CBO’s projection of real GDP growth in the longer term is within the central tendency in the Federal Reserve’s forecasts. CBO’s forecasts of the unemployment rate are above the central tendency in 2023 and in the longer term but are within the central tendency in 2024 and 2025. The agency’s projections of PCE inflation are within the central tendency in the Federal Reserve’s forecasts. CBO’s projections of the federal funds rate are near or below the low end of the range of the Federal Reserve’s forecasts in 2023, 2024, and 2025. CBO’s projection of the labor force participation rate is also subject to considerable uncertainty. If fewer of those workers reenter the workforce than CBO expects, the elevated growth rate of wages and salaries could persist for longer than CBO currently forecasts.

The progressive structure of the tax brackets ensures that the opposite would be the case with income exclusions. In other words, the tax expenditure for all exclusions considered together would be greater than the sum of the separate tax expenditures for each exclusion. In 2023, those and other factors are expected to be approximately offsetting, so the total amount of tax expenditures is projected to roughly equal the sum of the individual tax expenditures. That amount, which was calculated by CBO on the basis of estimates prepared by JCT, equals about 40 percent of all federal revenues in 2023 and exceeds projected outlays for all discretionary programs combined (see Figure 1-6).

Tracking the Federal Deficit: August 2020

The budget shortfall for 2023 is now projected to be $426 billion more—and the cumulative deficit for the 2023–2032 period, $3.1 trillion more—than CBO projected last May. The increases stem from new legislation, changes to the agency’s economic forecast, and other changes . Projected receipts rise after 2025 because of the scheduled expiration of certain provisions of the 2017 tax act. To combat high inflation, the Federal Reserve sharply increased the target range for the federal funds rate in 2022. In CBO’s projections, inflation gradually slows in 2023 as pressures ease from factors that, since mid-2020, have caused demand to grow more rapidly than supply. Output stagnates and unemployment rises in 2023, partially as a result of tighter monetary policy.

Measured relative to the size of the economy, the deficit equals 5.4 percent of gross domestic product in 2023, and deficits average 6.1 percent of GDP from 2024 to 2033. As a result of those deficits, federal debt increases each year in CBO’s projections, rising from 98 percent of GDP this year to 118 percent in 2033 (see Table 1-1). The federal response to COVID-19 created unprecedented, and often temporary, changes to spending and revenues. As a result, year-over-year comparisons now are largely capturing variations in emergency responses to COVID-19 rather than underlying trends in the government’s fiscal health.

Tracking the Federal Deficit: August 2019

When income grows faster than prices—as CBO projects it will over the 2023–2033 period—more income is pushed into higher tax brackets, a process known as real bracket creep. In addition, the Internal Revenue Service adjusts the income thresholds before the start of the tax year, which means that the adjustments are based on inflation in the previous year. Because of that lag, a larger share of income may be taxed at higher rates during periods of high inflation. Many other parameters of the tax system are also indexed for inflation, including the amounts of the standard deduction and the earned income tax credit. But certain parameters, such as the amount of the child tax credit, are fixed in nominal dollars and not adjusted for inflation. Following the initial decline and subsequent increase, receipts in CBO’s baseline projections total 9.7 percent of GDP in 2033, 0.1 percentage point higher than they are in 2023.

• In 2022, the PCE price index grew by 5.5 percent, and the consumer price index for all urban consumers (CPI-U) grew by 7.1 percent—notably faster than their averages of 1.5 percent and 1.7 percent, respectively, over the decade that preceded the pandemic.
• Total revenues so far in Fiscal Year 2019 increased by 2 percent ($36 billion), while spending increased by 6 percent ($135 billion), compared to the same period last year.
• The agency’s projections of PCE inflation are within the central tendency in the Federal Reserve’s forecasts.
• Before sharing sensitive information, make sure you’re on a federal government site.
• Anticipated discretionary accounting changes should be adopted prior to or as part of the quasi-reorganization.
• FY2020 was the fifth year in a row that the deficit as a share of the economy grew.

Each year the US spends more money than it takes in from taxes and other collections. Conversely, suppose a different company with a retained earnings balance of $2 million just incurred a loss of $4 million in net income and paid no dividends. The formula for retained earnings equals the prior year’s retained earnings plus the current period’s net income, less any dividends paid out to shareholders. As with many financial performance measurements, retained earnings calculations must be taken into context. Analysts must assess the company's general situation before placing too much value on a company's retained earnings—or its accumulated deficit. If a company has negative retained earnings, it has accumulated deficit, which means a company has more debt than earned profits.

