According to Congressional Budget Office (CBO) projections, the deficit will decline the fourth straight year in fiscal year 1996 and the economy will continue to expand at a moderate rate. But if current policies for revenues and entitlements are not changed, and if discretionary appropriations keep pace with inflation, the deficit will begin to grow steadily in 1997. If discretionary spending is not adjusted for inflation, the deficit will level off in nominal terms at about $180 billion and shrink in relation to the size of the economy. Both the Congress and the President however, have proposed changes in policies that would balance the budget by 2002. Under CBO's cautious economic and technical assumptions, the basic policies outlined in the President's budget would bring the deficit down to about $80 billion by 2002 instead of producing the budget surplus that the Administration estimates. Because CBO's detailed current-policy projections extend only through 2006, they do not reflect the aging of the baby-boom generation, which will first begin to affect deficits about 2010. The expected increase in the number of beneficiaries of federal programs for the elderly and a slowing in the rate of growth of the labor force--combined with the anticipated growth in the per-person cost of Medicare--will put enormous pressure on the budget. If those pressures are not dealt with by reducing spending or increasing taxes, the mounting deficits could seriously erode future economic growth. Balancing the budget by 2002 will help alleviate the pressures, particularly if the deficit reduction package that is enacted includes measures that would slow the growth of entitlement spending.