The Budget for the Fiscal Year 2003
CRS Report for Congress
Received through t he CRS W e b
The Budget for
Fiscal Year 2003
Analys t in Government Finance
Go ve rnment and Finance Division
Congressional Research Service ˜ The Library of Congress
The B udget for Fiscal Year 2003
On February 4, 2002, President Bush rel eased his o rigi nal fiscal year (FY) 2003
budget proposals, which i ncluded a defici t o f $80 billio n . T h e P resident’s budget
included t ax cuts and s pending increases to stimulate the economy, rapid i ncreases
in defense and homel and security spending, and little growth in o t h e r a reas of
P o l i cy, econom i c, and t echni cal fact ors all contributed to high er spending and
lower recei p t s , r a ising t he deficit s ubstantially from what was originally proposed.
The actual d eficit, released by the T reasury i n mid-October 2003, was $374 billion.
The Bush Adm i n i s tration’s early 2002 proposed economic stimulus p roposal
was s uperseded by the s timulus l egisla tion adopted by Congress on March 7 , 2002
(The J o b C reation and W o rker Assistance Act o f 2002; H.R. 3090, P . L. 107-147),
which was estimated t o i ncrease t he defici t (from b aseline l evels) by $43 billion i n
The House cleared its FY2003 budget resolution (H.Con.Res. 353) on March
20, 2002; the S enate n ever considered or passed t he Senate Budget Committee’s
budget resolution (S.Con.Res. 100). The reso lutions contained d eficits ranging from
$46 billion (House) to $92 billion (Senate Budget Committee).
The Administration’s FY2004 budget submission (February 2003), revised the
FY2003 deficit estimate to $304 billion, including proposed changes (with a baseline
deficit o f $264 billion). The Congressi onal Budget Office (CBO) J anuary 2003
budget report estimated a $199 billio n b aseline d eficit for FY2003.
Following the adoption of eight continuing resolutions on appropriations to
ensure program funding, C ongress completed work o n FY2003 appropriations with
the adoption of t he Consolidated Appropriations Resolution for FY2003 (H.J .Res.
2) on February 13, 2003, four-plus m onths into the n ew fiscal year. The legi slation
funded t he 11 remaining regular appropriations (out of 13) for t he remainder o f t he
fiscal year. The President s igned t he resolution o n February 2 0 (P.L. 108-7).
In l a t e s p ring 2003, Congress adopted tax cut legi slation as outlined in the
reconciliation i nstructions in the FY2004 budget resolution (H.Con . R es . 95). The
legi slation (P.L. 108-27; May 28, 2003) was estimated t o i ncrease t he deficit b y $61
billion i n FY2003 and by $350 billion t hr ough 2013. In April, Congress provided
$79 billion i n s upplemental appropriations, which increased FY2003 outlays by an
estimated $42 billion. T h e l egislatio n (P.L. 108-11; April 16, 2003) provided
funding for d efense, homeland s ecurity, and financial relief t o t he states. A second
supplemental for $984 million, following an Administration request, cleared
Congress on J u ly 31 and was sign ed by the P resident on Augu st 8 (P.L. 108-69). A
third s upplemental ($938 million) was i ncluded as Title III in the Legislative Branch
Appropriations Act t hat b ecame l aw (P .L.108-83) on S eptember 3 0 , 2003. This
report i s i ntended as a record of the FY2003 budget and will not be updated.
Budget Totals .....................................................1
Budget Proposals and Estimates ..................................2
UncertaintyinBudget Projections .................................5
Budget Action ....................................................6
R ecei pt s ........................................................12
The Budget and t he Economy .......................................17
CRS Products ................................................19
Table 1 . Budget Proposals and Estimates for FY2003 .....................2
Table 2 . Outlays for FY2001-FY2007 ..................................9
Table 3 . R eceipts for FY2001-FY2007 ................................13
Table 4 . Deficits(-)/S u rpluses for FY2001-FY2007 ......................16
Table 5 . C BO’s Alternative S cenario s, C u mulative S urpluses/Deficits(-);
FY2004-FY2008, FY2009-FY2013 and FY2004-FY2013 ............18
The Budget for Fiscal Year 2003
Presidents generally submit their budget proposals for the upcoming fiscal year
early in each calendar year. T he Bush Administration p resented its FY2003 budget
documents on February 4, 2002. The budget documents co ntained ex t ensive and
detailed budget related i nformation, including estim a t es of the budget without the
proposed policy changes (current service b as eline estimates), h istorical budget data,
det ai l ed out l ay and recei pt dat a, s el ect ed anal ys i s of speci fi c budget related topics,
and t he Administration’s economic forecas t. These d etailed budget documents are
an annual b asic reference s ource for feder al budget information i n addition t o t heir
use as a transmitter of t he Administration’s policy p roposals.
