Adjust prediction for GDP growth for 2019
Run Simulation
CBO Projected GDP growth for 2019: 3.97%
Baseline GDP projection for 2019: $21.114 Trillion
3.97
The default information we're concerned with can be viewed by pressing the blue "Show Data" button in the grey output window below and pressing any of the green "run simulation" buttons next to the sliders to adjust a given year's GDP will display a customized projection using the slider GDP growth values in the same gray output window (and your browser should jump back up to that part of the page.)
Why this calculator exists
Elections matter, because our political leaders make decisions that effect our lives. While it may not seem like it, deficits matter. It might not seem like it since the U.S. has been running deficits as a matter of course for all but a few glorious years in the late Clinton Administration when limited spending increases and a booming economy produced a budgjet surplus--an anomaly in the post-WWII environment. People--be they individual recipients of Medicare aid or owners of agribusiness concerns getting Federal farm subsidies-- like "free money"-- either in the form of direct transfer payments, tax breaks, Federal money for local projects, or any of the other myriad ways in which the few benefit at the expense of the many. Unfortunately that money has to come from somewhere, and that somewhere is either government revenues (i.e., taxes) or borrowing.
While for most of the post WWII period while the U.S. has run deficits its economy has grown fast enough that while its total debt continued to grow, the ratio of the total debt to the amount of wealth Americans generated in a year stayed in a relatively fixed range (from about 20-50%.) The creditworthiness of the nation, and therefore our ability to sell bonds at relatively low interest rates (which allows people to borrow money to do things like finance houses and cars at relatively low interest rates) and the strength of the dollar are tied to the perception of the U.S. government as a reliable creditor. So while deficits and a growing debt have never been a good thing--they have always been an IOU written to future generations by people living in the past, who will unfortunately be dead when it comes time for those future generations to collect--we're now approaching a territory where the debts could get so big that America's creditworthiness could come into question. Public opinion polls reflect that the deficit is a major concern of many voters, and the consequences of a loss of faith in creditors that the U.S. can pay back its debts would be dire.
The Congressional Budget Office (the CBO) puts out estimates of what the numbers like our national debt and GDP will be in the future. It uses certain inputs, as all economic models must, but in looking at its current budget model, it appears to me to predict a very strong, sustained recovery that will begin virtually immediately (or has already begun.) Annualized growth rates are never negative past 2009 and start at 2.12% in 2010 and are about 4% and 5% in 2011 and 2012, respectively. For a country with many fundamental economic problems this seems to be a best-case scenario. It's fine to understand what the outcome will be in a best-case scenario, but a prudent course of action is to hope for the best and prepare for the worst. This simulator allows you to set up what you think is a best, likely, and worst case scenario and see the results of all those. While I'm prety sure you can guess my political leanings from the preceding paragraphs, I've tried to keep it as non-partisan as possible; this issue is too serious to become a polarizing, Democrat versus Republican political cage match--the future of the country is at stake, and politicians from both parties need to step up to the plate and confront an ugly reality. Hopefully tools like this and the voices of concerned citizens from all over the political spectrum will get them to pay attention to that reality and do something to fix it.
Rose colored glasses?
Given the CBO's numbers for hard to estimate projected estimates, all that you are doing is running essentially the same analysis they did but inputting your own views about how fast our economy will recover (as measured by GDP growth.) The basic premise that I would like people to take away from using the calculator is that even moderately worse economic recovery than is being expected means much, much larger debts, and that a sustained period of economic contraction or very slow growth would mean staggering debts-- debt projections of above 100% of annual GDP can be reached simply by extending the period of economic stagnation for 2 or 3 years and decreasing the robustness of the recovery when it finally does come. Keep in mind that this projection does not include projected spending on health-care reform--optimistically estimated at $1-1.6 trillion over 10 years depending on which reform bill one refers to, which, if history is any guide, is a significant underestimate of a new entitlement program's actual cost. This would add (at least) an extra $100 billion a year or more to government expendiitures. With that said, as mentioned, these numbers must be taken with a grain of salt, since it is unclear what developments regarding tax policy (like the sunsetting of the Bush tax cuts) are taken into account in the model and the fact that taxes will likely rise. Of course, the CBO's GDP growth estimates could be underestimates and I could be a pessimist; making up your own mind on what you think is likely to happen and the consequences of those events is an important part of being an informed citizen. I will let you judge the relevancy of the model's output and the importance of its imperfections, which undeniably exist. These almost certainly unrealistic assumptions are embodied in the model:
Assumptions embodied in the model
Keep in mind that this is not a crystal ball, but a rather simple adjustment made to a projection of the outcome of a complex budgetary process. Knowing that the following assumptions are embodied in the model is crucial to understanding its output.
