The Budget andEconomic Outlook:2023 to 2033

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FEBRUARY | 2023

At a Glance
The Congressional Budget Office regularly publishes reports presenting its baseline projections ofwhat 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 isthe latest in that series.
The Budget. CBO projects a federal budget deficit of $1.4 trillion for 2023. (Deficits and spending
have been adjusted to exclude the effects of shifts that occur in the timing of certain payments when
October 1 falls on a weekend.) In the agency’s projections, deficits generally increase over the coming
years; the shortfall in 2033 is $2.7 trillion. The deficit amounts to 5.3 percent of gross domestic product (GDP) in 2023, swells to 6.1 percent of GDP in 2024 and 2025, and then declines in the twoyears that follow. After 2027, deficits increase again, reaching 6.9 percent of GDP in 2033—a levelexceeded only five times since 1946 (see Chapter 1).
In CBO’s projections, outlays and revenues measured as a percentage of GDP equal or exceed their
50-year averages through 2033. Outlays increase from 23.7 percent of GDP in 2023 (a high levelby historical standards) to 24.9 percent in 2033, largely because of rising interest costs and greater
spending on programs that provide benefits to elderly people. Revenues amount to 18.3 percent of
GDP in 2023. They then decline over the next two years before increasing after 2025, when certain
provisions of the 2017 tax act expire. Revenues are roughly stable after 2027; they total 18.1 percent
of GDP in 2033.
Debt held by the public is projected to rise in relation to the size of the economy each year, reaching
118 percent of GDP by 2033—which would be the highest level ever recorded. Debt would continue
to grow beyond 2033 if current laws generally remained unchanged.
Changes in CBO’s Budget Projections. CBO’s projection of the deficit for 2023 is now $0.4 trillion
more than it was in May 2022; the projection of the cumulative deficit over the 2023–2032 period
is now $3.1 trillion (or about 20 percent) more, largely because of newly enacted legislation andchanges in CBO’s economic forecast, including higher projected inflation and interest rates (seeAppendix A).
The Economy. To combat high inflation, the Federal Reserve sharply increased the target range forthe federal funds rate in 2022. In CBO’s projections, inflation gradually slows in 2023 as pressuresease from factors that, since mid-2020, have caused demand to grow more rapidly than supply.
Output stagnates and unemployment rises in 2023, partially as a result of tighter monetary policy.
After that, inflation slowly returns to the Federal Reserve’s long-run goal of 2 percent, and output
grows at a more robust pace as interest rates decrease (see Chapter 2).
Changes in CBO’s Economic Projections. The agency projects much weaker growth of real GDP for2023 than it did last May, stronger growth during the 2024–2026 period, and similar rates of growthover the remainder of the projection period. CBO now projects higher inflation for 2023 and 2024
than it did last May, mainly for two reasons: Recent data suggest that inflation has been more persistent across many sectors of the economy than CBO anticipated, and supply-side disruptions haveremained greater than the agency previously forecast. CBO now expects both short- and long-term
interest rates to be higher, on average, over the next five years than forecast last May, mostly becauseof higher projected inflation.
www.cbo.gov/publication/58848

By the Numbers
Budget Outlook, by Fiscal Year
Percentage of Gross Domestic Product

Revenues, Total
Individual income taxes
Payroll taxes
Corporate income taxes
Other
Outlays, Total
Mandatory, subtotal
Social Security
Major health careprograms
Medicare, net ofoffsetting receipts
Medicaid, CHIP, andmarketplace subsidies
Other
Discretionary, subtotal
DefenseNondefense
Net interest
Deficit, Total
Deficit, Primary
Debt Held by the Public

Average,
1973–2022

Actual,
2022

2023

2024

17.4
8.0
6.0
1.8
1.6
21.0
10.9
4.4

19.6
10.5
5.9
1.7
1.4
24.8
16.3
4.8

18.3
9.6
6.0
1.8
1.0
23.7
14.6
5.1

3.3

5.6

2.0
1.2
3.2
8.0
4.3
3.8
2.0
-3.6
-1.5
46.9

Billions of Dollars
2033

Actual,
2022

2023

2024

2033

17.7
9.0
6.0
1.8
1.0
23.8
14.3
5.3

18.1
9.7
5.9
1.4
1.1
24.9
15.3
6.0

4,896
2,632
1,484
425
356
6,208
4,076
1,213

4,812
2,523
1,562
475
251
6,206
3,825
1,336

4,838
2,467
1,633
479
260
6,493
3,885
1,450

7,098
3,803
2,307
539
449
9,799
5,997
2,355

5.7

5.6

6.7

1,404

1,508

1,528

2,629

2.8

3.1

3.3

4.1

710

820

894

1,623

2.8
5.8
6.6
3.0
3.6
1.9
-5.2
-3.3
97.0

2.6
3.7
6.6
3.1
3.6
2.4
-5.3
-2.9
98.0

2.3
3.3
6.9
3.1
3.7
2.7
-6.1
-3.4
100.4

2.6
2.6
6.0
2.8
3.2
3.6
-6.9
-3.2
118.2

695
1,459
1,657
746
910
475
-1,312-837
24,257

688
981
1,741
800
941
640
-1,394-755
25,716

634
908
1,869
848
1,022
739
-1,655-916
27,370

1,005
1,014
2,373
1,105
1,269
1,429
-2,702-1,27346,445

See Chapter 1. When October 1 falls on a weekend, certain payments that would have ordinarily been made on that day are instead made at the end of September andthus are shifted into the previous fiscal year. Mandatory outlays, discretionary outlays, and deficits have been adjusted to exclude the effects of those timing shifts.

Economic Outlook, by Calendar Year
Percent

Annual Average

Real (Inflation-adjusted) GDP
Inflation
PCE price index
Consumer price index

Actual,
2022

2023

2.1

0.3

6.2
8.0

3.8
4.8

2024

2025

Change From Year to Year
1.8
2.7
2.7
3.0

2.2
2.2

2026–
2027

2028–
2033

2.4

1.8

2.1
2.1

2.0
2.3

Annual Average
Unemployment Rate
Payroll Employment (Monthly change, in thousands)
Interest Rates
3-month Treasury bills
10-year Treasury notes
Tax Bases (Percentage of GDP)
Wages and salaries
Domestic corporate profits (Estimated value for 2022)

3.6
427

4.7
9

4.9
66

4.7
97

4.5
80

4.5
67

2.0
3.0

4.5
3.9

3.2
3.8

2.5
3.8

2.2
3.8

2.3
3.8

43.8
9.7

44.3
7.9

44.5
7.5

44.5
7.9

44.3
8.2

44.0
8.0

See Table 2-1 on page 35. Actual values for 2022 reflect data available from the Bureau of Economic Analysis and the Bureau of Labor Statistics in earlyFebruary 2023. The data contain values for the fourth quarter of 2022, which were not available when CBO developed its current projections.

Contents
Visual Summary

1

Chapter 1: The Budget Outlook

5

Overview

5

Deficits

5

Debt

8

Outlays

11

Revenues

20

The Long-Term Outlook for the Budget

29

Uncertainty of Budget Projections

29

Chapter 2: The Economic Outlook

33

Overview

33

Recent Economic Developments

36

Fiscal and Monetary Policies

37

The Economic Outlook for 2023 to 2027

38

The Economic Outlook for 2028 to 2033

48

Projections of Income for 2023 to 2033

51

Uncertainty About the Economic Outlook

52

Comparison With CBO’s May 2022 Economic Projections

56

Comparison With Other Economic Projections

60

Appendix A: Changes in CBO’s Baseline Projections Since May 2022

67

Overview

67

Legislative Changes

68

Economic Changes

74

Technical Changes

78

Appendix B: CBO’s Economic Projections for 2023 to 2033

85

List of Tables and Figures

87

About This Document

89

Boxes
1-1. Details About CBO’s Long-Term Budget Projections28

2-1. Economic Effects of Recent Changes in Fiscal Policy

39

2-2. Missing Labor Force Participants

45

A-1. How Student Loan Forgiveness Affects Deficits and Debt

82

NotesThe budget projections in this report include the effects of legislation enacted throughJanuary 9, 2023, and are based on the Congressional Budget Office’s economic projections.
Those economic projections reflect economic developments and information as ofDecember 6, 2022, and are available on CBO’s website (www.cbo.gov/data/budget-economic-data#4).
Unless this report indicates otherwise, the historical data shown in figures, tables, and text
describing the economic forecast reflect more recent fourth-quarter data available from the
Bureau of Economic Analysis and other sources in early February 2023.
Unless the report indicates otherwise, all years referred to in describing the budget outlook arefederal 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.)Previous editions of this report often included an appendix of historical budget data.
Those data and other supplemental data for this analysis are available on CBO’s website(www.cbo.gov/publication/58848#data), as are a glossary of common budgetary and economic
terms (www.cbo.gov/publication/42904), a description of how CBO prepares its baselinebudget 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://tinyurl.com/4dt4hshv).

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 deficit is projected to total $1.4 trillion in 2023; annual
deficits average $2.0 trillion over the 2024–2033 period. CBO expects economic growth to stagnate and inflation toslow in 2023 in response to the sharp rise in interest rates during 2022. After that, in CBO’s projections, output grows
at a more robust pace as inflation continues to decline toward the Federal Reserve’s long-run goal of 2 percent.

Deficits

In CBO’s projections, the deficit amounts to 5.3 percent of gross domestic product (GDP) in
2023. (Deficits and spending have been adjusted to exclude the effects of shifts that occur inthe timing of certain payments when October 1 falls on a weekend.) Deficits fluctuate overthe next four years, averaging 5.8 percent of GDP. Starting in 2028, they grow steadily; theprojected shortfall in 2033 is 6.9 percent of GDP—significantly larger than the 3.6 percent of
GDP that deficits have averaged over the past 50 years.

Total Deficits, Primary Deficits, and Net Interest Outlays
Percentage of Gross Domestic Product5

Projected

Primary Deficit
or Surplus

In CBO’s projections, net interest
outlays increase by 1.2 percent of
GDP from 2023 to 2033 and are amajor contributor to the growth of
total deficits. Primary deficits (that is,revenues minus noninterest outlays)
increase by 0.4 percent of GDP overthat period.

0

Net Interest
Outlays
Total Deficit
or Surplus

−5

−10

−15
1973

1983

1993

2003

2013

2023

2033

See Figure 1-1 on page 8

Changes in CBO’s Baseline Projections of the 10-Year Deficit Since May 2022
Trillions of Dollars

2023–2032 Deficit in CBO’s
May 2022 Baseline
2023–2032 Deficit in CBO’s
February 2023 Baseline

15.7
18.8
1.5
2.1

0.4
See Figure A-1 on page 68

Net Increase in Outlays for
Economic Reasons

Net Increases in Revenues Stemming From
Revised Economic Projections

−0.9

1.5

Legislative Changes

Technical Changes

2.1
−0.9
0.4

The cumulative total deficit over the2023–2032 period is $3.1 trillion
larger in CBO’s current baseline
projections than it was in the agency’s
May 2022 projections, mainly
because of newly enacted legislationand changes to the economic forecast
that boost projected net interest
outlays and spending on mandatory
programs, such as Social Security.

2

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Debt

February 2023

Federal debt held by the public is projected to rise from 98 percent of GDP in 2023 to
118 percent in 2033—an average increase of 2 percentage points per year. Over that period,
the growth of interest costs and mandatory spending outpaces the growth of revenues and theeconomy, driving up debt. Those factors persist beyond 2033, pushing federal debt higher still,to 195 percent of GDP in 2053.

Federal Debt Held by the Public, 1900 to 2053
Percentage of Gross Domestic Product200

Projected

180
160
140

Debt is projected to rise in relation
to GDP, mainly because of increasing
interest costs and the growth of
spending on major health careprograms and Social Security.

120
100
80
60
40
20
0
1903 1913 1923 1933 1943 1953 1963 1973 1983 1993 2003 2013 2023 2033 2043 2053
See Figure 1-2 on page 11

Outlays andRevenues

In CBO’s projections, federal outlays total $6.2 trillion, or 23.7 percent of GDP, in 2023. They
remain below 24.0 percent through 2028 and grow each year thereafter, totaling 24.9 percent of
GDP in 2033. Outlays have reached or exceeded that level only twice since 1946: in 2020 and
2021, years in which spending was increased in response to the coronavirus pandemic. In 2023,
revenues total $4.8 trillion, or 18.3 percent of GDP—well above their long-run average. They
then fall as a percentage of GDP over the next two years but rise again in 2026 and 2027 before
stabilizing.

Total Outlays and Revenues

Percentage of Gross Domestic Product40

Projected
Average Outlays,
1973 to 2022
(21.0)

30

Measured as a percentage of GDP,

Outlays24.9 outlays exceed their 50-year averageeach year of the projection period.

20

18.1 Revenues fall to their 50-year
Average Revenues,
1973 to 2022
(17.4)

10

average in 2025 but then exceed itin each subsequent year because ofscheduled changes in tax law.

Revenues

0
1973

1983

See Figure 1-3 on page 19

1993

2003

2013

2023

2033

VISUAL SUMMARY

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Outlays and Revenues (Continued)
Outlays, by Category

Percentage of Gross Domestic Product24

Projected

20
Mandatory

16
12

Discretionary

8
4

Net Interest

0
1973

1983

1993

2003

2013

2023

In CBO’s projections, rising spending
on Social Security and Medicare
15.3 boosts mandatory outlays, but total
discretionary spending falls in relation
to GDP. As the cost of financing thenation’s debt grows, net outlays for6.0 interest increase substantially and,
3.6
beginning in 2030, exceed theirprevious peak.
2033

See Figure 1-4 on page 21

Revenues, by Category

Percentage of Gross Domestic Product12

Projected

Individual Income Taxes

9
6

9.7

5.9

Payroll Taxes
Corporate Income Taxes

3

1.4
1.1

Other

0
1973

1983

1993

2003

2013

2023

2033

After reaching a historic high in 2022,
receipts from individual income taxes
are projected to fall in 2023 because
collections from taxes on capital gains
realizations and other sources, whichhave been strong in recent years,
fall in CBO’s projections. Projected
receipts rise after 2025 because of
the scheduled expiration of certain
provisions of the 2017 tax act.

See Figure 1-5 on page 22

The Economy

To reduce high inflation, the Federal Reserve sharply raised the target range for the federal funds
rate in 2022. In CBO’s projections for 2023, economic activity stagnates, unemployment rises,
and inflation slows. From 2024 to 2026, real GDP growth rises as tight financial conditions
gradually ease, the unemployment rate slowly falls, and inflation continues to decline. (Shaded
vertical bars indicate periods of recession.)

Growth of Real GDP
Percent
6

Projected

3

0

−3
2000

2003

2006

See Figure 2-1 on page 34

2009

2012

2015

2018

2021

2024

2027

2030

2033

In CBO’s projections, real GDP
growth comes to a halt in 2023 in
response to the sharp rise in interest
rates during 2022. Then, as theFederal Reserve reduces the target
range for the federal funds rate,
real GDP growth rebounds, led by
the interest-sensitive sectors of theeconomy, averaging 2.4 percent from2024 to 2027 and 1.8 percent from2028 to 2033.

3

4

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

The Economy (Continued)
Overall Inflation and Core Inflation
Percent
6

Projected

Inflation is expected to decline in
2023 as pressures ease from factors
that, since mid-2020, have causeddemand to grow more rapidly than
supply. That decline continues until
2027, when the rate of inflation
reaches the Federal Reserve’s longrun goal. (Inflation is measured by theprice index for personal consumption
expenditures.)54

Overall Inflation
Federal Reserve’s
Long-Run Goal

32
1Core Inflation(Excludes food and energy prices)

0
2000

2003

2006

2009

2012

2015

2018

2021

2024

2027

2030

2033

See Figure 2-3 on page 47

Unemployment
Percent
10

Projected

Rate of
Unemployment

8

The unemployment rate rises throughearly 2024 in CBO’s projections,reflecting the slowdown in economic
growth. The rate falls thereafteras output returns to its historical
relationship with potential output.

64Noncyclical Rate ofUnemployment

2
0
2000

2003

2006

2009

2012

2015

2018

2021

2024

2027

2030

2033

See Figure 2-2 on page 44

Interest Rates
Percent
7

Projected

65410-Year Treasury Note Rate

3
2

Federal Funds Rate

1
0
2000

2003

2006

See Figure 2-4 on page 48

2009

2012

2015

2018

2021

2024

2027

2030

2033

In CBO’s projections, the Federal
Reserve further increases the target
range for the federal funds rate inearly 2023 to reduce inflationarypressures in the economy. That
rate is projected to fall in 2024 asinflation slows and unemployment
rises. The interest rate on 10-year
Treasury notes, however, remains at
3.8 percent from 2024 to the end of
the projection period.

Chapter 1: The Budget Outlook
Overview

In the Congressional Budget Office’s baseline budget
projections, the federal budget deficit is $1.4 trillion
this year, and annual deficits over the 2024–2033 period
average $2.0 trillion. Those projections, which were
finalized on January 9, 2023, incorporate the effects oflegislation enacted as of that date and generally reflect
the assumption that no new legislation affecting outlays or revenues would be enacted thereafter. Measured
relative to the size of the economy, the deficit equals
5.4 percent of gross domestic product (GDP) in 2023,
and deficits average 6.1 percent of GDP from 2024 to2033. As a result of those deficits, federal debt increases
each year in CBO’s projections, rising from 98 percent of
GDP this year to 118 percent in 2033 (see Table 1-1).
The deficits in CBO’s current projections are significantly larger than those in the agency’s previous baseline
projections for 2022 to 2032, which were published in
May 2022. The budget shortfall for 2023 is now projected to be $426 billion more—and the cumulative deficit for the 2023–2032 period, $3.1 trillion more—than
CBO projected last May. The increases stem from newlegislation, changes to the agency’s economic forecast,and other changes (see Appendix A).
If current laws generally remained unchanged, after
2033 deficits would continue to grow in relation to thesize of the economy, keeping debt measured as a percentage of GDP on an upward trajectory. Those large budget
deficits would arise because outlays—particularly thosefor interest on federal debt and for Medicare—wouldgrow steadily and revenues would not keep pace.
CBO prepares its baseline budget projections in accordance with provisions set forth in the Balanced Budget
and Emergency Deficit Control Act of 1985 (theDeficit Control Act, Public Law 99-177) and theCongressional Budget and Impoundment Control Act of1974 (P.L. 93-344). Those laws require CBO to construct its baseline under the assumptions that current
laws governing revenues and spending will generally
stay the same and that discretionary funding provided
in appropriation acts in future years will match current
funding, with adjustments for inflation.

CBO’s baseline budget projections are meant to provide a benchmark that policymakers can use to assess
the potential effects of changes in policy; they are notintended to provide a forecast of future budgetary outcomes. Future legislative action could lead to markedly
different outcomes—but even if federal laws remained
unaltered for the next decade, actual budgetary outcomes
would probably differ from CBO’s baseline projections,
not only because of unanticipated economic conditions,but also because of the many other factors that affectfederal revenues and outlays.

Deficits

In CBO’s projections, the federal budget deficit in 2023
is $34 billion more than the deficit recorded last year.
That increase would be larger if not for a shift in thetiming of certain payments. In 2022, October 1 (thefirst day of fiscal year 2023) fell on a weekend, so certain
payments that would ordinarily have been made on thatday were instead made in fiscal year 2022. October 1,
2023, will also fall on a weekend, pushing payments dueon that day into fiscal year 2023 (from fiscal year 2024).
If not for those shifts, this year’s projected shortfall
would be $83 billion larger than the one in 2022 (seeTable 1-2).1 (The deficit for 2022 and the projections ofoutlays and deficits cited throughout the rest of the chapter reflect adjustments to exclude the effects of timing
shifts.)Measured relative to the size of the economy, this year’s
deficit (adjusted to exclude the effects of timing shifts),
at 5.3 percent of GDP, is comparable to last year’s deficit
but much smaller than the shortfalls recorded in 2020
and 2021, which included most of the fiscal responseto the coronavirus pandemic. Deficits in CBO’s baseline swell to 6.1 percent of GDP in 2024 and 2025
and then decline over the next two years—falling to
5.5 percent of GDP in 2027—primarily because anumber of individual income tax provisions contained
1. October 1 will fall on a weekend again in 2028 and 2033,
causing certain payments due on those days to be made at theend of September and thus to be recorded in the previous fiscal
year. Those shifts will noticeably boost outlays and the deficit in
fiscal years 2028 and 2033; the timing shifts will reduce federal
outlays and deficits in fiscal year 2029.

6

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

Table 1-1 .

CBO’s Baseline Budget Projections, by Category
Total
Actual,2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

2032

2033

2024– 2024–
2028 2033

In Billions of Dollars

Revenues
Individual income taxes
Payroll taxes
Corporate income taxes
OtheraTotal
On-budget
Off-budgetb

2,632
1,484
425
356
4,896
3,830
1,066

2,523
1,562
475
251
4,812
3,678
1,133

2,467
1,633
479
260
4,838
3,643
1,196

2,511
1,703
489
264
4,966
3,711
1,255

2,764
1,778
495
273
5,310
3,999
1,311

3,018
1,849
494
293
5,655
4,292
1,363

3,121
1,920
506
369
5,916
4,501
1,415

3,246
1,993
514
386
6,139
4,671
1,468

3,377
2,068
520
398
6,364
4,842
1,522

3,515 3,650 3,803 13,881 31,472
2,147 2,226 2,307 8,884 19,625527
527
539 2,462 5,089414
435
449 1,459 3,540
6,603 6,838 7,098 26,686 59,727
5,023 5,200 5,402 20,145 45,284
1,580 1,637 1,695 6,540 14,443

Outlays
Mandatory
Discretionary
Net interest
Total
On-budget
Off-budgetb

4,135
1,662
475
6,272
5,188
1,084

3,840
1,741
640
6,221
5,011
1,210

3,812
1,864
739
6,415
5,091
1,324

3,995
1,955
769
6,719
5,297
1,421

4,193
2,005
828
7,026
5,521
1,504

4,395
2,063
903
7,361
5,771
1,590

4,731
2,119
995
7,845
6,163
1,682

4,756
2,159
1,071
7,986
6,215
1,771

5,115
2,215
1,149
8,479
6,602
1,877

5,391 5,665 6,140 21,125 48,192
2,266 2,319 2,380 10,007 21,347
1,236 1,333 1,429 4,232 10,451
8,894 9,317 9,948 35,365 79,990
6,908 7,215 7,737 27,843 62,520
1,986 2,102 2,211 7,521 17,470

Total Deficit
On-budget
Off-budgetb-1,375 -1,410 -1,576 -1,752 -1,716 -1,706 -1,929 -1,847 -2,115 -2,291 -2,480 -2,851-1,358 -1,333 -1,448 -1,586 -1,523 -1,479 -1,662 -1,544 -1,760 -1,885 -2,015 -2,335-18-77 -129 -166 -193 -227 -266 -303 -355 -407 -465
-516

Primary Deficitc

-900

-770

-838

-984

-888

-804

-934

-776

-8,679 -20,263-7,698 -17,236-981 -3,027-966 -1,055 -1,146 -1,422-4,447-9,812

Debt Held by the Public

24,257 25,716 27,370 29,214 30,927 32,645 34,642 36,406 38,604 40,945 43,482 46,445

n.a.

n.a.

Memorandum:
Gross Domestic Product25,016 26,238 27,266 28,610 29,932 31,251 32,525 33,811 35,133 36,488 37,874 39,288 149,585 332,179
As a Percentage of Gross Domestic Product

Revenues
Individual income taxes
Payroll taxes
Corporate income taxes
OtheraTotal
On-budget
Off-budgetb

10.5
5.9
1.7
1.4
19.6
15.3
4.3

9.6
6.0
1.8
1.0
18.3
14.0
4.3

9.0
6.0
1.8
1.0
17.7
13.4
4.4

8.8
6.0
1.7
0.9
17.4
13.0
4.4

9.2
5.9
1.7
0.9
17.7
13.4
4.4

9.7
5.9
1.6
0.9
18.1
13.7
4.4

9.6
5.9
1.6
1.1
18.2
13.8
4.4

9.6
5.9
1.5
1.1
18.2
13.8
4.3

9.6
5.9
1.5
1.1
18.1
13.8
4.3

9.6
5.9
1.4
1.1
18.1
13.8
4.3

9.6
5.9
1.4
1.1
18.1
13.7
4.3

9.7
5.9
1.4
1.1
18.1
13.8
4.3

9.3
5.9
1.6
1.0
17.8
13.5
4.4

9.5
5.9
1.5
1.1
18.0
13.6
4.3

Outlays
Mandatory
Discretionary
Net interest
Total
On-budget
Off-budgetb

16.5
6.6
1.9
25.1
20.7
4.3

14.6
6.6
2.4
23.7
19.1
4.6

14.0
6.8
2.7
23.5
18.7
4.9

14.0
6.8
2.7
23.5
18.5
5.0

14.0
6.7
2.8
23.5
18.4
5.0

14.1
6.6
2.9
23.6
18.5
5.1

14.5
6.5
3.1
24.1
18.9
5.2

14.1
6.4
3.2
23.6
18.4
5.2

14.6
6.3
3.3
24.1
18.8
5.3

14.8
6.2
3.4
24.4
18.9
5.4

15.0
6.1
3.5
24.6
19.0
5.6

15.6
6.1
3.6
25.3
19.7
5.6

14.1
6.7
2.8
23.6
18.6
5.0

14.5
6.4
3.1
24.1
18.8
5.3

Total Deficit
On-budget
Off-budgetb

-5.5
-5.4
-0.1

-5.4
-5.1
-0.3

-5.8
-5.3
-0.5

-6.1
-5.5
-0.6

-5.7
-5.1
-0.6

-5.5
-4.7
-0.7

-5.9
-5.1
-0.8

-5.5
-4.6
-0.9

-6.0
-5.0
-1.0

-6.3
-5.2
-1.1

-6.5
-5.3
-1.2

-7.3
-5.9
-1.3

-5.8
-5.1
-0.7

-6.1
-5.2
-0.9

-3.1

-3.4

-3.0

-2.6

-2.9

-2.3

-2.7

Primary Deficitc

-3.6

-2.9

-2.9

-3.0

-3.6

-3.0

-3.0

Debt Held by the Public

97.0

98.0 100.4 102.1 103.3 104.5 106.5 107.7 109.9 112.2

114.8

118.2

n.a.

n.a.

Data source: Congressional Budget Office. See www.cbo.gov/publication/58848#data.
n.a. = not applicable.
a. Consists of excise taxes, remittances from the Federal Reserve System, customs duties, estate and gift taxes, and miscellaneous fees and fines.
b. The revenues and outlays of the Social Security trust funds and the net cash flow of the Postal Service are classified as off-budget.
c. Primary deficits exclude net outlays for interest.

CHAPTER 1: THE BUDGET OUTLOOKTHE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Table 1-2 .

CBO’s Baseline Projections of Outlays and Deficits, Adjusted to Exclude Effects ofTiming Shifts
Actual,2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
Payments That Are Shifted in CBO’s Baselinea

-63

-15

79

0

In Billions of Dollars
00 -114
114

0

0

0

-149

5,115
2,215
1,149
8,479

5,391
2,266
1,236
8,894

5,665
2,319
1,333
9,317

5,997
2,373
1,429
9,799

Outlays, Adjusted for Timing Shifts
Mandatory
Discretionary
Net interest
Total

4,076 3,825 3,885 3,995 4,193 4,395 4,623
1,657 1,741 1,869 1,955 2,005 2,063 2,113
475
640
739
769
828
903
995
6,208 6,206 6,493 6,719 7,026 7,361 7,731

Total Deficit, Adjusted for Timing Shifts-1,312 -1,394 -1,655 -1,752 -1,716 -1,706 -1,815 -1,961 -2,115 -2,291 -2,480 -2,702

Primary Deficit, Adjusted for Timing Shiftsb

-755

-916

-984

-888

-804

-820

-890

-966 -1,055 -1,146 -1,273

As a Percentage of Gross Domestic ProductOutlays, Adjusted for Timing Shifts
Mandatory
Discretionary
Net interest
Total
Total Deficit, Adjusted for Timing Shifts
Primary Deficit, Adjusted for Timing Shifts

-837

4,864
2,165
1,071
8,100

b

Memorandum:
Baseline Deficit, Unadjusted
In billions of dollars
As a percentage of GDP

16.3
6.6
1.9
24.8

14.6
6.6
2.4
23.7

14.3
6.9
2.7
23.8

14.0
6.8
2.7
23.5

14.0
6.7
2.8
23.5

14.1
6.6
2.9
23.6

14.2
6.5
3.1
23.8

14.4
6.4
3.2
24.0

14.6
6.3
3.3
24.1

14.8
6.2
3.4
24.4

15.0
6.1
3.5
24.6

15.3
6.0
3.6
24.9

-5.2

-5.3

-6.1

-6.1

-5.7

-5.5

-5.6

-5.8

-6.0

-6.3

-6.5

-6.9

-3.3

-2.9

-3.4

-3.4

-3.0

-2.6

-2.5

-2.6

-2.7

-2.9

-3.0

-3.2

-1,375 -1,410 -1,576 -1,752 -1,716 -1,706 -1,929 -1,847 -2,115 -2,291 -2,480 -2,851
-5.5
-5.4
-5.8
-6.1
-5.7
-5.5
-5.9
-5.5
-6.0
-6.3
-6.5
-7.3

Data sources: Congressional Budget Office; Department of the Treasury. See www.cbo.gov/publication/58848#data.
GDP = gross domestic product.
a. 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 madeat the end of September and thus are shifted into the previous fiscal year. Those shifts primarily affect mandatory outlays; discretionary outlays are also
affected, but to a much lesser degree. Net interest outlays are not affected.
b. Primary deficits exclude net outlays for interest.

in P.L. 115-97 (referred to as the 2017 tax act in thisreport) are scheduled to expire. After 2027, deficits
increase again, reaching 6.9 percent of GDP in 2033,
the end of the projection period. Since 1946, the deficit
has exceeded 6.9 percent of GDP in only five years: from2009 to 2011 (following the 2007–2009 recession) andin 2020 and 2021.
The cumulative deficit for the 2024–2033 period is
projected to total $20.2 trillion, or 6.1 percent of GDP.
Since 1973, the annual deficit has averaged 3.6 percent
of GDP. In CBO’s projections, deficits equal or exceed
5.5 percent of GDP in every year from 2024 to 2033.
Since at least 1930, deficits have not remained that large
for more than five years in a row.

Primary deficits—that is, deficits excluding net outlays
for interest—increase from 2.9 percent of GDP in 2023
to 3.4 percent in 2024 and 2025 in CBO’s projections.
They then decrease and hover around 2.5 percent from2027 to 2029 before rising again, reaching 3.2 percent
of GDP in 2033 (see Figure 1-1). From 2024 to 2033,
primary deficits average 2.9 percent of GDP. In the
62 years from 1947 to 2008, such deficits exceeded
2.5 percent of GDP only twice. In the past 14 years, they
have exceeded that amount nine times—in large part
because of legislation that was enacted in response to the
2007–2009 recession and the pandemic-induced recession of early 2020.

7

8

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

Figure 1-1 .

Total Deficits, Primary Deficits, and Net Interest Outlays
Percentage of GDP

5

Projected

Primary Deficit
or Surplus

0

In CBO’s projections, net
interest outlays increaseby 1.2 percent of GDP from2023 to 2033 and are amajor contributor to thegrowth of total deficits.
Primary deficits increaseby 0.4 percent of GDP overthat period.

Net Interest
Outlays
Total Deficit
or Surplus

−5

−10

−15
1973

1983

1993

2003

2013

2023

2033

Data source: Congressional Budget Office. See www.cbo.gov/publication/58848#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 theend of September and thus are shifted into the previous fiscal year. All projections have been adjusted to exclude the effects of those timing shifts. Historicalamounts have been adjusted as far back as the available data will allow.
GDP = gross domestic product.

Net outlays for interest increase over the projection
period, rising from 2.4 percent of GDP this year to
3.6 percent in 2033—higher than they have been in
any year since at least 1940 (the first year for which the
Office of Management and Budget reports such data).
Historically, when unemployment has been low, deficits
have been much smaller as a percentage of GDP thanthe deficits in CBO’s current projections. From 2024
to 2033—a period in which the average unemployment
rate is projected to remain at or below 5.0 percent ineach year—deficits in CBO’s baseline projections arenever less than 5.5 percent of GDP. From 1973 to 2022,
the unemployment rate was at or below 5.0 percent in
12 years. Deficits in those 12 years (adjusted to exclude
the effects of timing shifts) averaged 1.5 percent of GDP.
Excluding net interest outlays, the budget, on average,
showed a primary surplus of 0.3 percent of GDP in those
12 years; in CBO’s baseline, primary deficits average
2.9 percent of GDP from 2024 to 2033.

Debt

The deficits projected in CBO’s baseline would boost
federal debt. That debt can be measured in different
ways. The most common measure is debt held by the
public, which consists mostly of securities that theTreasury issues to raise cash to fund the federal government’s activities and to pay off its maturing liabilities.2
Other measures are sometimes used for various purposes,
such as to provide a more comprehensive picture of thegovernment’s financial condition.
Debt Held by the Public
The net amount that the Treasury borrows each year byissuing securities is determined primarily by the annual
budget deficit. However, several other factors also affect
the government’s need to borrow from the public. Those
factors—collectively referred to as other means of financing—include changes in the government’s cash balancesand cash flows associated with federal credit programs,
such as those related to student loans and loans to small
2. A small amount of debt held by the public is issued by otheragencies, mainly the Tennessee Valley Authority.

CHAPTER 1: THE BUDGET OUTLOOK

businesses. (Those cash flows are not reflected in the budget deficit, which accounts only for the subsidy costs ofcredit programs—that is, the estimated net lifetime costsof the programs’ loans and loan guarantees.)3 As a resultof that additional borrowing, the increase in debt heldby the public in 2023 will exceed the deficit by about$50 billion, CBO projects. Over the 2024–2033 period,
the increase in federal debt is projected to exceed thecumulative deficit by $466 billion, on net.
For most years, the bulk of that additional borrowing
stems from the need to finance federal loan programs.
The subsidy costs for those programs are included in
the projected deficit for each year from 2024 to 2033.
However, the cash disbursements needed to finance those
programs each year—for example, in the case of directloans, the funds lent to borrowers minus the repayments
of principal and payments of interest and other fees—are
greater than the net subsidy costs. The Treasury needs toborrow funds each year to make up that difference.
After all the government’s borrowing needs are accounted
for, debt held by the public rises from $24.3 trillion at
the end of 2022 to $46.4 trillion at the end of 2033 in
CBO’s baseline projections (see Table 1-3). As a percentage of GDP, that debt is projected to stand at 118 percent at the end of 2033—about 21 percentage points
higher than it was at the end of 2022 and about two
and a half times its average over the past 50 years (seeFigure 1-2).
Other Measures of Debt
Four other measures are sometimes used in discussions offederal debt.

• Debt held by the public minus financial assets

excludes the value of the government’s financial
assets. That measure reflects the government’s overall
financial condition by accounting for the valueof financial assets, such as student loans, that the
government has acquired while incurring that debt.
In CBO’s baseline projections, that measure generally
varies along with debt held by the public but is
5 percent to 8 percent smaller.

• Debt held by the public minus financial assets

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

government. In CBO’s baseline projections, thatmeasure increases from $16.6 trillion (or 66 percent
of GDP) at the end of 2022 to $36.4 trillion (or93 percent of GDP) at the end of 2033. (The Federal
Reserve’s holdings of Treasury securities, which
totaled $5.7 trillion at the end of 2022, are projected
to fall to $3.9 trillion at the end of 2025; thereafter,
those holdings increase in CBO’s projections, rising
to $7.6 trillion in 2033.)• Gross debt consists of debt held by the public andTreasury securities held by government accounts(for example, the Social Security trust funds). The
debt held by government accounts does not directly
affect the economy and has no net effect on thebudget. Although debt held by the public increases
by $20.7 trillion from the end of 2023 to the endof 2033 in CBO’s baseline projections, debt heldby government accounts falls by about $1.2 trillion,
reflecting declines in the balances of many trust
funds. As a result, gross federal debt is projected torise by $19.6 trillion over that period and to total$52.0 trillion at the end of 2033. About 11 percentof that sum would be debt held by government
accounts.

• Debt subject to limit is the amount of debt that is

subject to the statutory limit on federal borrowing,
which is often referred to as the debt ceiling. Suchdebt differs from gross federal debt mainly in thatit excludes debt issued by the Federal Financing
Bank and includes certain other adjustments that are
excluded from gross debt.4 Currently, the statutory
limit on the issuance of new federal debt is set at$31.4 trillion. On January 19, 2023, debt reachedthat limit, and the Treasury announced a “debtissuance suspension period,” during which, undercurrent law, it can take well-established “extraordinary
measures” to borrow additional funds without
breaching the debt ceiling. CBO estimates that under
its baseline budget projections, the Treasury would
exhaust those measures and run out of cash sometime
between July and September of this year.5 The Deficit
Control Act requires CBO to project spending,and debt held by the Federal Reserve excludes
Treasury securities held by the Federal Reserve as
well as the value of financial assets held by the federal

4. The Federal Financing Bank, a government corporation under
the general supervision of the Treasury, assists federal agencies inmanaging their borrowing and lending programs. It can issue up
to $15 billion of its own debt securities; that amount does notcount against the debt limit.

3. For more details on other means of financing and on federal debt
more broadly, see Congressional Budget Office, Federal Debt: A
Primer (March 2020), www.cbo.gov/publication/56165.

5. For more information, see Congressional Budget Office, Federal
Debt and the Statutory Limit, February 2023 (February 2023),
www.cbo.gov/publication/58906.

9

10THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

Table 1-3 .