The Administration’s annual budget s ubmission is followed b y c ongressional
action on t he budget. T h i s u s u ally includes t he annual budget resolution,
ap p ropriations, and, possibly, a reconciliation bill or bills. During t he m o n t h s o f
deliberation o n budget related l egislation, the Administration often modifi e s its
proposals, no t only b ecause of interactions with Congress, but also because of
changi ng circumstances in the economy and the world.
The annual budget cycl e provides t he Pres ident and Congress with the
opportunity to set policy for the upcoming fiscal year and t o d etermine, in part, policy
in subsequent years. The d ecisions made for t his year can and o f t e n d o h a ve
repercussions for years t o come. The 2001 tax cut (the Economic Growth and Tax
Relief R econciliation Act of 2001 — EGT RRA; P .L. 107 - 1 6 ; J u n e 7, 2001) will
change federal revenues i n each year through 2010, when most of its provisions are
scheduled to ex pire (unless t hey are made permanent, a s has b een proposed).
Although t hey a r e provided each year in appropriations bills, t he level of
discretionary funding in the current year influences future levels of discretionary
spending. Much of the budget, up to 75%, is fixed each year t h rough m andat o ry
spendi ng (S oci al S ecuri t y, M edi care, interest on the d e b t, etc.) and ongoing
obligations of the government, s uch as m ulti-year contract s.
Table 1 contains budget estimates and proposals for FY2003 fro m t he
C ongressional Budget Office (CBO), the Administration (OMB), and, as they
b ecam e available, budget proposal s and estimates from C ongress. Differences i n
totals occur b ecause of differing underlyi ng economic, t echnical, and budget-
estimating assumptions and t echniques as wel l as d ifferences i n p o licy p roposals.
Most policy differences between the Admini s tr ation and various congressional
proposals for the upcoming fiscal year (if t he re are any) are often relatively s mall in
dollars compared to the budget as a whole. Th ese o ften small changes, refl e c t i n g
differing policy choices, m ay have large imp lications for t he shape and content o f t he
budget over ex t ended time periods. As t he budget works its way t hrough C ongress,
budget totals will change from t he amounts o rigi nally proposed.
Table 1. B udget Proposals and Estimates f or FY2003
(in billions of dollars)
Receipts Outlays D e fi c i t ( -) /Sur p lus
Actual fo r FY2001 $1,991 $1,864 $127
Actual fo r FY2002 1,853 2,011 -158
Estima tes for FY2003
CB O B ud get Outlook fo r FY2003 1/31/02 2,070 2,085 -1 4
Presid ent’s B ud get for FY2003 2/4/02 2,048 2,128 -8 0
Presid ent’s B ud get for FY2003 baselin e 2/4/02 2,121 2,070 51
CB O revised baseline for FY2003 a 3/6/02 2,086 2,080 6
CB O estimate o f P resident’s FY2003 budget 3/6/02 2,013 2,134 -121
Ho use b ud get resolutio n for FY2003 3/20/02 2,077 2,122 -4 6
Senate B udget Co mmittee for FY2003 3/22/02 2,046 2,139 -9 2
OMB MSR FY2003 7/15/02 2,029 2,138 -109
OMB MSR baseline FY2003 7/15/02 2,035 2,097 -6 2
CB O Update 8/27/02 1,962 2,107 -145
CB O B ud get Outlook 1/31/03 1,922 2,121 -199
Presid ent’s B ud get for FY2004 2/3/03 1,836 2,140 -304
Presid ent’s B ud get for FY2004, Baseline 2 /3 /0 3 1 ,867 2,131 -264
CB O b aseline revisio ns 3/03 1,891 2,137 -246
CB O estimate o f P resident’s (FY2004) budget 3/03 1,856 2,143 -287
Ho use b ud get resolutio n 3 /21/03 1,855 2,143 -288
Senate budget reso lutio n 3 /26/03 1,865 2,148 -282
Co nference budget reso lutio n for FY2004 4/11/03 1,835 2,182 -347
MSR 7 /15/03 1,756 2,212 -455
MSR, Baseline 7 /15/03 1,756 2,210 -455
CB O, Baseline 8 /26/03 1,770 2,170 -401
Actual for FY2003 1,782 2,157 -374
M S R — M i d -se ssio n r e vie w
a. T hese numbers exclud e the effects o f the econo mic stimulus law ( P.L. 107-147) enacted on March
Budget P r oposal s a nd Esti mates
Budget estimates and projections depend on underlyi ng assumptions about the
economy, tech n i cal components and relationships within the budget estimating
models, and assumptions about proposed an d assumed current and fut ure government
policy. Fo r m uch o f FY2003 budget cycle, th e economic and, to some ex tent, policy
assumptions that underlay the budget estima tes m ay have been more unsettled t han
usual. The d elayed resolution o f d iscre tionary funding for F Y 2003 well into the
fiscal year, t he uncertain condition o f t he economy, and t he war with Iraq contributed
to the h igher l evel of budget uncertainty.
