CBO

CONGRESSIONAL BUDGET OFFICE

SECOND AND D STREETS, S.W.

WASHINGTON, D.C. 20515

The Effects of 

Automatic Stabilizers on the 

Federal Budget

April 2011
Pub. No. 4249
CBO

Notes

Numbers in the text and tables of this report may not add up to totals because of rounding.

Unless otherwise indicated, all of the years referred to are federal fiscal years (which run from 

October 1 to September 30).

Because of technical changes, some of the historical estimates of the automatic stabilizers 

presented in this report differ slightly from those in Congressional Budget Office,

The Budget and Economic Outlook: Fiscal Years 2011 to 2021, Appendix E (January 2011).

Spreadsheets showing historical values for the budget deficit and related series with and 

without automatic stabilizers are available at www.cbo.gov.

Contents

CBO

The Effects of Automatic Stabilizers on the Federal Budget 1

Appendix: Measuring the Budgetary Effects of Automatic Stabilizers 7

Tables

1. Budget Deficit or Surplus With and Without Automatic Stabilizers and 

Related Series, 1960 to 2016, in Billions of Dollars 2

2. Budget Deficit or Surplus With and Without Automatic Stabilizers and 

Related Series, 1960 to 2016, as a Percentage of Potential 

Gross Domestic Product 4

Figure

1. Two Measures of Budget Deficits and Surpluses, 1960 to 2016 6

CBO

The Effects of Automatic Stabilizers on the 

Federal Budget

In March 2011, the Congressional Budget Office 

(CBO) released its most recent baseline projections of 

federal revenues, outlays, and budget balances for the 

next 10 years.1

 For those projections, CBO assumed 

the continuation of current laws and policies that affect 

taxes and mandatory spending programs and extrapolated 

the growth of discretionary spending by using projected 

rates of inflation. CBO estimated in March that the 

baseline budget deficit will rise from $1.3 trillion in fiscal 

year 2010 to $1.4 trillion in 2011 and then will average 

$692 billion over the next five years. At 9.3 percent 

of gross domestic product (GDP) in 2011, the deficit in 

those terms will be the second largest in more than half 

a century (behind only the 2009 deficit, which was 

10.0 percent of GDP). By comparison, CBO projects 

that the deficit will average 4.1 percent of GDP during 

the five years from 2012 through 2016 if current laws 

remain in place. 

CBO’s projections of the budget deficit are affected by 

legislation that governs taxation and spending and by the 

automatic responses of revenues and outlays to developments in the economy and other factors. This report 

focuses on a component of the latter group—the automatic stabilizers—that reflect cyclical movements in real 

(inflation-adjusted) output and unemployment.2

 During 

recessions, GDP falls relative to potential GDP (the 

quantity of output that corresponds to a high rate of use 

of labor and capital), and revenue declines automatically. 

In addition, some outlays—for example, to pay unemployment insurance claims or to provide federal nutrition 

benefits—automatically increase. Those automatic reductions in revenues and increases in outlays when GDP is 

falling relative to potential GDP and unemployment is 

correspondingly rising help bolster economic activity, but 

they also temporarily increase the budget deficit. As GDP 

moves up closer to potential GDP, revenues automatically 

begin to rise, outlays automatically begin to fall, and the 

automatic stabilizers offer a smaller boost to output. (For 

a discussion of the measurement of automatic stabilizers, 

see the appendix.) 

CBO estimates that automatic stabilizers are adding significantly to the budget deficit now but that their contribution will steadily fade over the next few years. In 2010, 

CBO estimates, automatic stabilizers added the equivalent of 2.4 percent of potential GDP to the deficit, an 

amount somewhat greater than the 2.1 percent added in 

2009.3

 According to CBO’s baseline projections, the contribution of automatic stabilizers to the budget deficit 

will decrease as a share of potential GDP—to 2.1 percent 

in 2011, 1.7 percent in 2012, and 1.5 percent in 2013 

(see Table 1 and Table 2). That contribution will then 

continue to fall—to 1.0 percent in 2014, 0.5 percent in 

2015, and 0.1 percent in 2016—consistent with CBO’s 

projection for output to come back up near potential output by 2016. 

