CBO Revenue Baselines and Tax Reform

WASHINGTON, DC – The Senate Budget Committee today released its March 8, 2016, Budget Bulletin focused on Congressional Budget Office (CBO) Revenue Baselines and Tax Reform. The Budget Bulletin provides regular expert articles by Senate Budget Committee analysts on the issues before Congress relating to the budget, deficits, debt, and the economy.

Read the full Senate Budget Bulletin here.

Excerpts follow:

The Congressional Budget Office (CBO) annually produces a baseline estimate of federal spending and receipts for the next 10 years under existing law. Existing law is not necessarily the same as existing policy, as the CBO baseline assumes tax and spending provisions set to expire will not be extended, even if the policies are likely to continue.

In January 2016, CBO published The Budget and Economic Outlook: 2016 to 2026 with updated projections based on recently enacted legislation. The Consolidated Appropriations Act, 2016 (which included the Protecting Americans from Tax Hikes Act of 2015), the Fixing America’s Surface Transportation (FAST) Act, and the Bipartisan Budget Act of 2015 all had significant impacts on future revenue projections. Integrating those changes, along with changes to CBO’s economic assumptions and other technical assumptions, guides the Senate Budget Committee’s analysis of legislation in 2016.

In its August 2015 baseline update, CBO predicted $41.6 trillion in revenues over the 2016-2025 period. After passage of the Consolidated Appropriations Act, 2016, CBO lowered projected revenues by $523 billion, partially offset by increases from the FAST Act ($66 billion) and the Bipartisan Budget Act ($32 billion), representing a total reduction of $425 billion from legislative changes. In addition, CBO further reduced its projections over the 2016-2025 period by $771 billion due to economic changes and by $30 billion for technical reasons. Combined, lost revenue totals $1.2 trillion (about 3 percent); three-fifths of that change stems from the economic forecast. Over the 10-year budget window, CBO projects $40.4 trillion in revenues for 2016 through 2025 and $42.0 trillion for 2017 through 2026.

Economic growth resulting from legislation passed in 2015 will partially offset the large effect from economic forecast changes. In its January 2016 report, CBO noted that its updated economic forecast includes enactment of 2015 legislation, but that updated forecast is not built into its budget projections due to the timing of passage. Based on CBO’s preliminary analysis, its upcoming March budget projections could show between a $100 billion and $200 billion increase in revenues above the baseline. This revenue growth would total 0.2 to 0.4 percent. While CBO projects the direct budgetary effects of the enacted provisions will decrease revenue, accelerated economic growth will partially offset the revenue loss.

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