillion at the end of 2031 in
GDP this year to a low of 1.2 percent in 2023 and then CBO’s baseline projections. As a percentage of GDP,
increase over the remainder of the projection period as debt at the end of 2031 stands at 106 percent, about
interest rates and federal debt rise. In 2031, net interest 6 percentage points higher than it was at the end of 2020
outlays total 2.7 percent of GDP, at which point they and nearly two and a half times its average over the past
would equal their highest level since 1998. 50 years (see Figure 1-2 on page 10).
Debt Held by the Public Another measure of debt excludes the value of the
The deficits projected in CBO’s baseline would boost government’s financial assets. That measure, debt net of
federal debt held by the public, which consists mostly financial assets, reflects the government’s overall finan-
of securities that the Treasury issues to raise cash to fund cial condition by accounting for government spending
the federal government’s activities and pay off its matur- that results in the acquisition of financial assets, such as
ing liabilities. The net amount that the Treasury borrows student loans. Still another measure—which excludes
by issuing those securities (calculated as the amounts that Treasury securities held by the Federal Reserve in addi-
are sold minus the amounts that have matured) is deter- tion to those financial assets—better reflects the govern-
mined primarily by the annual budget deficit. However, ment’s overall effect on credit markets. In CBO’s baseline
several other factors that are not directly included in projections, that measure increases from $13.6 trillion
budget totals also affect the government’s need to borrow (or 65 percent of GDP) at the end of 2020 to $28.4 tril-
from the public. Those factors—collectively referred to lion (or 84 percent of GDP) at the end of 2031. (Federal
as “other means of financing”—include changes in the debt held by the Federal Reserve, which totaled $4.4 tril-
government’s cash balances and cash flows associated lion at the end of 2020, increases to $5.3 trillion at
with federal credit programs, such as those related to the end of 2021 and to $6.4 trillion in 2023, where it
student loans and loans to small businesses. (Only the remains until 2025; thereafter, such debt declines, falling
subsidy costs of those programs are reflected in the bud- to $4.8 trillion in 2031.)
get deficit.)4
Outlays and Revenues in 2021
CBO estimates that the Treasury will decrease its cash In CBO’s projections, spending related to the pandemic
balances by $1.3 trillion this year, from an all-time high causes outlays to remain elevated this year. At 30.6 per-
cent of GDP, projected outlays for 2021 are slightly
4. For more details on other means of financing and on federal debt lower than those recorded in 2020 (31.2 percent of
more broadly, see Congressional Budget Office, Federal Debt: A GDP) but still significantly higher than their annual
Primer (March 2020), www.cbo.gov/publication/56165.
8 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
Figure 1-1 .
Total Deficits, Primary Deficits, and Net Interest
Percentage of GDP
5 Projected
Primary Deficit In CBO’s projections, total
or Surplus deficits and primary deficits
0 shrink as a percentage of
GDP for the next few years.
Over the latter part of the
Net Interest
projection period, growing
−5 primary deficits (which
Total Deficit reflect underlying trends
or Surplus
related to the aging of the
−10 population and the rising
costs of health care) and
rising net interest costs
increase total deficits.
−15
1971 1981 1991 2001 2011 2021 2031
Data source: Congressional Budget Office. See www.cbo.gov/publication/57263#data.
Primary deficits exclude net outlays for interest.
When October 1 (the first day of the fiscal year) falls on a weekend, certain payments that would have ordinarily been made on that day are instead made at the
end of September and thus are shifted into the previous fiscal year. All projections presented here have been adjusted to exclude the effects of those timing
shifts. Historical amounts have been adjusted as far back as the available data will allow.
GDP = gross domestic product.
average over the past 50 years (20.6 percent of GDP). Mandatory Spending. Mandatory, or direct, spending
By contrast, revenues are projected to increase, from includes outlays for some federal benefit programs and
16.3 percent of GDP in 2020 to 17.2 percent in 2021, for certain other payments to people, businesses, non-
close to their historical average of 17.3 percent (see profit institutions, and state and local governments. Such
Figure 1-3 on page 11). outlays are generally governed by statutory criteria and
are not normally constrained by the annual appropri-
Outlays ation process.5 Certain types of payments that federal
In CBO’s projections, federal outlays in 2021 total agencies receive from the public and from other gov-
$6.8 trillion—about $0.3 trillion (or 4 percent) more ernment agencies (such as premiums paid by Medicare
than the amount recorded in 2020. (Because GDP is beneficiaries and payments made by federal agencies to
projected to grow faster than outlays this year, outlays employees’ retirement plans) are classified as offsetting
fall in relation to the size of the economy despite the receipts and are accounted for in the budget as reduc-
increase in nominal terms.) Nearly all of that growth tions in mandatory spending.
is attributable to mandatory outlays. Recently enacted
legislation—primarily the American Rescue Plan Act
of 2021 (P.L. 117-2, enacted on March 11, 2021)—
increased projected outlays for this year by $1.1 trillion
and, along with legislation enacted in 2020 in response 5. Each year, some mandatory programs are modified by provisions
in annual appropriation acts. Such changes may increase or
to the pandemic, contributes significantly to keeping out- decrease spending for the affected programs for one or more
lays in 2021 high by historical standards. (By compari- years. In addition, some mandatory programs, such as Medicaid,
son, in 2019, outlays totaled 21.0 percent of GDP, nearly the Supplemental Nutrition Assistance Program, and benefits for
10 percentage points less than CBO projects for 2021.) Coast Guard retirees and annuitants, are considered mandatory
but require benefits to be paid from amounts provided in
appropriation acts.
CHAPTER 1: THE BUDGET OUTLOOK ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 9
Table 1-2 .
CBO’s Baseline Projections of Federal Debt
Billions of Dollars
Actual,
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Debt Held by the Public at
the Beginning of the Year 16,801 21,017 23,012 24,392 25,156 25,959 26,967 28,062 29,185 30,733 32,119 33,913
Changes in Debt Held by the Public
Deficit 3,129 3,003 1,153 789 753 998 1,049 1,077 1,395 1,363 1,661 1,855
Other means of financinga 1,087 -1,008 227 -25 51 9 47 46 152 23 133 58
Total 4,216 1,995 1,381 764 804 1,007 1,096 1,123 1,548 1,386 1,795 1,913
Debt Held by the Public at
the End of the Year
In billions of dollars 21,017 23,012 24,392 25,156 25,959 26,967 28,062 29,185 30,733 32,119 33,913 35,827
As a percentage of GDP 100.1 102.7 100.3 99.2 99.1 99.6 100.1 100.3 101.8 102.6 104.5 106.4
Memorandum:
Federal Financial Assetsb 2,923 1,915 2,143 2,118 2,168 2,178 2,225 2,271 2,423 2,446 2,579 2,637
Debt Net of Financial Assets
In billions of dollars 18,093 21,096 22,250 23,038 23,791 24,789 25,837 26,914 28,310 29,673 31,334 33,190
As a percentage of GDP 86.2 94.2 91.5 90.9 90.8 91.6 92.2 92.5 93.8 94.8 96.6 98.6
Debt Held by the Federal Reserve 4,445 5,298 6,182 6,419 6,433 6,448 6,159 5,827 5,546 5,284 5,034 4,832
Debt Net of Financial Assets and Debt
Held by the Federal Reserve
In billions of dollars 13,648 15,799 16,067 16,619 17,358 18,340 19,678 21,087 22,764 24,389 26,300 28,358
As a percentage of GDP 65.0 70.5 66.1 65.5 66.3 67.7 70.2 72.5 75.4 77.9 81.1 84.2
Gross Federal Debtc 26,902 29,058 30,541 31,451 32,313 33,329 34,394 35,342 36,710 37,876 39,393 40,974
Debt Subject to Limit d
26,920 29,077 30,560 31,471 32,333 33,348 34,414 35,361 36,729 37,893 39,409 40,990
Average Interest Rate on Debt
Held by the Public (Percent) 2.0 1.7 1.4 1.4 1.5 1.6 1.8 2.0 2.2 2.4 2.6 2.7
Data sources: Congressional Budget Office; Department of the Treasury. See www.cbo.gov/publication/57263#data.
GDP = gross domestic product.
a. Factors not included in budget totals that affect the government’s need to borrow from the public. Those factors include changes in the government’s cash
balances and cash flows associated with federal credit programs, such as those related to student loans. (Only the subsidy costs of those programs are
reflected in the budget deficit.)
b. The value of outstanding student loans and other credit transactions, cash balances, and various financial instruments.
c. Federal debt held by the public plus Treasury securities held by federal trust funds and other government accounts.
d. The amount of federal debt that is subject to the overall limit set in law. That measure of debt excludes debt issued by the Federal Financing Bank and
reflects certain other adjustments that are excluded from gross federal debt. The debt limit was most recently set at $22.0 trillion but has been suspended
through July 31, 2021. On August 1, 2021, the debt limit will be raised to its previous level plus the amount of federal borrowing that occurred while the limit
was suspended. CBO’s baseline projections reflect the assumption that the limit will be raised as needed. For more details, see Congressional Budget Office,
Federal Debt and the Statutory Limit, February 2019 (February 2019), www.cbo.gov/publication/54987.
10 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
Figure 1-2 .
Federal Debt Held by the Public, 1940 to 2031
Percentage of GDP
120 Projected
100
80 By 2031, federal debt held
by the public is projected
60 to exceed 106 percent of
GDP—about equal to debt
in 1946, when it was the
40
highest it has ever been.
20
0
1941 1951 1961 1971 1981 1991 2001 2011 2021 2031
Data source: Congressional Budget Office. See www.cbo.gov/publication/57263#data.
GDP = gross domestic product.
The Deficit Control Act requires CBO to construct were in 2020 (see Table 1-3). As a share of GDP, those
baseline projections for most mandatory spending under outlays are projected to amount to 21.7 percent—about
the assumption that current laws continue unchanged.6 the same share as last year, which was the highest per-
Therefore, CBO’s baseline projections of mandatory centage recorded since at least 1962 (the earliest year for
spending reflect the estimated effects of changes in the which such data have been reported). For some pro-
economy, growth in the number of beneficiaries of grams, outlays exceed the amounts recorded in 2020; for
certain mandatory programs, and other factors related to others, outlays have declined but remain well above their
the costs of those programs. The projections also incor- prepandemic level.
porate a set of across-the-board reductions in budgetary
resources (known as sequestration) that are required The following programs have the largest projected
under current law for some mandatory programs. increases in 2021:
In 2021, CBO estimates, total mandatory outlays (net
• Refundable tax credits. Outlays for refundable
tax credits total $706 billion in 2021 in
of offsetting receipts) will amount to $4.9 trillion under
CBO’s projections, $327 billion more than
current law, $284 billion (or 6 percent) more than they
the amount recorded in 2020. Most of that
increase—$287 billion—stems from the recovery
6. Section 257 of the Deficit Control Act also requires CBO to rebates for individuals that were provided in response
project spending for certain mandatory programs beyond their to the pandemic.7 In addition, a temporary expansion
scheduled expiration and to project spending for entitlement
of the child tax credit for 2021 boosts mandatory
programs, including Social Security and Medicare, under the
assumption that they will be fully funded, and thus able to make outlays by $45 billion.
all scheduled payments, even if the trust funds associated with
those programs do not have sufficient resources to make full
• Coronavirus State and Local Fiscal Recovery Funds. In
payments. Other rules that govern the construction of CBO’s
2020 and 2021, lawmakers provided direct assistance
baseline projections have been developed by the agency in to state, local, tribal, and territorial governments in
consultation with the House and Senate Budget Committees.
For further details, see Congressional Budget Office, How 7. The Treasury has classified all of the recovery rebates paid in
CBO Prepares Baseline Budget Projections (February 2018), advance of tax return filings as outlays rather than as reductions
www.cbo.gov/publication/53532. in revenues.
CHAPTER 1: THE BUDGET OUTLOOK ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 11
Figure 1-3 .
Total Outlays and Revenues
Percentage of Gross Domestic Product
40 Projected
Outlays are projected to
30
Average Outlays, drop from recent highs as
1971 to 2020 Outlays pandemic-related spending
(20.6%)
wanes and then trend
20 upward, as they did before
the pandemic. Revenues
are projected to hover
Average Revenues, Revenues
1971 to 2020 around their historical
10
(17.3%) average as a share of the
economy.
0
1971 1981 1991 2001 2011 2021 2031
Data source: Congressional Budget Office. See www.cbo.gov/publication/57263#data.
When October 1 (the first day of the fiscal year) falls on a weekend, certain payments that would have ordinarily been made on that day are instead made at the
end of September and thus are shifted into the previous fiscal year. All projections presented here have been adjusted to exclude the effects of those timing
shifts. Historical amounts have been adjusted as far back as the available data will allow.
response to the pandemic. Outlays for such assistance benefits for 2021 and expanded the program that
will total $284 billion this year, CBO estimates, allows states to provide benefits to replace meals that
significantly more than the $149 billion recorded children would otherwise have received at school.
in 2020. A projected increase in SNAP enrollment and
an ongoing program that allows states to provide
• Medicaid. Outlays for the program will total households with additional benefits during the public
$519 billion this year, CBO estimates, an increase
health emergency will also boost outlays this year. (By
of $61 billion (or 13 percent) from last year. That
comparison, outlays for SNAP totaled $63 billion
spending is boosted by two provisions enacted in
in 2019.)
response to the public health emergency caused
by the pandemic. The first raised the portion of
CBO anticipates that outlays for a number of other pro-
Medicaid costs that the federal government must
grams will be lower in 2021 than they were in 2020 but
cover. The second required that states maintain
remain well above their prepandemic amounts. Those
coverage for almost all Medicaid enrollees regardless
programs include the following:
of any changes in their income or circumstances that
would otherwise cause them to become ineligible for • Unemployment compensation. Outlays for
the program. Both provisions are set to remain in unemployment compensation, which soared
place for the duration of the public health emergency, to $472 billion in 2020, are projected to fall to
which CBO anticipates will continue through $380 billion in 2021. Despite that drop, they
July 2022. remain well above the $28 billion recorded for such
benefits in 2019, mostly because legislation extended
• Supplemental Nutrition Assistance Program (SNAP). pandemic-related unemployment benefits through
Outlays for SNAP are projected to total $145 billion
September 2021. In addition, the unemployment
this year, an increase of $59 billion (or 69 percent)
rate and the number of people claiming benefits are
from last year. Much of that increase stems from
expected to remain elevated in 2021 (but lower than
recently enacted legislation that increased SNAP
they were in 2020).
12 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
Table 1-3 .
CBO’s Baseline Projections of Mandatory Outlays
Billions of Dollars
Total
Actual, 2022– 2022–
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2026 2031
Social Security
Old-Age and Survivors Insurance 945 987 1,053 1,122 1,191 1,264 1,340 1,418 1,510 1,602 1,695 1,790 5,970 13,985
Disability Insurance 144 142 150 159 167 175 183 191 195 202 209 216 833 1,846
Subtotal 1,090 1,129 1,203 1,281 1,358 1,439 1,523 1,610 1,706 1,803 1,904 2,005 6,803 15,831
Major Health Care Programs
Medicarea,b 912 831 904 1,013 1,041 1,171 1,258 1,353 1,529 1,481 1,664 1,768 5,388 13,183
Medicaid 458 519 545 513 520 542 571 602 636 671 709 749 2,691 6,057
Premium tax credits and
related spendingc 57 68 78 53 56 59 61 61 65 68 71 75 305 645
Children’s Health Insurance Program 17 16 16 15 16 16 17 18 18 19 19 20 80 174
Subtotala,b 1,445 1,435 1,543 1,594 1,632 1,788 1,906 2,034 2,247 2,239 2,463 2,611 8,464 20,059
Income Security Programs
Earned income, child, and other
tax creditsd 380 706 178 92 94 94 95 80 80 80 81 81 553 955
Supplemental Nutrition
Assistance Program 86 145 105 79 79 80 80 80 79 78 78 77 423 815
Supplemental Security Incomeb 57 56 63 61 58 65 66 68 75 66 73 75 313 670
Unemployment compensation 472 380 45 30 32 34 37 38 39 41 44 46 177 385
Family support and foster caree 33 37 54 49 35 35 35 35 35 36 36 36 207 385
Child nutrition 24 27 28 28 29 30 32 33 34 36 37 39 148 327
Subtotalb 1,051 1,351 472 339 327 338 344 334 343 337 348 353 1,820 3,536
Federal Civilian and Military Retirement
Civilianf 109 110 115 119 123 126 130 133 137 141 145 149 612 1,317
Militaryb 62 63 71 69 66 73 75 78 86 77 85 88 354 768
Other * 4 41 46 13 1 10 6 6 6 6 6 110 140
Subtotalb 171 177 227 234 201 200 215 217 229 223 236 244 1,076 2,225
Veterans’ Programsb
Income securityg 110 119 137 133 126 142 147 152 170 149 167 173 684 1,495
Other 12 11 29 19 18 19 19 19 21 19 21 23 104 206
Subtotalb 122 130 166 152 144 161 166 171 191 168 188 195 788 1,701
Other Programs
Small Business Administration 552 323 24 10 * * 0 0 0 0 0 0 34 34
Coronavirus State and Local
Fiscal Recovery Funds 149 284 77 1 0 0 0 0 0 0 0 0 78 78
Higher education 124 108 7 6 6 6 7 7 7 8 8 9 32 71
Agriculture 31 48 17 14 15 16 16 17 17 17 17 17 78 163
Air carrier worker support 28 31 * * * * * * * * * * * *
Educational Stabilization Fund 0 12 45 38 31 23 11 4 2 0 0 0 148 154
MERHCF 11 11 12 12 13 14 14 15 16 17 17 18 65 148
Fannie Mae and Freddie Mach 0 0 6 7 8 8 8 8 8 8 8 9 36 76
Public Health and Social Services
Emergency Fund 0 17 40 8 3 1 0 0 0 0 0 0 53 53
Emergency rental assistance 0 34 13 0 0 0 0 0 0 0 0 0 13 13
Deposit insurance -7 -8 -6 -6 -5 -5 -6 -7 -8 -8 -9 -10 -27 -69
Other 88 81 143 120 98 89 83 83 84 83 82 77 533 943
Subtotal 976 941 379 209 169 152 134 128 126 124 123 120 1,043 1,664
Mandatory Outlays, Excluding the
Effects of Offsetting Receiptsa,b 4,855 5,163 3,990 3,808 3,831 4,078 4,288 4,493 4,843 4,895 5,262 5,528 19,995 45,015
Continued
CHAPTER 1: THE BUDGET OUTLOOK ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 13
Table 1-3. Continued
CBO’s Baseline Projections of Mandatory Outlays
Billions of Dollars
Total
Actual, 2022– 2022–
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2026 2031
Offsetting Receipts
Medicarei -143 -149 -163 -174 -184 -199 -215 -233 -253 -271 -293 -314 -934 -2,299
Federal share of federal employees’
retirement
Civil service retirement and other -43 -47 -51 -53 -54 -56 -58 -59 -61 -63 -66 -68 -272 -589
Military retirement -22 -25 -26 -27 -27 -28 -28 -29 -30 -30 -31 -32 -136 -288
Social Security -19 -21 -22 -23 -24 -25 -26 -27 -28 -29 -30 -31 -118 -262
Subtotal -83 -93 -99 -102 -105 -108 -112 -115 -119 -123 -126 -130 -526 -1,139
Receipts related to natural resources -10 -10 -11 -12 -13 -12 -12 -13 -13 -14 -15 -15 -60 -129
MERHCF -8 -9 -10 -10 -11 -11 -12 -12 -13 -13 -14 -15 -53 -121
Fannie Mae and Freddie Mach -4 -5 0 0 0 0 0 0 0 0 0 0 0 0
Other -29 -36 -118 -49 -31 -37 -31 -31 -28 -28 -34 -29 -265 -415
Subtotal -277 -302 -401 -347 -343 -367 -381 -405 -425 -449 -482 -503 -1,839 -4,103
Total Mandatory Outlays, Net
of Offsetting Receiptsa,b 4,577 4,862 3,589 3,461 3,488 3,711 3,907 4,088 4,418 4,446 4,780 5,025 18,155 40,912
Memorandum:
Outlays Net of Offsetting Receipts
Medicare 769 683 742 839 857 972 1,043 1,120 1,276 1,210 1,371 1,453 4,454 10,883
Major health care programs 1,302 1,286 1,381 1,420 1,448 1,590 1,691 1,800 1,994 1,968 2,170 2,297 7,530 17,759
Data source: Congressional Budget Office. See www.cbo.gov/publication/57263#data.
Data on outlays for benefit programs in this table generally exclude administrative costs, which are discretionary.
MERHCF = Department of Defense Medicare-Eligible Retiree Health Care Fund (including TRICARE for Life); * = between zero and $500 million.
a. Excludes the effects of Medicare premiums and other offsetting receipts. (Net Medicare spending, which includes those offsetting receipts, is shown in the
memorandum section of the table.)
b. When October 1 (the first day of the fiscal year) falls on a weekend, as it will in calendar years 2022, 2023, and 2028, certain payments that would ordinarily
have been made on that day are instead made at the end of September and thus are shifted into the previous fiscal year.
c. Premium tax credits are federal subsidies for health insurance purchased through the marketplaces established under the Affordable Care Act. Related
spending consists almost entirely of payments for risk adjustment and outlays for the Basic Health Program.
d. Includes outlays for recovery rebates for individuals, the American Opportunity Tax Credit, and other credits.
e. Includes outlays for Temporary Assistance for Needy Families, Child Support Enforcement, Child Care Entitlement to States, the Child Care and Development
Block Grant, and other programs that benefit children.
f. Includes benefits for retirement programs in the civil service, foreign service, and Coast Guard; benefits for smaller retirement programs; and annuitants’
health care benefits.
g. Includes veterans’ compensation, pensions, and life insurance programs. (Outlays for veterans’ health care are classified as discretionary.)
h. Cash payments from Fannie Mae and Freddie Mac to the Treasury are recorded as offsetting receipts in 2020 and 2021. Beginning in 2022, CBO’s estimates
reflect the net lifetime costs—that is, the subsidy costs adjusted for market risk—of the guarantees that those entities will issue and of the loans that they will
hold. CBO counts those costs as federal outlays in the year of issuance.
i. Includes premium payments, recoveries of overpayments made to providers, and amounts paid by states from savings on Medicaid’s prescription drug costs.
14 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
• Small Business Administration loans. Mandatory • Emergency rental assistance. Support to state,
outlays for the SBA will total $323 billion in 2021, local, tribal, and territorial governments to assist
CBO estimates, down from $552 billion in 2020 but households in making rent and utility payments will
still very high by historical standards. (Such outlays increase outlays in 2021 by $34 billion.
totaled −$1 billion in 2019, reflecting a downward
revision to the subsidy costs of loans made in previous
• Agriculture. Outlays for major agriculture programs
will increase by $17 billion in 2021, to a total of
years.) The Paycheck Protection Program accounts
$48 billion, CBO estimates. That increase is largely
for most of that change; outlays for the program
the result of continued spending on the Coronavirus
are projected to fall from $526 billion in 2020 to
Food Assistance Program, which provides assistance
$290 billion this year.
to farmers, ranchers, and consumers affected by the
• Higher education. CBO estimates that outlays for pandemic. Recently enacted legislation related to the
higher education will fall from $124 billion in 2020 pandemic will also increase outlays for agriculture
to $108 billion in 2021. (Those outlays will still be programs in 2021, CBO estimates.
well above the $33 billion they totaled in 2019.)
That drop in outlays occurs primarily because the Changes in mandatory spending for a variety of other
$95 billion upward revision to the subsidy costs of programs and activities—including subsides for health
student loans disbursed in previous years that the insurance, veterans’ programs, and federal retirement
Administration plans to record in 2021 is smaller programs—account for the rest of the increase.
than the revision recorded in 2020 (though it is still
much larger than the 2019 revision).8 The 2020 and Discretionary Spending. Discretionary spending
2021 revisions were made primarily to account for encompasses an array of federal activities that are funded
updated projections of income of borrowers with through or controlled by appropriations. That category
income-driven repayment plans, which would result includes most defense spending; spending for many
in lower repayments of principal and payments of nondefense activities, such as elementary and secondary
interest by those borrowers. education, housing assistance, international affairs, and
the administration of justice; and outlays for highway
Taken together, outlays for all other mandatory programs programs.9 In any year, some discretionary outlays arise
are estimated to rise, on net, by $40 billion (or 2 per- from budget authority provided in the same year, and
cent) in 2021. The largest of those changes are for the some arise from appropriations made in previous years.
following programs:
Discretionary funding for 2021 is governed by limits, or
• Medicare. Outlays for Medicare (net of offsetting caps, that were previously set in law.10 (No statutory caps
receipts) will fall by $86 billion (or 11 percent)
are in place for years after 2021.) Some elements of dis-
in 2021, to $683 billion, CBO projects. That
cretionary funding are not constrained by the caps. For
decrease is largely the result of two factors. First,
most of those exceptions, the caps are adjusted to accom-
whereas Medicare made payments totaling roughly
modate the funding provided. In particular, adjustments
$100 billion to providers through accelerated and
to the caps are made for all appropriations designated
advance payment programs in 2020, it is not making
for emergency requirements and overseas contingency
such payments in 2021. Second, CBO expects
recoupment of those 2020 payments to decrease
outlays by $35 billion in 2021. 9. The budget authority for highway programs is provided in
authorizing legislation and is considered mandatory.
• Social Security. Outlays for Social Security are
10. Most discretionary funding is limited by caps that were originally
estimated to increase by $39 billion (or 4 percent)
specified in the Budget Control Act of 2011 (P.L. 112-25)
in 2021, to $1.1 trillion, as a result of growth in and modified by subsequent legislation. See Congressional
the average benefit payment and the number of Budget Office, cost estimate for the Bipartisan Budget Act of
beneficiaries. 2019 (July 23, 2019), www.cbo.gov/publication/55478. Under
current law, separate caps exist for defense and nondefense funding
through 2021. If the total amount of discretionary funding
provided in appropriation acts for a given year exceeds the cap
8. CBO does not estimate those revisions to subsidy costs; rather, for either category, the President must sequester—or cancel—a
that total reflects the amount that the Office of Management and sufficient amount of budgetary resources (following procedures
Budget has indicated that it will record in fiscal year 2021. specified in the Budget Control Act) to eliminate the breach.
CHAPTER 1: THE BUDGET OUTLOOK ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 15
operations (OCO) in accordance with section 251 of the and 2021 was provided in legislation enacted in response
Deficit Control Act.11 Subject to certain limits, addi- to the ongoing pandemic.
tional adjustments are made for funding designated for
disaster relief activities, some efforts to reduce overpay- CBO anticipates that if no further appropriations
ments in benefit programs, and wildfire suppression. are provided this year, discretionary outlays will total
$1.7 trillion in 2021—$25 billion (or 2 percent) more
Two types of spending neither count toward the caps nor than they were last year. Outlays rise in 2021 even as the
result in an adjustment to the caps: a portion of fund- budget authority provided falls, primarily because of the
ing—up to amounts specified in law—for certain activi- large increase in budget authority provided in 2020.
ties authorized by the 21st Century Cures Act (P.L. 114-
255) and a small portion of funding provided for In CBO’s projections, discretionary funding for defense
2021 in division N of the Consolidated Appropriations totals $741 billion in 2021, including $69 billion for
Act, 2021 (P.L. 116-260).12 OCO. Defense outlays, which amounted to $714 bil-
lion in 2020, increase by $25 billion (or 4 percent), to
By CBO’s estimate, discretionary budget authority for $739 billion. Outlays for military personnel increase by
2021 totals $1.6 trillion, $284 billion (or 15 percent) $7 billion, as do outlays for operation and maintenance.
less than the amount provided in 2020. That total for Outlays for procurement and outlays for research and
2021 includes $295 billion for emergency requirements, development each increase by $4 billion.
OCO, and other activities not constrained by the caps
(see Table 1-4).13 The drop in budget authority in For 2021, nondefense discretionary funding totals
2021 mostly stems from a significant reduction in fund- $874 billion in CBO’s baseline projections. That total
ing for activities that have been designated as emergency includes $225 billion that is not limited by the caps on
requirements in accordance with the Deficit Control Act. discretionary funding. Of that amount, $222 billion
Funding for such activities totaled $487 billion in 2020; resulted in cap adjustments—$192 billion for activi-
so far in 2021, $192 billion has been provided for such ties designated as emergency requirements, $17 billion
activities. Almost all of the emergency funding for 2020 for disaster relief, $8 billion for OCO, $2 billion for
efforts to reduce overpayments in benefit programs,
11. Overseas contingency operations are certain military and and $2 billion for wildfire suppression. The remaining
diplomatic activities in Afghanistan and elsewhere, although amounts—$3 billion in appropriations stemming from
some funding designated for OCO has not been directly related
to those activities.
division N of the Consolidated Appropriations Act,
2021, and $0.5 billion for 21st Century Cures Act pro-
12. In its cost estimate for division N of P.L. 116-260, CBO classified grams—are not subject to the caps and did not result in
the funding provided as mandatory in keeping with section 1401
of division O of that legislation. See Congressional Budget Office,
cap adjustments.
cost estimate for division N, Additional Coronavirus Response
and Relief, of H.R. 133, Consolidated Appropriations Act, 2021, Under current law, CBO expects that nondefense discre-
enacted as P.L. 116-260 on December 27, 2020 (January 14, tionary outlays will total $914 billion in 2021, about the
2021), www.cbo.gov/publication/56961. After consulting with same as they totaled in 2020; that estimate is the result
the Office of Management and Budget, CBO reclassified nearly
of some large, but mostly offsetting, changes in 2021.
