The CBO’s 2013 Long-Term Budget Outlook released this week made a lot of news because it appeared to paint a new and surprisingly bleak budget picture. But in reality, the budget outlook is little changed from CBO’s long-term budget outlook of last year or the year before. Indeed the long-term outlook is nearly identical to what CBO forecast in 2009, which reminds us that little progress has been made in the past five years. The projected debt explosion is just as bad now as in 2009.
Part of the confusion is that this year’s CBO report essentially ignored the “alternative fiscal scenario” assumptions compared to previous years. Instead it focused almost entirely on the “extended baseline” assumptions, which are less realistic about the likely future stance of government policy. Comparing the budget with the “alternative fiscal scenario” with the “extended baseline” is an apples and oranges comparison.
The chart below is an “apples to apples” comparison which uses the “alternative fiscal scenario” assumptions for both the 2013 long-term outlook and the 2009 long-term outlook. It shows the CBO forecast of debt to GDP ratio. It also shows some history. I have been using this type of chart in posts since the 2009 projections were made.
Note that the projected future debt explosion is almost the same now as it was in 2009. The main difference is that CBO has cut off its projection earlier and does not report the numbers beyond 2038. But the 2013 outlook is at least as explosive as the 2009 path. Clearly we have not “fixed the debt.”
The reason for the change in emphasis, as CBO explains, is that “The American Taxpayer Relief Act of 2012 extended indefinitely a number of tax provisions that were scheduled to expire and indexed the alternative minimum tax (AMT) for inflation, making some components of the previous years’ alternative fiscal scenarios part of the extended baseline.” But there is still a big difference, as the next chart which goes out to 2038 illustrates. So if you want to see whether the budget outlook has gotten worse or not, it is better to use the same assumptions.