An Update to the Budget and

Economic Outlook: 2021 to 2031 JULY | 2021

T
he Congressional Budget Office regularly pub- 5.5 percent in 2031 (see Table 1). By the end of the
lishes reports presenting projections of what period, both primary deficits (which exclude net outlays
federal budget deficits, debt, revenues, and for interest) and interest outlays are increasing in nomi-
spending—and the economic path underlying nal terms and as a share of GDP.
them—would be for the current year and for the follow-
ing 10 years if current laws governing taxes and spending With such deficits, federal debt held by the public—
generally remained unchanged. This report presents the which stood at $21.0 trillion, or 100 percent of GDP,
agency’s most recent budget and economic projections, at the end of 2020—would total $23.0 trillion, or
which are based on the laws in effect as of May 18, 2021. 103 percent of GDP, at the end of 2021. As recently as
This presentation of CBO’s projections is much shorter 2007, at the start of the previous recession, federal debt
than usual. The information is less detailed so that CBO equaled 35 percent of GDP. Projected federal debt dips
can provide it to lawmakers as quickly as possible. CBO just below 100 percent of GDP between 2023 and 2025
will publish more detailed information about its projec- before rising again, reaching 106 percent in 2031, about
tions later this month.1 the same as the amount recorded in 1946, which stands
as the highest in the nation’s history.
The Budget
In CBO’s budget projections (called the baseline), the Revenues in CBO’s baseline increase to 17 percent of
federal budget deficit for fiscal year 2021 is $3.0 trillion, GDP in 2021 and are relatively stable thereafter, aver-
nearly $130 billion less than the deficit recorded in 2020 aging 18 percent from 2022 through 2031. Outlays are
but triple the shortfall recorded in 2019. Relative to the projected to decline from 31 percent of GDP this year to
size of the economy, this year’s deficit is projected to total about 21 percent from 2023 through 2025 as pandem-
13.4 percent of gross domestic product (GDP), making ic-related spending wanes and low interest rates persist.
it the second largest since 1945, exceeded only by the Outlays then increase relative to GDP, owing to rising
14.9 percent shortfall recorded last year. The economic interest costs and greater spending for major entitlement
disruption caused by the 2020–2021 coronavirus pan- programs.
demic and the legislation enacted in response continue to
weigh on the deficit (which was already large by histori- Compared with its estimates from February 2021, CBO’s
cal standards before the pandemic). estimate of the deficit for 2021 is now $745 billion (or
33 percent) larger, and its projection of the cumulative
Baseline deficits under current law are significantly deficit between 2022 and 2031, $12.1 trillion, is now
smaller after 2021 and average $1.2 trillion from 2022 to $173 billion (or 1 percent) smaller. In 2021, recently
2031. They average 4.2 percent of GDP through 2031, enacted legislation—primarily the American Rescue
well above their 50-year average of 3.3 percent. In CBO’s Plan Act of 2021 (Public Law 117-2)—increases the
projections, the deficit declines to about 3 percent of projected deficit by $1.1 trillion, mostly as a result of
GDP in 2023 and 2024 before increasing again, reaching higher spending. The largest budgetary effects stem from
additional funding for recovery rebates for individuals, for
state and local governments, for educational institutions,
1. CBO plans to publish additional information about its latest
and for an extension of expanded unemployment
budget and economic projections on July 21, 2021.

Notes: Unless this report indicates otherwise, all years referred to when describing the budget outlook are federal fiscal years, which run from October 1 to
September 30 and are designated by the calendar year in which they end. Years referred to in describing the economic outlook are calendar years. Numbers in
the text and tables may not add up to totals because of rounding.
2 AN UPDATE TO THE BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021

Table 1 .