$3.4 billion of that funding as discretionary in its July baseline
projections because that funding was provided for activities that Outlays from the Public Health and Social Services
have historically received discretionary funding. Emergency Fund will fall by $36 billion in 2021, and
spending on disaster loans will fall by $22 billion, CBO
13. The amount that is constrained by the caps—$1,320 billion—is
$22 billion more than the overall limit on discretionary funding
estimates. Those reductions are projected to mostly
for this year; that excess occurs primarily because appropriation be offset by a $16 billion increase in outlays from the
acts for 2021 included provisions that were estimated to reduce Education Stabilization Fund, a $10 billion increase in
budget authority for mandatory programs on net. When an transit infrastructure grants, and a number of smaller
appropriation act includes changes that affect mandatory increases in spending for a variety of programs.
funding, the estimated changes are included in estimates of
discretionary funding that it provides when assessing whether
the act complies with the limits on budget authority. Once the Net Interest. In the budget, net interest outlays pri-
legislation is enacted, however, any such changes are incorporated marily consist of the government’s interest payments on
into CBO’s baseline projections for mandatory spending. The federal debt, offset by interest income that the govern-
opposite occurs when authorizing legislation provides funding for ment receives. Net outlays for interest are dominated by
activities that traditionally receive discretionary appropriations.
16 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
Table 1-4 .
CBO’s Baseline Projections of Discretionary Spending
Billions of Dollars
Total
Actual, 2022– 2022–
2020a 2021a 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2026 2031
Budget Authority
Defense 757 741 763 782 803 823 844 865 887 909 931 954 4,015 8,561
Nondefense 1,142 874 714 734 754 775 795 816 835 856 877 899 3,773 8,054
Total 1,899 1,614 1,477 1,516 1,557 1,599 1,639 1,681 1,721 1,765 1,808 1,853 7,788 16,615
Outlays
Defense 714 739 751 762 774 798 817 837 864 873 901 923 3,902 8,300
Nondefense 914 914 899 847 818 827 843 864 882 904 926 954 4,234 8,765
Total 1,628 1,652 1,649 1,610 1,592 1,625 1,660 1,701 1,746 1,778 1,827 1,877 8,136 17,065
Memorandum:
Caps on Budget Authority Specified in
the Budget Control Act (as Amended),
Including Automatic Reductions to
the Caps
Defense 667 672 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Nondefense 622 627 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Total 1,288 1,298 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Spending Not Constrained by
the Capsb
Defense 90 69 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Nondefense 503 225 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Total 593 295 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Data source: Congressional Budget Office. See www.cbo.gov/publication/57263#data.
Nondefense discretionary outlays are usually greater than budget authority because of spending from the Highway Trust Fund and the Airport and Airway
Trust Fund that is subject to obligation limitations set in appropriation acts. The budget authority for such programs is provided in authorizing legislation and is
considered mandatory.
n.a. = not applicable.
a. The amount of nondefense budget authority for 2020 and 2021 does not match the sum of the caps on funding and the adjustments to the caps. That occurs
mostly because net reductions in mandatory budget authority stemming from provisions in appropriation acts for those years were credited as offsets to new
discretionary budget authority when the acts’ compliance with the caps was determined. In CBO’s baseline projections, those changes to mandatory budget
authority appear in their normal mandatory accounts.
b. Some discretionary funding related to certain types of activities is not constrained by the caps; for most of those activities, the caps are adjusted to
accommodate such funding, up to certain limits. Specifically, appropriations designated for overseas contingency operations and for activities designated
as emergency requirements are assumed to grow with inflation after 2021, and the caps are adjusted accordingly. (After consulting with the House and
Senate Budget Committees, CBO did not extrapolate into future years the discretionary funding designated as an emergency requirement that was provided
in legislation enacted specifically in response to the 2020–2021 coronavirus pandemic because of the unusual size and nature of that funding.) For three
other activities—disaster relief, wildfire suppression, and certain efforts to reduce overpayments in benefit programs—the extent to which the caps can be
adjusted is subject to annual constraints, as specified in law. There are two additional exceptions: A portion of funding for certain activities authorized by the
21st Century Cures Act (P.L. 114-255) and a small portion of funding provided by division N of the Consolidated Appropriations Act, 2021 (P.L. 116-260), that
was originally classified as mandatory spending do not count toward the caps but do not result in an adjustment to the cap limits. (After consulting with the
budget committees, CBO did not extrapolate the latter amount into future years.)
CHAPTER 1: THE BUDGET OUTLOOK ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 17
the interest paid to holders of the debt that the Treasury revenues. The specific reasons for those greater-than-an-
issues to the public. The Treasury also pays interest ticipated collections will become clearer as detailed
on debt issued to trust funds and other government information about taxable income from individual and
accounts, but such payments are intragovernmental corporate income tax returns becomes available over the
transactions that have no effect on the budget deficit. next two years.
Although debt held by the public is set to increase by Outlays and Revenues From
9 percent from 2020 to 2021, net outlays for interest are 2022 to 2031
projected to fall by $15 billion this year, to $331 billion In nominal terms, federal outlays are projected to fall
(or 1.5 percent of GDP). That drop occurs primarily by nearly $1.5 trillion (or 21 percent) over the next two
because the average interest rate paid by the Treasury years before growing at an average annual rate of nearly
has been lower in 2021 than it was in 2020. Partially 5 percent over the remainder of the projection period.
offsetting that reduction, inflation has been higher in Revenues increase by about $0.5 trillion (or 14 percent)
2021, resulting in larger increases in the principal of in 2022 in CBO’s projections and then grow by about
inflation-protected securities. Because those increases are 3 percent per year, on average, through 2031.
recorded as interest outlays, higher inflation raises net
outlays for interest. Outlays
In CBO’s baseline projections, federal outlays fall from
Revenues $6.8 trillion this year to $5.5 trillion in 2022 and to
Despite the economic disruptions that resulted from $5.4 trillion in 2023 and 2024. Thereafter, outlays rise,
the pandemic and the actions taken in response, federal reaching $7.8 trillion in 2031.
revenues declined by only 1 percent in 2020, totaling
$3.4 trillion (or 16.3 percent of GDP). Those receipts Measured relative to the size of the economy, federal
reflect income generated and economic activity that outlays fall in CBO’s projections from 31 percent of
occurred before and after the disruptions began and the GDP in 2021 to just under 21 percent in 2024, roughly
federal government responded by enacting legislation the same as the share recorded in 2019 (see Figure 1-4).
and implementing other policy changes. Both mandatory and discretionary outlays decline in
relation to GDP through 2024 as spending related to the
On the basis of receipts recorded through May 2021, pandemic falls. Net outlays for interest fall in 2022 and
CBO anticipates that revenues will rise by 12 percent 2023, primarily because interest rates remain low by his-
this year to reach $3.8 trillion (or 17.2 percent of GDP). torical standards. Federal outlays generally increase after
That growth is projected to occur even though CBO 2024, reaching 23 percent of GDP in 2031. That growth
expects the effects of social distancing measures put stems from rising interest rates and underlying trends
in place to curb the spread of COVID-19 (the disease related to the aging of the population and the rising costs
caused by the coronavirus) and of legislation enacted of health care.
since March 2020 (including the American Rescue Plan
Act) to continue to weigh on receipts this year. Mandatory Spending. In CBO’s baseline projections,
outlays for mandatory programs (net of offsetting
The projected growth in receipts largely reflects increases receipts) fall from nearly 22 percent of GDP in 2021 to
in collections of individual and corporate income taxes, about 13 percent in 2024 and then rise in most years
which are expected to grow this year by 21 percent and thereafter, reaching 15 percent of GDP by 2031. (Such
13 percent, respectively. Recent collections from both of outlays averaged just over 10 percent of GDP each
those sources, which include taxes withheld from work- year from 1971 to 2020.) That pattern occurs mostly
ers’ paychecks as well as final payments of taxes for the because spending related to the pandemic falls over the
2020 tax year and estimated payments of taxes for both next few years and two underlying factors—the aging of
2020 and 2021, have been greater than CBO anticipated the population and rapid growth in federal health care
when it made its projections earlier this year. Those col- costs—put upward pressure on mandatory outlays. The
lections were more robust than the amounts implied by aging of the population causes the number of partici-
currently available data on the economy given the past pants in Social Security and Medicare to grow faster than
relationship between the level of economic activity and the overall population, and federal health care costs per
18 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
Figure 1-4 .
Outlays, by Category
Percentage of Gross Domestic Product
24 Projected
Every category of spending
16 drops in the near term. In
Mandatory
later years, rising spending
for Social Security and the
major health care programs
boosts mandatory outlays,
8 and net interest costs
Discretionary
increase as interest rates
and federal debt rise.
Net Interest
0
1971 1981 1991 2001 2011 2021 2031
Data source: Congressional Budget Office. See www.cbo.gov/publication/57263#data.
When October 1 (the first day of the fiscal year) falls on a weekend, certain payments that would have ordinarily been made on that day are instead made at the
end of September and thus are shifted into the previous fiscal year. All projections presented here have been adjusted to exclude the effects of those timing
shifts. Historical amounts have been adjusted as far back as the available data will allow.
beneficiary continue to rise faster than GDP per capita. • Outlays for Social Security fall slightly in 2022 to
As a result of those two trends, outlays for Social Security 4.9 percent of GDP in 2022 and then rise steadily
and Medicare increase in relation to GDP between 2021 thereafter, reaching 6.0 percent of GDP in 2031.
and 2031 (see Table 1-5). The effects of those trends
on federal spending will persist beyond the projection
• Outlays for Medicare equal 3.0 percent of GDP in
2022 and rise to 4.3 percent of GDP in 2031.
period.
• Federal outlays for Medicaid are relatively stable
Social Security and the Major Health Care Programs. as a percentage of GDP over the coming decade,
Outlays for Social Security and the major health care averaging about 2 percent each year.
programs, net of offsetting receipts, are projected to
dip to 10.6 percent of GDP in 2022 and to increase in
• Outlays for subsidies for health insurance purchased
through the marketplaces and related spending
most years thereafter, reaching 12.8 percent in 2031.14
average 0.2 percent of GDP per year through 2031.
(Spending for the major health care programs consists
of outlays for Medicare, Medicaid, and the Children’s
Other Mandatory Programs. Aside from spending on
Health Insurance Program, as well as subsidies for
Social Security and the major health care programs,
health insurance purchased through the marketplaces
all other mandatory spending is projected to drop by
established under the Affordable Care Act and related
6.8 percentage points in 2022, to 4.1 percent of GDP, as
spending.)
the effects of pandemic-related spending dissipate. (Such
spending was 2.7 percent of GDP in 2019.) The cate-
CBO’s current baseline includes the following projec-
gory “other mandatory spending” includes spending on
tions of outlays for specific programs:
income support programs (such as unemployment com-
pensation and the Supplemental Nutrition Assistance
Program), military and civilian retirement programs,
14. Offsetting receipts include mostly payments of premiums,
most veterans’ benefits, and major agriculture programs.
recoveries of overpayments made to providers, and amounts paid
by states from savings on Medicaid’s prescription drug costs.
CHAPTER 1: THE BUDGET OUTLOOK ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 19
Table 1-5 .
Key Projections in CBO’s Baseline
Percentage of Gross Domestic Product
Annual Average
2021 2022 2023–2026 2027–2031
Revenues
Individual income taxes 8.7 9.6 9.1 9.5
Payroll taxes 6.0 5.7 5.9 5.9
Corporate income taxes 1.1 1.3 1.5 1.3
Other 1.4 1.5 1.4 1.2
Total Revenues 17.2 18.1 17.8 17.8
Outlays
Mandatory
Social Security 5.0 4.9 5.3 5.8
Major health care programsa 5.7 5.7 5.8 6.5
Other 10.9 4.1 2.6 2.2
Subtotal 21.7 14.8 13.7 14.5
Discretionary 7.4 6.8 6.1 5.7
Net interest 1.5 1.3 1.4 2.3
Total Outlays 30.6 22.8 21.2 22.5
Deficit -13.4 -4.7 -3.4 -4.7
Debt Held by the Public at the End of the Period 103 100 100 106
Memorandum:
Social Security
Revenuesb 4.6 4.3 4.5 4.6
Outlaysc 5.0 4.9 5.3 5.8
Contribution to the Federal Deficitd -0.5 -0.7 -0.7 -1.2
Medicare
Revenuesb 1.5 1.4 1.5 1.5
Outlaysc 3.7 3.7 4.2 5.0
Offsetting receipts -0.7 -0.7 -0.7 -0.9
Contribution to the Federal Deficitd -1.6 -1.7 -2.0 -2.6
Gross Domestic Product at the End of the Period (Trillions of dollars) 22.4 24.3 28.0 33.7
Data source: Congressional Budget Office. See www.cbo.gov/publication/57263#data.
This table satisfies a requirement specified in section 3111 of S. Con. Res. 11, the Concurrent Resolution on the Budget for Fiscal Year 2016.
a. Consists of outlays for Medicare (net of premiums and other offsetting receipts), Medicaid, and the Children’s Health Insurance Program, as well as subsidies
for health insurance purchased through the marketplaces established under the Affordable Care Act and related spending.
b. Includes payroll taxes other than those paid by the federal government on behalf of its employees; those payments are intragovernmental transactions. Also
includes income taxes paid on Social Security benefits, which are credited to the trust funds.
c. Does not include outlays related to the administration of the program, which are discretionary. For Social Security, outlays do not include intragovernmental
offsetting receipts stemming from the employer’s share of payroll taxes paid to the Social Security trust funds by federal agencies on behalf of their
employees.
d. The net increase in the deficit shown in this table differs from the change in the trust fund balance for the associated program. It does not include
intragovernmental transactions, interest earned on balances, or outlays related to the administration of the program.
20 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
In CBO’s baseline projections, other mandatory spend- Defense. In CBO’s projections, budget authority for
ing declines more gradually as a share of GDP after defense programs—including funding for OCO—is
2022, falling to 2.1 percent in 2031. The projected $763 billion in 2022, an increase of $22 billion (or
decline occurs in part because benefit amounts for many 2.9 percent) from the total amount provided in 2021.
of those programs are adjusted for inflation each year, After 2022, defense funding is projected to grow by an
and in CBO’s economic forecast, inflation is less than the average of 2.5 percent each year and to reach $954 bil-
rate of growth of nominal GDP (see Chapter 2). lion in 2031. Projected outlays for defense programs
total $751 billion in 2022 and then grow at a rate similar
Discretionary Spending. In accordance with section 257 to that of budget authority, rising to $923 billion in
of the Deficit Control Act, CBO bases its projections of 2031. Despite that growth in nominal terms, discretion-
discretionary spending for individual accounts on the ary defense outlays measured as a percentage of GDP are
most recent funding and applies the appropriate inflation projected to fall from 3.1 percent in 2022 to 2.7 percent
rate to project funding for future years.15 Because the caps in 2031—lower than they have ever been since they were
on discretionary appropriations expire after 2021, most first reported in1962.
budget authority after that year is assumed to grow with
inflation for the duration of the baseline projection period. Nondefense. Total budget authority for nondefense
discretionary programs is projected to drop significantly
The $10 billion of funding projected for emergency in 2022, from $874 billion to $714 billion, primarily
requirements in 2022 is a sharp reduction from the because CBO did not extrapolate into future years the
$192 billion of such funding provided for 2021. Nearly $184 billion in nondefense emergency funding that was
all of that amount—$184 billion—was provided in provided in response to the pandemic in 2021 in its
response to the coronavirus pandemic. Because of the baseline.16 After 2022, funding is projected to grow by
unusual size and nature of that pandemic-related fund- 2.6 percent a year, on average, and to reach $899 billion
ing, CBO, after consulting with the House and Senate in 2031.
Budget Committees, deviated from the standard proce-
dures that it uses to construct its baseline and did not As outlays associated with the government’s response
extrapolate into future years that $184 billion when to the pandemic decline, discretionary outlays for
projecting discretionary budget authority. nondefense programs are projected to decrease, from
$899 billion in 2022 to $818 billion in 2024. (CBO
In CBO’s projections, total discretionary budget authority estimates that about one-third of the $184 billion in
falls in 2022, from $1.6 trillion to $1.5 trillion. After nondefense discretionary funding provided in 2021 in
2022, funding rises by an average of 2.6 percent each response to the pandemic will be spent in this fiscal year
year through the end of the projection period. Total and that about 95 percent will be spent by 2024.) After
discretionary outlays, however, remain near $1.6 trillion 2024, nondefense outlays begin to rise again in CBO’s
from 2022 to 2025 as spending of the pandemic-related projections; in 2031, they reach $954 billion. Relative to
funding provided in 2020 and 2021 declines. After the size of the economy, outlays for nondefense discre-
2025, outlays begin to rise again, reaching $1.9 trillion tionary programs fall from 3.7 percent of GDP in 2022
in 2031. Measured as a share of GDP, discretionary to 2.8 percent of GDP in 2031—lower than any previ-
outlays decrease steadily, from 6.8 percent in 2022 to ously reported level.
5.6 percent in 2030 and 2031—which would be the
smallest share on record. By comparison, discretion- Net Interest. The two main factors that affect the federal
ary outlays averaged 8.2 percent of GDP over the past government’s net interest costs are the amount of debt
50 years, although they were as low as 6.0 percent of held by the public and the interest rates on Treasury
GDP in 1999.
16. Similarly, CBO did not extrapolate into future years the
$3 billion in funding provided for 2021 in division N of the
15. The Deficit Control Act specifies which measures of inflation Consolidated Appropriations Act, 2021 (P.L. 116-260), that the
CBO should use to construct its projections: The employment agency had originally classified as mandatory but reclassified as
cost index for wages and salaries of workers in private industry is discretionary in its July 2021 baseline. That funding—which
used to adjust discretionary funding related to federal personnel, was also provided in response to the pandemic—supports
and the gross domestic product price index is used to adjust other programs and activities that historically receive discretionary
discretionary funding. appropriations.
CHAPTER 1: THE BUDGET OUTLOOK ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 21
securities.17 In CBO’s projections, debt held by the pub- in 2022.19 Individual income tax receipts are projected to
lic (in nominal terms) increases by roughly 55 percent decline to 8.8 percent of GDP in 2025, in part because
from 2021 to 2031. Although interest rates rise through- payments of deferred taxes are due in 2022 and 2023 but
out the period, they remain low by historical standards not in subsequent years.
for the next few years. As debt matures and is refinanced
at prevailing lower interest rates, the average interest rate In addition, individual income tax collections in 2020
on federal debt dips.18 In 2021, the average interest rate and 2021 were greater than the amounts implied by
on debt held by the public is estimated to be 1.7 percent; currently available data on economic activity and the
that rate falls to 1.4 percent in 2022 and 2023 in CBO’s past relationship between tax revenues and the state of
projections and rises thereafter, reaching 2.7 percent the economy. Those larger-than-anticipated receipts
in 2031. might reflect higher wage or nonwage income or larger
realizations of capital gains in those years, or perhaps
Initially, the effects of those lower interest rates more the temporary tax provisions enacted in response to
than offset the effects of the projected increase in fed- the pandemic were not as widely used as anticipated.
eral debt. As a result, net outlays for interest in CBO’s Depending on which factors explain those larger receipts
projections decline from 1.5 percent of GDP in 2021 from individual income taxes, their effects on receipts
to 1.2 percent in 2023. Thereafter, rising rates and the might be expected to persist permanently, end abruptly,
projected increases in federal debt cause net outlays for or even reverse. In CBO’s projections, the unexplained
interest measured as a share of the economy to more strength gradually dissipates over the next few years.
than double after 2023 in CBO’s projections. In 2031, Between 2025 and 2031, individual income tax receipts
such outlays reach 2.7 percent of GDP—0.7 percentage are projected to rise to 9.5 percent of GDP as the result
points higher than their 50-year average. of scheduled increases in taxes after 2025, real bracket
creep, and other factors.20
Revenues
After this year, as income continues to rise and the effects Corporate Income Taxes. In CBO’s baseline projec-
of the economic disruptions caused by the pandemic and tions, corporate income tax receipts rise from 1.1 percent
of the legislation enacted in response dissipate, revenues of GDP in 2021 to 1.5 percent of GDP in 2023, remain
are projected to grow to 18.1 percent of GDP in 2022 at that level through 2025, and then gradually decline,
and to fluctuate between 17.5 percent and 18.1 percent reaching 1.2 percent of GDP in 2031. Those receipts
of GDP through 2031 (see Figure 1-5). That variation will be boosted over the next several years by the expira-
in overall receipts reflects different patterns among the tion of temporary provisions enacted in response to the
major revenue sources. pandemic and scheduled changes to tax rules enacted
in the 2017 tax act (P.L. 115-97). After 2025, corporate
Individual Income Taxes. If current laws generally income taxes measured as a share of GDP are projected
remained unchanged, receipts from individual income
taxes would rise from 8.7 percent of GDP in 2021 to 19. Although some of those provisions affect payroll taxes, they
9.6 percent in 2022, CBO projects, largely because will not change the amounts credited to the Social Security
and Railroad Retirement trust funds, and the effects are being
of the expiration of temporary provisions enacted in
recorded in the budget—at least for now—as reductions in
response to the pandemic and because employers who individual income tax collections.
deferred payment of their portion of certain payroll taxes
20. Real bracket creep is the process in which, as income rises
in 2020 and 2021 would begin making those payments
faster than inflation (as generally happens when the economy is
expanding), a larger portion of income is pushed into higher tax
brackets and thus becomes subject to higher tax rates. It occurs
because the income tax brackets are indexed to inflation. Other
parameters of the tax system, such as the amount of the child
17. Inflation rates also affect net outlays for interest, mostly for
tax credit, are fixed in nominal dollars and are not adjusted for
Treasury inflation-protected securities, which differ from other
inflation. In CBO’s projections, real bracket creep causes receipts
securities in that their principal amounts are adjusted to account
from individual income taxes to grow throughout the entire
for inflation.
projection period. For further information, see Congressional
18. For more details on the government’s net interest costs, see Budget Office, “How Income Growth Affects Tax Revenues
Congressional Budget Office, Federal Net Interest Costs: A Primer in CBO’s Long-Term Budget Projections” (June 2019),
(December 2020), www.cbo.gov/publication/56780. www.cbo.gov/publication/55368.
22 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
Figure 1-5 .
Revenues, by Category
Percentage of Gross Domestic Product
12 Projected
Individual Receipts of individual and
corporate income taxes are
8 expected to rise in 2022
as the economy recovers
Payroll and temporary provisions
enacted in response to the
pandemic expire. Individual
4 income taxes are projected
Corporate to rise again following
scheduled increases in
taxes after 2025.
Other
0
1971 1981 1991 2001 2011 2021 2031
Data source: Congressional Budget Office. See www.cbo.gov/publication/57263#data.
to decline because of the end of the scheduled payments earnings. In CBO’s projections, short-term interest rates
of a onetime tax on previously untaxed foreign profits remain low through 2023, holding down the amounts
and because profits are projected to grow more slowly the Federal Reserve must pay to depository institutions
than GDP. on their reserves. Interest rates begin to rise in 2024,
and the Federal Reserve’s asset holdings begin to shrink
Payroll Taxes. Receipts from payroll taxes, which fund slowly in relation to economic output, reducing remit-
social insurance programs—primarily Social Security tances. By 2029, remittances stabilize around 0.3 percent
and Medicare—typically remain stable as a share of of GDP.
wages because workers’ earnings constitute most of the
payroll tax base. In CBO’s projections, payroll taxes as a Receipts From Other Sources. Receipts from all other
percentage of GDP decrease by a total of 0.2 percentage sources are expected to vary by less than 0.1 percent of
points from 2021 to 2031, mostly because collections GDP over the next decade.
of unemployment insurance taxes decline. States’ unem-
ployment insurance trust funds were depleted as a result • Revenues from estate and gift taxes are projected to
of unusually high unemployment during the past year. rise by less than 0.1 percent of GDP in 2027 after
Some states have begun to replenish the balances of those a provision of the 2017 tax act that doubled the
funds by collecting more in unemployment taxes from amount of the estate and gift tax exemption expires at
employers, but those collections are expected to return the end of calendar year 2025.21
to typical prepandemic levels by 2031. (States collect the
unemployment taxes that they use to replenish their trust
• Customs duties, which are assessed on certain
imports, are projected to decline through 2031 by a
funds, but those taxes count as federal revenues, reflecting
total of less than 0.1 percent of GDP. That decline is
the nature of the unemployment insurance system, which
partly because imports other than oil are projected to
is a federal program administered by the states.)
grow more slowly than GDP over the next decade.
Remittances From the Federal Reserve. Remittances
from the central bank, which began to rise in 2020, are
expected to continue rising, from 0.4 percent of GDP 21. For more on CBO’s projections of estate and gift taxes, see
this year to 0.6 percent by 2023, as the Federal Reserve Congressional Budget Office, Understanding Federal Estate and
significantly increases its asset holdings, which boost its Gift Taxes (June 2021), www.cbo.gov/publication/57129.
CHAPTER 1: THE BUDGET OUTLOOK ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 23
• Excise taxes are projected to rise slightly in 2022 as be, and how global financial markets will respond to
the economy recovers but then to gradually decline, the substantial increases in federal deficits and debt.
along with the tax bases on which many excise taxes CBO aims for its projections to be in the middle of the
are levied, every year thereafter, ultimately by a total distribution of possible outcomes, given the baseline
of less than 0.1 percent of GDP. assumptions about federal tax and spending policies, and
recognizes that actual outcomes will typically differ from
The federal government also collects revenues in the form such projections.
of miscellaneous fees and fines. CBO projects that, under
current law, revenues from those sources would grow at CBO’s projections of outlays and revenues—and there-
about the same pace as GDP through 2031. fore of deficits and debt—depend in part on the agency’s
economic projections for the coming decade, which
Uncertainty in the Budget Outlook include forecasts for such variables as interest rates, infla-
CBO’s baseline budget projections are intended to tion, and growth in productivity. Discrepancies between
show what would happen to federal spending, revenues, those forecasts and actual economic outcomes can cause
deficits, and debt if current laws governing spending significant differences between baseline budget projec-
and taxes generally remained the same. Changes to tions and budgetary outcomes.
laws—particularly those affecting fiscal policies—that
caused them to differ from the laws underlying CBO’s Although the agency’s current economic and budget pro-
baseline projections could lead to budgetary outcomes jections are subject to an unusually high degree of uncer-
that diverged considerably from those in the baseline. tainty, particularly in the near term, a comparison of
For example, CBO’s estimate of the deficit for 2021 has CBO’s past projections with actual outcomes gives some
increased by more than $0.7 trillion since February, indication of the magnitude of the uncertainty of budget
largely as a result of laws that have been enacted since projections.22 On the basis of an analysis of its past
those projections were published. projections, CBO estimates that there is approximately a
two-thirds chance that, under current law, the deficit in
Even if federal laws remained the same for the next 2022 would be between 3.8 percent and 5.7 percent of
decade, actual budgetary outcomes would differ from GDP. (The baseline projection of the deficit that year is
CBO’s baseline projections because of unanticipated 4.7 percent of GDP.) The range in 2026 would be larger:
changes in economic conditions and in other factors CBO estimates that, under current law, there is approx-
that affect federal spending and revenues. Because of the imately a two-thirds chance that the deficit that year
ongoing coronavirus pandemic, the current projections would be between 1.4 percent and 6.1 percent of GDP.
are subject to an unusually high degree of uncertainty. (The baseline projection is 3.7 percent of GDP.)
That uncertainty stems from many sources, including
incomplete knowledge about how the pandemic will 22. See Congressional Budget Office, An Evaluation of CBO’s Past
unfold, how effective monetary and fiscal policy will Deficit and Debt Projections (September 2019), www.cbo.gov/
publication/55234.
Chapter 2: The Economic Outlook
Overview and then remains below or near 4 percent for several
This chapter provides details about the Congressional years (see Table 2-1). The labor force participation
Budget Office’s July 2021 economic projections, which rate rises through 2022 and then remains above or
the agency used as the basis for updating its budget pro- near 62 percent for several years.2
jections. Both sets of projections were published earlier
this month.1
• Inflation is higher than it has been since 2008 and
then moderates. The growth rate of the price index
for personal consumption expenditures (PCE)
The forecast for 2021 to 2031 is rooted in current eco-
increases to 2.8 percent in 2021, as increases in the
nomic conditions: In the second quarter of 2021, CBO
supply of goods and services lag behind increases
estimates that real economic output (that is, output
in the demand for them, adding to inflationary
adjusted to remove the effects of inflation) grew at an
pressures. By 2022, supply adjusts more quickly,
annual rate of 8.4 percent as the 2020–2021 corona
and PCE price inflation falls to 2.0 percent during
virus pandemic eased and demand for consumer services
the year. After 2022, PCE price inflation remains at
surged. The increase followed a 6.4 percent increase in
2.1 percent through 2025, above its rate before the
the first quarter of 2021. The strong economic growth
pandemic.
in the first half of 2021 was accompanied by a marked
increase in inflation. • Interest rates on federal borrowing remain low but
rise as the economy continues to expand. The Federal
The Economic Outlook for 2021 to 2025 Reserve maintains the federal funds rate (the rate that
In CBO’s projections—which incorporate the assump- financial institutions charge each other for overnight
tions that current laws (as of May 18) governing federal loans of their monetary reserves) near zero through
taxes and spending generally remain in place and that no late 2023 and then gradually raises that rate. The
significant additional funding or aid is provided—output interest rate on 10-year Treasury notes rises from
exceeds its potential (maximum sustainable) level from 1.6 percent in the middle of 2021 to 2.7 percent by
2021 to 2025, and demand for labor remains strong. the end of 2025 as the Federal Reserve reduces the
pace of its asset purchases and investors anticipate
• Real gross domestic product (GDP) grows rapidly that short-term interest rates will begin rising in the
this year. Output increases by 7.4 percent and
next few years.
surpasses its potential level by the end of 2021 (see
Figure 2-1). The annual growth of real GDP averages
The Economic Outlook for 2026 to 2031
2.8 percent during the five-year period from 2021 to
In CBO’s forecast, economic output expands less rapidly
2025, exceeding the 2.0 percent growth rate of real
from 2026 to 2031 than in the previous five years. Real
potential GDP.