CBO’s Baseline Projections of Federal Debt
Billions of Dollars
Actual,
2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

Debt Held by the Public at the
Beginning of the Year

22,284 24,257 25,716 27,370 29,214 30,927 32,645 34,642 36,406 38,604 40,945 43,482

Changes in Debt Held by the Public
Deficit
Other means of financinga
Total

1,375 1,410 1,576 1,752 1,716 1,706 1,929 1,847 2,115 2,291 2,480 2,851
597
50
78
92
-3
12
67
-83
83
49
58
112
1,973 1,459 1,654 1,844 1,713 1,719 1,996 1,764 2,198 2,340 2,538 2,963

Debt Held by the Public at
the End of the Year
In billions of dollars
As a percentage of GDP

24,257 25,716 27,370 29,214 30,927 32,645 34,642 36,406 38,604 40,945 43,482 46,445
97.0 98.0 100.4 102.1 103.3 104.5 106.5 107.7 109.9 112.2 114.8 118.2

Memorandum:
Federal Financial Assetsb

1,959

Debt Minus Financial Assets
In billions of dollars
As a percentage of GDP

22,298 23,708 25,284 27,036 28,752 30,458 32,387 34,234 36,349 38,641 41,120 43,971
89.1
90.4
92.7
94.5
96.1
97.5
99.6 101.3 103.5 105.9 108.6 111.9

Federal Reserve’s Holdings ofDebt Held by the Public

5,672

Debt Minus Financial Assets andthe Federal Reserve’s Holdings
In billions of dollars
As a percentage of GDP

16,626 18,637 20,916 23,131 24,530 25,732 27,163 28,527 30,171 32,003 34,005 36,398
66.5
71.0
76.7
80.8
82.0
82.3
83.5
84.4
85.9
87.7
89.8
92.6

Gross Federal Debtc

30,838 32,432 34,197 36,063 37,787 39,351 41,134 42,755 44,700 46,719 48,958 51,994

Debt Subject to Limitd

30,869 32,464 34,230 36,097 37,821 39,385 41,168 42,789 44,734 46,753 48,993 52,029

Average Interest Rate on
Debt Held by the Public (Percent)

2.1

2,008

5,070

2.7

2,086

4,369

2.9

2,178

3,905

2.8

2,175

4,222

2.8

2,187

4,726

2.9

2,254

5,225

2,172

5,708

3.0

3.1

2,255

6,178

3.1

2,304

6,638

3.2

2,362

7,116

3.2

2,474

7,573

3.2

Data sources: Congressional Budget Office; Department of the Treasury. See www.cbo.gov/publication/58848#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 arereflected 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 andreflects certain other adjustments that are excluded from gross federal debt. The debt limit is currently set at $31.4 trillion. On January 19, 2023, debt reachedthat limit, and the Treasury announced a “debt issuance suspension period,” during which, under current law, it can take well-established “extraordinary
measures” to borrow additional funds without breaching the debt ceiling. In CBO’s baseline projections, the Treasury will exhaust those measures and run out
of cash sometime between July and September of this year. The Deficit Control Act requires CBO to project spending, revenues, and deficits independentlyof the debt limit. For more details, see Congressional Budget Office, Federal Debt and the Statutory Limit, February 2023 (February 2023), www.cbo.gov/
publication/58906.

CHAPTER 1: THE BUDGET OUTLOOKTHE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Figure 1-2 .

Federal Debt Held by the Public, 1900 to 2053
Percentage of GDP
200

Projected

180

Federal debt held by
the public is projected
to increase in each yearof the projection period
and to reach 118 percent
of GDP in 2033—higher
than it has ever been.
In the two decades that
follow, growing deficits
are projected to pushfederal debt higher still, to
195 percent of GDP in 2053.

160
140
120
100
80
60
40
20
0
1903 1913 1923 1933 1943 1953 1963 1973 1983 1993 2003 2013 2023 2033 2043 2053
Data source: Congressional Budget Office. See www.cbo.gov/publication/58848#data.
GDP = gross domestic product.

revenues, and deficits independently of the debt limit.
Thus, in CBO’s baseline projections, debt subject
to limit continues rising over the next decade andreaches $52.0 trillion in 2033.

OutlaysOutlays in CBO’s baseline projections fall from 24.8 percent of GDP in 2022 to 23.7 percent in 2023 and thenrise in most years thereafter, reaching 24.9 percent in
2033. Since 1973, outlays have averaged 21.0 percent
of GDP.
Outlays in 2023
In CBO’s projections, federal outlays in 2023 total$6.2 trillion—slightly less than the amount recorded
in 2022. That small decrease in total outlays is the
net result of a decrease in mandatory outlays andincreases in net outlays for interest and in spending fordiscretionary programs.
Mandatory Spending. Mandatory, or direct, spending

includes outlays for most federal benefit programs andfor certain other payments to people, businesses, nonprofit institutions, and state and local governments.
Such outlays are generally governed by statutory criteria and are not normally constrained by the annual

appropriation process.6 Certain types of paymentsthat federal agencies receive from the public and fromother government agencies (such as premiums paid by
Medicare beneficiaries and payments made by federal
agencies to employees’ retirement plans) are classified as
offsetting receipts and are accounted for in the budget as
reductions in mandatory spending.
The Deficit Control Act requires CBO to constructbaseline projections for most existing mandatory spending under the assumption that current laws continue
unchanged. Therefore, CBO’s baseline projections ofmandatory spending reflect the estimated effects ofchanges in the economy, growth in the number of beneficiaries of certain mandatory programs, and other factors
related to the costs of those programs. The projections also
incorporate a set of across-the-board reductions in budgetary resources (known as sequestration) that are required
under current law for some mandatory programs.
6. Each year, some mandatory programs are modified by provisions
in annual appropriation acts. Such changes may increase or
decrease spending for the affected programs for one or more
years. In addition, some mandatory programs, such as Medicaid,
the Supplemental Nutrition Assistance Program, and benefits for
Coast Guard retirees and annuitants, are considered mandatory
but require benefits to be paid from amounts provided inappropriation acts.

11

12

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

In 2023, CBO estimates, total mandatory outlays (netof offsetting receipts) will amount to $3.8 trillion undercurrent law, $251 billion (or 6 percent) less than they
were in 2022 (see Table 1-4). As a share of GDP, thoseoutlays are projected to amount to 14.6 percent—nearly
2 percentage points less than such outlays equaled lastyear but still well above the 10.9 percent of GDP they
averaged each year from 1973 to 2022. For some programs, outlays are projected to decrease, in part becauseof waning pandemic-related spending; for others, outlays
are projected to exceed the amounts recorded in 2022.
Outlays for the following programs decrease the most in
2023 in CBO’s projections:• Higher Education. CBO estimates that outlays forhigher education will fall from $490 billion in 2022
to $38 billion in 2023. Outlays were unusuallyhigh in 2022, largely as a result of the student
loan forgiveness announced by the Administrationin August 2022 and recorded in the budget in
September 2022. The Administration recorded thepresent-value costs of that plan, which it estimatedto be $379 billion, as an increase in outlays.7 In
addition, modifications made by the Departmentof Education to the terms of outstanding student
loans—including an extended pause in loan
repayments and interest accrual, as well as changes
that allow borrowers who meet certain criteria tohave their loans forgiven sooner—increased outlays
by $71 billion in 2022. CBO’s current projections
reflect the $19 billion in modification costs in fiscal
year 2023 that the department has recorded through

7. Under the Federal Credit Reform Act of 1990 (FCRA), thebudget records as a cost the discounted present value of any
expected reductions of cash inflows to the Treasury from loan
programs. A present value is a single number that expresses aflow of current and future income (or payments) in terms ofan equivalent lump sum received (or paid) at a specific time.
The present value depends on the rate of interest (the discountrate) that is used to translate future cash flows into current
dollars. For the purposes of calculating the 2022 budget deficit,
CBO used the estimated costs of loan forgiveness as recordedby the Administration rather than its own estimate. The
Administration’s plan is currently being reviewed by the Supreme
Court. If the plan was to be invalidated or revised in response to
the Court’s ruling, the budgetary effects of any such action (asestimated by the Administration) would be recorded in the year
the change was made as an updated estimate of the subsidy costsof those loans.

February 2023

January 9, 2023.8 CBO does not have a basis fordetermining what other modification costs, if any,might be incurred in 2023 beyond those that havealready been recorded by the Administration. Also, in
2022, the Administration revised upward its estimateof the subsidy costs of student loans disbursed inprevious years by $23 billion.9 Thus far, no such
revision has been recorded in 2023, and CBO has
no basis for determining what revision, if any, theAdministration might make this year.

• Refundable Tax Credits. Outlays for refundable

tax credits total $107 billion in 2023 in CBO’s
projections, $145 billion less than the amountrecorded in 2022. Outlays for the child tax credit
decrease by $106 billion this year, primarily because
the temporary expansion of the child tax credit forcalendar year 2021 expired. In addition, outlays for
the U.S. Coronavirus Refundable Credits and for therecovery rebates for individuals that were provided
in response to the pandemic are projected to fall by$14 billion and $11 billion, respectively.10• Coronavirus Relief Fund. In 2022, the federal

government provided $106 billion in direct assistanceto state, local, tribal, and territorial governments in
response to the pandemic. Outlays for such assistancewill fall to $6 billion this year, CBO estimates.

8. Those projections do not include the estimated budgetary effects
of new regulations proposed for student loans repaid throughincome-driven plans that were announced by the Department of
Education on January 10, 2023.
9. Under FCRA, the subsidy costs for student loans are calculated
by subtracting the present value of expected income from federal
student loans issued in previous years from the present value ofthe government’s projected costs. The original subsidy calculation
for a set of loans or loan guarantees may be increased or decreasedin subsequent years by a credit subsidy reestimate made by the
Office of Management and Budget that reflects an updated
assessment of the cash flows associated with the outstandingloans or loan guarantees. For more information about the costsof credit programs, see Congressional Budget Office, Estimatesof the Cost of Federal Credit Programs in 2023 (June 2022),
www.cbo.gov/publication/58031.
10. The U.S. Coronavirus Refundable Credits are a group of tax
credits that employers could use to cover sick leave and familyleave, retain employees, and continue to provide health insurance
for certain workers during the pandemic. The Treasury hasclassified all the recovery rebates paid in advance of tax return
filings as outlays rather than as reductions in revenues.

CHAPTER 1: THE BUDGET OUTLOOK

Meanwhile, outlays for many programs are projected toincrease in 2023. The largest increases are for the following programs:• Social Security. Outlays for Social Security are

estimated to increase by $123 billion (or 10 percent)in 2023, to $1.3 trillion. That increase stems
primarily from the 8.7 percent cost-of-living
adjustment (COLA) received by Social Security
beneficiaries in January 2023, the largest since 1981.

• Medicare. Outlays for Medicare (net of offsetting

receipts) rise by $110 billion (or 16 percent) in 2023,
to $820 billion, in CBO’s projections. That increase
results from a decrease in offsetting receipts and anincrease in outlays. Medicare offsetting receipts areprojected to decrease in 2023 because recoupmentsfrom the COVID-19 Accelerated and Advance
Payment Program are expected to be lower thanthey were last year. Beginning in April 2020, thegovernment provided about $100 billion in assistanceto Medicare providers under that program. That sum
was to be recouped later through reductions in claim
payments. Because most of the outstanding amounts
were recouped in 2021 and 2022, CBO expects suchreceipts to fall from $62 billion in 2022 to $3 billion
in 2023. Additionally, Medicare outlays are projected
to rise in 2023 because of increases in enrollment(which is projected to rise by 2 percent), payment
rates, and spending related to beneficiaries’ use of care.

• Spectrum Auction Receipts. Under current law,

the Federal Communications Commission (FCC)
occasionally auctions licenses for commercial use of
the electromagnetic spectrum. Because the auctions’receipts result from businesslike or market-oriented
transactions between private parties and the federal
government, they are recorded as offsetting receipts,
or reductions in mandatory outlays, rather than asrevenues generated through exercise of the federal
government’s sovereign power. The FCC conducted
several auctions in 2021 and 2022, which boosted net
receipts in 2022 to $104 billion. CBO estimates thatsuch receipts will fall to $0.2 billion in 2023.

• Pension Benefit Guaranty Corporation. The Pension
Benefit Guaranty Corporation’s (PBGC’s) net outlays
are projected to rise by $69 billion in 2023, to$71 billion. That increase is almost entirely the resultof spending from PBGC’s special financial assistanceprogram, which will make onetime payments to

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

financially troubled multiemployer pension plans that
qualify for assistance.
Taken together, outlays for all other mandatory programs
are estimated to rise, on net, by $40 billion (or 3 percent) in 2023. The largest of those changes are for thefollowing programs:• Veterans’ Programs. Mandatory outlays for veterans’

benefits increase in CBO’s projections by $22 billion(or 15 percent) in 2023, to $173 billion. That
increase is primarily the result of the 8.7 percent
COLA for veterans’ compensation and pensions. In
addition, enactment of the Honoring Our PACTAct (P.L. 117-168) increased mandatory spending
for a variety of benefits for veterans exposed to toxic
substances.

• Federal Housing Administration’s Credit Programs.

In 2022, the Department of Housing and Urban
Development recorded a $22 billion reductionin the estimated subsidy costs of credit programs
administered by the Federal Housing Administration,
thus lowering outlays for the year. CBO has notincluded any such revisions in its current projectionsfor 2023 because it has no basis for determining
what revisions, if any, the Administration will makethis year.

• Supplemental Nutrition Assistance Program.

Outlays for the Supplemental Nutrition Assistance
Program (SNAP) are projected to fall by $21 billion(or 14 percent) in 2023, to $127 billion. That
decrease largely stems from the Consolidated
Appropriations Act (CAA), 2023 (P.L. 117-328),
enacted on December 29, 2022. That law lowered
the amount of additional benefits provided throughthe Pandemic Electronic Benefit Transfer program.
That program, introduced in 2020 in response to thepandemic, provides food benefits during the summer
months to families with schoolchildren. In addition,
the CAA ended, in February 2023, the emergency
allotments that were provided to SNAP participants
during the pandemic.

Changes in mandatory spending for a variety of otherprograms and activities—including Medicaid, subsidies
for health insurance, and federal retirement programs—
account for the remainder of the increase.

13

14

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

Table 1-4 .

CBO’s Baseline Projections of Mandatory Outlays, Adjusted to Exclude Effects ofTiming Shifts
Billions of Dollars

Total
Actual,2024– 2024–
2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2028 2033

Social Security
Old-Age and Survivors Insurance
Disability Insurance
Subtotal
Major Health Care Programs
Medicarea,bMedicaid
Premium tax credits andrelated spendingcChildren’s Health
Insurance Program
Subtotal
Income Security Programs
Supplemental Nutrition
Assistance Program
Earned income, child, and othertax creditsd
Supplemental Security Incomea
Unemployment compensation
Child nutrition
Family support and foster caree
Subtotal
Federal Civilian and
Military Retirement
Civilianf
Militarya
Subtotal
Veterans’ Programs
Income securitya,gToxic exposures fundh
Othera,i
Subtotal
Other Programs
Agriculture
Higher education
MERHCF
Education Stabilization Fund
Fannie Mae and Freddie Macj
Public Health and Social Services
Emergency FundCoronavirus Relief Fund
Pension Benefit Guaranty
Corporation
Deposit insurance
Other
Subtotal
Mandatory Outlays, Excluding
Offsetting Receipts

1,070 1,184 1,289 1,379 1,457 1,536 1,624 1,715 1,812 1,913 2,017 2,122
143
152
160
168
178
187
192
199
207
215
223
232
1,213 1,336 1,450 1,547 1,635 1,723 1,817 1,914 2,019 2,128 2,240 2,355
937
592

998 1,081 1,133 1,222 1,311 1,405 1,503 1,607 1,730 1,841 2,001
589
539
535
572
611
649
689
732
775
826
879

86

81

78

82

67

77

81

86

90

96

104

112

17
18
17
18
18
19
20
20
21
22
20
15
1,632 1,687 1,715 1,768 1,879 2,018 2,154 2,298 2,450 2,622 2,791 3,007

7,286 16,864
885 1,962
8,171 18,826
6,152 14,834
2,907 6,807
383

870

92
190
9,534 22,701

149

127

125

123

119

120

119

118

118

119

122

123

605

1,205

252
57
34
39
47
576

107
60
37
34
48
413

95
63
50
35
41
408

98
64
48
37
35
406

99
65
48
39
35
405

84
67
48
41
35
396

85
69
46
43
36
398

84
71
48
45
36
403

84
73
50
47
36
409

84
75
52
50
36
416

84
77
54
52
37
426

84
79
55
54
37
433

460
329
240
197
181
2,012

881
704
500
445
364
4,098

116
66
182

122
74
196

129
79
208

134
83
217

138
85
224

142
87
230

146
90
236

149
92
241

153
95
248

157
97
254

163
100
263

167
102
269

690
424
1,114

1,479
910
2,389

129
0
21
150

147
5
21
173

159
34
16
209

169
40
15
225

180
49
15
245

191
56
15
262

201
63
15
280

211
71
16
297

220
79
16
315

229
87
17
333

238
94
19
351

248
101
19
368

901
243
77
1,220

2,045
675
164
2,884

17
490
11
45
0

25
38
12
53
0

19
17
12
34
9

16
17
13
20
5

17
18
14
5
3

20
18
14
0
2

21
18
15
0
2

21
18
16
0
2

19
19
17
0
4

18
19
17
0
5

18
19
18
0
7

18
19
19
0
13

92
88
68
59
20

186
181
155
59
52

30
106

19
6

9
6

4
0

2
0

1
0

*
0

*
0

*
0

*
0

*
0

*
0

16
6

16
6

2
-12
138
828

71
-11
153
366

1
-10
147
242

-4
-9
137
199

*
-8
141
192

-5
-8
142
184

-6
-9
140
182

-6
-9
129
171

-6
-10
125
168

-6
-10
119
163

-6
-10
94
140

-6
-10
93
145

-14
-43
707
999

-44
-92
1,268
1,786

4,581 4,170 4,232 4,361 4,579 4,812 5,065 5,325 5,608 5,915 6,210 6,577 23,050 52,684
Continued

CHAPTER 1: THE BUDGET OUTLOOKTHE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Table 1-4.

Continued

CBO’s Baseline Projections of Mandatory Outlays, Adjusted to Exclude Effects ofTiming Shifts
Billions of Dollars
Total
Actual,2024– 2024–
2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2028 2033
Offsetting Receipts
MedicareFederal share of federal
employees’ retirement
Civil service retirement
and other
Military retirement
Social Security
Subtotal
Receipts related tonatural resources
MERHCF
Fannie Mae and Freddie Macj
Other
Total
Mandatory Outlays, Including
Offsetting Receipts

-227

-178

-187

-200

-216

-234

-254

-274

-296

-321

-349

-378 -1,090 -2,708

-52
-26
-21
-99

-54
-28
-22
-104

-56
-24
-23
-103

-59
-25
-24
-108

-62
-26
-24
-112

-64
-27
-25
-116

-67
-27
-26
-120

-69
-28
-27
-124

-71
-29
-28
-128

-74
-30
-29
-132

-76
-30
-30
-136

-79
-31
-31
-140

-24
-10
-6
-139
-505

-17
-10
-6
-29
-345

-17
-11
0
-28
-346

-17
-12
0
-30
-367

-16
-12
0
-30
-387

-16
-13
0
-38
-417

-16
-13
0
-39
-442

-17
-14
0
-31
-460

-18
-15
0
-37
-493

-18
-15
0
-37
-524

-19
-16
0
-25
-545

-19
-83
-174
-17
-61
-138
0
0
0
-25
-165
-320
-579 -1,959 -4,561

-309
-678
-129
-278
-122
-266
-561 -1,222

4,076 3,825 3,885 3,995 4,193 4,395 4,623 4,864 5,115 5,391 5,665 5,997 21,091 48,123

Effects That Timing Shifts
Have on Mandatory Outlays in
CBO’s Baseline Projections
MedicareSupplemental Security Income
Military retirement
Veterans’ income security
Veterans’ other
Total
Mandatory Outlays in
CBO’s Baseline Projections

4,135 3,840 3,812 3,995 4,193 4,395 4,731 4,756 5,115 5,391 5,665 6,140 21,125 48,192

Memorandum:
Outlays, Net of Offsetting Receipts
Medicare
Major health care programs

710
820
894
933 1,006 1,077 1,151 1,229 1,312 1,409 1,492 1,623
1,404 1,508 1,528 1,568 1,664 1,784 1,900 2,024 2,154 2,302 2,441 2,629

38
4
5
11
1
59

12
1
*
3
*
15

-50
-5
-5
-13
-1
-74

0
0
0
0
0
0

0
0
0
0
0
0

0
0
0
0
0
0

78
5
6
17
1
108

-78
-5
-6
-17
-1
-108

0
0
0
0
0
0

0
0
0
0
0
0

0
0
0
0
0
0

108
6
7
21
1
142

n.a.
n.a.
n.a.
n.a.
n.a.
n.a.

n.a.
n.a.
n.a.
n.a.
n.a.
n.a.

5,062 12,126
8,444 19,994

Data source: Congressional Budget Office. See www.cbo.gov/publication/58848#data.
Spending for benefit programs shown in this table generally excludes administrative costs, which are discretionary.
MERHCF = Department of Defense Medicare-Eligible Retiree Health Care Fund; n.a. = not applicable; * = between -$500 million and $500 million.
a. 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. These outlays have been adjusted to remove the effects of those shifts.
b. Gross spending, excluding the effects of Medicare premiums and other offsetting receipts. (Net Medicare spending is shown in the memorandum section.)c. Spending to subsidize health insurance purchased through the marketplaces established under the Affordable Care Act and provided through the Basic
Health Program and spending to stabilize premiums for health insurance purchased by individuals and small employers.
d. Includes outlays for the American Opportunity Tax Credit and other credits.
e. Includes Temporary Assistance for Needy Families, Child Support Enforcement, Child Care Entitlement to States, 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.
h. Provides funding for health care, claims processing, and certain other expenses incidental to providing care to veterans exposed to toxic substances.
i. Primarily the GI Bill and similar education benefits.
j. Cash payments from Fannie Mae and Freddie Mac to the Treasury are recorded as offsetting receipts in 2022 and 2023. Beginning in 2024, CBO’s estimatesreflect 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 willhold. CBO counts those costs as federal outlays in the year of issuance.

15

16

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Discretionary Spending. Discretionary spending

encompasses an array of federal activities that are fundedthrough or controlled by appropriations. That category
includes most defense spending; spending for many
nondefense activities, such as elementary and secondary
education, housing assistance, international affairs, andthe administration of justice; and outlays for highway
programs.11 In any year, some discretionary outlays arise
from budget authority provided in the same year, andsome arise from appropriations made in previous years.12
In CBO’s baseline projections, discretionary budget
authority for 2023 totals $1.8 trillion, $38 billion (or2 percent) more than the amount provided in 2022 (seeTable 1-5).13 (When the obligation limitations thatgovern discretionary spending for certain transportation
programs are accounted for, funding is $40 billion morethis year than it was last year.)14
The 2 percent increase in budget authority in 2023 is the
net result of larger changes in different types of funding
for this year:• Funding provided in division J of the Infrastructure

Investment and Jobs Act (IIJA, P.L. 117-58) anddivision B of the Bipartisan Safer Communities Act(BSCA, P.L. 117-159) boosted budget authority
in 2022 by $165 billion. Those laws also provided
advance appropriations over the 2023–2026 period.
The advance appropriations for 2023, which aredesignated as an emergency requirement, total

11. Funding for highway programs is provided in authorizing
legislation and is considered mandatory.
12. Budget authority, or funding, is the authority provided by federal
law to incur financial obligations that will result in immediate or
future outlays of federal government funds.
13. Included in the enacted appropriation legislation were changes
in mandatory programs (often referred to as CHIMPs) that,on net, were counted as reductions to discretionary budget
authority. Those reductions amounted to $28 billion in CBO’s
cost estimates for legislation in 2023. Such reductions donot, however, affect discretionary budget authority in CBO’sbaseline projections; rather, CHIMPs are reflected as changes inmandatory budget authority and (to a lesser extent) outlays.
14. An obligation limitation is a restriction—typically included
in an appropriation act—on the amount, purpose, or periodof availability of budget authority. The limitation often affects
budget authority that has been provided in an authorization act.
Although the budget authority for many transportation programs
is mandatory, the outlays from the obligation limitations for
those programs are considered discretionary.

February 2023

$70 billion, which is $95 billion less than the2022 amounts.

• Funding for 2023 (other than that provided by the

IIJA and the BSCA) designated as an emergency
requirement is $103 billion; such funding was$98 billion last year. Most of that other emergency
funding is for assistance following natural disasters
and to respond to the Russian invasion of Ukraine.

• Nonemergency discretionary funding for 2023 totals$1.7 trillion, $129 billion (or 9 percent) more thanthe $1.5 trillion provided in 2022. That funding was
primarily provided by the 2023 CAA.15

CBO anticipates that if no further appropriations
are provided this year, discretionary outlays will total$1.7 trillion in 2023—$84 billion (or 5 percent) morethan they were last year. The agency expects outlays torise by more than the increase in budget authority thisyear, primarily because of spending from budget authority provided in previous years.
In CBO’s projections, discretionary funding for
defense totals $891 billion in 2023, a $75 billion—or
9 percent—increase from the sum provided in 2022.
Emergency-designated defense funding, which totaled$34 billion in 2022, dips slightly to $33 billion in 2023.
Outlays for defense are estimated to be $800 billion in
2023. That amount is $54 billion, or 7 percent, morethan such outlays in 2022.
Overall, funding for nondefense discretionary programs
decreases by $37 billion—or 4 percent—from 2022
to 2023 in CBO’s projections. Funding from advanceappropriations provided in division J of the IIJA andin the BSCA decreases by $95 billion, and emergency
funding from other sources increases by $5 billion. Allother funding for nondefense programs increases by$53 billion, or 7 percent, to $793 billion. Under current
law, CBO estimates, nondefense discretionary outlays in
2023 will total $941 billion, an increase of $30 billion(or 3 percent) from outlays recorded last year.
Net Interest Outlays. In the budget, net outlays forinterest consist of the government’s interest payments onfederal debt, offset by interest income that the government receives. Net interest outlays are dominated by
the interest paid to holders of the debt that the Treasury
15. Before that law’s enactment on December 29, 2022, funding foragencies in 2023 was provided by three continuing resolutions.

CHAPTER 1: THE BUDGET OUTLOOKTHE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Table 1-5 .

CBO’s Baseline Projections of Discretionary Spending, Adjusted to Exclude Effects ofTiming Shifts
Billions of Dollars

Total
Actual,2022a 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033

Budget Authority
DefenseOther discretionary
782
858
885
908
931
954
977 1,000 1,024 1,049 1,074 1,100
IIJA and BSCAb
*
*
*
*
*
*
*
*
*
*
*
*
Emergency
34
33
37
38
39
40
40
41
42
43
44
45
Subtotal
816
891
922
945
969
993 1,017 1,041 1,067 1,092 1,118 1,145
Nondefense
Other discretionary
740
793
844
864
883
907
927
950
973
997 1,021 1,046
IIJA and BSCAb
165
70
70
70
69
70
71
73
74
76
78
79
Emergency
64
70
71
73
74
76
77
79
81
82
84
86
Subtotal
969
932
985 1,007 1,026 1,053 1,076 1,102 1,128 1,155 1,182 1,211
Total Budget Authority 1,785 1,824 1,907 1,952 1,995 2,046 2,094 2,143 2,195 2,247 2,300 2,356
DefenseOther discretionaryc
IIJA and BSCAb
Emergencyc
Subtotal
Nondefense
Other discretionary
IIJA and BSCAb
Emergency
Subtotal
Total Outlays
Memorandum:
Effect That Timing Shifts Haveon Discretionary Outlays in
CBO’s Baseline
CBO’s Baseline Projection ofDiscretionary Outlays
Outlays From IIJA and BSCA
Appropriations as Specified

2024– 2024–
2028 2033

4,653 9,901
*
*
193
408
4,847 10,310
4,425 9,413
350
730
371
783
5,147 10,926
9,993 21,236

Outlays
746
0
n.a.
746

796
*
4
800

838
*
10
848

871
*
15
886

898
*
20
918

921
*
26
947

944
967
990 1,014 1,039 1,064
*
*
*
*
*
*
32
36
38
39
40
41
976 1,003 1,028 1,053 1,079 1,105

4,472
*
103
4,575

9,545
*
298
9,844

908
886
929
951
953
974
993 1,016 1,039 1,063 1,088 1,113 4,800 10,120
3
21
42
59
69
72
72
71
71
71
73
74
315
675
n.a.
34
50
59
65
69
72
74
76
78
80
82
316
707
910
941 1,022 1,070 1,087 1,116 1,137 1,162 1,187 1,213 1,240 1,269 5,431 11,501
1,657 1,741 1,869 1,955 2,005 2,063 2,113 2,165 2,215 2,266 2,319 2,373 10,006 21,345

5

*

-5

0

0

0

6

-6

0

0

0

7

n.a.

n.a.

1,662 1,741 1,864 1,955 2,005 2,063 2,119 2,159 2,215 2,266 2,319 2,380 10,007 21,347
3

21

42

59

68

68

57

42

27

17

11

8

294

399

Data source: Congressional Budget Office. See www.cbo.gov/publication/58848#data.
BSCA = Bipartisan Safer Communities Act; IIJA = Infrastructure Investment and Jobs Act; n.a. = not applicable; * = between zero and $500 million.
a. The Department of the Treasury does not distinguish between outlays stemming from emergency funding (other than that provided by the IIJA and BSCA) andoutlays stemming from nonemergency funding. Consequently, the budget does not record any actual amounts attributed specifically to emergency funding.
b. Division J of the IIJA provides a total of $266 billion in discretionary funding from 2023 to 2026, and the BSCA provides nearly $3 billion in funding over that
period. After consulting with the Budget Committees, CBO applied the rules that govern how it constructs baseline projections to that funding. As a result, theamount of funding related to the IIJA and the BSCA in CBO’s baseline exceeds the amounts specified in those laws.
c. 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. Outlays have been adjusted to remove the effects of those timing shifts.

17

18

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

issues to the public. The Treasury also pays interest
on debt issued to trust funds and other government
accounts, but such payments are intragovernmental
transactions that have no effect on the budget deficit.

from 24 percent of GDP in 2024 to 23 percent in 2025
and 2026 and then generally increase thereafter, equaling
25 percent of GDP in 2032 and 2033 (see Figure 1-3).

Net outlays for interest, which rose by 35 percent lastyear, are projected to increase by 35 percent again thisyear, from $475 billion in 2022 to $640 billion. Relative
to the size of the economy, those outlays will rise from
1.9 percent of GDP in 2022 to 2.4 percent in 2023,
nearly one percentage point higher than their level in
2021. The projected increase in 2023 occurs primarily
because the average interest rate that the Treasury pays
on its debt has risen sharply this year and is expected
to rise further as maturing securities are refinanced at
rates that are higher than those that prevailed when they
were initially issued.16 For example, the interest rate on
10-year Treasury notes averaged 1.3 percent in 2021 and
2.4 percent in 2022; that rate averages 3.8 percent in
2023 in CBO’s current economic forecast. Debt held by
the public (in nominal terms) is on track to increase by
6 percent from 2022 to 2023.

for mandatory programs (net of offsetting receipts) total
14 percent of GDP each year from 2024 to 2029, riseto 15 percent in 2030, and remain at that level through2033. That pattern occurs in part because spending
related to the pandemic continues to fall over the next
few years while two underlying factors—the aging of the
population and growth in federal health care costs—put
upward pressure on mandatory outlays. The aging of the
population causes the number of beneficiaries of Social
Security and Medicare to grow faster than the overall
population, and federal health care costs per beneficiary continue to rise faster than GDP per person. As
a result of those two trends, outlays for Social Security
and Medicare increase in relation to GDP from 2023 to2033. The effects of those trends on federal spending will
persist beyond the 10-year projection period.

Outlays From 2024 to 2033
In CBO’s baseline projections, federal outlays (adjusted
to exclude the effects of timing shifts) rise from $6.5 trillion in 2024 to $9.8 trillion in 2033, for an averageannual increase of nearly 5 percent.17 Measured inrelation to the size of the economy, federal outlays dip
16. The average interest rate on debt reflects the interest rates on
Treasury securities of different maturities, the maturity structureof securities issued, and the costs of inflation-linked payments
made on some of those securities.
17. CBO’s projections follow provisions in section 257 of the
Deficit Control Act, which requires CBO to project spendingfor certain programs, including Social Security and Medicare,
under the assumption that they will be fully funded, and thus
able to make all scheduled payments, even if the trust funds
associated with those programs do not have sufficient resources
to make full payments. For example, CBO estimates that the
Highway Trust Fund will be exhausted in 2028, the Old-Age
and Survivors Insurance trust fund will be exhausted in 2032,
and the Hospital Insurance trust fund will be exhausted in 2033.
Nevertheless, CBO’s baseline projections reflect the assumptionthat full payments from those funds will continue to be made.
In addition, the Deficit Control Act requires CBO to project
spending for certain mandatory programs beyond their scheduled
expiration. Other rules that govern the construction of CBO’sbaseline projections have been developed by the agency inconsultation with the House and Senate Budget Committees.
For further details, see Congressional Budget Office, How
CBO Prepares Baseline Budget Projections (February 2018),
www.cbo.gov/publication/53532.

Mandatory Spending. In CBO’s projections, outlays

Social Security and the Major Health Care Programs.

Measured as a percentage of GDP, outlays for Social
Security and the major health care programs, net ofoffsetting receipts, are projected to rise in most years
over the 10-year projection period, from 10.9 percent in
2024 to 12.7 percent in 2033.18 (Spending for the major
health care programs consists of outlays for Medicare,
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.)
CBO’s current baseline includes the following projections of outlays for specific programs:• Outlays for Social Security increase to 5.3 percent

of GDP in 2024 and continue rising in most years
thereafter, reaching 6.0 percent of GDP in 2033.

• Outlays for Medicare equal 3.3 percent of GDP in
2024 and climb to 4.1 percent of GDP in 2033.

• Federal outlays for Medicaid, which equal 2.0 percent
of GDP in 2024 in CBO’s baseline projections, dipslightly, amounting to 1.9 percent of GDP in 2025

18. Offsetting receipts for Medicare include mostly payments ofpremiums, recoveries of overpayments made to providers, andamounts paid by states from savings on Medicaid’s prescription
drug costs.

CHAPTER 1: THE BUDGET OUTLOOKTHE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Figure 1-3 .

Total Outlays and Revenues
Percentage of GDP
40

Projected

30

Average Outlays,
1973 to 2022
(21.0)

Outlays20
Average Revenues,
1973 to 2022
(17.4)

10

Revenues

0
1973

1983

1993

2003

2013

2023

Measured as a percentage
of GDP, projected outlays
remain about the samefor the next several years,
24.9 as growth in outlays forinterest payments and18.1 mandatory spending isoffset in part by waning
pandemic-related spending.
Outlays and revenues equalor exceed their 50-year
averages in each year of the2024–2033 period.
2033

Data source: Congressional Budget Office. See www.cbo.gov/publication/58848#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 theend 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.

and 2026 as pandemic-related spending wanes. Those
outlays climb to 2.2 percent in 2033.

• Outlays for subsidies for health insurance purchased
through the marketplaces and related spending
average 0.3 percent of GDP per year through 2033.

Other Mandatory Programs. Other mandatory spend-

ing—that is, all mandatory spending aside from that forSocial Security and the major health care programs—isprojected to drop by 0.4 percent of GDP in 2024, to
3.3 percent, in part because pandemic-related spending continues to dissipate. (Other mandatory spending
peaked at 10.6 percent of GDP in 2021.) Such spending
includes outlays for income support programs (such as
unemployment compensation and SNAP), military andcivilian retirement programs, most veterans’ benefits, andmajor agriculture programs.
In CBO’s baseline projections, other mandatory spending measured as a share of GDP continues to decline
after 2024 but at a slower pace, falling to 2.6 percent at
the end of the projection period. The projected decline
occurs in part because benefit amounts for many of those
programs are adjusted for inflation each year, and in

CBO’s economic forecast, the growth of nominal GDP
outpaces inflation. Growth in veterans’ benefits, which
averages 8 percent per year (in nominal terms) after 2023,
partially offsets the decline in other mandatory outlays.
Discretionary Spending. In accordance with section

257 of the Deficit Control Act, discretionary funding in
future years is assumed to equal the amount provided so
far for 2023—including funding designated as an emergency requirement—with adjustments for inflation.19
As a result, in nominal terms, discretionary outlays areprojected to increase over the next 10 years, rising from
$1.9 trillion in 2024 to $2.4 trillion in 2033. Outlays
from funding designated as an emergency requirement(including funding provided by the IIJA and the BSCA
19. The Deficit Control Act specifies which measures of inflation
CBO should use to construct its projections: The employment
cost index for wages and salaries of workers in private industry isused to adjust discretionary funding related to federal personnel,
and the gross domestic product price index is used to adjustother discretionary funding. For accounts with enacted advanceappropriations, CBO applied provisions of law that require
it to project future discretionary funding for those years forwhich funding has not been provided, starting with existing
appropriations and adjusting them for inflation.