1. See Congressional Budget Office, An Analysis of the President’s 

Budgetary Proposals for Fiscal Year 2012 (April 2011).

2. For a description of a methodology for estimating automatic stabilizers that is similar to CBO’s methodology, see Darrel Cohen and 

Glenn Follette, “The Automatic Fiscal Stabilizers: Quietly Doing 

Their Thing,” Economic Policy Review, Federal Reserve Bank of 

New York, vol. 6, no. 1 (April 2000), pp. 35–68. See also Glenn 

Follette and Byron Lutz, Fiscal Policy in the United States: 

Automatic Stabilizers, Discretionary Fiscal Policy Actions, and the 

Economy, Finance and Economic Discussion Series, 2010–43 

(Federal Reserve Board, September 2010). 

3. Those calculations and subsequent ones in this report involve 

potential, rather than actual, GDP because potential GDP 

excludes fluctuations that are attributable to the business cycle. 
2 THE EFFECTS OF AUTOMATIC STABILIZERS ON THE FEDERAL BUDGET

CBO

Table 1.

Budget Deficit or Surplus With and Without Automatic Stabilizers and 

Related Series, 1960 to 2016, in Billions of Dollars

Continued

– =

1960 * 1* 92 92 1 -0.2

1961 -3 -5 2 99 97 -16 0.9

1962 -7 -3 -5 102 106 -7 0.5

1963 -5 -2 -3 108 111 -6 0.1

1964 -6 1 -7 112 119 3 -0.1

1965 -1 4 -5 114 119 10 -0.7

1966 -4 11 -15 122 136 34 -1.7

1967 -9 11 -20 140 160 30 -2.0

1968 -25 9 -35 146 180 24 -2.0

1969 3 12 -9 178 187 27 -2.4

1970 -3 5 -8 191 198 4 -1.9

1971 -23 -4 -19 191 210 -14 -0.2

1972 -23 -1 -22 209 231 -5 -0.1

1973 -15 13 -28 220 247 39 -0.9

1974 -6 12 -18 254 272 27 -1.2

1975 -53 -19 -35 294 329 -57 1.2

1976 -74 -23 -51 316 366 -53 1.8

1977 -54 -13 -41 365 406 -27 1.1

1978 -59 2 -61 398 459 9 **

1979 -41 12 -52 453 506 28 -0.4

1980 -74 -15 -58 530 588 -47 0.6

1981 -79 -26 -53 621 673 -56 1.2

1982 -128 -68 -60 676 736 -195 3.0

1983 -208 -91 -117 679 796 -236 4.1

1984 -185 -35 -150 699 850 -82 1.8

1985 -212 -18 -194 749 943 -40 1.2

1986 -221 -11 -210 777 987 -24 1.0

1987 -150 -15 -135 869 1,004 -39 0.4

1988 -155 6 -162 905 1,067 18 -0.3

1989 -153 23 -175 972 1,147 57 -0.7

1990 -221 14 -235 1,019 1,255 28 -0.5

1991 -269 -56 -213 1,104 1,318 -161 0.8

1992 -290 -74 -216 1,155 1,371 -172 1.7

1993 -255 -61 -194 1,207 1,402 -141 1.5

1994 -203 -41 -162 1,295 1,458 -86 0.9

1995 -164 -30 -134 1,382 1,515 -82 0.3

1996 -107 -34 -74 1,485 1,559 -78 0.2

1997 -22 3 -24 1,578 1,602 20 **

1998 69 37 32 1,690 1,657 88 -0.5

1999 126 88 37 1,745 1,708 215 -0.7

Budget

Automatic Stabilizers

Outlays Without 

Deficit (-) or

GDP Gapa Stabilizers

Automatic

Revenues

Revenues and 

Unemployment Gapb

(Percent)

Deficit (-) or Surplus

Automatic

Outlays

With Automatic 

Without 

Budget

Stabilizers

Surplus

Stabilizers
THE EFFECTS OF AUTOMATIC STABILIZERS ON THE FEDERAL BUDGET 3

CBO

Table 1. Continued

Budget Deficit or Surplus With and Without Automatic Stabilizers and 

Related Series, 1960 to 2016, in Billions of Dollars

Sources: Congressional Budget Office; Office of Management and Budget.

