Congressional Budget Office Director Douglas W. Elmendorf held a news conference early in February for the release of the annual “Budget and Economic Outlook” report. Some budget observers take issue with the CBO’s projections, calling them “bookends of two unrealistic scenarios.”
The independent congressional agency resists the notion that its baseline or alternative fiscal scenario is meant to forecast government spending, revenue or deficits, which are influenced by the economy. Instead, the CBO describes the baseline as a projection of the fiscal effects of current laws, and one that can be used to measure the effects of proposed policies. The alternative scenario projects the effects of continuing certain policies that have been in place but are scheduled to change under current law.
With the new baseline and alternative scenario in place, it just might be a little easier to guess what spending, taxes, deficits and debt will amount to in the future.
“The new CBO baseline is a much more realistic projection, yes, because the issue of what to do with the expiring tax cuts has now been resolved,” MacGuineas said. “Now, current law is much closer to reality than it was before the end of the year.”
In the past, the baseline and alternative scenario charted very different paths. The baseline assumed all the tax cuts would expire at the end of 2012, reducing the deficit, while the alternative scenario, aware of the political winds, assumed all the tax cuts would be extended, increasing the deficit.
But even after the fiscal-cliff legislation, there is still uncertainty about future tax and spending policy. And while the alternative scenario is not as important as it used to be, it still has its uses.
The latest alternative scenario released Feb. 5 projects deficits and debt under the assumption that Congress repeals the nine-year, $1.2 trillion sequester set to begin Friday, cancels a scheduled reduction in fees paid to physicians who treat Medicare patients and extends more than 70 tax provisions that are set to expire.
Under this scenario, the deficit would grow by $9.5 trillion by 2023. Under the baseline, which assumes that current laws remain in place — meaning the sequester occurs, Medicare reimbursements are cut and the tax provisions expire — the deficit would rise by $7 trillion during the same period.
“It’s still a valuable tool because it is meant to give policymakers and budget analysts another metric by which to measure policy changes and the future projected path of spending, revenue, debt and the economy to some extent,” Shai Akabas, senior policy analyst at the Bipartisan Policy Center, said of the alternative scenario.
MacGuineas said the alternative “still is important to put out there because current law still has too many policies built into it that policymakers are unlikely to enact.”
Nevertheless, some budget observers believe the alternative scenario would be more useful if it adjusted for other spending that is widely expected to fall. The cost of the war in Afghanistan is expected to decline in coming years as U.S. troops return home, but the alternative scenario assumes war spending will continue at current levels. Similarly, the alternative scenario assumes disaster spending will continue at current levels, even though it has been unusually high as a result of Superstorm Sandy.