19

20

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

and amounts stemming from the assumption thatsuch funding would continue to be provided in eachyear) account for 8 percent of discretionary outlays in
CBO’s baseline.
In CBO’s projections, total discretionary budget authority rises by an average of 2.6 percent per year after
2023. Total discretionary outlays rise faster than budget authority over the first few years of the projection
period, primarily because of spending stemming frombudget authority provided in previous years. After 2027,
outlays rise at about the same rate as budget authority,
increasing by an average of 2.4 percent per year through2033. Measured as a share of GDP, discretionary outlays
decrease steadily, from 6.9 percent in 2024 to 6.0 percent
in 2033, at which point they would equal their lowest
previously reported level (see Figure 1-4). By comparison, discretionary outlays averaged 8.0 percent of GDP
over the past 50 years.
In CBO’s projections, defense outlays fall to 2.8 percent
of GDP in 2033—which would be their smallest sharesince 1962 (the earliest year for which such data havebeen reported). Outlays for nondefense discretionary
programs would amount to 3.2 percent of GDP in 2033.
Nondefense discretionary outlays have been less thanthat only three times—in 1999, 2018, and 2019—when
they equaled 3.1 percent of GDP.
Net Interest Outlays. Net outlays for interest nearly

double over the period in CBO’s projections, rising from$739 billion in 2024 to $1.4 trillion in 2033. Measured
relative to the size of the economy, those outlays risefrom 2.7 percent of GDP in 2024 to 3.6 percent in
2033. At that level, they would be 1.6 percentage points
higher than their 50-year average.
The amount of the federal government’s net interest costs
is determined by the outstanding debt and the averageinterest rate on that debt. Growth in net interest costs ismainly affected by changes in the average interest rate onfederal debt and by the primary deficit, which requires
the government to borrow more and thus increases debt
held by the public.20 Borrowing to pay for greater interest
20. For more details on the government’s net interest costs, see
Congressional Budget Office, Federal Net Interest Costs: A Primer(December 2020), www.cbo.gov/publication/56780. The costs
are also affected by debt issuance not accounted for by primary
deficits, such as that issued for some of the financing of federal
credit programs.

February 2023

costs pushes up the net cost of interest further—in largepart because of the way that increases in the averageinterest rate and the primary deficit affect each other.

• Average interest rates on federal debt rise in CBO’s

projections as debt matures and is refinanced. In
2024, the average interest rate on debt held by the
public is projected to be 2.9 percent, 0.2 percentage
points higher than it was in 2023 and 0.7 percentage
points higher than it was in 2022; that rate generally
rises thereafter, albeit more slowly, reaching
3.2 percent in 2033. Changes in the average interest
rate stem from interest rates on Treasury securities,
the rate of inflation applicable to Treasury inflationprotected securities, and the maturity structure ofoutstanding securities. (For a discussion of the factors
responsible for changes in interest rates and inflation,
see Chapter 2.)• Primary deficits average 2.9 percent of GDP from2024 to 2033, adding to debt held by the public eachyear. (The factors responsible for primary deficits are
discussed earlier in this chapter.)

On average, in CBO’s projections, increases in the
average interest rate on federal debt account for about
three-quarters of the increase in net interest costs from2024 to 2033.21

Revenues

Federal revenues in 2022 totaled $4.9 trillion. Under
current law, revenues will fall by 2 percent in 2023,
to $4.8 trillion, CBO estimates. As a percentage ofGDP, revenues are projected to fall from 19.6 percent of GDP in 2022 to 18.3 percent this year, still
above the 17.4 percent of GDP they averaged over the
past 50 years. In CBO’s projections, revenues drop to
17.4 percent of GDP in 2025 and then, over the next
two years, climb to 18.1 percent of GDP, where they
21. To assess the share of the increase in net interest costs attributable
to changes in the average interest rate, CBO started by examining
a benchmark scenario in which after 2022, the average interest
rate did not change and there were no primary deficits adding to
the amount of debt. CBO estimated the increase, relative to thatbenchmark, in net interest costs from the change in the averageinterest rate in CBO’s projections (by using a scenario with those
rates and no primary deficits) and from primary deficits in CBO’s
projections (by using a scenario with those deficits and no change
in the average interest rate). The agency used the relative size of
those estimates to calculate the share of the total increase in net
interest costs attributable to the increase in the average interest
rate by allocating the interaction between the average interest rate
and the primary deficit proportionally.

CHAPTER 1: THE BUDGET OUTLOOKTHE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Figure 1-4 .

Outlays, by Category
Percentage of GDP
24

Projected

20
16

Mandatory

12
Discretionary

8
4

Net Interest

0
1973

1983

1993

2003

2013

2023

In CBO’s projections,rising spending on Social
Security and Medicare
boosts mandatory outlays,
15.3
but total discretionary
spending falls in relation
to GDP. As the cost offinancing the nation’s
debt grows, net outlays
6.0
for interest increase
3.6 substantially and,beginning in 2030, exceed
their previous peak.

2033

Data source: Congressional Budget Office. See www.cbo.gov/publication/58848#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 theend 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.

remain at the end of the projection period (see Figure
1-3 on page 19). Those overall changes are driven by
the following changes in specific sources of revenues in
CBO’s projections:interest expenses to such an extent that they exceed
its income. CBO anticipates that remittances will besignificant again in 2028 and rise slowly as a share of
the economy thereafter.

• Individual income tax receipts decline in relation• Excise tax receipts rise in 2023 and 2024 after recent

to GDP through 2025 in CBO’s projections, partly
because the agency anticipates that collections fromtaxes on capital gains realizations and other sources,
which have been strong in recent years, will fall.
Receipts grow from 2025 to 2027 because scheduledchanges in tax provisions, including an increase inmost tax rates, are projected to drive up receipts inrelation to taxable personal income. Real bracket
creep (explained below) also contributes to rising
receipts over time.

• Corporate income tax receipts decrease steadily in
relation to GDP from 2023 to 2033. That declinereflects the net effects of scheduled changes intax rules.

• Federal Reserve remittances remain near zero from2023 to 2027 because higher short-term interest
rates have increased the Federal Reserve System’s

legislative changes take effect. Thereafter, excise taxes
gradually decline in relation to GDP along with thetax bases on which many excise taxes are levied.

Individual Income Taxes
In 2022, receipts from individual income taxes totaled$2.6 trillion, or 10.5 percent of GDP—the highest thosereceipts have been in relation to the size of the economy since the 16th Amendment authorizing the federal
government to collect income taxes was ratified in 1913.
Under current law, receipts from individual income taxes
are projected to fall this year to $2.5 trillion, or 9.6 percent of GDP—still well above the 8.0 percent of GDP
they averaged over the past five decades (see Figure 1-5).
Over the next two years, receipts in CBO’s projections
decline further in relation to the size of the economy,
reaching 8.8 percent of GDP in 2025 (see Table 1-6).

21

22

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

Figure 1-5 .

Revenues, by Category
Percentage of Gross Domestic Product12

Projected

Individual Income Taxes

9.7

9

6

5.9

Payroll Taxes

3

Corporate Income Taxes
Other

1.4
1.1

a

0
1973

1983

1993

2003

2013

2023

2033

After reaching a historichigh in 2022, receipts fromindividual income taxes
are projected to fall in
2023 because collections
from taxes on capital gains
realizations and othersources, which have beenstrong in recent years, fall in
CBO’s projections. Receipts
are projected to rise again
after 2025 because of thescheduled expiration ofcertain provisions of the2017 tax act.

Data source: Congressional Budget Office. See www.cbo.gov/publication/58848#data.
a. Consists of excise taxes, remittances from the Federal Reserve System, customs duties, estate and gift taxes, and miscellaneous fees and fines.

That decline partly reflects CBO’s expectation that the
recent strength in tax collections will not continue. In
addition, payments of certain taxes deferred during thefirst two years of the pandemic and paid in 2022 and2023 will no longer be made. After 2025, individual
income tax receipts are projected to rise in relation to
GDP because of scheduled changes in tax law and real
bracket creep.
Following the initial decline and subsequent increase,receipts in CBO’s baseline projections total 9.7 percent
of GDP in 2033, 0.1 percentage point higher than they
are in 2023. The offsetting factors that contribute to that
small net increase are described in more detail below.
Scheduled Tax Changes After 2025. At the end of

calendar year 2025, nearly all the changes to the individual income tax made by the 2017 tax act are scheduled
to expire under current law. Together, those scheduledchanges are the most significant factor pushing up tax
revenues relative to income over the next 10 years in
CBO’s projections. After the scheduled changes takeeffect, taxpayers will face higher statutory tax rates,a smaller standard deduction, the return of personal
exemptions, and a reduction in the child tax credit.
Those changes would cause tax liabilities (the amounttaxpayers owe) to rise beginning in calendar year 2026,

boosting receipts in fiscal year 2027 and beyond. In
CBO’s projections, the scheduled changes to those tax
provisions boost annual individual income tax receipts
measured as a share of GDP by 0.8 percentage points
from 2025 to 2033.
Real Bracket Creep and Related Effects. The income

thresholds for the various tax rate brackets in the individual income tax are indexed to increase with inflation (asmeasured by the chained consumer price index publishedby the Bureau of Labor Statistics).22 When income grows
faster than prices—as CBO projects it will over the2023–2033 period—more income is pushed into higher
tax brackets, a process known as real bracket creep. In
addition, the Internal Revenue Service adjusts the income
thresholds before the start of the tax year, which meansthat the adjustments are based on inflation in the previous year. Because of that lag, a larger share of income may
be taxed at higher rates during periods of high inflation.
Many other parameters of the tax system are also indexed
for inflation, including the amounts of the standard
deduction and the earned income tax credit. But certain
22. For more information, see Congressional Budget Office,“How Income Growth Affects Tax Revenues in CBO’s
Long-Term Budget Projections” (June 2019), www.cbo.gov/
publication/55368.

CHAPTER 1: THE BUDGET OUTLOOKTHE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Table 1-6 .

CBO’s Baseline Projections of Revenues
Total
Actual,2024– 2024–
2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2028 2033
Individual Income Taxes
Payroll Taxes
Corporate Income Taxes
Other
Excise taxes
Federal Reserve remittances
Customs duties
Estate and gift taxes
Miscellaneous fees and fines
Subtotal

In Billions of Dollars
2,632 2,523 2,467 2,511 2,764 3,018 3,121 3,246 3,377 3,515 3,650 3,803 13,881 31,472
1,484 1,562 1,633 1,703 1,778 1,849 1,920 1,993 2,068 2,147 2,226 2,307 8,884 19,625
425
475
479
489
495
494
506
514
520
527
527
539 2,462 5,089
88
107
100
33
29
356

91
1
99
27
35
251

101
4
97
25
34
260

100
6
98
24
35
264

101
7
101
26
37
273

102
10
103
39
40
293

103
78
104
42
42
369

103
88
105
44
45
386

104
98
106
47
43
398

105
109
107
50
43
414

106
122
109
53
44
435

107
130
110
57
45
449

506
105
503
156
188
1,459

1,033
652
1,040
406
409
3,540

Total
On-budget
Off-budgeta

4,896 4,812 4,838 4,966 5,310 5,655 5,916 6,139 6,364 6,603 6,838 7,098 26,686 59,727
3,830 3,678 3,643 3,711 3,999 4,292 4,501 4,671 4,842 5,023 5,200 5,402 20,145 45,284
1,066 1,133 1,196 1,255 1,311 1,363 1,415 1,468 1,522 1,580 1,637 1,695 6,540 14,443

Memorandum:
Gross Domestic Product25,009 26,238 27,266 28,610 29,932 31,251 32,525 33,811 35,133 36,488 37,874 39,288 149,585 332,179

Individual Income Taxes
Payroll Taxes
Corporate Income Taxes
Other
Excise taxes
Federal Reserve remittances
Customs duties
Estate and gift taxes
Miscellaneous fees and fines
Subtotal

10.5
5.9
1.7

9.6
6.0
1.8

9.0
6.0
1.8

8.8
6.0
1.7

As a Percentage of Gross Domestic Product
9.2
9.7
9.6
9.6
9.6
9.6
5.9
5.9
5.9
5.9
5.9
5.9
1.7
1.6
1.6
1.5
1.5
1.4

9.6
5.9
1.4

9.7
5.9
1.4

9.3
5.9
1.6

9.5
5.9
1.5

0.4
0.4
0.4
0.1
0.1
1.4

0.3
*
0.4
0.1
0.1
1.0

0.4
*
0.4
0.1
0.1
1.0

0.4
*
0.3
0.1
0.1
0.9

0.3
*
0.3
0.1
0.1
0.9

0.3
*
0.3
0.1
0.1
0.9

0.3
0.2
0.3
0.1
0.1
1.1

0.3
0.3
0.3
0.1
0.1
1.1

0.3
0.3
0.3
0.1
0.1
1.1

0.3
0.3
0.3
0.1
0.1
1.1

0.3
0.3
0.3
0.1
0.1
1.1

0.3
0.3
0.3
0.1
0.1
1.1

0.3
0.1
0.3
0.1
0.1
1.0

0.3
0.2
0.3
0.1
0.1
1.1

Total
On-budget
Off-budgeta

19.6
15.3
4.3

18.3
14.0
4.3

17.7
13.4
4.4

17.4
13.0
4.4

17.7
13.4
4.4

18.1
13.7
4.4

18.2
13.8
4.4

18.2
13.8
4.3

18.1
13.8
4.3

18.1
13.8
4.3

18.1
13.7
4.3

18.1
13.8
4.3

17.8
13.5
4.4

18.0
13.6
4.3

Data source: Congressional Budget Office. See www.cbo.gov/publication/58848#data.
* = between zero and 0.05 percent of gross domestic product.
a. Receipts from Social Security payroll taxes.

parameters, such as the amount of the child tax credit, arefixed in nominal dollars and not adjusted for inflation.
The individual income tax system is thus not indexed forreal growth (that is, growth beyond the rate of inflation).
Instead, it is partially indexed for inflation, and theindexing occurs with a lag. Together, those features of thesystem cause projected annual revenues measured as apercentage of GDP to rise by 0.5 percentage points from2024 to 2033.

Other Factors. Over the next decade, several other fac-

tors decrease individual income tax receipts measured asa share of GDP by 1.2 percentage points in CBO’s projections. The largest factor is a projected decline in capital gains realizations relative to the size of the economy.
CBO estimates that such realizations totaled 8.7 percent
of GDP in calendar year 2021 and 6.7 percent of GDP
in 2022—significantly greater than the 3.7 percent of
GDP they averaged over the past 40 years. In CBO’sbaseline projections, capital gains realizations decline

23

24

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

over the next decade to a level that, after differences inapplicable tax rates are accounted for, is consistent with
their historical average. That anticipated decline reduces
receipts from individual income taxes measured as ashare of GDP by a total of about 0.6 percentage points
from 2024 to 2033.
Second, a pandemic-related tax provision allowed
employers to defer payment of some of their payroll
taxes in 2020 and 2021; they paid half of the deferred
amounts in 2022 and the other half in 2023.23 That
provision boosted tax receipts in 2022 and 2023 but will
have no effect in future years, causing receipts measured
as a share of GDP to drop by 0.2 percentage points
after 2023.
Third, receipts from individual income taxes in the past
few years have been larger than expected given currently
available data on economic activity and the past relationship between tax revenues and the state of the economy.
Depending on what factors explain those larger-­than-­expected receipts, their effects might be expected to persist permanently, end abruptly, or even reverse. In CBO’sbaseline projections, the unexplained strength of individual income tax receipts gradually dissipates over the next
few years, reducing receipts as a share of GDP by a totalof 0.3 percentage points from 2024 to 2033.
Payroll Taxes
Receipts from payroll taxes, which fund social insurance
programs—primarily Social Security and Medicare—
totaled $1.5 trillion in 2022, or 5.9 percent of GDP. In
CBO’s projections, payroll taxes rise to 6.0 percent of
GDP in 2023, return to 5.9 percent of GDP in 2026,
and remain at that level through the end of the projection period. That initial increase occurs because, in
CBO’s forecast, workers’ earnings, which constitute mostof the payroll tax base, rise slightly as a share of GDP in
2023 and 2024 and then decline.
Corporate Income Taxes
In 2022, receipts from corporate income taxes totaled$425 billion, or 1.7 percent of GDP. CBO expects
corporate tax receipts to rise to 1.8 percent of GDP
in 2023, largely because of scheduled changes to andnew provisions of the tax code. In CBO’s projections,23. Although that provision affected payroll taxes, it did not change
the amounts credited to the Social Security and Railroad
Retirement trust funds, and its effects were recorded in thebudget as reductions in individual income tax collections.

February 2023

corporate income tax receipts increase over the next
decade, though not as quickly as GDP rises. Measured inrelation to the size of the economy, receipts thus fall overthe period, totaling 1.4 percent of GDP in 2033. That
pattern reflects the varying effects over time of provisions of the 2017 tax act and the 2022 reconciliation act(P.L. 117-169), among other factors.
Provisions of the 2017 Tax Act. Several provisions of

the 2017 tax act affect corporate income tax receipts overthe next decade and are estimated to reduce such receipts
as a share of GDP by 0.2 percentage points, on net, from2023 to 2033.
Since 2018, firms have been making scheduled payments for a onetime tax on certain foreign profits. Thattax applied to foreign profits for which U.S. taxes had
been deferred under prior law. Taxes on those earnings, which are based on the value of those profits as oflate 2017 (and which are unrelated to future businessactivity), can be paid over eight years in installments thatvary in size. The payments thus boost receipts in CBO’sbaseline projections to varying degrees from 2023 to2026 but not in later years, thereby contributing to lower
receipts relative to GDP from 2027 to 2033.
In 2022, firms were required to begin capitalizing andamortizing certain expenditures for research and experimentation over a five-year period as they are incurred;previously, they could immediately deduct such expenses.
That change will boost receipts in 2023 and for the next
several years as firms take fewer deductions up front,
but it will not significantly affect receipts in later years.
Additionally, provisions allowing firms to immediately
deduct 100 percent of their investments in equipmentfrom their taxable income are scheduled to phase out
from 2023 to 2026. By reducing the deduction that canbe taken on new investments in the first year such aninvestment is made, that change will add to receipts tovarying degrees during the phase-down period but will
not significantly affect receipts by 2033.
Finally, changes to rules related to the taxation of foreign
profits are scheduled to occur in 2026. Those changes
will increase revenues in subsequent years, but thoseincreases will be more than offset by the reductions stemming from the previously described changes.
Provisions of the 2022 Reconciliation Act. The

2022 reconciliation act introduced tax changes that are

CHAPTER 1: THE BUDGET OUTLOOKTHE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Table 1-7 .

CBO’s Baseline Projections of Smaller Sources of Revenues
Billions of Dollars
Total
Actual,2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
Excise Taxes
Highway
Health care
Aviation
TobaccoAlcohol
Other excise taxes
Subtotal
Federal Reserve Remittances
Customs Duties
Estate and Gift Taxes
Miscellaneous Fees and Fines
Universal Service Fund fees
Other fees and fines
Subtotal
Total

2024– 2024–
2028 2033

42
3
16
11
11
5
88
107
100
33

42
2
17
11
11
8
91
1
99
27

42
4
19
11
11
15
101
4
97
25

42
3
20
10
10
15
100
6
98
24

42
3
21
10
10
15
101
7
101
26

42
3
22
10
10
15
102
10
103
39

42
3
22
9
11
15
103
78
104
42

42
3
23
9
11
16
103
88
105
44

42
3
24
8
11
16
104
98
106
47

42
3
25
8
11
16
105
109
107
50

42
3
26
8
11
17
106
122
109
53

42
3
26
7
12
17
107
130
110
57

210
15
104
49
52
76
506
105
503
156

421
30
227
90
108
157
1,033
652
1,040
406

9
20
29
356

10
25
35
251

10
24
34
260

10
25
35
264

10
27
37
273

10
30
40
293

10
32
42
369

10
35
45
386

10
33
43
398

10
33
43
414

10
34
44
435

10
35
45
449

49
139
188
1,459

99
310
409
3,540

Data source: Congressional Budget Office. See www.cbo.gov/publication/58848#data.

estimated to reduce corporate income tax receipts, on
net, by 0.1 percent of GDP between 2023 and 2033.
Most significantly, the law created a new minimum tax
on certain corporations as well as credits that can beused to reduce liability in excess of that minimum insubsequent years. The new tax, which goes into effectin 2023, will boost receipts in 2023, but the increase
attributable to that tax is smaller in subsequent years in
CBO’s projections because firms will offset the minimum tax by using credits for tax liability in prior years
that exceeded the minimum. The law also temporarily
expanded existing tax credits and created new tax credits
for clean energy. In CBO’s projections, many of thosechanges reduce receipts by more in future years than they
do in 2023.
Receipts From Other Sources
Receipts from all revenue sources other than individual income taxes, payroll taxes, and corporate income
taxes totaled $356 billion, or 1.4 percent of GDP, in
2022 (see Table 1-7). Those receipts are projected to
decline to 1.0 percent of GDP in 2023 and to range
between 0.9 percent and 1.1 percent of GDP during thenext decade.

Estate and Gift Taxes. Revenues from estate and gifttaxes totaled $33 billion, or 0.1 percent of GDP, in
2022. Following the expiration at the end of calendar
year 2025 of a provision of the 2017 tax act that doubled
the amount of the estate and gift tax exemption, revenues from estate and gift taxes rise by 49 percent from2026 to 2027 in CBO’s projections but remain close to
0.1 percent of GDP.
Excise Taxes. Excise taxes are levied on the production

or purchase of particular types of goods and services,
including motor fuels, tobacco, alcohol, and aviation services. In 2022, collections of excise taxes totaled $88 billion, or 0.4 percent of GDP. Those receipts decline to
0.3 percent of GDP in 2033 in CBO’s projections. An
excise tax on the repurchase of corporate stock, which
was enacted as part of the 2022 reconciliation act, will
be collected starting in 2023, causing excise taxes to riseslightly in relation to GDP in 2024. In addition, excise
taxes on certain chemicals and petroleum products,
which were enacted in the IIJA and the 2022 reconciliation act, boost receipts beginning in 2023. After 2025,
excise taxes decline in relation to GDP, primarily because
many excise taxes are imposed as a fixed dollar amount
per unit sold, and the number of units is projected to
grow slowly or decline.

25

26

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Customs Duties. Collections of customs duties, which

are assessed on certain imports, totaled $100 billion, or
0.4 percent of GDP, in 2022. Those receipts are projected
to decline as a share of GDP throughout the next decade,totaling 0.3 percent of GDP in 2033. Two factors explainthat decline. First, the value of goods imported relative
to the size of the economy, which was unusually high in
2021 and 2022, is projected to decline. Second, CBO
anticipates that some imports from countries subject tothe tariffs imposed beginning in 2018 (in particular, thesection 301 tariffs that apply to certain imported goods
from China) will be diverted to other countries. Those
tariffs have increased customs duties by roughly 0.2 percent
of GDP since 2018. CBO’s baseline projections reflect theassumption that tariffs, along with any subsequent exemptions provided by the Administration, continue throughout
the projection period at the rates in effect as of December 6,
2022, when the economic forecast was completed.
Remittances From the Federal Reserve. Remittancesfrom the Federal Reserve rose to $107 billion, or
0.4 percent of GDP, in 2022 because of the central
bank’s actions in response to the pandemic, including its
expanding its asset holdings. Remittances have declined
sharply in recent months and are projected to total lessthan 0.1 percent of GDP in 2023. Higher short-term
interest rates have increased the Federal Reserve System’sinterest expenses to such an extent that they exceed its
income, resulting in a sharp drop in remittances. Whena Federal Reserve bank’s expenses exceed its income, it
records the difference as a deferred asset (or negative
liability) and suspends remittances to the Treasury.
Although CBO estimates that the system as a wholewill be in a net loss position through 2024, the agency’sbaseline projections show small amounts of remittances
for the next few years to account for the possibility thatsome individual Federal Reserve banks might record
profits and remit them to the Treasury. As falling inflation allows the Federal Reserve to lower interest rates, thesystem returns to net profitability in 2025 in CBO’s projections. Those profits gradually reduce the deferred asset
through 2027; thereafter, remittances return to between
0.2 percent and 0.3 percent of GDP—equal to theiraverage value relative to the size of the economy over the
25-year period preceding the 2008 financial crisis. CBO’s
estimates of remittances are subject to considerable
uncertainty, particularly regarding the path of short-term
interest rates in the projection period.
Miscellaneous Fees and Fines. Receipts from other fees

and fines totaled $29 billion, or 0.1 percent of GDP, in

February 2023

2022. Those receipts are projected to remain at 0.1 percent of GDP every year through 2033.
Tax Expenditures
Many exclusions, deductions, credits, and preferential
rates in the federal tax system cause revenues to be lower
than they would be otherwise for any underlying set oftax rates. Such provisions resemble federal spending andcontribute to the budget deficit; thus, they are known as
tax expenditures.24
Like federal spending, tax expenditures provide financial assistance for specific activities, entities, or groupsof people. However, the budgetary treatment of tax
expenditures differs from that of spending programs.
Although tax expenditures increase the deficit by reducing the government’s revenue collections, the amountof forgone revenues attributable to specific tax expenditures (or to tax expenditures in general) is not typicallyrecorded separately in the budget, unlike outlays for eachspending program.25 The Congressional Budget Act of1974 requires that the federal budget list tax expenditures. The Administration regularly publishes estimates oftax expenditures prepared by the Treasury’s Office of Tax
Analysis, and the Congress publishes estimates preparedby the staff of the Joint Committee on Taxation (JCT).26
24. Sec. 3(3) of the Congressional Budget and Impoundment Control
Act of 1974, codified at 2 U.S.C. § 622(3) (2023), defines tax
expenditures as “those revenue losses attributable to provisions of
the Federal tax laws which allow a special exclusion, exemption,
or deduction from gross income or which provide a special credit,a preferential rate of tax, or a deferral of tax liability.”
25. The exception is the portion of refundable tax credits that exceeds
a taxpayer’s tax liability; that amount is recorded in the budget as
mandatory spending.
26. For this analysis, CBO adopted JCT’s definition of tax
expenditures as deviations from a “normal” income tax structure.
For the individual income tax, that structure includes existing
regular tax rates, the standard deduction, personal exemptions,and deductions of business expenses. For the corporate income
tax, that structure includes the statutory tax rate, generally
defines income on an accrual basis, and allows for costs to be
recovered according to a specified depreciation system that isless favorable than under current law. For more information,
see Congressional Budget Office, How Specifications of theReference Tax System Affect CBO’s Estimates of Tax Expenditures(December 2021), www.cbo.gov/publication/57543; and Joint
Committee on Taxation, Estimates of Federal Tax Expenditures
for Fiscal Years 2022–2026, JCX-22-22 (December 2022),
www.jct.gov/publications/2022/jcx-22-22/. The Treasury’s
definition of tax expenditures is broadly similar to JCT’s.
See Office of Management and Budget, Budget of the
U.S. Government, Fiscal Year 2023: Analytical Perspectives(March 2022), pp. 153–201, www.govinfo.gov/app/details/
BUDGET-2023-PER/.

CHAPTER 1: THE BUDGET OUTLOOKTHE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Figure 1-6 .

Estimated Outlays, Revenues, and Tax Expenditures in 2023
Percentage of GDP
16

Outlaysa

Tax
Expenditures

Revenues

12
Corporate Income
Tax Expenditures
Payroll Tax
Expenditures

8

4

Individual Income
Tax Expendituresb

0
Mandatory b Discretionary Net Interest

Individual
Income Taxes

PayrollTaxes

All Other
SourcesAll c

Tax expenditures are provisions of the tax system (such as tax credits and deductions) that cause revenues to be lower than they would beotherwise. Like federal spending programs, tax expenditures contribute to the budget deficit. In 2023, the total revenues forgone becauseof tax expenditures are projected to equal 7.4 percent of GDP.
Data source: Congressional Budget Office, using estimates of tax expenditures prepared by the staff of the Joint Committee on Taxation. See www.cbo.gov/
publication/58848#data.
GDP = gross domestic product.
a. 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. The estimates of outlays presented here have been adjusted to exclude the effects of
those timing shifts.
b. The outlay portions of refundable tax credits, which are estimated to total 0.6 percent of GDP in 2023, are included in tax expenditures as well as inmandatory outlays.
c. This total is the sum of the estimates for each separate tax expenditure and does not account for interactions among them. However, CBO estimates that in
2023, the total for all tax expenditures will roughly equal the sum of the estimates for each separate tax expenditure. Because estimates of tax expenditures
are based on people’s behavior with current provisions of the tax code in place, they do not reflect the amount of revenues that would be collected if
provisions were eliminated and taxpayers adjusted their activities accordingly.

Tax expenditures have a large effect on the federal
budget. In fiscal year 2023, the value of the more than
200 tax expenditures in the individual and corporate
income tax systems (including their effects on payroll
taxes) is estimated to be $1.9 trillion, or 7.4 percent of
GDP.27 That amount, which was calculated by CBO
on the basis of estimates prepared by JCT, equals about
27. Unlike JCT, CBO includes estimates of the largest payroll tax
expenditures. As defined by CBO, a normal payroll tax structure
includes the existing payroll tax rates as applied to a broad
definition of compensation, which consists of cash wages andfringe benefits. Tax expenditures that reduce the tax base forpayroll taxes also decrease spending for Social Security by reducing
the earnings base on which Social Security benefits are calculated.

40 percent of all federal revenues in 2023 and exceeds
projected outlays for all discretionary programs combined (see Figure 1-6).
Simply adding up the estimates for specific tax expenditures does not account for the interactions that may
occur among those tax provisions. For instance, the total
tax expenditure for all itemized deductions would besmaller than the sum of the separate tax expenditures foreach deduction. The reason is that all taxpayers would
claim the standard deduction if there were no itemized
deductions; but if only one or a few itemized deductions were removed, many taxpayers would still choose
to itemize. The progressive structure of the tax brackets

27

28

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

Box 1-1 .

Details About CBO’s Long-Term Budget Projections
The Congressional Budget Office’s long-term projections
follow the agency’s 10-year baseline budget projections andthen extend the concepts underlying them for an additional
20 years.1 Those projections depend on the agency’s projections of economic and demographic developments, which are
uncertain. But even if conditions were more favorable thanthose underlying the extended baseline projections, if current
laws generally remained unchanged, federal debt as a percentage of gross domestic product (GDP) would almost certainly bemuch higher in 30 years than it is today.

Deficits and Debt

In CBO’s projections, federal deficits rise from 6.9 percent of
GDP in 2033 to 11.2 percent of GDP in 2053. That projected
growth in total deficits is largely driven by increases in interest
costs and spending on Medicare. Primary deficits—that is,
deficits excluding net outlays for interest—grow by far less than
total deficits, increasing from 3.2 percent of GDP in 2033 to
3.9 percent in 2053.
As a result of mounting deficits, federal debt held by the public
rises from 118 percent of GDP in 2033 to 195 percent of GDP
in 2053. Debt that is high and rising as a percentage of GDP
tends to slow economic growth, push up interest payments
to foreign holders of U.S. debt, heighten the risk of a fiscal
crisis, and make the U.S. fiscal position more vulnerable to anincrease in interest rates. Concern about those consequences
puts pressure on future decisions about tax and spending
policies.

Spending

Total outlays increase from 24.9 percent of GDP in 2033 to30.2 percent in 2053 in CBO’s projections. Rising interest costs
and growth in spending on the major health care programs,
particularly Medicare, and on Social Security are significant
drivers of that increase. Noninterest outlays—that is, allspending other than net outlays for interest—are projected
to increase from 21.3 percent of GDP to 23.0 percent overthe period. Mandatory spending increases from 15.3 percent
of GDP in 2033 to 17.2 percent of GDP in 2053. Discretionary

1. For years after 2033, CBO has updated its long-term population, economic,
and revenue projections; in lieu of a full update, the agency has used a
simplified approach to project spending in those years. CBO expects topublish fully updated long-term projections later in 2023.

spending as a percentage of GDP is projected to decline from
2033 to 2037 and is assumed to remain constant thereafter.
Driven by rising interest rates and growing deficits, net interest
costs more than double from 2033 to 2053 in CBO’s projections, increasing from 3.6 percent of GDP to 7.3 percent.
The average interest rate on federal debt is projected to risefrom 3.3 percent to 4.0 percent over the 20-year period.2 On
average, in CBO’s projections, increases in the average interest
rate account for about three-fifths of the rise in net interest
costs over that period.

Revenues

Revenues increase from 18.1 percent of GDP in 2033 to 19.1 percent in 2053 in CBO’s projections. Individual income taxes risein relation to GDP over that period as real income growth (thatis, growth adjusted to remove the effects of inflation) pushes
an increasing share of income into higher tax brackets—a phenomenon known as real bracket creep. Revenues from othersources, on net, change little from 2033 to 2053.

Changes to CBO’s Long-Term Projections
Since July 2022

As a percentage of GDP, federal debt is now projected to behigher than it was projected to be in July 2022, when CBOlast updated its long-term budget projections. That difference
stems from an increase in CBO’s projections of spending—inparticular, net interest outlays—as a percentage of GDP overthe 2033–2043 period and a reduction in projected revenues
throughout the 2033–2052 period. (Nominal GDP is now projected to be higher than it was previously projected to be, so
a given dollar amount of spending, revenues, deficits, or debt
equals a smaller percentage of GDP in the current projections
than it would have equaled in last year’s projections. In otherwords, an increase in CBO’s projections of spending as a percentage of GDP means that projected nominal spending has
risen by a greater percentage than projected nominal GDP has
since last July.)
Changes to CBO’s Projections of Deficits and Debt. Total
federal deficits through 2044 are now projected to be larger
than they were previously projected to be; thereafter, projected
2. The average interest rate on debt reflects the interest rates on Treasury
securities of different maturities, the maturity structure of the securities
issued, and the costs of inflation-linked payments made on some of thosesecurities.

Continued

CHAPTER 1: THE BUDGET OUTLOOKTHE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Box 1-1.

Continued

Details About CBO’s Long-Term Budget Projections
deficits are now slightly smaller than they were in July 2022.
Primary deficits are now projected to be larger than previously
projected throughout the 2033–2052 period. As a result ofchanges to deficits, federal debt as a percentage of GDP is now
projected to be 8 percentage points higher, on average, from
2033 to 2043 and 6 percentage points higher, on average,from 2044 to 2052.
Changes to CBO’s Projections of Spending. Measured asa percentage of GDP, noninterest outlays over the 2033–
2052 period are roughly the same, on average, in CBO’s
current projections as they were in the agency’s July 2022 projections. CBO increased its projections of net interest costs

over the 2033–2043 period, boosting total projected outlays
as a percentage of GDP. After 2043, total outlays are projected
to be lower than CBO previously projected, largely because
the agency has lowered its projections of interest rates and net
interest costs since last year.
Changes to CBO’s Projections of Revenues. CBO’s current
projections of revenues measured as a percentage of GDP
are about 0.1 percentage point lower than its July 2022 projections throughout the 2033–2052 period. The agency revised
downward its projections of individual income taxes because it
now projects that distributions from retirement plans in those
years will be smaller than it projected in July.

ensures that the opposite would be the case with income
exclusions. In other words, the tax expenditure for all
exclusions considered together would be greater than
the sum of the separate tax expenditures for each exclusion. In 2023, those and other factors are expected tobe approximately offsetting, so the total amount of tax
expenditures is projected to roughly equal the sum of theindividual tax expenditures.

Measured as a percentage of GDP, federal debt is higher
in CBO’s current projections than it was in the agency’s
most recent long-term projections, which were published in July 2022. Deficits in most years of the 2033–
2052 period are also now projected to be larger than theagency projected last July. (See Box 1-1 for details about
CBO’s long-term budget projections.)

Estimates of tax expenditures measure the difference
between households’ and businesses’ tax liability undercurrent law and the tax liability they would have incurred
if the provisions generating those tax expenditures wererepealed and taxpayers’ behavior was unchanged. Suchestimates do not represent the amount of revenues thatwould be raised if those provisions were eliminated,because the changes in incentives that would result from
eliminating those provisions would lead households andbusinesses to modify their behavior in ways that would
lessen the effect on revenues.

CBO’s baseline budget projections are intended toshow what would happen to federal spending, revenues,
deficits, and debt if current laws governing spending
and taxes generally remained the same. Changes tolaws—particularly those affecting fiscal policies—could
lead to budgetary outcomes that diverged considerablyfrom those in the baseline. For example, CBO’s estimateof the cumulative deficit for the 2023–2027 period has
increased by nearly $0.6 trillion since May 2022 toaccount for laws that have been enacted since those projections were published.

The Long-Term Outlook for
the Budget

Beyond the coming decade, the fiscal outlook for theUnited States is challenging. In CBO’s projections, budget deficits grow in relation to GDP as growth in outlays(largely driven by rising interest costs and increased
spending on Medicare) outpaces growth in revenues.
Those rising deficits boost federal debt dramatically overthe next three decades (see Table 1-8). In 2053, debt isprojected to reach 195 percent of GDP—far higher thanit has ever been—and to be on track to rise even further(see Figure 1-2 on page 11).

Uncertainty of Budget Projections

Even if federal laws remained unchanged for the next
decade, actual budgetary outcomes would differ from
CBO’s baseline projections because of unanticipatedchanges in economic conditions and in other factors that
affect federal spending and revenues. For example, CBO’s
projections of outlays and revenues—and therefore its
projections of deficits and debt—depend in part on theagency’s economic projections, which include forecasts
for such variables as interest rates, inflation, and growth
in productivity. Actual outcomes for those variables arelikely to differ in various ways from CBO’s projections.

29

30

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

Table 1-8 .

