Federal tax and spending policies can affect the economy through their impact on federal borrowing, private demand for goods and services, people’s incentives to work and save, and federal investment, as well as through other channels. CBO analyzes the economic effects of federal fiscal policies in current law as well as significant proposed changes in those policies.
CBO analyzed the effects on the budget and the economy of eight scenarios that differ from those underlying the agency’s extended baseline—six that vary economic conditions and two that vary budgetary conditions.
By providing financial support to households, businesses, and state and local governments, federal laws enacted in response to the 2020 coronavirus pandemic will offset part of the deterioration in economic conditions brought about by the pandemic.
In certain reports and for some major pieces of legislation, CBO analyzes the short- and longer-term effects on the overall economy of changes in federal tax and spending policies. This report explains the methods that CBO uses.
Under budgetary paths, but not particular policies, specified by Chairman Ryan, total deficits and debt would be smaller than under CBO’s extended baseline. Economic output would be lower in the next few years but higher thereafter.
