The Budget and Economic Outlook: Fiscal Years 2008 to 2017

If current laws and policies remained the same, the budget deficit would equal roughly 1 percent of gross domestic product GDP each fiscal year from 2007 to 2010, the Congressional Budget Office CBO projects. Those deficits would be smaller than last years budgetary shortfall, which equaled 1.9 percent of GDP see Summary Table 1. Under the assumptions that govern CBOs baseline projections, the budget would essentially be balanced in 2011 and then would show surpluses of about 1 percent of GDP each year through 2017 the end of the current 10-year projection period. The favorable outlook suggested by those 10-year projections, however, does not indicate a substantial change in the nations long-term budgetary challenges. The aging of the population and continuing increases in health care costs are expected to put considerable pressure on the budget in coming decades. Economic growth alone is unlikely to be sufficient to alleviate that pressure as Medicare, Medicaid, and to a lesser extent Social Security require ever greater resources under current law. Either a substantial reduction in the growth of spending, a significant increase in tax revenues relative to the size of the economy, or some combination of spending and revenue changes will be necessary to promote the nations longterm fiscal stability. CBOs baseline budget projections for the next 10 years, moreover, are not a forecast of future outcomes rather, they are a benchmark that lawmakers and others can use to assess the potential impact of future policy decisions. The deficits and surpluses in the current baseline are predicated on two key projections.