Key Projections in CBO’s Baseline, Adjusted to Exclude Effects of Timing Shifts,
Through 2053
Percentage of Gross Domestic ProductProjected Annual Average
2023

2024

2025–
2028

2029–
2033

2034–
2043

2044–
2053

Revenues
Individual income taxes
Payroll taxes
Corporate income taxes
OtheraTotal Revenues

9.6
6.0
1.8
1.0
18.3

9.0
6.0
1.8
1.0
17.7

9.3
5.9
1.6
1.0
17.9

9.6
5.9
1.4
1.1
18.1

9.9
5.8
1.4
1.2
18.3

10.4
5.8
1.4
1.2
18.8

Outlays
MandatorySocial Security
Major health care programsb,cOtherb
Subtotal
Discretionaryb
Net interest
Total Outlays

5.1
5.7
3.7
14.6
6.6
2.4
23.7

5.3
5.6
3.3
14.3
6.9
2.7
23.8

5.5
5.7
2.9
14.1
6.7
2.9
23.6

5.8
6.3
2.6
14.8
6.2
3.4
24.4

6.2
7.4
2.5
16.1
5.9
4.4
26.3

6.4
8.2
2.3
16.9
5.8
6.2
29.0

Deficit

-5.3

-6.1

-5.7

-6.3

-8.0

-10.2

Debt Held by the Public at the End of the Period

98

100

107

118

152

195

Memorandum:
Social Security
Revenuesd
Outlayse
Contribution to the Deficitf

4.5
5.1
-0.6

4.6
5.3
-0.7

4.6
5.5
-0.9

4.6
5.8
-1.2

4.6
6.2
-1.6

4.5
6.4
-1.9

Medicare
Revenuesd
Outlaysb,eOffsetting receipts
Contribution to the Deficitf

1.5
3.8
-0.7
-1.7

1.5
4.0
-0.7
-1.8

1.5
4.1
-0.7
-1.9

1.6
4.8
-0.9
-2.3

1.6
5.8
-1.1
-3.1

1.6
6.6
-1.3
-3.7

Gross Domestic Product at the End of the Period (Trillions of dollars)

26.2

27.3

32.5

39.3

56.1

79.5

Data source: Congressional Budget Office. See www.cbo.gov/publication/58848#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 excise taxes, remittances from the Federal Reserve System, customs duties, estate and gift taxes, and miscellaneous fees and fines.
b. 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. These outlays have been adjusted to remove the effects of those shifts.
c. 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.
d. 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.
e. 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 theiremployees.
f. 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.

CHAPTER 1: THE BUDGET OUTLOOKTHE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Figure 1-7 .

Uncertainty of CBO’s Baseline Projections of the Budget Deficit
Percentage of GDP
5

Projected

0
Deficit−5−10

Two-Thirds Chance

In CBO’s baseline
projections, the deficit in
2028 is 5.6 percent of GDP.
The agency estimates that
there is a roughly two-thirds
chance that the deficit thatyear would be between
3.2 percent of GDP and
8.0 percent of GDP.

−15
2003

2008

2013

2018

2023

2028

Data source: Congressional Budget Office. See www.cbo.gov/publication/58848#data.
The shaded area around CBO’s baseline deficit projection is based on the errors in CBO’s one-, two-, three-, four-, five-, and six-year projections of the deficit for
fiscal years 1984 through 2022. Actual outcomes will be affected by legislation enacted in future years. The effects of future legislation are not reflected in thisfigure.
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 theend 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.

A comparison of CBO’s past projections with actual
outcomes gives some indication of the magnitude of theuncertainty of the agency’s budget projections.28 On thebasis of an analysis of its past projections, CBO estimatesthat there is an approximately two-thirds chance that,
under current law, the deficit in 2024 would be between
5.1 percent and 7.0 percent of GDP (see Figure 1-7).
28. See Congressional Budget Office, An Evaluation of CBO’s Past
Deficit and Debt Projections (September 2019), www.cbo.gov/
publication/55234.

(The baseline projection of the deficit that year is
6.1 percent of GDP.) The range in 2028 would be wider:
CBO estimates that, under current law, there is a roughly
two-thirds chance that the deficit that year would be
between 3.2 percent and 8.0 percent of GDP. (The baseline projection for that year is 5.6 percent of GDP.)31

Chapter 2: The Economic Outlook
Overview

This chapter provides details about the Congressional
Budget Office’s February 2023 economic projections,which the agency used as the basis for updating its
budget projections. Inflation continued at a high rate
in 2022, reflecting supply disruptions, the effects of theRussian invasion of Ukraine on food and energy prices,a tight labor market, and the effects of fiscal policy. In
response, the Federal Reserve sharply raised interest rates.
Output showed modest growth during 2022. In 2023,
economic activity is projected to stagnate, with rising
unemployment and falling inflation.
The Economic Outlook for 2023 to 2027
CBO’s projections reflect economic developments as ofDecember 6, 2022; the agency’s initial assessments offull-year discretionary funding for the federal government for fiscal year 2023 (which were 4 percent lower intotal than CBO’s current estimates); and the assumptionthat current laws governing federal taxes and spending
generally remain in place. In those projections, elevatedinflation initially persists as shelter (housing) costs andwages continue to rise and as supply disruptions gradually decline:• Inflation, which was slightly lower in 2022 than in

2021 but higher than in any other year since 1981,
continues to exceed the Federal Reserve’s long-run
goal of 2 percent through 2023 and 2024 before
nearing that rate by 2026. As measured by the priceindex for personal consumption expenditures (PCE),
inflation is 3.3 percent in 2023, reflecting the lagged
effects of higher home prices on rents as well as tightlabor markets.1 In 2024, inflation falls to 2.4 percent
as labor markets soften and increases in rents slow.
After 2024, inflation approaches the Federal Reserve’s
goal of 2 percent, reaching 2.2 percent in 2025 and2.1 percent in 2026.

• Interest rates on Treasury securities rise further inearly 2023 and then gradually recede beginning

1. Unless this report indicates otherwise, annual growth rates aremeasured from the fourth quarter of one year to the fourth
quarter of the next.

in late 2023. To reduce inflationary pressures, theFederal Reserve raises the federal funds rate (therate that financial institutions charge each other forovernight loans of their monetary reserves) again inearly 2023. That rate reaches 5.1 percent by the endof the first quarter of 2023 and remains there throughthe end of the third quarter of 2023; it averages
4.8 percent during the fourth quarter of 2023. As
inflation slows and unemployment rises, the federal
funds rate continues to fall, reaching 3.0 percent by
the end of 2024. The interest rate on 10-year Treasury
notes remains at 3.8 percent after 2023.

• Output growth comes to a halt in early 2023 in

response to the sharp rise in interest rates during2022. Real gross domestic product (that is, GDPadjusted to remove the effects of inflation) grows
by just 0.1 percent in 2023, restrained by declining
home building and inventory investment (seeFigure 2-1). As financial conditions gradually ease
after 2023, the annual growth rate of real GDP
averages 2.4 percent from 2024 to 2027.

• Conditions in the labor market deteriorate in

2023. Payroll employment stagnates, and theunemployment rate rises from 3.6 percent in the
fourth quarter of 2022 to 5.1 percent at the endof 2023. The unemployment rate then gradually
declines to 4.5 percent by the end of 2027 (seeTable 2-1). The size of the labor force, which finallyregained its prepandemic level in the second half of2022, continues to rise, although at a modest pace.

The Economic Outlook for 2028 to 2033
In CBO’s forecast, economic output expands slightly lessrapidly from 2028 to 2033 than it does over the 2024–
2027 period. Real GDP grows by 1.8 percent per year,
on average, the same as the growth rate of real potential
GDP (that is, the maximum sustainable output of theeconomy). The level of real GDP is slightly below thelevel of real potential GDP from 2028 to 2033, in linewith their historical relationship, on average.
In CBO’s projections for the 2028–2033 period, thegrowth rate of potential output is similar to the average

34

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

Figure 2-1 .

Growth of Real GDP
Percent
6

Projected

In CBO’s projections, output
growth comes to a halt
in 2023 in response to
the sharp rise in interest
rates during 2022. Then,
as falling inflation allows
the Federal Reserve to
reduce the target range
for the federal funds rate,
the growth of real GDP
rebounds, led by theinterest-sensitive sectors of
the economy.

3

0

−3
2000

2003

2006

2009

2012

2015

2018

2021

2024

2027

2030

2033

Data source: Congressional Budget Office. See www.cbo.gov/publication/58848#data.
Real values are nominal values that have been adjusted to remove the effects of inflation.
Growth of real GDP is measured from the fourth quarter of one calendar year to the fourth quarter of the next.
Values for 2000 to 2022 (the thin line) reflect data available from the Bureau of Economic Analysis in early February 2023. The data contain values for the fourth
quarter of 2022, which were not available when CBO developed its current projections for 2022 to 2033 (the thick line).
GDP = gross domestic product.

growth rate of potential output since the business cycle
peak in late 2007; however, the growth rate of the potential labor force is slower, and the growth rate of potentiallabor force productivity is more rapid. Nevertheless,potential output grows much more slowly than it hasover the past 30 years, partly because of slower productivity growth but mainly because of an ongoing, longterm slowdown in the growth of the labor force.

slower than expected. Other key sources of uncertainty
are future monetary policy and the path of interest rates.
Uncertainty about that path contributes to the uncertainty of the agency’s estimates of the effect of larger
deficits and debt on the economy. Geopolitical events,
including Russia’s ongoing invasion of Ukraine, add tothe uncertainty of the economic outlook, notably theoutlook for inflation.

Uncertainty About the Economic Outlook
CBO develops its projections so that they fall in the
middle of the likely range of outcomes under current
law. But those projections are highly uncertain, andmany factors could lead to different outcomes. The
upward pressure on wages and prices from conditionsin the labor market could be greater or less than theagency expects. Economic output and conditions in
the labor market could also vary from those in CBO’s
forecast. In the short run, higher interest rates could
have larger- or smaller-than-expected effects on overall
demand for goods and services and demand for labor. In
the long run, the pace of potential output in the aftermath of the coronavirus pandemic could be faster orComparison With CBO’s Previous Projections
Real GDP grew more slowly in each quarter of 2022
than the agency expected.2 An upward revision to GDP
in 2021 mitigated some of the effect of slower growth in2022 on the level of GDP at the end of 2022.
Compared with its May 2022 projections, CBO’s
current projections show weaker economic growth in2023 (0.1 percent versus 2.2 percent) and stronger
growth in 2024 (2.5 percent versus 1.5 percent) and the
2. See Congressional Budget Office, The Budget and Economic
Outlook: 2022 to 2032 (May 2022), www.cbo.gov/
publication/57950.

Chapter 2: The Economic Outlook

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Table 2-1 .

CBO’s Economic Projections for Calendar Years 2023 to 2033
Percent

Annual Average
Actual,
2022

2024

2025

2026–
2027

2028–
2033

Change From Fourth Quarter to Fourth Quarter

Gross Domestic Product
Reala
NominalInflation
PCE price index
Core PCE price indexb
Consumer price indexc
Core consumer price indexb
GDP price index
Employment Cost Indexd
Unemployment Rate

1.0
7.3

0.1
3.1

2.5
4.9

2.6
4.8

2.3
4.3

1.8
3.8

5.5
4.7
7.1
6.0
6.3
5.1

3.3
3.4
4.0
4.2
3.0
4.5

2.4
2.7
2.4
2.8
2.3
3.8

2.2
2.4
2.1
2.3
2.1
3.5

2.0
2.2
2.1
2.2
2.0
3.3

2.0
2.0
2.3
2.3
2.0
3.2

3.6

5.1

4.1e

4.5f

Fourth-Quarter Level
4.8
4.6
Change From Year to Year

Gross Domestic Product
Reala
NominalInflation
PCE price index
Core PCE price indexb
Consumer price indexc
Core consumer price indexb
GDP price index
Employment Cost Indexd
Unemployment Rate
Payroll Employment (Monthly change, in thousands)g
Interest Rates
3-month Treasury bills
10-year Treasury notes
Tax Bases (Percentage of GDP)
Wages and salaries
Domestic corporate profitsh
Current Account Balance (Percentage of GDP) j

2023

2.1
9.2

0.3
4.0

1.8
4.4

2.7
4.9

2.4
4.4

1.8
3.9

6.2
5.0
8.0
6.1
7.0
5.3

3.8
3.9
4.8
4.9
3.7
4.9

2.7
2.9
3.0
3.3
2.5
4.0

2.2
2.5
2.2
2.5
2.1
3.6

2.1
2.2
2.1
2.2
2.0
3.4

2.0
2.0
2.3
2.3
2.0
3.2

3.6
427

4.7
9

Annual Average
4.9
4.7
66
97

4.5
80

4.5
67

2.0
3.0

4.5
3.9

3.2
3.8

2.5
3.8

2.2
3.8

2.3
3.8

43.8
9.7i
-4.0i

44.3
7.9
-4.1

44.5
7.5
-3.7

44.5
7.9
-3.3

44.3
8.2
-3.2

44.0
8.0
-3.2

Data sources: Congressional Budget Office; Bureau of Economic Analysis; Bureau of Labor Statistics; Federal Reserve. See www.cbo.gov/publication/58848#data.
For economic projections for each year from 2023 to 2033, see Appendix B.
Actual values for 2022 reflect data available from the Bureau of Economic Analysis and the Bureau of Labor Statistics in early February 2023. The data containvalues for the fourth quarter of 2022, which were not available when CBO developed its current projections.
GDP = gross domestic product; PCE = personal consumption expenditures.
a. Real values are nominal values that have been adjusted to remove the effects of inflation.
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. Value for the fourth quarter of 2027.
f. Value for the fourth quarter of 2033.
g. The average monthly change is calculated by dividing by 12 the change in nonfarm payrolls from the fourth quarter of one calendar year to the fourth quarterof the next.
h. Adjusted to remove the effect of tax rules on depreciation allowances and to exclude the effect of changes in prices on the value of inventories.
i. Estimated value for 2022.
j. Represents net exports of goods and services, net capital income, and net transfer payments between the United States and the rest of the world.

35

36

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

following three years. As a result, the level of real GDP
is 3.7 percent lower than in the previous forecast for
the end of 2023 but only 0.2 percent lower for the endof 2027.
The weaker economic growth in 2023 is largely the
result of slower growth of exports, private investment,
and consumption. Those components of GDP thendrive the more rapid growth of real GDP through 2027.
Real GDP growth is 0.1 percentage point per year fasterfrom 2028 to 2032 than it was in the agency’s forecast
last spring because of greater net immigration and faster
growth of output per worker.
CBO currently projects higher inflation in 2023 and2024 than it did last May. Inflation in 2022 reached thehighest rates seen in the past four decades by some measures; it was higher than CBO forecast last spring mainly
because of higher-than-expected food and energy prices
resulting from the war in Ukraine and higher inflationin shelter costs following a surge in house prices. As aresult, projections of nominal GDP and national income
have increased through most of the forecast period, eventhough real GDP is lower than the agency projected lastMay. Expected growth of labor compensation has also
increased.
CBO now expects short-term interest rates to be higher
in 2023 and 2024 than it did in its previous forecast.
That upward revision reflects the upward revision to
inflation as well as higher-than-expected short-term
interest rates during 2022. After 2024, short-term rates
are similar to those forecast last spring. CBO expects
higher long-term interest rates over the first five years of
the projection period.

Recent Economic Developments

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

February 2023

Inflation and Interest Rates
In 2022, the PCE price index grew by 5.5 percent,and the consumer price index for all urban consumers(CPI-U) grew by 7.1 percent—notably faster than theiraverages of 1.5 percent and 1.7 percent, respectively, overthe decade that preceded the pandemic. Inflation in the
CPI-U during 2022 was the highest it has been since theearly 1980s. Growth in the PCE price index peaked at
7.0 percent in June 2022 (as measured from 12 months
earlier), and growth in the CPI-U peaked at 9.0 percent,also in June 2022. The high rates of inflation reflectedwidespread price increases among goods and services.
The PCE price index for goods rose by 6.0 percent in
2022; the index for services rose by 5.3 percent.
Energy and food prices increased rapidly in the first halfof 2022, boosted by the effects of Russia’s invasion of
Ukraine. Energy prices grew by 12.9 percent in 2022,
although quarterly measures fell in the second half ofthe year. Food prices, which are particularly sensitive tofluctuations in transportation costs and to disruptions in
trade of key inputs such as fertilizer, grew by 11.3 percent in 2022.
Other price increases, in addition to those for food andenergy, were broad-based. For example, in the PCE priceindex, the price of shelter services rose by 7.4 percent
in 2022.3 That increase followed a rapid appreciationof home values in 2021, which put upward pressure on
rents.
Other prices that had contributed disproportionately
to high inflation in 2021 began to cool in 2022. For
instance, the index for new and used motor vehicles
grew by 3.8 percent in 2022, a historically high inflation
rate for the index but well below its 2021 growth rate of
16.8 percent.
In 2022, the Federal Reserve tightened monetary policy
in response to high inflation. The Federal Reserve raised
the target range for the federal funds rate at each meeting of the Federal Open Market Committee since last
March; in December 2022, the federal funds rate was
4.1 percent, the highest rate since December 2007.
The interest rate on 10-year Treasury notes increased
3. Shelter costs or shelter services, as defined by the Bureau of Labor
Statistics, measure the flow of housing services that housing
units provide to their occupants. Shelter costs are a componentof inflation as measured by the PCE price index and the CPI-U,
whereas house prices are not included in those measures.

Chapter 2: The Economic Outlook

from 1.5 percent in December 2021 to 3.6 percent in
December 2022.
Output and the Labor Market
Real GDP grew by 1.0 percent in 2022, following
growth of 5.7 percent in 2021. A downturn in residential
investment and a slower pace of inventory accumulation
restrained growth in 2022.
Despite the slow growth of output, conditions in thelabor market remained tight throughout much of 2022,
as labor supply remained subdued. Nonfarm payroll
employment, which increased by an average of morethan 400,000 jobs per month in 2022, ended the year
at roughly 2.2 million jobs (or 1.4 percent) above its
prepandemic peak in February 2020. The unemployment rate declined from 3.9 percent at the end of 2021
to 3.5 percent at the end of 2022—equal to the prepandemic low in February 2020.
Even so, CBO estimates that the labor force in 2022 had,on average, 1.1 million fewer people than it would
have if labor force participation rates had remained attheir prepandemic levels. It had roughly 1.5 million
fewer people than the agency’s estimate of the potentiallabor force.4
The demand for workers, as indicated by the number of
job openings, increased at a faster pace, on average, than
did the number of available workers in 2022. The shortfall of available workers relative to the demand for them
contributed to strong growth of compensation.

Fiscal and Monetary Policies

CBO’s economic projections reflect the laws enacted andthe policy measures taken through December 6, 2022,
as well as the agency’s initial assessment at that time of
discretionary funding for all of fiscal year 2023.5 Those
4. The labor force consists of people age 16 or older in the civilian
noninstitutionalized population who have jobs or who areavailable for work and are either seeking work or expecting to berecalled from a temporary layoff. The labor force participation
rate is the labor force expressed as a percentage of the civilian
noninstitutionalized population age 16 or older. The potentiallabor force is CBO’s estimate of the size of the labor force thatwould occur if economic output and other key variables were attheir maximum sustainable amounts.
5. The Consolidated Appropriations Act, 2023 (Public Law 117-328),
was enacted after CBO had already completed its economic
forecast. The forecast incorporates the agency’s initial assessmentsof full-year discretionary funding for the federal government for
fiscal year 2023, which were 4 percent lower in total than CBO’s
current estimates.

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

projections reflect the effects on the overall economy ofchanges in federal fiscal policies—that is, policies governing taxes and spending—including the Honoring our
PACT Act of 2022 (Public Law 117-168), the CHIPS
Act of 2022 (division A of the CHIPS and Science Actof 2022, P.L. 117-167), and the 2022 reconciliation act(P.L. 117-169). In addition, the agency’s projections
reflect the effects of some executive actions, including
some affecting student loans.6
CBO’s projections also reflect the expectation that theFederal Reserve will take actions to continue tightening
monetary policy this year. Those actions include further
raising the target range for the federal funds rate andreducing the Federal Reserve’s holdings of Treasury securities and other assets; that reduction is expected to put
upward pressure on longer-term interest rates.
Fiscal Policy
CBO estimates that legislation enacted since the agency
prepared its May 2022 budget projections will increase
the federal deficit, excluding the costs of servicing thedebt, by $17 billion in fiscal year 2023, or 0.1 percent ofGDP, and by $135 billion in fiscal year 2024, or 0.5 percent of GDP, mostly by increasing federal spending.7 In
CBO’s assessment, those legislative changes will increase
the overall demand for goods and services in the shortterm, boosting real GDP by 0.1 percent in calendar years
2023 and 2024. Fiscal policy changes since May 2022
6. In CBO’s projections, the pause on student loan repayment,interest accrual, and involuntary collections is in effect until
August 2023, and cancellation of some student loan debt takes
effect later in 2023. (Debt cancellation is currently on holdas a result of court decisions.) For more information on theagency’s estimates of the costs of the Administration’s actions as
announced, see Congressional Budget Office, Costs of Suspending
Student Loan Payments and Canceling Debt (September 2022),
www.cbo.gov/publication/58494. Future updates to baseline
projections will incorporate the effects of additional court
decisions and any further administrative actions regarding
student loans made after January 9, 2023. The Administration’splan for debt cancellation is currently being reviewed by theSupreme Court. If the plan is invalidated or revised in responseto the Court’s ruling, CBO’s future projections will change
accordingly. In addition, the current projections do not include
any effects of proposed rules affecting income-based repayment
plans.
7. Legislation enacted since CBO prepared its May 2022 budget
projections will increase the federal deficit, excluding the costsof servicing the debt, by $1.3 trillion from 2023 to 2032, CBO
estimates; most of that increase will occur after 2024 and has
little effect on CBO’s economic projections because potential
effects are assumed to be anticipated and offset through tightermonetary policy by the Federal Reserve than would haveoccurred otherwise. See Appendix A in this report.

37

38

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

are also projected to add to inflationary pressures, pushing the PCE price index slightly higher than it would
have been otherwise in 2023 and 2024 (see Box 2-1).

reducing the competitiveness of U.S. exports in global
markets, and reducing the costs of imports (which, inturn, places downward pressure on inflation).

Changes in fiscal policies also affect the economy in thelonger term. In CBO’s projections, high and rising levelsof federal borrowing reduce private investment activity inlater years. In addition, the expiration of the temporary
provisions of the 2017 tax act (P.L. 115-97)—including
the expiration of most of the provisions affecting individual income taxes at the end of 2025 and the phaseout ofbonus depreciation by the end of 2026—is projected toslow economic growth.

CBO estimates that interest rates on long-term bonds
will depend in part on the expected path of future
short-term interest rates. Raising the target range for thefederal funds rate will therefore result in higher interest
rates for securities with longer maturities. In addition,
the agency estimates that reducing the size of the Federal
Reserve’s balance sheet will also contribute to higher
interest rates for longer-maturity bonds.

Monetary Policy
CBO anticipates that the Federal Reserve will continue
to tighten monetary policy in 2023, resulting in an
increase in the federal funds rate to 5.1 percent in early2023. The agency expects the Federal Reserve to leave
the target range for the federal funds rate unchanged forseveral months, at a high enough level and for a longenough time that the Federal Reserve expects inflation
to be on a path back to its 2 percent long-run goal.
Thereafter, in CBO’s projections, the Federal Reserve
begins to reduce the target range for the federal funds
rate in late 2023 and continues lowering the target range
through 2024.
Additionally, CBO projects that the Federal Reserve
will continue reducing the size of its balance sheet until
2026. After that point, the Federal Reserve is expected
to purchase enough Treasury securities to keep reserves
constant as a share of GDP.
CBO projects that the Federal Reserve’s policy tightening will slow the growth of overall demand in 2023 and2024 and thus reduce inflationary pressures by increasing real interest rates. The agency estimates that higher
real interest rates will reduce the growth of householdspending by making it more costly to finance purchases(especially large purchases, such as houses and motor
vehicles). In addition, those higher rates will reduce thegrowth of business investment by making it more costly
to borrow money to expand productive capacity, andthey will reduce the growth of residential investment byraising mortgage rates. In CBO’s projections, interest
rates in the United States rise faster than the rates of its
major trading partners, increasing the value of the dollar,

The Economic Outlook for2023 to 2027

In CBO’s projections, real GDP shrinks during thefirst half of 2023 and is barely positive for the year as awhole as residential investment, exports, and inventory
investment decline. Growth resumes after the first halfof 2023 as falling inflation eventually allows the Federal
Reserve to reduce interest rates, causing interest-sensitive
sectors to rebound. Payroll employment is projected to
decline during the middle two quarters of 2023 before
returning to positive growth by the end of the year.
Inflation is expected to decline over the next few years as
the projected slowdown in economic growth, lesseningof supply constraints, and increased slack in the labormarket put downward pressure on prices and wages. In
CBO’s forecast, inflation reaches the Federal Reserve’s
long-run goal of 2 percent by 2027. Wage growth isexpected to follow a similar path, declining from 4.5 percent in 2023 to 3.3 percent in 2027.
The agency expects short-term interest rates to continue
to rise during the first half of 2023. In CBO’s forecast,long-term interest rates, which also increased during2022, show little further movement in 2023. Short-term
interest rates fall beginning in late 2023, and long-term
rates decline only slightly in subsequent years.
Gross Domestic Product
In CBO’s projections, which reflect the assumptionthat current laws governing federal taxes and spending
generally remain unchanged, real GDP grows by just
0.1 percent in 2023. The slowdown is caused by declining exports and residential investment and a decrease ininventory investment, all influenced by higher interestChapter 2: The Economic Outlook

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Box 2-1 .

Economic Effects of Recent Changes in Fiscal Policy
In the Congressional Budget Office’s assessment, changes infederal fiscal policies since spring 2022 will increase both thelevel of real gross domestic product (that is, GDP adjusted toremove the effects of inflation) and the rate of inflation overthe next few years as a result of the effect of greater government spending on demand. In particular, three major piecesof legislation enacted recently—the Honoring our PACT Act of2022 (Public Law 117-168), the CHIPS Act of 2022 (division Aof the CHIPS and Science Act of 2022, P.L. 117-167), and the2022 reconciliation act (P.L. 117-169)—will boost the level ofreal GDP by about 0.1 percent in 2023 and 2024.1 In addition,
the Administration’s executive actions on student loans, primarily from the pause on repayment, will raise real GDP by about
0.1 percent in 2023.
CBO estimates the short-term effects of changes in fiscal
policies by focusing on how those changes affect the overall
demand for goods and services. The effects on overall demand
result from changes in purchases of goods and services byfederal agencies and by the people and organizations thatreceive federal payments or pay federal taxes, which in turndepend on the characteristics of the households, businesses,
and governments affected by the policy changes. For example,
a same-sized increase in transfer payments or decrease intaxes is likely to boost purchases by lower-income households
more than purchases by higher-income households because
lower-income households typically consume more of theiradditional disposable income than do higher-income households. CBO’s estimates also incorporate the effects on inflationof increased demand.

Recent Legislation

Three recently enacted major pieces of legislation will affectthe economy. The Honoring our PACT Act expands healthcare and benefits for veterans exposed to burn pits and toxic
substances. The CHIPS Act provides funding for semiconductor manufacturing, research, and development. Some of theroughly 150 provisions of the 2022 reconciliation act increase
health insurance subsidies and provide energy-related subsidies. Those increases in government purchases and financial
support to households and businesses will add to overall
demand. In addition, the 2022 reconciliation act will raise tax
1. The three pieces of legislation described here represent recent changes
in fiscal policy, whereas the Consolidated Appropriations Act, 2023
(P.L. 117-328), mostly provides continued funding for fiscal year 2023.

revenues through a new alternative minimum tax on corporations and increased funding for tax-enforcement activities,
thereby reducing overall demand. CBO estimates that thepositive effects on overall demand resulting from increases ingovernment spending will be larger than the negative effects
from increases in revenues. On net, the increase in overall
demand will boost real GDP by an average of 0.1 percent overthe next two years, CBO estimates.
Greater demand will also put upward pressure on the prices ofgoods and services, causing inflation to be higher than it would
be otherwise. In CBO’s assessment, the effect on inflation will
dissipate in later years because the Federal Reserve will raise
the target range of the federal funds rate to offset the effects
of increased spending on overall demand and prevent inflationin those years from rising above its long-run goal of 2 percent.
(The federal funds rate is the rate that financial institutions
charge each other for overnight loans of their monetary
reserves.) CBO estimates that the level of the GDP price index
will be slightly higher than it would be otherwise.

Executive Actions on Student Loans

The Administration has taken executive actions that affect student loans, including extensions of the pause on repayment—
begun on March 13, 2020, under the Coronavirus Aid, Relief, andEconomic Security Act (P.L. 116-136) and extended several times
thereafter—as well as cancellation of up to $20,000 of debt anda new income-driven repayment plan. In CBO’s projections, thepause on repayment is in effect until August 2023, and debt
cancellation takes effect later in 2023. (The Administration’splan for debt cancellation is currently being reviewed by theSupreme Court.) The agency’s forecast does not include any
effects of a proposed rule issued after CBO’s projections werecompleted that would change income-driven repayment plans.
The actions taken will reduce borrowers’ repayment of student
debt compared with what they would otherwise have paid,
thereby boosting their spending on goods and services.
CBO used data on borrowers’ characteristics to estimate thenumber of borrowers affected by the executive actions andthe resulting changes in loan repayment and overall demand.
In CBO’s assessment, the level of real GDP will be 0.1 percent
higher in 2023, primarily as a result of the repayment pause.
The effect on real GDP will be smaller in later years. The executive actions will have a modest effect in increasing inflation.

39

40

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

rates (see Table 2-2). As falling inflation allows theFederal Reserve to reduce interest rates, the growth ofreal GDP accelerates in subsequent years, led by theinterest-sensitive sectors of the economy. The agency
expects real GDP to grow at an average annual rate of
2.4 percent from the beginning of 2024 through 2027.
Consumer Spending. In CBO’s projections, growth

in real consumer spending moderates at the beginningof the projection period, as rising interest rates andunemployment cause consumers to pull back. Realconsumer spending increases by 1.1 percent in 2023
and by 1.5 percent in 2024. It then rises at an averageannual rate of 1.9 percent from the beginning of 2025
through 2027.
CBO expects the shift from spending on goods tospending on services to continue in the near future. In
2023 and 2024, real spending on goods declines froman elevated level and real spending on services increases,
as people gradually return to their prepandemic patterns of consumption. Over the 2025–2027 period, real
spending on goods and real spending on services roughly
follow their prepandemic trends.
In CBO’s projections, elevated levels of accumulated
savings continue to contribute to consumer spending.
Personal saving rose to high levels during the pandemic,
partly because financial support provided by the government to households more than offset declines in employment income, but also because households cut back on
expenditures. The stock of excess savings peaked at theend of 2021 and is being spent down by consumers.
Although the aggregate stock of excess savings is large,
evidence as of mid-2022 suggests that the majority isheld by top earners, who tend to consume less of any
additional savings.8 Consumers’ declining confidence as
unemployment rises may also slow the spend-down ofsavings. CBO anticipates that by the end of 2025, about
half of the stock of peak excess savings will remain.
Business Investment. CBO expects real business fixed

investment—the purchase of new equipment, nonresidential structures, and intellectual property products,
such as software—to increase by just 0.3 percent fromthe fourth quarter of 2022 to the fourth quarter of 2023,
8. See Aditya Aladangady and others, “Excess Savings
During the COVID-19 Pandemic,” FEDS Notes (Board ofGovernors of the Federal Reserve System, October 21, 2022),
https://tinyurl.com/2e99hm27.

February 2023

restrained by slowing demand for businesses’ output andby rising costs of debt and equity. Real investment would
have been projected to decline in 2023 without the easing of the semiconductor shortage, which is expected toincrease businesses’ ability to purchase new light vehicles.
CBO anticipates that real investment in equipment andreal investment in nonresidential structures, which are
more affected by cyclical conditions and rising costs ofdebt and equity, will both decline in 2023. Investment in
intellectual property products will grow, but at a muchslower pace than in recent years.
Businesses’ accumulation of real inventories (finishedgoods, work in process, and materials and supplies)
slowed during the second half of 2022. A rapid rate ofinvestment during the first half of the year pushed theratio of inventories to sales, excluding light vehicles, backup to normal levels, allowing the pace to slow to a more
typical rate during the second half of the year. Slowing
demand for goods will cause inventory investment toslow further in 2023. CBO anticipates that real inventory investment will be close to zero in the final quarterof 2023, subtracting from the growth rate of GDP. If
auto dealers were not expected to rebuild their depleted
stocks as the semiconductor shortage eases, the projection for real inventory investment would turn negative.
Business investment will rebound strongly after 2023, in
CBO’s estimation. The Federal Reserve will ease financial conditions as inflation is observed to have slowed,
and businesses will find it more profitable to invest as
the costs of debt and equity decline. In addition, stronger demand for businesses’ output will encourage themto expand capacity and to add to their inventories. In
CBO’s projections, real business fixed investment grows
at an average annual rate of 4.2 percent from 2024
through 2027.
Residential Investment. Real residential investment

decreased by 19.2 percent during 2022, primarily
because of a sharp rise in mortgage rates. The rate on
30-year fixed-rate mortgages jumped from 3.1 percent
in the fourth quarter of 2021 to 6.7 percent a year
later. That increase slowed both the construction of
new homes and the brokers’ commissions associatedwith home purchases. CBO expects that continued
high mortgage rates and the prospect of falling homeprices will cause real residential investment to decline
by another 13.6 percent in 2023. Thereafter, fallingmortgage rates and the pent-up demand from strongChapter 2: The Economic Outlook

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Table 2-2 .

Projected Growth of Real GDP and Its Components
Annual Average
Actual,2022
Real GDP
Components of Real GDP
Consumer spending
Business fixed investmenta
Residential fixed investmentb
Purchases by federal, state, and local governmentsc
FederalState and local
Exports
Imports
Memorandum:
Inventory Investment (Billions of 2012 dollars)dComponents of Real GDP
Consumer spending
Business fixed investmenta
Residential fixed investmentb
Purchases by federal, state, and local governmentsc
FederalState and local
Exports
Imports
Inventory investmentd

1.0

2023

2024

2025

2026–
2027

2028–
2033

Change From Fourth Quarter to Fourth Quarter (Percent)
0.1
2.5
2.6
2.3

1.8

1.9
3.7
-19.2
0.8
0.2
1.3
5.3
1.7

1.1
0.3
-13.6
1.4
1.9
1.1
-5.1
-3.0

1.5
3.3
5.7
0.9
0.9
1.0
7.6
2.4

1.7
4.9
11.5
0.8
0.6
1.0
4.6
2.7

2.0
4.4
7.8
0.7
0.5
0.8
2.5
2.5

2.0
2.9
-0.2
0.4
0.1
0.6
2.0
1.7

-68

-67

42

24

-1

1

Contributions to the Growth of Real GDP (Percentage points)
1.3
0.5
-1.0
0.1
*
0.1
0.6
-0.3
-0.3

0.8
*
-0.5
0.3
0.1
0.1
-0.6
0.5
-0.3

1.1
0.4
0.2
0.2
0.1
0.1
0.8
-0.3
0.2

1.2
0.6
0.4
0.1
*
0.1
0.5
-0.4
0.1

1.3
0.6
0.3
0.1
*
0.1
0.3
-0.4
*

1.4
0.4
*
0.1
*
0.1
0.2
-0.2
*

Data source: Congressional Budget Office. See www.cbo.gov/publication/58848#data.
Real values are nominal values that have been adjusted to remove the effects of inflation or, in the case of components of GDP, 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.
Actual values for 2022 reflect data available from the Bureau of Economic Analysis in early February 2023. The data contain values for the fourth quarter of2022, which were not available when CBO developed its current projections.
GDP = gross domestic product; * = between -0.05 percentage points and 0.05 percentage points.
a. Purchases of equipment, nonresidential structures, and intellectual property products.
b. Construction of single-family and multifamily structures, manufactured homes, and dormitories; spending on home improvements; and brokers’ commissions
and other ownership transfer costs.
c. Based on the national income and product accounts.
d. Inventory investment is the change in private inventories (in billions of 2012 dollars) from one quarter to the next at an annual rate. Growth in inventory
investment is measured as the change in inventory investment from the fourth quarter of one year to the fourth quarter of the next.

household formation in 2020 and 2021 is expected totrigger a rebound in residential activity. Real residential
investment is projected to grow at an average annual rateof 8.2 percent over the 2024–2027 period.

A combination of rising demand for homes and a limited
inventory of existing homes for sale caused house prices(as measured by the Federal Housing Finance Agency’s
price index for home purchases) to increase by 11.2 percent in 2020, by 17.8 percent in 2021, and at an annual
rate of 17.4 percent in the first half of 2022. Home

41

42

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

prices began to fall in the second half of 2022 as higher
mortgage rates choked off demand. CBO expects prices
to fall by 3.8 percent in 2023, by 3.0 percent in 2024,
and by 0.7 percent in 2025 before they begin to riseagain in subsequent years.
Government Purchases. Real government purchases ofgoods and services—such as public educational services, highways, and military equipment—increased by
0.8 percent in 2022. Federal purchases grew more slowly
than purchases by state and local governments. CBO
projects that, if current laws governing federal taxes
and spending generally remain in place, real purchasesby federal, state, and local governments will increaseby 1.4 percent in 2023 as recent strength in state andlocal tax receipts and federal aid support greater spending by state and local governments and as increases indiscretionary spending stemming from the Consolidated
Appropriations Act, 2023, boost federal purchases.
In CBO’s projections, real government purchases grow by
an average of 0.8 percent per year from 2024 to 2027. In
particular, real purchases by state and local governments
increase by an average of 0.9 percent per year during that
period, supported by federal assistance, including federal
education grants provided by the American Rescue
Plan Act of 2021 (P.L. 117-2) and transportation grants
provided by the Infrastructure Investment and Jobs Act(P.L. 117-58). Although those grant programs originatedin 2021, their spending is expected to continue throughout the 2024–2027 period.9 Real federal government
purchases are projected to grow by an average of 0.6 percent per year over that same period.
Exports and Imports. CBO projects that the U.S. trade

deficit will rise in 2023 before shrinking in 2024 and2025 and then stabilizing as a share of GDP in later
years. In 2023, the projected larger trade deficit is driven
by a decline in exports. As a result, CBO projects that thetrade deficit will rise from 3.2 percent of GDP at the endof 2022 to 3.9 percent of GDP by the end of 2023. That
increase in the trade deficit will reverse, CBO anticipates,
as exports rise by 9.1 percent (at an annualized rate) in
2024 and by 6.0 percent in 2025 but imports rise by only
3.7 percent and 4.0 percent, respectively, in those years.
CBO expects growth in exports to outpace growth inimports in 2024 and 2025 for two reasons: The foreignexchange value of the dollar is expected to weaken, and9. CBO used its preliminary estimates for those acts to project
discretionary funding for fiscal years 2024 and beyond,in accordance with procedures specified in law. For more
information on those procedures, see Chapter 1.