CBO’s Baseline Budget Projections, by Category

Total
Actual, 2022– 2022–
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2026 2031
In Billions of Dollars
Revenues
Individual income taxes 1,609 1,952 2,328 2,334 2,353 2,383 2,586 2,792 2,871 2,979 3,091 3,209 11,984 26,926
Payroll taxes 1,310 1,346 1,391 1,504 1,550 1,588 1,644 1,703 1,768 1,834 1,900 1,968 7,677 16,849
Corporate income taxes 212 238 317 379 390 402 401 391 393 393 393 397 1,889 3,857
Other 291 306 355 381 378 359 354 367 364 366 371 382 1,827 3,676
Total 3,421 3,842 4,390 4,597 4,671 4,734 4,984 5,253 5,396 5,572 5,754 5,957 23,376 51,308
On-budget 2,456 2,863 3,401 3,513 3,542 3,566 3,773 3,995 4,091 4,218 4,352 4,506 17,796 38,957
Off-budget a 965 979 989 1,085 1,128 1,168 1,211 1,258 1,306 1,354 1,402 1,451 5,581 12,351
Outlays
Mandatory 4,577 4,862 3,589 3,461 3,488 3,711 3,907 4,088 4,418 4,446 4,780 5,025 18,155 40,912
Discretionary 1,628 1,652 1,649 1,610 1,592 1,625 1,660 1,701 1,746 1,778 1,827 1,877 8,136 17,065
Net interest 345 331 306 315 344 396 467 541 628 712 808 910 1,826 5,425
Total 6,550 6,845 5,544 5,386 5,423 5,731 6,033 6,330 6,792 6,935 7,415 7,812 28,118 63,402
On-budget 5,598 5,846 4,469 4,231 4,191 4,418 4,642 4,854 5,222 5,268 5,647 5,939 21,950 48,880
Off-budget a 953 999 1,075 1,155 1,233 1,313 1,391 1,476 1,570 1,667 1,769 1,873 6,167 14,521
Deficit (-) or Surplus -3,129 -3,003 -1,153 -789 -753 -998 -1,049 -1,077 -1,395 -1,363 -1,661 -1,855 -4,741 -12,093
On-budget -3,142 -2,984 -1,067 -718 -648 -852 -869 -859 -1,131 -1,050 -1,294 -1,434 -4,155 -9,923
Off-budget a 13 -19 -86 -71 -104 -146 -180 -218 -264 -313 -367 -422 -587 -2,170
Debt Held by the Public 21,017 23,012 24,392 25,156 25,959 26,967 28,062 29,185 30,733 32,119 33,913 35,827 n.a. n.a.
Memorandum:
Gross Domestic Product 21,000 22,401 24,323 25,356 26,191 27,076 28,033 29,103 30,195 31,305 32,449 33,670 130,980 287,702

As a Percentage of Gross Domestic Product

Revenues
Individual income taxes 7.7 8.7 9.6 9.2 9.0 8.8 9.2 9.6 9.5 9.5 9.5 9.5 9.1 9.4
Payroll taxes 6.2 6.0 5.7 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.8 5.9 5.9
Corporate income taxes 1.0 1.1 1.3 1.5 1.5 1.5 1.4 1.3 1.3 1.3 1.2 1.2 1.4 1.3
Other 1.4 1.4 1.5 1.5 1.4 1.3 1.3 1.3 1.2 1.2 1.1 1.1 1.4 1.3
Total 16.3 17.2 18.1 18.1 17.8 17.5 17.8 18.0 17.9 17.8 17.7 17.7 17.8 17.8
On-budget 11.7 12.8 14.0 13.9 13.5 13.2 13.5 13.7 13.5 13.5 13.4 13.4 13.6 13.5
Off-budget a 4.6 4.4 4.1 4.3 4.3 4.3 4.3 4.3 4.3 4.3 4.3 4.3 4.3 4.3
Outlays
Mandatory 21.8 21.7 14.8 13.7 13.3 13.7 13.9 14.0 14.6 14.2 14.7 14.9 13.9 14.2
Discretionary 7.8 7.4 6.8 6.3 6.1 6.0 5.9 5.8 5.8 5.7 5.6 5.6 6.2 5.9
Net interest 1.6 1.5 1.3 1.2 1.3 1.5 1.7 1.9 2.1 2.3 2.5 2.7 1.4 1.9
Total 31.2 30.6 22.8 21.2 20.7 21.2 21.5 21.7 22.5 22.2 22.9 23.2 21.5 22.0
On-budget 26.7 26.1 18.4 16.7 16.0 16.3 16.6 16.7 17.3 16.8 17.4 17.6 16.8 17.0
Off-budget a 4.5 4.5 4.4 4.6 4.7 4.9 5.0 5.1 5.2 5.3 5.5 5.6 4.7 5.0
Deficit (-) or Surplus -14.9 -13.4 -4.7 -3.1 -2.9 -3.7 -3.7 -3.7 -4.6 -4.4 -5.1 -5.5 -3.6 -4.2
On-budget -15.0 -13.3 -4.4 -2.8 -2.5 -3.1 -3.1 -3.0 -3.7 -3.4 -4.0 -4.3 -3.2 -3.4
Off-budget a 0.1 -0.1 -0.4 -0.3 -0.4 -0.5 -0.6 -0.7 -0.9 -1.0 -1.1 -1.3 -0.4 -0.8
Debt Held by the Public 100.1 102.7 100.3 99.2 99.1 99.6 100.1 100.3 101.8 102.6 104.5 106.4 n.a. n.a.

