How to Read CBO Forecasts: the Budget Baseline and Its Traps

Every projection of U.S. debt, every debate about a tax bill, every headline on the deficit leans on the same numbers: those of the Congressional Budget Office. Yet those projections are among the most misunderstood in macro, because people read them as forecasts when they are benchmarks built under strict rules. This guide explains what the CBO is, how to read a baseline, and why its conventions change everything.

An independent budget referee

The Congressional Budget Office was created in 1974 to give Congress an independent budget-analysis capacity separate from the executive branch. It is nonpartisan by design. It recommends no policy; it estimates the consequences of policy. That neutrality is why its numbers become the common reference for both parties, even when they attack the assumptions. Understanding the CBO starts with this: it does not say what will happen. It says what would happen under specified conditions.

What the CBO publishes

The CBO produces several documents that should not be confused. The most followed is the Budget and Economic Outlook, the ten-year baseline generally published twice a year, projecting revenues, spending, deficits and major economic variables. The Long-Term Budget Outlook extends the exercise over thirty years, where demographics and interest costs dominate. Cost estimates, or scores, evaluate the budget effect of a specific bill. Add the Monthly Budget Review, which tracks execution during the year, and thematic studies. Knowing which document a number comes from is the first reflex.

Reading a baseline: the numbers that matter

A baseline is read through a few magnitudes, preferably as a share of GDP so they are comparable over time. First, the annual deficit: for fiscal year 2026, the CBO expects $1.9 trillion, or 5.8% of GDP, unusually high outside recession or war. Second, debt held by the public, the relevant measure of the burden, projected to rise from 101% of GDP in 2026 to 120% in 2036. Third, net interest, now the fastest-growing line: $1.0 trillion in 2026, rising to $2.1 trillion in 2036, already above the defense budget.

One number deserves special attention: the primary deficit, meaning the deficit excluding interest. It separates what the state spends beyond current revenue from what it pays for past debt. When the deficit widens mostly because of interest, the problem is the stock of debt. When it comes from the primary balance, current fiscal policy is the issue.

The misunderstood rule: the current-law baseline

This is the core issue and the source of most errors. The baseline is not a forecast of what will happen. It is a projection of what would happen if current law remained unchanged. That convention follows statutory rules, notably section 257 of the Balanced Budget and Emergency Deficit Control Act, and those rules produce counterintuitive effects.

Three examples are enough. Discretionary spending is assumed to start from the latest enacted level and grow with inflation, not stay frozen. Tax or spending provisions scheduled to expire are assumed to expire, even when everyone expects Congress to extend them: a temporary tax cut therefore disappears from the baseline at its sunset date, so an extension, however likely, shows up as an added cost relative to the benchmark. Finally, benefits under a program are assumed to be paid in full even if its trust fund is exhausted and no law authorizes full payment. The baseline is therefore a legal object as much as an economic one. Reading it without knowing those conventions means mistaking an accounting artifact for a real trajectory.

Static or dynamic: reading a score

When the CBO evaluates a bill, the method matters as much as the result. A conventional score is static: it measures direct effects on revenues and outlays without assuming the policy changes growth, and often without including the debt-service cost it creates. A dynamic score, rarer and more contested, includes macroeconomic feedbacks, for example the idea that a tax cut could stimulate activity and therefore revenues. Neither method is neutral. The methodological choice can make a reform look costly or self-financing on paper. You need to know which kind of score you are reading before judging a fiscal claim.

Fragile assumptions

The longer the horizon, the more the baseline depends on economic assumptions whose small changes create huge gaps. The CBO projects only 1.7% average growth over thirty years and the weakest demographic growth in U.S. history. Under current law, debt held by the public would rise from around 100% of GDP in 2025 to 156% in 2055, or roughly 172% in projections incorporating laws enacted since.

But those figures are only the center of a fan. If the average interest rate on the debt diverged from the assumption by only 5 basis points per year, debt in 2055 would be 204% of GDP in one case and 121% in the other. Likewise, productivity higher or lower by 0.5 point per year would bring debt to 113% or push it to 203%. In other words, the gap between a manageable and explosive path rests on tiny assumptions. A single thirty-year debt number should always be read as the middle of a range, not destiny.

Reading the CBO in practice

Used well, the CBO is extremely valuable, provided it is taken for what it is: a direction, a common benchmark and an order of magnitude, not prophecy. A few habits help. Separate the primary deficit from the total deficit to know where deterioration comes from. Read shares of GDP rather than dollar amounts. Check the economic assumptions—growth, rates, inflation—behind the baseline, and remember the sensitivity. When reading a score, ask whether it is static or dynamic, and whether the supposedly expiring provisions will really expire.

This framework applies to concrete debates. The debt and interest path documented by the CBO is the starting point for our analysis of the return of term premium, and the supply of securities it implies is read through our guide to the Treasury market. The sensitivity of debt to productivity also connects to the debate over AI productivity gains. The glossary defines the acronyms.

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Main sources: Congressional Budget Office, “The Budget and Economic Outlook: 2026 to 2036”; CBO, “The Long-Term Budget Outlook: 2025 to 2055”; CBO, “The Long-Term Budget Outlook Under Alternative Scenarios for the Economy and the Budget”; CBO, “CBO Explains How It Develops the Budget Baseline”; CBO, “CBO Explains the Statutory Foundations of Its Budget Baseline”; Committee for a Responsible Federal Budget on CBO’s long-term outlook.