GDP grows by 1.6 percent per year, on average. Real
• Labor market conditions continue to improve. potential GDP grows at a slightly faster rate. The level of
Employment grows quickly in the second half of real GDP remains above the level of real potential GDP
2021, reflecting increased demand for goods and through 2026, and inflation is above its average rate
services and the waning of factors dampening since the 2007–2009 recession. Eventually, less accom-
the supply of labor, including health concerns modative monetary policies help push GDP slightly
and enhanced unemployment insurance benefits. below potential GDP, in accordance with their historical
Employment surpasses its prepandemic level in mid- average relationship, and inflation falls.
2022. The unemployment rate declines through 2022
1. See Congressional Budget Office, An Update to the Budget and 2. The labor force participation rate is the share of the civilian
Economic Outlook: 2021 to 2031 (July 2021), www.cbo.gov/ noninstitutionalized population age 16 or older that has jobs or
publication/57218. that is available for and actively seeking work.
26 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
Figure 2-1 .
The Relationship Between GDP and Potential GDP
Percentage Change
8 Projected
In CBO’s projections,
4 the annual growth of
Real Potential real (inflation-adjusted)
GDP Growth GDP exceeds that of real
potential GDP until 2023.
Real GDP Growth
0
−4
2001 2006 2011 2016 2021 2026 2031
Percentage of Potential GDP
4
2
Output Gap
The gap between real
0 GDP and real potential
GDP (that is, the output
gap) rises above 2 percent
−2 by 2022 before moving
back toward its historical
average.
−4
−6
2001 2006 2011 2016 2021 2026 2031
Data source: Congressional Budget Office. See www.cbo.gov/publication/57263#data.
Real values are nominal values that have been adjusted to remove the effects of changes in prices. Potential GDP is CBO’s estimate of the maximum sustainable
output of the economy. Growth of real GDP and of real potential GDP is measured from the fourth quarter of one calendar year to the fourth quarter of the next.
The output gap is the difference between GDP and potential GDP, expressed as a percentage of potential GDP. A positive value indicates that GDP exceeds
potential GDP; a negative value indicates that GDP falls short of potential GDP. Values for the output gap are for the fourth quarter of each year.
GDP = gross domestic product.
CHAPTER 2: THE ECONOMIC OUTLOOK ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 27
Table 2-1 .
CBO’s Economic Projections for Calendar Years 2021 to 2031
Annual Average
Actual, 2024– 2026–
2020 2021 2022 2023 2025 2031
Percentage Change From Fourth Quarter to Fourth Quarter
Gross Domestic Product
Reala -2.4 7.4 3.1 1.1 1.2 1.6
Nominal -1.2 10.7 5.3 3.3 3.4 3.7
Inflation
PCE price index 1.2 2.8 2.0 2.1 2.1 2.1
Core PCE price indexb 1.4 2.4 2.0 2.2 2.2 2.1
Consumer price indexc 1.2 3.4 2.3 2.3 2.4 2.4
Core consumer price indexb 1.6 2.7 2.4 2.5 2.5 2.4
GDP price index 1.3 3.0 2.1 2.2 2.1 2.1
Employment Cost Indexd 2.8 3.7 3.3 3.6 3.4 3.1
Fourth-Quarter Level (Percent)
Unemployment Rate 6.8 4.6 3.6 3.8 4.2e 4.5f
Percentage Change From Year to Year
Gross Domestic Product
Reala -3.5 6.7 5.0 1.5 1.2 1.6
Nominal -2.3 9.7 7.2 3.8 3.4 3.7
Inflation
PCE price index 1.2 2.6 2.1 2.1 2.1 2.1
Core PCE price indexb 1.4 2.2 2.0 2.2 2.2 2.1
Consumer price indexc 1.2 3.3 2.5 2.3 2.4 2.4
Core consumer price indexb 1.7 2.5 2.5 2.5 2.5 2.4
GDP price index 1.2 2.9 2.1 2.2 2.2 2.1
Employment Cost Indexd 2.9 3.5 3.2 3.5 3.5 3.1
Annual Average
Unemployment Rate (Percent) 8.1 5.5 3.8 3.7 4.1 4.4
Payroll Employment (Monthly change, in thousands)g -760 587 417 70 4 42
Interest Rates (Percent)
Three-month Treasury bills 0.4 * 0.1 0.2 0.7 1.9
Ten-year Treasury notes 0.9 1.6 1.9 2.0 2.4 3.2
Tax Bases (Percentage of GDP)
Wages and salaries 44.8h 43.7 43.3 43.4 43.6 43.7
Domestic corporate profitsi 8.1 9.9 9.8 9.1 8.6 7.8
Current Account Balance (Percentage of GDP)j -2.9 -3.3 -2.7 -2.3 -2.0 -2.4
Data sources: Congressional Budget Office; Bureau of Economic Analysis; Bureau of Labor Statistics; Federal Reserve. See www.cbo.gov/publication/57263#data.
Economic projections for each year from 2021 to 2031 appear in Appendix C.
GDP = gross domestic product; PCE = personal consumption expenditures; * = between zero and 0.05 percentage points.
a. Real values are nominal values that have been adjusted to remove the effects of changes in prices.
b. Excludes prices for food and energy.
c. The consumer price index for all urban consumers.
d. The employment cost index for wages and salaries of workers in private industries.
e. Value for the fourth quarter of 2025.
f. Value for the fourth quarter of 2031.
g. The average monthly change, calculated by dividing by 12 the change in payroll employment from the fourth quarter of one calendar year to the fourth
quarter of the next.
h. Data for 2020 are based on data released after CBO completed its economic forecast. Projections are based on data available on May 18, 2021.
i. Adjusted to remove distortions in depreciation allowances caused by tax rules and to exclude the effect of inflation on the value of inventories.
j. Net measure of transactions between the United States and the rest of the world in goods, services, income, and unilateral transfers.
28 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
In CBO’s projections, productivity growth is faster over health concerns and enhanced unemployment insurance
the 2026–2031 period than it has been since the 2007– benefits, boost wages and prices. Interest rates are also
2009 recession. However, potential output still grows less projected to be higher than CBO expected in February,
rapidly than it has over the past 30 years, partly because reflecting the more positive outlook for economic
of slower productivity growth but mainly because of growth.
an ongoing, long-term slowdown in the growth of the
labor force. Current Conditions: Recovery From
the Pandemic-Induced Recession
Uncertainty in the Economic Outlook Economic activity has expanded rapidly since
CBO attempts to construct its projections so that they April 2020, but the expansions of supply and demand
fall in the middle of the range of possible outcomes have been unbalanced at times. Consumer demand
under current law. Projections made this year are subject for many products, particularly services, has increased
to an unusually high degree of uncertainty, which stems in part because of more widespread immunity to the
from many sources: the response of prices in labor and virus, income support from fiscal policies in 2020 and
product markets to tightness in those markets and to the 2021, and the greater household wealth resulting from
speed at which supply-side factors affecting that tightness increased prices in the stock market, increased home
unwind, the course of the pandemic, the way the Federal prices, and accumulated savings during the pandemic.
Reserve pursues its longer-run goals, the effectiveness Supply has not risen as quickly in some instances, caus-
of monetary and fiscal policies, and the risk of a sharp ing tightness in some labor and product markets. That
drop in the value of assets. As a result, the economy tightness has put upward pressure on consumer prices,
could expand at a substantially faster or slower pace than producer prices, and wages over the past few months.
CBO currently projects. Labor market conditions could
likewise be better or worse than projected. Also uncertain The Coronavirus Pandemic
are the pace of potential output and the impact of the In mid-2021, many people have acquired immunity to
pandemic on productivity, the labor force, and techno- the virus from infection or vaccination. Extensive real-
logical innovation over the longer term. world evidence now shows that the vaccines authorized
for use in the United States are effective. The number of
Comparison With CBO’s Previous Projections new infections fell sharply on a national basis starting
CBO currently projects stronger economic growth in January. By June, infection rates in many parts of the
than it did in February 2021, largely for three reasons.3 country were down to their lowest levels since the early
First, the agency expects recently enacted fiscal policies days of the pandemic. The extent of social distancing—
to boost output. Second, CBO projects that the effects both voluntary and mandated—has likewise decreased as
of social distancing on economic activity in 2021 will the winter virus surge abated, and the pace of economic
be smaller than the effects it projected in February, activity has quickened.
reflecting a more rapid return to normalcy. Third, CBO
has raised its estimate of consumer spending out of the Gross Domestic Product
additional savings that households accumulated during CBO estimates that real GDP exceeded its previous peak
the pandemic. in the second quarter of 2021 after plunging when social
distancing began in March and April 2020. In 2020,
As a result, the agency’s projections of inflation are the shortfall in demand was concentrated in services,
higher than the projections it made in February, as out- reflecting the disproportionate impact of social distanc-
put now exceeds its potential level sooner and to a larger ing on in-person activities; in 2021, as the number of
degree than previously projected. In addition, those new infections remains low, the expansion in demand
projections are higher in 2021 as producers struggle to will also be concentrated in services. Consumer spend-
keep pace with surging demand for goods and services ing rose sharply during the first quarter as households
and as the factors discouraging labor supply, including received federal payments provided by legislation enacted
in December and March, with greater gains in spending
3. See Congressional Budget Office, Additional Information About
for goods than for services. In the second quarter, CBO
the Economic Outlook: 2021 to 2031 (February 2021), estimates that the gain in consumer spending on ser-
www.cbo.gov/publication/56989. vices was larger than the gain in consumer spending on
CHAPTER 2: THE ECONOMIC OUTLOOK ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 29
goods.4 Consumer spending on services is projected to recovery in three sectors—retail trade, transportation and
lead the expansion thereafter. warehousing, and construction—considerably outpaced
the recovery in other sectors. The strong employment
The Labor Market growth in the first two sectors reflects, among other
Labor market conditions improved in the first half things, the strong growth in consumer spending on
of 2021, continuing the rebound from the pandemic goods that began in May 2020, as households shifted
shock of early 2020. Nonetheless, compared with their their demand from services to goods because of social
prepandemic levels, household and nonfarm payroll distancing. Meanwhile, a boom in the residential hous-
employment did not fully recover, the unemployment ing market contributed to strong employment growth in
rate remained elevated, and labor force participa- the construction sector. By contrast, employment in the
tion remained below the rate that CBO projected in leisure and hospitality industry initially declined by nearly
January 2020. Labor supply factors—including the 50 percent; although it has since rebounded, it remains
lingering role of pandemic-related health concerns 13 percent below its prepandemic level. In the spring of
and the incentive effects of expanded unemployment 2021, that rebound in employment was exceeded by the
compensation—reduced employment, increased unem- rise in job openings in the industry, suggesting that health
ployment, and reduced labor force participation during concerns and the incentive effects of enhanced unemploy-
the first half of this year. ment compensation dampened the supply of labor. As a
result of the various industry-specific differences, employ-
Employment. Nonfarm payroll employment and house- ment, unemployment, and labor market participation
hold employment began a rebound in May 2020 that differed between women and men and by other demo-
continued through June 2021, following the sharp graphic characteristics (see Box 2-1).
declines in the first two months of the pandemic.
According to the Bureau of Labor Statistics, the U.S. Unemployment. The unemployment rate and the
economy lost 22 million nonfarm payroll jobs during number of unemployed people have declined from
March and April 2020, and close to 25 million work- their peak levels of early 2020, but progress has slowed
ers became unemployed or dropped out of the labor since October 2020, and they remain higher than their
force. Nonfarm payroll employment has regained prepandemic levels of February 2020. After surging
about 16 million jobs, and household employment has in early 2020, from 3.5 percent in February to nearly
increased by 18 million workers through June 2021. 15 percent in April, the unemployment rate declined to
After adding 7.7 million jobs in May and June 2020, 6.9 percent by October 2020 and then to 5.9 percent
followed by 3.3 million jobs in July and August, the by June 2021. The number of unemployed people rose
economy added 461,000 jobs per month through in early 2020, from 5.7 million in February to 23.1 mil-
June 2021, on average, CBO estimates. Payroll employ- lion in April, and then declined to 11.0 million by
ment remained about 4 percent below its prepandemic October 2020 and 9.5 million by June 2021.
level in June 2021.
Labor Force Participation. The labor force participation
The degree of job loss and the pace of the rebound in rate dropped sharply at the beginning of the pandemic
employment differed by industry. Through June 2021, and then rebounded over the summer of 2020, recover-
ing about half of the decline. Since that time, however,
the recovery in labor force participation has largely
4. Many in-person service activities are now returning to normal. stalled. As of June 2021, the overall labor force participa-
For example, data aggregated and anonymized daily from
tion rate among the civilian noninstitutionalized popula-
detailed information on credit and debit card transactions
show that spending on restaurants and hotels has been above tion age 16 or older stood at 61.6 percent, little changed
its prepandemic levels since mid-April; see “Opportunity from late summer 2020. That level is 1.8 percentage
Insights Economic Tracker” (accessed June 10, 2021), points below its prepandemic peak level of 63.4 percent.
www.tracktherecovery.org. Other activities, such as entertainment
and transport, remain below their prepandemic levels but are Inflation and Interest Rates
continuing to recover. For a detailed description of the tracking
database, see Raj Chetty and others, “The Economic Impacts of
Inflation was low at the beginning of 2021, but con-
COVID-19: Evidence From a New Public Database Built Using sumer price indexes increased sharply in recent months,
Private Sector Data” (November 2020), https://tinyurl.com/ reflecting strong demand and supply constraints in
ds3k6trj (PDF, 4 MB).
30 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
Box 2-1 .
Effects of the Pandemic on the Employment of Men and Women, by Race and Ethnicity
The effects of the 2020–2021 coronavirus pandemic on By the spring of 2021, for each group, the employment-to-
employment varied considerably for workers with different population ratio had rebounded substantially but was still
demographic characteristics (see the figure). The composition below its prepandemic level. The ratio was farther below its
of industries in which a demographic group was employed prepandemic level for Hispanic men and women than for the
in February 2020 accounts for almost all of the differences other groups. How far that ratio was below its prepandemic
between groups in the changes in employment of each group level was similar for men and women in each race-ethnicity
since then. group—though the decline for non-White women was slightly
greater than that for non-White men, including the Asian and
Effects on Employment of Men and Women in
others group, for whom it had fallen more for men than women
Different Race-Ethnicity Groups
in the early months.
Between February and April 2020, the employment-to-
population ratio declined by 11 percentage points for men Effects of Industry Composition
and 12 percentage points for women.1 In accordance with that About half of the decline in employment between February and
overall result, the decline in that ratio was similar for women April 2020 occurred in 11 out of 264 industries.3 (The industry
and men in the White, Black, and Hispanic groups. By contrast, with the largest decline, for example, was restaurants and
the decline for Asian and other men was about 3 percentage other food services.) Much work in those 11 industries relies on
points larger than for women in that group.2 in-person interactions. The same 11 industries also accounted
for about half of the rebound in employment between
1. Because a smaller share of women than men were employed in April 2020 and April 2021. For example, the industry with the
February 2020, a similar percentage-point decline in the employment- largest rebound was restaurants and other food services.
to-population ratio was associated with a greater percentage decline
in employment: 22 percent for women (12 percentage points from their Except in the Hispanic group, those industries employed larger
56 percent employment-to-population ratio), compared with 17 percent for percentages of women than of men. About one-third of women
men (11 percentage points from their 66 percent employment-to-population
and one-third of Hispanic men worked in those industries (see
ratio). CBO’s calculation of employment-to-population ratios is based on data
from the Current Population Survey (CPS). The Bureau of Labor Statistics, the table).
which publishes employment, unemployment, and other labor statistics
using the CPS each month, noted that starting in March 2020, many
workers who should have been classified as “unemployed on temporary
layoff” were probably misclassified as “employed absent from work” in
Percentage of Workers Employed in the 11 Industries
the CPS, causing the employment statistics to understate the magnitude of Most Affected by the Pandemic in February 2021
employment decline during the pandemic-induced recession. In calculating
the employment-to-population ratio, CBO reclassified “employed absent Race-Ethnicity Men Women
from work for other reasons, unpaid” as unemployed. Without that White 24 33
reclassification, the share of population employed in April and May 2020 Black 25 32
would have been 2.4 percentage points and 1.7 percentage points higher, Hispanic 36 34
respectively. Asian and Other 20 29
2. In the 2007–2009 recession, the employment-to-population ratio for men Data source: Congressional Budget Office. See www.cbo.gov/
fell more than that for women in each of the four race-ethnicity groups, and publication/57263#data.
those declines occurred over a nearly two-year period. CBO used race and
ethnicity to define four race-ethnicity categories—Hispanic, Black, White, and
Asian and other—through the following steps. Respondents who identified
their ethnicity as Hispanic were classified as Hispanic, regardless of the race 3. Listed in order of the decline in employment, those 11 industries are
or races they identified. Of respondents not already classified as Hispanic, restaurants and other food services; construction; elementary and
those who identified their race as African American were classified as Black, secondary schools; other amusement, gambling, and recreation industries;
regardless of whether they identified other races as well. Of respondents beauty salons; general medical and surgical hospitals and specialty
not already classified as Hispanic or Black, those who identified a race other (except psychiatric and substance abuse) hospitals; child day care services;
than White were classified as Asian and other. Finally, respondents not travelers’ accommodations; motor vehicles and motor vehicle equipment
classified as Hispanic, Black, or Asian and other were classified as White. manufacturing; clothing stores; and dentists’ offices.
Continued
CHAPTER 2: THE ECONOMIC OUTLOOK ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 31
Box 2-1. Continued
Effects of the Pandemic on the Employment of Men and Women, by Race and Ethnicity
The Congressional Budget Office analyzed changes in those industries. CBO estimates that the industry composition
employment-to-population ratios by dividing them into two of workers accounted for almost all of the decline in the
components: one associated with the industries in which employment-to-population ratio of each group between
workers in each demographic group were employed (industry February 2020 and April 2020 and for almost all of the
composition) and a second associated with how much a rebounds since then.
group’s employment changed compared with all workers in
Difference in Employment-to-Population Ratio Since the Business-Cycle Peak
Percentage Points
White Black
2
−2 Men
−6 Women
−10
−14
−18
0 2 4 6 8 10 12 14 0 2 4 6 8 10 12 14
Hispanic Asian and Other
2
−2
−6
−10
−14
−18
0 2 4 6 8 10 12 14 0 2 4 6 8 10 12 14
Months Since Previous Peak
Data source: Congressional Budget Office, using Current Population Survey data from IPUMS-CPS. See www.cbo.gov/publication/57263#data.
The gray lines in each panel show the patterns of the other population groups for comparison. Data are not seasonally adjusted and are shown with
final, not composite, weights. CBO reclassified “employed, absent from work for other reasons, unpaid” as unemployed.
The change is measured against the employment peak of the previous business cycle, which is February 2020.
some product and labor markets. Over the 12-month distancing peaked and disrupted economic activity
period ending in January 2021, the overall PCE price nationwide. The consumer price index for used cars and
index increased by 1.4 percent, far below the Federal trucks increased by 10.0 percent in April 2021, its largest
Reserve’s 2 percent long-run goal for inflation. By one-month increase ever, and by 7.3 percent in May as
May, that 12-month rate was 5.0 percent. The high a shortage of semiconductors used in manufacturing
12-month growth rate results partly from sharp increases new vehicles pushed more consumers to purchase used
in prices over the past few months and partly from price ones. The consumer price index for household furniture
declines experienced in the spring of 2020, when social and bedding increased by 2.1 percent in April, its largest
32 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
one-month increase in more than three decades, and by and Response Supplemental Appropriations Act,
1.9 percent in May as the demand for lumber combined 2020 (P.L. 116-123), and the Families First Coronavirus
with supply constraints and trade restrictions sent the Response Act (P.L. 116-127) increased federal funding
price of building materials soaring. Although prices have for some federal agencies and for state and local gov-
risen rapidly over the past 12 months, CBO estimates ernments, required employers to grant paid sick leave
that the overall consumer price level in the second quar- to employees, and provided payments and tax credits to
ter of 2021 remains near the level that the agency pro- employers. The Coronavirus Aid, Relief, and Economic
jected for that period before the pandemic. Nevertheless, Security (CARES) Act (P.L. 116-136) provided loans to
the growth of prices in May—when measured relative to businesses, payments to health care providers, payments
prices two years earlier, before the pandemic—was the and tax credits to individuals, additional funding to state
largest of any month since the pandemic began. and local governments, and reductions in certain busi-
ness taxes. Finally, the Paycheck Protection Program and
Long-term interest rates have increased during the first Health Care Enhancement Act (P.L. 116-139) increased
half of 2021, probably boosted by an improved eco- federal funding for the loans to businesses and payments
nomic outlook. The 10-year Treasury note rate increased to health care providers supplied in the CARES Act.
from 0.9 percent at the end of 2020 to 1.5 percent in
June 2021. Additionally, some of the increase in long- In December 2020, lawmakers enacted the Consolidated
term interest rates in early 2021 was probably due to Appropriations Act, 2021 (P.L. 116-260). Along with
investors’ expectation of additional federal legislation appropriating funds for the remainder of the current fiscal
beyond what the Congress had passed when CBO com- year, the legislation provided additional funding for fed-
pleted its forecast on May 18. eral agencies to respond to the public health emergency
created by the pandemic and provided financial support
Policy Responses to the Pandemic to households, businesses, and nonfederal governments
Policymakers have taken a wide variety of actions in affected by the economic downturn. Around the time of
response to the coronavirus pandemic. Several federal enactment, CBO estimated that the pandemic-related
laws were enacted, and various administrative actions provisions in that legislation would add $774 billion, or
(including delayed tax-filing deadlines, suspension of 3.5 percent of GDP, to the deficit in fiscal year 2021 and
student loan payments, and foreclosure moratoriums) $98 billion, or 0.4 percent of GDP, in 2022.6
were taken to address the public health emergency and to
assist households, businesses, and state and local govern- In 2021, recently enacted legislation—primarily
ments affected by the pandemic-induced recession. The ARPA—increases projected deficits, excluding any debt
Federal Reserve also acted to address the rapid deteriora- service effects, by $1.1 trillion, or 5.0 percent of GDP,
tion in economic and labor market conditions in 2020.
In addition, various levels of government announced example, lowering interest rates and purchasing mortgage-
stay-at-home orders, business closures, bans on public backed and Treasury securities) and the Administration (for
example, delaying deadlines for filing taxes). The estimates
gatherings, travel restrictions, and other measures. The
do account for the legislation’s funding of lending facilities
laws and policy responses taken through May 18, 2021, established by the Federal Reserve to support the flow of credit
are reflected in CBO’s current-law projections. Those to businesses, households, and state and local governments.
projections thus incorporate estimates of the economic The estimated effects on the deficit do not include any
effects of all the pandemic-related legislation enacted in subsequent changes for economic or technical reasons. For
2020 and the American Rescue Plan Act of 2021 (ARPA; more information, see Congressional Budget Office, The Effects
of Pandemic-Related Legislation on Output (September 2020),
Public Law 117-2) enacted in March 2021. www.cbo.gov/publication/56537; and John Seliski and
others, Key Methods That CBO Used to Estimate the Effects
In March and April 2020, several laws were enacted in of Pandemic-Related Legislation on Output, Working Paper
response to the pandemic. CBO estimated that those 2020-07 (Congressional Budget Office, October 2020),
laws added $2.3 trillion, or 11.0 percent of GDP, to the www.cbo.gov/publication/56612. Those estimates, when
expressed as a percentage of GDP, are divided by the historical
deficit in fiscal year 2020 and $0.6 trillion, or 2.6 per-
and projected values of GDP in the current baseline forecast.
cent of GDP, in 2021.5 The Coronavirus Preparedness
6. Those provisions are contained in divisions M, N, and EE of the
Consolidated Appropriations Act, 2021. Those estimates reflect
5. Those estimates do not include the effects of nonlegislative the effect on the deficit around the time of enactment and do not
actions, such as those taken by the Federal Reserve (for include any subsequent changes for economic or technical reasons.
CHAPTER 2: THE ECONOMIC OUTLOOK ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 33
in fiscal year 2021 and by $0.5 trillion, or 2.0 percent and is on track to exceed that rate for a time. As interest
of GDP, in fiscal year 2022, mostly as a result of higher rates rise, output growth slows and inflationary pressures
federal spending. The largest budgetary effects stem from subside.
additional funding to respond to the public health emer-
gency created by the pandemic and additional finan- Gross Domestic Product
cial support to households, businesses, and nonfederal CBO projects a rapid recovery and a strong expansion
governments affected by the economic downturn, among relative to previous business cycles (see Figure 2-2). The
other measures. CBO estimates that recently enacted agency expects output per worker to return to its level
legislation will boost the level of real GDP by 1.0 percent at the business-cycle peak, which occurred at the end
in calendar year 2021 and by 2.7 percent in calendar year of 2019, more quickly than the average from several
2022 (see Appendix B). previous recoveries. In CBO’s projections, the level of
real GDP per worker 12 quarters after the previous peak
The pandemic-related legislation has increased fed- is above the middle two-thirds of the range from several
eral debt as a percentage of GDP; in the longer term, previous recoveries.
CBO expects that increase—along with the large debt
and added borrowing under the budget deficits pro- Under the assumption that current laws governing
jected before the pandemic—to raise borrowing costs, federal taxes and spending generally remain in place and
lower economic output, and reduce the income of U.S. no significant additional funding or aid is provided, real
households and businesses. In addition, high and rising GDP grows by 7.4 percent in 2021, measured from the
debt increases the risk of a fiscal crisis or of less abrupt fourth quarter of 2020 to the fourth quarter of 2021, in
economic changes, such as higher inflation or the under- CBO’s projections. The expansion is driven by a strong
mining of the U.S. dollar’s predominant role in global rebound in consumer spending and supported by a
financial markets. marked pickup in real business investment following the
large declines that occurred in early 2020 (see Table 2-2).
The Economic Outlook for Real GDP returns to its previous peak level during the
2021 to 2025 first half of 2021 and expands at a 2.8 percent annual
In CBO’s projections, the economy expands rapidly over rate from the middle of 2021 through 2025.
the next two years. Much of that growth stems from
increases in consumer spending initially led by growth in Consumer Spending. A large rise in net worth last year,
spending on services. To fulfill the increased demand for strong income growth, and the diminution of social dis-
their products, businesses increase both investment and tancing this year support consumer spending. In CBO’s
hiring. In 2021, shortages in product and labor markets projections, spending is stronger than indicated by cur-
put upward pressure on many prices and wages. Those rent incomes alone because households are likely to spend
shortages ease by the end of the year, in CBO’s projec- some of the funds they built up during the pandemic.7
tions, relieving much of that upward pressure, as prod-
uct markets adjust and as factors that discourage labor Real consumer spending grows rapidly during 2021 in
supply dissipate. CBO’s projections, finishing the year 7.5 percent above
After 2021, in CBO’s projections, as labor and prod- 7. Personal saving rose to high levels during the pandemic, in
uct market conditions remain strong, inflation remains part because financial support provided to many households
relatively stable and slightly exceeds the Federal Reserve’s more than offset declines in income from employment, but also
because many households cut back on expenditures. In general,
2 percent long-run goal for several years. As the unem-
the savings of low-income households rose chiefly because their
ployment rate falls to low levels, wage growth increases as incomes increased through policy support, whereas the savings
businesses try to fill vacancies from a smaller number of of higher-income households reflected reductions in their
unemployed workers. In order to anchor long-term infla- discretionary expenditures on services, such as entertainment
tion expectations at 2 percent, the Federal Reserve seeks and travel. At the same time, higher-income households
to achieve inflation that averages 2 percent over time. gained wealth from equities and housing values. Relative to the
prepandemic plans of households, the increased rate of saving
In accordance with that stated goal, CBO projects that was probably unexpected, and some economic analysts refer to it
the Federal Reserve will increase the target range for the as “excess savings” resulting from the pandemic. Personal saving
federal funds rate once inflation has reached 2 percent during 2020 was much higher than economists had projected
before the pandemic.
34 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
Figure 2-2 .