Notes: Automatic stabilizers are automatic changes in revenues and outlays that are attributable to cyclical movements in real (inflationadjusted) output and unemployment.

GDP = gross domestic product; * = between -$500 million and $500 million; ** = between -0.05 percent and 0.05 percent.

a. The GDP gap equals actual (or projected) GDP minus potential GDP (the quantity of output that corresponds to a high rate of use of labor 

and capital).

b. The unemployment gap equals the actual (or projected) rate of unemployment minus the natural rate of unemployment, which is the rate 

of unemployment arising from all sources except fluctuations in aggregate demand. 

c. Projected using CBO’s baseline assumptions. 

The budget balance without automatic stabilizers is an 

estimate of what the surplus or deficit would be if GDP 

was at its potential, the unemployment rate was at a corresponding level, and all other factors were unchanged. 

That budget measure has several applications. For example, some analysts use it to discern underlying trends in 

government saving or dissaving (that is, trends in surpluses or deficits). Others use it to approximate whether 

the short-run influence of the budget on aggregate 

demand and on the growth of real output is positive or 

negative. More generally, the measure helps analysts estimate the extent to which changes in the budget balance 

are caused by cyclical developments in the economy 

and thus are likely to prove temporary rather than 

long lasting.

Under CBO’s baseline assumptions, the budget deficit 

without automatic stabilizers would constitute 6.7 percent of potential GDP in 2011, up from 6.0 percent 

in 2010.4

 That increase is primarily due to a rise in mandatory spending from sources other than the automatic 

– =

2000 236 139 98 1,895 1,797 318 -1.0

2001 128 79 49 1,916 1,867 140 -0.7

2002 -158 -21 -137 1,864 2,001 -58 0.7

2003 -378 -67 -311 1,839 2,150 -170 1.0

2004 -413 -27 -386 1,902 2,288 -47 0.6

2005 -318 13 -331 2,141 2,472 48 0.2

2006 -248 41 -289 2,371 2,660 102 -0.3

2007 -161 25 -185 2,550 2,735 41 -0.5

2008 -459 -34 -424 2,552 2,977 -119 0.2

2009 -1,413 -315 -1,098 2,358 3,456 -923 3.4

2010 -1,294 -363 -930 2,458 3,388 -884 4.6

2011c -1,399 -332 -1,067 2,499 3,566 -805 4.4

2012c -1,081 -279 -802 2,791 3,593 -639 3.5

2013c -692 -256 -436 3,308 3,743 -523 2.6

2014c -513 -184 -329 3,599 3,928 -350 1.9

2015c -538 -88 -450 3,720 4,170 -149 0.9

2016c -635 -10 -625 3,837 4,461 -7 0.2

Budget

Outlays GDP Gap (Percent) a

Unemployment Gapb

Budget Revenues and

Outlays Without 

Surplus

Deficit (-) or

Without 

With Automatic 

Stabilizers Stabilizers Revenues

Automatic Stabilizers

Stabilizers

Deficit (-) or Surplus

Automatic Automatic

4. In previous years, CBO referred to the “budget deficit without 

automatic stabilizers” as the “cyclically adjusted deficit.” The measure is also referred to as the “structural deficit.”
4 THE EFFECTS OF AUTOMATIC STABILIZERS ON THE FEDERAL BUDGET

CBO

Table 2.