C B O ’s i nitial budget report for FY2003, the Budget and Economic Outlook:
Fiscal Y ears 2003-2012 (J anuary 2002), cont ai ned baseline estimates and proj ect i ons
for FY2002 through FY2012.1 CBO estimated that the FY2003 baseline budget
would h ave revenues o f $2,070 billion, outlays of $2,085 billion, and a deficit o f $14
billion. Over the 10-year forecast p eriod (FY2003-FY2012) CBO’ s p r o jections
produced a cumulative s u r plus of $2,263 billion. Of that amount, $1,078 billion
w o u l d o c c u r i n t he last two years o f t he projection p eriod when t he 2001 tax cuts
would fully ex pire as required b y curr e n t law. 2 The five-year (FY2003-FY2007)
cumulat i v e s urplus, reflecting t he deficits and rel ativel y s mall surpluses ex pect ed
over t he period, was $437 billion.
President Bush’s FY2003 budget proposed receipts o f $2,048 billion, outlays
of $2,128 billion, and a deficit of $80 billion. The Administr at i o n ’ s proposals
produced a 10-year total cumulative s urpl us of $1.0 trillion. It s five-year cumulative
surplus was $157 billion. (The President’s budget provided m ost d ata for the five-
year period, FY2003 through FY2007; the budget provided v ery little data for either
the i ndividual years b eyond FY2007 or cumulatively for the 10-year period, FY2003
The Administration’s current services baseline estimates (the Administration’s
estimate of what the budget numbers wou l d b e w ithout its policy changes) h ad
FY2003 receipts o f $2,121 billion, outlays of $2,080 billion, and a surplus o f $41
billion. 3 The d ifferences between these b ase line numbers and t he proposed amounts
measure t he dollar effect on the budget of the Administration’s p roposa l s . The
proposals would i ncrease outlays by $58 billion, reduce receipts b y $73 billion, and
move the budget from a $41 billion current services baseline s urplus to an $80 billion
deficit i n FY2003. Over the FY2003 through FY200 7 p e r i o d , the b aseline h ad a
cumulative s urplus of $668 billion, implying t hat t he Administration’s p roposals
would reduce t he cumulat i v e s u r plus by $511 billion over t he five years (to $157
CBO’s estimate of the Administration ’s p roposals (An Analysis of the
President’s Budgetary Proposals f or Fiscal Y ear 2003, M arch 2002), u sing CBO’s
economic and t echnical assumptions, rai sed t he es timated deficit for t he Pres ident’s
policies for FY2003 (from t he Administration’s proposed $80 billion) to $121
1 Baseline estimates provide a benchmark against which policy changes can be estimated.
T hey estimate t he future path of current law and policies. T h e y a r e c onstructed under
specific guidelines. T hey are not meant t o predict future budget outcomes.
2 CBO estimated that extending the e xpiring provisions immediately would r educe
cumulative r evenues over t he 10-year period by $735 billion. T his implies t hat extending
the t ax cut would r educe t he cumulative s urplus over the 10 years by a t l east t hat much a nd
probably more when higher i nterest costs are i ncluded.
