Even without tax cuts or any other changes in budget policy, there is a noticeable chance the government will run deficits outside of Social Security and Medicare, rather than surpluses. The possibility that the current projections may substantially overstate projected surpluses is especially troubling because CBO, OMB, GAO, and independent analysts agree that the long-term budget picture shows deficits returning during the course of the baby boomers' retirement and ultimately rising to unsustainable levels unless future generations raise taxes or cut federal programs. The need to prepare for the baby boomers' retirement suggests that policymakers should show caution in committing for other purposes surpluses that may not materialize. This memorandum briefly reviews the degree to which CBO is uncertain about its own projections. In its recent baseline report, CBO devotes a chapter to examining the uncertainty surrounding its own projections.
All projections are wrong, but the question is by how much.
CBO has also calculated the odds that the surplus will fall above or below any particular point given its current projection and its historical track record. CBO's analysis suggests about a 20 percent chance that, under current law, the budget excluding Social Security and Medicare will be in deficit in each year from 2002 through 2006. CBO fears that this January's projections might be even more subject to error than indicated by its historical track record. CBO's projections, like those of other forecasters, are based on very limited information about just a few years increased growth of productivity and strong investment in information technology. Projections of those recent changes as far as five or 10 years into the future are bound to be highly uncertain.