February 2023

the recovery in services trade (a sector for which theUnited States runs a trade surplus) is expected to continue. As a result, the trade deficit is projected to shrink
from 3.7 percent of GDP at the beginning of 2024 to
3.1 percent of GDP by the end of 2025 (it was 2.7 percent of GDP in 2019) as the growth of exports continues
to increase. Beyond 2025, the trade deficit is expected toremain roughly stable as export growth moderates andimports continue to grow with domestic demand.
Value of the Dollar. CBO’s projections of export andimport flows are connected to its projection of theforeign exchange value of the dollar. The agency projects
that, after increasing by 12.1 percent between the middleof 2021 and the end of 2022, the exchange value of thedollar will stabilize in the first quarter of 2023 before
declining over the rest of the period.10 In CBO’s view,the dollar appreciated because interest rates in the UnitedStates rose by more than those of most of its trading
partners, which increased demand for the dollar anddollar-denominated assets in international markets. Afterthe first quarter of 2023, CBO’s projection of a declining
dollar reflects the agency’s expectation that interest rates
of major U.S. trading partners will rise more than interest rates in the United States, which will cause the valueof the dollar to depreciate against the currencies of thosetrading partners. CBO projects that the foreign exchange
value of the dollar will decline by 7.0 percent between
the first quarter of 2023 and the end of 2026.
Exports. Real exports are expected to contract in 2023,

decreasing by 5.1 percent. One factor contributing tothat decline in exports is the expected deterioration ineconomic conditions abroad, which will reduce international demand for U.S. goods and services. CBO projects
that the real economic output of major U.S. trading
partners will rise by 1.4 percent in 2023, after having
increased by 2.1 percent in 2022.11 As the global effectsof the pandemic continue to wane, exports of services
10. CBO’s measure of the exchange value of the dollar is an exportweighted average of exchange rates between the dollar and thecurrencies of leading U.S. trading partners.
11. The projected decline in the growth of major U.S. trading
partners in 2023 is driven mostly by slower growth in the
United Kingdom, China, and the economies of the euro area.
In the United Kingdom and the euro area, high energy prices
over the winter months are expected to weigh on consumption
and industrial production, and rising interest rates are expected
to reduce investment. In China, CBO projects slow economic
growth in 2023 as the government’s looser COVID-19 restrictions
lead to economic disruptions (resulting from wider spread of thevirus), and investment growth is expected to remain weak. CBO
expects those headwinds to subside in 2024 and beyond as growth
returns to its long-run trend rate for major U.S. trading partners.

Chapter 2: The Economic Outlook

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

(mostly travel and transportation services) are expected
to gradually return to their prepandemic levels. As that
occurs, and as the pace of foreign economic growth
returns to its prepandemic trend, the growth of exports is
projected to rise in 2024 before slowing in later years.

for all of 2023. The number of unemployed people rises
from 6.8 million in the first quarter of 2023 to 8.5 million
in early 2024. Beginning in the second quarter of 2024,
CBO projects, the unemployment rate gradually declines,
reaching 4.5 percent by the end of 2027.

Imports. Imports were unusually strong early in 2022 asLabor Force Participation. In CBO’s projections, thefirms rebuilt inventories and recovered from problems
in supply chains. CBO projects that weak domestic
growth in consumption and a contraction in domestic
investment in 2023 will restrain growth of real imports,
which are expected to decline by 3.0 percent. As growthin consumption and investment returns to a more robust
pace from 2024 to 2027, CBO projects that the growthrate of real imports will rise, averaging 2.5 percent overthose years.
The Labor Market
Labor market conditions are expected to deteriorate
as the slowdown in growth in early 2023 reduces thedemand for workers. In CBO’s projections for 2023,
employment growth wanes, the unemployment rate
rises, and the growth of wages and salaries slows (seeFigure 2-2). The labor force participation rate declines
through 2024. The downward pressure on the labor force
participation rate stemming from slower growth and theaging of the population more than offsets the continued
return of workers who had dropped out of the labor
force during the pandemic. Thereafter, through 2027,
the projections reflect the labor market’s gradual return
to its long-run average relationship to potential performance; employment growth rises, the unemployment
rate gradually declines, and wage growth moderates.
Employment. The growth of nonfarm payroll employ-ment is projected to slacken in 2023 as the slowdown inreal output growth dampens the demand for workers.
CBO expects employment growth to increase in 2024 as
economic growth rebounds but to remain moderate
through 2027. In CBO’s projections, employment
growth is positive from the end of 2023 through theend of 2027, with an average increase of 78,000 jobs
per month.
Unemployment. The unemployment rate and the numberof unemployed people are projected to rise through theend of 2023, reflecting the slowdown in economic growth.
In CBO’s projections, the overall unemployment rateincreases from 3.6 percent in the fourth quarter of 2022
to 5.1 percent by the end of 2023, averaging 4.7 percent

labor force participation rate remains roughly unchanged
at 62.2 percent in 2023. Slowing demand for labor,
which is expected to put downward pressure on the labor
force participation rate, roughly offsets the reentry ofsome workers who dropped out of the labor force during
the pandemic because of health concerns, difficulties
arising from child care and other in-home care responsibilities, and early retirements. The labor force participation rate declines after 2023 as the effects of the aging of
the population (which dampens the overall labor force
participation rate) become more prominent in relation to
the short-term effects of the expanding economy. CBO
expects the labor force participation rate to decline from62.2 percent in 2023 to 61.8 percent in 2027. In CBO’s
projections, people who dropped out of the labor force
during the pandemic continue to return to the workforce over the next several years; in 2026, the labor force
reaches the size that it would be if participation rates bydemographic group had remained at their prepandemic
averages (see Box 2-2).
Hourly Wages and Salaries. In CBO’s projections,slowing demand for labor and falling inflation put
downward pressure on the growth of nominal wages. As
a result, the agency expects the growth of the employment cost index for wages and salaries of workers inprivate industry—a measure of the hourly price of labor,
excluding fringe benefits—to decline from 5.1 percent in
2022 to 3.8 percent in 2024. Wage growth is projected
to continue to gradually decline after 2024 but remain
above 2.7 percent—its annual average from 2015 to
2019—through 2027. CBO expects wage growth todecline from 3.5 percent in 2025 to 3.3 percent in 2027.
Inflation and Interest Rates
In CBO’s projections, inflation gradually slows in
2023 as factors that caused demand to grow more rapidly than supply following the pandemic ease. The rate of
inflation will continue to substantially exceed the Federal
Reserve’s long-run goal of 2 percent in 2023, CBO
projects, and will then decline toward that goal, reachingit in 2027. The agency expects short-term interest rates
to continue to increase in early 2023. Throughout 2023,

43

44

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

Figure 2-2 .

Employment, Unemployment, Labor Force Participation, and Wage Growth
Thousands of People
600
400
200
0
−200
−400
−600
−800

Projected

Payroll Employment(Average monthly change)

2000

2003

2006

2009

2012

2015

2018

2021

2024

2027

2030

In CBO’s projections, the growthof payroll employment declines
in 2023 as the slowdown in real
output growth dampens thedemand for workers.

2033

Percent
10

The unemployment rate rises
through early 2024, reflecting theslowdown in economic growth.
The rate falls thereafter as output
returns to its historical relationshipwith potential output.

Rate of
Unemployment

864Noncyclical Rate ofUnemployment

2
0
2000

2003

2006

2009

2012

2015

2018

2021

2024

2027

2030

2033

The labor force participation
rate declines after 2023 as thenegative effects of the aging of
the population offset the shortterm effects of the expanding
economy.

Percent
68

Potential Labor Force
Participation Rate

66
64
62

Labor Force
Participation Rate

60
580
2000

2003

2006

2009

2012

2015

2018

2021

2024

2027

2030

2033 Over the next two years, slowing

demand for labor and fallinginflation put downward pressure
on the growth of wages. Nominal
wage growth continues togradually decline after 2024 but
through 2027 remains above its
annual average for the 2015–2019
period.

Percent
6
4
Wage Growth

2
0
2000

2003

2006

2009

2012

2015

2018

2021

2024

2027

2030

2033

Data sources: Congressional Budget Office; Bureau of Labor Statistics. See www.cbo.gov/publication/58848#data.
Payroll employment is the number of employed workers, excluding proprietors, private household employees, unpaid volunteers, farm employees, andunincorporated self-employed workers. The average monthly change in payroll employment is calculated by dividing by 12 the change in nonfarm payrolls
from the fourth quarter of one calendar year to the fourth quarter of 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 noncyclical rate ofunemployment 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 work and is either seeking work or expecting to be recalled from a temporary layoff. The potentiallabor force participation rate is CBO’s estimate of the rate that would occur if economic output and other key variables were at their maximum sustainableamounts. Wages are measured using the employment cost index for wages and salaries of workers in private industry. Annual wage growth is measured fromthe fourth quarter of one calendar year to the fourth quarter of the next. For the unemployment rate and labor force participation rate, data are annual averages.
Values for 2000 to 2022 (the orange bars in first panel and the thin line in the bottom three panels) reflect data available from the Bureau of Labor Statistics inearly February 2023. The data contain values for the fourth quarter of 2022, which were not available when CBO developed its current projections for 2022 to2033 (the brown bars in the first panel and the thick line in the bottom three panels).

Chapter 2: The Economic Outlook

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Box 2-2 .

Missing Labor Force Participants
The labor force declined by more than 6 million workers from theend of 2019 to May 2020 as schools and businesses closed in thewake of the coronavirus pandemic. Many people dropped out of thelabor force or retired early because of health concerns, income fromgovernment support during the pandemic, or child care and otherin-home care responsibilities. Increased mortality and reduced
immigration also contributed to the decline. Since that time, thelabor force has rebounded significantly, but it remains below thesize that would be expected if people had participated in the labor
force at the same rate as before the pandemic. Specifically, theCongressional Budget Office projected what the size of the labor
force would have been if the labor force participation rates of
516 demographic groups defined by age, sex, race, and education
equaled their averages over the period from 2015 to 2019. The
agency estimates that the labor force in 2022 had 1.1 million fewer
people than would otherwise have been expected (see the figure).
After increasing in 2023, the number of missing labor force
participants—the difference between the expected andprojected numbers—is projected to gradually decline over the
next several years as labor force participation rates of certain
groups increase. CBO projects that the number of missing
participants will reach zero by 2026. Increased labor force
participation by people with at least some college who are age
55 or older is the largest factor reducing the number of missing
participants (see the table). CBO also projects that men, whomake up a larger share of the labor force, will return in greaternumbers than women over the next several years.

Change in the Number ofMissing Labor Force Participants, 2022 to 2026
Millions of People
Age
16–
24

25–
54

55–
64

Over 16 or
64 OlderLevel of Education
Less than high school
High schoolSome college
Bachelor’s degree
Graduate school
All

0.3
0.2
0
0
0
0.4

-0.1
0
-0.1
0.1
-0.1
-0.2

-0.1
-0.1
-0.1
-0.1
-0.1
-0.4

-0.1
-0.3
-0.2
-0.2
-0.2
-0.9

0
-0.2
-0.4
-0.3
-0.3
-1.1

Sex
Men
Women
All

0.3
0.1
0.4

-0.4
0.2
-0.2

-0.3
-0.2
-0.4

-0.3
-0.6
-0.9

-0.7
-0.4
-1.1

Data source: Congressional Budget Office, using Current
Population Survey data from IPUMS-CPS. See www.cbo.gov/
publication/58848#data.
CBO estimated the total number of missing labor force participantsfor 516 demographic groups defined by age, sex, race, and educationand then added the number of missing participants—the difference
between the expected numbers (based on historical participation rates)
and the projected numbers—from each group to arrive at the total.

Size of the Labor Force

Millions of People
170

Projected

168
Expected
Participation Rates

166
164

CBO’s
Baseline
Projections

162
160
2018

2020

2022

2024

2026

In CBO’s current
projections, the numberof missing labor force
participants—thedifference between the
expected and projected
numbers—increases in2023 and then gradually
declines over the next
several years as
participation by older
people with moreeducation increases.

Data source: Congressional Budget Office, using Current Population Survey data from IPUMS-CPS. See www.cbo.gov/publication/58848#data.
The labor force consists of people age 16 or older in the civilian noninstitutionalized population who have jobs or who are available for work and areeither seeking work or expecting to be recalled from a temporary layoff.
CBO estimated the total number of missing labor force participants for 516 demographic groups defined by age, sex, race, and education and thenadded the number of missing participants—the difference between the expected numbers (based on historical participation rates) and the projected
numbers—from each group to arrive at the total.
The underlying analysis and historical values reflect data available from the Census Bureau in September 2022.

45

46

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

long-term interest rates, which also rose during 2022,
are expected to remain near the values seen at the endof 2022. CBO expects that short-term interest rates will
decline beginning in late 2023 but remain high well into
2024 and that long-term interest rates will fall slightly.
Inflation. CBO expects that the recent disruptions tothe supply of goods and services—as well as many of theeffects of pandemic-related legislation on the demand
for goods and services—will continue to fade. In CBO’s
projections, inflation declines in 2023 but remains elevated (see Figure 2-3, top panel). The growth rate of the
PCE price index—the Federal Reserve’s preferred measureof inflation—reached 5.5 percent last year. CBO projects
that PCE inflation (that is, inflation in the PCE priceindex) will be 3.3 percent in 2023 and 2.4 percent in
2024. The core PCE price index, which excludes food andenergy prices, rose by 4.7 percent in both 2021 and 2022.
The agency projects that the core PCE price index willgrow by 3.4 percent in 2023 and by 2.7 percent in 2024.
CBO projects a decline in inflation throughout 2023
and 2024 for three main reasons. First, the agency
expects that problems with supply chains will continue
to abate, which will continue to slow the growth ofprices for goods. Second, in CBO’s projections, the slowing economy in 2023 and the higher unemployment rate
put downward pressure on prices through two mechanisms: slowed demand and reduced upward pressure
on prices because of slowing wage growth. Third, CBO
projects that higher interest rates will put downward
pressure on certain price categories, such the price ofshelter services, in 2023. High rent inflation persists into
2023, in CBO’s projections, but begins to decline in
the second half of the year, in accordance with declines
already present in house price indexes. The alleviationof upward price pressures in the goods sector, including
food and energy, and the downward pressure on inflation in shelter services stemming from monetary policy
are key forces driving the decline in CBO’s projectionsof inflation in 2023 and 2024 (see Figure 2-3, bottom
panel).
In CBO’s projections, the overall and core measuresfor both the PCE price index and the CPI-U decline
throughout 2023 and 2024. Core CPI-U inflation
usually grows faster than core PCE inflation by roughly
0.3 percentage points, but in 2022 price growth in thecore CPI-U outpaced growth in the core PCE priceindex by 1.3 percentage points because of the greater

February 2023

weight the CPI-U places on shelter costs. The agency
expects the gap between those two measures of inflation
to decline and eventually dip below its historical average at the beginning of 2024. By the end of 2024, PCE
inflation is expected to outpace CPI-U inflation. Thatbehavior of the gap between CPI-U inflation and PCE
inflation is largely driven by categories of goods andservices that are assigned comparatively more weight inthe calculation of the CPI-U.
Over the 2025–2027 period, PCE inflation gradually
declines to the Federal Reserve’s long-run goal of 2 percent, in CBO’s projections. That decline is attributable
to slower economic growth and the actions the Federal
Reserve has already begun to take to rein in inflation by
reducing monetary accommodation. Those actions affectinflation by reducing demand for goods and services andby boosting the unemployment rate, which the agency
expects to remain above the noncyclical rate of unemployment over that period.12 The effects on the unemployment rate will put further downward pressure on
both wage and price inflation as an increased unemployment rate reduces bargaining power for higher wages andthe spending power of households.
Interest Rates. In CBO’s projections, interest rates on

short-term Treasury securities move largely in concert
with movements in the target range for the federal funds
rate carried out by the Federal Reserve. To reduce inflationary pressures in the economy, the Federal Reserve
increases the target range for the federal funds rate inearly 2023 and leaves the target range for the federal
funds rate unchanged for several months thereafter (seeFigure 2-4). In CBO’s projections, the interest rate on
3-month Treasury bills follows a similar path, rising to
4.7 percent in early 2023 and remaining above 4.0 percent through the end of the year. After 2023, the Federal
Reserve normalizes the stance of monetary policy bylowering the target range for the federal funds rate asinflation falls toward its 2 percent long-run goal.
Interest rates on long-term Treasury securities are
expected to rise slightly in 2023, largely because of anincrease in term premiums. (A term premium is the
additional return paid to bondholders for the extra risk
associated with holding long-term bonds.) Several factors
pushed term premiums to historically low levels in the
12. The noncyclical rate of unemployment is the rate ofunemployment arising from all sources except fluctuations inaggregate demand.

Chapter 2: The Economic Outlook

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Figure 2-3 .

Overall Inflation, Core Inflation, and Contributions to Overall Inflation
Percent
6

Projected

In CBO’s projections,inflation declines in 2023 aspressures ease from factors
that, since mid-2020, havecaused demand to growmore rapidly than supply.
That decline continues
until 2027, when the rateof inflation reaches theFederal Reserve’s long-run
goal.

5
4
Overall Inflation
3

Federal Reserve’s
Long-Run Goal

2
1Core Inflation

0
2000

2003

2006

2009

2012

2015

6

2018

2021

2024

2027

2030

2033

Projected

Food and Energy
Vehicles and Parts
Shelter Servicesa
Other Goodsb
Medical Services
Other Servicesc

5
4

PCE Price Index

3

Federal Reserve’s
Long-Run Goal

2
1

The alleviation of upward
pressure on the prices offood, energy, and othergoods and the downward
pressure on prices in shelter
services are the two maincauses of falling inflation in
2023 and 2024.

0
−1
2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

Data sources: Congressional Budget Office; Bureau of Economic Analysis. See www.cbo.gov/publication/58848#data.
The overall inflation rate is the rate of growth in the PCE price index; the core inflation 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.
Values in the bars represent the contributions, in percentage points, of each category of goods and services to the growth rate of the PCE price index. The sumof the contributions of those categories equals the overall growth of that index.
Values for 2000 to 2022 (in the upper panel, the thin lines) reflect data available from the Bureau of Economic Analysis in early February 2023. The data containvalues for the fourth quarter of 2022, which were not available when CBO developed its current projections for 2022 to 2033 (in the upper panel, the thicklines).
PCE = personal consumption expenditures.
a. Measures the flow of housing services that housing units provide to their occupants.
b. Includes core durable and nondurable goods (other than vehicles and parts), such as electronics, home furnishings, and apparel.
c. Includes core services (other than housing services and medical services), such as transportation and recreation services.

47

48

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

Figure 2-4 .

Interest Rates
Percent
7

Projected

65410-Year Treasury Note Rate
3
Federal Funds Rate

2
1
0
2000

2003

2006

2009

2012

2015

2018

2021

2024

2027

2030

2033

In CBO’s projections, theFederal Reserve further
increases the target range
for the federal funds ratein early 2023 to reduce
inflationary pressures inthe economy. That rate is
projected to fall in 2024,
as inflation slows andunemployment rises. Theinterest rate on 10-year
Treasury notes, however,remains at 3.8 percent
from 2024 to the end of the
projection period.

Data sources: Congressional Budget Office; Federal Reserve. See www.cbo.gov/publication/58848#data.
The federal funds rate is the interest rate that financial institutions charge each other for overnight loans of their monetary reserves.
Values for 2000 to 2022 (the thin lines) reflect data on interest rates for the full month of December 2022. Those data were not available when CBO developed
its current projections for 2022 to 2033 (the thick lines).

years that preceded the pandemic, including diminishedperceived risk of unexpectedly high inflation, reduced
uncertainty about the future path of monetary policy,
and a strongly negative correlation between stock andbond returns. CBO expects those factors to continue todissipate, thus increasing term premiums to a level close
to their average over the past 40 years.
After 2023, interest rates on long-term Treasury securities are expected to fall slightly, largely because shortterm rates are expected to decline. Potential purchasersof long-term bonds weigh those bonds’ yields against theyields from purchasing a series of shorter-term bonds(for example, purchasing a 1-year bond each year for
10 years). When the expected future path of short-term
interest rates falls, the yield on long-term bonds also
falls. In CBO’s projections, the interest rate on 10-year
Treasury notes falls from 3.9 percent in the fourth
quarter of 2023 to 3.8 percent in the fourth quarter of2024 as the Federal Reserve begins to normalize monetary policy, signaling a lower future path for short-term
interest rates. After 2024, the interest rate on 10-year
Treasury notes remains roughly flat at 3.8 percent
through the end of 2027.

The Economic Outlook for2028 to 2033

CBO’s projections of GDP, unemployment, inflation,and interest rates for the later years of the forecast period
are based mainly on its projections of the underlying
trends in the factors that determine those key variables,
taking into account the effects of federal tax and spending policies embodied in current law. Those policies,
as well as monetary policy, can influence not only thedemand for goods and services—and, therefore, the gap
between actual output and potential output—but also
potential output itself. The projections also reflect theFederal Reserve’s goal of eventually returning the rate of
inflation to 2 percent.
Actual Output and Potential Output
Although changes in the overall demand for goods andservices strongly influence CBO’s economic projections
for the first part of the period covered in this report, theagency’s projections for the second part of the period
are fundamentally determined by its assessment of theprospects for growth of key inputs: the potential numberof workers in the labor force, capital services (that is,
the flow of productive services from the stock of capital
assets), and the potential productivity of those factors.

Chapter 2: The Economic Outlook

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Table 2-3 .

Key Inputs in CBO’s Projections of Real Potential GDP
Percent
Average Annual Growth

Projected Average
Annual Growth

Overall,
1950– 1974– 1982– 1991– 2002– 2008– 1950–
1973 1981 1990 2001 2007 2022 2022

Overall,
2023– 2028– 2023–
2027 2033 2033

Overall Economy
2.4
1.8
1.0
0.5
1.4
1.2

Real Potential GDP
Potential Labor Force
Potential Labor Force Productivitya

4.0
1.6
2.3

3.2
2.5
0.7

3.2
1.6
1.6

3.2
1.2
2.0

3.1
1.4
1.7

1.8
0.4
1.3

1.8
0.4
1.4

1.8
0.4
1.4

Real Potential Output
Potential Hours Worked
Capital Servicesb
Potential Total Factor Productivityc

4.1
1.4
3.8
1.8

3.5
2.3
3.7
0.8

3.5
1.7
3.5
1.1

Nonfarm Business Sector
3.7
2.6
2.1
3.4
1.2
0.3
0.6
1.3
3.9
2.8
2.3
3.4
1.5
1.5
0.9
1.4

2.1
0.4
2.1
1.1

2.1
0.4
2.3
1.1

2.1
0.4
2.2
1.1

Contributions to the Growth of Real Potential Output(Percentage points)
Potential hours worked
Capital input
Potential total factor productivityc
Total Contributions

1.0
1.2
1.8
4.0

1.5
1.2
0.8
3.5

1.2
1.1
1.1
3.4

0.8
1.3
1.5
3.6

0.2
0.9
1.5
2.6

0.4
0.8
0.9
2.1

0.8
1.1
1.4
3.3

0.3
0.7
1.1
2.1

0.3
0.7
1.1
2.1

0.3
0.7
1.1
2.1

Potential Labor Productivityd

2.6

1.2

1.7

2.4

2.3

1.5

2.1

1.7

1.7

1.7

Data source: Congressional Budget Office. See www.cbo.gov/publication/58848#data.
Real values are nominal values that have been adjusted to remove the effects of inflation or, in the case of components of GDP, the effects of changes in prices.
Potential GDP is CBO’s estimate of the maximum sustainable output of the economy. 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 realpotential GDP to the potential labor force.
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 services provided by 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.

In CBO’s projections, real potential GDP grows at
an average annual rate of 1.8 percent over both the2023–2027 and the 2028–2033 periods—a rate roughly
equal to the average since the business cycle peak in late2007 (see Table 2-3). Annual growth of the potentiallabor force is about 0.4 percent in both the first andthe second periods, and growth of potential labor force
productivity averages 1.3 percent in the first period and1.4 percent in the second period (see Figure 2-5).
The growth of real output accelerates after 2023 andthen gradually converges toward that of potential output.
The output gap narrows to ‒0.5 percent by the end of2027; it remains at that level thereafter, consistent withthe long-term relationship between actual and potential
output.13 Growth of real GDP averages 1.8 percent per
year over the 2028–2033 period, the same as growth ofreal potential GDP.
Over the 2028–2033 period, growth of potential output
in the nonfarm business sector (which accounts forabout three-quarters of economic activity and the bulkof productivity growth) averages about 2.1 percent per
13. The output gap is the difference between actual and potential grossdomestic product, expressed as a percentage of potential GDP.

49

50

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

Figure 2-5 .

Composition of the Growth of Real Potential GDP
Percent
4

4.0

3

2.3

Projected

3.2

3.2

3.2

0.7
1.6

2.0

2

2.4
1.4

2.5
1

1.6

1.6

1.2

1.0

Average Annual Growth in:
1.8

1.8

1.8

Real Potential GDP

1.2

1.3

1.4

Potential Labor Force
Productivity

0.5

0.4

0.4

Potential Labor Force

2008−
2022

2023−
2027

2028−
2033

0
1950−
1973

1974−
1981

1982−
1990

1991−
2001

2002−
2007

In CBO’s projections, realpotential GDP grows during
the next five years at a
rate similar to its growthrate since the 2007–2009
recession. Because of theaging of the population, thepotential labor force grows
more slowly than it has inprevious periods. But thatslower growth is offset by
faster growth in potentiallabor force productivity.

Data source: Congressional Budget Office. See www.cbo.gov/publication/58848#data.
Real values are nominal values that have been adjusted to remove the effects of inflation.
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. Those rates are calculated using calendar year data.
GDP = gross domestic product.

year. About 1.1 percentage points of that growth are
attribu­table to growth of potential total factor productivity (that is, the average real output per unit of combined labor and capital services, excluding the effectsof business cycles) in the sector; about 0.7 percentage
points are attributable to growth of capital services; andthe remaining 0.3 percentage points are attributable to
growth of potential hours worked.
The Labor Market
CBO’s projections of employment, labor compensation
per hour, unemployment, and labor force participation
over the 2028–2033 period primarily reflect the agency’s
assessment of the overall performance of the economy
and the effects of demographic trends over the long term.
Demographic trends are expected to strongly influence the size and composition of the workforce in the
coming decades.
Over the 2028–2033 period, the growth of employment
is projected to moderate, and the growth of nominal
labor compensation is expected to decrease, as compared with the first five years of the projection period.

Nonfarm payroll employment increases by an averageof 67,000 jobs per month during those years, in CBO’s
projections. The projected increase in employment issmaller than the average increase over the previous two
decades because of the aging of the population, which
CBO expects to result in slower growth of the labor force
over the 2028–2033 period than during the previous two
decades. Real compensation per hour in the nonfarm
business sector, a measure of labor costs that is a usefulgauge of longer-term trends, grows at an average annual
rate of 1.8 percent over the 2028–2033 period—close
to the projected average growth in labor productivity inthat sector.
In CBO’s projections, the unemployment rate rises overthe 2027–2030 period as output returns to its historical relationship with potential output. After peaking at
nearly 4.5 percent at the end of 2030, the unemployment rate declines slowly through 2033—in line withthe decline in the noncyclical rate of unemployment overthat period. That decline reflects the continuing shift in
the composition of the workforce toward older workers,
who tend to have lower rates of unemployment (whenChapter 2: The Economic Outlook

they participate in the labor force), and away from lesseducated workers, who tend to have higher ones.
CBO expects the labor force participation rate tofall during the second part of the 11-year projection
period—from 61.8 percent at the end of 2027 to61.2 percent by the end of 2033. That decline is mostly
driven by the aging of the population and, in particular,
the continued retirement of baby boomers. That rate
in 2033 is slightly below the agency’s estimate of thepotential labor force participation rate, which falls from62.8 percent in 2022 to 61.9 percent in 2027 and to
61.4 percent in 2033.
Inflation and Interest Rates
Over the 2028–2033 period, CBO expects inflation tohave reached the long-run average rate that the agency
projects. CBO expects interest rates on Treasury securities to be lower, on average, than they were over the first
five years of the projection period.
Inflation. In CBO’s forecast, the Federal Reserve main-

tains its long-run goal of 2 percent for inflation. The
agency expects the growth rate of the PCE price index
to average 2.0 percent over the 2028–2033 period.
Similarly, inflation in the CPI-U is projected to growat an average rate of 2.3 percent, that index’s long-run
average, over that period.
Interest Rates and Federal Reserve Policy. CBO

expects interest rates on short- and long-term Treasury
securities to be slightly lower over the 2028–2033 period
than over the 2023–2027 period and well below their
historical average. As inflation returns to its long-run
average rate, the Federal Reserve normalizes the stance ofmonetary policy, resulting in the lower level of short- andlong-term interest rates. In CBO’s projections, interest
rates are below their average over the past four decades
for several reasons, including higher rates of domestic
and foreign saving, slower growth of the labor force, andslower growth of productivity.14

14. For further details about the factors affecting CBO’s projectionsof interest rates, see Edward N. Gamber, The Historical Decline
in Real Interest Rates and Its Implications for CBO’s Projections,
Working Paper 2020-09 (Congressional Budget Office,December 2020), www.cbo.gov/publication/56891.

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Projections of Income for2023 to 2033

Nominal income is expected to grow at a moderate
rate over the projection period. In CBO’s projections,nominal gross domestic income (GDI) grows by 3.1 percent in 2023. Although CBO expects the growth rateof real GDI (that is, nominal GDI adjusted to remove
the effects of inflation) to continue to stagnate in 2023,
it anticipates that nominal GDI will grow at a stronger
rate because of inflation (see Figure 2-6). Nominal GDI
grows by 4.9 percent in 2024, by 4.8 percent in 2025,
and at an average annual rate of 4.0 percent from 2026
to 2033, in CBO’s projections.
Economic activity and federal tax revenues depend not
only on the amount of total income in the economy but
also on how that income is divided among labor income,domestic profits, proprietors’ income, income from interest and dividends, and other categories. (Labor income
includes wage and salary payments as well as other formsof compensation, such as employer-paid benefits and thepart of proprietors’ income corresponding to compensation for hours worked.) The shares of income for wages
and salaries and for domestic profits are particularly
important in projecting federal revenues because those
types of income are taxed at higher rates than others.
Labor Income
Compensation of employees is expected to rise more
rapidly than GDP through the first half of 2024; as aresult, labor income as a share of GDP is expected torise from the end of 2022 through the first half of 2024.
CBO’s projection is consistent with the historical cyclicalpattern of compensation as a share of income. When theeconomy slows, as it does in CBO’s near-term projection, growth in compensation, which is less sensitive tocyclical fluctuations in the economy, tends to slow lessthan growth in profits, which is more sensitive to cyclicalfluctuations in the economy. As a result, labor income
as a share of GDP tends to rise and profits as a shareof GDP tend to fall during periods when GDP growthdeclines. In CBO’s projections, labor income as a shareof GDP increases from 57.4 percent at the end of 2022
to 58.5 percent by mid-2024. It then falls from mid2024 through the end of 2027 as GDP growth outpaces
the growth in compensation.
After 2027, CBO expects labor income as a share of
GDP to remain roughly unchanged, averaging 58.1 percent from 2028 through 2033. CBO’s forecast of labor

51

52

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

Figure 2-6 .

Gross Domestic Income
Percent
40

Projected

Nominal GDI

30

20
Real GDI

100

CBO expects slow growth
in real GDI in 2023. In
the agency’s projections,nominal GDI continues toclimb above its level at theend of 2019 and, as a resultof inflation, grows more
rapidly than real GDI.

−10
2019

2020

2021

2022

2023

2024

2025

Data sources: Congressional Budget Office; Bureau of Economic Analysis. See www.cbo.gov/publication/58848#data.
The figure shows the percentage difference in nominal and real GDI from their levels in the fourth quarter of 2019.
GDI is the sum of all income earned in the production of GDP. Real GDI is equal to nominal GDI that has been adjusted to remove the effects of inflation, as
measured by the GDP price index.
GDI = gross domestic income; GDP = gross domestic product.

income as a share of GDP remains below 60 percent,its long-run average from 1947 to 2000, because somefactors that have depressed that share since 2000 are
expected to persist during the coming decade. One
such factor is globalization, which has tended to movethe production of labor-intensive goods and services
to countries with lower labor costs. Another factor istechnological change, which appears to have increased
returns on capital more than returns on labor.
In CBO’s projections, wages and salaries as a share of
GDP follow roughly the same cyclical pattern as labor
income as a share of GDP, rising from 43.6 percent at
the end of 2022 to 44.5 percent in the first half of 2024.
Wages and salaries as a share of GDP are projected to
decline steadily through 2027 as GDP growth outpaces growth in wages and salaries. After 2027, wages
and salaries as a share of GDP are expected to remainroughly constant.
Corporate Profits
Domestic corporate profits as a share of GDP are
expected to decrease from 9.7 percent in 2022 to

7.5 percent in 2024 as the shares of GDP going tocompensation of employees and business interest payments increase. Between 2024 and 2027, the profit
share reverts to its historical average of about 8.0 percent
and then stays relatively flat over the remainder of the
projection period.

Uncertainty About the
Economic Outlook

CBO’s economic projections are subject to a high degreeof uncertainty. Projections of economic output andlabor market conditions are highly uncertain. In the
short term, the effect of higher interest rates on overall
demand, the easing of supply-chain disruptions, and participation in the labor market could be larger or smaller
than expected; in the longer term, the pace of potential
output in the aftermath of the pandemic could be fasteror slower than expected. The agency’s projections of priceand wage inflation are also highly uncertain, particularly
because the upward or downward pressure on wages andprices from conditions in product and labor markets
could be greater or less than expected. The path of asset
prices in the short term and the pace of the tightening

Chapter 2: The Economic Outlookof monetary policy may differ from the agency’s projections of them. Other key sources of uncertainty are
future monetary policy and the path of interest rates.
Uncertainty about the path of interest rates contributes
to the uncertainty of the agency’s estimates of the effects
of higher deficits and debt on the economy.
CBO’s baseline projections reflect the assumptionthat current laws governing federal taxes and spending
generally remain in place. (The Balanced Budget andEmergency Deficit Control Act of 1985, P.L. 99-177,
requires CBO to project spending, revenues, and deficits
independently of the debt limit.) Although new laws
could be enacted that significantly alter federal taxes andspending, the following discussion is restricted to uncertainty stemming from other sources.
Economic Growth in 2023
CBO’s forecast for roughly zero growth of real GDP in
2023 is highly uncertain. A key risk stems from uncertainty about the future paths of inflation and interest
rates. If inflation is higher than CBO expects, that willprobably cause the Federal Reserve to raise interest rates
higher and keep them elevated for longer than CBO
anticipates. Those higher interest rates would put further
downward pressure on the interest-sensitive sectors of theeconomy, such as residential investment, net exports, andbusiness investment. Alternatively, if inflation declines
more rapidly than CBO projects, interest rates will probably fall faster than CBO anticipates. That would help
the interest-sensitive sectors of the economy.
Another important source of uncertainty in the forecast
for growth is the magnitude of the effects of higher interest rates on the interest-sensitive sectors of the economy.
The downturns in the construction of new homes andsales of existing homes could be more or less severe thanin CBO’s forecast. The purchase of a home often leads tothe purchase of related consumer goods, so the severityof the downturn in home sales would have downstream
effects on consumer spending. The rise in the exchange
value of the dollar stemming from higher interest rates
could have a greater or lesser effect on net exports than in
CBO’s forecast. Finally, the response of business investment to higher costs of debt and equity could be greateror less than forecast.
The outlook for consumer spending is more uncertain
than usual. Consumer spending depends on the strengthof the labor market, both directly through income and

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

indirectly through consumer confidence. If unemployment rises less than expected, consumers will have moreincome to spend on discretionary goods and services.
Furthermore, consumer confidence may be higher
than expected because of less uncertainty about future
employment. If unemployment rises more than expected,
consumers may pull back on spending. Consumer
spending also depends on the pace at which consumers
spend down excess savings. The stock of accumulated
savings in the economy is unprecedented, and the distribution of savings is uncertain, so it is difficult to predictthe pace at which excess savings will be spent down.
Developments outside the United States are anothermajor source of uncertainty. Faster growth among U.S.
trading partners would boost U.S. exports and thus
GDP, whereas slower growth would put further downward pressure on the economy. The war in Ukraine
could put further upward pressure on food and energy
prices, reducing the real income of consumers and thus
their spending. Disruptions elsewhere could have similareffects.
CBO’s estimates of the economic effects of legislation
enacted in 2022 represent the middle of the range of
likely outcomes. Still, those estimates are subject toconsiderable uncertainty. Some important sources ofthat uncertainty are the responses of consumers, businesses, and state and local governments to various policychanges included in the legislation; the effects of thetiming, scale, and breadth of the legislation on prices inlabor and product markets; and the speed with which
disruptions to the supply of labor are resolved.
The Labor Market
The uncertainty of the labor market in the near term islarge. If labor demand remains strong despite the projected slowdown in economic growth in early 2023, theunemployment rate will rise by less and employment will
fall by less than CBO currently expects in the near term.
However, if the projected economic slowdown causes thedemand for labor to fall by more than CBO expects, theunemployment rate will rise by more and employment
will fall by more than CBO currently anticipates. A risein COVID-19 infections could roil labor markets.
CBO’s projection of the labor force participation rate isalso subject to considerable uncertainty. If workers who
dropped out of the labor force during the pandemic—
because of health concerns, child care and other in-home

53

54

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

care responsibilities, or early retirements—reenter theworkforce in greater numbers than CBO expects, thegrowth rate of wages and salaries could decline fasterthan CBO anticipates. If fewer of those workers reenter
the workforce than CBO expects, the elevated growthrate of wages and salaries could persist for longer than
CBO currently forecasts.
Productivity Growth
In the longer term, the effects of the pandemic on thegrowth rate of potential total factor productivity in
nonfarm businesses are uncertain. The pandemic sped
the adoption of new technologies, such as teleconferencing and telemedicine, but the effects on productivityof a more rapid adoption of such technologies remain
unknown. Increased remote work could create opportunities for new businesses and new jobs and could
spur sectoral and geographic reallocations that help
improve productivity and social and economic welfare.
Innovations associated with remote work could lead to
substantial reductions in costs and improvements in productivity. At the same time, uncertainty exists about theextent to which such dynamic forces could make existing
businesses and business models obsolete, as well as about
the negative consequences for output and labor markets.
Disruptions to the educational system could have lasting
effects on the future productivity of workers. In addition,
long-term health risks—including potential long-term
effects of COVID-19 infections, exacerbation of the opioid crisis by the pandemic, and the toll of the pandemic
on people’s mental health—could influence the prospectsof many workers as well as the strength of the overalllabor market.
Price and Wage Inflation
There is much uncertainty about the rates at which
wages and consumer prices will grow. Uncertainty about
wage growth is related to uncertainty about economic
growth, as well as to how the demand for labor responds
to economic growth, how changes in labor demandaffect wage growth, and how past inflation feeds into
wages in the future. If wage growth is faster than CBO
projects, businesses could pass along the cost of thosehigher wages by raising consumer prices, which might
result in higher inflation than the agency expects. But
slower-than-​expected wage growth might result in lower
inflation than CBO expects.