3 The Administration a lso produced a variant of the standard baseline. The alternative
assumed, reasonably, that the i ncreased (mostly) e me rgency spending in FY2002 flowing
from t he September 11, 2001 terrorist attacks was a one-time e ve nt and would not be
repeated. M aking t his assumption i ncreases the baseline s urplus to $51 billion i n FY2003.
The Administration measured its policy against this altered baseline. This report uses t he
billion. CBO’s rees timates reduced revenues by $35 billion and increas ed outlays by
$6 billion compared t o t he Ad ministration’s proposals.
This CBO report also i ncluded C BO’s updated baseline estimates t hat d iffered
little from t he J anuary estimates. The updated b aseline h ad a s urplus of $6 billion
for FY2003. High er (by $15 billion) ex pected revenues and slightly smaller (by $5
billion) ex pect ed outlays generated m ost of t he change. 4 The ex p ect ed i m p rovem ent
in short-term econom i c c o n d i t i ons produced most of the changes in the budget
outlook.5 Over the 10-year (FY2003-FY2012) forecast p eriod, the changes increased
the cumulative s urplus from $2,263 billion t o $2,380 billion, a 5 % i ncrease over t he
J anuary 2002 cumulative s urplus estimate.
The House-passed FY2003 budget res o l u t i o n (H.C on.R es. 353; March 20, 2002)
followed, in ge n e r a l , t h e policy l ead of the P resident’s budget. Using the s ame
underlyi ng budget assumptions as the Adminis trat i o n , the resolution h ad revenues
of $2,077 billion, outlays of $2,123 billion, and a def i ci t o f $46 billion. Li ke the
President’s budget, t he resolution contained estimates and projections for five years,
through FY2007. The resolution s howed the government returning t o a small s urplus
in FY2004. Over the five-year period, the res olution ex p ected a cumulative s urplus
The S enate B u d get C ommittee reported its version o f t he FY2003 budget
res o l u t i o n (S . C on.Res. 100; S.Rept . 107-141) on M arch 22. Us i n g C BO’s underl yi ng
assumptions (rather than the Administration’s), t he Senate Budget Committee and
Hous e p as s ed res ol ut i ons provi ded similar amount s o f f undi ng i n FY2003 for d efens e
and homeland s ecurity, but differed in o ther areas. T otal r e v enues were $2,046
billion, total outlays were $2,139 bill i o n , an d t he resolution had a deficit of $92
billion. (For FY2003, most of the d ifferences between the House and the S enate
Budget Committees’ t otals were from d iffere nces in the underlyi ng assumptions used
rather than sign ificant policy d ifferen ces.) The S enate n ever considered or adopted
a budget resolution for FY2003.
The M id-Session Review (MSR, Au gu s t 2002) from t he Administration,
forecast a fairly rapid recovery for both t he economy and federal revenues. Under t he
assumptions and policy i n t he MSR, the deficit would d ecline from $165 billion i n
FY2002 to $109 billion i n FY2003 and return t o s u r p l u s in FY2005. (Under
Administration baseline assumptions, t he budget would return t o s urplus in FY2004.)
CBO’s August 2002 Update had access t o n ewer and revised budget and economic
data than did OMB. C BO’s baseline estimates h ad a FY2003 deficit o f $145 billion.
It ex pected the budget to return to surplus i n FY2006, assum i n g current policies
4 CBO estimated that incorporating t he effects of t he economic stimulus package s igned i nto
law ( P.L. 107-147) on March 9, 2002, (and not included i n CBO’s revi sed baseline) would
produce a $40 billion deficit in FY2003.
5 T he $20 billion i mprovement in the budget balance r epresents only 1% of t otal receipts or
outlays for t he year. Relatively s mall changes i n t he underlyi ng factors s upp orting t he
budget estimates can easily change receipts or outlays by larger amounts t han t his without
any c hange i n policy.
The early 2003 budget reports from OMB and C BO for FY2004, conta i ning
revised FY2003 estimates, reflected the continuing economic weakness, along with
the effect of changed policies o r policy p roposals, raised the d eficit estimates for
FY2003 and s ubsequent years s ubstantially above the l evels estimated i n t he 2002
budget reports. In J anuary 2003, CBO estimated a baseline deficit of $199 billion
(revised upward t o $246 billion i n M arch 2003) for F Y 2003. The President’s
FY2004 budget (which did not include any ex p ected costs o f a possible war in Iraq)
contained a deficit o f $304 billion. CBO’s report analyzin g t h e P resident’s policy
proposals (March 2003) estimated t hat t he Ad ministration’s policy proposals would
produce a d eficit of $287 billion for FY2003. The cumulative d eficits, under t his
CBO estimate of the P resident’s budget , for FY2003-FY2007 was $1.3 trillion; the
deficit for t h e c u m ulative p eriod, FY2003-2012 was $2.1 trillion. The C BO
estimates o f t he President’s policies left t he budget in deficit t hrough FY2013.