Real GDP per Potential Worker Across Business Cycles
Percentage Change From Previous Peak
16 Range of All Recessions and Expansions
The pandemic-induced
12 recession was much
sharper and more severe
8 Middle Two-Thirds of the Range than any recession in recent
of Recessions and Expansions
history, but the recovery has
4
Mean also been unusually strong.
0
In CBO’s projections, real
GDP per potential worker
−4 grows more quickly from
its level at the previous
−8 July 2021 business-cycle peak than it
Pandemic-Induced Projection
Recession and Recovery has during most economic
−12
recoveries and expansions
0 1 2 3 4 5 6 7 8 9 10 11 12
since World War II.
Quarters Since Previous Peak
Data source: Congressional Budget Office. See www.cbo.gov/publication/57263#data.
The potential labor force is CBO’s estimate of the size of the labor force that would occur if economic output and other key variables were at their maximum
sustainable amounts.
The full range of business cycles analyzed includes the 10 most recent cycles. The oldest cycle peaked in 1948, and the most recent cycle peaked at the end of
2019. The business cycle that peaked in January 1980 is excluded from the figure because by July 1981 a new cycle had already begun. The middle two-thirds of
the full range is formed by removing the two highest and two lowest observations.
Real values are nominal values that have been adjusted to remove the effects of changes in prices.
GDP = gross domestic product.
its level in the fourth quarter of 2020. Sales of goods, a few years. Households with higher income and those
which surged in the second half of 2020, continue to that invested in illiquid assets are less likely to spend in
boom through the first half of 2021. As widespread that way.
vaccination facilitates a broader return to in-person
service activities, expenditures on services lead the Business Investment. CBO expects real business fixed
growth in consumer spending in the second half of the investment—the purchase of new equipment, nonres-
year—especially in areas where social distancing is still idential structures, and intellectual property products,
declining during that time. In the agency’s projections, such as software—to increase by 8.2 percent during
consumer spending grows above trend again in 2022, by 2021, reversing a 1.4 percent decline in 2020. That
3.3 percent. From 2023 to 2025, the projected growth increase is expected to occur in response to a reversal of
rate averages 1.6 percent, a stronger pace than that of the the sharp drop in demand during 2020 for the goods
economy as a whole. and services that businesses produce, as well as higher
oil prices (which will boost investment in oil wells). Real
The pace at which households will spend down elevated investment in equipment and intellectual property prod-
levels of savings is uncertain, but CBO estimates that ucts is forecast to grow more rapidly than investment
it will be higher than standard estimates of spending in nonresidential structures. Further improvement in
out of wealth by typical asset holders in normal times. demand for businesses’ output is expected to boost real
Very large liquid balances, such as deposits in checking business fixed investment by an average of 2.4 percent
or money market accounts, suggest that at least some per year from 2022 to 2025.
households plan to spend a significant fraction of those
savings over a relatively short horizon—perhaps within
CHAPTER 2: THE ECONOMIC OUTLOOK ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 35
Table 2-2 .
Projected Growth of Real GDP and Its Components
Percent
Annual Average
Actual, 2024– 2026–
2020 2021 2022 2023 2025 2031
Percentage Change From Fourth Quarter to Fourth Quarter
Real GDP -2.4 7.4 3.1 1.1 1.2 1.6
Components of Real GDP
Consumer spendinga -2.7 7.5 3.3 1.9 1.5 1.9
Business investmentb 0.7 12.7 3.3 -1.4 1.6 2.7
Business fixed investmentc -1.4 8.2 5.2 1.1 1.7 2.6
Residential investmentd 14.3 5.0 -0.1 -3.3 -2.1 -0.3
Purchases by federal, state, and local governmentse -0.5 3.2 0.4 * 0.5 0.5
Federal 2.4 2.2 -1.1 -0.4 0.1 0.2
State and local -2.3 3.9 1.3 0.3 0.7 0.7
Exports -10.9 9.5 6.6 2.4 1.2 1.6
Imports -0.5 8.5 2.4 0.9 0.9 2.1
Contributions to the Growth of Real GDP (Percentage points)
Components of Real GDP
Consumer spendinga -1.8 5.0 2.2 1.3 1.0 1.3
Business investmentb 0.1 1.7 0.5 -0.2 0.2 0.4
Business fixed investmentc -0.2 1.1 0.7 0.1 0.2 0.3
Residential investmentd 0.6 0.2 * -0.2 -0.1 *
Purchases by federal, state, and local governmentse -0.1 0.6 0.1 * 0.1 0.1
Federal 0.2 0.1 -0.1 * * *
State and local -0.2 0.4 0.1 * 0.1 0.1
Exports -1.2 1.0 0.7 0.3 0.1 0.2
Imports 0.1 -1.2 -0.4 -0.1 -0.1 -0.3
Data source: Congressional Budget Office. See www.cbo.gov/publication/57263#data.
Real values are nominal values that have been adjusted to remove the effects of changes in prices.
Data are annual. Changes are measured from the fourth quarter of one calendar year to the fourth quarter of the next.
GDP = gross domestic product; * = between zero and 0.05 percentage points.
a. Consists of personal consumption expenditures.
b. Comprises business fixed investment and investment in inventories.
c. Consists of purchases of equipment, nonresidential structures, and intellectual property products.
d. Includes the construction of single-family and multifamily structures, manufactured homes, and dormitories; spending on home improvements; and brokers’
commissions and other ownership transfer costs.
e. Based on the national income and product accounts.
CBO projects that inventory investment will add rate. CBO expects shortages to ease in the second half of
significantly to the growth of GDP in 2021, measured 2021, allowing businesses to rebuild inventories to a level
from fourth quarter to fourth quarter. A combination of more commensurate with sales. Inventory investment is
surging demand for goods and shortages of certain com- then expected to slow to a more sustainable pace from
modities, notably semiconductors, and labor caused the 2022 to 2025.
ratio of inventories to sales to fall in March to its lowest
level in nearly nine years. As a result, although final sales Residential Investment. After increasing by 14.3 per-
of goods rose at a 20.1 percent annual rate in the first cent in 2020 because of low mortgage rates, households’
quarter, production of goods rose at only a 10.2 percent desire for more and updated living space, and a dearth
36 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
of existing homes for sale, real residential investment to its largest level since 2008. The recent robust growth
will increase by 5.0 percent during 2021, CBO projects. in imports is attributable mostly to strong domestic
The agency expects real residential investment to decline demand for goods that has outpaced domestic sup-
by 1.9 percent per year from 2022 to 2025, on average, ply. By contrast, a more gradual rebound in foreign
as mortgage rates rise by nearly 1 percentage point over demand for U.S. goods and services has led to a weaker
that period and increased supply reduces the imbalance recovery in U.S. exports. That trend will reverse, CBO
between supply and demand. projects, starting in the middle of 2021 as exports rise
by 15.7 percent (at an annualized rate) but imports rise
A combination of rising demand for homes and limited only by 8.0 percent over the second half of the year.
inventory of existing homes for sale caused house prices As a result, the trade deficit is projected to shrink from
(as measured by the Federal Housing Finance Agency’s 4.1 percent of GDP in the middle of 2021 to 2.9 percent
price index for home purchases) to increase by 10.8 per- of GDP in early 2025 (compared with 2.8 percent of
cent in 2020. With demand remaining strong, CBO GDP in 2019) as export growth continues to rise, driven
expects prices to rise by another 5.8 percent in 2021. by the recovery in services trade.
New home prices are also rising rapidly because of strong
demand as well as shortages of lumber and construction Exports. Real exports are expected to continue to
workers. As new supply comes on the market, price rebound in 2021, rising by 9.5 percent. One factor
growth will slow to an average of 3.5 percent from 2022 contributing to that rebound in export growth is the
to 2025, in CBO’s estimation. improvement of economic conditions abroad, which
boosts international demand for U.S. goods and services.
Government Purchases. Real government purchases of CBO projects that the economic output of major U.S.
goods and services—such as public educational services, trading partners will rise by 5.0 percent in 2021 after
highways, and military equipment—fell by 0.5 percent contracting by 2.5 percent in 2020. In addition, as the
in 2020, as state and local governments reduced their global effects of the pandemic continue to wane and
purchases because of school closures and pandemic- international travel restrictions are lifted, exports of
related pressures on their fiscal year 2020 budgets (many services (mostly travel and transportation) are expected
of which ran through June 2020). CBO projects that, if to begin to recover after declining by 24 percent in 2020
current laws governing federal taxes and spending gener- and remaining weak in early 2021. CBO expects real
ally remain in place, real purchases by federal, state, and exports of services to begin a gradual recovery in the sec-
local governments will increase by 3.2 percent in 2021, ond half of 2021 before returning to their prepandemic
boosted by recently enacted legislation, strong state and level by early 2023. Exports of capital goods are also
local tax receipts, and the reopening of schools. Real gov- expected to strengthen in 2021, reflecting a resumption
ernment purchases are projected to grow by an average in deliveries of Boeing 737 MAX aircraft. As exports of
of 0.4 percent per year from 2022 to 2025. In particular, services return to prepandemic levels and the pace of
real state and local government purchases are projected foreign growth returns to its prepandemic trend, export
to grow by an average of 0.8 percent per year from 2022 growth is projected to rise slightly in 2022 before slow-
to 2025, as the federal fiscal support to state and local ing in later years.
governments is spent over a prolonged period and as
economic activity further bolsters state and local tax Imports. CBO projects that strong domestic demand for
revenues. Real federal government purchases, however, goods and services in 2021 will result in robust growth
are projected to contract by an average of 0.3 percent per of real imports, which are expected to rise by 8.5 percent
year over that same period, as federal spending related to this year. That growth in imports is driven primarily
the public health emergency wanes. by a 6.6 percent increase in imported consumer goods
and industrial supplies. As with exports of services,
Exports and Imports. CBO projects that the U.S. trade CBO projects that, after falling by 24 percent in 2020,
deficit will shrink gradually between the middle of 2021 imports of services will rebound gradually in the middle
and 2025 after expanding substantially during the first of 2021 as international travel restrictions are lifted and
half of 2021. Since the middle of 2020, the recovery return to their prepandemic level by the end of 2022.
in trade flows has been uneven, as growth in imports CBO projects that the growth rate of real imports will
outpaced exports and, in turn, the trade deficit widened
CHAPTER 2: THE ECONOMIC OUTLOOK ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 37
decline in 2022 and later years as growth in domestic potential productivity), about 0.9 percentage points
demand slows. are attributable to capital services (that is, the flow of
productive services provided by the available stock of
Value of the Dollar. After falling by 6.7 percent over capital), and the remaining 0.3 percentage points are
the second half of 2020, the international exchange attributable to growth of potential hours worked.
value of the dollar is projected to decline by 2.4 percent
in 2021 before stabilizing in later years. CBO pro In CBO’s projections, the output gap—the difference
jects that the dollar will weaken in 2021 as a result of between actual output and potential output—closes rap-
the improved global economic outlook, which boosts idly, from an estimated average of −4.9 percent in 2020
expected returns on foreign investments and decreases to zero in mid-2021, and then becomes positive (that is,
demand for dollar-denominated assets relative to foreign actual output exceeds potential output) during the rest
assets in other currencies. Beyond 2021, CBO’s projec- of the year. Over the entire 2021–2025 period, the gap
tion of a stable dollar reflects the agency’s expectation averages about 1.0 percent.
that changes in economic performance and monetary
policies will lead the value of the dollar to appreciate Potential GDP is an estimate of the economy’s maxi-
against advanced-economy currencies but depreciate mum sustainable level of production rather than a strict
against emerging-market currencies in a way that is constraint. That level corresponds to a high rate of use
roughly offsetting. of labor and capital. Sustainability is a key part of that
definition: CBO estimates that actual output can exceed
Potential Output and the Output Gap potential for a short time and have only minimal effects
CBO’s projections of potential output are based on its on inflation. However, an extended period of time with
projections of trends in underlying factors—such as a positive output gap will lead to upward pressure on
the size of the labor force, the average number of labor wages and prices, triggering monetary authorities to take
hours per worker, capital investment, and productivity— steps to slow the economy, such as by dampening the
and take into account the effects of federal tax and growth of credit. In response, the growth of output is
spending policies embodied in current law. (The pan- likely to slow, bringing it closer in line with potential and
demic has added uncertainty to those projections, as closing the output gap.
discussed below.)
The Labor Market
Over the 2021–2025 period, potential output is pro- The labor market is expected to continue its recovery
jected to grow at an average annual rate of 2.0 percent, through the end of 2021 and into 2022. That pattern
driven by the nearly 0.4 percent annual growth of the reflects the ongoing expansion of the economy as well
potential labor force and 1.6 percent annual growth as the easing of constraints associated with the pan-
of potential labor force productivity (see Table 2-3). demic and social distancing. Notably, the percentage
That rate is stronger than the average rate over the past of the population with immunity to the virus (whether
business cycle, in spite of slower growth of the potential through infection or vaccination) is expected to gradu-
labor force; the acceleration reflects CBO’s projection ally increase. In CBO’s current projections, through the
of a resurgence in investment in the aftermath of the middle of 2022, the number of people employed returns
pandemic-induced recession, as well as its assessment to its prepandemic level, the unemployment rate con-
that trend growth in potential labor force productivity tinues to decline, the civilian labor force returns to its
has accelerated modestly in recent years. prepandemic size, and wage and salary growth rises (see
Figure 2-3). Thereafter, through 2026, the projections
Potential output in the nonfarm business sector, which is reflect the labor market’s gradual return to its long-run
responsible for about three-quarters of aggregate eco- average relationship to potential performance, with
nomic activity and for nearly all productivity growth, employment growth slowing, the unemployment rate
is projected to grow at an average rate of 2.3 percent, rising gradually, and wage growth moderating.
substantially more rapidly than overall potential out-
put. About 1.1 percentage points of that growth are Employment. Growth of payroll employment is pro-
attributable to potential total factor productivity in the jected to continue at a relatively rapid pace through the
sector (the source of most of the acceleration in overall end of 2021 and into the first half of 2022. In CBO’s
38 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
Table 2-3 .
Key Inputs in CBO’s Projections of Real Potential GDP
Percent
Projected Average
Average Annual Growth Annual Growth
Total, Total,
1950– 1974– 1982– 1991– 2002– 2008– 1950– 2021– 2026– 2021–
1973 1981 1990 2001 2007 2020 2020 2025 2031 2031
Overall Economy
Real Potential GDP 4.0 3.2 3.2 3.3 2.4 1.7 3.1 2.0 1.7 1.8
Potential Labor Force 1.6 2.5 1.6 1.2 1.0 0.5 1.4 0.4 0.3 0.4
Potential Labor Force Productivity a 2.3 0.7 1.6 2.0 1.4 1.2 1.7 1.6 1.4 1.5
Nonfarm Business Sector
Real Potential Output 4.1 3.5 3.5 3.7 2.7 2.0 3.4 2.3 2.0 2.1
Potential Hours Worked 1.4 2.3 1.7 1.2 0.3 0.6 1.3 0.4 0.3 0.4
Capital Services b 3.8 3.7 3.5 3.9 2.8 2.3 3.4 2.6 2.0 2.3
Potential Total Factor Productivityc 1.9 0.8 1.1 1.5 1.5 0.8 1.4 1.1 1.1 1.1
Contributions to the Growth of Real Potential Output
(Percentage points)
Potential hours worked 0.9 1.5 1.1 0.8 0.2 0.4 0.8 0.3 0.2 0.2
Capital servicesb 1.2 1.2 1.1 1.3 0.9 0.8 1.1 0.9 0.7 0.8
Potential total factor productivityc 1.9 0.8 1.1 1.5 1.5 0.8 1.4 1.1 1.1 1.1
Total Contributions 4.0 3.5 3.4 3.6 2.6 2.0 3.3 2.2 2.0 2.1
Potential Labor Productivityd 2.6 1.2 1.7 2.4 2.4 1.4 2.1 1.9 1.7 1.8
Data source: Congressional Budget Office. See www.cbo.gov/publication/57263#data.
Real values are nominal values that have been adjusted to remove the effects of changes in prices. Potential GDP is CBO’s estimate of the maximum sustainable
output of the economy.
The table shows compound annual growth rates over the specified periods. Those rates are calculated from the fourth quarter of the year immediately preceding
each period to the fourth quarter at the end of that period.
GDP = gross domestic product.
a. The ratio of potential GDP to the potential labor force.
b. The flow of services, provided by the stock of capital goods (such as computers and other equipment), that constitute the actual input in the production
process.
c. The average real output per unit of combined labor and capital services, excluding the effects of business cycles.
d. The ratio of potential output to potential hours worked in the nonfarm business sector.
current projections, nonfarm payroll employment rises employment-to-population ratio initially flattens out
by an average of 587,000 jobs per month in 2021 and before gradually declining through the remainder of the
by an average of 417,000 jobs per month in 2022. At projection period.
those rates, nonfarm payroll employment is projected
to reach its prepandemic level by the middle of 2022 Unemployment. The unemployment rate and the num-
and its estimated potential at about the same time. After ber of unemployed people are projected to decline grad-
2022, payroll jobs gains are projected to slow to less ually through the remainder of 2021 and through the
than 30,000 per month, on average, as the economy first half of 2022, reflecting the continued growth of the
and labor markets grow at lower trend rates. Reflecting economy. In CBO’s projections, the overall unemploy-
the increases in employment and a rise in the labor ment rate falls from 5.8 percent in the second quarter of
force participation rate, the employment-to-population 2021 to 4.6 percent by late 2021. The number of unem-
ratio largely recovers to a level near its prepan- ployed people falls to 7.5 million by the end of 2021 and
demic peak by the end of 2022. Subsequently, the to 6.0 million by the end of 2022. The unemployment
CHAPTER 2: THE ECONOMIC OUTLOOK ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 39
Figure 2-3 .
Employment, Unemployment, Labor Force Participation, and Wage Growth
Millions of Jobs
160 Projected
150 Nonfarm Payroll In CBO’s projections, payroll
Employment
140 employment reaches its prepandemic
level in early 2022.
130
1200
2001 2006 2011 2016 2021 2026 2031
Percent
10 The unemployment rate is projected
Actual
Unemployment to decline through the remainder
8
of 2021 and the first half of 2022
6
before returning to its long-term
4 Noncyclical Rate relationship with the noncyclical rate
2 of Unemployment
of unemployment.
0
2001 2006 2011 2016 2021 2026 2031
The labor force participation rate
Percent
is expected to rise from its current
68
Potential Labor Force level through the end of 2022. The
66 Participation Rate participation rate then remains close
64 to that level for about two years as
62 Actual Labor Force the effects of the continued economic
60 Participation Rate recovery and the aging of the
580 population offset each other.
2001 2006 2011 2016 2021 2026 2031
Percentage Change
4 Wage Growth
3 In CBO’s projections, wage growth is
2 projected to average 3.4 percent per
year for the 2021–2025 period.
1
0
2001 2006 2011 2016 2021 2026 2031
Data sources: Congressional Budget Office; Bureau of Labor Statistics. See www.cbo.gov/publication/57263#data.
Nonfarm payroll workers, who are employed in the private and public sectors, can include employees of nonprofit organizations and proprietors but by definition
exclude farm workers.
The unemployment rate is the number of people not working who are available for work and are either seeking work or expecting to be recalled from a
temporary layoff, expressed as a percentage of the labor force. The noncyclical rate of unemployment is the rate that results from all sources except fluctuations
in aggregate demand, including normal turnover of jobs and mismatches between the skills of available workers and the skills necessary to fill vacant positions.
The labor force participation rate is the share of the civilian noninstitutionalized population age 16 or older that has jobs or that is available for and actively
seeking work. The potential labor force participation rate is CBO’s estimate of the rate that would occur if economic output and other key variables were at their
maximum sustainable amounts.
Wages are measured using the employment cost index for wages and salaries of workers in private industry. Growth in wages is measured as average annual
growth. For the unemployment rate and labor force participation rate, data are annual averages.
40 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
rate is projected to fall below the noncyclical rate of Inflation. In CBO’s projections, inflation rises in 2021,
unemployment in early 2022 and to reach 3.6 percent by as the economy recovers from the pandemic-induced
the end of 2022.8 recession (see Figure 2-4, top panel). The growth rate of
the PCE price index—the measure the Federal Reserve
Labor Force Participation. The labor force participation uses to define its 2 percent long-run goal for inflation—
rate is expected to rise gradually from its current level was 1.2 percent in 2020, well below that goal. CBO
through the end of 2022. In CBO’s current projections, projects that the rate will increase to 2.8 percent in 2021.
the labor force participation rate rises from 61.8 per- The traditional measure of core PCE price inflation,
cent in the second quarter of 2021 to 62.2 percent by which excludes food and energy prices because they tend
the end of the year and then continues to rise, reaching to be volatile, is projected to rise from 1.4 percent in
63.0 percent in early 2023, near its prepandemic peak 2020 to 2.4 percent in 2021.
of 63.4 percent. Thereafter, it gradually declines as the
effects of the aging of the population (which damp- Inflation declines in early 2022 before rising again over
ens the overall labor force participation rate) become the following year and then remaining slightly above
more prominent relative to the short-term effects of the the Federal Reserve’s 2 percent long-run goal for sev-
expanding economy. eral years, in CBO’s projections. The agency expects
many of the current disruptions to the supply of goods
Hourly Wages and Salaries. The ongoing gains in and services—as well as many of the effects of recently
the labor market and the stronger performance of enacted legislation on the demand for goods and
the economy are expected to put upward pressure on services—to fade by the end of this year. CBO projects
wage growth. In CBO’s projections, the employment that, together, those developments will cause inflation to
cost index for wages and salaries of workers in private fall in the first half of 2022. After that, upward pressure
industry—a measure of the hourly price of labor—is on prices from strong labor and product market condi-
3.7 percent higher in the fourth quarter of 2021 than tions dominates those factors, causing inflation to rise
it was in the fourth quarter of 2020; its annual growth again. The core PCE price index is projected to grow by
rate in recent years (and before the pandemic began) 2.0 percent in 2022, and the core consumer price index
was about 3 percent. Stronger wage growth is projected for urban consumers (CPI-U; core CPI-U excludes food
to continue, averaging 3.5 percent per year for the and energy prices) is projected to grow by 2.4 percent
2021–2025 period. in that same year. In 2023, CBO expects the core PCE
price index to grow by 2.2 percent and the core CPI-U
Inflation and Interest Rates to grow by 2.5 percent. Those projected growth rates
CBO expects inflation to increase in 2021, as a variety of would put core inflation at its highest level in more than
factors cause supply to grow more slowly than demand a decade. After 2023, the agency projects that inflation
in both product markets and labor markets, before will remain above the Federal Reserve’s 2 percent long-
falling in 2022. After 2022, the agency projects that the run goal through 2025.
rate of inflation will slightly exceed the Federal Reserve’s
2 percent long-run goal for inflation for several years. CBO has two main reasons for projecting only a modest
The agency expects short-term interest rates to remain increase in inflation over the next few years, even though
low over the next few years but then rise beginning in output is above the maximum sustainable level of pro-
the second half of 2023. Long-term interest rates, which duction. First, the agency estimates that the relationship
have increased since earlier this year, are expected to rise between labor market slack and inflation is currently
slightly through 2023. CBO expects both short- and weak. Therefore, in CBO’s estimation, a substantial
long-term interest rates to rise more rapidly after 2023. decrease in the unemployment rate—one that causes
wage growth to increase—places only a small amount of
upward pressure on overall consumer prices. Moreover,
a substantial increase in the unemployment rate puts
8. The noncyclical rate of unemployment is the rate of only a small amount of downward pressure on inflation,
unemployment arising from all sources except fluctuations in
aggregate demand. It is often termed the long-run natural rate of
which implies that monetary policymakers could find
unemployment and was referred to in previous CBO reports as it more challenging to reduce inflation if it becomes
the underlying long-term rate of unemployment. too high. The observed weakness of that relationship
CHAPTER 2: THE ECONOMIC OUTLOOK ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 41
Figure 2-4 .
Inflation and Interest Rates
Percentage Change
4 Projected
3 PCE Price
Index
In CBO’s projections,
inflation rises in 2021 as
the economic expansion
2 continues. It then declines
in early 2022 before
Federal Reserve’s Long-Run Goal
rising again in 2023 and
1
remaining elevated for
Core PCE several years.
Price Index
0
2001 2006 2011 2016 2021 2026 2031
Percent
6
The 3-month Treasury bill
rate remains near zero
through early 2023 and
then gradually rises as the
4 10-Year Treasury Federal Reserve begins
Note Rate
raising the federal funds
rate in the second half of
2023. The interest rate
2 on 10-year Treasury notes
is expected to increase
3-Month Treasury
through 2023 but at a
Bill Rate slower pace than in the first
few months of 2021.
0
2001 2006 2011 2016 2021 2026 2031
Data sources: Congressional Budget Office; Bureau of Economic Analysis; Federal Reserve. See www.cbo.gov/publication/57263#data.
The inflation rate is based on the price index for personal consumption expenditures; the core rate excludes prices for food and energy.
Inflation is measured from the fourth quarter of one calendar year to the fourth quarter of the next.
The federal funds rate is the interest rate that financial institutions charge each other for overnight loans of their monetary reserves.
PCE = personal consumption expenditures.
42 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
in recent history may result from the increased use of CBO projects that part of the increase in long-term
global supply chains for production, which decreases interest rates through 2025 is also due to the expecta-
the importance of domestic labor market slack, or from tion of rising short-term interest rates. The average of
higher profit margins, which allow businesses to more expected short-term interest rates is one of the factors
easily absorb wage increases without raising prices. driving movements in long-term interest rates. In CBO’s
projections, the interest rate on 10-year Treasury notes
The second reason CBO projects a modest increase in rises from under 1.8 percent at the end of 2021 to
inflation is that expectations about inflation are well 2.7 percent in 2025.
anchored, or stable. In other words, a short-term increase
in inflation is not expected to cause a substantial rise in The Economic Outlook for
expected future inflation, which could lead it to spiral 2026 to 2031
upward. In the agency’s estimation, inflation expectations CBO’s projections of GDP, unemployment, inflation,
will remain well anchored, in part because of the Federal and interest rates for the second half of the coming
Reserve’s institutional credibility in keeping inflation decade are based mainly on the agency’s projections of
stable over the past several decades. the underlying trends in the factors that determine those
key variables—the size of the labor force, the average
Interest Rates. In CBO’s projections, the Federal number of labor hours per worker, capital investment,
Reserve keeps its target for the federal funds rate at and productivity—and take into account the effects of
0.1 percent through the first half of 2023. It is expected federal tax and spending policies embodied in current
to begin raising the target for the federal funds rate in the law. In some cases, those policies, as well as monetary
second half of 2023, roughly a year after inflation reaches policy, might be projected to influence not only the
and begins to exceed the Federal Reserve’s 2 percent demand for goods and services—and, therefore, the gap
long-run goal and the unemployment rate reaches a level between actual output and potential output—but also
consistent with stable long-run inflation. The Federal potential output itself. In addition, the pandemic might
Reserve gradually raises rates after that point, allowing have longer-term effects on potential output that are not
inflation to slightly exceed 2 percent for some time. The yet apparent in current data.
interest rate on 3-month Treasury bills typically follows
the same pattern as the federal funds rate (see Figure 2-4 During the 2026–2031 period, in CBO’s projections,
on page 41, bottom panel). In CBO’s projections, the the economy continues to expand, and output exceeds
3-month Treasury bill rate averages 0.1 percent through potential output through early 2027. The agency expects
early 2023 and then gradually rises as the Federal Reserve monetary policy to become less accommodative over the
begins raising the federal funds rate target in the second period, slowing the growth of actual output. Over the
half of 2023. 2026–2031 period, the annual growth of actual output
averages 1.6 percent, slower than the 1.7 percent pro-
Long-term interest rates are expected to increase through jected for the growth of potential output. That reduction
2023 but at a slower pace than the increase in the first in economic growth brings actual output back to its long-
few months of 2021. Part of the reason for a somewhat term relationship with potential output in 2030. The
muted increase in long-term interest rates is that current output gap becomes negative, averaging −0.2 percent over
long-term rates are elevated because financial market the period and reaching −0.5 percent in 2030 and 2031.
participants probably expect additional fiscal policy
initiatives beyond those already enacted. Because CBO’s Growth of consumer spending slows to an average of
forecast is based on current law, its projections incor- 1.9 percent over the period. The unemployment rate
porate an assumption that the effect of expected future drifts up to about 4.5 percent at the close of the period.
policy that is embodied in current interest rates dissipates PCE price inflation remains at about 2.1 percent for
over time. CBO also expects the Federal Reserve’s pur- the first three years of the period before declining to the
chases of Treasury and other securities to mute a rise in Federal Reserve’s long-run goal of 2.0 percent by 2029.
long-term interest rates through 2023. Starting in 2022, Interest rates continue to rise gradually throughout the
in CBO’s projections, the Federal Reserve’s net purchases 2026–2031 period: The federal funds rate rises from
of those securities gradually taper to zero by the first half 1.4 percent in 2026 to 2.6 percent in 2031, the 3-month
of 2023. As that happens, long-term interest rates begin Treasury rate rises from 1.4 percent to 2.5 percent, and
rising more quickly. the 10-year Treasury note rate rises from 2.9 percent to
3.5 percent.