Budget Deficit or Surplus With and Without Automatic Stabilizers and Related 

Series, 1960 to 2016, as a Percentage of Potential Gross Domestic Product 

Continued

– =

1960 0.1 0.1 * 17.8 17.8 0.3 -0.2

1961 -0.6 -1.0 0.4 18.1 17.8 -2.9 0.9

1962 -1.2 -0.5 -0.8 17.7 18.5 -1.1 0.5

1963 -0.8 -0.3 -0.5 17.9 18.4 -1.0 0.1

1964 -0.9 0.1 -1.1 17.5 18.6 0.5 -0.1

1965 -0.2 0.5 -0.7 16.8 17.6 1.5 -0.7

1966 -0.5 1.5 -2.0 16.8 18.9 4.7 -1.7

1967 -1.1 1.4 -2.5 17.9 20.5 3.9 -2.0

1968 -3.0 1.1 -4.1 17.3 21.4 2.8 -2.0

1969 0.4 1.3 -1.0 19.3 20.3 3.0 -2.4

1970 -0.3 0.5 -0.7 18.9 19.7 0.4 -1.9

1971 -2.1 -0.4 -1.7 17.5 19.2 -1.3 -0.2

1972 -2.0 -0.1 -1.9 17.7 19.5 -0.4 -0.1

1973 -1.2 1.0 -2.2 17.3 19.5 3.0 -0.9

1974 -0.4 0.8 -1.3 18.0 19.3 1.9 -1.2

1975 -3.3 -1.1 -2.1 18.2 20.4 -3.5 1.2

1976 -4.1 -1.3 -2.8 17.6 20.5 -2.9 1.8

1977 -2.7 -0.6 -2.0 18.3 20.3 -1.3 1.1

1978 -2.7 0.1 -2.8 18.0 20.8 0.4 *

1979 -1.6 0.5 -2.1 18.3 20.5 1.1 -0.4

1980 -2.7 -0.6 -2.1 19.1 21.2 -1.7 0.6

1981 -2.5 -0.8 -1.7 19.9 21.6 -1.8 1.2

1982 -3.7 -2.0 -1.8 19.8 21.5 -5.7 3.0

1983 -5.7 -2.5 -3.2 18.5 21.7 -6.4 4.1

1984 -4.7 -0.9 -3.8 17.8 21.6 -2.1 1.8

1985 -5.1 -0.4 -4.6 17.9 22.5 -1.0 1.2

1986 -5.0 -0.3 -4.7 17.6 22.3 -0.5 1.0

1987 -3.2 -0.3 -2.9 18.5 21.4 -0.8 0.4

1988 -3.1 0.1 -3.2 18.1 21.4 0.4 -0.3

1989 -2.9 0.4 -3.3 18.2 21.5 1.1 -0.7

1990 -3.9 0.2 -4.1 17.9 22.0 0.5 -0.5

1991 -4.4 -0.9 -3.5 18.1 21.6 -2.6 0.8

1992 -4.5 -1.2 -3.4 18.0 21.4 -2.7 1.7

1993 -3.8 -0.9 -2.9 17.9 20.8 -2.1 1.5

1994 -2.9 -0.6 -2.3 18.3 20.6 -1.2 0.9

1995 -2.2 -0.4 -1.8 18.6 20.4 -1.1 0.3

1996 -1.4 -0.4 -0.9 19.0 20.0 -1.0 0.2

1997 -0.3 * -0.3 19.3 19.6 0.2 *

1998 0.8 0.4 0.4 19.7 19.3 1.0 -0.5

1999 1.4 1.0 0.4 19.4 19.0 2.4 -0.7

Unemployment Gapb

Budget

Budget Surplus

Deficit (-) or Surplus Without 

Revenues and

Automatic Stabilizers

Deficit (-) or

Outlays Without 

Automatic Automatic

Stabilizers Stabilizers Revenues Outlays (Percent) GDP Gapa

With Automatic 

Stabilizers
THE EFFECTS OF AUTOMATIC STABILIZERS ON THE FEDERAL BUDGET 5

CBO

Table 2. Continued

Budget Deficit or Surplus With and Without Automatic Stabilizers and Related 

Series, 1960 to 2016, as a Percentage of Potential Gross Domestic Product

Sources: Congressional Budget Office; Office of Management and Budget.