The Ad m i n i s tration’s M id-Session Review (for FY2004; J u ly 15, 2003)
included revised FY2003 budget estimates. Th e d eficit estimate was raised s harply
to $455 billion. The report attributed the d eterioration i n t he budget for FY2003 to
worse-than-ex p ected economic conditions , t he May 2003 tax cut, t he Iraq war, and
other, high er than planned s p e n d i n g . T he CBO August 2003 budget report h ad an
FY2003 estimated b aseline d eficit of $401 billion. CBO attributed the budgetary
change from its March 2003 estimates t o policy changes and t echnical changes. CBO
attributed very little of the budgetary cha nge t o t he smal l changes in the economic
forecast b etween March and Augu st 2003. Measured from t h e M arch 2003
estimates, revenues fell b y $122 billion and outlays increased by $3 3 b illion i n t he
Part of the annual budget debate’s intens ity results from t he awareness t hat t he
decisions made each year affect, i n s ome cas es substantially, t he funding levels or
policy choices available t o C ongress in future years.
Uncer tai nty i n Budget P r oj ecti ons
Al l budget estimates and proj ect i ons are i nherent l y uncert ai n . T hei r dependence
on assumptions that are t hemsel ves subject to substantial uncertainty and variation
makes budget estimates and projections su sceptible to fairly rapi d and dramatic
changes, as is obvious from t he data in table 1 . Nonetheless, budget estim ates can
help differentiate the budgetary effects of alternative p roposals and the approx imate
magnitudes of various policies even i f t he estimates do not match t he actual
T h e u n certainty of budget estimates was apparent over t he FY2002 budget
cycle, begi nning in J anuary 2001. The estimates for fiscal year, 2002, produced early
in 2001, projected baselin e s u r pluses of between $283 billion (OMB) and $313
billion (CBO). The Administration’s FY2002 proposals (February 2001), i ncluded
a combina t i o n o f t ax cuts and s pending i n creases t h at produced a s urpl us of an
estimated $231 billion. By the time the s ummer 2002 budget estimates were released
(the OMB M i d - S e s s i o n R evi ew and t he CBO Update), the bas eline deficits ranged
from $150 bill i o n t o $157 billion i n FY2002. The actual d eficit for t hat year was
$158 billion. The l arge baseline s urpluses ex p ect ed early in 2001 evaporated in a
weak economy, the J une 20 0 1 t a x c u t , t he spending increases in response t o t he
terrorist attacks o f S eptember 2001, an d s ubstantial changes in the t echnical
components and relationships underlyi ng the budget estimates.
The unavoidable i naccuracy of budget projections is also obvious over l onger
periods of time. As C BO stated in its J anuary 2002 budget report,
Uncertainty compounds as the proj ection horizon lengthens. Even small a nnual
differe n c e s in the many key factors t hat i nfluence the budget proj ections —
factors s uch as i nflation, increases in productivity, economic gr owth , t he
distribution of i ncome, and growth r at es from M edicare and Medicaid spending6
— can add t o s ubstantial differences in the budget outcome 10 years from now.
Budget projections are dependent on underlyi ng assumptions about the d irection
of the economy, future government polic y, a n d t h e technical assumptions of the
budget m odels, and how these i nteract . Any deviation from expect ed underl yi ng
assumptions, s uch as fas ter or s lower economic growth, higher or l ower i n flation,
changes i n assumed s pending and t ax po licy o r alterations in the fundam e ntal
underlyi ng relationships between the budget and economic variables (the underlyi ng
technical assumptions) can have substa ntial effects o n t he budget projections.