February 2023

Supply-side disruptions were a key determinant of inflation in 2022. Those disruptions remain a large source of
uncertainty in 2023, as businesses continue to recoverfrom supply-side issues, workers continue returning
to the labor force, and consumers spend down excess
savings accumulated during the pandemic. If supply-side
pressures do not continue to recede, inflation could behigher than CBO projects, particularly in key categories
such as durable goods, energy goods, and food. But if
businesses quickly restock inventory, and workers returnto the labor force faster than expected, inflation could belower than CBO projects.
The price of shelter services, which is affected indirectly
by house prices, is also a source of uncertainty. CBO
projects that PCE inflation in shelter services will decline
in the second half of 2023 as new rental agreements
respond to the decline in house prices that began in
the second half of 2022, when interest rates rose anddemand for homes softened. It is difficult to predict themagnitude and timing of the effect of house prices on
inflation in shelter services; that inflation could begin
declining sooner or later than CBO projects and could
decline by more or less than the agency projects. In turn,aggregate PCE inflation and CPI-U inflation could belower or higher than CBO projects.
Overall measures of inflation are affected by volatility
in energy and food markets. Some potential sources of
uncertainty in CBO’s forecast for energy and food prices
are the duration and severity of the war in Ukraine andthe sanctions levied on Russia. If additional countries
impose or enforce sanctions on Russia, a major exporterof petroleum and natural gas, that could further drive up
energy prices in the United States. Increases in energy
prices cause transportation costs to increase and therefore
cause the price of goods to increase as retailers recoup
production and shipping costs. Therefore, large increases
in energy prices could drive inflation in the price ofgoods even higher. Sanctions on Russian oil could end
sooner than expected, lowering energy prices and driving
overall inflation lower.
Food prices are a source of much uncertainty in the inflation forecast. The invasion of Ukraine created three potential channels for upward pressure on food prices. First,
higher energy prices could further strain supply chains forfood by increasing transportation costs, a major input infood prices. Second, because Russia is a major exporter ofnitrogen-rich fertilizers used in farming many agricultural

Chapter 2: The Economic Outlook

products, continued sanctions on Russian exports could
drive food prices higher. Third, Ukraine accounts fora large portion of the world’s wheat exports, and it iscurrently exporting wheat under a United Nations
agreement. If Russia withdrew from the grain deal, as it
has done once before and warned it could do again, thatwould put upward pressure on global food prices.
Finally, CBO’s projections of inflation depend on inflation expectations. If high inflation lasts longer than theagency expects, inflation expectations could rise morematerially, and inflation could be higher than CBO
projects. Alternatively, if actual inflation turns out to be
below expected inflation, consumers could revise theirinflation expectations downward.
The Financial Sector and Asset Prices
The prices of major classes of financial assets—stocks,
bonds, and corporate debt—fell during 2022. Credit
markets have tightened as a result of actions taken by theFederal Reserve. The market for Treasury securities has
become less liquid in recent months, as indicated by agreater-than-usual effect of trades on prices. That lack ofliquidity increases uncertainty in the market for Treasury
securities. Corporate bond markets face similar risks that
could cause general financial conditions to deteriorate.
Problems in markets for cryptocurrencies could affectother markets. In addition, geopolitical risks in Russia,
Ukraine, and China could disrupt global financial
markets.
Demand and prices for housing declined during the final
months of 2022 in response to high mortgage interest
rates and tighter lending standards. A further tightening of lending standards could worsen those declines
and cause households to cut back on their purchases. A
sudden drop in consumer spending, coupled with highinterest rates, could cause business investment to fall
further. Alternatively, the Federal Reserve’s path of tightening monetary policy could shift if inflation falls fasterthan CBO expects. The Federal Reserve could ease monetary policy sooner than currently anticipated, which
would ease financial conditions and support asset prices.
Interest Rates and Monetary Policy
The path of monetary policy is uncertain as well. In
CBO’s projections, the terminal level of the federal funds
rate and the duration of the period of tight monetary conditions are uncertain, contributing to uncertainty about
the path of interest rates on Treasury securities. If inflation

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

is higher than CBO expects over the next few quarters,
the Federal Reserve may raise the policy rate higher orleave it high for longer, and interest rates on Treasury
securities will probably be higher than CBO projects. But
if economic conditions weaken significantly at some point
during the next few years, the Federal Reserve may reverse
policy rate hikes faster, and interest rates on Treasury securities will probably be lower than CBO expects.
The path of term premiums is an additional source of
uncertainty for CBO’s projections of interest rates on
Treasury securities, especially those of longer duration.
CBO expects that several factors that pushed term premiums to historically low levels in the decade before thepandemic will dissipate, thus increasing term premiums.
If a stronger-than-expected negative correlation between
stock and bond returns persists over the coming decade,interest rates on longer-term Treasury securities will belower than projected. But if inflation is more persistentover the next year or two than the agency expects,
increasing the risk of unexpectedly high inflation in the
future, then interest rates on longer-term Treasury securities will be higher than projected. Contributing to theuncertainty of the agency’s projections of interest rates on
longer-term Treasury securities is uncertainty about thepace at which the Federal Reserve will reduce the size ofits balance sheet, as well as uncertainty about the effectthat such a reduction will have on interest rates.
The path of monetary policy is also uncertain in thelonger term. If the Federal Reserve seeks to achieve inflation that is below 2 percent for a time—following thecurrent episode of inflation well above that target—theninterest rates could be higher than the agency projects.
Alternatively, if the Federal Reserve determines that arate of inflation higher than 2 percent is more consistent
with its statutory mandate from the Congress to promotemaximum employment and stable prices, then interest
rates could be lower than CBO expects.
Another source of long-term uncertainty is the global
economy’s longer-term response to the substantial
increases in public deficits and debt that occurred asgovernments spent significant amounts of funds in an
attempt to mitigate the impact of the pandemic and theeconomic downturn it caused. In addition, changes inforeign demand for U.S. assets or the international role ofthe dollar could affect interest rates. If, for example, foreign demand for Treasury securities is weaker than CBO
projects, interest rates will be higher than they otherwise

55

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THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

would be. But if foreign demand for those securities isstronger than projected, perhaps because of heightened
geopolitical concerns, interest rates will be lower.

illuminates aspects of the current projections andhighlights the kinds of uncertainty that affect all suchprojections.

Uncertainty about the path of interest rates in the longterm contributes to uncertainty about the economic
costs of higher public deficits and debt. Factors such asincreased foreign and domestic saving, slower growth intotal factor productivity, and lower labor force participation have contributed to the downward trend in interest
rates over the past several decades. Much uncertainty
remains about how much those factors will continue
to weigh on interest rates over the next several years. In
addition, the extent and timing of upward pressure on
interest rates stemming from increased federal borrowing
are highly uncertain.

Inflation
The agency’s current projections of inflation for 2023
are substantially higher than last spring’s projections.
In May, CBO projected that inflation in the PCE priceindex would be 2.3 percent in 2023, whereas the current projection of the increase in that index in 2023 is
3.3 percent. Similarly, the agency previously forecast that
inflation in the CPI-U would be 2.7 percent in 2023,
whereas the current projection of inflation for that index
in 2023 is 4.0 percent.

Quantifying the Uncertainty in
CBO’s Projections
CBO’s forecast of the economy, especially its projectionsof nominal GDP, is a primary input in the agency’sbaseline budget projections. As a result, much of theuncertainty of the baseline budget projections reflects theuncertainty of the economic forecast.
To quantify the uncertainty of its economic projections
for the next five years, CBO conducted 1,000 simulations of several key macroeconomic variables to produce
probability distributions for the future path of thosevariables.15 On the basis of that analysis, the agency estimates that there is an approximately two-thirds chancethat the annual rate of real GDP growth (on a calendar
year basis) will be between ‒1.5 percent and 1.7 percent in 2023 and between 0.7 percent and 3.6 percent
in 2027. In 2023, there is a roughly two-thirds chancethat the unemployment rate will be between 3.8 percent and 5.7 percent, that the rate of PCE inflation
will be between 2.1 percent and 4.7 percent, and thatthe interest rate on 10-year Treasury notes will be
between 3.2 percent and 4.6 percent, CBO estimates(see Figure 2-7).

Comparison With CBO’s
May 2022 Economic Projections

CBO has compared its current projections with thosepublished in May 2022 (see Table 2-4). The comparison
15. For a discussion of the methods used to quantify uncertainty,
see Congressional Budget Office, CBO’s Current View of the
Economy in 2023 and 2024 and the Budgetary Implications(November 2022), Box 1, www.cbo.gov/publication/58757.

Those large upward revisions are the result of momentum
in recent historical inflation data that suggests more persistence in inflation across many sectors of the economy
than CBO anticipated last May. Additionally, supply-side
disruptions have remained greater than CBO previously
forecast. In CBO’s current projections, price increases formost goods and services, especially shelter services, arelarger than the agency expected them to be last May.
CBO’s projections of PCE and CPI-U inflation in 2024
are also higher than they were last May. A large driver of
the agency’s revisions is inflation in the price of services;
last May, CBO projected that the PCE price index forservices would grow by 2.9 percent in 2024, whereas thecurrent projection of the increase in that index in 2024 is
3.4 percent. The services category of the PCE price index
includes several wage-sensitive components of inflation,such as medical services, restaurant meals, and otherhospitality services. CBO’s upward revision to inflation in the services category reflects the currently tightconditions in the labor market as well as the agency’s
projections of persistently high wage growth. The services
category of the PCE price index also includes the priceof shelter services; in CBO’s projections, inflation in thatcategory remains above its long-run trend into 2025. The
agency’s projections of CPI-U inflation have similarly
been revised upward across categories.
CBO’s projections of PCE inflation in 2025 and 2026
are slightly higher than they were in the agency’s May
projections. CBO’s projections of CPI-U inflation in
2025 and 2026 are slightly lower than they were in theagency’s May projections. PCE inflation and CPI-U
inflation were revised in opposing directions because the
CPI-U places greater weight on prices of shelter services.

Chapter 2: The Economic Outlook

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Figure 2-7 .

Uncertainty of CBO’s Projections of Output, Unemployment, Inflation, and Interest Rates
Percent
6
3

Two-Thirds Chance

Projected

Growth ofReal GDP

090 Percent Chance

−3
2019

2020

2021

8

2022

2023

2024

2025

2026

2027

Unemployment
Rate

6

The agency also estimatesthat there is a roughly twothirds chance that in 2023 theaverage unemployment rate
will be between 3.8 percent
and 5.7 percent,

4
2
0
2019
7
6
5
4
3
2
1
0
−1

2020

2021

2022

2023

2024

2025

2026

2027

PCE
Inflation

2019

2020

7
6
5
4
3
2
1
0

. . . the rate of PCE inflation will
be between 2.1 percent and4.7 percent, and
2021

2022

2023

2024

2025

2026

2027

10-YearTreasury
Note Rate

2019

2020

CBO estimates that there isan approximately two-thirds
chance that the annual rateof real GDP growth will be
between −1.5 percent and1.7 percent in 2023 andbetween 0.7 percent and3.6 percent in 2027.

2021. . . the average interest rate
on 10-year Treasury notes will
be between 3.2 percent and4.6 percent.
2022

2023

2024

2025

2026

2027

Data sources: Congressional Budget Office; Bureau of Economic Analysis; Bureau of Labor Statistics; Federal Reserve. See www.cbo.gov/publication/58848#data.
To quantify the uncertainty of its projections for the next five years, CBO conducted 1,000 simulations of several key macroeconomic variables to produce
probability distributions for the future path of those variables. For discussion of the methods used to quantify uncertainty, see Congressional Budget Office,“Estimating the Uncertainty of the Economic Forecast Using CBO’s Expanded Markov-Switching Model” (January 2023), www.cbo.gov/publication/58884; and“Estimating the Uncertainty of the Economic Forecast Using CBO’s Bayesian Vector Autoregression Model” (January 2023), www.cbo.gov/publication/58883.
Real values are nominal values that have been adjusted to remove the effects of inflation. Growth of real GDP is measured from the fourth quarter of one
calendar year to the fourth quarter of 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 inflation rate is based on the price index for
personal consumption expenditures. Inflation is measured from the fourth quarter of one calendar year to the fourth quarter of the next.
Values for 2019 to 2022 (the thin lines) reflect data available from the Bureau of Economic Analysis and the Bureau of Labor Statistics in early February 2023.
The data contain values for the fourth quarter of 2022, which were not available when CBO developed its current projections for the next five years (the thicklines) and analyzed their uncertainty.
GDP = gross domestic product; PCE = personal consumption expenditures.

57

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THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

Table 2-4 .

CBO’s Current and Previous Economic Projections for Calendar Years 2022 to 2032
Percent
Annual Average
2022
Real GDPa
February 2023
May 2022
Nominal GDP
February 2023
May 2022
PCE Price Index
February 2023
May 2022
Core PCE Price Indexb
February 2023
May 2022
Consumer Price Indexc
February 2023
May 2022
Core Consumer Price Indexb
February 2023
May 2022
GDP Price Index
February 2023
May 2022
Employment Cost Indexd
February 2023
May 2022
Real Potential GDPa
February 2023
May 2022

2023

2024

2022–2026

2027–2032

Overall,
2022–2032

Change From Fourth Quarter to Fourth Quarter
0.4
3.1

0.1
2.2

2.5
1.5

1.6
1.9

1.9
1.7

1.8
1.8

6.7
7.4

3.1
4.5

4.9
3.6

4.8
4.5

3.9
3.9

4.3
4.1

5.7
4.0

3.3
2.3

2.4
2.1

3.1
2.5

2.0
2.0

2.5
2.2

4.8
3.8

3.4
2.5

2.7
2.2

3.1
2.5

2.0
2.1

2.5
2.3

7.5
4.7

4.0
2.7

2.4
2.3

3.6
2.9

2.2
2.4

2.9
2.6

6.2
4.4

4.2
2.9

2.8
2.5

3.5
2.9

2.3
2.4

2.8
2.6

6.3
4.0

3.0
2.3

2.3
2.1

3.1
2.5

2.0
2.1

2.5
2.3

5.4
5.4

4.5
4.1

3.8
3.7

4.1
4.0

3.2
3.1

3.6
3.5

1.8
1.9

1.7
1.9

1.7
1.9

1.8
1.9

1.8
1.8

1.8
1.8
Continued

Prices of those services make up 30 percent of the core
CPI-U but only 17 percent of the core PCE price index.
In 2025 and 2026, inflation in the shelter services
category is projected to be well below its long-run trend
because of a lagged response to the expected decline inhouse prices; that lower inflation places downward pressure on overall inflation, but it affects the CPI-U morethan the PCE price index.
CBO’s current projections of inflation after 2026 aresimilar to the agency’s projections from last spring. Thatis because, in the long term, inflation is expected toreturn to the Federal Reserve’s long-run goal of 2 percent
growth in the PCE price index. In CBO’s projections,a combination of the Federal Reserve’s policy actions,the easing of supply-side issues, and the continuation of
fairly well-anchored inflation expectations keeps inflationnear that 2 percent goal after 2026.

Interest Rates
CBO now expects both short- and long-term interest
rates over the first half of the coming decade to be higher,
on average, than it forecast last May. The upward revisionin rates over the 2022–2026 period mostly reflects the
upward revision to inflation. The agency now anticipates
that, in response to recent inflation that was higher andmore broad-based than expected, the Federal Reserve
will raise the target range for the federal funds rate higher
than previously projected. The more aggressive tightening of monetary conditions means that short-term rates
are projected to be higher, on average, over the 2022–
2026 period than CBO expected in May. It also meansthat long-term rates, which partly reflect the expected
path of short-term rates, will be higher, on average.
The agency’s forecasts of both short- and long-term interest rates, on average, over the later years of the projection

Chapter 2: The Economic Outlook

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Table 2-4.

Continued

CBO’s Current and Previous Economic Projections for Calendar Years 2022 to 2032
Percent
Annual Average
2022
Unemployment Rate
February 2023
May 2022
Interest Rates
3-month Treasury bills
February 2023
May 2022
10-year Treasury notes
February 2023
May 2022
Tax Bases (Percentage of GDP)
Wages and salaries
February 2023
May 2022
Domestic corporate profitse
February 2023
May 2022

2023

2024

2022–2026

2027–2032

Overall,
2022–2032

Annual Average
3.7
3.8

4.7
3.5

4.9
3.7

4.5
3.8

4.5
4.5

4.5
4.2

2.0
0.9

4.5
2.0

3.2
2.5

2.9
2.1

2.3
2.3

2.6
2.2

2.9
2.4

3.9
2.9

3.8
3.1

3.6
3.0

3.8
3.8

3.7
3.4

43.9
44.7

44.3
44.2

44.5
44.1

44.3
44.2

44.0
44.0

44.2
44.1

9.7
9.7

7.9
9.3

7.5
8.8

8.2
8.9

8.1
7.8

8.1
8.3

Data sources: Congressional Budget Office; Bureau of Labor Statistics; Federal Reserve. See www.cbo.gov/publication/58848#data.
For the February 2023 projections, the values shown are based on the economic forecast that CBO completed on December 6, 2022.
GDP = gross domestic product; PCE = personal consumption expenditures.
a. Real values are nominal values that have been adjusted to remove the effects of inflation.
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 the effect of tax rules on depreciation allowances and to exclude the effects of changes in prices on the value of inventories.

period are roughly the same as they were last May. The
effects of faster growth of total factor productivity andhigher capital income as a fraction of total income, which
the agency estimates put upward pressure on interest
rates, are largely offset by higher domestic and foreign
rates of saving and higher risk premiums, which theagency estimates put downward pressure on interest rates.
Actual Output, Potential Output, and Income
The agency’s projection of real GDP growth for 2023,
0.1 percent, is considerably weaker than last spring’s
forecast of 2.2 percent growth. The downward revision
to growth is broad-based, stemming from slower growthin consumer spending, business fixed investment, residential investment, and exports. Those revisions to real
GDP growth for 2023 largely result from two sources.
First, larger increases in interest rates and a bigger fallin equity prices during 2022 and early 2023 than CBO

anticipated in May put downward pressure on consumer
spending and the interest-sensitive sectors of the economy, such as private investment and exports. Second,
CBO now projects slower growth in real exports as aresult of a downward revision to the rate of projectedeconomic growth among major U.S. trading partners
and an upward revision to the foreign exchange value ofthe dollar. Some of the weakness in domestic demand
spills over into imports, lessening the net decline in GDP.
Real GDP is now projected to grow more rapidly during
the 2024–2026 period than in CBO’s May forecast as
the economy rebounds from slow growth in 2023 andas the Federal Reserve unwinds a higher level of interest
rates in 2023 than previously projected. Annual growth
projected over that period now averages 2.5 percent
rather than the 1.5 percent expected last spring. The
additional growth is concentrated in business fixed

59

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THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

investment, residential investment, and exports. Growthduring the entire 2022–2026 period averages 1.6 percent
in the current projection, compared with the 1.9 percent
expected last May.16
In the second part of the projection period, growthof real GDP is forecast to be slightly faster than theagency expected last May. Annual growth over the2027–2032 period now averages 1.9 percent rather
than the 1.7 percent projected last spring. That upwardrevision stems from faster expected growth of potential
GDP. Updated data show significantly lower business
investment in 2022 than CBO projected last May, andthe agency now projects significantly lower investment
over the next year than it had projected previously. Thatlower business investment slows growth in potential labor
force productivity over the first part of the projection
period but raises it slightly in the second part as investment recovers from a lower base. CBO now estimatesthat average growth in potential labor force productivity
will be 0.2 percentage points lower over the 2022–
2026 period and 0.1 percentage point higher over the2027–2032 period than the agency projected last May.
CBO also raised its estimate of growth of the potentiallabor force because net immigration is now projected
to be higher than previously forecast. Increased population growth leads to increased growth of the labor
force. As a result, the agency now estimates that potential output growth over the 2027–2032 period will be
about 0.1 percentage point higher than it projected lastMay. The combined effect of the changes in investment
and population data on potential output is an averageannual growth rate of roughly 1.8 percent over the2022–2032 period, which is practically unchanged fromlast May’s forecast.
The Labor Market
CBO’s current projection of the average unemployment
rate over the 2022–2026 period is higher than it was in
the earlier forecast—now 4.5 percent, up from 3.8 percent. That upward revision stems from slower projectedeconomic growth. The current projection of the labor
force participation rate over the period is 62.1 percent,the same as last May. CBO’s projection of the average
unemployment rate over the 2027–2032 period, 4.5 percent, is the same as last May.

16. In this section, GDP growth in 2022 is from the forecast that
CBO completed on December 6, 2022.

February 2023

CBO also made an upward revision to its projection of thelabor force participation rate over the 2027–2032 period;
it now averages 61.6 percent over that period, up from61.5 percent in May’s projections. That revision is mainly
attributable to an upward revision to CBO’s projection of
net immigration that increases the share of the population
ages 25 to 54 relative to CBO’s projection last year. People
in that age group have the highest average rates of labor
force participation, so an increase in their share of the
population tends to raise the overall participation rate.

Comparison With Other
Economic Projections

Part of the variation between CBO’s projections andthose of other forecasters is attributable to differencesin the economic data available when the forecasts werecompleted and to differences in the economic andstatistical models used to prepare them. In addition,other forecasts may reflect an expectation that additional
legislation will be enacted, whereas CBO’s projections
reflect the assumption that current laws generally remainunchanged. This section compares CBO’s forecastwith those of the Blue Chip participants, the Survey ofProfessional Forecasters, and the Federal Reserve.
The Blue Chip Forecasts
CBO’s economic projections for 2023 and 2024, otherthan those for consumer price inflation, are similar to
the forecasts of the more than 40 private-sector economists published in the January 2023 Blue Chip Economic
Indicators (see Figure 2-8).17 In particular, the agency’s
projections of real GDP growth and the unemployment
rate for those years are within the middle two-thirdsof the range of Blue Chip forecasts. CBO’s projectionsof inflation, as measured by the GDP price index, arewithin the middle two-thirds of the ranges of Blue Chip
forecasts for 2023 and 2024. However, the agency’s projections of inflation in consumer prices (as measured by
the CPI-U) are above the middle two-thirds of the rangesof Blue Chip forecasts for 2023 and 2024. CBO’s projections of interest rates on 3-month Treasury bills and on
10-year Treasury notes for 2023 and 2024 fall within the
middle two-thirds of the ranges of Blue Chip forecasts.
The Survey of Professional Forecasters
CBO’s economic projections can also be compared—
over more years—with the projections of the roughly
40 forecasters participating in the Federal Reserve Bank
17. See Wolters Kluwer, Blue Chip Economic Indicators, vol. 48,
no. 1 (January 10, 2023).

Chapter 2: The Economic Outlook

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Figure 2-8 .

Comparison of CBO’s Economic Forecasts With Those of the Blue Chip Forecasters
Percent
Growth of Real GDP

8
6

6

4
2

Blue Chip,
Full Range

CBO

4

0

2

−2
−4

Blue Chip,
Middle Two-Thirds

0
2023

2024
GDP Price Inflation

8

2023

8

6

6

4

4

2

2

0

2024

Consumer Price Inflation

0
2023

6

Unemployment Rate

8

2024

Interest
Interest Rate
Rate onon 3-Month3−MonthTreasury
TreasuryBills
Bills

2023

6

4

4

2

2

0

2024

10-Year Treasury Notes
Interest Rate on 10−Year

0
2023

2024

2023

2024

Data sources: Congressional Budget Office; Wolters Kluwer, Blue Chip Economic Indicators, vol. 48, no. 1 (January 10, 2023). See www.cbo.gov/
publication/58848#data.
The full range of forecasts from the Blue Chip survey is based on the highest and lowest of the more than 40 forecasts in the survey. The middle two-thirds ofthat 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 inflation. Consumer price inflation is based on the consumer price index for allurban 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.

61

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THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

Figure 2-9 .

Comparison of CBO’s Forecasts of Output, Unemployment, and Interest Rates With Thosein the Survey of Professional Forecasters
Percent
Growth of Real GDP

10

Unemployment Rate

10

SPF,
Full Range

8

5

6

0

CBO

4

−5

SPF,
Middle Two-Thirds

2

−10

0
Q1
2023

Q2
2023

Q3
2023

2023

2024

2025

Interest Rate on 3-Month3−MonthTreasury
TreasuryBills
Bills

8

Q1
2023

6

4

4

2

2

0

Q3
2023

2023

2024

2025

10-Year Treasury
Interest Rate on 10−Year
Treasury Notes
Notes

8

6

Q2
2023

0
Q1
2023

Q2
2023

Q3
2023

2023

2024

2025

Q1
2023

Q2
2023

Q3
2023

2023

2024

2025

Data sources: Congressional Budget Office; Federal Reserve Bank of Philadelphia, Survey of Professional Forecasters: First Quarter 2023 (February 10, 2023),
https://tinyurl.com/y2xctkwk. See www.cbo.gov/publication/58848#data.
The full range of forecasts from the Survey of Professional Forecasters is based on the highest and lowest of the roughly 40 forecasts in the survey. 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 inflation. Quarterly growth of real GDP is measured from one quarter to the next
and expressed as an annual rate; annual growth is 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.
GDP = gross domestic product; SPF = Survey of Professional Forecasters.

of Philadelphia’s Survey of Professional Forecasters (SPF).18
CBO’s projection of real GDP growth for calendar year
2023 is slightly below the middle two-thirds of therange of the SPF forecast (see Figure 2-9). The agency’s
projection of real GDP growth for 2024 is within that
range, but the agency’s projection of real GDP growthfor 2025 is slightly above the middle two-thirds of therange in the SPF. In CBO’s projections, the probabilities
that the unemployment rates will be 6.0 percent or moreare greater than the average probabilities for those ranges
in the SPF (see Table 2-5). CBO’s projections of interest
18. See Federal Reserve Bank of Philadelphia, Survey of Professional
Forecasters: First Quarter 2023 (February 10, 2023),
https://tinyurl.com/y2xctkwk.

rates on 3-month Treasury bills and 10-year Treasury
notes are within the middle two-thirds of the ranges of
SPF forecasts except for 2025, when CBO expects lower
short-term rates.
The agency’s projections of inflation in consumer prices(as measured by the PCE price index) are within the
middle two-thirds of the ranges of the SPF forecasts
for 2023, 2024, and the 2025–2027 and 2028–2032
periods (see Figure 2-10). CBO’s projections of inflationin the CPI-U price index are also within the middle twothirds of the ranges of the SPF forecasts for 2024 and the2028–2032 period but are above that range in 2023 andbelow that range in the 2025–2027 period.

Chapter 2: The Economic Outlook

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Table 2-5 .

Comparison of CBO’s Projections of Probabilities for the Unemployment Rate With Thosein the Survey of Professional Forecasters
Percent
Projected Probability That the Annual Average of the
Unemployment Rate Will Be Within the Indicated Range
2023
Unemployment Rate (Range)
Less than 3.0 percent
3.0 percent to 3.9 percent
4.0 percent to 4.9 percent
5.0 percent to 5.9 percent
6.0 percent or more

2024

2025

CBO

SPF

CBO

SPF

CBO

SPF

0
28
41
20
11

3
38
42
13
4

9
22
22
22
25

3
27
46
18
6

12
18
28
25
17

3
28
43
20
5

Data sources: Congressional Budget Office; Federal Reserve Bank of Philadelphia, “Probability Variables: Survey of Professional Forecasters”(February 10, 2023), https://tinyurl.com/4s2wmz8m. See www.cbo.gov/publication/58848#data.
Estimates from the Survey of Professional Forecasters are the averages of responses from roughly 30 forecasters. For the basis of CBO’s estimates, seeMichael McGrane, A Markov-Switching Model of the Unemployment Rate, Working Paper 2022-05 (Congressional Budget Office, March 2022), www.cbo.gov/
publication/57582; and Congressional Budget Office, “Estimating the Uncertainty of the Economic Forecast Using CBO’s Expanded Markov-Switching Model”(January 2023), www.cbo.gov/publication/58884.
SPF = Survey of Professional Forecasters.

The Federal Reserve
CBO’s forecast can also be compared with forecasts madeby the Federal Open Market Committee of the Federal
Reserve. The agency’s projection of real GDP growthfor 2023 is below the central tendency in the Federal
Reserve’s most recent Summary of Economic Projections,but its projections of real GDP growth for 2024 and2025 are above the central tendency (see Figure 2-11).19
19. See Board of Governors of the Federal Reserve System, Summaryof Economic Projections, “Table 1. Economic Projections ofFederal Reserve Board Members and Federal Reserve Bank
Presidents, Under Their Individual Assumptions of Projected
Appropriate Monetary Policy, December 2022” (December 14,2022), p. 2, https://tinyurl.com/bdftk8j7 (PDF). The rangeof Federal Reserve forecasts is based on the highest and lowest
projections made by the members of the Board of Governorsof the Federal Reserve System and the presidents of the Federal
Reserve Banks; the central tendency is the range formed byremoving the three highest and three lowest Federal Reserve
forecasts. The median is the middle projection (or, if thenumber 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 longer-term
projections, CBO uses its projections for the last quarter of the
projection period.

CBO’s projection of real GDP growth in the longer term
is within the central tendency in the Federal Reserve’s
forecasts. CBO’s forecasts of the unemployment rate areabove the central tendency in 2023 and in the longer
term but are within the central tendency in 2024 and2025. The agency’s projections of PCE inflation arewithin the central tendency in the Federal Reserve’s
forecasts. CBO’s projections of the federal funds rate arenear or below the low end of the range of the Federal
Reserve’s forecasts in 2023, 2024, and 2025.
A key difference between CBO’s economic projections
and those made by Federal Reserve officials is that CBOdevelops its projections so that they fall in the middleof the likely range of outcomes under current law. By
contrast, the Federal Reserve reports a different concept: Each Federal Reserve official provides a modal
forecast—a forecast of the most likely outcome—reflecting that person’s assessment of appropriate monetary policy, and the Federal Reserve reports ranges of
those modal values.

63

64

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

Figure 2-10 .

Comparison of CBO’s Forecasts of Inflation With Those in theSurvey of Professional Forecasters
Percent
Consumer Price Index

8

PCE Price Index

8

6

6

4

4

2

2

0

0

−2

SPF,
Full Range

SPF,
MiddleTwo-Thirds
CBO

−2
Q1
2023

Q2
2023

Q3
2023

2023

2024

2025−
2027

2028−
2032

Core Consumer Price Index

8

Q1
2023

Q2
2023

6

4

4

2

2

0

0

−2

2023

2024

2025−
2027

2028−
2032

2025−
2027

2028−
2032

Core PCE Price Index

8

6

Q3
2023

−2
Q1
2023

Q2
2023

Q3
2023

2023

2024

2025−
2027

2028−
2032

Q1
2023

Q2
2023

Q3
2023

2023

2024

Data sources: Congressional Budget Office; Federal Reserve Bank of Philadelphia, Survey of Professional Forecasters: First Quarter 2023 (February 10, 2023),
https://tinyurl.com/y2xctkwk. See www.cbo.gov/publication/58848#data.
The full range of forecasts from the Survey of Professional Forecasters is based on the highest and lowest of the roughly 40 forecasts in the survey. The middle
two-thirds of that range omits the top one-sixth and the bottom one-sixth of the forecasts.
Quarterly inflation is measured from one quarter to the next and expressed as an annual rate. Annual inflation is measured from the fourth quarter of one
calendar year to the fourth quarter of the next.
Consumer price inflation is based on the consumer price index for all urban consumers. Core indexes exclude prices for food and energy.
Multiyear averages are calculated using the 5-year and 10-year averages reported in the SPF. The SPF did not provide forecasts of inflation in the core consumer
price index or the core PCE price index beyond 2024.
PCE = personal consumption expenditures; SPF = Survey of Professional Forecasters.

Chapter 2: The Economic Outlook

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Figure 2-11 .

Comparison of CBO’s Economic Forecasts With Those of the Federal Reserve
Percent
3

Growth of Real GDP

Unemployment Rate

8

Federal Reserve,
Full Range

2

6

1

Federal Reserve,
Central Tendency

CBO

4

0

2

−1
2023

2024

2025

Longer Terma

PCE Price Inflation

6

0
2023

2024

2025

Longer TermaLonger TermaFederal Funds Rate

6
5
4

4

3
b

2

2
1

0
2023

2024

2025

Longer Term

a

0
2023

2024

2025

Data sources: Congressional Budget Office; Board of Governors of the Federal Reserve System, Summary of Economic Projections, “Table 1. Economic
Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, Under Their Individual Assumptions of Projected Appropriate Monetary
Policy, December 2022” (December 14, 2022), p. 2, https://tinyurl.com/bdftk8j7 (PDF). See www.cbo.gov/publication/58848#data.
The full range of forecasts from the Federal Reserve is based on the highest and lowest of the 19 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 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 December 2022. 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.
Real values are nominal values that have been adjusted to remove the effects of inflation.
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 afourth-quarter value.
GDP = gross domestic product; PCE = personal consumption expenditures.
a. For CBO, longer-term projections are values for the last quarter of 2033. 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.
b. All Federal Reserve officials forecast a 2 percent rate of inflation in the longer term.

65Appendix A: Changes in CBO’s Baseline
Projections Since May 2022
Overview

The Congressional Budget Office estimates that if
no new legislation affecting spending and revenues isenacted, the budget deficit for fiscal year 2023 will total$1.4 trillion. That amount is $0.4 trillion (or 43 percent)larger than the $1.0 trillion deficit the agency estimatedin May 2022, when it last updated its baseline budget
projections.1 Since then, CBO has increased its estimateof outlays in 2023 by $0.3 trillion (or 6 percent) andreduced its projection of revenues in 2023 by $0.1 trillion (or 2 percent).
CBO now projects that if current laws generally
remained in place, the cumulative deficit for the 2023–
2032 period would be $18.8 trillion. That amount is$3.1 trillion (or 20 percent) more than the $15.7 trillion
the agency projected in May 2022 (see Figure A-1).
That change is the net result of a $4 trillion (or 6 percent) increase in projected outlays and a $0.9 trillion(or 2 percent) increase in projected revenues over the2023–2032 period.
In CBO’s projections, debt held by the public reaches$43.5 trillion by the end of 2032—$3.3 trillion morethan the $40.2 trillion the agency projected in May 2022.
Debt is currently projected to reach 115 percent of grossdomestic product (GDP) in 2032, up from the 110 percent of GDP that CBO projected in May 2022.
When CBO updates its baseline budget projections, itgroups the revisions into three categories—legislative,
economic, and technical. Those categories are defined
as follows:• Legislative changes result from laws enacted since theagency published its previous baseline projections.2

1. See Congressional Budget Office, The Budget and Economic
Outlook: 2022 to 2032 (May 2022), www.cbo.gov/
publication/57950.
2. The baseline projections described in this report incorporate
the effects of legislation enacted through January 9, 2023. The
effects of legislation discussed here generally reflect the estimates• Economic changes arise from revisions the agency

has made to its economic forecast, including thosemade to incorporate macroeconomic effects (thatis, behavioral changes that affect total output inthe economy) stemming from recently enacted
legislation.3• Technical changes are revisions to projections that areneither legislative nor economic.

Changes in each of the three categories boosted projected
deficits over the 2023–2032 period (see Table A-1):• Legislative changes increased projected deficits by$1.5 trillion, on net, mostly by increasing projected
outlays. In particular, CBO increased its projectionsof mandatory outlays for veterans’ benefits, as well as
its overall projections of discretionary spending.

• Taken together, economic changes increased projected
deficits by $1.2 trillion. CBO revised its projectionsof outlays upward by $2.1 trillion because of changes
to projections of several economic variables, including
increases in interest rates and inflation. That increasein projected outlays was partly offset by a $0.9 trillion
increase in projected revenues associated with higher
projections of nominal GDP.