Notes: Automatic stablizers are automatic changes in revenues and outlays that are attributable to cyclical movements in real (inflationadjusted) output and unemployment. 

Potential GDP is the quantity of output that corresponds to a high rate of use of labor and capital.

GDP = gross domestic product; * = between -0.05 percent and 0.05 percent.

a. The GDP gap equals actual (or projected) GDP minus potential GDP.

b. The unemployment gap equals the actual (or projected) rate of unemployment minus the natural rate of unemployment, which is the rate 

of unemployment arising from all sources except fluctuations in aggregate demand. 

c. Projected using CBO’s baseline assumptions. 

stabilizers that amounts to 0.6 percent of potential GDP. 

Discretionary outlays, which have no automatic response 

to the business cycle, are projected to decline by 0.2 percent of potential GDP, and interest payments, which are 

assumed to have no automatic response, are projected to 

rise slightly. Revenues without automatic stabilizers are 

projected to decrease by 0.2 percent of potential GDP 

in 2011. 

According to CBO’s baseline projections, the budget deficit without automatic stabilizers falls significantly over 

the next three years, from 6.7 percent of potential GDP 

in fiscal year 2011 to 4.9 percent in 2012, 2.6 percent in 

2013, and 1.9 percent in 2014 (see Figure 1). The drop 

in 2012 is due mostly to an increase in revenues without 

automatic stabilizers (from 15.8 percent of potential 

GDP to 17.1 percent)—largely attributable to the ending 

of the temporary reduction in payroll taxes for 2011, 

which was part of the Tax Relief, Unemployment 

Insurance Reauthorization, and Job Creation Act of 2010 

(referred to in this report as the 2010 tax act, Public Law 

111-312)—and to a lower amount of depreciation 

– =

2000 2.5 1.5 1.0 19.9 18.9 3.3 -1.0

2001 1.3 0.8 0.5 19.0 18.5 1.4 -0.7

2002 -1.5 -0.2 -1.3 17.6 18.9 -0.5 0.7

2003 -3.4 -0.6 -2.8 16.5 19.3 -1.5 1.0

2004 -3.5 -0.2 -3.3 16.2 19.5 -0.4 0.6

2005 -2.6 0.1 -2.7 17.3 19.9 0.4 0.2

2006 -1.9 0.3 -2.2 18.1 20.3 0.8 -0.3

2007 -1.2 0.2 -1.3 18.4 19.7 0.3 -0.5

2008 -3.2 -0.2 -2.9 17.6 20.5 -0.8 0.2

2009 -9.4 -2.1 -7.3 15.7 23.0 -6.1 3.4

2010 -8.4 -2.4 -6.0 16.0 22.0 -5.7 4.6

2011c -8.8 -2.1 -6.7 15.8 22.5 -5.1 4.4

2012c -6.6 -1.7 -4.9 17.1 22.0 -3.9 3.5

2013c -4.1 -1.5 -2.6 19.5 22.1 -3.1 2.6

2014c -2.9 -1.0 -1.9 20.4 22.3 -2.0 1.9

2015c -2.9 -0.5 -2.5 20.3 22.7 -0.8 0.9

2016c -3.3 -0.1 -3.3 20.0 23.3 * 0.2

Budget

Without 

Deficit (-) or

Outlays Without 

Surplus

GDP Gap (Percent) a

Unemployment Gapb

Stabilizers Stabilizers Stabilizers Revenues Outlays

Revenues and

With Automatic 

Deficit (-) or Surplus

Automatic Automatic Automatic Stabilizers

Budget
6 THE EFFECTS OF AUTOMATIC STABILIZERS ON THE FEDERAL BUDGET

CBO

Figure 1.