CHAPTER 2: THE ECONOMIC OUTLOOK ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 43
Actual Output and Potential Output projection period. Nonfarm payroll employment
Although changes in the overall demand for goods and increases by an average of about 42,000 jobs per month
services strongly influence CBO’s economic projections during those years, in CBO’s projections. Real compen-
during the first half of the period covered in this report, sation per hour in the nonfarm business sector, a mea-
the agency’s projections for the second half of the period sure of labor costs that is a useful gauge of longer-term
are fundamentally determined by its assessment of the trends, grows at an average annual rate of 1.6 percent
prospects for growth of key inputs: the potential number over the 2026–2031 period—close to the projected aver-
of workers in the labor force, capital services, and the age growth in labor productivity in that sector.
potential productivity of those factors.
CBO expects the noncyclical rate of unemployment to
In CBO’s projections, growth of potential output over decline slowly over the next decade, from 4.5 percent in
the 2026–2031 period averages 1.7 percent per year, a 2020 to 4.3 percent by 2031. That decline reflects the
rate roughly equal to the average during the most recent continuing shift in the composition of the workforce
business cycle (see Table 2-3 on page 38). That annual toward older workers, who tend to have lower rates
growth is driven by average annual growth of about of unemployment (when they participate in the labor
0.3 percent in the potential labor force and of about force), and away from less educated workers, who tend
1.4 percent in potential labor force productivity (see to have higher ones.
Figure 2-5). Potential output in the nonfarm business
sector grows at an average rate of 2.0 percent. About CBO expects the labor force participation rate to fall
1.1 percentage points of that growth are attributable during the second half of the 11-year projection period.
to growth of potential total factor productivity in the Specifically, the overall labor force participation rate is
sector; about 0.7 percentage points are attributable to projected to fall from 61.9 percent at the beginning of
growth of capital services; and the remaining 0.2 per- 2026 to 60.8 percent by the end of 2031. That decline
centage points are attributable to growth of potential is mostly driven by the aging of the population and,
hours worked. The output gap gradually decreases from in particular, the continued retirement of baby boom-
just above zero in 2026 to −0.5 percent in 2031. ers. That rate in 2031 is close to the agency’s estimate of
the potential labor force participation rate, which falls
Although trends in potential employment and hours from 62.8 percent in 2020 to 61.6 percent in 2026 and
worked are driven mainly by underlying trends in the to 60.9 percent in 2031.
potential labor force in CBO’s projections, the growth of
potential hours worked is further influenced by certain Inflation and Interest Rates
temporary provisions of major tax legislation enacted CBO expects strong labor and product market con-
in 2017. The agency estimates that those provisions ditions to continue to put upward pressure on prices,
induced an increase in potential hours worked begin- supporting inflation that is above the agency’s projected
ning in 2018 and will also lead to a decrease in potential long-run average level for several years. Toward the end
hours worked after the provisions expire (under current of the 11-year projection period, as real GDP falls below
law) at the end of 2025. the maximum sustainable level of production and the
rate of use of labor declines, inflation decreases toward
The Labor Market its projected long-run average level. The agency expects
CBO’s projections of employment, labor compensation interest rates to continue rising in the later years of
per hour, unemployment, and labor force participation the projection period as the Federal Reserve continues
over the 2026–2031 period primarily reflect the agency’s removing accommodation by raising short-term interest
assessment of the overall performance of the economy rates and reducing its holdings of Treasury and other
and the effects of long-term demographic trends, which securities. CBO also expects interest rates to rise in
will strongly influence the size and composition of the response to rising debt relative to GDP.
workforce in the coming decades.
Inflation. In CBO’s projections, as strong labor and
The growth in employment and labor compensation product market conditions persist, inflation remains
per hour is projected to moderate over the 2026– above its projected long-run average level before fall-
2031 period relative to the first five years of the ing back down toward that level near the end of the
44 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
Figure 2-5 .
Composition of the Growth of Real Potential GDP
Percentage Change
4.0
4 Projected
Over the next five years,
3.2 3.3 real potential GDP is
3.2
3
projected to grow faster
2.3 0.7 than it has since the 2007–
2.4 2009 recession because of
1.6
2.0 2.0 faster growth in potential
2
1.7 1.7 Real Potential GDP labor force productivity.
1.4
However, growth in the
2.5 1.6 Potential Labor Force potential labor force is
1.2 1.4
1 Productivity
1.6 1.6 projected to be slower than
1.2 1.0 in previous periods, largely
0.5 0.4 0.3 Potential Labor Force because of the aging of the
0 population.
1950− 1974− 1982− 1991− 2002− 2008− 2021− 2026−
1973 1981 1990 2001 2007 2020 2025 2031
Data source: Congressional Budget Office. See www.cbo.gov/publication/57263#data.
Real values are nominal values that have been adjusted to remove the effects of changes in prices. Growth in real potential GDP is the sum of growth in the
potential labor force and growth in potential labor force productivity. The potential labor force is CBO’s estimate of the size of the labor force that would occur if
economic output and other key variables were at their maximum sustainable amounts. Potential labor force productivity is the ratio of real potential GDP to the
potential labor force.
The bars show average annual growth rates over the specified periods, calculated using calendar year data.
GDP = gross domestic product.
projection period. The agency expects the growth rate of In CBO’s projections, the Federal Reserve raises the
the PCE price index to modestly exceed 2.0 percent, the target for the federal funds rate through 2031, and the
Federal Reserve’s long-run goal for inflation, for several pace of rate hikes is gradual enough to allow inflation to
years before returning to that level. CPI-U inflation is remain above 2 percent through the end of 2028. Under
projected to rise to 2.5 percent in 2026 before falling to the Federal Reserve’s revised monetary policy strategy,
2.3 percent. inflation exceeds 2 percent following periods when
inflation has fallen short of that rate in order to achieve
Interest Rates and Federal Reserve Policy. CBO 2 percent average inflation over time.10 In addition, in
expects short- and long-term interest rates to rise over CBO’s projections, the Federal Reserve slows the pace
the 2026–2031 period but remain below their historical of rate hikes in 2026 in response to the expiration of
average. Rising federal debt in relation to GDP, a reduc- some of the tax reductions that were enacted in the
tion in the Federal Reserve’s holdings of Treasury securi- 2017 tax act.
ties, a decline in the share of Treasury securities held by
foreign investors, and a gradual decrease in the premium The 3-month Treasury bill rate is expected to rise along
paid on risky assets are expected to exert upward pres- with hikes in the federal funds rate. CBO expects the
sure on short- and long-term interest rates. Nevertheless,
projected interest rates remain below their average over
Interest Rates and Its Implications for CBO’s Projections, Working
the past four decades for several reasons, including lower Paper 2020-09 (Congressional Budget Office, December 2020),
average expected inflation, slower growth of the labor www.cbo.gov/publication/56891.
force, and slower growth of productivity.9
10. See Board of Governors of the Federal Reserve System, “Federal
Open Market Committee Announces Approval of Updates to Its
9. For further details on the factors affecting CBO’s interest rate Statement on Longer-Run Goals and Monetary Policy Strategy”
projections, see Edward N. Gamber, The Historical Decline in Real (press release, August 27, 2020), https://go.usa.gov/xGXXn.
CHAPTER 2: THE ECONOMIC OUTLOOK ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 45
interest rate on 10-year Treasury notes to rise as the 58.4 percent by 2029. That increase is consistent with
Federal Reserve reduces its holdings of long-term secu- CBO’s projection of labor market variables, such as
rities and as rising debt relative to GDP begins to put hours worked and compensation per hour. However,
upward pressure on interest rates. In CBO’s projections, labor’s share remains below 60.8 percent, its long-run
the average federal funds rate increases from 1.4 per- average over the 1947–2000 period.
cent in 2026 to 2.6 percent in 2031. Similarly, the rates
for 3-month Treasury bills and 10-year Treasury notes Corporate Profits and Business Income
are expected to rise from 1.3 percent to 2.4 percent The large federal subsidies that continue to flow to busi-
and from 2.8 percent to 3.5 percent, respectively, over nesses in 2021 as part of pandemic-related support will
that period. boost employees’ compensation, proprietors’ incomes,
and corporate profits. In CBO’s estimation, about
Projections of Income for 60 percent of pandemic-related business subsidies flowed
2021 to 2031 into corporate profits during 2020, a smaller share
Economic activity and federal tax revenues depend not flowed into increased employee compensation, and the
only on the amount of total income in the economy but smallest share went into proprietors’ incomes. During
also on how that income is divided among labor income, 2021, expanded or extended subsidies to businesses will
domestic profits, proprietors’ income, income from inter- boost corporate profits as they did in 2020, but the share
est and dividends, and other categories. (Labor income flowing into compensation will be smaller than the share
includes wage and salary payments as well as other forms flowing to proprietors.
of compensation, such as employer-paid benefits and the
part of proprietors’ income corresponding to compensa- In CBO’s projections, domestic corporate profits amount
tion for hours worked.) The shares for wages and salaries to a larger share of GDP over the 11-year projection
and for domestic profits are particularly important in period than they did in the 40 years before the pan-
projecting federal revenues because those types of income demic. Domestic corporate profits averaged 7.6 percent
are taxed at higher rates than others. of GDP from 1980 to the end of 2019. At the onset
of the pandemic, domestic corporate profits fell to
Labor Income 7.2 percent of GDP in the first quarter of 2020, but they
Compensation of employees fell by less than the income rebound to above 10 percent in CBO’s projections for
of business owners in the pandemic-induced recession the second half of 2021. The agency expects the domes-
of 2020; as a result, labor’s share of national income rose tic profit share to fall back toward 8 percent by 2028, as
sharply in that year. CBO projects that labor’s share of increased borrowing and a steady upward rise in market
income will fall back toward prepandemic levels during interest rates combine to raise interest payments.
2021 and settle at 57.6 percent in 2022. In CBO’s
projections, strong demand for goods and services drives Uncertainty in the Economic Outlook
further gains in employment and compensation, result- An unusually high degree of uncertainty surrounds
ing in a modest uptick in labor’s share after 2022. CBO’s latest economic projections. The agency’s projec-
tions of inflation are highly uncertain, both in the short
Wages and salaries as a share of GDP average 43.6 per- term—when the upward pressure on prices from supply
cent over the projection period. CBO projects that the shortages and strong demand for labor could be larger
share will fall early in the period, even though wages or smaller than expected—and in the longer term, when
and salaries grow by 8.3 percent in 2021 and 4.9 per- the path of expected inflation could be higher or lower
cent in 2022. In CBO’s projections, the share of those than expected. Uncertainty also surrounds the path of
incomes slips back to 43.3 percent of GDP in 2022. the pandemic and the recovery from the recent down-
Subsequently, the share of wages and salaries gradually turn, both domestically and internationally. The impact
rises back to 43.8 percent of GDP by 2028. of recent fiscal and monetary policies is highly uncertain,
as are the stability of financial markets and the path of
In CBO’s projections for the 2021–2031 period, labor the recovery in the labor market. The pace of potential
income as a share of GDP averages 58.1 percent. In output is a significant longer-term uncertainty, as is the
the aftermath of the recession, labor’s share initially impact of the pandemic on the key inputs to that poten-
falls to 57.6 percent but then rises over time to reach tial output growth.
46 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
CBO’s baseline projections incorporate the assumption The Pandemic and the Recovery
that current laws governing federal taxes and spending The severity and duration of the pandemic, both domes-
generally remain in place and that no significant addi- tically and abroad, are subject to significant uncertainty,
tional funding or aid is provided. Although new laws as are its effects on economic activity. In particular,
could be enacted that significantly alter federal taxes and great uncertainty remains about how quickly future
spending, that possibility does not add to the uncertainty outbreaks can be brought under control where immu-
surrounding the agency’s baseline projections, so this nity to the virus remains limited, as well as the extent to
discussion is restricted to uncertainty stemming from which those outbreaks will restrain economic activity.
other sources. Uncertainties remain about the extent of vaccination in
harder-to-reach communities and the extent to which
Inflation people will accept vaccination when it is accessible.
A high degree of uncertainty surrounds CBO’s inflation
projections in the short term. One source of uncer- Further uncertainty surrounds the pace at which con-
tainty is that businesses may face pandemic-related sumers and businesses will regain their financial stability
difficulties—such as acquiring supplies or hiring and return to longer-term spending trends. The pace of
workers—that make them less able to rapidly increase economic expansion could be faster or slower than CBO
production to meet the surging demand for goods or projects. On the one hand, buoyed by excess savings and
services, which could result in higher inflation than a desire to reengage in travel and other recreational activ-
CBO projects. Likewise, businesses, in response to ities that were heavily restricted earlier in the pandemic,
strong incentives, may soon overcome a variety of supply consumer spending might grow more rapidly than the
disruptions, which could result in lower inflation than agency expects. On the other hand, consumers may not
CBO projects. be as quick to return to their prepandemic spending
habits, or businesses may face more significant head-
Another source of inflationary pressures arises from his- winds to increasing their production than the agency
torically low levels of labor market slack in the agency’s expects. Considerable uncertainty also surrounds the
projections. CBO’s estimates of the inflationary pressure rates at which landlords will default on their mortgages,
caused by decreasing amounts of labor market slack or renters will file for bankruptcy protections, following
are informed by the correlation between that slack and the expiration of various rent or eviction moratoriums
inflation since the late 1990s. Those estimated effects and other types of loan forbearance.
are uncertain, however, and few periods over the past
50 years have had less labor market slack than the agency Policy Responses to the Pandemic
projects over the next few years, making historical com- CBO’s estimates of the economic effects of recently
parison more difficult. enacted legislation are subject to considerable uncer-
tainty. Some important sources of that uncertainty are
Finally, for the longer term, CBO’s inflation projections how consumers and businesses may respond to various
depend on inflation expectations, which are not very policy changes included in the legislation; how the
responsive to changes in actual inflation, in the agency’s timing, scale, and breadth of the legislation may affect
estimation. The agency expects that, for the most part, consumers’ and businesses’ confidence; how responses
consumers and businesses will view recent price increases to policy changes may be altered by the pandemic and
as transitory and as having little effect on future infla- social distancing; what the course of the pandemic
tion. However, if price increases become more wide- may be; how rapidly social distancing may be relaxed;
spread and prove longer lasting, then inflation expec- and what fraction of the population may ultimately be
tations could rise more materially, and inflation would vaccinated. CBO’s estimates of the economic effects of
be higher than CBO projects. Alternatively, if actual recently enacted legislation represent the middle of the
inflation turns out to be below expected inflation over range of potential outcomes.
the next several years, expected future inflation could
be lower. The path of monetary policy is uncertain as well. The
Federal Reserve recently adopted a flexible average infla-
tion target, indicating that it expects to allow inflation
to rise above 2 percent for some period of time following
CHAPTER 2: THE ECONOMIC OUTLOOK ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 47
periods when inflation falls below 2 percent.11 Because grown rapidly over the past year, and inventories have
the policy is new, it is uncertain how it will be imple- decreased over that period, leading to a large increase in
mented in practice, which contributes to uncertainty home prices. A sudden drop in asset values or an abrupt
about the path of short-term interest rates. Uncertainty rise in mortgage interest rates could cause spending on
also surrounds the Federal Reserve’s policy of purchasing housing to stall, despite the large fiscal stimulus.
Treasury and other securities. In early 2020, the Federal
Reserve began purchasing them in large quantities to The Labor Market
stabilize financial markets and reduce long-term interest The uncertainty surrounding the labor market’s recov-
rates. It has not yet indicated when it expects those pur- ery in the near term is particularly high, reflecting
chases to be discontinued, which contributes to uncer- uncertainty about the future course of the pandemic,
tainty about the path of longer-term interest rates. the pace of economic recovery and expansion, and the
state of various government policies supporting house-
Uncertainty about monetary policy contributes to holds, workers, and businesses. If, for example, labor
uncertainty about interest rates. Other factors contribute force participation rates rise less or consumer demand
to that uncertainty as well, including uncertainty about increases less than CBO currently expects, then the labor
the pandemic and the near-term pace of growth in the market’s overall recovery will be slower than in CBO’s
U.S. and global economies. Factors such as increased current projections. However, if the economy returns to
foreign and domestic saving, slower total factor produc- prepandemic patterns and interactions faster than CBO
tivity growth, and lower labor force participation have currently projects, then the labor force participation rate
contributed to the downward trend in interest rates and labor markets overall could rebound more strongly
over the past several decades. Much uncertainty remains than projected.
about the extent to which those factors will continue
to weigh on interest rates over the next several years. In Moreover, the rapid adaptation to remote work by
addition, the extent and timing of upward pressure on existing businesses and households may be creating many
interest rates stemming from increased federal borrowing opportunities for new businesses, creating new jobs, and
is highly uncertain. spurring sectoral and geographic reallocations that can
help improve both productivity and social and economic
The Financial Sector and Asset Prices welfare. If, for example, business formation and job
Two additional sources of uncertainty about the forecast creation in evolving and more quickly expanding parts
are the financial sector and asset prices. After the Federal of the economy are greater than CBO currently expects,
Reserve’s intervention in markets in 2020 because of then labor market recovery could be faster and stronger
COVID-19, the disease caused by the coronavirus, finan- than in CBO’s current projections. At the same time,
cial conditions have been stable in the first half of 2021, uncertainty exists about how such dynamic forces and
and the banking system is well capitalized. Nevertheless, relationships could result in the destruction of existing
the potential for a sharp decline in asset prices represents businesses and business models, as well as about the neg-
a significant downward risk to the forecast. ative consequences for output and labor markets.
Because of low inflation and low risk-free interest rates, Furthermore, the severity and the duration of economic
investors have had a heightened demand for any asset weakness over the past year may influence the extent
that might produce higher returns, including equity, to which various types of workers experience negative
corporate bonds, leveraged financial products, and long-term labor market outcomes—including reduced
volatile cryptocurrencies. That demand has led to high future employment rates and earnings. Workers who are
equity valuations, relative to GDP, and an increase in particularly vulnerable to negative labor market out-
corporate debt in both investment grade and speculative comes, which could last a decade or more, include those
grade categories. Those developments could lead to a who experience long spells of unemployment, young
sharp decrease in asset prices if investors’ appetite for risk people who enter the labor market in a weak economy,
quickly changes. Moreover, spending on housing has and women, who have disproportionally dropped out
of the labor force to provide child care and other care
11. See Board of Governors of the Federal Reserve System, at home during the pandemic. Students whose school-
2020 Statement on Longer-Run Goals and Monetary Policy Strategy ing has been disrupted during the pandemic could face
(August 2020), https://go.usa.gov/x6BKv.
48 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
long-term negative consequences, and the potential harm in 2021 and between −1.0 percent and 3.5 percent in
is skewed toward those who have already been most dis- 2025 (see Figure 2-6). Those ranges are based on his-
advantaged. For many students graduating from school torical differences between CBO’s past forecasts and
during the pandemic, the recession and social distancing actual outcomes and on the agency’s assessment that the
made it much more difficult to gain work experience distribution of future differences is likely to be similar to
that would benefit them in the future. Finally, long- that of past differences. Some of those historical differ-
term health risks—including potential long-term effects ences are associated with turning points in the business
of COVID-19 infections, exacerbation of the opioid cycle, which are difficult to anticipate.12 In addition,
crisis by the pandemic, and the toll on people’s mental CBO expects that there is a two-thirds chance that the
health—could influence the prospects of many workers average annual rate of real GDP growth will be between
as well as the strength of the overall labor market. 1.8 percent and 4.4 percent over the next five years.
That range is smaller than the ranges for the year-by-year
Long-Term Growth rates of growth because the forecast error for the average
CBO’s longer-run projections reflect the additional annual rate of growth over five years is approximately the
uncertainty in underlying trends of key variables, such as average of the year-by-year forecast errors over a five-year
the size of the potential labor force, the average number period, and some of those errors are offsetting.
of labor hours per worker, capital investment, and pro-
ductivity. Particularly uncertain for CBO’s analysis are CBO’s past forecasts of inflation (as measured by the
the long-run effects of the pandemic on growth of poten- CPI-U) suggest that there is roughly a two-thirds chance
tial total factor productivity in nonfarm businesses. The that inflation will be between 2.3 percent and 4.3 per-
pandemic sped the adoption of new technologies, such cent in 2021 and between 0.3 percent and 4.5 percent
as teleconferencing and telemedicine, but the effects of in 2025. In addition, CBO expects that there is a two-
more rapid adoption on productivity remain unknown. thirds chance that the average annual rate of inflation
Innovations associated with working from home could will be between 1.1 percent and 4.0 percent over the
lead to substantial reductions in costs and improvements next five years.
in productivity. Conversely, disruptions to the education
system could have lasting effects on the future productiv- Comparison With CBO’s
ity of workers. Long-term growth could also be influ- February 2021 Economic Projections
enced by the disparate effects the pandemic has had on CBO’s current projections can be usefully compared with
different industries and groups of people. Persistent and its most recent projections, from February 2021 (see
substantial positive or negative effects of the pandemic Table 2-4). The comparison illuminates aspects of the
on productivity could influence underlying trends in current projections and highlights the kinds of uncer-
ways that are as yet unmeasured. tainty that affect all such projections.
A further source of long-term uncertainty is the global Actual Output, Potential Output, and Income
economy’s longer-term response to the substantial The agency’s projection of real GDP growth for 2021
increases in public deficits and debt that are occurring is much stronger than it was last winter. That revision
as governments spend significant amounts to attempt to results largely from three developments. First, significant
mitigate the impact of the pandemic and the economic additional fiscal aid has been enacted since the publica-
downturn. Broad increases in debt linkages among tion of the February 2021 forecast. Second, the effects
countries (including their national governments, finan- of social distancing on economic activity in 2021 are
cial institutions, and other entities) can raise the risk that projected to be somewhat weaker than CBO expected
financial stress in any one country will affect the financial last winter, as immunity to the virus has become more
stability of other countries. widespread by mid-2021 than CBO had expected.
Third, CBO raised its estimate of spending out of the
Quantifying the Uncertainty in additional savings that households accumulated during
CBO’s Projections the pandemic.
CBO estimates that there is approximately a two-thirds
chance that the rate of real GDP growth (on a calendar 12. See Congressional Budget Office, CBO’s Economic Forecasting
year basis) will be between 5.3 percent and 8.1 percent Record: 2019 Update (October 2019), www.cbo.gov/
publication/55505.
CHAPTER 2: THE ECONOMIC OUTLOOK ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 49
Figure 2-6 .
Uncertainty in CBO’s Projections of Real GDP Growth and Inflation
Percent
Growth Rate of Real GDP CBO estimates that—if
10 Projected the errors in the agency’s
current economic forecast
Range of Likely Outcomes are similar to those in its
previous forecasts—there
5 is approximately a two-
thirds chance that the
annual rate of real GDP
growth will be between
0 5.3 percent and 8.1 percent
in 2021. The agency
estimates that range to be
between −1.0 percent and
3.5 percent in 2025.
−5
2018 2019 2020 2021 2022 2023 2024 2025
Inflation of Consumer Prices
6
Also, there is approximately
a two-thirds chance that the
annual growth in consumer
4 prices will be between
2.3 percent and 4.3 percent
in 2021. CBO estimates
that range to be between
2 0.3 percent and 4.5 percent
in 2025.
0
2018 2019 2020 2021 2022 2023 2024 2025
Data sources: Congressional Budget Office; Bureau of Economic Analysis; Federal Reserve. See www.cbo.gov/publication/57263#data.
Real values are nominal values that have been adjusted to remove the effects of changes in prices.
The shaded areas around CBO’s baseline projections of real GDP growth and consumer price inflation illustrate the uncertainty of those projections. The area is
based on the root mean square of the forecast errors in CBO’s one-, two-, three-, four-, and five-year projections of the average annual growth rates of real GDP
and consumer prices for calendar years 1976 through 2020.
Inflation of consumer prices is measured by the consumer price index for all urban consumers.
GDP = gross domestic product.
50 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
Table 2-4 .
CBO’s Current and Previous Economic Projections for Calendar Years 2021 to 2031
Annual Average
Total,
2021 2022 2023 2021–2025 2026–2031 2021–2031
Percentage Change From Fourth Quarter to Fourth Quarter
Real GDPa
July 2021 7.4 3.1 1.1 2.8 1.6 2.1
February 2021 3.7 2.4 2.3 2.6 1.6 2.1
Nominal GDP
July 2021 10.7 5.3 3.3 5.2 3.7 4.4
February 2021 5.6 4.5 4.3 4.6 3.8 4.2
PCE Price Index
July 2021 2.8 2.0 2.1 2.2 2.1 2.1
February 2021 1.7 1.9 1.9 1.9 2.1 2.0
Core PCE Price Index b
July 2021 2.4 2.0 2.2 2.2 2.1 2.1
February 2021 1.5 1.9 1.9 1.9 2.1 2.0
Consumer Price Indexc
July 2021 3.4 2.3 2.3 2.6 2.4 2.5
February 2021 1.9 2.2 2.3 2.2 2.4 2.3
Core Consumer Price Indexb
July 2021 2.7 2.4 2.5 2.5 2.4 2.5
February 2021 1.5 2.2 2.3 2.2 2.4 2.3
GDP Price Index
July 2021 3.0 2.1 2.2 2.3 2.1 2.2
February 2021 1.9 2.0 2.0 2.0 2.1 2.1
Employment Cost Indexd
July 2021 3.7 3.3 3.6 3.5 3.1 3.3
February 2021 2.3 2.8 3.0 2.9 3.3 3.1
Real Potential GDPa
July 2021 2.0 2.1 2.0 2.0 1.7 1.8
February 2021 1.9 1.9 1.9 1.9 1.7 1.8
Continued
Beyond 2021, the agency now expects the growth in of real consumer spending from 2021 through 2025
real GDP in 2022 to be stronger than it did last winter, is 0.2 percentage points higher. That upward revision
weaker through 2026, and similar thereafter. As a conse- is partly due to a significantly stronger projection of
quence, actual real GDP is projected to be substantially household income. Increased household support from
greater for much of the first half of the projection period the American Rescue Plan Act of 2021 contributes
than the agency expected in February and to remain significantly to the income gains starting in March, and
greater throughout the entire period. The main source of real compensation of employees also grows faster than
more rapid growth is investment spending: The projec- previously projected. Another part of the upward revi-
tion of real fixed investment in 2022 and 2023 is more sion to real consumer spending stems from a more rapid
than 4 percent larger than it was in February. The gains decline in social distancing, as consumers resumed eco-
are strongest for business investment, but residential nomic activities more quickly than CBO had expected
investment during 2022 is up more than 3 percent from in February. In addition, CBO raised its estimate of
the February projection as well. spending out of the additional savings that households
accumulated during the pandemic, recognizing that
The projected level of real consumer spending is more a significant share of that increased household saving
than 3 percent higher in 2021 through 2023 than in flowed into liquid assets.
CBO’s February projection, and the average growth rate
CHAPTER 2: THE ECONOMIC OUTLOOK ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 51
Table 2-4. Continued
CBO’s Current and Previous Economic Projections for Calendar Years 2021 to 2031
Annual Average
Total,
2021 2022 2023 2021–2025 2026–2031 2021–2031
Annual Average
Unemployment Rate (Percent)
July 2021 5.5 3.8 3.7 4.2 4.4 4.3
February 2021 5.7 5.0 4.7 4.8 4.1 4.4
Interest Rates (Percent)
Three-month Treasury bills
July 2021 * 0.1 0.2 0.3 1.9 1.2
February 2021 0.1 0.1 0.2 0.3 1.7 1.1
Ten-year Treasury notes
July 2021 1.6 1.9 2.0 2.1 3.2 2.7
February 2021 1.1 1.3 1.5 1.6 3.0 2.4
Tax Bases (Percentage of GDP)
Wages and salaries
July 2021 43.7 43.3 43.4 43.5 43.7 43.6
February 2021 44.0 43.9 43.9 43.9 43.6 43.8
Domestic corporate profits e
July 2021 9.9 9.8 9.1 9.2 7.8 8.4
February 2021 7.9 7.5 7.7 7.9 8.0 7.9
Data sources: Congressional Budget Office; Bureau of Labor Statistics; Federal Reserve. See www.cbo.gov/publication/57263#data.
GDP = gross domestic product; PCE = personal consumption expenditures; * = between zero and 0.05 percentage points.
a. Real values are nominal values that have been adjusted to remove the effects of changes in prices.
b. Excludes prices for food and energy.
c. The consumer price index for all urban consumers.
d. The employment cost index for wages and salaries of workers in private industry.
e. Adjusted to remove distortions in depreciation allowances caused by tax rules and to exclude the effects of changes in prices on the value of inventories.
In terms of underlying trends that contribute to growth rates anticipated in February over the next several years.
of potential output, by far the most important revisions Nominal GDP is about 2.3 percent higher, and net
to CBO’s projections since February are revisions to national income is about 1.5 percent higher, at the end
business investment and, to a lesser extent, residential of the period than CBO projected last winter.
investment. Stronger-than-expected investment of both
types leads to larger service flows from a larger stock The Labor Market
of capital, raising potential output compared with CBO’s current projections for the labor market are
the February projection. In addition, the agency has stronger in the near term than the projections released in
increased its projections of productivity growth in the February, but they are not as strong for the second half
nonprofit and government sectors of the economy, in of the projection period. Specifically, over the 2021–
part reflecting recent historical trends. As a consequence 2025 period, the unemployment rate is projected to aver-
of those revisions, real potential GDP remains about age 4.2 percent, about 0.6 percentage points lower than
1 percent larger than previously projected from 2024 the 4.8 percent average projected in February. Over the
through the end of the projection period. 2026–2031 period, the average unemployment rate—
4.4 percent—is about 0.3 percentage points higher than
In nominal terms, the agency’s projections of output and previously projected, because economic growth returns
income are higher throughout the projection period, sooner to its long-run average relationship relative to its
partly because projected price inflation is above the potential in the current projection than in February.
