In addition, projected revenues as a share of GDP are lower because CBO revised its projections of economic growth downward. Slower economic growth reduces the rate of real bracket creep. That slowdown in real bracket creep reduces the growth in individual income tax revenue as a share of GDP.

Several other factors account for the remaining downward revisions to projected revenues. For example, CBO has lowered its projections of the share of total wages and salaries going to high-wage earners because that share has been smaller than expected in recent years. When that share is smaller, individual income tax revenues fall because people with less income are subject to lower income tax rates than high-wage earners; payroll taxes rise, however, because the share of total earnings going to people whose annual earnings are below the maximum amount subject to Social Security payroll taxes is larger.

The Size and Timing of Policy Changes Needed to Meet Various Targets for Debt

CBO has changed the goals used in its analysis of the size of the policy changes needed to meet various targets for debt. Last year, the agency calculated the size of the reduction in primary deficits needed to achieve debt targets of 78 percent of GDP and 42 percent of GDP if policymakers began those reductions in 2020, 2025, and 2030. Projections of debt as a share of GDP are significantly higher this year than they were last year in part because of the increase in spending and reduction in revenues associated with the pandemic and ensuing recession. CBO therefore changed the hypothetical debt targets to 79 percent of GDP (the amount of debt at the end of 2019) and 100 percent of GDP (roughly the amount of debt at the end of 2020). In addition, rather than using next year as a starting year in its analysis, the agency changed the years in which policymakers might start implementing policies to 2025, 2030, and 2035.

CBO’s estimates of the size of the changes necessary to meet goals for debt are significantly larger this year than they were last year. That difference stems from increased projections of primary deficits and debt and from changes to the years in which policymakers might start implementing policies in CBO’s analysis. Last year, CBO estimated that if policymakers sought to reduce debt as a share of GDP to 78 percent by 2049, they would need to cut primary deficits each year by 1.8 percent of GDP if they started in 2020 or by 2.7 percent of GDP if they started in 2030. CBO now estimates that to reduce debt to 79 percent of GDP by 2050, policymakers would need to reduce primary deficits each year by 3.6 percent of GDP if they started in 2025 or by 5.9 percent of GDP if they started in 2035.