Two Measures of Budget Deficits and 

Surpluses, 1960 to 2016

(Percentage of potential gross domestic product)

Sources: Congressional Budget Office; Office of Management and 

Budget.

Notes: Automatic stabilizers are automatic changes in revenues and 

outlays that are attributable to cyclical movements in real 

(inflation-adjusted) output and unemployment. 

Potential gross domestic product is the quantity of output 

that corresponds to a high rate of use of labor and capital.

The shaded vertical bars indicate periods of recession, which 

extend from the peak of a business cycle to its trough. The 

National Bureau of Economic Research establishes dates on 

which recessions begin and end. The most recent recession 

ended in the second quarter of 2009.

The dashed vertical line separates actual from projected 

data.

deductions for investment in business equipment resulting from provisions of the 2010 tax act and other recent 

acts. Outlays without automatic stabilizers fall by 

0.5 percent of potential GDP in 2012, reflecting declines 

in both mandatory and discretionary outlays that are 

partly offset by an increase in interest payments. In 2013, 

the decline in the deficit without automatic stabilizers is 

almost entirely the result of a rise in revenues, which in 

turn is due to the delayed effects of the scheduled expiration at the end of 2011 of the temporary patch for the 

alternative minimum tax and, to a greater extent, to the 

expiration at the end of 2012 of other tax provisions 

extended or newly implemented in the 2010 tax act, 

including extensions of the individual income tax 

reductions enacted in 2001 and 2003. Moreover, some 

high-income taxpayers will be subject to additional taxes 

that are scheduled to take effect in calendar year 2013 

under provisions of the Patient Protection and Affordable 

Care Act of 2010 (P.L. 111-148) and the Health Care and 

Education Reconciliation Act of 2010 (P.L. 111-152). 

Some of the impacts of those tax changes become larger 

in 2014, the first full fiscal year the provisions are in 

effect. 

In 2015, the federal deficit without automatic stabilizers 

reverses course, rising to 2.5 percent of potential GDP in 

that year and to 3.3 percent in 2016. Those increases 

stem mainly from a rise in mandatory outlays (largely 

Social Security, Medicare, and Medicaid) that is not 

attributable to automatic stabilizers. Revenues without 

automatic stabilizers fall slightly in those years relative to 

potential GDP, mostly because of legislation that shifts 

the timing of corporate income tax payments out of 2016 

and into prior years. An uptick in interest costs is roughly 

offset by a decline in discretionary spending. 

1960 1970 1980 1990 2000 2010 2020

4

2

0

-2

-4

-6

-8

-10

With 

Automatic

Stabilizers

Without 

Automatic

Stabilizers

Actual Proj.
CBO

Appendix: 

Measuring the Budgetary Effects of 

Automatic Stabilizers

The size of the budget deficit is influenced by policy 

changes and by the automatic responses of revenues and 

outlays to economic developments and other factors. In 

addition to the effects of changes in real (inflationadjusted) output and unemployment—which are most 

pronounced during recessions—key economic factors 

include changes in the long-term (trend) growth rate of 

output and income, movements in the proportion of 

income subject to taxation and the distribution of that 

income across tax brackets, and variations in interest rates 

and in the pace of inflation. 

The effects of automatic stabilizers on the budget are 

automatic changes in revenues and outlays that are driven 

by the business cycle. For example, the Congressional 

Budget Office (CBO) estimates that in fiscal year 2000, 

automatic stabilizers contributed to the budget surplus by 

an amount that was equal to 1.5 percent of potential 

gross domestic product (GDP), indicating that the 

strength of the economy was significantly augmenting the 

budget surplus. By 2002, the automatic stabilizers’ contribution to the budget had turned negative, in CBO’s 

estimation, because the economy was operating below its 

potential and adding to the budget deficit. Negative contributions persisted through 2004. From 2005 through 

2007, the effects of the automatic stabilizers were positive 

but small because the economy was above but close to its 

potential. More recently, the automatic stabilizers have 

contributed significantly to the deficit as the economy 

has operated significantly below its potential. 