52 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
Inflation and Interest Rates the bottom of the middle two-thirds. The agency’s pro-
Inflation is projected to be higher in the 2021– jections of the interest rates on 3-month Treasury bills
2025 period than it was in February. That near-term and 10-year Treasury notes are within the middle two-
revision results from a variety of factors, including thirds of the range of Blue Chip forecasts for 2021. For
those that heavily influenced the agency’s revisions to 2022, CBO’s projection for the 3-month Treasury bill is
real GDP. approximately at the lower end of the middle two-thirds,
and the agency’s projection for the 10-year Treasury note
CBO now expects both short- and long-term interest is lower than the consensus and near the bottom of the
rates over the coming decade to be slightly higher, on middle two-thirds.
average, than in its previous forecast. The upward revi-
sion in rates over the 2021–2025 period partly reflects CBO’s projections of real GDP growth are slightly above
the upward revision to inflation and a faster recovery the central tendency in 2021 and are within the central
from the pandemic-induced recession. In addition, the tendency in 2022 in the Federal Reserve’s most recent
agency now expects the Federal Reserve to begin raising Summary of Economic Projections (see Figure 2-8).14 For
rates in the second half of 2023—one year earlier than 2023, however, they are below the Federal Reserve’s
previously projected. full range; for the longer run, they are just inside the
lower end of the full range. The agency’s projections of
CBO raised its forecasts of both short- and long-term the unemployment rate are within the Federal Reserve’s
interest rates, on average, over the later years of the central tendency in 2021 and 2022, near the top of the
projection period as well. The earlier date for the start central tendency in 2023, and near the top of the full
of rate hikes means that short-term rates are projected range over the longer term.
to be higher, on average, over the 2026–2031 period
than the agency expected in February. It also means that CBO’s projections of inflation, as measured by the
long-term rates, which partly reflect the expected path of growth rates of the PCE price index and the core PCE
short-term rates, will be higher, on average. price index (which excludes changes in food and energy
prices), are all within the Federal Reserve’s central ten-
Comparison With Other dency, with the exception of the projections in 2021,
Economic Projections which are below the full range. (The Federal Reserve’s
For the most part, CBO’s projections of the econ- survey does not collect projections of core PCE inflation
omy for 2021 and 2022 are comparable to those of for the longer term.) For the federal funds rate, CBO’s
the consensus (that is, the average) of the forecasts of projections are consistent with the Federal Reserve’s
about 50 private-sector economists that were published median forecast in 2021 and 2022, within the central
in the July 2021 Blue Chip Economic Indicators (see tendency in 2023, and within the full range in the
Figure 2-7).13 CBO’s projection of real GDP growth for longer term.
2021 is close to the consensus and is within the middle
two-thirds of the range of Blue Chip forecasts. CBO’s 14. See Board of Governors of the Federal Reserve System,
projection of real GDP growth for 2022 is more favor- “Economic Projections of Federal Reserve Board Members
and Federal Reserve Bank Presidents, Under Their Individual
able than the Blue Chip consensus and is near the top of
Assumptions of Projected Appropriate Monetary Policy,
the middle two-thirds of the range. The agency’s projec- June 2021” (June 16, 2021), Table 1, https://go.usa.gov/x6mA2
tions of the unemployment rate for 2021 and 2022 are (PDF, 1.4 MB). The range of Federal Reserve forecasts is based
more favorable than the Blue Chip consensus and are on the highest and lowest projections made by the members of
near or below the middle two-thirds. For inflation both the Board of Governors of the Federal Reserve System and the
in GDP prices and in consumer prices (as measured by presidents of the Federal Reserve Banks; the central tendency is
the range formed by removing the three highest and three lowest
the CPI-U), CBO’s projections are lower than the Blue Federal Reserve forecasts. The median is the middle projection
Chip consensus for 2021 and 2022 and are near or below (or, if the number of projections is even, the average of the two
middle projections) when the projections are arranged from
highest to lowest. For comparison with the Federal Reserve’s
13. See Wolters Kluwer, Blue Chip Economic Indicators, vol. 46, longer-term projections, CBO uses its projections for the last
no. 7 (July 12, 2021). quarter of the projection period.
CHAPTER 2: THE ECONOMIC OUTLOOK ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 53
Figure 2-7 .
Comparing CBO’s Forecasts With Those of the Blue Chip Forecasters
Percent
Growth of Real GDP Unemployment Rate
8 8
Blue Chip,
6 6 Full Range
4 4 CBO
Blue Chip,
2 2 Middle Two-Thirds
0 0
2021 2022 2021 2022
Consumer Price Inflation GDP Price Inflation
6 5
4
4
3
2
2
1
0 0
2021 2022 2021 2022
Interest Rate on 3-Month Treasury Bills Interest Rate on 10-Year Treasury Notes
3 4
3
2
2
1
1
0 0
2021 2022 2021 2022
Data sources: Congressional Budget Office; Wolters Kluwer, Blue Chip Economic Indicators, vol. 46, no. 7 (July 12, 2021). See www.cbo.gov/
publication/57263#data.
The full range of forecasts from the Blue Chip survey is based on the highest and lowest of the roughly 50 forecasts. The middle two-thirds of that range omits
the top one-sixth and the bottom one-sixth of the forecasts.
Real values are nominal values that have been adjusted to remove the effects of changes in prices. Consumer price inflation is based on the consumer price
index for all urban consumers. Real GDP growth and inflation rates are measured from the average of one calendar year to the next.
The unemployment rate is the number of people not working who are available for work and are either seeking work or expecting to be recalled from a
temporary layoff, expressed as a percentage of the labor force. The unemployment rate and interest rates are calendar year averages.
GDP = gross domestic product.
54 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
Figure 2-8 .
Comparing CBO’s Forecasts With Those of the Federal Reserve
Percent
Growth of Real GDP Unemployment Rate
8 8
6 Federal Reserve, 6
Full Range
4 Federal Reserve, 4
Central Tendency
2 CBO 2
0 0
2021 2022 2023 Longer Term 2021 2022 2023 Longer Term
PCE Price Inflation Federal Funds Rate
4 4
3 3
a
2 2
1 1
0 0
2021 2022 2023 Longer Term 2021 2022 2023 Longer Term
Data sources: Congressional Budget Office; Board of Governors of the Federal Reserve System, “Economic Projections of Federal Reserve Board Members and
Federal Reserve Bank Presidents, Under Their Individual Assumptions of Projected Appropriate Monetary Policy, June 2021” (June 16, 2021), Table 1,
https://go.usa.gov/x6mA2. See www.cbo.gov/publication/57263#data.
The full range of forecasts from the Federal Reserve is based on the highest and lowest of the 18 projections by the Board of Governors and the presidents
of the Federal Reserve Banks. (One Federal Reserve official did not submit longer-run projections for the change in real GDP, the unemployment rate, or the
federal funds rate.) The central tendency is, roughly speaking, the middle two-thirds of the full range, formed by removing the three highest and three lowest
projections.
The federal funds rate is the interest rate that financial institutions charge each other for overnight loans of their monetary reserves.
Each of the data points for the federal funds rate represents a forecast made by one of the members of the Federal Reserve Board or one of the presidents of
the Federal Reserve Banks in June 2021. The Federal Reserve officials’ forecasts of the federal funds rate are for the rate at the end of the year, whereas CBO’s
forecasts are fourth-quarter values.
For CBO, longer-term projections are values for the last quarter of 2031. For the Federal Reserve, longer-term projections are described as the value at which
each variable would settle under appropriate monetary policy and in the absence of future shocks to the economy.
Real values are nominal values that have been adjusted to remove the effects of changes in prices.
The unemployment rate is the number of people not working who are available for work and are either seeking work or expecting to be recalled from a
temporary layoff, expressed as a percentage of the labor force.
Real GDP growth and inflation rates are measured from the fourth quarter of one calendar year to the fourth quarter of the next.
The unemployment rate is a fourth-quarter value.
GDP = gross domestic product; PCE = personal consumption expenditures.
a. The ends of the full range and central tendency are equal.
CHAPTER 2: THE ECONOMIC OUTLOOK ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 55
Part of the variation between CBO’s projections and A key difference between CBO’s economic projections
those of other forecasters is attributable to differences and those made by Federal Reserve officials is that CBO
in the economic data available when the forecasts were attempts to construct its projections so that they fall
completed and to differences in the economic and in the middle of a range of possible outcomes under
statistical models used to prepare them. In addition, current law. By contrast, the Federal Reserve reports
other forecasts may reflect an expectation that additional a different concept: Each Federal Reserve official pro-
legislation will be enacted, whereas CBO’s projections vides a modal forecast—a forecast of the most likely
incorporate the assumption that current laws generally outcome—reflecting his or her individual assessment of
remain unchanged and that no significant additional appropriate monetary policy, and the Federal Reserve
funding or aid is provided. reports ranges of those modal values. As with other
forecasters, officials may assume additional legislation in
their individual forecasts.
Appendix A: Changes in CBO’s Baseline
Projections Since February 2021
Overview factors underlying CBO’s original cost estimates for
The Congressional Budget Office estimates that if legislation enacted since February 2021. For certain
no new legislation affecting spending and revenues is policies, including the expansion of unemployment
enacted, the budget deficit for fiscal year 2021 will total compensation, the agency was able to update its
$3.0 trillion. That amount is $0.7 trillion (or 33 percent) assessment of the effects of that legislation and
more than the $2.3 trillion deficit the agency estimated incorporate the results in the baseline projections
in February 2021, when it last updated its baseline presented here.3
budget projections. The difference in CBO’s projections
is mostly attributable to the enactment of new legislation
• Economic changes arise from revisions the agency has
made to its economic forecast (including those made
(see Figure A-1).1
to incorporate the macroeconomic effects of recently
enacted legislation).4
CBO also now projects that if current laws generally
remained in place, the cumulative deficit for the • Technical changes are revisions to projections that are
2022–2031 period would be $12.1 trillion. That amount neither legislative nor economic.
is $0.2 trillion (or 1 percent) less than the $12.3 trillion
the agency projected in February. The $0.7 trillion increase in the estimated deficit for
2021 is largely the result of a $1.1 trillion increase stem-
When CBO updates its baseline budget projections, it ming from legislative changes that are attributable pri-
groups those revisions into three categories—legislative, marily to the American Rescue Plan Act of 2021 (ARPA,
economic, and technical. The categories are defined Public Law 117-2). That increase is partly offset by a
as follows: decrease of $0.4 trillion in combined economic and tech-
nical changes (see Table A-1 on page 60).
• Legislative changes result from laws enacted since
the agency published its previous baseline projections
Legislative changes also boosted projected deficits
and generally reflect the budgetary effects reported
over the 2022–2031 period, as did economic changes.
in CBO’s cost estimates at the time the legislation
was enacted.2 However, the evolution of the
3. CBO does not routinely update cost estimates for enacted
2020–2021 coronavirus pandemic and policymakers’ legislation when economic and technical factors change after
responses to it have continued to affect many of the enactment. Doing so is often difficult, particularly when
the budgetary effects of that legislation cannot be separately
identified. However, in preparing its baseline projections for this
1. See Congressional Budget Office, Additional Information About report, CBO had enough new information to update its estimates
the Budget Outlook: 2021 to 2031 (March 2021), www.cbo.gov/ for some components of legislation enacted since February.
publication/56996. For those components, CBO has incorporated updates to the
originally estimated costs.
2. The baseline projections described in this report incorporate
the effects of legislation enacted through May 18, 2021. The 4. The current budget projections are based on CBO’s latest
most recent law with significant budgetary effects reflected in economic forecast, which was completed on May 18, 2021,
this analysis was enacted on April 14, 2021 (Public Law 117-7). and reflects the agency’s estimates of the effects on the economy
The main purpose of that law is to continue—through of legislation enacted before that date. The economic changes
December 31, 2021—to temporarily exempt Medicare from discussed in this report reflect differences between that forecast
mandatory spending reductions that would otherwise occur. and CBO’s February 2021 forecast.
58 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
Figure A-1 .
Changes in CBO’s Baseline Projections of the Deficit Since February 2021
Trillions of Dollars
2021
2021 Deficit in CBO’s
2.3
February 2021 Baseline
2021 Deficit in CBO’s
3.0 2.3
July 2021 Baseline
For 2021, the projected
1.1 3.0 deficit is $0.7 trillion
more than it was in the
February 2021 baseline,
−0.2 Legislative Changes 1.1
primarily because of the
effects of the American
−0.2 Economic Changes −0.2
Rescue Plan Act of 2021.
Technical Changes −0.2
2022 to 2031
2022–2031 Deficit in CBO’s
February 2021 Baseline 12.3
2022–2031 Deficit in CBO’s
12.1
July 2021 Baseline
For the 2022–2031
−1.4 period, the projected
deficit is $0.2 trillion
Net Increases in Revenues Stemming −1.4
−0.9 From Revised Economic Projections less than it was in the
February 2021 baseline.
Net Increases in Revenues Stemming −0.9 Revenue increases—which
−0.2 From Technical Revisions
decrease deficits—are
Other Economic and Technical Changes −0.2 nearly offset by increases
1.0 in deficits that stem
from legislation, higher
Legislative Changes 1.0
0.8 net interest costs, and
increases in other types of
Increases in Net Interest Outlays Resulting From 0.8
0.6 Higher Interest Rates and Higher Inflation spending.
Increases in Outlays for Social Security, Medicare, and
Discretionary Programs for Economic Reasons 0.6
Data source: Congressional Budget Office. See www.cbo.gov/publication/57263#data.
APPENDIX A: CHANGES IN CBO’S BASELINE PROJECTIONS SINCE FEBRUARY 2021 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 59
However, those differences are more than offset by tech- resulted from provisions of ARPA. Other legislation
nical changes, resulting in a $0.2 trillion decrease in the enacted since January had a minor effect on CBO’s
agency’s projected cumulative deficit. projections.
• Legislative changes increased projected deficits by Changes in Outlays
$1.0 trillion, primarily because of increases in outlays
ARPA’s major provisions continued or expanded many
resulting from provisions of ARPA.
of the programs that were originally enacted in 2020 in
• The net effect of economic changes increased deficits response to the coronavirus pandemic. Those programs
by $0.1 trillion. Most significantly, the agency revised include recovery rebates for individuals, funding for state
its projections of outlays upward by $1.5 trillion and local governments to help offset eligible expenses
largely because it raised its forecasts of interest rates stemming from the pandemic, funding for educational
and inflation. That increase more than offset the institutions, the expansion of unemployment compen-
projected decrease in deficits resulting from the sation, an expansion of the child tax credit, funding for
higher revenues associated with higher projections of the Department of Health and Human Services (HHS)
gross domestic product (GDP). to address COVID-19 (the disease caused by the coro-
navirus), disaster relief, housing assistance, additional
• Technical changes in the agency’s projections of assistance to states for Medicaid, and other programs.
revenues and outlays decreased projected deficits over
the period by a total of $1.2 trillion, on net. The
Mandatory Outlays. CBO projects that outlays associ-
largest technical revision in a single budget category
ated with recently enacted legislation will total $1.0 tril-
was an increase of $0.8 trillion in CBO’s projections
lion in 2021, $0.4 trillion in 2022, and $0.3 trillion over
of individual income tax revenues.
the 2023–2031 period. All of that added spending is for
mandatory programs.5 Those legislative changes reflect
As a result of those changes, primary deficits—that is,
both the original cost estimates produced by CBO and
deficits excluding net outlays for interest—are now pro-
the staff of the Joint Committee on Taxation (JCT) and
jected to total $1.0 trillion less over the 2022–2031 period
CBO’s baseline updates of the effects of certain com-
than they were in CBO’s February 2021 baseline projec-
ponents of that legislation. The updates were made in
tions. That decrease in primary deficits is mostly offset by
response to recent information about the ways in which
an increase of $0.9 trillion in the agency’s projections of
the new laws have been implemented, actual outlays
interest costs over that period.
observed so far this year, and changes to the agency’s eco-
nomic forecast. Taken together, those updates reduced
In February, the agency projected that debt held by the
outlays by $71 billion in 2021 and increased outlays by
public would be $35.3 trillion at the end of 2031. CBO
$39 billion over the 2022–2031 period.6
now projects that such debt would reach $35.8 tril-
lion by the end of that year if current laws generally
Recovery Rebates for Individuals. For tax year 2021,
remained unchanged. That increase in projected debt is
lawmakers created a refundable tax credit of $1,400 per
mostly driven by the large rise in the 2021 deficit; over
person ($2,800 for joint filers), plus $1,400 for each
the 2022–2031 period, deficits are now projected to be
dependent. The credit phases out for taxpayers whose
slightly smaller than they were in February. Compared
adjusted gross income exceeds $75,000 ($150,000 for
with the size of the economy, debt is currently projected
joint filers; $112,000 for head-of-household filers). CBO
to reach 106 percent of GDP in 2031—a ratio that is
slightly smaller than the 107 percent that CBO projected
5. Mandatory spending consists of outlays for some federal benefit
in February—because GDP is now expected to be higher programs, such as Social Security, Medicare, and Medicaid,
than previously anticipated. and certain other payments to people, businesses, nonprofit
institutions, and state and local governments. It is governed by
Legislative Changes statutory criteria and is not normally controlled by the annual
To account for legislation enacted after January 12, 2021, appropriation process.
CBO increased its estimate of the deficit for 2021 by 6. Because of how the Treasury is recording the effects of certain
$1.1 trillion and increased projected deficits over the provisions of new laws, CBO has adjusted its estimates so that
2022–2031 period by $1.0 trillion (see Table A-1). some amounts shown in initial cost estimates as increases in
outlays are now designated as reductions in revenues. Those shifts
Those changes, which mostly affected outlays, primarily have no effect on projections of the deficit.
60 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
Table A-1 .
Changes in CBO’s Baseline Projections of the Deficit Since February 2021
Billions of Dollars
Total
2022– 2022–
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2026 2031
Deficit in CBO's February 2021 Baseline -2,258 -1,056 -963 -905 -1,037 -1,026 -1,048 -1,352 -1,346 -1,650 -1,883 -4,986 -12,266
Legislative Changes
Changes in Revenues
Individual income taxes -78 -56 -2 1 1 20 14 2 2 2 2 -35 -13
Corporate income taxes 1 2 2 3 3 3 4 5 4 4 4 12 33
Payroll taxes -3 * 1 1 1 1 1 1 1 1 1 3 8
Other 0 0 0 0 0 0 0 0 0 0 0 0 0
Total Change in Revenues -80 -54 1 4 5 24 19 7 7 7 7 -20 28
Changes in Outlays
Mandatory outlays
Amounts in cost estimates 1,104 481 115 63 37 18 8 3 * 2 -25 714 702
Updates in baseline -71 -41 49 8 3 3 4 4 4 5 -1 23 39
Subtotal, mandatory 1,033 440 164 72 40 21 12 7 4 6 -26 738 741
Net Interest
Effects of originally estimated amounts
on debt-service costs 2 7 9 13 19 24 29 34 40 45 49 71 268
Effects of updates in the baseline on
debt-service costs * * * * * -1 -1 -1 -1 -1 -1 -2 -6
Subtotal, net interest 2 6 9 12 18 24 28 34 39 44 48 69 262
Total Change in Outlays 1,035 446 173 84 58 45 40 41 43 50 22 807 1,003
Increase (-) in the Deficit From
Legislative Changes -1,115 -500 -172 -80 -54 -21 -21 -34 -36 -43 -15 -827 -976
Economic Changes
Changes in Revenues
Individual income taxes 103 108 110 99 73 52 51 57 62 66 69 442 747
Payroll taxes 25 47 49 31 18 17 28 39 46 51 54 161 378
Corporate income taxes 42 72 67 47 30 19 12 6 -1 -6 -7 235 238
Other 2 10 22 2 -3 4 3 3 7 14 16 35 78
Total Change in Revenues 173 237 248 179 118 91 94 104 114 125 132 873 1,442
Changes in Outlays
Mandatory outlays
Social Security 0 15 23 26 28 30 31 35 36 38 38 122 300
Medicare * 4 7 11 15 19 22 25 25 28 29 55 185
Medicaid 2 4 6 8 9 10 10 10 10 10 10 37 87
Veterans’ benefits and services -1 2 3 3 3 3 3 3 3 3 3 12 28
Unemployment compensation -13 -8 -7 -3 2 5 5 4 4 4 4 -12 8
Other -4 -2 1 2 4 6 6 6 5 4 4 11 35
Subtotal, mandatory -16 15 33 45 61 72 76 83 83 87 89 226 644
Discretionary outlays 0 4 9 14 17 18 18 17 16 16 16 62 145
Net interest
Effect of interest rates and inflation 23 16 29 53 83 98 98 99 101 99 90 278 765
Debt service * -1 -3 -4 -6 -6 -6 -5 -4 -3 -2 -21 -41
Subtotal, net interest 23 14 26 48 77 92 92 94 96 96 88 258 724
Total Change in Outlays 6 34 68 107 155 182 186 195 196 199 193 545 1,513
Continued
APPENDIX A: CHANGES IN CBO’S BASELINE PROJECTIONS SINCE FEBRUARY 2021 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 61
Table A-1. Continued
Changes in CBO’s Baseline Projections of the Deficit Since February 2021
Billions of Dollars
Total
2022– 2022–
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2026 2031
Increase (-) or Decrease in the
Deficit From Economic Changes 166 203 181 71 -37 -91 -91 -91 -81 -75 -61 328 -71
Technical Changes
Changes in Revenues
Individual income taxes 227 235 141 115 82 34 29 30 33 38 42 607 779
Corporate income taxes 31 -9 6 12 14 14 15 14 12 10 7 37 94
Payroll taxes -2 -7 2 11 12 7 1 -1 -1 -1 -1 25 23
Other -14 -6 -3 -3 -3 -4 -2 -1 -1 -1 -1 -19 -25
Total Change in Revenues 243 213 146 136 104 52 43 42 43 45 47 650 871
Changes in Outlays
Mandatory outlays
Medicare -12 -51 -13 -14 -10 -13 -12 -9 -22 -18 -21 -101 -184
Social Security -7 -11 -12 -12 -12 -11 -9 -8 -7 -5 -4 -58 -91
Premium tax credits and related
spending 9 8 -4 3 7 8 8 7 5 3 1 21 44
SNAP 3 6 1 2 4 4 4 4 4 4 4 16 37
SSI benefits * -2 -2 -2 -2 -3 -3 -4 -4 -5 -6 -10 -33
Veterans' benefits and services -7 1 2 2 3 3 3 3 2 2 2 9 21
Medicaid 16 9 4 1 -3 -5 -8 -6 -5 -4 -3 6 -20
Unemployment compensation 7 4 * -1 -1 -1 -1 -1 -1 -1 -4 * -6
Student loans 99 1 1 1 1 1 1 1 1 1 1 5 8
Other revisions to credit programs -51 0 0 0 0 0 0 0 0 0 0 0 0
Other -5 17 -4 4 8 3 2 1 1 * 6 28 39
Subtotal, mandatory 52 -19 -28 -18 -8 -15 -16 -13 -25 -25 -25 -88 -192
Discretionary outlays -16 30 8 -6 -12 -12 -11 -11 -11 -10 -5 7 -41
Net interest
Debt service * -2 -3 -5 -9 -12 -16 -19 -24 -29 -33 -30 -150
Other 4 5 3 4 3 2 2 3 3 2 7 17 34
Subtotal, net interest 3 3 1 -1 -6 -10 -14 -16 -21 -26 -26 -13 -116
Total Change in Outlays 39 14 -20 -26 -25 -36 -41 -39 -57 -62 -56 -94 -349
Decrease in the Deficit From
Technical Changes 204 199 166 161 130 88 84 81 100 107 104 744 1,220
All Changes
Increase (-) or Decrease in the Deficit -745 -98 174 153 39 -23 -28 -43 -17 -11 27 245 173
Deficit in CBO's July 2021 Baseline -3,003 -1,153 -789 -753 -998 -1,049 -1,077 -1,395 -1,363 -1,661 -1,855 -4,741 -12,093
Memorandum:
Changes in Revenues 336 396 395 318 227 167 156 154 165 177 186 1,503 2,340
Changes in Outlays 1,081 493 221 166 188 190 184 197 182 188 158 1,258 2,168
Increase (-) or Decrease in the Primary -717 -74 210 212 129 82 78 69 98 102 138 558 1,043
Deficit a
Increase in Net Interest -28 -23 -36 -59 -89 -105 -106 -112 -115 -114 -110 -313 -870
Data source: Congressional Budget Office. See www.cbo.gov/publication/57263#data.
SNAP = Supplemental Nutrition Assistance Program; SSI = Supplemental Security Income; * = between -$500 million and $500 million.
a. Primary deficits exclude net outlays for interest.
62 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
projects that those recovery rebates will increase outlays rate, resulting in fewer projected beneficiaries of the
by $394 billion in 2021 and by $8 billion in 2022. programs, which also reduced outlays.
Coronavirus State and Local Fiscal Recovery Funds. Child Tax Credit. Another provision of ARPA expanded
Lawmakers provided $362 billion in additional fund- the child tax credit for 2021. The expansion increased
ing to state, local, tribal, and territorial governments to the maximum tax credit from $2,000 to $3,000 ($3,600
help offset certain expenses stemming from the pan- for a child younger than 6) and made the credit fully
demic. CBO estimates that $284 billion will be spent in refundable. Additionally, it converted half of the credit
2021, $77 billion in 2022, and an additional $1 billion to a monthly advance payment instead of an annual
in 2023. payment that individuals typically receive when they
file their tax returns. CBO projects that expansion of
Education Stabilization Fund. Lawmakers appro- the child tax credit will increase outlays by $20 billion
priated an additional $166 billion for the Education this year, $68 billion in 2022, and $4 billion over the
Stabilization Fund to help educational institutions 2023–2031 period.
respond to the pandemic. That funding included
$123 billion for the Elementary and Secondary School HHS Funding for COVID-Related Activities. In ARPA,
Emergency Relief Fund and $40 billion for the Higher lawmakers appropriated funds to HHS to address
Education Emergency Relief Fund. CBO projects that COVID-19 through several activities, including
outlays from that funding will total $12 billion in 2021 COVID-19 testing, contact tracing, and mitigation. In
and $154 billion between 2022 and 2028. addition, funding was provided for increased vaccina-
tions and for the purchase, production, or distribution
Extension of Expanded Unemployment Compensation. of medical supplies and equipment related to combating
Legislation enacted in response to the coronavirus pan- the pandemic. CBO projects that the funding will result
demic significantly expanded unemployment compensa- in outlays of $26 billion in 2021 and $85 billion over
tion by increasing the amount of the benefits, enlarging the 2022–2030 period.
the pool of eligible workers, and extending the length
of time that beneficiaries can receive assistance.7 ARPA Disaster Relief. Lawmakers appropriated $50 billion for
extended that expansion until September 2021. CBO the Federal Emergency Management Agency’s Disaster
currently estimates that mandatory outlays for the expan- Relief Fund, which was allocated to reimburse state,
sion will total $144 billion in 2021, $8 billion in 2022, local, and tribal governments and nonprofit organiza-
and less than $1 billion over the 2023–2024 period. tions for certain expenses incurred while responding to
the coronavirus pandemic. CBO projects that funding
That estimate is $50 billion less in 2021, and $3 bil- will increase outlays by less than $1 billion in 2021 and
lion less in 2022, than anticipated in the agency’s by $42 billion over the 2022–2030 period. That projec-
March 2021 cost estimate.8 CBO reduced its projections tion reflects a shift in the timing of those outlays from
of those outlays for two major reasons. First, several amounts CBO originally estimated. Because spending
states have announced that they are discontinuing one from the Disaster Relief Fund has been much slower
or more of the components of expanded unemployment than expected, CBO now estimates that $11 billion
compensation before the expansion’s authorization ends less will be spent in 2021 than originally anticipated.
in September. In its original estimate, CBO projected Additionally, CBO now expects that a greater percentage
that all states would participate in the programs until of the funding will ultimately not be spent, resulting in
September. Second, because of the improving economy, $5 billion less in outlays over the 2021–2031 period.
the agency has lowered its forecast of the unemployment
Housing Assistance. Housing assistance for renters and
homeowners provided through a variety of programs is
7. See Congressional Budget Office, An Update to the Budget projected to increase outlays by $20 billion in 2021 and
Outlook: 2020 to 2030 (September 2020), www.cbo.gov/ by $22 billion from 2022 to 2026. Funding for those
publication/56517. programs includes the following: $22 billion for ben-
8. See Congressional Budget Office, Estimated Budgetary Effects of efits administered by the Emergency Rental Assistance
H.R. 1319, the American Rescue Plan Act of 2021 (March 10, Program, $10 billion for the Homeowner Assistance
2021), www.cbo.gov/publication/57056.
APPENDIX A: CHANGES IN CBO’S BASELINE PROJECTIONS SINCE FEBRUARY 2021 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 63
Fund, $5 billion for homeless assistance administered projection of total outlays for interest on federal debt
through the HOME Investment Partnerships Program, over the 2022–2031 period.
and $5 billion for tenant-based rental assistance.