Data source: Congressional Budget Office. See www.cbo.gov/publication/57218#data.

n.a. = not applicable.
a. The revenues and outlays of the Social Security trust funds and the net cash flow of the Postal Service are classified as off-budget.
July 2021 AN UPDATE TO THE BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 3

compensation. The effects of a stronger economy as well The Economy

as technical changes (that is, changes that are neither As the pandemic eases and demand for consumer services
legislative nor economic) partially offset the deficit effects surges, real (inflation-adjusted) GDP is projected to
of recently enacted legislation. For subsequent years, increase by 7.4 percent and surpass its potential (maxi-
CBO has increased its projections of both revenues and mum sustainable) level by the end of 2021 (see Table 2).
outlays—the former by more than the latter. The annual growth of real GDP averages 2.8 percent
during the five-year period from 2021 to 2025, exceed-
Projected revenues over the next decade are now higher ing the 2.0 percent growth rate of real potential GDP.
because of the stronger economy and consequent higher Over the 2026–2031 period, real GDP growth averages
taxable incomes. In addition, tax collections in 2020 and 1.6 percent, which is less than its long-term historical
2021—particularly amounts collected from individual average, primarily because the labor force is expected to
income taxes—were stronger than the amounts implied grow more slowly than it has in the past.
by currently available data on economic activity and the
past relationship with revenues. In CBO’s projections, In CBO’s projections, employment grows quickly in
that unexpected strength dissipates over the next few the second half of 2021—reflecting increased demand
years. Besides resulting from the direct effects of recent for goods and services and the waning of factors damp-
legislation, the changes to outlays since February over ening the supply of labor, including health concerns
the projection period are largely attributable to higher and enhanced unemployment insurance benefits.
interest rates (which boost net interest costs) and higher Employment surpasses its prepandemic level in mid-
projected inflation and wages (which increase the costs of 2022. The unemployment rate declines through 2022 and
major benefit programs). then remains near or below 4.0 percent for several years.

CBO’s projections are constructed in accordance with Inflation rises sharply in 2021 and then moderates.
the Balanced Budget and Emergency Deficit Control The price index for personal consumption expenditures
Act of 1985 (P.L. 99-177) and the Congressional Budget (PCE) rises by 2.8 percent this year, as increases in the
Act of 1974 (P.L. 93-344). Those laws require CBO to supply of goods and services lag behind increases in
construct its baseline projections under the assumption the demand for them, adding to inflationary pressures.
that current laws governing revenues and spending will By 2022, increases in supply keep up with increases in
generally stay the same and that discretionary appropri- demand, and PCE price inflation falls to 2.0 percent
ations in future years will match current funding, with during the year. After 2022, PCE price inflation remains
adjustments for inflation.2 at 2.1 percent through 2025, above its rate before the
pandemic. The interest rate on 10-year Treasury notes
CBO’s baseline is not intended to provide a forecast of remains low but rises as the economy continues to
future budgetary and economic outcomes; rather, it pro- expand, reaching 2.7 percent by the end of 2025.
vides a benchmark that policymakers can use to assess the
potential effects of future policy decisions. Future legis- Compared with its estimates in February 2021, CBO
lative action could lead to markedly different outcomes. now projects stronger economic growth. Three main
Even if federal laws remained unaltered for the next factors are responsible for that result. First, the agency
decade, actual budgetary outcomes would probably differ expects recently enacted fiscal policies to boost output.
from CBO’s baseline—not only because of unanticipated Second, CBO projects that the effects of social distanc-
economic developments, but also as a result of many ing on economic activity in 2021 will be smaller than the
other factors that affect federal revenues and outlays. effects it projected in February, reflecting a more rapid
return to normalcy. Third, CBO has raised its estimate of
the consumer spending that results from the additional
2. In consultation with the House and Senate Committees on the savings that households accumulated during the pan-
Budget, however, CBO deviated from those standard procedures demic. As a result, the agency’s projections of inflation
when constructing its current baseline for discretionary spending. are also higher than the projections it made in February,
Because of the unusual size and nature of the emergency funding as output now exceeds its potential level sooner and by
provided in response to the coronavirus pandemic, the agency did a larger amount than previously anticipated. Interest
not extrapolate the $184 billion in discretionary budget authority
that has been provided for such purposes so far in 2021. Other
rates are also projected to be higher than CBO expected
emergency funding was projected to continue in the future, with in February, reflecting the more positive outlook for
increases for inflation each year after 2021. economic growth.
4 AN UPDATE TO THE BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 July 2021

Table 2 .