CBO arrives at its estimate of the deficit without automatic stabilizers by removing their effects from the total 

budget deficit. For revenues, CBO estimates taxable 

income as though overall output equaled its potential, 

and, when the economy is below (above) its potential, 

CBO translates the difference between that income and 

actual income into cyclical losses (gains) in revenue. For 

outlays, CBO estimates what unemployment would be if 

output were at its potential, and it translates the difference between that number and actual unemployment 

into cyclical increases (decreases) in spending for 

unemployment insurance benefits and other income 

support programs when unemployment is above (below) 

the rate consistent with potential GDP.

Economic factors (such as inflation and interest rates) 

that are not directly cyclical and are therefore not 

removed from the estimates presented in this report also 

have automatic effects on the budget. For example, a 

higher rate of inflation would boost the dollar value of 

taxable income and thus increase federal tax receipts. 

Because interest rates also are affected by inflation, federal 

interest payments would be higher. In addition, spending 

that is indexed for inflation (Social Security benefits, for 

example) would increase. However, such budgetary 

effects of factors other than changes in real output and 

unemployment are not analyzed here. 

In a few cases, CBO’s analysis of automatic stabilizers 

attempts to adjust for the budgetary effects of economic 

factors whose connection to cyclical fluctuations has 

varied over time. For example, fluctuations in tax receipts 

from realized capital gains appear to have moved more 

closely with the business cycle recently than in earlier 

cycles; CBO’s estimates of automatic stabilizers 

incorporate the changing relationship over time. 

Similarly, compensation bonuses, which tend to be 

concentrated among taxpayers in relatively high tax 

brackets and which thus affect the effective tax rate on 
8 THE EFFECTS OF AUTOMATIC STABILIZERS ON THE FEDERAL BUDGET

CBO

total wages and salaries, seem to have become more cyclical, and that too is reflected in the estimates. Changes 

over time in the cyclical differences between taxable 

corporate profits and corporate profits as measured in the 

national income and product accounts also are accounted 

for in CBO’s calculation of the budgetary effects of the 

automatic stabilizers. 

Despite adjustments to revenues and outlays for the automatic effects of the business cycle, the deficit without 

automatic stabilizers can exhibit apparently regular cyclical characteristics—such as increases during times of 

recession and early recovery. In part, that pattern reflects 

policy responses to recessions. The government often 

chooses to stimulate a weakening economy by cutting 

taxes or increasing government spending, both of which 

increase the deficit (or reduce the surplus). 

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Public Law 

111-312); the American Recovery and Reinvestment 

Act of 2009 (P.L. 111-5); the Troubled Asset Relief 

Program (TARP); and the Housing and Economic 

Recovery Act of 2008 (P.L. 111-289), which led to 

federal conservatorship of Fannie Mae and Freddie Mac, 

were deficit-raising measures enacted to directly or 

indirectly address the recent recession or slow recovery. 

Such responses to recessions and persistently high unemployment are not “automatic,” however, because they 

require legislation, and their budgetary effects thus are 

not part of the automatic stabilizers. 

Another reason that the deficit without automatic 

stabilizers can exhibit residual cyclical movements is that 

estimates of the budgetary impact of automatic stabilizers 

might only partly remove the effects of factors (such as 

large fluctuations in the stock market) that have not had a 

sufficiently regular relationship to business cycles to be 

viewed as mostly cyclical. 

In its annual reports on the budget and the economy, 

CBO presents “rules of thumb” that describe how the 

budget balance would differ if certain economic outcomes were different than projected.1

 Those estimates 

attempt to capture the effects of sustained changes in the 

rate of growth of GDP and other economic variables, 

whereas the estimates in this report are meant to filter out 

temporary fluctuations that are attributable to automatic 

stabilizers.

1. See Congressional Budget Office, The Budget and Economic 

Outlook: Fiscal Years 2011 to 2021 (January 2011), Appendix B.