Changes in Revenues
Medicaid Financial Assistance to States. ARPA Because of legislative changes, CBO reduced its revenue
extended additional assistance to states for Medicaid. The projections by $80 billion (or 2 percent) in 2021 but
most significant provisions among those changes was an increased them by $28 billion (or less than 1 percent)
enhanced Federal Medical Assistance Percentage (FMAP) from 2022 to 2031. All of those changes stemmed from
for states that expand the program under the Affordable provisions of ARPA.
Care Act in the future and a temporary increase in the
FMAP for Home and Community Based Services.9 In Individual Income Taxes. To account for legislation
addition, ARPA made COBRA subsidies available from enacted since January, the agency decreased its estimate
April to September 2021, which CBO projects will cause of individual income tax revenues by $78 billion in 2021
more people to keep employment-based coverage and and by $13 billion over the 2022–2031 period. The
fewer to enroll in Medicaid, thus reducing Medicaid largest reductions in 2021 occurred because of provisions
spending in 2021.10 CBO projects those changes will of ARPA that suspend taxes on a portion of unemploy-
reduce outlays by $6 billion in 2021 and increase them ment compensation and that provide health insurance
by $37 billion over the 2022–2031 period. premium assistance (COBRA benefits) for recently
separated employees. Those decreases are partially offset
Other Programs. Other programs funded through by increases after 2023, largely from a provision of ARPA
ARPA include aid to the restaurant industry, grants for that extends a limitation on the amount of business
transit infrastructure, and pandemic relief for aviation losses that can be used to offset nonbusiness income by
workers. CBO estimates that outlays for those and other individual taxpayers.
programs funded through ARPA will increase outlays
by $140 billion this year and by $234 billion over the Corporate Income Taxes. As a result of legislative
2022–2031 period. changes, CBO increased its estimate of corporate income
tax revenues by less than $1 billion in 2021 and by
Net Interest. The changes that CBO made to its projec- $33 billion from 2022 to 2031. Most of those changes
tions to reflect legislation enacted since January increased stem from provisions of ARPA that expand a limitation
the deficit for 2021 by $1.1 trillion and the cumula- on the deductibility of compensation of highly paid
tive deficit for the 2022–2031 period by $0.7 trillion. employees and that repeal a provision allowing U.S.
However, those changes did not take into account the multinational corporations to allocate interest expenses
increase in net interest outlays related to debt service. on a worldwide basis when determining their foreign tax
The additional federal borrowing stemming from the credits.
larger annual deficits added $262 billion to CBO’s
Economic Changes
The economic forecast that underlies CBO’s baseline
budget projections includes the agency’s projections
9. The FMAP is the share of Medicaid costs paid by the federal
of interest rates, wages and salaries, inflation, the
government and is based on a formula that provides higher
federal reimbursement to states with lower per capita incomes unemployment rate, and other factors (such as GDP
(and vice versa) relative to the national average. By law, states can growth) that affect federal spending and revenues (see
receive an FMAP rate of no less than 50 percent and no more Figure A-2). The revisions that CBO made to projec-
than 83 percent. tions of those economic factors decreased its estimate
10. Under current law, people who lose their job or experience of the deficit in 2021 by $166 billion, almost entirely
another qualifying event that results in a termination of their because of increased estimates of revenues (see Table A-1
employment-based health insurance are eligible to continue on page 60). However, for the 2022–2031 period,
receiving health insurance coverage through provisions of the economic changes led to an increase of $71 billion in
Consolidated Omnibus Budget Reconciliation Act (COBRA).
People who qualify for coverage through COBRA are often
the cumulative deficit, the net result of an increase in
required to pay premiums to maintain their employment- projected outlays of $1.5 trillion that is mostly offset by a
based health insurance. COBRA subsidies are intended to help $1.4 trillion increase in projected revenues.
individuals offset the cost of those premiums.
64 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
Figure A-2 .
Changes in CBO’s Economic Forecast Since February 2021
Interest Rate on 10−Year Treasury Notes Wages and Salaries
Percent Trillions of Dollars
4 16
July 2021 July 2021
Economic Forecast
3 12 February 2021
February 2021
Economic Forecast
2 8
1 Increases in projected interest 4 Stronger growth in wages and
rates led to higher net outlays salaries led to increases in revenues
for interest. from income and payroll taxes.
0 0
2021 2023 2025 2027 2029 2031 2021 2023 2025 2027 2029 2031
Consumer Price Inflationa Unemployment Rate
Percent Percent
3 8
July 2021
6
2
February 2021 July 2021
4
February 2021
Increases in the forecast for inflation
1
boosted projected discretionary CBO now projects a stronger economic recovery, which
outlays and spending on Social 2 led the agency to reduce its forecast of the unemploy-
Security and other benefit programs ment rate and projected spending on unemployment
that receive cost-of-living adjustments. compensation in the early years of the projection period.
0 0
2021 2023 2025 2027 2029 2031 2021 2023 2025 2027 2029 2031
Data source: Congressional Budget Office. See www.cbo.gov/publication/57263#data.
The data shown are for fiscal years.
a. As measured by the consumer price index for urban wage earners and clerical workers.
APPENDIX A: CHANGES IN CBO’S BASELINE PROJECTIONS SINCE FEBRUARY 2021 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 65
Changes in Outlays is affected by changes in the prices of labor, goods,
CBO’s revisions to its economic forecast increased its and services.11 CBO’s latest economic forecast includes
estimate of outlays for the current year by $6 billion upward revisions to the growth of wages and many
(or less than 1 percent). For 2021, net interest costs are prices, which push up projected payment rates for
$23 billion higher than previously projected, but those Medicaid and for many of the services provided by
costs are partly offset by lower estimates of outlays for Medicare’s fee-for-service sector (such as hospital care
unemployment compensation because the unemploy- and services provided by home health agencies and
ment rate is now projected to be lower this year than skilled nursing facilities).
CBO estimated in February. In later years, the stronger
economy leads to higher interest rates, inflation, and Veterans’ Benefits and Services. CBO increased its
wages, increasing outlays, on net, by $1.5 trillion (or projections of spending for veterans’ benefits and services
2 percent) over the 2022–2031 period. over the 2022–2031 period by $28 billion (or 2 per-
cent). That change is primarily attributable to a projected
Mandatory Outlays. On net, in CBO’s projections, eco- increase in outlays for disability compensation that
nomic changes decreased mandatory outlays for 2021 by resulted from higher projected COLAs.
$16 billion (or less than 1 percent). That decrease mostly
stems from reductions in estimated spending for unem- Unemployment Compensation. CBO decreased its
ployment compensation. For the 2022–2031 period, projection of spending for unemployment compensation
projections of mandatory outlays increased by $644 bil- by $13 billion (or 5 percent) for 2021 but increased it
lion (or 2 percent). Upward revisions to projected by $8 billion (or 2 percent) for the 2022–2031 period.
outlays for Social Security account for nearly half of Revisions to CBO’s economic forecast led the agency
that increase. to lower the projected unemployment rate for 2021
through 2024 by an average of 1 percentage point per
Social Security. Over the 2022–2031 period, pro- year, which reduced outlays for unemployment benefits.
jected outlays for Social Security increased by a total However, in the other direction, in the years after 2024,
of $300 billion (or 2 percent) for economic reasons. increased projections of wage growth (which increases
CBO now projects higher inflation and higher average the average weekly benefit amount) and the labor force
wages than it did in February. Social Security provides (which increases caseloads) more than offset, on net, the
annual cost-of-living adjustments (COLAs) based on decrease in spending that stems from lower projected
changes in the consumer price index for urban wage unemployment in the near term. (Revisions to the
earners and clerical workers (CPI-W). CBO increased its economic forecast also contributed to CBO’s lowering
projection of CPI-W growth and COLAs, so projected its cost of pandemic unemployment compensation that
Social Security benefits paid over the 2022–2031 period was extended by ARPA, as discussed in the section titled
increased by $244 billion. The COLA that will take “Legislative Changes.”)
effect in January 2022 is currently projected to be
3.8 percent—the largest since 2009 and an increase of Other Mandatory Programs. CBO updated its projec-
1.8 percentage points from the agency’s previous esti- tions of outlays for several other mandatory programs
mate. (Changes to projections of COLAs in the remain- to reflect changes in its economic forecast. Although
ing years of the period are smaller. For 2023, CBO those changes resulted in both upward and downward
increased its estimate of the COLA by 0.2 percentage adjustments to such spending, they increased projected
points. For 2024 through 2031, projections are within outlays, on net, for the 2022–2031 period by a total of
0.1 percentage point of the agency’s previous estimates.) $35 billion.
In addition, CBO increased its projections of average
wages, which boosted projected Social Security bene- 11. By law, many of Medicare’s payment rates are also adjusted to
fits for new recipients over the 2022–2031 period by account for gains in private nonfarm business productivity (the
$56 billion. ability to produce the same output using fewer inputs, such as
hours of labor) that occur over a 10-year period. See Centers for
Medicare & Medicaid Services, “Market Basket Research and
Medicaid and Medicare. CBO increased its projections
Information” (accessed July 6, 2021), https://go.usa.gov/xsB2D.
of outlays over the 2022–2031 period by $185 bil- Changes to CBO’s forecast for productivity increased projected
lion (or 2 percent) for Medicare and by $87 billion (or Medicare spending but had a smaller effect than the changes
1 percent) for Medicaid. Spending for those programs in prices.
66 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
Discretionary Outlays. CBO’s baseline projections 5 percent) in 2021 and by $1.4 trillion (or 3 percent)
generally reflect the assumption that funding for dis- from 2022 to 2031. Increases in projections of the size of
cretionary programs keeps pace with inflation.12 As a the economy—including wages and salaries, proprietors’
result of increases in the agency’s forecasts of certain income, and corporate profits—resulted in increases in
measures of inflation, projections of such funding over projected income and payroll taxes. In addition, eco-
the 2022–2031 period increased relative to amounts in nomic changes, primarily to interest rates, increased
the previous baseline, and discretionary outlays are now estimated remittances from the Federal Reserve, on net,
projected to be $145 billion (or 1 percent) greater.13 by $45 billion (or 4 percent) over the 2022–2031 period.
Net Interest. Economic changes caused CBO to boost Individual Income Taxes. CBO raised its projections
its estimate of net interest outlays by $23 billion (or of individual income tax revenues by $103 billion (or
7 percent) this year and by $724 billion (or 16 percent) 6 percent) in 2021 and by $747 billion (or 3 percent)
for the 2022–2031 period. The change this year is largely over the 2022–2031 period; the increase stemmed largely
a result of higher inflation. For the 2022–2031 period, from a 3 percent increase in projected wages and salaries
the change is largely the result of increased forecasts of over that period, owing to expectations of a stronger
inflation and interest rates on Treasury securities, which recovery in the labor market. CBO also increased its pro-
boosted CBO’s projections of net outlays for interest by jections of income from other sources, including interest,
$765 billion over that period. dividends, capital gains realizations, and distributions
from pensions and individual retirement accounts. Those
Partially offsetting that increase, the agency lowered its factors were partially offset by projections of modestly
projections of debt service costs by $41 billion over the higher inflation, which decreased receipts because many
2022–2031 period because of the economic revisions parameters of the tax system are indexed for inflation.
to outlays and revenues. Those revisions stemming
from CBO’s updated economic forecast decreased the Payroll Taxes. CBO’s estimate of payroll tax revenues
projected deficit by $166 billion this year and by an in 2021 increased by $25 billion (or 2 percent); for the
additional $455 billion over the following three years. 2022–2031 period, it rose by $378 billion (or 2 percent).
Although economic changes increased the projected That increase is largely the result of higher projections of
10-year deficit by $112 billion (before accounting for wages and salaries.
the change in debt-service costs), the smaller deficits
through 2024 result in lower estimated debt-service costs Corporate Income Taxes. CBO raised its estimate of
throughout the 10-year period. corporate income tax revenues by $42 billion (or 26 per-
cent) for 2021 and by $238 billion (or 7 percent) for the
Changes in Revenues 2022–2031 period, mostly because of higher forecasts of
Changes to CBO’s economic forecast led the agency domestic profits, which were revised upward by $1.9 tril-
to raise its projection of revenues by $173 billion (or lion over the 2022–2031 period.
12. Funding that is provided in annual appropriation acts (and the Federal Reserve Remittances. CBO increased its esti-
outlays that result) is generally categorized as discretionary. In mate of remittances from the Federal Reserve between
consultation with the House and Senate Committees on the 2022 and 2031 by $45 billion. That change is largely
Budget, CBO did not extrapolate into the future the $184 billion
in discretionary funding that was designated as an emergency
the result of higher medium- and long-term interest
requirement to address the pandemic. CBO also did not rates than CBO previously forecast, which increased the
extrapolate into future years $3 billion in funding provided for agency’s projection of the Federal Reserve’s income from
2021 in division N of the Consolidated Appropriations Act, its purchases of Treasury securities and mortgage-backed
2021 (P.L. 116-260). The agency classified that amount, which securities.
was also provided in response to the pandemic, as mandatory
funding in its cost estimate but reclassified it as discretionary
funding in its July 2021 baseline. Other Revenues. CBO increased its estimates of
estate and gift taxes, customs duties, and excise taxes
13. For its projections of discretionary funding related to federal over the 2022–2031 period by a total of $34 billion
personnel, CBO is required to use the employment cost index
for wages and salaries; for its projections of other types of
(or 2 percent) in response to higher projections of eco-
discretionary funding, the agency is required to use the GDP nomic growth, asset values, imports, and consumption of
price index. gasoline and other taxable fuels.
APPENDIX A: CHANGES IN CBO’S BASELINE PROJECTIONS SINCE FEBRUARY 2021 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 67
Technical Changes largest revision in 2021 was a decrease of $9 billion in
Technical changes—those changes that are neither estimated remittances from the Federal Reserve, reflect-
legislative nor economic—caused CBO to decrease its ing payments that have been lower than expected so far
estimate of the deficit for 2021 by $204 billion and to this year.
decrease projected deficits over the 2022–2031 period
by a total of $1.2 trillion (see Table A-1 on page 60). The small net change over the 2022–2031 period is the
Increases to projected income and payroll tax receipts result of offsetting changes to other sources. A decrease
account for most of those changes. of $63 billion (or 7 percent) in customs duties was
caused by administrative actions that removed tariffs
Changes in Revenues on airplanes, alcohol, and produce from the European
CBO increased its revenue projection for 2021 by Union.14 That decrease was partially offset by an increase
$243 billion (or 7 percent) and its projection for the of $28 billion (or 8 percent) in estate and gift taxes,
2022–2031 period by $871 billion (or 2 percent) for stemming from recently recorded collections, changes
technical reasons. Recent collections of taxes that were to mortality rates resulting from the pandemic, and
higher than expected account for most of that change. other factors. In addition, CBO increased its projection
of payroll taxes by $23 billion (or less than 1 percent),
Individual Income Taxes. CBO raised its estimate of largely to account for an updated method of projecting
individual income tax receipts in 2021 by $227 billion tax-preferred employee contributions for health insur-
(or 13 percent) and by $779 billion (or 3 percent) for ance, which reduce payroll taxes.
the 2022–2031 period. Much of that upward revision
stems from recent tax collections that have continued to Changes in Outlays
be stronger than expected given the agency’s current eco- Because of technical updates, CBO increased its pro-
nomic forecast and estimated effects of recently enacted jection of outlays for 2021 by $39 billion (a little less
legislation. Those higher-than-anticipated receipts may than 1 percent) and decreased them by $349 billion
reflect higher wages or other income, larger realizations (or about half a percent) over the 2022–2031 period.
of capital gains, or smaller-than-expected effects from Changes to mandatory programs account for about half
temporary tax provisions enacted in response to the of the overall technical changes to outlays that CBO
pandemic. Depending on the source, the effects of those made since publishing its February 2021 baseline budget
factors on receipts might be expected to persist perma- projections. Reductions in projections of net interest
nently, end abruptly, or even reverse. In CBO’s projec- costs account for most of the other half, and changes to
tions, that unexpected strength is expected to dissipate estimates of discretionary spending account for the rest.
over the next few years. CBO also increased its projec-
tions of taxable distributions from defined contribution Mandatory Outlays. For technical reasons, CBO
retirement accounts because of updated information increased its estimates of spending this year for some
about the amount of assets in those accounts, boosting programs and decreased spending estimates for others.
receipts throughout the next decade. On net, the technical changes increased mandatory
outlays for 2021 by $52 billion (or 1 percent). For the
Corporate Income Taxes. CBO increased its estimate of 2022–2031 period, projections of mandatory outlays
corporate income tax revenues by $31 billion (or 19 per- decreased by $192 billion (or half a percent).
cent) for 2021 and by $94 billion (or 3 percent) for the
2022–2031 period. Those revisions reflect the recent
strength in corporate receipts for 2020 and 2021, which
is expected to be temporary, and upward revisions to the 14. In October 2019, the United States imposed duties on certain
share of corporate profits that is expected to be taxable in agricultural goods, aircraft, and other products from Europe.
the longer term. In March 2021, those duties were temporarily suspended by
administrative action. CBO’s baseline projections incorporate the
assumption that in cases in which the Administration exercises its
Other Sources of Revenues. CBO decreased its pro- broad authority to impose tariffs without legislative action, the
jections of other revenues by $15 billion (or 1 percent) tariffs in effect when the agency completed its economic forecast
in 2021 and by $3 billion (or less than 1 percent) over would continue permanently without planned or unplanned
the 2022–2031 period because of technical changes. The changes. In June 2021, the temporary suspension was made
permanent by the Administration.
68 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
Medicare. CBO lowered its projections of outlays for Nutrition Assistance Program (SNAP) by $3 billion (or
Medicare by $12 billion this year and by $184 billion about 2 percent) in 2021 and by $37 billion (or 5 per-
over the 2022–2031 period, a decrease of about 2 per- cent) over the 2022–2031 period. Most of that increase
cent for both periods. That reduction mostly stems from results from several administrative actions that caused
less spending in the Medicare Advantage (MA) pro- CBO to remove the effects of certain SNAP eligibility
gram in 2021 than CBO had projected in the February and benefit rules from its baseline. Those rules, if made
baseline. That lower-than-expected spending led CBO final and implemented, would have decreased the num-
to lower projected outlays for Medicare by $249 billion ber of beneficiaries and the amount of their benefits on
over the 2022–2031 period. That decrease is offset in average.16 Removing the potential effects of those rules
part by a shift in the projected number of enrollees from boosted projected SNAP outlays by roughly $25 billion.
Medicare’s fee-for-service program to MA, increasing Additionally, the Administration established a minimum
costs to Medicare by $30 billion over the same period. emergency allotment for households that receive certain
CBO also reduced its projections of offsetting receipts benefits under the Families First Coronavirus Response
by about $43 billion to reflect slightly lower income Act. That new minimum boosted CBO’s projections
from Part B (Medical Insurance) premiums. (Offsetting of households’ SNAP benefits by $13.5 billion in 2021
receipts are considered negative outlays; thus, a decrease and 2022.
in offsetting receipts results in an increase in outlays.)
Other, smaller changes reduced outlays by $8 billion. Supplemental Security Income. CBO decreased
its projections of outlays for Supplemental Security
Social Security. Projected outlays for Social Security Income (SSI) by less than $1 billion (or 1 percent) this
decreased by $7 billion in 2021 and by $91 billion over year and by $33 billion (or nearly 5 percent) over the
the 2022–3031 period for technical reasons. Most of that 2022–2031 period for technical reasons. Most of that
reduction occurred because CBO lowered its projections reduction is the result of lower projections of the number
of Social Security caseloads on the basis of actual case- of new beneficiaries. In the near term, CBO reduced
loads so far this year. Those caseloads have been slightly the expected number of new beneficiaries to account for
lower than CBO estimated in February. Furthermore, in the people added to the program’s benefit rolls so far in
its February projections, CBO incorporated the expec- 2021. Additionally, the Social Security Administration
tation that the decline in employment caused by the (SSA) has delayed acting on the First Circuit’s 2020 deci-
pandemic would boost applications for benefits. Given sion in United States v. Vaello-Madero, which would
the number of applications for benefits this year and the make residents of Puerto Rico eligible for SSI benefits,
path of the pandemic, CBO now expects the pandemic until the U.S. Supreme Court rules on the case. In its
to have a smaller overall effect on the number of new February 2021 baseline, CBO had projected that SSA
Social Security claimants. would launch SSI in Puerto Rico in the summer of
2021. In its current baseline, CBO projects that imple-
Premium Tax Credits and Related Spending. CBO and mentation will happen later, in the spring of 2022. For
JCT increased their projections of outlays for premium the 2024–2031 period, CBO lowered its projections
tax credits and related spending in 2021 by $9 billion (or of new SSI beneficiaries to incorporate the results of an
16 percent) and, over the 2022–2031 period, by $44 bil- analysis showing that the population-adjusted growth in
lion (or 8 percent), on net.15 That increase is the result of new beneficiaries was lower than previously projected.
projections of marketplace enrollment that are 20 per-
cent higher, on average, over the 2022–2031 period than Veterans’ Benefits and Services. Mandatory outlays
CBO previously estimated. The increase is partially offset from programs that provide benefits and services to vet-
by a reduction in the estimated average subsidy that erans are estimated to be $7 billion (or 5 percent) lower
results from a change in the projected income distribu- in 2021 than they were in CBO’s February baseline for
tion of marketplace enrollees. technical reasons. However, over the 2022–2031 period,
projections of those outlays increased by $21 billion (or
Supplemental Nutrition Assistance Program. CBO
increased projections of outlays for the Supplemental 16. For a discussion of how CBO accounts for anticipated
administrative actions in its baseline projections, see
15. The related spending consists almost entirely of outlays for risk Congressional Budget Office, letter to the Honorable John M.
adjustment and the Basic Health Program. Spratt Jr. (May 2, 2007), www.cbo.gov/publication/18615.
APPENDIX A: CHANGES IN CBO’S BASELINE PROJECTIONS SINCE FEBRUARY 2021 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 69
1 percent). Most of the decrease in 2021 is the result Student Loans. CBO’s projections of outlays for student
of revisions the Administration made to the estimated loan programs jumped by $99 billion in 2021. Outlays
subsidy cost of providing guarantees on home loans for student loan programs are now projected to total
to veterans.17 Those revisions decreased outlays for the $99 billion this year, compared with -$1 billion last
program by about $8 billion. That amount is partially year. Nearly all of that increase ($95 billion) stems from
offset by other, smaller changes to the program that total revisions that the Department of Education made to
$1 billion. For the 2022–2031 period, CBO increased its the estimated subsidy costs of outstanding loans issued
projections of the number of people receiving veterans’ before 2021. Of that total, $56 billion results from
compensation because the backlog of claims for those changes to the department’s estimates of the performance
benefits grew by about 100,000 in 2020. CBO expects of outstanding loans, mostly related to borrowers in
total benefits paid to increase over the next several years income-driven repayment plans. The other $39 billion
as that backlog is addressed. results from COVID-related administrative actions that
include suspending repayment, interest accrual, and
Medicaid. CBO increased its estimate of outlays involuntary collections on student loans until the end
for Medicaid by $16 billion (or 3 percent) in 2021, of this fiscal year. CBO increased the projected cost
but projected outlays for the program over the of student loan programs after 2021 by $8 billion for
2022–2031 period are $20 billion (or less than half a technical reasons, largely reflecting increased projections
percent) lower than in February’s baseline. The increase of defaults and lower projections of collections on loans
in the near term is attributable to two factors: Actual that default and loan volume.
spending in 2021 has been higher than expected, and
new data from the Centers for Medicare & Medicaid Other Revisions to Credit Programs. Changes recorded
Services was incorporated in CBO’s baseline. Those data by the Administration to the subsidy costs of loans and
indicated that a greater share of Medicaid spending in loan guarantees made before 2021 under credit pro-
2020 was for services with faster growth and a higher grams other than veterans’ home loans and student loans
FMAP than previously estimated. The reductions in caused CBO’s estimate of mandatory outlays to drop
spending in later years are attributable to lower overall in 2021 by $51 billion. The largest of those changes are
projected SSI caseloads, which result in lower projections as follows: a $19 billion reduction in the cost of certain
of SSI beneficiaries who are enrolled in Medicaid. Small Business Administration disaster loan programs,
a $13 billion reduction in the cost of the Economic
Unemployment Compensation. CBO increased its Stabilization Program, and a $13 billion reduction in the
projections of outlays for unemployment compensation cost of loan guarantees provided by the Federal Housing
by $7 billion (or 3 percent) in 2021 but lowered them Administration.
by $6 billion (or 2 percent) for the 2022–2031 period.
Most of the increase in 2021 is the result of people Other Mandatory Programs. Smaller technical changes
receiving unemployment benefits for a longer period decreased CBO’s projections of outlays for other manda-
than previously expected. For the 2022–2031 period, tory programs by $5 billion in 2021 and increased them
CBO decreased its projections of average weekly benefits by $39 billion over the 2022–2031 period.
on the basis of the weekly amounts beneficiaries have
received in 2021 and reduced its projections of the aver- Discretionary Outlays. Technical updates decreased
age duration that people draw benefits on the basis of an CBO’s estimate of discretionary outlays in 2021 by
analysis of how long people have historically collected $16 billion (or 1 percent) and reduced its projections of
benefits during periods of low unemployment. such outlays over the 2022–2031 period by $41 billion
(or less than 1 percent). Many of those changes reflect
17. When the federal government makes or guarantees a loan, the the recent rates at which funding for various discretion-
budget records as an outlay the transaction’s projected subsidy ary programs has been spent. Some of those reductions
cost—its estimated net cost over time, accounting for all arose because ARPA provided a significant amount of
expected future cash flows. The original subsidy calculation for
mandatory funding for programs that are historically
a set of loans or loan guarantees may be increased or decreased
in subsequent years by a credit-subsidy reestimate that reflects funded through annual appropriation acts. That addi-
an updated assessment of the cash flows associated with the tional mandatory funding caused the estimated spending
outstanding loans or loan guarantees. of discretionary appropriations to slow.
70 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
Those reductions were offset somewhat because the thereby reducing the cost of servicing that debt by an
Office of Management and Budget determined that a estimated $150 billion over the 2022–2031 period. That
little over $3 billion provided in authorizing sections of reduction is partly offset by a $34 billion increase in net
the Consolidated Appropriations Act, 2021, should be interest costs resulting from other technical changes. The
considered discretionary spending. That change boosted largest such change is an increase in CBO’s projections
CBO’s projections of discretionary outlays by a little less of the share of the Treasury’s portfolio that consists of
than $3 billion in 2021 (and reduced mandatory spend- bonds, which are long-term securities that typically have
ing by a commensurate amount). higher interest rates. (CBO projects that bonds will com-
prise over 20 percent of debt held by the public in 2031.)
Net Interest. Technical changes decreased CBO’s pro- Those technical changes caused projected interest pay-
jections of net interest outlays for the 2022–2031 period ments to increase by about $38 billion. Other, smaller
by $116 billion (or 3 percent). Technical changes to changes reduced CBO’s projections of net interest costs
revenues and noninterest outlays reduced CBO’s projec- by about $4 billion on net over the 2022–2031 period.
tions of debt held by the public in 2031 by $1.3 trillion,
Appendix B: The Short-Term Economic
Effects of Recently Enacted Legislation
In the Congressional Budget Office’s projections, • Taken together, spending on public health activities,
legislation enacted after January 12, 2021—primarily education, transportation, and disaster relief mostly
the American Rescue Plan Act of 2021 (ARPA, Public increases government purchases of goods and services,
Law 117-2), which was enacted in March 2021—adds directly boosting overall demand in the economy.
$1.1 trillion, or 5.0 percent of gross domestic product
(GDP), to the deficit in fiscal year 2021 and $0.5 tril-
• Loans, grants, and tax benefits provide relief to
businesses experiencing financial distress.
lion, or 2.0 percent of GDP, in fiscal year 2022.1 (Those
amounts exclude changes in debt service.) The various
In CBO’s projections, the boost to real (inflation-
policies contained in the legislation are estimated to
adjusted) GDP through the end of 2021 is inhibited by
influence economic activity in different ways, so the eco-
social distancing and supply constraints in some labor
nomic effect per dollar of budgetary cost varies by policy.
and product markets. It is tempered in later years as
output exceeds its potential (or maximum sustainable)
From 2021 through 2024, the recently enacted leg-
level, diminishing slack—that is, underused productive
islation is expected to affect the economy through
resources—in the economy. The boost to economic
several channels. In CBO’s projections, the legislation
activity over the next several years will also cause infla-
increases economic activity, on net, mainly by provid-
tion and interest rates to be higher than they would be
ing temporary support to individuals, businesses, and
otherwise. All of those estimates are subject to consider-
nonfederal governments and by stimulating the overall
able uncertainty.
demand for goods and services, which increases output
and employment.
