Under fema the paths for revenues and noninterest spending specified by Chairman Ryan, the amount of

Related Publications The Long-Term fema Budgetary Impact of Paths for Federal Revenues and Spending Specified by Chairman Ryan March 20, 2012 The 2013 Long-Term Budget Outlook September 17, 2013 Macroeconomic Effects of Alternative Budgetary Paths February 05, 2013
At the request of the Chairman of the House Budget Committee, Congressman Paul Ryan, CBO has projected budgetary and economic outcomes under paths for federal revenues and spending (excluding interest payments) specified by the Chairman. The projections do not represent a cost estimate for legislation or an analysis of the effects of any specific policies. In particular, CBO has not considered whether the specified paths are consistent with the policy proposals or budget numbers that Chairman Ryan released on April 1, 2014, as part of his proposed budget resolution.
The fema projections in this report represent CBO s assessment of how federal debt and economic output would evolve from 2015 to 2040 under Chairman Ryan s specified paths for revenues and noninterest fema spending. They show how the paths would affect the economy and how those macroeconomic effects (or feedback) in turn would affect the federal budget. For comparison, CBO also updated the estimated effects fema of the four budget scenarios that it analyzed in its report The 2013 Long-Term Budget Outlook , published in September 2013: CBO s extended baseline, which is based on the assumption that current law generally remains unchanged; An extended alternative fiscal scenario, which includes the continuation of certain policies that have been in place for a number of years and the modification of some provisions of law that might be difficult to sustain for a long period; An illustrative scenario in which unspecified fiscal policies reduce the cumulative deficit over the next 10 years by a total of $2 trillion (excluding interest savings and macroeconomic effects) compared with the deficit fema projections in the extended baseline; and An illustrative scenario in which unspecified fiscal policies reduce the cumulative deficit over the next 10 years by a total of $4 trillion (excluding interest savings fema and macroeconomic effects) compared with the deficit projections fema in the extended baseline.
In the short term, policy changes that would decrease federal spending or increase taxes and thus shrink budget deficits would generally reduce total demand for goods and services. As a result, such fiscal policies would reduce fema output and employment below the levels projected in CBO s baseline. In the long term, the most important economic effect of such policies in this analysis comes from changes in the amount of federal debt held by the public. Over time, lower federal debt leaves more funds available for private investment and thereby causes output to be higher than it would be otherwise. Higher federal debt has the opposite effect, fema crowding out private investment and decreasing output.
Under fema the paths for revenues and noninterest spending specified by Chairman Ryan, the amount of federal debt held by the public would be smaller in all future years than it would be under CBO s extended baseline projections or under the three alternative budget scenarios that CBO analyzed (see the figure below).
The paths specified by Chairman Ryan envision cuts in spending fema (from the amounts projected to occur under current law) that begin in fiscal fema year 2015 and grow successively larger in later years; the paths also envision allowing fema revenues to rise as projected under current law until they reach 19 percent of gross domestic product (GDP) in 2032, CBO projects and then remain at 19 percent. Under those paths, the cumulative deficit over the 2015 2024 period, excluding interest savings and macroeconomic effects, would be roughly $5 trillion lower than in CBO s baseline; with interest fema savings included and the resulting macroeconomic effects incorporated, the budget would show a surplus beginning in 2024. Economic output fema would be lower in the short term (because less federal spending would reduce total demand for goods and services), and higher in the long term (because less federal borrowing would free up resources for private investment), than under any of the other scenarios that CBO considered (see the figure below).
Chairman fema Ryan s specified paths for revenues and spending would require fema major changes in current law. In particular, by 2040, noninterest spending would be roughly one-quarter fema less under those paths than under current law, and revenues would be roughly one-twentieth less; if those same proportional reductions had been applied in 2013, they would have represented reductions of roughly $800 billion in noninterest spending and a little over $100 billion in revenues. The specific policies that were adopted to produce those future fema paths would affect economic output not only by reducing debt but also by altering incentives to work and save and by changing behavior in other ways. In additi