Measured as a percentage of US gross domestic product (GDP), that 7% shortfall would be nearly 2% below the deficit recorded in 2011, but still higher than any deficit between 1947 and 2008. Over the next few years, the CBO’s baseline deficit projections would decline markedly, dropping to under USD200bn and averaging 1.5% of GDP over the period from 2013 to 2022.

Much of the projected decline in the deficit occurs because, under current law, revenues are projected to be boosted by almost US800bn, or more than 30%, between 2012 and 2014, from 16.3% of GDP in 2012 to 20.0% in 2014. That increase is mostly the result of the recent or scheduled expirations of tax provisions, such as the Bush tax cuts and those that limit the number of people subject to the alternative minimum tax (AMT).

Under current law, CBO projects that revenues will then continue to rise relative to GDP after 2014 largely because increases in taxpayers’ inflation-adjusted income will push more income into higher tax brackets and subject more of it to the AMT.

On the other hand, federal government expenditure in the CBO’s baseline projections declines modestly relative to GDP over the next several years, before turning up again later in the decade. The modest declines are the result of an expanding economy and statutory caps on discretionary appropriations. The aging of the population and rising costs for health care is expected to drive mandatory increases in spending in later years.

CBO’s baseline projections are heavily influenced by changes in tax and spending policies that are embodied in current law, but it points out, however, that substantial changes to tax and spending policies are projected to take effect within the next year. In that case, the CBO has also prepared projections under an “alternative fiscal scenario,” in which some current or recent policies are assumed to continue in effect, even though, by law, they are scheduled to change.

For example, if expiring tax provisions (other than the payroll tax reduction) are extended, the AMT is indexed for inflation after 2011, Medicare’s payment rates for physicians’ services are held constant at their current level and the automatic spending reductions required by the Budget Control Act do not take effect, far larger deficits and much greater debt would result than are shown in the CBO’s baseline.

Deficits would average 5.4% of GDP over the 2013-2022 period, rather than the 1.5% reflected in the CBO’s baseline projections. Public debt would then climb to 94% of GDP in 2022, the highest figure since just after World War II.