Effects on Output and Employment
• Expanded unemployment compensation, recovery The recently enacted legislation will increase the level of
rebates for individuals (which are a kind of tax real GDP by 1.0 percent in 2021, 2.7 percent in 2022,
credit), and other financial support for households 1.4 percent in 2023, and 0.5 percent in 2024, CBO
boost the overall demand for goods and services. estimates (see Table B-1).2 From fiscal year 2021 through
(Expanded unemployment compensation also fiscal year 2024, the legislation is projected (excluding
weakens incentives to work, partially offsetting the its effects on inflation) to increase GDP by 73 cents for
boost to economic activity.) every dollar that it adds to the deficit (see Table B-2). The
provisions will have different effects on output because
• Coronavirus State and Local Fiscal Recovery Funds they will stimulate the economy through different chan-
provide direct assistance for state, local, tribal, and
nels and because they will support people and sectors that
territorial governments. (CBO expects some of those
have been affected by the pandemic in different ways.
funds to finance nonfederal government spending
that would have occurred even without the receipt of
For example, provisions that directly increase govern-
such assistance; funding used in that way would not
ment purchases of goods and services add to overall
boost the economy in the short term.)
2. The estimates in this appendix are presented in relation to
implied projections of output, employment, inflation, and
1. CBO’s previous baseline budget projections, published in interest rates that do not include the effects of the legislation—
February 2021, include the effects of legislation enacted through projections computed by removing the estimated effects of the
January 12, 2021. See Congressional Budget Office, The legislation from CBO’s economic forecast. However, CBO did
Budget and Economic Outlook: 2021 to 2031 (February 2021), not construct a comprehensive projection of what the economy
www.cbo.gov/publication/56970. would have looked like without those legislative effects.
72 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
Table B-1 .
The Economic Effects of Recently Enacted Legislation
2021 2022 2023 2024
Real GDP (Percent) a
1.0 2.7 1.4 0.5
Payroll Employment (Percent) 0.7 1.4 1.1 0.6
PCE Price Index (Percent) 0.2 0.3 0.5 0.5
Interest Rates (Percentage points)
Three-month Treasury bills 0 * 0.1 0.2
Ten-year Treasury notes 0.3 0.3 0.2 0.2
Memorandum:
Real GDP Growth (Percentage points)a 1.1 1.7 -1.2 -0.9
Payroll Employment (Millions of jobs) 1.0 2.2 1.6 1.0
PCE Price Inflation (Percentage points) 0.2 0.2 0.1 0.1
Data source: Congressional Budget Office. See www.cbo.gov/publication/57263#data.
These effects are presented as a percentage of (or, for the effects on interest rates, a percentage-point difference from) implied projections of real GDP, payroll
employment, consumer prices, and interest rates that do not include the effects of recently enacted legislation. Those projections were computed by removing
the estimated effects of the legislation from CBO’s economic forecast. However, CBO did not construct a comprehensive projection of what the economy would
have looked like without those legislative effects.
GDP = gross domestic product; PCE = personal consumption expenditures; * = between zero and 0.05 percentage points.
a. Real values are nominal values that have been adjusted to remove the effects of changes in prices.
demand on a dollar-for-dollar basis. But for provisions quarters after the receipt of that assistance. Those spend-
that increase payments to households or businesses, ing patterns prevent a sudden drop in overall demand
reduce taxes, or increase aid to nonfederal governments, when the financial assistance provided by the recently
the size of the effect on demand depends on how the enacted legislation stops, so real GDP is boosted over a
provision affects recipients’ behavior and on how the longer period.
pandemic and social distancing affect recipients’ spend-
ing and other economic activities. In particular, increases CBO also estimates that the recently enacted legislation
in payments boost spending more among lower-income will boost nonfarm payroll employment by 0.7 percent
people than among higher-income people, partly because in 2021, 1.4 percent in 2022, 1.1 percent in 2023, and
the spending of lower-income people tends to be more 0.6 percent in 2024. Those estimates are the net result of
closely linked to their current income. two opposing factors:
In CBO’s assessment, because households, in aggregate,
• Increased financial assistance to households,
nonfederal governments, and businesses and increased
have accumulated considerable private savings over
government purchases boost the overall demand
the past several quarters, they will tend to spend the
for goods and services, which increases output and
additional resources provided by the recently enacted
employment.
legislation at a slower pace than they spent the resources
provided in legislation enacted last year.3 In addition, • But the expanded unemployment compensation
most of the direct federal assistance provided to nonfed- provided by ARPA weakens incentives to work
eral governments by ARPA this year is projected to be because people compare the benefits available
spent by those governments in later years. Therefore, in during a spell of unemployment with their potential
CBO’s projections, the financial assistance to households, earnings, and those weakened incentives decrease
nonfederal governments, and businesses provided by the output and employment.
recently enacted legislation increases output for several
The expansion of unemployment compensation has
3. For information about how some federal laws enacted in effects that both increase employment (by boosting over-
2020 affected CBO’s projections of output, see Congressional all demand) and decrease it (by weakening incentives to
Budget Office, The Effects of Pandemic-Related Legislation on
Output (September 2020), www.cbo.gov/publication/56537.
work). In the spring and summer of 2021, those benefits
APPENDIX B: THE SHORT-TERM ECONOMIC EFFECTS OF RECENTLY ENACTED LEGISLATION ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 73
Table B-2 .
The Effects of Recently Enacted Legislation on the Deficit and on GDP,
Fiscal Years 2021 to 2024
Cumulative Increase in
Increase in the Deficit Cumulative Increase in GDP per Dollar of Increase
(Billions of dollars) GDP (Billions of dollars) in the Deficit (Dollars)
Recovery Rebates for Individualsa 412 314 0.76
Provisions Related to Health, Education, Transportation,
and Emergency Managementb 366 367 1.01
Coronavirus State and Local Fiscal Recovery Funds 362 226 0.62
Other Financial Support for Householdsc 270 214 0.79
Financial Support for Businessesd 215 66 0.31
Expanded Unemployment Compensatione 182 136 0.75
Other Provisionsf 32 23 0.71
Total 1,838 1,346 0.73
Data sources: Congressional Budget Office; staff of the Joint Committee on Taxation. See www.cbo.gov/publication/57263#data.
Any administrative costs associated with a provision are included in its effect on the deficit. Estimated effects on the deficit reflect changes in both revenues and
outlays but exclude changes in debt service. Estimated effects on GDP exclude the effects of the legislation on inflation.
GDP = gross domestic product.
a. Recovery rebates for individuals are a kind of tax credit. The effect on the deficit is the result of a $404 billion increase in outlays and an $8 billion reduction in
revenues.
b. Includes measures related to public health, Medicaid, and education, as well as transit grants and appropriations for the Disaster Relief Fund.
c. Includes spending on the Supplemental Nutrition Assistance Program, the Low-Income Home Energy Assistance Program, child care for workers, and housing
assistance, as well as child tax credits and earned income tax credits.
d. Includes payroll support programs, credit support for small businesses, and payroll tax credits for employers, as well as support for restaurants, operators of
shuttered venues, child care providers, and pension plans.
e. The effect on the deficit is the result of a $153 billion increase in outlays and a $29 billion reduction in revenues.
f. Includes some funding for child care and Community Development Block Grants, appropriations for the Economic Development Administration, and funding
for the Emergency Connectivity Fund.
are larger than potential earnings from work for many Although the expansion of unemployment compensa-
low-wage workers, CBO estimates. Although some states tion reduces employment in 2021, on net, the policy
are discontinuing one or more of the components of increases output more than it reduces it in that year. The
expanded unemployment compensation, most unem- explanation for that apparent contradiction is that the
ployed people are still eligible to receive those benefits policy reduces employment for low-wage workers and
until they expire in September 2021. The incentive to increases employment for a smaller number of high-wage
continue receiving such benefits lengthens the amount workers, and those high-wage workers contribute more
of time beneficiaries remain unemployed. That increased to GDP, on net.
duration can help recipients perform longer job searches
that result in more productive jobs, but it also reduces Effects on Inflation and Interest Rates
employment and people’s work experience. On net, the CBO expects that the boost to economic activity from
effect of expanded unemployment compensation is to the recently enacted legislation will cause output to rise
decrease employment this year. After the benefits expire above its potential level in the second half of 2021. In
in September 2021, reducing the weakened incentives 2022, the boost to overall demand from recently enacted
to work, many people who previously received them will legislation will drive the economy’s projected output
take several months to find work, in CBO’s estimation. further above its potential level. That boost is projected
After 2021, the net effect of expanded unemployment to keep output above its potential level for several years,
compensation will be to increase employment, as people causing inflationary pressures to build, pushing the price
spend benefits that they have saved. index for personal consumption expenditures 0.5 percent
74 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
higher than it would have been otherwise by 2024. The the next few years. In CBO’s projections, a stronger
higher consumer prices will reduce the purchasing power economy and greater inflationary pressures prompt
of the financial support for households provided by the the Federal Reserve to push interest rates higher in
recently enacted legislation. 2023 than they would have been without the recently
enacted legislation. The projected rates for 3-month
However, even as output rises above its potential level Treasury bills and 10-year Treasury notes are higher by
and as inflationary pressures increase, the Federal 0.2 percentage points in 2024 than they would have
Reserve is expected to keep interest rates low over been otherwise.
Appendix C: CBO’s Economic Projections
for 2021 to 2031
The tables in this appendix show the Congressional 2021 to 2031. For the projections by calendar year, see
Budget Office’s economic projections for each year from Table C-1; for the projections by fiscal year, see Table C-2.
Table C-1.
CBO’s Economic Projections, by Calendar Year
Actual,
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Percentage Change From Year to Year
Gross Domestic Product
Reala -3.5 6.7 5.0 1.5 1.1 1.3 1.4 1.6 1.6 1.5 1.6 1.7
Nominal -2.3 9.7 7.2 3.8 3.3 3.4 3.6 3.8 3.7 3.7 3.7 3.8
Inflation
PCE price index 1.2 2.6 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.0 2.0
Core PCE price indexb 1.4 2.2 2.0 2.2 2.2 2.1 2.1 2.1 2.1 2.1 2.0 2.0
Consumer price indexc 1.2d 3.3 2.5 2.3 2.4 2.4 2.4 2.5 2.4 2.4 2.3 2.3
Core consumer price indexb 1.7d 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.4 2.4 2.3
GDP price index 1.2 2.9 2.1 2.2 2.2 2.1 2.1 2.1 2.1 2.1 2.1 2.1
Employment Cost Indexe 2.9 3.5 3.2 3.5 3.5 3.4 3.2 3.2 3.2 3.1 3.1 3.1
Calendar Year Average
Unemployment Rate (Percent) 8.1 5.5 3.8 3.7 4.0 4.2 4.3 4.3 4.3 4.4 4.5 4.5
Payroll Employment
(Monthly change, in thousands)f -760 587 417 70 -3 12 37 56 40 30 36 56
Interest Rates (Percent)
Three-month Treasury bills 0.4 * 0.1 0.2 0.5 0.9 1.3 1.6 1.8 2.1 2.3 2.4
Ten-year Treasury notes 0.9 1.6 1.9 2.0 2.3 2.6 2.8 3.0 3.2 3.3 3.4 3.5
Tax Bases (Percentage of GDP)
Wages and salaries 44.8 43.7 43.3 43.4 43.5 43.6 43.7 43.7 43.8 43.8 43.7 43.6
Domestic corporate profitsg 8.1 9.9 9.8 9.1 8.7 8.5 8.3 8.2 7.9 7.6 7.5 7.5
Tax Bases (Billions of dollars)
Wages and salaries 9,371 10,041 10,667 11,094 11,495 11,915 12,362 12,843 13,334 13,824 14,309 14,814
Domestic economic profitsg 1,689 2,271 2,407 2,329 2,292 2,315 2,348 2,396 2,409 2,414 2,452 2,532
Nominal GDP (Billions of dollars) 20,937 22,974 24,638 25,564 26,405 27,310 28,291 29,374 30,471 31,587 32,746 33,984
Data source: Congressional Budget Office. See www.cbo.gov/publication/57263#data.
GDP = gross domestic product; PCE = personal consumption expenditures; * = between zero and 0.05 percentage points.
a. Real values are nominal values that have been adjusted to remove the effects of changes in prices.
b. Excludes prices for food and energy.
c. The consumer price index for all urban consumers.
d. Data for 2020 are based on data released after CBO completed its economic forecast. Projections are based on data available on May 18, 2021.
e. The employment cost index for wages and salaries of workers in private industries.
f. The average monthly change, calculated by dividing by 12 the change in payroll employment from the fourth quarter of one calendar year to the fourth
quarter of the next.
g. Adjusted to remove distortions in depreciation allowances caused by tax rules and to exclude the effect of inflation on the value of inventories.
76 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021
Table C-2.
CBO’s Economic Projections, by Fiscal Year
Actual,
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Percentage Change From Year to Year
Gross Domestic Product
Reala -2.3 4.2 6.1 2.0 1.1 1.2 1.4 1.6 1.6 1.5 1.5 1.7
Nominal -1.1 6.7 8.6 4.2 3.3 3.4 3.5 3.8 3.8 3.7 3.7 3.8
Inflation
PCE price index 1.3 2.2 2.3 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.0 2.0
Core PCE price indexb 1.5 1.9 2.1 2.1 2.2 2.2 2.1 2.1 2.1 2.1 2.1 2.0
Consumer price indexc 1.5 2.7 2.7 2.3 2.3 2.4 2.4 2.5 2.4 2.4 2.4 2.3
Core consumer price indexb 1.9 2.2 2.6 2.5 2.5 2.5 2.5 2.5 2.5 2.4 2.4 2.3
GDP price index 1.3 2.4 2.4 2.2 2.2 2.1 2.1 2.1 2.1 2.1 2.1 2.1
Employment Cost Indexd 3.0 3.3 3.3 3.5 3.6 3.4 3.3 3.2 3.2 3.1 3.1 3.1
Fiscal Year Average
Unemployment Rate (Percent) 7.3 6.0 4.1 3.7 3.9 4.2 4.3 4.3 4.3 4.4 4.5 4.5
Payroll Employment
(Monthly change, in thousands)e -855 558 534 124 * 10 23 59 44 32 30 54
Interest Rates (Percent)
Three-month Treasury bills 0.7 0.1 0.1 0.1 0.4 0.8 1.2 1.5 1.8 2.0 2.3 2.4
Ten-year Treasury notes 1.1 1.4 1.9 2.0 2.2 2.5 2.7 2.9 3.1 3.3 3.4 3.5
Tax Bases (Percentage of GDP)
Wages and salaries 44.3 43.9 43.3 43.4 43.5 43.6 43.7 43.7 43.8 43.8 43.7 43.6
Domestic corporate profitsf 8.0 9.5 10.0 9.3 8.7 8.5 8.3 8.2 8.0 7.7 7.5 7.5
Tax Bases (Billions of dollars)
Wages and salaries 9,300 9,843 10,541 10,992 11,395 11,808 12,247 12,723 13,211 13,702 14,186 14,686
Domestic economic profitsf 1,672 2,121 2,421 2,355 2,291 2,309 2,337 2,389 2,408 2,410 2,438 2,511
Nominal GDP (Billions of dollars) 21,000 22,401 24,323 25,356 26,191 27,076 28,033 29,103 30,195 31,305 32,449 33,670
Data source: Congressional Budget Office. See www.cbo.gov/publication/57263#data.
GDP = gross domestic product; PCE = personal consumption expenditures; * = between zero and -500 jobs.
a. Real values are nominal values that have been adjusted to remove the effects of changes in prices.
b. Excludes prices for food and energy.
c. The consumer price index for all urban consumers.
d. The employment cost index for wages and salaries of workers in private industries.
e. The average monthly change, calculated by dividing by 12 the change in payroll employment from the fourth quarter of one fiscal year to the fourth quarter of
the next.
f. Adjusted to remove distortions in depreciation allowances caused by tax rules and to exclude the effect of inflation on the value of inventories.
List of Tables and Figures
Tables
1-1. CBO’s Baseline Budget Projections, by Category 6
1-2. CBO’s Baseline Projections of Federal Debt 9
1-3. CBO’s Baseline Projections of Mandatory Outlays 12
1-4. CBO’s Baseline Projections of Discretionary Spending 16
1-5. Key Projections in CBO’s Baseline 19
2-1. CBO’s Economic Projections for Calendar Years 2021 to 2031 27
2-2. Projected Growth of Real GDP and Its Components 35
2-3. Key Inputs in CBO’s Projections of Real Potential GDP 38
2-4. CBO’s Current and Previous Economic Projections for Calendar Years 2021 to 2031 50
A-1. Changes in CBO’s Baseline Projections of the Deficit Since February 2021 60
B-1. The Economic Effects of Recently Enacted Legislation 72
B-2. The Effects of Recently Enacted Legislation on the Deficit and on GDP, Fiscal Years 2021 to 2024 73
C-1. CBO’s Economic Projections, by Calendar Year 75
C-2. CBO’s Economic Projections, by Fiscal Year 76
Figures
1-1. Total Deficits, Primary Deficits, and Net Interest 8
1-2. Federal Debt Held by the Public, 1940 to 2031 10
1-3. Total Outlays and Revenues 11
1-4. Outlays, by Category 18
1-5. Revenues, by Category 22
2-1. The Relationship Between GDP and Potential GDP 26
2-2. Real GDP per Potential Worker Across Business Cycles 34
2-3. Employment, Unemployment, Labor Force Participation, and Wage Growth 39
2-4. Inflation and Interest Rates 41
2-5. Composition of the Growth of Real Potential GDP 44
2-6. Uncertainty in CBO’s Projections of Real GDP Growth and Inflation 49
2-7. Comparing CBO’s Forecasts With Those of the Blue Chip Forecasters 53
2-8. Comparing CBO’s Forecasts With Those of the Federal Reserve 54
A-1. Changes in CBO’s Baseline Projections of the Deficit Since February 2021 58
A-2. Changes in CBO’s Economic Forecast Since February 2021 64
About This Document
This volume is one of a series of reports on the state of the budget and the economy that the
Congressional Budget Office issues each year. It satisfies the requirement of section 202(e) of the
Congressional Budget Act of 1974 for CBO to submit to the Committees on the Budget periodic
reports about fiscal policy and to provide baseline projections of the federal budget. In keeping with
CBO’s mandate to provide objective, impartial analysis, this report makes no recommendations.
CBO’s Panel of Economic Advisers commented on an early version of the economic forecast under-
lying this report at a meeting in April 2021. At that time, members of the panel were Katharine
Abraham, Alan Auerbach, David Autor, Olivier Blanchard, Markus Brunnermeier, Seth Carpenter,
Steven Davis, Kathryn Dominguez, Karen Dynan, Robert Hall, Jan Hatzius, Donald Kohn, Gregory
Mankiw, Emi Nakamura, Jonathan Parker, James Poterba, Valerie Ramey, Aysegul Sahin, James
Stock, Kevin Warsh, and Mark Zandi. Matthew Luzzetti and David Wilcox attended the panel’s
meeting as guests. Although CBO’s outside advisers provided considerable assistance, they are not
responsible for the contents of this report.
The following pages list CBO’s staff members who contributed to this report by preparing the
economic, revenue, and spending projections; writing the report; reviewing, editing, fact-checking,
and publishing it; compiling the supplemental materials posted along with it on CBO’s website
(www.cbo.gov/publication/57263#data); and providing other support.
CBO continually seeks feedback to make its work as useful as possible. Please send any comments to
communications@cbo.gov.
Phillip L. Swagel
Director
July 2021
SO ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 JULY 2021
Economic Projections
The economic projections were prepared by the Macroeconomic Analysis Division, with contribu-
tions from analysts in other divisions. That work was supervised by Jeffrey Werling, John Kitchen,
Robert Arnold, and Devrim Demirel.
Aaron Betz - Effects of fiscal policy
Yiqun Gloria Chen - Labor markets
Erin Deal - Housing, model and data management
Daniel Fried . Net exports, exchange rates, energy prices
Edward Gamber - Interest rates, monetary policy, current-quarter analysis
Ron Gecan - Energy prices
Mark Lasky - Business investment, housing
Junghoon Lee - Effects of fiscal policy
Vinay Maruri - Financial markets
Michael McGrane - Financial markets
Jaeger Nelson - Effects of fiscal policy
Sarah Robinson (formerly of CBO) - Motor vehicle sector, research assistance
Jeffrey Schafer - Inflation, house prices
John Seliski - Federal, state, and local government spending and revenues; effects of fiscal policy
Robert Shackleton - Potential output, productivity
Christopher Williams - Consumer spending, income
Revenue Projections
‘The revenue projections were prepared by the Tax Analysis Division, supervised by John McClelland,
Joseph Rosenberg, Joshua Shakin, and Edward Harris. In addition, the staff of the Joint Committee
on Taxation provided valuable assistance.
Kathleen Burke - Individual income taxes, wage distribution
Paul Burnham - Retirement income
Dorian Carloni - Business taxation
Madeleine Fox - Customs duties
Nathaniel Frentz - Federal Reserve System's earnings, miscellaneous fees and fines
Bilal Habib - Tax modeling
Shannon Mok - Estate and gift taxes
James Pearce - Capital gains realizations, wage distribution, tax modeling
Kevin Perese - Tax modeling
Tess Prendergast - Excise taxes
Molly Saunders-Scott - International taxation, business taxation
Kurt Seibert - Payroll taxes, depreciation, tax modeling
ABOUT THIS DOCUMENT ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021T0 2031 84
Jennifer Shand - Corporate income taxes
Naveen Singhal - Capital gains realizations, tax modeling
Ellen Steele - Refundable tax credits
James Williamson - Business taxation, estate and gift taxes
Spending Projections
‘The spending projections were prepared by the Budget Analysis Division, with contributions from
analysts in other divisions. That work was supervised by Theresa Gullo, Leo Lex, Sam Papenfuss,
Christina Hawley Anthony, Megan Carroll, Chad Chirico, Sheila Dacey, Kathleen FitzGerald, Paul
Masi, Sarah Masi, David Newman, and Susan Willie of the Budget Analysis Division, as well as by
Chapin White and Alexandra Minicozzi of the Health Analysis Division and by Sebastien Gay of the
Financial Analysis Division.
Defense, International Affairs, and Veterans’ Affairs
Sunita D’Monte - International affairs
Caroline Dorminey - Defense (procurement)
Paul B. A. Holland - Veterans’ education benefits, reservists’ education benefits
Etaf Khan - Veterans’ health care and employment training services, international food assistance
William Ma - Defense (operation and maintenance, intelligence programs, other defense programs)
Aldo Prosperi - Defense (research and development, cybersecurity)
David Rafferty - Military retirement, compensation for radiation exposure and energy employees’
occupational illness
Dawn Sauter Regan - Defense (military personnel)
Matt Schmit - Military health care
Logan Smith - Veterans’ compensation and pensions, other benefits for disabled veterans
Health
Alice Burns - Medicaid, health insurance coverage
Julia Christensen - Food and Drug Administration, prescription drugs
Katherine Feinerman - Health insurance coverage
Ryan Greenfield - Prescription drugs, National Institutes of Health, Food and Drug Administration
Cornelia Hall - Medicare
Stuart Hammond - Medicare, Federal Employees Health Benefits program
Caroline Hanson - Health insurance coverage
Jared Hirschfield - Health insurance marketplaces, private health insurance
Ben Hopkins - Health insurance coverage
Lori Housman (formerly of CBO) - Medicare
Geena Kim - Medicaid, health insurance coverage
Brian Klein-Qiu - Medicare
82 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 JULY 2021
Sean Lyons - Health insurance coverage
Rachel Matthews - Centers for Medicare & Medicaid Services
Eamon Molloy - Health insurance coverage
Hudson Osgood - Medicare
Romain Parsad - Health insurance coverage
Allison Percy - Health insurance coverage
Lisa Ramirez-Branum - Medicaid, health insurance coverage
Lara Robillard - Medicare
Asha Saavoss - Medicare
Sarah Sajewski - Medicare, Public Health Service
Robert Stewart - Medicaid, Children’s Health Insurance Program, Indian Health Service
Carolyn Ugolino - Health insurance marketplaces, private health insurance
Emily Vreeland - Health insurance marketplaces, private health insurance
Ellen Werble - Prescription drugs, Public Health Service
Kate Young - Medicaid, prescription drugs
Chris Zogby - Health insurance coverage
Income Security and Education
Susan Yeh Beyer - Child nutrition and other nutrition programs, Smithsonian Institution,
arts and humanities
Meredith Decker - Unemployment insurance, job training programs
Elizabeth Cove Delisle - Housing assistance
Jennifer Gray - Supplemental Nutrition Assistance Program and other nutrition programs,
Social Services Block Grant, support programs for children and families
Justin Humphrey - Student loans, higher education
Arin Kerstein - Refugee assistance
Wendy Kiska - Pension Benefit Guaranty Corporation
Leah Koestner - Elementary and secondary education, Pell grants
Justin Latus - Supplemental Security Income, Administration on Aging
Susanne Mehlman - Temporary Assistance for Needy Families, child support enforcement, foster care,
child care programs, Low Income Home Energy Assistance Program
Noah Meyerson - Old-Age and Survivors Insurance, Social Security trust funds, Pension Benefit
Guaranty Corporation
Emily Stern - Disability Insurance
ABOUT THIS DOCUMENT ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 202110 2031 83
Natural and Physical Resources
Tiffany Arthur - Agriculture
Madeleine Fox - General government
Kathleen Gramp - Energy, Outer Continental Shelf receipts, spectrum auction receipts,
Orderly Liquidation Fund
Sofia Guo - Workplace and mine safety
Evan Herrnstadt - Spectrum auction receipts
David Hughes - Recreational resources, commerce, Small Business Administration,
Universal Service Fund
Wendy Kiska - Federal Deposit Insurance Corporation, Orderly Liquidation Fund
Aaron Krupkin - Energy, air and water transportation
Vinay Maruri - Federal Deposit Insurance Corporation
Michael McGrane - Fannie Mae and Freddie Mac
Erik O’Donoghue - Agriculture
Jeffrey Perry - Student loans, Fannie Mae and Freddie Mac, Federal Housing Administration
Matthew Pickford - General government, legislative branch
Stephen Rabent - Deposit insurance, credit unions, pollution control and abatement, Postal Service
Robert Reese - Federal Housing Administration, other natural resources, highways, mass transit, Amtrak
Mitchell Remy - Fannie Mae and Freddie Mac, Federal Housing Administration
Janani Shankaran - Science and space exploration, conservation and land management,
spectrum auction receipts
Delaney Smith (formerly of CBO) - Federal Housing Administration
Jon Sperl - Community and regional development, Federal Emergency Management Agency,
Bureau of Indian Affairs, judicial branch, administration of justice
Aurora Swanson - Water resources, Fannie Mae and Freddie Mac
Lindsay Wylie - Law enforcement, justice assistance, homeland security, Postal Service
Byoung Hark Yoo - Fannie Mae and Freddie Mac
Other Areas and Functions
Shane Beaulieu - Computer applications and data systems
Barry Blom - Budget projections
Joanna Capps - Appropriation bills (Labor, Health and Human Services, and Education;
Legislative Branch)
Aaron Feinstein - Other interest, monthly Treasury data, historical data
Avi Lerner - Interest on the public debt, automatic budget enforcement and sequestration,
‘Troubled Asset Relief Program
Amber Marcellino - Federal civilian retirement
84 ADDITIONAL INFORMATION ABOUT THE UPDATED BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 JULY 2021
George McArdle - Appropriation bills (Military Construction and Veterans Affairs;
State and Foreign Operations)
Dan Ready - Various federal retirement programs, national income and product accounts, federal pay
Justin Riordan - Appropriation bills (Commerce, Justice, and Science; Financial Services and
General Government)
Mark Sanford - Appropriation bills (Agriculture and Food and Drug Administration; Defense)
Esther Steinbock - Appropriation bills (Energy and Water Development; Transportation and
Housing and Urban Development)
J nell Blanco Suchy - Appropriation bills (Interior and Environment; Homeland Security),
authorization bills
Patrice Watson - Computer applications and data systems
Olivia Yang - Budget projections and appropriation bills
Writing
Dan Ready prepared the visual summary, with assistance from Aaron Betz. Barry Blom wrote
Chapter 1, with assistance from Joshua Shakin. Jeffrey Schafer wrote Chapter 2, with assistance from
Nabeel Alsalam. Aaron Feinstein wrote Appendix A, with contributions from Nathaniel Frentz,
Amber Marcellino, and Dan Ready. John Seliski wrote Appendix B. Erin Deal compiled Appendix C.
Reviewing, Editing, Fact-Checking, and Publishing
Mark Doms, Mark Hadley, Jeffrey Kling, and Robert Sunshine reviewed the report. The editing and
publishing were handled by CBO’s editing and publishing group, supervised by Benjamin Plotinsky,
and the agency’s communications team, supervised by Deborah Kilroe.
Christine Bogusz, Rebecca Lanning, Loretta Lettner, Bo Peery, and Benjamin Plotinsky were the
editors; Casey Labrack and R. L. Rebach were the graphics editors; and Annette Kalicki published the
report on CBO’s website.
Fiona Forrester, Daniel Fried, Edward Gamber, Jared Hirschfield, Paul B. A. Holland, Mark Lasky,
Omar Morales, Tess Prendergast, Robert Shackleton, Christopher Williams, and Olivia Yang
fact-checked the report. Ann E. Futrell, Kate Kelly, and Lara Robillard coordinated the preparation
of tables of baseline projections; Aaron Betz coordinated the preparation of figures and tables related
to economic projections. Erin Deal, Tess Prendergast, Dan Ready, and Olivia Yang compiled data and
supplemental information, and Annette Kalicki coordinated the presentation of those materials.
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