What’s does the future hold for the American economy? The most official projection comes out twice a year from the Congressional Budget Office. Their 87-page forecast is awaited in the policy world for its prediction of how much the debt will go up over the next 10 years, but it’s also packed with some big-picture views about where America’s heading -- and what problems it could run into.

The big news from this week’s report was that the deficit is now projected to be one-third larger in 2016, due to revenues coming in less than expected. But over the next 10 years, the budget office estimates that the debt will be nearly $700 billion lower than the budgeteers had previously projected, mostly due to lower interest payments. However, those lower interest payments are largely a consequence of lower economic growth – so the news isn’t exactly rosy.

There are a few other interesting tidbits in the report. Here are three:

1. A labor force revival isn’t coming.

As the economic recovery strengthened, economists expected—and hoped—that the increased availability of jobs and higher wages would encourage Americans who left the labor market to return. And in the past couple of months, if you squint at the data, you can almost see such a trend happening. Since the start of 2015, the decline in the participation rate has leveled off, a positive sign.

But CBO says: Don’t get too excited. The office projects that the labor force participation rate—the percentage of Americans either working or looking for work—will not increase in the next few years, even as the economy nears full employment. CBO expects job growth to be 123,000 jobs per month in 2017 and just 24,000 jobs per month in 2018, a sign that the economy will be running at full capacity. Wage growth will be above 3 percent per year as well. But that’s not going to be enough to increase the participation rate; CBO projects it will fall to 60 percent by 2026.

Congressional Budget Office

That decline isn’t exactly unexpected. As baby boomers retired, economists expected the labor force participation rate to decline. But the Great Recession has exacerbated this trend; the participation rate went from just above 66 percent before the financial crisis to around 62 percent by the end of last year. That may not sound like a lot, but it represents a loss of millions of workers—with a corresponding cost to economic growth. Even more worrisome for policymakers is the long-term decline in labor force participation by working-age men. Experts aren’t quite sure why that’s happening but it’s one of the most dangerous economic trends in America, right now. CBO’s new data won’t calm any nerves.

2. Discretionary spending will take a dive

The boring phrase “discretionary spending,” is Washington-speak for “nearly everything the government does” – basically, almost all its spending outside of entitlements like Medicare and Social Security. It includes everything from the Pentagon to the EPA to veterans programs.

In 1966, this amounted to 11.5 percent of GDP­ – 7.5 percentage points on defense and 4 percentage points on everything else. In 2026, CBO projects total discretionary spending will be just 5.3 percent of GDP, split about evenly between defense and everything else. That’s down from 6.5 percent of GDP this year.

Such a decline, if it were to happen, would be felt across the country. From customer service agents at the IRS to inspectors at the Department of Labor’s Wage and Hour division to regulators at the SEC, government workers have been asked to take on more jobs with fewer resources. Budget cuts force agencies to cut back on critical duties.

Why such a dramatic decline? Much of it is due to the 2011 budget deal between President Barack Obama and congressional Republicans that created the budget cuts known as sequestration. In the past few years, Obama and Republicans have agreed on ways to relieve some of those cuts in the short-run, but in the long run, entitlement costs are going up and the money has to come from somewhere.

Any long-term deal that hikes discretionary spending will likely have to come in one of two ways: either as part of a “grand bargain” or, in greater likelihood, through ad-hoc agreements to delay the cuts. Such annual agreements would make it difficult for agencies to plan for the future and would set up frequent budget fights, pitting Democrats favoring more non-defense spending and defense hawks against conservative fiscal hawks. In the meantime, the quality of government services will continue to decline, fueling even more anger at the government.

3. Individual income taxes are going up.

Revenues, as a percentage of GDP, are expected to creep up over the next decade, from 17.8 percent to 18.5 percent. But that minor increase masks a larger change within the sources of revenue. By 2026, revenue from individual income taxes will amount to 9.8 percent of GDP, up from 8.7 percent last year.

Congressional Budget Office

What’s going on? CBO offers three explanations, none of which assumes higher tax rates. First, as incomes rise faster than inflation, more Americans will be pushed into higher tax brackets—a phenomenon known as bracket creep. Second, as baby boomers retire, they will collect more money from tax-deferred retirement accounts and have to pay taxes on those distributions. And finally, CBO also says rising income inequality will boost income tax revenue as a greater share of total labor income accrues to higher earners in higher tax brackets.

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