• Technical changes in the agency’s projections ofrevenues and outlays increased projected deficits
by a total of $0.4 trillion. The largest technicalrevision was a $0.2 trillion decrease in projected
Medicare outlays, which reduced deficits. On net,other changes more than offset that reduction,
including reductions in projected individual income
tax revenues and increases in projected outlays forstudent loans and Social Security.
provided for budget enforcement purposes around the time thelegislation was enacted.

3. The current budget projections are based on CBO’s latest
economic forecast, which was completed on December 6,
2022, and reflects estimates of the effects of laws enacted andpolicies implemented through that date, as well as a preliminary
assessment of full-year funding for fiscal year 2023.

68

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

Figure A-1 .

Changes in CBO’s Baseline Projections of the 10-Year Deficit Since May 2022
Trillions of Dollars

2023–2032 Deficit in CBO’s
May 2022 Baseline

15.7

2023–2032 Deficit in CBO’s
February 2023 Baseline

18.8

1.5
2.1
−0.9

Legislative Changes

1.5

Net Increase in Outlays for
Economic Reasons
Net Increases in Revenues Stemming From
Revised Economic Projections

0.4

Technical Changes

2.1
−0.9
0.4

The cumulative deficit overthe 2023–2032 period is$3.1 trillion larger in CBO’s
current baseline projections
than it was in the agency’s
May 2022 projections,mainly because of newly
enacted legislation andchanges to the economic
forecast that boost
projected net interest
outlays and spending on
mandatory programs, suchas Social Security.

Data source: Congressional Budget Office. See www.cbo.gov/publication/58848#data.

As a result of those changes, primary deficits—that is,
deficits excluding net outlays for interest—are now
projected to total $1.5 trillion more over the 2023–
2032 period than CBO projected in May 2022. The
agency’s projections of net outlays for interest over that
period increased by a similar amount—$1.6 trillion.

Legislative Changes

To account for legislation enacted after the May 2022
baseline projections were prepared, CBO increased
its estimate of the deficit for 2023 by $17 billion andits projections of deficits over the 2023–2032 period
by $1.5 trillion (see Table A-1).4 Nearly all the legislative changes were to outlays. Those changes included
significant increases in outlays for mandatory veterans’ benefits and increases in outlays for discretionary
defense programs.

4. The May 2022 baseline projections incorporated the effects oflegislation enacted through March 2, 2022.

Changes in Outlays
Incorporating the effects of recently enacted legislation
into CBO’s baseline projections increased outlays in
2023 by $43 billion (or 1 percent) and increased outlays
over the 2023–2032 period by $1.5 trillion (or 2 percent). Half of the additional spending is for mandatory
programs, and one-third is for discretionary programs.5
The remainder is an increase in net outlays for interest,
stemming from additional federal borrowing to financethe larger deficits resulting from the legislative changes.
Mandatory Outlays. Because of recently enacted

legislation, CBO increased its estimate of mandatory
outlays by $4 billion (or less than 1 percent) for 2023
and by $824 billion (or 2 percent), on net, for the2023–2032 period.
The bulk of those changes can be attributed to the
Honoring our PACT Act (Public Law 117-168), which
increased spending for veterans’ benefits. (Specifically,
5. Funding that is provided in annual appropriation acts andthe outlays that result from it are generally categorized as
discretionary.

APPENDIX A: CHANGES IN CBO’S BASELINE PROJECTIONS SINCE MAY 2022

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Table A-1 .

Changes in CBO’s Baseline Projections of the Deficit Since May 2022
Billions of Dollars
Total
2023– 2023–
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2027 2032
Deficit in CBO’s May 2022 Baseline
Changes in Revenues
Corporate income taxes
Excise taxes
Individual income taxes
Other
Total Change in Revenues
Changes in Outlays
Mandatory
Veterans’ benefits
2022 reconciliation act
Medicare
Internal Revenue Service fundinga
Provisions related to natural resources
and the environment
Climate tax credits
Energy innovation programs
Premium tax credits
Medicaid
Other
Subtotal (For 2022 reconciliation act)
CHIPS for America Fundb
Medicare (Excluding 2022 reconciliation act)
Medicaid (Excluding 2022 reconciliation act)
SNAP and child nutrition
Other
Subtotal
Discretionary
DefenseNondefense
Subtotal
Debt servicec
Total Change in Outlays
Increase (-) or Decrease in the Deficit From
Legislative Changes-984 -1,056 -1,318 -1,364 -1,409 -1,725 -1,651 -1,912 -2,067 -2,253 -6,131 -15,740
Legislative Changes
24
7
-5
*
26

20
9
-11
*
18

4
10
-13
1
2

-5
10
-14
2
-7

-5
11
12
2
20

-3
11
18
2
27

-3
10
1
2
9

-4
10
-10
2
-2

-5
11
-10
1
-3

-7
11
-10
1
-6

37
47
-31
5
59

15
100
-42
12
84

9

41

50

63

73

85

95

107

117

129

236

770

-1
4

2
3

-14
5

-6
6

-24
8

-43
10

-45
13

-55
15

-59
15

-64
0

-42
27

-307
80

2
1
*
21
*
-3
25
2
3
-13
-21
*
4

7
3
2
12
1
3
34
5
8
-5
2
7
92

12
3
5
11
1
3
27
8
-2
3
2
1
90

16
4
7
-8
1
4
25
9
-15
3
2
*
88

14
4
7
-1
1
5
15
8
-6
3
3
3
99

9
5
6
*
1
4
-7
6
*
3
3
2
91

6
5
4
*
1
3
-13
5
1
3
3
2
95

4
5
2
*
2
2
-24
4
1
2
3
3
97

3
6
1
*
2
1
-31
3
16
-3
3
6
111

2
0
0
*
3
*
-59
1
-20
-4
3
7
58

52
15
22
35
5
12
125
32
-12
-9
-11
11
373

76
36
35
35
15
23
-8
51
-14
-8
3
30
824

15
23
39

30
31
61

41
35
76

51
12
63

59
-2
57

65
-14
51

69
-21
48

71
-24
47

73
-25
47

76
-27
49

196
100
295

550
-12
538

*
43

2
155

7
173

12
162

16
172

20
162

24
167

29
173

34
193

39
146

38
185
706 1,547

-17

-137

-171

-169

-153

-135

-158

-175

-196

-152

-647 -1,463
Continued

69

70

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

Table A-1.

Continued

Changes in CBO’s Baseline Projections of the Deficit Since May 2022
Billions of Dollars
Total
2023– 2023–
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2027 2032
Economic Changes

Changes in Revenues
Individual income taxes
Payroll taxes
Corporate income taxes
Federal Reserve remittances
Other
Total Change in Revenues

-64
-5
9
-29
-7
-97

-61
7
-3
-16
-9
-82

-18
29
-1
-26
-7
-22

30
46
10
-40
-4
42

62
53
21
-46
-4
87

81
56
29
13
-2
177

97
59
31
12
-2
197

106
61
32
11
-3
207

112
63
31
11
-2
215

116
64
31
11
-3
219

-51
130
37
-157
-32
-72

461
434
191
-99
-44
943

Changes in Outlays
MandatorySocial Security
Medicaid
MedicareFederal employees’ retirement
Unemployment compensation
SNAPChild nutrition
Supplemental Security Income
Other
Subtotal

16
4
*
3
6
2
*
1
4
38

38
7
4
6
12
10
1
2
2
83

49
9
6
7
9
10
2
3
6
100

51
10
7
7
6
7
3
3
5
100

49
10
8
7
4
4
3
3
3
91

45
10
9
7
1
2
4
3
2
83

41
11
9
7
*
1
4
2
2
76

40
12
11
7
1
*
4
2
1
77

40
12
13
7
1
-1
4
2
-1
78

43
13
16
7
1
-1
4
2
*
85

203
40
26
31
37
34
10
11
19
412

412
98
85
64
41
34
30
23
24
810

3

12

14

13

12

12

12

12

11

11

53

113

181
2
184
224

183
17
199
294

117
26
143
257

86
32
117
230

77
35
112
215

71
38
109
204

63
38
101
190

54
37
92
181

46
36
82
171

41
643
919
35
112
295
75
755 1,214
172 1,220 2,137

-321

-376

-280

-188

-128

-26

7

27

44

48 -1,293 -1,194

Discretionary
Net interest
Effects of interest rates and inflation
Debt servicec
Subtotal
Total Change in Outlays
Increase (-) or Decrease in the Deficit From
Economic Changes

Continuedthat act established the Cost of War Toxic Exposures
Fund to support health care, medical research, andother activities for veterans exposed to toxic substancesor environmental hazards.) Other significant changes
stem from the act to provide for reconciliation pursuant to title II of S. Con. Res. 14 (referred to here as the2022 reconciliation act, P.L. 117-169); the Creating
Helpful Incentives to Produce Semiconductors (CHIPS)Act of 2022 (division A of P.L. 117-167); the Bipartisan
Safer Communities Act (BSCA; P.L. 117-159); and theConsolidated Appropriations Act, 2023 (2023 CAA;
P.L. 117-328).6
6. For more detailed information about the budgetary effects ofthat legislation, see Congressional Budget Office, estimated

Veterans’ Benefits. To account for legislation

enacted after the May 2022 baseline was prepared,
CBO increased its projections of mandatory outlays
budgetary effects of Public Law 117-169, an act to provide
for reconciliation pursuant to title II of S. Con. Res. 14(September 7, 2022), www.cbo.gov/publication/58455;
estimated budgetary effects of H.R. 4346, as amended by the
Senate and as posted by the Senate Committee on Commerce,
Science, and Transportation on July 20, 2022 (July 21, 2022),
www.cbo.gov/publication/58319; estimated budgetary effects of
S. 2938, the Bipartisan Safer Communities Act (June 22, 2022),
www.cbo.gov/publication/58238; and estimated budgetary effects
of divisions O through MM of the Consolidated Appropriations
Act, 2023 (Public Law 117-328), as enacted on December 29,
2022 (January 12, 2023), www.cbo.gov/publication/58901.

APPENDIX A: CHANGES IN CBO’S BASELINE PROJECTIONS SINCE MAY 2022

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Table A-1.

Continued

Changes in CBO’s Baseline Projections of the Deficit Since May 2022
Billions of Dollars
Total
2023– 2023–
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2027 2032
Technical Changes

Changes in Revenues
Individual income taxesa
Payroll taxes
Corporate income taxesa
Other
Total Change in Revenues

13
-5
-13
-2
-7

-3
1
-17
-3
-21

3
4
2
-3
6

-23
6
16
-5
-5

-26
10
21
-5
*

-27
11
19
-6
-4

-21
11
16
-6
-1

-20
11
13
-7
-2

-23
11
10
-9
-11

-39
12
-2
-9
-38

-36
16
10
-19
-28

-165
72
65
-56
-84

Changes in Outlays
Mandatory
MedicareStudent loans
Social Security
SNAP
Pension Benefit Guaranty Corporation
Supplemental Security Income
Medicaid
Crop insurance
U.S. Coronavirus Refundable Credits
Other
Subtotal

-19
29
-1
8
56
-1
-3
6
16
32
125

-22
9
2
4
-19
-2
-10
2
0
14
-20

-25
9
6
9
4
-3
-25
2
0
-7
-29

-27
10
7
5
*
-4
-19
2
0
1
-27

-27
10
9
10
-1
-4
-11
2
0
10
-1

-26
10
11
11
-2
-3
-4
2
0
17
17

-23
10
13
11
-2
-2
2
2
0
8
21

-25
10
16
11
-1
-2
8
2
0
11
31

-26
11
19
10
-1
-2
15
2
0
13
40

-26
11
23
12
-1
-2
24
2
0
17
61

-121
68
24
37
41
-13
-68
14
16
51
49

-246
120
107
93
35
-24
-23
23
16
118
218

-58

-7

4

-1

-2

-1

3

1

-1

-2

-64

-65

Discretionary
Net interest
Other
Debt servicec
Subtotal
Total Change in Outlays
Increase (-) or Decrease in the Deficit From
Technical Changes

13
1
14
81

7
5
12
-14

7
8
14
-11

10
8
18
-10

10
8
18
16

14
9
23
38

11
10
21
45

12
9
21
52

12
9
22
61

13
12
25
84

47
29
76
61

109
79
188
341

-88

-7

17

5

-16

-42

-46

-55

-72

-122

-89

-426

Total Increase (-) or Decrease in the Deficit

-426

-520

-434

-352

-297

All Changes-204 -196

-203

-224

-227 -2,029 -3,082

Deficit in CBO’s February 2023 Baseline-1,410 -1,576 -1,752 -1,716 -1,706 -1,929 -1,847 -2,115 -2,291 -2,480 -8,160 -18,822

Memorandum:
Change in Revenues
Increase in Outlays
Increase (-) in the Primary Deficitd
Increase (-) in the Deficit From the Increase in
Net Interest Outlays

-78
348
-228

-85
435
-307

-15
419
-269

30
382
-205

106
403
-151

201
404
-51

205
401
-50

203
406
-61

201
425
-86

175
-42
943
402 1,987 4,025-87 -1,160 -1,495

-198

-213

-165

-147

-146

-152

-147

-142

-138

-140

-869 -1,587

Data source: Congressional Budget Office. See www.cbo.gov/publication/58848#data.
SNAP = Supplemental Nutrition Assistance Program; * = between -$500 million and $500 million.
a. In the cost estimate for the 2022 reconciliation act, CBO estimated that the increase in funding for tax enforcement would increase revenues by $180 billion
over the 2022–2031 period. However, under guidelines agreed to by the legislative and executive branches, that increase in revenues was not included in
the totals used for budget enforcement purposes. CBO estimates that over the 2023–2032 period, those additional revenues would total $186 billion. Thoserevenues have been accounted for here as a technical change to CBO’s baseline projections, with half of the amount allocated to individual income taxes andhalf to corporate income taxes.
b. Funding related to the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act of 2022 (division A of Public Law 117-167).
c. Changes in debt-service costs are the changes in interest payments resulting from an increase or decrease in projected deficits.
d. Primary deficits exclude net outlays for interest.

71

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THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

for veterans’ benefits by $9 billion for 2023 and by$770 billion for the 2023–2032 period. That increasein spending reflects the projected cost of implementing the Honoring our PACT Act—and, in particular,
establishing the Cost of War Toxic Exposures Fund. In
total, enactment of that legislation increased projectionsof outlays for health care, disability compensation, andother benefits for veterans by $28 billion for 2023 andby $789 billion for the 2023–2032 period. Other legislation reduced projected mandatory spending for veterans’
benefits over the 10-year period by $19 billion.
The 2022 Reconciliation Act. In CBO’s estima-tion, the 2022 reconciliation act increased outlays
in 2023 by $25 billion and reduced outlays for the2023–2032 period by $8 billion. The largest effect wasa $307 billion net decrease in projected outlays for
Medicare from 2023 to 2032. The main contributors tothat decrease were pricing reforms for prescription drugs,
which CBO estimates will reduce prescription drug
spending in Medicare Part D and Medicare Part B.
That decrease was almost entirely offset by increases inprojected outlays for other programs over the 2023–
2032 period, including the following:• $80 billion from increased funding for the Internal

Revenue Service (IRS) for enhancing tax enforcement
and taxpayer services;7• $76 billion from provisions related to natural

resources and the environment, including provisions
to reduce greenhouse gas emissions and fundagricultural and forest land conservation programs;• $36 billion for refundable tax credits for clean energy
production and carbon sequestration;8• $35 billion for programs related to the developmentof innovative energy technology, the improvement

7. In its cost estimate for the 2022 reconciliation act, CBO
estimated that the increase in funding for tax enforcement would
boost revenues by $180 billion over the 2022–2031 period.
However, under guidelines agreed to by the legislative andexecutive branches, that change in revenues was not includedin the totals used for budget enforcement purposes. As a result,the estimated increase in revenues is accounted for as a technicalchange to CBO’s baseline projections. For more information on
those guidelines, see Congressional Budget Office, CBO Explains
Budgetary Scorekeeping Guidelines (January 2021), www.cbo.gov/
publication/56507.
8. The refundable tax credits created by the 2022 reconciliation act
also decreased revenues, as discussed below.

February 2023

of home energy efficiency, grants for the domestic
production of electric and hybrid cars, the reductionof emissions in the industrial sector, and increased
support for rural electricity systems;• $35 billion from changes to premium tax credits(which help defray the cost of obtaining healthinsurance); and• $15 billion from changes to Medicaid, including an
increase in spending for prescription drugs.

CHIPS for America Fund. The CHIPS Act created afund to provide grants to strengthen semiconductor
research, design, and manufacturing in the United States.
CBO estimates that mandatory outlays from that fundwill amount to $51 billion over the 2023–2032 period.9
Medicare. In addition to the 2022 reconciliation act,

other laws affected projected outlays for Medicare.
The effects of those other laws led CBO to increase its
projection of Medicare outlays in 2023 by $3 billion
and decrease its projection of such outlays over the2023–2032 period by $14 billion. The largest change—a$13 billion drop in projected outlays over the 10-year
period—resulted from a provision in the BSCA thatdelayed the implementation of a rule affecting rebates forprescription drugs.
Other significant changes stem from the 2023 CAA.
First, that law reduced funding for the Medicare
Improvement Fund, decreasing outlays by $7 billion overthe 10-year period. Second, it reduced Medicare sequestration rates in 2030 and 2031, and extended sequestration of Medicare into 2032, resulting in a net $3 billion
decrease in CBO’s projections of outlays for the program
over the 2023–2032 period.10 Those reductions were
9. The CHIPS Act also decreased projected revenues over the2023–2032 period by $24 billion, as discussed below.
10. The Budget Control Act of 2011 (P.L. 112-25) reinstituted
procedures set forth in the Balanced Budget and Emergency
Deficit Control Act of 1985 (the Deficit Control Act,
P.L. 99-177) to automatically reduce funding provided forcertain mandatory programs from 2013 through 2021. The law
directed the Office of Management and Budget to determine andenforce the amount of the reduction each year for defense andnondefense programs in a process of across-the-board reductions
known as sequestration. Subsequent legislation extended the cuts
through 2031 and specified that future reductions would use thepercentages calculated for 2021: 8.3 percent for defense accounts
and 5.7 percent for most nondefense accounts. Different rules
apply to Medicare, the largest program subject to sequestration.
Its funding is reduced by 2 percent in most years.

APPENDIX A: CHANGES IN CBO’S BASELINE PROJECTIONS SINCE MAY 2022

partly offset by a projected $5 billion increase in outlays over the 10-year period because of provisions that
expanded Medicare’s coverage of telehealth services andextended support for medical professionals to adjust to
Medicare payment changes.
Medicaid. Outlays for Medicaid were also affected bylaws other than the 2022 reconciliation act. The effectsof those laws led CBO to decrease its projection of
Medicaid outlays in 2023 by $13 billion and by $8 billion over the 2023–2032 period.
The decrease in 2023 was largely the result of the2023 CAA. Under that act, the maintenance-of-effort
policy will end on April 1, 2023. That policy required
states to maintain Medicaid coverage for most enrollees
for the duration of the COVID-19 public health emergency. Partly offsetting that decrease, other provisionsof the 2023 CAA extended states’ access to additional
Medicaid matching funds during the public healthemergency by three months, through December 2023,
though they also lowered the matching rate beginning in
April 2023.
Supplemental Nutrition Assistance Program and Child
Nutrition. Legislation reduced projected outlays for nutri-tion programs in 2023 by $21 billion but increased suchoutlays over the 2023–2032 period by $3 billion. The
major reason for those changes was that the 2023 CAA
reduced spending for the Supplemental Nutrition
Assistance Program (SNAP) in 2023 by $23 billion andincreased spending on child nutrition programs over the2023–2032 period by the same amount.
Other Mandatory Programs. Additional effects of legis-

lation enacted after CBO prepared its May 2022 projections amount to a net increase of $30 billion in projected
mandatory outlays over the 2023–2032 period.
Discretionary Outlays. Legislation enacted since CBOcompleted its May 2022 baseline projections increased
the agency’s projections of discretionary outlays overthe 2023–2032 period by $538 billion. That increase
resulted from additional discretionary funding provided
by the 2023 CAA and other appropriation acts—mostly
for defense programs.
In all, projected discretionary funding for 2023 currently totals $1.8 trillion, $14 billion (or about 1 percent) more than the amount projected in CBO’s

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

May 2022 baseline.11 Funding for defense in 2023 is$63 billion (or 8 percent) more than previously projected; $36 billion of that increase is for additional
emergency funding to provide aid to Ukraine. Funding
for nondefense programs is $49 billion (or 5 percent)less than previously projected. Because CBO generallypro­jects yearly increases in funding for discretionary
programs to account for inflation, the net increasein funding persists each year after 2023, resulting inincreases in outlays through 2032.12
In addition, the 2023 CAA provided $162 billion inadvance appropriations for 2024—mostly for veterans’ benefits and services and for education, training,
employment, and social services.13 That advance fundingis $18 billion (or 12 percent) more than the amountprojected in CBO’s May 2022 baseline.
Projected outlays also increased because the Additional
Ukraine Supplemental Appropriations Act, 2022
(P.L. 117-128), provided $40 billion in funding for2022. (That law was enacted on May 21, 2022, after
CBO had prepared its May 2022 projections.) Most of
the outlays from those appropriations will occur in 2023
and later years, increasing CBO’s projections of outlays
over the 2023–2032 period by $34 billion. (Because that
11. Each year, some mandatory programs are modified by provisions
in annual appropriation acts (often called CHIMPs, for“changes in mandatory programs”). CHIMPs may increase or
decrease spending for a given mandatory program. For budget
enforcement procedures, they are considered to increase or
decrease the amount of discretionary budget authority attributed
to the appropriation acts; in subsequent baseline projections,those effects are applied in the budget to the relevant mandatory
programs. In CBO’s cost estimates for 2023 appropriation
legislation, CHIMPs decreased discretionary funding by$28 billion. When CBO incorporated those CHIMPs into
its baseline projections, it accounted for those changes on the
mandatory side of the ledger; thus, the discretionary funding for2023 in the baseline is higher than the amount shown in the costestimate for the 2023 CAA and other 2023 appropriation acts.
12. In accordance with section 257 of the Deficit Control Act,
CBO projects funding for individual accounts in futureyears by applying the specified inflation rate to the mostrecent appropriations for those accounts. For its projectionsof discretionary funding related to federal personnel, CBO
is required to use the employment cost index for wages andsalaries to adjust for inflation; for its projections of other typesof discretionary funding, the agency is required to use theGDP price index.
13. An advance appropriation becomes available in a specified year
following the year for which the appropriation act was enacted.

73

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THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

funding was provided for 2022 and future discretionary
funding in the current baseline is projected on the basisof appropriations provided for 2023, funding from theact is not projected to continue.)
Projected discretionary funding related to division Jof the Infrastructure Investment and Jobs Act (IIJA,
P.L. 117-58) is less than it was in the May 2022 baseline.
Whereas, in its May 2022 baseline, CBO projected thatfunding on the basis of the $163 billion provided by
the IIJA for 2022, such funding in the current baseline is projected from the $69 billion provided by the
IIJA for 2023.14 That difference resulted in $1.0 trillion less in projected funding, and $610 billion lessin projected outlays, associated with the IIJA over the2023–2032 period.15
Net Interest Outlays. Excluding changes in debt-­service

costs, CBO increased its projection of the deficit for2023 by $17 billion and increased its projections of
the cumulative deficit over the 2023–2032 period by$1.3 trillion to account for legislation enacted since the
May 2022 baseline was prepared.16 The additional federal
borrowing stemming from those larger annual deficits
added $185 billion to CBO’s projections of net outlays
for interest over the 10-year period.
Changes in Revenues
CBO increased its estimate of revenues for 2023 by$26 billion (or 0.5 percent) and its projections ofrevenues over the 2023–2032 period by $84 billion (or0.1 percent) to account for recently enacted legislation.
The 2022 reconciliation act and the CHIPS Act explain
nearly all of those changes.
14. Division J of the IIJA provided $163 billion for 2022, anestimated $69 billion in advance appropriations for 2023, andsmaller amounts for later years. After consulting with the Houseand Senate Budget Committees, CBO projected that the funding
would continue in future years, with adjustments for inflation.
As a result, CBO’s May 2022 baseline included a projected$162 billion in funding associated with division J of the IIJA
for 2023, instead of the $69 billion actually provided. For moredetails, see Box 3-2 of Congressional Budget Office, The Budget
and Economic Outlook: 2022 to 2032 (May 2022), www.cbo.gov/
publication/57950.
15. In CBO’s current baseline, IIJA-related funding projected for2024 through 2033 exceeds the amounts specified in division J ofthat act by $526 billion, adding $271 billion to projected outlays
over the same period.
16. Changes in debt-service costs are the changes in interest payments
resulting from an increase or decrease in projected deficits.

February 2023

The 2022 reconciliation act contained a number ofprovisions affecting receipts. The provisions expected toresult in the largest revenue increases are a new minimum tax on the book income of certain corporations(based on an adjusted measure of the income reported on
their financial statements), a new excise tax on corporate
stock repurchases, a new excise tax on drug manufacturers and importers that do not enter into drug pricing
agreements, and an extension of an existing provisionthat limits the ability of noncorporate taxpayers to use
business losses to offset nonbusiness income. Partly offsetting those revenue increases are an extension through2025 of the modifications to premium tax credits forhealth insurance introduced by the American Rescue
Plan Act of 2021 (P.L. 117-2) and the modificationand creation of tax credits related to the energy sector.
Those credits include extended and modified credits forelectricity produced from certain renewable resources,
extended and modified manufacturing and residential
energy credits, and new tax incentives for clean vehicles and alternative fuels. Altogether, provisions of the2022 reconciliation act will increase federal revenues by$31 billion in 2023 and by $105 billion over the 2023–
2032 period, CBO and the staff of the Joint Committee
on Taxation estimate.
In addition, the CHIPS Act of 2022 is expected toreduce receipts by $3 billion in 2023 and by $24 billion over the 2023–2032 period. Most of that effectis explained by a reduction in corporate income taxes
stemming from the Advanced Manufacturing Investment
Credit, a tax credit equal to 25 percent of qualified
investment in a facility that manufactures semiconductors or the equipment to manufacture semiconductors.
All told, for the 2023–2032 period, legislative changes
led CBO to reduce its projections of individual income
tax receipts by $42 billion and to increase its projectionsof excise tax receipts by $100 billion, corporate income
tax receipts by $15 billion, and other sources of revenues
by $12 billion.

Economic Changes

The economic forecast that underlies CBO’s baselinebudget projections includes the agency’s projections of
GDP growth, interest rates, wages and salaries, inflation, and other factors that affect federal spending andrevenues (see Figure A-2). Taken together, changes inthat forecast increased CBO’s estimate of the deficit in
2023 by $321 billion—by increasing projected outlays,

APPENDIX A: CHANGES IN CBO’S BASELINE PROJECTIONS SINCE MAY 2022

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Figure A-2 .

Key Changes in CBO’s Economic Forecast Since May 2022
Unemployment Ratea

Interest Rate on 10-Year Treasury Notes
Percent

Percent

February 2023
Economic Forecast

4

6
February 2023

May 2022
Economic Forecast3

4
May 2022

2

Increases in projected interest rates
drove up net outlays for interest in
CBO’s baseline projections.

1

Increases in the forecast of theunemployment rate increased projected
outlays for unemployment compensation.

2

0

0
2022

2024

2026

2028

2030

2032

2022

2024

2026

2028

2030

2032

Nominal GDP

Consumer Price Inflationb
Percent

Trillions of Dollars

940
February 2023

8
February 2023

7
6
5
4
3
2

May 2022

30

Increases in the forecast of inflation
boosted projections of spending on
Social Security and other benefit
programs that receive cost-of-living
adjustments, as well as projections of
discretionary outlays.

20

As a result of upward revisions to theforecast of nominal GDP, revenues
from income, payroll, and corporate
taxes are now projected to be higher
than CBO projected in May 2022.

10

May 2022

1
0

0
2022

2024

2026

2028

2030

2032

2022

2024

2026

2028

2030

Data source: Congressional Budget Office. See www.cbo.gov/publication/58848#data.
Data are for fiscal years.
In the February 2023 economic forecast shown here, values for 2022 are actual values.
GDP = gross domestic product.
a. 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 froma temporary layoff, expressed as a percentage of the labor force. The labor force consists of people age 16 or older in the civilian noninstitutionalized
population who have jobs or who are available for work and are either seeking work or expecting to be recalled from a temporary layoff.
b. As measured by the consumer price index for urban wage earners and clerical workers.

2032

75

76

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

mostly for interest, and reducing revenues (see Table A-1
on page 69). In CBO’s projections for the 2023–
2032 period, economic changes increased the cumulative
deficit by $1.2 trillion. That increase is the net resultof a $2.1 trillion increase in outlays and a $0.9 trillion
increase in revenues.
Changes in Outlays
CBO’s revisions to its economic forecast include
increases in interest rates, inflation, and unemployment
rates from 2023 to 2032. Those and other economicchanges increased the agency’s estimate of outlays in
2023 by $224 billion (or 4 percent) and its projectionsof outlays over the 2023–2032 period by $2.1 trillion (or3 percent).
Mandatory Outlays. Economic changes increased CBO’s

estimate of mandatory outlays in 2023 by $38 billion(or 1 percent), on net. Projections of mandatory outlays
from 2023 to 2032 increased by $810 billion (or 2 percent). Upward revisions to projected outlays for Social
Security account for about half of that increase.
Social Security. Projected outlays for Social Security

from 2023 to 2032 increased by a total of $412 billion(or 2 percent) because CBO now projects generally
higher inflation and higher average wages than it did
previously.
Social Security provides annual cost-of-living adjustments (COLAs) based on changes in the consumer
price index for urban wage earners and clerical workers(CPI-W). CBO increased its projections of CPI-W
growth and COLAs over the 2023–2032 period; asa result, the agency’s projections of Social Security
benefits paid over that period increased by $391 billion. The COLA that took effect in January 2023 was
8.7 percent—the largest since 1982 and 2.7 percentage points more than CBO projected in May 2022.
Next year’s COLA is currently projected to be 4.2 percent—1.3 percentage points more than CBO previously
projected—and the projected January 2025 COLA is
2.8 percent, up 0.4 percentage points. Partly offsetting
those increases are reductions in CBO’s projectionsof COLAs for 2026 through 2031, by an average of
0.2 percentage points. In addition, CBO increased its
projections of average wages from 2025 through 2032 byan average of 6 percent, which boosted projected Social
Security benefits for new recipients by $21 billion overthat period.

February 2023

Medicaid and Medicare. CBO increased its projectionsof outlays for Medicaid over the 2023–2032 period by$98 billion (or 2 percent) and its projections of outlays
for Medicare in those years by $85 billion (or 1 percent).
CBO’s latest economic forecast includes upward revisions
to the projected growth of wages and of many prices,which push up projected payment rates for Medicaid andfor many of the services provided by Medicare’s fee-forservice sector (such as hospital care and services provided
by home health agencies).17
Federal Employees’ Retirement. CBO increased its

projections of spending for federal employees’ retirement
benefits over the 2023–2032 period by $64 billion (or3 percent). As with Social Security benefits, COLAs areapplied to civil service and military retirement benefits.
Upward revisions to CBO’s projections of inflation
boosted the agency’s COLA projections, which in turnincreased projected outlays for those retirement benefits.
Unemployment Compensation. CBO increased its

projections of spending on unemployment compensation
over the 2023–2032 period by $41 billion (or 10 percent), primarily because of changes in its forecast of theunemployment rate. CBO’s projections of the unemployment rate from 2023 through 2028 are higher now
than they were in May 2022 (reaching 5.0 percent in
2024, a 1.4 percentage-point increase over the previous
projection) but are largely unchanged for 2029 through2032. Overall, those changes increased projected outlays
over the 2023–2032 period by $36 billion. In addition,
increases in CBO’s projections of wage growth and thesize of the labor force—resulting in higher average un­employment benefits and larger caseloads, respectively—
increased projected outlays over the 2023–2032 period
by $5 billion.
Supplemental Nutrition Assistance Program and Child
Nutrition. Economic changes to CBO’s projections forthe 2023–2032 period increased outlays for SNAP by$34 billion (or 3 percent) and increased outlays for childnutrition programs by $30 billion (or 7 percent). Those
17. By law, spending on Medicare is adjusted to reflect changes in
the prices of labor, goods, and services and in private nonfarm
business productivity (the ability to produce the same output
using fewer inputs, such as hours of labor). See Centers for
Medicare & Medicaid Services, “Market Basket Research andInformation” (December 7, 2022), https://tinyurl.com/y9jsu9ch.
Upward revisions to CBO’s forecast of productivity decreased
projected Medicare spending, but those changes were smaller
than the changes in projected prices.

APPENDIX A: CHANGES IN CBO’S BASELINE PROJECTIONS SINCE MAY 2022

increases stemmed primarily from upward revisions to
CBO’s projections of growth in food prices.
Supplemental Security Income. CBO’s projections ofoutlays for the Supplemental Security Income (SSI) program over the 2023–2032 period increased by $23 billion (or 3 percent). Upward revisions to inflation rates
in CBO’s projections pushed up COLAs, which in turnincreased outlays for SSI benefits.
Other Mandatory Programs. Changes in CBO’s eco-nomic forecast also affected projected outlays for othermandatory programs. Although those updates included
both upward and downward adjustments, the net effect
was a $24 billion increase in projected outlays over the2023–2032 period.
Discretionary Outlays. CBO’s baseline projections

generally reflect the assumption that funding for discretionary programs keeps pace with inflation. Increases
in the agency’s forecasts of certain measures of inflation drove up its projections of such funding over the2023–2032 period. As a result, discretionary outlays overthat period are now projected to be $113 billion (or lessthan 1 percent) greater than they were in CBO’s previous
baseline projections.
Net Interest Outlays. Economic changes boosted CBO’s

projection of net outlays for interest in 2023 by $181 billion (or 42 percent) and by $0.9 trillion (or 11 percent)from 2023 to 2032. The change in the estimate for thisyear stems from higher interest rates and higher inflation,
which increase the cost of Treasury inflation-protected
securities. The increase over the 2023–2032 period islargely attributable to upward revisions to the agency’s
forecasts of interest rates on Treasury securities.
In all, changes stemming from revisions to CBO’s economic forecast increased the projected cumulative deficit
over the 2023–2032 period by $0.9 trillion. As a result,the agency increased its projections of debt-service costs
over that period by $295 billion.
Changes in Revenues
To account for changes in its economic forecast, CBO
lowered its estimate of revenues in 2023 by $97 billion(or 2 percent) but raised its projections of revenues
over the entire 2023–2032 period by $943 billion (or2 percent), on net. The initial reductions in revenues arelargely the result of lower projected asset values, which

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

reduce receipts from individual income taxes, and higher
short-term interest rates, which increase the expensesof the Federal Reserve and reduce its remittances to theTreasury. The upward revisions for the remainder of theperiod resulted from increases in CBO’s projections of
nominal GDP and of gross domestic income and thetaxable forms of income that comprise it; each of thoseincreases was driven in part by higher projected inflation.
Individual Income Taxes. Economic changes led CBO

to lower its estimate of individual income tax receipts
by $64 billion (or 2 percent) for 2023 but to raise it,on net, by $461 billion (or less than 2 percent) for the2023–2032 period. The decline in CBO’s estimate for2023 was driven largely by lower projected asset values,
which reduce expected capital gains realizations anddistributions from pensions and individual retirement
accounts. Projections of wages and salaries and proprietors’ income in 2023 also decreased. The longer-term
increase in receipts from individual income taxes was
driven largely by a 3 percent increase in projected wages
and salaries over the 2023–2032 period, owing tohigher-than-­expected inflation.
Payroll Taxes. CBO’s estimate of payroll tax revenues

in 2023 decreased by $5 billion (or less than 1 percent);
for the 2023–2032 period, it rose by $434 billion (or2 percent). The main drivers of those changes were revisions to projections of wages and salaries and proprietors’
income, discussed above.
Corporate Income Taxes. CBO raised its estimate ofcorporate income tax revenues in 2023 by $9 billion (or2 percent) and raised its projections of such revenues
over the 2023–2032 period by $191 billion (or 4 percent). Those changes resulted from increases in CBO’s
projections of nominal GDP over the next decade,including upward revisions to the agency’s forecast of
domestic corporate profits, which make up most of thecorporate income tax base.
Federal Reserve Remittances. CBO reduced its esti-

mate of remittances from the Federal Reserve by $29 billion (or 97 percent) for 2023 and by $99 billion (or16 percent) for the 2023–2032 period. Those changes
can be explained by higher projected short-term interest rates in 2023 and 2024, which increase the Federal
Reserve’s interest expenses. CBO now estimates that theFederal Reserve System as a whole will have costs thatexceed its income through 2024, reducing remittances

77

78

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

to close to zero for a number of years. Nonetheless, theagency’s baseline projections show small amounts ofremittances every year to account for the possibility thatsome individual Federal Reserve banks might record
profits and remit them to the Treasury.
Other Revenues. CBO reduced its estimates of estateand gift taxes, customs duties, and excise taxes overthe 2023–2032 period by a total of $44 billion (or2 percent). Most of that reduction resulted from lower
projected asset values, which reduce the expected tax basefor estate and gift taxes.

Technical Changes

Technical changes—those changes that are neither legislative nor economic—result from a variety of factors,
including revisions to CBO’s population projections,
new information or data from federal agencies, andchanges in the way programs are administered that affectfederal spending and revenues. Such changes increased
CBO’s estimate of the deficit in 2023 by $88 billion andboosted projected deficits over the 2023–2032 period by$0.4 trillion (see Table A-1 on page 69).
Changes in Outlays
Taken together, technical revisions increased CBO’s
estimate of outlays in 2023 by $81 billion (or 1 percent)and its projections of outlays over the 2023–2032 period
by $341 billion (or less than 1 percent).
Mandatory Outlays. Technical changes led CBO to

increase its estimates of spending for some mandatory
programs and decrease them for others. On net, technical changes to CBO’s projections increased mandatory outlays by $125 billion (or 3 percent) in 2023
and by $218 billion (or less than 1 percent) over the2023–2032 period.