Appendix BCBO’s Economic Projections for 2023 to 2033

The Federal Reserve raised the target range for the federal funds rate at each meeting of the Federal Open Market Committee since last March; in December 2022, the federal funds rate was 4.1 percent, the highest rate since December 2007. The interest rate on 10-year Treasury notes increased from 1.5 percent in December 2021 to 3.6 percent in December 2022. In 2022, the PCE price index grew by 5.5 percent, and the consumer price index for all urban consumers (CPI-U) grew by 7.1 percent—notably faster than their averages of 1.5 percent and 1.7 percent, respectively, over the decade that preceded the pandemic. Inflation in the CPI-U during 2022 was the highest it has been since the early 1980s. Growth in the PCE price index peaked at 7.0 percent in June 2022 , and growth in the CPI-U peaked at 9.0 percent, also in June 2022. The high rates of inflation reflected widespread price increases among goods and services.

• Corporate tax revenues increased by 75% in part due to higher corporate profits, and unemployment insurance receipts increased by 31% as states replenished their unemployment insurance trust funds.
• In addition, the agency estimates that reducing the size of the Federal Reserve’s balance sheet will also contribute to higher interest rates for longer-maturity bonds.
• Despite the slow growth of output, conditions in the labor market remained tight throughout much of 2022, as labor supply remained subdued.
• Over the 2028–2033 period, CBO expects inflation to have reached the long-run average rate that the agency projects.
• Outlays for the Small Business Administration also fell sharply, decreasing by $271 billion (92%).

Inflation is measured from the fourth quarter of one calendar year to the fourth quarter of the next. Another important source of uncertainty in the forecast for growth is the magnitude of the effects of higher interest rates on the interest-sensitive sectors of the economy. The downturns in the construction of new homes and sales of existing homes could be more or less accumulated deficit meaning severe than in CBO’s forecast. The purchase of a home often leads to the purchase of related consumer goods, so the severity of the downturn in home sales would have downstream effects on consumer spending. The rise in the exchange value of the dollar stemming from higher interest rates could have a greater or lesser effect on net exports than in CBO’s forecast.

Real GDP grows by 1.8 percent per year, on average, the same as the growth rate of real potential GDP . The level of real GDP is slightly below the level of real potential GDP from 2028 to 2033, in line with their historical relationship, on average. Output growth comes to a halt in early 2023 in response to the sharp rise in interest rates during 2022.

The agency’s forecasts of both short- and long-term interest rates, on average, over the later years of the projection period are roughly the same as they were last May. In CBO’s projections, the terminal level of the federal funds rate and the duration of the period of tight monetary conditions are uncertain, contributing to uncertainty about the path of interest rates on Treasury securities. If inflation is higher than CBO expects over the next few quarters, the Federal Reserve may raise the policy rate higher or leave it high for longer, and interest rates on Treasury securities will probably be higher than CBO projects. But if economic conditions weaken significantly at some point during the next few years, the Federal Reserve may reverse policy rate hikes faster, and interest rates on Treasury securities will probably be lower than CBO expects.

Meaning of accumulated deficit in English

Noninterest outlays—that is, all spending other than net outlays for interest—are projected to increase from 21.3 percent of GDP to 23.0 percent over the period. Mandatory spending increases from 15.3 percent of GDP in 2033 to 17.2 percent of GDP in 2053. Discretionary spending as a percentage of GDP is projected to decline from 2033 to 2037 and is assumed to remain constant thereafter. Includes payroll taxes other than those paid by the federal government on behalf of its employees; those payments are intragovernmental transactions.

• Total outlays increase from 24.9 percent of GDP in 2033 to 30.2 percent in 2053 in CBO’s projections.
• More than $10 billion (nearly 200%) increase in Coronavirus Refundable Credits due to delayed uptake in employer credits, such as for paid sick and family leave.
• Lower projections of the amount of assets in retirement accounts account for the most significant reductions.
• In CBO’s projections, outlays and revenues measured as a percentage of GDP equal or exceed their 50-year averages through 2033.
• The decline in projected SSI enrollment discussed above slightly decreases projected outlays for Medicaid as well, because SSI beneficiaries are typically automatically eligible for Medicaid.