CBO’s analysis indicates that delaying policy changes would reduce the well-being of younger generations (compared with their well-being if policy changes occurred earlier). Moreover, the farther in the future that a policy change occurred, the more the well-being of older generations would be improved and that of younger generations would be worsened.
CBO’s projections of demographic and economic trends are key determinants of the long-term budget outlook. (For a description of those projections, see Appendix A.) Through 2030, the economic and demographic projections presented in this report are the same as those that CBO published in July.12 Those projections reflect the demographic and economic effects of the pandemic and associated social distancing measures, and they include the agency’s estimates of the economic effects of enacted legislation. In CBO’s assessment, that legislation will partially offset the deterioration in economic conditions brought about by the pandemic.13 For years beyond 2030, CBO projects conditions on the basis of its assessment of long-term trends. The agency uses a model with four components to integrate demographic and economic changes into its long-term budget projections.14
- A demographic model is used to project the size of the population by age and sex.
- A microsimulation model is used to project annual changes in demographic characteristics and economic outcomes for a representative sample of the population.
- A long-term budget model is used to project federal outlays, revenues, deficits, and debt beyond CBO’s standard 10-year budget period.
- A model of economic growth is used to simulate how demographic changes, economic factors, and fiscal policy affect the U.S. economy and, in turn, the federal budget.
Those four components interact in various ways. For example, the economic projections reflect how increases in spending and revenues in the extended baseline projections would affect the economy. In turn, the budgetary outcomes in the extended baseline projections reflect those economic effects.