CBO’s Economic Projections for Calendar Years 2021 to 2031

Annual Average
Actual, 2024– 2026–
2020 2021 2022 2023 2025 2031
Percentage Change From Fourth Quarter to Fourth Quarter
Gross Domestic Product
Real a -2.4 7.4 3.1 1.1 1.2 1.6
Nominal -1.2 10.7 5.3 3.3 3.4 3.7
Inflation
PCE price index 1.2 2.8 2.0 2.1 2.1 2.1
Core PCE price index b 1.4 2.4 2.0 2.2 2.2 2.1
Consumer price index c 1.2 3.4 2.3 2.3 2.4 2.4
Core consumer price index b 1.6 2.7 2.4 2.5 2.5 2.4
GDP price index 1.3 3.0 2.1 2.2 2.1 2.1
Employment Cost Index d 2.8 3.7 3.3 3.6 3.4 3.1
Fourth-Quarter Level (Percent)
Unemployment Rate 6.8 4.6 3.6 3.8 4.2 e 4.5 f
Percentage Change From Year to Year
Gross Domestic Product
Real a -3.5 6.7 5.0 1.5 1.2 1.6
Nominal -2.3 9.7 7.2 3.8 3.4 3.7
Inflation
PCE price index 1.2 2.6 2.1 2.1 2.1 2.1
Core PCE price index b 1.4 2.2 2.0 2.2 2.2 2.1
Consumer price index c 1.2 3.3 2.5 2.3 2.4 2.4
Core consumer price index b 1.7 2.5 2.5 2.5 2.5 2.4
GDP price index 1.2 2.9 2.1 2.2 2.2 2.1
Employment Cost Index d 2.9 3.5 3.2 3.5 3.5 3.1
Annual Average
Unemployment Rate (Percent) 8.1 5.5 3.8 3.7 4.1 4.4
Payroll Employment (Monthly change, in thousands) g -760 587 417 70 4 42
Interest Rates (Percent)
3-month Treasury bills 0.4 * 0.1 0.2 0.7 1.9
10-year Treasury notes 0.9 1.6 1.9 2.0 2.4 3.2
Tax Bases (Percentage of GDP)
Wages and salaries 44.6 43.7 43.3 43.4 43.6 43.7
Domestic corporate profits h 8.1 9.9 9.8 9.1 8.6 7.8

Data sources: Congressional Budget Office; Bureau of Economic Analysis; Bureau of Labor Statistics; Federal Reserve. See www.cbo.gov/publication/57218#data.
GDP = gross domestic product; PCE = personal consumption expenditures; * = between zero and 0.05 percentage points.
a. Real values are nominal values that have been adjusted to remove the effects of changes in prices.
b. Excludes prices for food and energy.
c. The consumer price index for all urban consumers.
d. The employment cost index for wages and salaries of workers in private industries.
e. Value for the fourth quarter of 2025.
f. Value for the fourth quarter of 2031.
g. The average monthly change, calculated by dividing by 12 the change in payroll employment from the fourth quarter of one calendar year to the fourth
quarter of the next.
h. Adjusted to remove distortions in depreciation allowances caused by tax rules and to exclude the effect of inflation on the value of inventories.
July 2021 AN UPDATE TO THE BUDGET AND ECONOMIC OUTLOOK: 2021 TO 2031 5

This document is one of a series of reports on the state of the budget and the economy that the Congressional
Budget Office issues each year. It satisfies the requirement in section 202(e) of the Congressional Budget Act of
1974 for CBO to submit to the Committees on the Budget periodic reports about fiscal policy and to provide
baseline projections of the federal budget. In keeping with CBO’s mandate to provide objective, impartial analy-
sis, this report makes no recommendations.

The estimates in this report are the work of more than 100 staff members at CBO. Barry Blom wrote the report,
with assistance from Jeffrey Schafer. Christina Hawley Anthony, Theresa Gullo, Leo Lex, John McClelland,
Sam Papenfuss, Joshua Shakin, and Jeffrey Werling provided guidance.

Mark Doms, Mark Hadley, Jeffrey Kling, and Robert Sunshine reviewed the report. Caitlin Verboon was the
editor, and Jorge Salazar was the graphics editor. This report is available on CBO’s website (www.cbo.gov/
publication/57218).

CBO continually seeks feedback to make its work as useful as possible. Please send any comments to
[email protected].

Phillip L. Swagel
Director