February 2023

CBO to increase its projections of those receipts overthe 10-year period. In particular, CBO increased its
projections of payments from states to Medicare Part D
on behalf of enrollees who are dually eligible for both
Medicare and Medicaid and of estimated recoveries of
payments made to providers. Those increases in projected
receipts contributed to a reduction in projected outlays.18
Student Loans. CBO’s estimate of outlays for student

loan programs in 2023 is now $29 billion larger thanit was in May 2022; over the 2023–2032 period, it is$120 billion larger. Much of that increase stems fromfinal regulations released on October 31, 2022, thatwould, in CBO’s estimation, increase outlays for student
loans by a total of $95 billion over the 10-year period.
Those final rules expanded eligibility for the discharge ofloans, eliminated the addition of unpaid interest to loanbalances in certain circumstances, and increased eligibility for the Public Service Loan Forgiveness program.
CBO also raised its projections of subsidy rates for future
student loans, which increased projected outlays (seeFigure A-3).19
CBO’s estimates do not include costs stemming fromnew regulations for student loans repaid throughincome-driven plans that were proposed by the
Department of Education on January 10, 2023, orthe costs of extending the pause in student loan payments and interest accrual through August 2023.
Those costs are reported in the budget as estimated by
the Administration but have not yet been recorded.
Additionally, CBO’s estimates do not include $379 billion estimated by the Administration as the costsof its student loan forgiveness policy, announced inAugust 2022, because those costs were recorded in fiscal
year 2022.

Medicare. CBO’s projections of outlays for Medicare

decreased by $19 billion (or 2 percent) in 2023 and by$246 billion (or 2 percent) over the 2023–2032 period
for technical reasons. Three factors—all of which are
related to actual net outlays in 2022—explain mostof that decrease. First, outlays for Medicare’s fee-forservice program in 2022 were lower than expected, so
CBO decreased its projections of such outlays in later
years. Second, CBO lowered its projections of Medicare
Advantage outlays because outlays for the program in
2022 were lower than anticipated. Finally, offsetting
receipts were higher than expected in 2022, leading

18. Offsetting receipts are funds collected by federal agencies fromother government accounts or from the public in businesslike
or market-oriented transactions that are recorded as negative
budget authority and outlays (that is, as reductions in mandatory
spending).
19. The subsidy rate is the cost of a program, calculated following
the procedures specified in the Federal Credit Reform Act
of 1990 (P.L. 101-508), divided by the amount disbursed. A
positive subsidy rate indicates a cost to the government, anda negative rate indicates budgetary savings. For additional
information about the costs of credit programs, see Congressional
Budget Office, Estimates of the Cost of Federal Credit Programs in
2023 (June 2022), www.cbo.gov/publication/58031.

APPENDIX A: CHANGES IN CBO’S BASELINE PROJECTIONS SINCE MAY 2022

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Figure A-3 .

Key Changes in CBO’s Technical Projections Since May 2022
Population Age 65 or Older

Student Loan Subsidy Ratea
Percent

Millions of People

1580February 2023

February 2023
Baseline10

May 2022
60

CBO increased its projection of the subsidy rate forstudent loans, which increased the projected cost of
the loans to the federal government.

5

40

0

CBO increased its projection of the number ofpeople age 65 or older in 2032 by 0.5 million,
which in turn increased projected spending on
Social Security.

20
May 2022
Baseline

−5

0
2022

2024

2026

2028

2030

2032

2022

2024

2028

Millions of People

14

9

7
May 2022

5

6

4

Reductions in projected SSI caseloads over the next
decade reduced projected outlays for SSI benefits
and Medicaid.

3

An increase in the projected cost of theThrifty Food Plan led to an increase in CBO's
projection of outlays for SNAP.b

2

February 2023

6

8

4

2032

May 20228

February 2023

10

2030

SSI Caseloads

Cost of Thrifty Food Plan
Hundreds of Dollars

12

2026

2
1

0

0
2022

2024

2026

2028

2030

2032

2022

2024

2026

2028

2030

2032

Data source: Congressional Budget Office. See www.cbo.gov/publication/58848#data.
In the February 2023 baseline projections shown here, values for 2022 are actual values.
SNAP = Supplemental Nutrition Assistance Program; SSI = Supplemental Security Income.
a. The subsidy rate shown is the weighted average rate of several different loan programs, adjusted for the amount of loans disbursed. That average rate
does not include the costs of new regulations for student loans repaid through income-driven plans that were proposed by the Department of Education on
January 10, 2023. No values are shown for 2022 because the subsidy rates are projections used to prepare CBO’s baseline; thus, there are no corresponding
actual values for 2022.
b. The change in the cost of the Thrifty Food Plan (TFP) also reflects economic changes: revisions to CBO’s projections of growth in food prices. In CBO’s
projections, the technical change increases the cost of the TFP beginning in 2027.

79

80

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Social Security. CBO lowered its estimate of outlays forSocial Security in 2023 by $1 billion (or less than 1 percent) and increased its projections of such outlays overthe 2023–2032 period by $107 billion (or 1 percent) for
technical reasons. Most of that 10-year increase stems
from an increase in the projection of the population age
65 or older, which increases the number of recipients of
Old-Age and Survivors Insurance.
Supplemental Nutrition Assistance Program. CBO

increased its estimate of outlays for SNAP by $8 billion(or 6 percent) for 2023 and by $93 billion (or 8 percent)over the 2023–2032 period for technical reasons—two
in particular. First, projected SNAP enrollment is higher
than it was in the May 2022 baseline. Second, CBO
increased its projections of the cost of the Thrifty Food
Plan (TFP) in 2027 and 2032, anticipating that reevaluations of the TFP, which occur every five years, would
result in increases in costs. (The TFP is a basket of foods
identified by the Department of Agriculture that would
provide a nutritious diet for a household of a particularsize; the cost of the TFP is used to determine SNAP
benefit levels.)
Pension Benefit Guaranty Corporation. Since

May 2022, technical revisions to CBO’s projections
increased outlays for the Pension Benefit Guaranty
Corporation (PBGC) by $56 billion for 2023 and by$35 billion for the 2023–2032 period. Most of that
increase stems from slower-than-anticipated spending
on PBGC’s special financial assistance program in 2022,
which led CBO to shift those outlays to 2023 in its
projections.
Supplemental Security Income. CBO lowered its esti-

mate of outlays for SSI by $1 billion (or 1 percent) for
2023 and by $24 billion (or 4 percent) over the 2023–
2032 period for technical reasons. Specifically, the agency
reduced the number of SSI beneficiaries in its projections
in response to new data and a Supreme Court decision.
First, recent data show that SSI caseloads are rebounding
more slowly than expected from a decline that occurred
during the coronavirus pandemic. Second, the Supreme
Court ruled in United States v. Vaello Madero that theFifth Amendment’s equal protection guarantee does not
require the Congress to make SSI benefits available toresidents of Puerto Rico.20 Because the U.S. Court ofAppeals for the First Circuit had previously held that
excluding residents of Puerto Rico from the SSI program
20. United States v. Vaello Madero, 142 S. Ct. 1539, 1541 (2022).

February 2023

violated the Fifth Amendment, CBO’s May 2022 baseline reflected the expectation that those residents would
be eligible for benefits from 2023 to 2032.21
Medicaid. Technical revisions led CBO to decrease

its estimate of outlays for Medicaid by $3 billion (or1 percent) for 2023 and by $23 billion (or less than
1 percent) over the 2023–2032 period. Those decreases
are the net result of several factors. The ending of themaintenance-of-effort policy on April 1, 2023, is now
expected to reduce Medicaid enrollment in 2023 and2024 more than CBO had previously estimated. The
decline in projected SSI enrollment discussed above
slightly decreases projected outlays for Medicaid as well,because SSI beneficiaries are typically automatically eligible for Medicaid.
Three additional factors partly offset those decreases inprojected outlays for Medicaid:• An increase in projected Medicaid enrollment amongpeople age 65 or older who are not SSI beneficiaries;• An increase in projected Medicaid enrollment

stemming from the 2023 Streamlining Eligibility andEnrollment proposed rule, which, if finalized, will
facilitate Medicaid enrollment and renewal processes;
and• An increase in projected outlays for Medicaid because
actual spending on the program in 2022 was higher
than expected.

Crop Insurance. CBO increased its estimate of total

outlays for crop insurance in 2023 by $6 billion and its
projections of such outlays over the 2023–2032 period
by $23 billion. That increase largely stems from a projected rise in crop prices, which CBO expects will return
to more typical historical levels after falling during the
pandemic.
U.S. Coronavirus Refundable Credits. CBO increased

its estimate of total outlays for U.S. Coronavirus
Refundable Credits (a group of tax credits for employers for sick and family leave, employee retention, andcontinuation of health insurance for certain workers) by$16 billion for 2023 because of higher-than-anticipatedactual outlays in the first two months of 2023. CBO had

21. For that earlier decision, see United States v. Vaello Madero,
956 F.3d 12, 31 (1st Cir. 2020).

APPENDIX A: CHANGES IN CBO’S BASELINE PROJECTIONS SINCE MAY 2022

previously expected outlays related to those credits to
end in 2022.
Other Mandatory Programs. Other technical changes

increased CBO’s estimate of outlays for other mandatory
programs in 2023 by $32 billion and its projections ofoutlays for such programs over the 2023–2032 period by$118 billion.
Discretionary Outlays. Technical changes caused

CBO’s estimate of discretionary outlays over the2023–2032 period to drop by $65 billion (or less than
1 percent). The largest of those changes are confined to2023. Estimated outlays from the Public Health andSocial Services Emergency Fund to support responses
to the ongoing public health emergency dropped by$22 billion, accounting for much of the overall decrease.
Other reductions in estimated discretionary outlays for
2023, totaling $36 billion on net, are dispersed acrossthe budget. Taken together, technical changes reduced
CBO’s projections of discretionary outlays over the restof the 10-year period by $7 billion.
Net Interest Outlays. Technical changes increased

CBO’s projections of net interest outlays over the2023–2032 period by $188 billion (or 2 percent). Mostof that increase stems from a reduction in balances ofnonbudgetary financing accounts that record the collections and disbursements of federal loan and loan guarantee programs.
Interest Earnings From Financing Accounts. The

amount owed to the Treasury from the financing accountfor the federal student loan program was $1.7 trillion
at the start of 2022; by the end of the year, in large part
because of the Administration’s plans to forgive somestudent loan debt, it had declined to $1.3 trillion. That
substantial reduction resulted in a $120 billion decreasein CBO’s projections of interest paid to the Treasury
from those financing accounts from 2023 to 2032.
(Reductions in the Treasury’s interest earnings fromthe financing accounts are recorded in the budget asincreases in outlays; see Box A-1.)
Debt Service. All told, technical changes to revenues andnoninterest outlays increased CBO’s projections of debt
held by the public in 2032 by $0.3 trillion and increased
the cost of servicing debt over the 2022–2032 period byan estimated $79 billion.

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Changes in Revenues
For technical reasons, CBO’s estimate of revenues in2023 fell by $7 billion (or less than 1 percent), and its
projections of revenues over the entire 2023–2032 period
fell by $84 billion (or less than 1 percent). Lower projections of the amount of assets in retirement accounts
account for the most significant reductions.
Individual Income Taxes. Technical revisions boosted

CBO’s estimate of individual income tax receipts
in 2023 by $13 billion (or 1 percent) but decreased
the agency’s projections of such receipts over the2023–2032 period by $165 billion (or 1 percent).
CBO increased its estimate of income tax receipts for2023 because tax collections in 2022 were stronger than
expected. New data indicated that capital gains realizations in 2021 were larger as a share of GDP than at anyother point over the past 40 years. Those data explainedsome discrepancies between projected and actual tax
revenues in prior years, but CBO does not expect suchhistorically high receipts to continue.
In CBO’s projections for the full 2023–2032 period, thenet technical change to individual income tax receipts isnegative. That change was driven by downward revisions
to projections of distributions from retirement plans
based on new data indicating that the amount of assets
in retirement plans in recent years was less than pre­viously estimated. Those reductions are partly offset by
the effects of increased mandatory funding provided to
the IRS by the 2022 reconciliation act. That funding willbe spent on enforcement and other initiatives through2031 and is projected to increase income tax collections
by $186 billion over the 2023–2032 period. In theabsence of more detailed information about how the IRS
will use the funding, CBO has allocated about half of
those additional revenues to individual income taxes andhalf to corporate income taxes.22
Payroll Taxes. For technical reasons, CBO decreased its

estimate of payroll tax revenues in 2023 by $5 billion(or less than 1 percent) but increased its projections ofsuch revenues for the 2023–2032 period by a total of$72 billion (or less than 1 percent). Revenues in 2023
were reduced because the actual taxable maximum for

22. Under long-standing guidelines agreed to by the legislative andexecutive branches, those increases in revenues were not includedin the estimated budgetary effects of the act that CBO reported
for budget enforcement purposes. Those changes are instead
recorded as a technical change in CBO’s baseline.

81

82

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

Box A-1 .

How Student Loan Forgiveness Affects Deficits and Debt
Under the Federal Credit Reform Act of 1990 (FCRA), the costsof loan programs are recorded on a present-value basis toreflect the estimated lifetime costs of loans (that is, their subsidy costs) at the time those loans are made.1 The original estimated cost for a set of loans may be increased or decreased insubsequent years by a credit subsidy reestimate that reflects
an updated assessment of the cash flows associated withthe outstanding loans. FCRA also established procedures toreconcile that present-value accounting with the cash flows
associated with the loans.2 For each program, those procedures involve a program account (which appears in the budget
and shows the subsidy costs) and a financing account (which is
not part of the budget and records the annual cash flows).
Because of those accounting procedures, the effects ofstudent loan forgiveness on budget deficits and federal debt
occur at different times. The $379 billion cost of student loan
forgiveness that the Administration recorded in 2022 was acredit subsidy reestimate reflecting the present value of the
reduction in future collections of both principal and interest
1. A present value expresses a flow of current or future income or payments interms of an equivalent lump sum received or paid at a specific time.
2. For more information, see Congressional Budget Office, Estimates of theCost of Federal Credit Programs in 2023 (June 2022), www.cbo.gov/
publication/58031.

calendar year 2023 ($160,200) was lower than CBO previously estimated ($163,500). That taxable maximum for2023, determined by the Social Security Administration,
was based on average earnings in 2021, which turned out
to be lower than CBO had estimated. A lower taxable
maximum means more earnings are above that ceilingand are thus not subject to the payroll tax, which reduces
payroll tax receipts.
The upward revisions for the 2023–2032 period resulted
in part from updated projections of the population andthe earnings distribution, which indicate that a larger
share of total earnings will fall below the taxable maximum. In addition, CBO increased its projections ofreceipts from unemployment insurance taxes (a type of
payroll tax) because newly available historical data indicated that states will need to collect additional amounts
over the next decade to maintain the solvency of theirunemployment trust funds. Those collections count as

payments. That cost increased outlays and the deficit in 2022.
It did not affect the debt in 2022 because it did not reflect any
cash flows of the government in that year; it was an intragovernmental transaction—a payment from the student loan
program account to the student loan financing account.
Over time, the loan forgiveness policy will reduce or eliminate borrowers’ payments on their student loans, reducing
receipts in the nonbudgetary student loan financing accounts.
That decrease in collections will not directly increase budget
deficits (because the increase in the deficit was recorded up
front, in 2022), but it will increase the amounts that the federal
government needs to borrow in future years and the interest
payments on that borrowing.
Additionally, the reduction in the balance that the student
loan financing account owes to the Treasury will reduce thefinancing account’s interest payments to the Treasury. Thosechanges affect deficits but do not affect the debt. Because
the receipt of such payments is reflected in the budget as a
reduction in interest earnings, smaller payments have theeffect of increasing deficits. Any reduction in interest paymentsfrom financing accounts is offset by a reduction in the financing
account’s borrowing requirements—in other words, if their
payments decrease, they need to borrow less to cover thosepayments. As a result, there is no effect on the debt stemmingfrom the decrease in interest earnings recorded in the budget.

federal revenues, reflecting the nature of the unemployment insurance system, which is a federal program administered by the states.
Corporate Income Taxes. CBO reduced its estimate ofcorporate income tax revenues in 2023 by $13 billion(or 3 percent) and raised its projections of such revenues
for the 2023–2032 period by $65 billion (or 1 percent)for technical reasons. CBO lowered its projection for2023 because the agency now anticipates that some ofthe strength seen in collections in 2022 will not continue. After 2023, the increases in projected corporate
income tax receipts—amounting to about $78 billion
between 2024 and 2032—are mostly the result ofadditional funding for IRS enforcement provided by the2022 reconciliation act. Additionally, the agency revised
its approaches to estimating foreign tax credits and backtaxes, which reduced net receipts in later years of the
projection period.

APPENDIX A: CHANGES IN CBO’S BASELINE PROJECTIONS SINCE MAY 2022

Other Revenues. CBO decreased its projections ofother revenues over the next decade by $56 billion (or2 percent) because of technical changes. The largest of
those changes was to projected revenues from fees andfines, which CBO reduced by $30 billion (or 7 percent)over the projection period to reflect persistent weakcollections. In addition, CBO lowered its projections

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033of revenues from excise taxes over the next decade
by $17 billion. Most of that change is explained by
the agency’s expectation that newer—and more fuel-­
efficient—vehicles will account for a greater share of total
miles driven, leading to steeper declines in receipts fromgas taxes.

83

Appendix B: CBO’s Economic Projectionsfor 2023 to 2033
The tables in this appendix show the Congressional Budget Office’s economic projections for each year from 2023 to2033. For the projections by calendar year, see Table B-1; for the projections by fiscal year, see Table B-2.
Table B-1 .

CBO’s Economic Projections, by Calendar Year
Percent
Actual,2022
Gross Domestic Product
Reala
NominalInflation
PCE price index
Core PCE price indexb
Consumer price indexc
Core consumer price indexb
GDP price index
Employment Cost Indexd
Unemployment Rate

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

Change From Year to Year
2.1
9.2

0.3
4.0

1.8
4.4

2.7
4.9

2.4
4.5

2.3
4.3

2.0
4.0

1.9
3.9

1.9
3.9

1.8
3.8

1.8
3.8

1.7
3.7

6.2
5.0
8.0
6.1
7.0
5.3

3.8
3.8
4.8
4.9
3.7
4.9

2.7
2.9
3.0
3.3
2.5
4.0

2.2
2.5
2.2
2.5
2.1
3.6

2.1
2.3
2.1
2.2
2.1
3.4

2.0
2.1
2.1
2.2
2.0
3.3

2.0
2.1
2.2
2.3
2.0
3.3

2.0
2.0
2.3
2.3
2.0
3.2

2.0
2.0
2.3
2.3
2.0
3.2

2.0
2.0
2.3
2.3
2.0
3.2

2.0
2.0
2.3
2.3
2.0
3.2

1.9
2.0
2.3
2.3
1.9
3.1

3.6
427

4.7
9

4.9
66

4.7
97

Calendar Year Average
4.6
4.5
4.5
83
77
79

4.5
72

4.5
64

4.5
63

4.5
59

4.5
63

2.0
3.0

4.5
3.9

3.2
3.8

2.5
3.8

2.2
3.8

2.2
3.8

2.3
3.8

2.3
3.8

2.3
3.8

2.3
3.8

2.3
3.8

2.3
3.8

43.8
9.7g

44.3
7.9

44.5
7.5

44.5
7.9

44.4
8.1

44.2
8.2

44.1
8.2

44.1
8.1

44.0
8.0

44.0
8.0

43.9
7.9

43.9
7.9

Payroll Employment (Monthly change,in thousands)eInterest Rates
3-month Treasury bills
10-year Treasury notes
Tax Bases (Percentage of GDP)
Wages and salaries
Domestic corporate profitsf
Tax Bases (Billions of dollars)
Wages and salaries
Domestic corporate profitsf

11,153 11,719 12,276 12,874 13,432 13,946 14,481 15,039 15,611 16,197 16,791 17,395
2,466g 2,077 2,063 2,298 2,457 2,599 2,689 2,764 2,846 2,934 3,033 3,131

Nominal GDP (Billions of dollars)

25,461 26,438 27,592 28,947 30,262 31,573 32,843 34,138 35,468 36,832 38,225 39,646

Data source: Congressional Budget Office. See www.cbo.gov/publication/58848#data.
Actual values for 2022 reflect data available from the Bureau of Economic Analysis and the Bureau of Labor Statistics in early February 2023. The data containvalues for the fourth quarter of 2022, which were not available when CBO developed its current projections.
GDP = gross domestic product; PCE = personal consumption expenditures.
a. Real values are nominal values that have been adjusted to remove the effects of inflation.
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. The average monthly change is calculated by dividing by 12 the change in nonfarm payrolls from the fourth quarter of one calendar year to the fourth quarter ofthe next.
f. Adjusted to remove the effects of tax rules on depreciation allowances and to exclude the effects of changes in prices on the value of inventories.
g. Estimated value for 2022.

86

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

Table B-2 .

CBO’s Economic Projections, by Fiscal Year
Percent
Actual,
2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

Change From Year to Year

Gross Domestic Product
Reala
NominalInflation
PCE price index
Core PCE price indexb
Consumer price indexc
Core consumer price indexb
GDP price index
Employment Cost Indexd
Unemployment Rate

3.3
10.4

0.3
4.9

1.2
3.9

2.7
4.9

2.5
4.6

2.3
4.4

2.0
4.1

1.9
4.0

1.9
3.9

1.8
3.9

1.8
3.8

1.8
3.7

6.3
5.0
7.9
5.9
6.9
5.2

4.4
4.2
5.7
5.4
4.6
5.1

2.9
3.1
3.4
3.6
2.7
4.2

2.3
2.6
2.3
2.6
2.2
3.6

2.1
2.4
2.1
2.3
2.1
3.5

2.0
2.2
2.0
2.2
2.0
3.4

2.0
2.1
2.2
2.2
2.0
3.3

2.0
2.0
2.2
2.3
2.0
3.2

2.0
2.0
2.3
2.3
2.0
3.2

2.0
2.0
2.3
2.3
2.0
3.2

2.0
2.0
2.3
2.3
2.0
3.2

1.9
2.0
2.3
2.3
1.9
3.2

3.8
512

4.3
67

5.0
52

4.8
99

Fiscal Year Average
4.6
4.5
4.5
84
78
79

4.5
75

4.5
65

4.5
63

4.5
59

4.5
63

1.0
2.4

4.4
3.8

3.6
3.9

2.6
3.8

2.3
3.8

2.2
3.8

2.3
3.8

2.3
3.8

2.3
3.8

2.3
3.8

2.3
3.8

2.3
3.8

44.0
10.0

44.2
8.3

44.5
7.4

44.5
7.8

44.4
8.1

44.2
8.2

44.1
8.2

44.1
8.1

44.0
8.0

44.0
8.0

43.9
7.9

43.9
7.9

Payroll Employment (Monthly change,in thousands)eInterest Rates
3-month Treasury bills
10-year Treasury notes
Tax Bases (Percentage of GDP)
Wages and salaries
Domestic corporate profitsf
Tax Bases (Billions of dollars)
Wages and salaries
Domestic corporate profitsf

10,994 11,593 12,131 12,725 13,299 13,817 14,345 14,898 15,467 16,049 16,641 17,244
2,492 2,179 2,018 2,244 2,420 2,567 2,670 2,744 2,826 2,910 3,010 3,107

Nominal GDP (Billions of dollars)

25,016 26,238 27,266 28,610 29,932 31,251 32,525 33,811 35,133 36,488 37,874 39,288

Data source: Congressional Budget Office. See www.cbo.gov/publication/58848#data.
GDP = gross domestic product; PCE = personal consumption expenditures.
a. Real values are nominal values that have been adjusted to remove the effects of inflation.
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. The average monthly change is calculated by dividing by 12 the change in nonfarm payrolls from the fourth quarter of one fiscal year to the fourth quarter ofthe next.
f. Adjusted to remove the effects of tax rules on depreciation allowances and to exclude the effects of changes in prices on the value of inventories.

List of Tables and Figures
Tables1-1. CBO’s Baseline Budget Projections, by Category6

1-2. CBO’s Baseline Projections of Outlays and Deficits, Adjusted to Exclude Effects of Timing Shifts

7

1-3. CBO’s Baseline Projections of Federal Debt

10

1-4. CBO’s Baseline Projections of Mandatory Outlays, Adjusted to Exclude Effects of Timing Shifts

14

1-5. CBO’s Baseline Projections of Discretionary Spending, Adjusted to Exclude Effects of Timing Shifts

17

1-6. CBO’s Baseline Projections of Revenues

23

1-7. CBO’s Baseline Projections of Smaller Sources of Revenues

25

1-8. Key Projections in CBO’s Baseline, Adjusted to Exclude Effects of Timing Shifts, Through 2053

30

2-1. CBO’s Economic Projections for Calendar Years 2023 to 2033

35

2-2. Projected Growth of Real GDP and Its Components

412-3. Key Inputs in CBO’s Projections of Real Potential GDP

49

2-4. CBO’s Current and Previous Economic Projections for Calendar Years 2022 to 2032

58

2-5. Comparison of CBO’s Projections of Probabilities for the Unemployment Rate With

Those in the Survey of Professional Forecasters

63

A-1. Changes in CBO’s Baseline Projections of the Deficit Since May 2022

69

B-1. CBO’s Economic Projections, by Calendar Year85

B-2. CBO’s Economic Projections, by Fiscal Year

86

Figures
1-1. Total Deficits, Primary Deficits, and Net Interest Outlays

8

1-2. Federal Debt Held by the Public, 1900 to 2053

11

1-3. Total Outlays and Revenues

19

1-4. Outlays, by Category

21

1-5. Revenues, by Category22

1-6. Estimated Outlays, Revenues, and Tax Expenditures in 2023

27

1-7. Uncertainty of CBO’s Baseline Projections of the Budget Deficit

31

2-1. Growth of Real GDP

34

2-2. Employment, Unemployment, Labor Force Participation, and Wage Growth442-3. Overall Inflation, Core Inflation, and Contributions to Overall Inflation

47

2-4. Interest Rates

48

2-5. Composition of the Growth of Real Potential GDP

50

2-6. Gross Domestic Income

522-7. Uncertainty of CBO’s Projections of Output, Unemployment, Inflation, and Interest Rates

57

88

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

2-8. Comparison of CBO’s Economic Forecasts With Those of the Blue Chip Forecasters

February 2023

61

2-9. Comparison of CBO’s Forecasts of Output, Unemployment, and Interest Rates With

Those in the Survey of Professional Forecasters

62

2-10. Comparison of CBO’s Forecasts of Inflation With Those in the Survey of Professional Forecasters

64

2-11. Comparison of CBO’s Economic Forecasts With Those of the Federal Reserve65

A-1. Changes in CBO’s Baseline Projections of the 10-Year Deficit Since May 2022

68

A-2. Key Changes in CBO’s Economic Forecast Since May 2022

75

A-3. Key Changes in CBO’s Technical Projections Since May 2022

79

About This Document
This volume is one of a series of reports on the state of the budget and the economy that theCongressional 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
underlying this report at a meeting in November 2022. At that time, members of the panel were
Katharine Abraham, Alan Auerbach, David Autor, 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, Joshua Rauh,Ayşegül Şahin, James Stock, Kevin Warsh, and Mark Zandi. Ricardo Reis attended the panel’s
meeting as a guest, and Joe Beaulieu, David Wilcox, and Ellen Zentner provided helpful comments.
Although CBO’s outside advisers provided considerable assistance, they are not responsible for thecontents 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/58848); and providing other support.
CBO seeks feedback to make its work as useful as possible. Please send any comments tocommunications@cbo.gov.

Phillip L. Swagel
Director
February 2023

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THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

Economic Projections

The economic projections were prepared by the Macroeconomic Analysis Division, with
contributions from analysts in other divisions. That work was supervised by Richard DeKaser,
Devrim Demirel, and Robert Arnold.
Nicholas Abushacra · Housing, research assistance
Grace Berry · Motor vehicle sector, model and data management
Aaron Betz · Effects of fiscal policy, potential output, productivity
Daniel Fried · Net exports, exchange rates, energy prices
Edward Gamber · Labor markets, current-quarter analysis
Ron Gecan · E nergy prices
Mark Lasky · B usiness investment, housing
Junghoon Lee · Effects of fiscal policy
Chandler Lester · Inflation, house prices
Vinay Maruri · Financial markets
Michael McGrane · Financial markets
Christine Ostrowski · Consumer spending, income
Jeffrey Schafer · Interest rates, monetary policy
John Seliski (formerly of CBO) · F ederal, state, and local government spending and revenues,
effects of fiscal policy

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
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 · E state and gift taxes
Omar Morales · Excise 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
Jennifer Shand · Corporate income taxes

ABOUT THIS DOCUMENT

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Naveen Singhal · Capital gains realizations, tax modeling
Ellen Steele · R efundable tax credits
James Williamson · R etirement income, 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, Chad Chirico,
Leo Lex (formerly of CBO), Sam Papenfuss, Christina Hawley Anthony, Megan Carroll,
Elizabeth Cove Delisle, Kathleen FitzGerald, Justin Humphrey, Paul Masi, Sarah Masi,
David Newman, and Susan Willie of the Budget Analysis Division, as well as by Carrie H. Colla,
Alexandra Minicozzi, and Chapin White of the Health Analysis Division and by Sebastien Gay of the
Financial Analysis Division.
Defense, International Affairs, and Veterans’ Affairs
Sunita D’Monte · I nternational affairs
Caroline Dorminey · Defense (procurement)
Paul B. A. Holland · Veterans’ education benefits, reservists’ education benefits, veterans’ home loans
Etaf Khan · Veterans’ health care, toxic exposures fund, international food assistanceWilliam Ma · Defense (operation and maintenance, intelligence programs, other defense programs)
Christopher Mann · Defense (facilities, energy, nuclear 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 · M
 ilitary health care
Logan Smith · Veterans’ compensation and pensions, other benefits for disabled veterans,
toxic exposures fundFinance, Housing, and Education
Julia Aman · Deposit insurance, credit unions, Orderly Liquidation Fund, Federal Housing
Administration, Bureau of Indian Affairs
Jeremy Crimm · Law enforcement, justice assistance, homeland security, Postal Service
Kathleen Gramp (formerly of CBO) · Orderly Liquidation FundDavid Hughes · Commerce, Small Business Administration, Universal Service Fund
Wendy Kiska · Pension Benefit Guaranty Corporation
Leah Koestner · Student loans, higher education programs
Vinay Maruri · Federal Deposit Insurance Corporation
Michael McGrane · Federal Reserve’s balance sheet, extended benefits for unemployment insurance
Noah Meyerson · P ension Benefit Guaranty Corporation
Zunara Naeem · Housing assistance, Fannie Mae and Freddie Mac
Jeffrey Perry · Student loans, Federal Housing Administration

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THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

Garrett Quenneville · Elementary and secondary education, Pell grants
Robert Reese · Federal Housing Administration
Mitchell Remy · Veterans’ housing
Jon Sperl · Community and regional development, Federal Emergency Management Agency,
Bureau of Indian Affairs, judicial branch, administration of justice
Aurora Swanson · Fannie Mae and Freddie Mac
Byoung Hark Yoo · Fannie Mae and Freddie Mac
HealthAustin Barselau · Medicare
Ezra Cohn · F ood and Drug Administration, prescription drugs, National Institutes of Health
Ryan Greenfield · Prescription drugs, Food and Drug Administration
Jessica Hale · Health insurance marketplaces, private health insurance
Cornelia Hall · Medicare
Stuart Hammond · M
 edicaid, Federal Employees Health Benefits program, health insurance coverage
Caroline Hanson · Health insurance coverage
Christian Henry · Health insurance coverage
Nianyi Hong · H
 ealth insurance coverage
Ben Hopkins · Health insurance coverage
Claire Hou · H ealth insurance coverage
Brian Klein-Qiu · M edicare
Robert Lindsay · Health insurance coverage
Sean Lyons · Health insurance coverage
Rachel Matthews · Centers for Medicare & Medicaid Services
Eamon Molloy · Health insurance coverage
Hudson Osgood · Medicare, Public Health Service
Romain Parsad · Health insurance coverage
Allison Percy · Health insurance coverage
Lara Robillard · Medicare
Asha Saavoss · Medicare, Public Health Service
Sarah Sajewski · Medicare, Public Health Service
Robert Stewart · Medicaid, Children’s Health Insurance Program, Indian Health Service
Carolyn Ugolino · Medicaid, health insurance coverage
Emily Vreeland · Health insurance marketplaces, private health insurance

ABOUT THIS DOCUMENT

THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

Kate Young · Medicaid, prescription drugs
Katie Zhang · Health insurance marketplaces, health insurance coverage
Chris Zogby · H ealth insurance coverage
Noah Zwiefel · Medicare
Income Security
Susan Yeh Beyer · Child nutrition and other nutrition programs, Smithsonian Institution,
arts and humanities
Meredith Decker · Unemployment insurance, job training programs
Jennifer Gray · Supplemental Nutrition Assistance Program and other nutrition programs,
Social Services Block Grant, support programs for children and families
Justin Latus · Supplemental Security Income, Administration on Aging, Supplemental Nutrition
Assistance Program
Susanne Mehlman · Temporary Assistance for Needy Families, child support enforcement,
foster care, child care programs, Low Income Home Energy Assistance Program,
Social Services Block Grant, support programs for children and families
Noah Meyerson · Old-Age and Survivors Insurance, Social Security trust funds
Emily Stern · Disability Insurance, rehabilitation services
Sree Yeluri · Refugee and Entrant Assistance, Child Care and Development Block Grant
Natural and Physical Resources
Tiffany Arthur · Agriculture
Kelly Durand · Agriculture, Outer Continental Shelf receipts
Madeleine Fox · Recreational resources
Ann E. Futrell · General science, space, and technology
Kathleen Gramp (formerly of CBO) · E
 nergy, Outer Continental Shelf receipts, spectrum auction
receipts
Evan Herrnstadt · Spectrum auction receipts
Aaron Krupkin · Energy, air, water, and other transportation
Lilia G. Ledezma · Conservation and land management
Erik O’Donoghue · Agriculture
Matthew Pickford · General government, legislative branch
Robert Reese · Other natural resources, Outer Continental Shelf receipts, energy, highways,
mass transit, Amtrak
Aurora Swanson · Water resources, pollution control and abatement, other natural resources
Other Areas and Functions
Shane Beaulieu · C omputer applications and data systems
Barry Blom · Budget projections
Breanna Browne-Pike · Appropriation bills (Labor, Health and Human Services, and Education;
Legislative Branch)

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THE BUDGET AND ECONOMIC OUTLOOK: 2023 TO 2033

February 2023

Aaron Feinstein · Other interest, monthly Treasury data, historical data
Avi Lerner · Debt, interest on the public debt, sequestration, Troubled Asset Relief Program
Amber Marcellino · Federal civilian retirement
George McArdle · Appropriation bills (Military Construction and Veterans Affairs;
State and Foreign Operations)
Amy McConnel · A ppropriation bills (Commerce, Justice, and Science; Financial Services andGeneral Government)
Dan Ready · Various federal retirement programs, national income and product accounts, federal pay
Mark Sanford · Appropriation bills (Agriculture and Food and Drug Administration; Defense)
Esther Steinbock · Appropriation bills (Energy and Water Development; Transportation andHousing and Urban Development)
J’nell Blanco Suchy · Appropriation bills (Homeland Security; Interior and Environment),
authorization bills
Patrice Watson · Computer applications and data systems
Olivia Yang · Budget projections and appropriation bills

Long-Term Spending Projections

The long-term spending projections were prepared by the Labor, Income Security, and Long-Term
Analysis Division, with contributions from analysts in other divisions. That work was supervised
by Molly Dahl and Julie Topoleski. The projections were prepared by Xinzhe Cheng, Damir Cosic,
Kyoung Mook Lim, Michael McGrane, Charles Pineles-Mark, and Jordan Trinh.

Writing

Dan Ready prepared the visual summary, with assistance from Daniel Fried. Barry Blom wrote
Chapter 1, with assistance from Daniel Crown, Avi Lerner, and Ellen Steele. Mark Lasky wrote
Chapter 2, with contributions from Nabeel Alsalam, Edward Gamber, and Junghoon Lee.
Aaron Feinstein wrote Appendix A, with assistance from Kathleen Burke, Nathaniel Frentz, Avi Lerner,
Amber Marcellino, Dan Ready, and Olivia Yang. Nicholas Abushacra compiled Appendix B.

Reviewing, Editing, Fact-Checking, and Publishing

Mark Doms, Mark Hadley, Jeffrey Kling, and Robert Sunshine reviewed the report. The editing andpublishing were handled by CBO’s editing and publishing group, supervised by Lora Engdahl andJohn Skeen, and the agency’s communications team, supervised by Deborah Kilroe.
Christine Bogusz, Christine Browne, Scott Craver, Christian Howlett, Rebecca Lanning,
Loretta Lettner, Bo Peery, and Caitlin Verboon edited and proofread the report; R. L. Rebach
and Jorge Salazar created the graphics; Casey Labrack prepared the text for publication; andAnnette Kalicki published the report on CBO’s website.
Nicholas Abushacra, Grace Berry, Kelly Durand, Madeleine Fox, William Ma, Amber Marcellino,
Omar Morales, Tess Prendergast, Justin Riordan, Jordan Trinh, Olivia Yang, and Lucy Yuan factchecked the report. Aaron Betz coordinated the preparation of figures and tables related to economic
projections. Nicholas Abushacra, Grace Berry, Aaron Feinstein, Omar Morales, Tess Prendergast,
Dan Ready, Jordan Trinh, and Olivia Yang compiled data and supplemental information, andAnnette Kalicki coordinated the presentation of those materials.