CRFB's Updated (Again!) Realistic Baseline

With CBO having released their newest Budget and Economic Outlook, CRFB has updated its Realistic Baseline for the second time in a month to reflect these new numbers and estimates. Incorporating all of the recent legislation, economic and technical changes from the CBO update, and compiling what we believe is the most likely scenario going forward, our updated Realistic Baseline projections show a much gloomier outlook than do the CBO current law projections.

To refresh your memory, our baseline contains a number of policy adjustments to the CBO estimate of current law that are more likely to occur, in our estimation. Using the same economic assumptions as CBO, we then assume that the 2001/2003/2010 income tax and estate tax provisions will be extended past 2012, the AMT is patched continuously, Medicare physician payments are frozen instead of cut by 30 percent (the "doc fix"), the wars are gradually drawn down, and the $1.2 trillion in savings from the Super Committee are not assumed. Compared to CBO's current law projections, these policies add $4.9 trillion to the deficit.

With our baseline earlier this month, we estimated that the ten-year deficits could total $10.3 trillion, instead of the CBO baseline's figure of $6.7 trillion. This time around, we estimate $8.4 trillion in deficits over the next ten years, compared to $3.5 trillion under CBO's current law baseline.

Bridge from Current Law to CRFB Realistic Baseline
  2012-2021 (Billions)
CBO August Baseline Deficits $3,487
Tax Cuts Extended and AMT Patched $3,949
Doc Fix Passed $298
War Drawdown -$1,122
Super Committee Fails and no Trigger $1,003
Net Interest $746
August CRFB Realistic Baseline $8,361

Using this more realistic baseline, debt as a percentage of GDP would be 81.5 percent in 2021, compared to 61.0 percent under current law.

New CRFB Realistic Baseline Deficits and Debt
  2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Spending (Percent of GDP) 23.0% 22.6% 22.3% 21.8% 22.0% 22.1% 22.1% 22.5% 22.8% 23.0%
Revenue (Percent of GDP) 16.8% 17.5% 18.3% 18.3% 18.1% 18.4% 18.3% 18.4% 18.5% 18.5%
Deficits (Percent of GDP) -6.2% -5.1% -3.9% -3.5% -3.9% -3.8% -3.8% -4.1% -4.3% -4.5%
Debt (Percent of GDP) 71.2% 74.8% 75.8% 75.1% 75.7% 76.5% 77.3% 78.5% 79.9% 81.5%