Congressional Budget Office

CBO, the Budget Process, and the Outlook Presentation at the Robert H. Smith School of Business,

University of Maryland

February 23, 2016

Keith Hall Director This presentation draws on An Introduction to the Congressional Budget Office (April 2015), www.cbo.gov/about/overview; and The Budget and Economic Outlook: 2016 to 2026 (January 2016), www.cbo.gov/publication/51129.

1 CO N GR ES S IO N A L B UDGE T O F F IC E

CBO’s Origin and Staff

2 CO N GR ES S IO N A L B UDGE T O F F IC E

The Congressional Budget Office, along with the House and Senate Budget Committees, was created by the Congressional Budget and Impoundment Control Act of 1974 to play an important role in the budget process of the United States.

3 CO N GR ES S IO N A L B UDGE T O F F IC E

CBO was created to provide the Congress with analysis of budgetary and economic issues in an objective and impartial manner. The agency is strictly nonpartisan.

4 CO N GR ES S IO N A L B UDGE T O F F IC E

The Director is appointed jointly by the Speaker of the House and president pro tempore of the Senate to a term of four years.

CBO has about 235 employees (most with advanced degrees), who are hired solely on the basis of professional competence, without regard to political affiliation.

5 CO N GR ES S IO N A L B UDGE T O F F IC E

Examples of CBO’s Role in the U.S. Budget Process

6 CO N GR ES S IO N A L B UDGE T O F F IC E

CBO’s budget and economic outlook offers an economic forecast and projection of federal spending and revenues under current law—known as baseline projections—over the next 10 years. It is usually released in late January and updated in March and in August.

7 CO N GR ES S IO N A L B UDGE T O F F IC E

The President’s budget request is a comprehensive proposal for the federal government. It is usually submitted to the Congress early in February.

8 CO N GR ES S IO N A L B UDGE T O F F IC E

In its analysis of the President’s budget, CBO estimates the budgetary effects of the President’s proposals on the basis of its own economic projections and budget models. That analysis is typically released in March.

9 CO N GR ES S IO N A L B UDGE T O F F IC E

A concurrent budget resolution approved by both chambers sets each committee’s allocation of spending authority for the next fiscal year and aggregate spending and revenue levels for at least five years—usually on the basis of CBO’s baseline and estimates for proposed policy changes.

10 CO N GR ES S IO N A L B UDGE T O F F IC E

Authorizing legislation broadly authorizes the creation and operation of an agency, program, or activity. CBO provides estimates of the budgetary resources necessary to implement such legislation during its consideration.

Annual appropriation laws separately provide funding for many federal programs. CBO analyzes those bills as well.

11 CO N GR ES S IO N A L B UDGE T O F F IC E

CBO’s Products and Activities

12 CO N GR ES S IO N A L B UDGE T O F F IC E

Baseline budget projections and economic forecasts covering the 10-year period used in the Congressional budget process Analysis of the President’s budget Cost estimates for legislation, including

analyses of federal mandates Scorekeeping for enacted legislation Long-term budget projections Analytic reports examining specific federal

programs, aspects of the tax code, and budgetary and economic challenges

13 CO N GR ES S IO N A L B UDGE T O F F IC E

CBO does not:

Make policy recommendations

Enforce budget rules

Write legislation

Implement programs or regulations

Evaluate historical performance of government programs

14 CO N GR ES S IO N A L B UDGE T O F F IC E

CBO’s Estimates

15 CO N GR ES S IO N A L B UDGE T O F F IC E

CBO’s cost estimates generally focus on the next 5 or 10 years but sometimes look out 20 years or more.

They are meant to reflect the middle of the distribution of possible outcomes.

16 CO N GR ES S IO N A L B UDGE T O F F IC E

The estimates incorporate behavioral responses to the extent feasible, on the basis of the available evidence.

They are open to new information and may change as a result, and they include explanations of the analysis to the extent feasible.

17 CO N GR ES S IO N A L B UDGE T O F F IC E

The Economic Outlook

18 CO N GR ES S IO N A L B UDGE T O F F IC E

Key Economic Indicators

19 CO N GR ES S IO N A L B UDGE T O F F IC E

Projected Contributions to the Growth of Real GDP

20 CO N GR ES S IO N A L B UDGE T O F F IC E

Employment Shortfall

Millions of People

21 CO N GR ES S IO N A L B UDGE T O F F IC E

The Labor Force, Employment, and Unemployment

Percentage of the Population

22 CO N GR ES S IO N A L B UDGE T O F F IC E

Labor Force Participation Rates

Percent

23 CO N GR ES S IO N A L B UDGE T O F F IC E

Hourly Labor Compensation

Percentage Change

24 CO N GR ES S IO N A L B UDGE T O F F IC E

The Budget Outlook

25 CO N GR ES S IO N A L B UDGE T O F F IC E

Total Deficits or Surpluses

Percentage of Gross Domestic Product

26 CO N GR ES S IO N A L B UDGE T O F F IC E

Spending and Revenues Projected in CBO’s Baseline, Compared With Actual Values in 1966 and 1991 Percentage of Gross Domestic Product

27 CO N GR ES S IO N A L B UDGE T O F F IC E

Revenues, by Major Source

Percentage of Gross Domestic Product

28 CO N GR ES S IO N A L B UDGE T O F F IC E

Major Changes in Projected Revenues From 2016 to 2026

29 CO N GR ES S IO N A L B UDGE T O F F IC E

Outlays, by Type of Spending

Percentage of Gross Domestic Product

Discretionary

Mandatory

Net Interest3.0

15.0

5.2

1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021 20260

4

8

12

16 Actual Projected

30 CO N GR ES S IO N A L B UDGE T O F F IC E

Number of People Age 65 or Older, by Age Group

Millions of People

1966 1976 1986 1996 2006 2016 2026 2036 20460

20

40

60

80

100

65 to 74

75 to 84

85 to 94

95 or Older

Actual Projected

31 CO N GR ES S IO N A L B UDGE T O F F IC E

Federal Debt Held by the Public

Percentage of Gross Domestic Product