Co n gr e s s p a ssed an economic stimulus bill in early March 2002. The
legi slation, the J ob Creation and Work er Assistance Act o f 2002 (P .L. 107-147;
March 9, 2002) increased FY 2003’s expected deficit by an estimated $43 billion
(plus another $3 billion i n higher i nt eres t costs). The l egislation ex t ended
unem p l o ym ent b enefi t s , reduced sel ect ed busi n ess t ax es, ex t ended s el ect ed ex pi ri ng
tax provisions, and made miscel l aneous t echni cal corrections to the t ax code.
The House Budget Committee approved its version o f t h e annual concurrent
resolution on t he budget for FY2003 (H.Con.Res. 353) on March 13, 2002. The
res o l u t i on used a slightly modified version of OMB’s economic and t echnical
assumptions rather than CBO’s, to produce its budget numbers.
The resolution contained a $46 billion d ef icit for FY2003 that closely m atched
the esti m a t e d c o s t of t he economic stimulus b ill adopted days earlier. It included
almost $28 billion i n unspecified tax cut s over five years (with upper limits for t he
size of the cuts f o r each year), a $46 billion year-over-year increase i n budget
authority for d efense, close to a doubling o f fun d i n g f o r homeland s ecurity from
FY 2 002 to FY2003, and v ery s mall increases (overall) for remaining discretionary
spending. The resolution was adopted in committee o n a party-line vote. The House
adopted the resolution o n M arch 20.
The S enate Budget Committee adopted its vers i o n o f t he budget resolution
(S.Con.Res. 100), u sing CBO’s underl yi ng assumptions, o n M arch 22. The
Committee’s res olution differed s ubstantially in policy choices , i n areas other t han
6 CBO, The Budget and Economic Outlook: Fiscal Y ears 2003-2012, J an. 2002, pp. 5-6.
defense and homeland s ecurity, from t he one adopted by the House. Although m any
of the d ifferences were relatively s mall in F Y 2 0 03, they became m ore p ronounced
over t he years covered b y t he two res olutions. (The S enat e Budget Committee’s
resolution p rovided estimates t hr o u gh FY2012.) The S enate n ever considered the
To avoid d elaying its consideration o f app r opriations, t he House adopted a
deeming resolution (H.Res. 428) on May 22, 2002 (see CRS Report R L31443, The
“Deeming Resolution”: A Budget Enforcement T ool , b y R obert Keith). This set t he
spending levels for FY2003 that the Appropriations Committee were t o follow. The
Senate did not adopt a budget resolution for the year (or a deeming resolution as i n
the House). In s pite of the l ack of gu idance from a completed budget resolution, the
House adopted five and t he Senate passed t hree of the 1 3 regular appropriations bills
for FY2003 as the n ew fiscal year approached, but none of the regular appropriations
bills had cleared Congress before the s tart of the new fiscal year.
Congress pass e d , t o avoid a funding crisis, a continuing resolution (CR) on
appropriations (H.J .Res. 111; S eptember 26, 2002) that became l aw (P .L. 107-229)
on September 30. The C R p rovided funding, m ostly at FY2002 spending levels, for
federal activities not otherwise funded, through Oct ober 4, 2002. A s econd CR
(H.J .Res. 112), ex t ending funding through October 11, cleared Congress on October
3, and was sign ed by the P resident (P.L. 107-235) on October 4 . C ongress adopted
a t hird CR (P.L. 107-240; H.J . Res. 122) on October 10, providing funding through
October 18. Funding was ex t ended t hrough November 22, 2002, by the fourth CR
(H.J .Res. 123) that Congress cleared for t he President o n October 16. The b ill was
signe d i n to law (P.L. 107-244) on October 18, 2002. Congress adopted a fifth CR,
(H.J .Res. 124), p roviding funding, t hrough J anuary 11, 2003. (Congress had adopted
two — Defense and M ilitary Construction — of t he 13 regular appropriations in mid-
October 2002.) The P resident sign ed the b ill on November 23, 2002 (P.L. 107-294).
A s ix th CR (P .L.108-2; H.J . Res. 1) became l aw on J anuary 10, 2003, continuing
funding at FY2002 levels through J anuary 31, 2003. C o n g r ess adopted a s eventh
c o n tinuing resolution i n l ate J anuary (P .L. 108-4; H.J . Res. 13), ex t ending fundi n g
through Fe b r u ary 7 , 2003. Congress cleared the eighth and final C R (H.J . Res. 18)
on February 5, 2003, becoming l aw (P.L.108-5). It p rovided funding through
A m easure (H.J . Res. 2; the C onsolidat ed Appropriations Resolution, 2003) to
provide funding (a net $395 billion) for t he re maining 1 1 regular appropriations for
the rest o f FY20 0 3 was introduced on J anuary 7, 2003. It cleared the House o n
J anuary 8; an amended v ersion passed t he Senate on J anuary 23. A conference report
was agreed to by both chambers o n February 13, 2003; it was s igned i nto l aw (P.L.