The size of tax revenue as a percentage of GDP will equal what the CBO projects no matter the size of GDP -- This is a questionable assumption for a number of reasons and future versions of this simulator may change this assumption. This is questionable for a number of reasons: Tax policy is highly in flux, and at the very least, the Bush tax cuts will sunset soon (although this is probably taken into account in the CBO model.) However, new taxes on the wealthy, the fate of the the health-care and cap and trade bills and their affect on the tax rate could all alter the tax structure. Furthermore, at different GDPs presumably different numbers of taxpayers are in certain brackets; 2008 was, as was widely noted in the media, a local minimum in government tax receipts; as the economy sputters, especially in the top brackets (i.e. if the financial sector does not recover) then the number of people paying taxes on income in the top bracket and the amount of money taxed at the top rate is lower; similarly, if that sector were to recover then an increase in filers making large sums of money means that the percentage of GDP collected in taxes may be positive correlated with GDP growth (as seems evidenced by the large tax receipts during the boom of the mid to late 1990s.) Finally, while I will make no comment as to the relevance of the Laffer curve at prevailing tax rates, the logic that tax revenue is zero at an effective tax rate of 0% and 100% is ineffable, and in between there must be a curve; this means that changes in tax rates will result in non-linear changes in government revenues on that sector of the economy. All of these factors serve to make this assumption questionable; the values that are used are shown below.
The size of government outlays as a constant dollar figure will equal what the CBO projects no matter the size of GDP -- This is again a questionable assumption for somewhat similar reasons. In this case politics play perhaps an even more significant role. The CBO budget does not account for expensive bills that have been proposed in Congress and are a significant part of the majority party and President's agenda such as cap and trade and health-care reform. Whether or not these bills are passed could radically alter the size of government expenditures. Some linkage may exist between GDP and expenditures--higher GDP growth would likely mean that less people would need social services, decreasing expenditures, and conversely a continued recession will continue to strain social programs and cost a significant amount of money. However, unlike government revenues, this correlation seems much weaker (as can be seen in almost unaltered history of increasing government expenditures versus rising and falling amounts of government revenues due to the strenght of the economy.) Finally, the fact that the CBO's predicted rates of inflation could be off (and unfortunately, if the dollar weakens and the worst case scenarios described above come to pass, they could be way off) meaning that using any constant dollar projection makes the output of the calculation only as good as the CBO's ability to predict the rate of inflation. Therefore while this assumption is again not by any means claimed to be accurate, it seems more useful than assuming that government spending will, say, represent the same as a percentage of GDP as opposed to the same dollar figure.
Assumed government outlays and tax revenue as a percentage of GDP for the years incorporated in this model
- 2010--Government outlays: $3.644 trillion; 25.237% of projected GDP Tax revenues: 15.68% of GDP. (Projected deficit: 9.557% of GDP)
- 2011--Government outlays: $3.638 trillion; 24.265% of projected GDP Tax revenues: 18.122% of GDP. (Projected deficit: 6.143% of GDP)
- 2012--Government outlays: $3.599 trillion; 22.844% of projected GDP Tax revenues: 19.106% of GDP. (Projected deficit: 3.738% of GDP)
- 2013--Government outlays: $3.759 trillion; 22.647% of projected GDP Tax revenues: 19.406% of GDP. (Projected deficit: 3.241% of GDP)
- 2014--Government outlays: $3.961 trillion; 22.871% of projected GDP Tax revenues: 19.649% of GDP. (Projected deficit: 3.222% of GDP)
- 2015--Government outlays: $4.135 trillion; 22.948% of projected GDP Tax revenues: 19.851% of GDP. (Projected deficit: 3.097% of GDP)
- 2016--Government outlays: $4.358 trillion; 23.23% of projected GDP Tax revenues: 19.92% of GDP. (Projected deficit: 3.31% of GDP)
- 2017--Government outlays: $4.534 trillion; 23.223% of projected GDP Tax revenues: 20.016% of GDP. (Projected deficit: 3.207% of GDP)
- 2018--Government outlays: $4.703 trillion; 23.158% of projected GDP Tax revenues: 20.096% of GDP. (Projected deficit: 3.062% of GDP)
- 2019--Government outlays: $4.982 trillion; 23.596% of projected GDP Tax revenues: 20.176% of GDP. (Projected deficit: 3.42% of GDP)