Economic Assumptions And The Budget Outlook

October 13, 2000

Some economists think the Congressional Budget Office is too conservative when it forecasts a federal budget surplus of $4.6 trillion over the next 10 years. They say that even a small upward shift in economic growth assumptions would raise the projected surplus enormously.

Economic consultant L. Douglas Lee of Economics from Washington Inc. has done some interesting calculations:

  • Although the CBO assumes that the economy will grow at only a 2.7 percent average rate from 2002 to 2010, it projects a 4.7 percent rate of growth for this year -- suggesting that its long-term assumption may be low.
  • Many economists hold that the potential long-term rate of growth may be more like 3.5 percent, 4.5 percent -- or even higher.
  • Using the CBO's own model, Lee estimates that growth averaging only one percentage point higher than the agency's 2.7 percent assumption would boost the 10-year surplus by 46 percent to $6.7 trillion.

Source: Gene Koretz, "Economic Trends: Lowballing the Budget Surplus," Business Week, October 16, 2000.

 

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