In early March 2003, the P resident requested suppl e m e n t a l appropriations of
$75 billion t o pay for military activity associ at ed with the war i n Ir aq an d for
homeland s ecurity. Both t he House (H.R. 1559; March 3 ) and Senate (S. 762; March
7) passed differing versions of the l egislation, contai ning approx imately $80 billion
i n additional funding. C ongress adopted a conference report (H.Rept. 108-76) on
April 12, 2003; the P resident sign ed the l egislation o n April 16 (P.L. 108-11). The
appropriation was estimated t o raise the FY2003 deficit b y approx imat e ly $42
During the s ame p eriod, Congress took up the FY2004 budget resolution, which
included changes for FY2003. Congress approved a conference report (containing
differently sized t ax cut r econciliation i nstructions for t he House and Senate) on
Apri l 1 1 . T h e resolution i ncluded adjusted FY2003 receipts o f $1,835 billion,
outlays of $2,182 billion, and a deficit of $347 billion.
The reconciliation i nstructions resulted i n H.R. 2 (t h e J obs and Growth Tax
Relief R econciliation Act of 2003) , which was estimated t o r educe revenues t hrough
FY2013, although m any o f t he changes were d es igned t o ex p ire over t he nex t several
years. (Many analys t s d o n o t believe that Congress will let t he tax reductions
disappear.) After a difficult conference on the l egislation — t here were substantial
differences in the S enate and House b ills — t he conference report (H.Rept. 108-126)
was agreed to on May 23, 2003, and s igned b y t he President o n M ay 28, 2003 (P. L.
In early J u ly 2003, President Bush requested a s econd supplemental for FY2003
of $1.9 billion for the government’s disas t er relief and response activities. The
funding was n eeded to replenish t he Disaster Relief Fund (DRF) and for o ther related
purp o s e s . On J uly 11, the S enate amended t he House passed (J uly 9) Legi slative
Branch appropriations (H.R. 2657), adding a Title III containing somewhat more than
the requested disaster relief funding. T he late J uly warnings of the imminent
depletion of t he DRF by mid-August while Congress was i n r ecess, resulted i n t he
House (on J u ly 25) and t he Senate (on J uly 31) passing a $ 9 8 4 m i l lion emergency
supplemental (H.R. 2859). The President s igned i t i nto l aw (P.L. 108-69) on Augu st
The Legislative Branch appropriati ons (H.R. 2657) kept a m odifi ed Title III,
now worth $938 million i n fu nding for d isaster relief. A conference agreement o n
the l egislation was reported o n S epte mber 18. Title III spread the $938 million
appropriation among a number o f d epartments and agencies. 7 The House and Senate
passed t he conference report o n S eptember 24. It became P .L. 108- 8 3 w i t h the
President’s s ignature on September 30. (Although t he Title III appropriation i s for
FY2003, all o f t he actual outlays will occur i n FY2004 or subsequent years.)
The P resident’s original budget for FY2003 (February 2002) propose d t o tal
outlays of $2,138 billion for FY2003, $76 billion over t he Administration’s revised
FY2002 level.8 CBO’s M arch 2002 estimates o f t he President’s p roposals s howed a
7 See CRS report RL31999, Disaster Relief and Response: FY 2003 S upplemental
Appropriations by Keith Bea, for detailed i nformation on t his bill.
8 T he Administration proposed a $32 billion i ncr e a s e i n F Y2002 outlays above baseline
levels, most of which was f or its proposed “bipartisan economic security plan.” T he
year-to-year increase i n outlays of $101 billion. Of that amount, C BO estimated t hat
$22 billion came from p roposed policy changes with the rest coming from i nflation
adjustments and demand growth. Outlays in the Administration’s baseline estimates
increased by $50 billion from FY2002 to FY2003.
Over the five years covered i n d etail i n t he P r e s i d e n t ’s FY2003 budget
(FY2003-FY2007), t otal outlays would rise from $2,052 billion i n FY2002 to $2,128
billion i n FY2003 to $2,468 billion i n FY2007. The average annual rate o f growth
over t he FY2003 through FY2007 period was 3.8% a year, almost the ex act same rate
of growth as over t he previous five-year p e r i od (FY1997-FY2002). T he
Administration p roposed cumulative outlays of $11,431 billion for FY2003 through
FY2007. (Over 1 0 years, FY2003-FY2012, a p eriod t hat was shown i n a few t ables
in the P resident’s budget, cumulative outlays are $25,478 billion.)
Table 2. Outlays for F Y2001-FY2007
(in billions of dollars)
FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007
CB O Outlook 1/31/02 $1,864 a $2,003 $2,085 $2,152 $2,238 $2,319 $2,402
Presid ent’s b ud get 2 /4 /0 2 2 ,052 2,128 2,189 2,277 2,369 2,468
OMB b aseline 2 /4 /0 2 2 ,020 2,080 2,142 2,218 2,289 2,366
CB O r evised b a seline b 3/6/02 2,001 2,080 2,148 2,231 2,312 2,394
CB O estimate o f P res.’s budget 3/6/02 2,033 2,134 2,201 2,291 2,394 2,493
Ho use b ud get resolutio n 3 /13/02 2,033 2,123 2,192 2,289 2,383 2,479
SB C b ud get resolutio n 3 /22/02 — 2 ,139 2,207 2,313 2,403 2,496
OMB MSR 7/15/02 2,032 2,138 2,217 2,298 2,390 2,483
OMB MSR baseline 7 /15/02 2,018 2,097 2,163 2,232 2,301 2,376
CB O Update 8/27/02 2,017 2,107 2,195 2,283 2,366 2,461
CB O budget outlook 1/31/03 2,011 a 2,121 2,199 2,298 2,387 2,479
Presid ent’s FY2004 budget 2/3/03 — 2 ,140 2,229 2,343 2,464 2,576
Presid ent’s FY2004 baseline 2 /3 /0 3 — 2,121 2,189 2,276 2,348 2,440
CB O b aseline revisio ns 3/03 — 2 ,137 2,224 2,328 2,417 2,513
CB O est. o f P resident’s budget 3/03 — 2 ,143 2,245 2,370 2,491 2,606
Ho use b ud get resolutio n 3 /21/03 — 2 ,143 2,232 2,337 2,450 2,556
Senate budget reso lutio n 3 /26/03 — 2 ,148 2,246 2,372 2,531 2,656
Co nf. report o n the budget. res. 4 /11/03 — 2 ,182 2,268 2,375 2,494 2,607
OMB MSR 7/15/03 — 2 ,212 2,272 2,338 2,215 2,360
OMB MSR, b aseline 7 /15/03 — 2 ,210 2,252 2,304 2,377 2,481
CB O Update, b aseline 8 /26/03 — 2 ,170 2,305 2,404 2,501 2,624
Actual outlays for FY2003 — 2 ,157
SB C = Sena te B ud get Co mmittee
a. Actual outlays fo r FY2001 and FY2002.
b. T hese numbers exclud e the effects o f the econo mic stimulus law ( P.L. 107-147) enacted on March
FY2002 estimate a lso did not include any outlays that mi ght f low from t he adoption of t he
Admi n i s t r a tion’s $27 billion ( in budget authority) s upplemental s pending request sent to
Congress on March 21, 2002.
The Administration’s o rigi nal outlay proposals were $ 5 8 billion above the
FY2003 baseline estimate. T h e $58 billion i s t he policy cost o f t he President’s
proposals for the year. The proposals i ncluded an i ncrease i n d efense spending ($21
billion), farm s upport l egislation ($7 billi on) and t he “bipartisan economic security
plan” ($8 billion). The remaining proposed pol i c y c hanges were s ca t t ered t hroughout
federal s pending.
CBO’s estimates of t he Administration’s policies (March 2002) raised outlays
$6 billion above the Administration’s outlay totals. CBO’s five-year cumulative
estimate of th e P resident’s proposals rai sed outlays by $81 billion, of which $44
billion res ulted from higher net interest paym ents.9 Over the l onger 10-year period,
CBO’s estimates i ncr eas ed cumulative outlays over t he President’s p roposals b y
slightly more than 1%, o r $296 billion. Most of the annual d ifferences between the
OMB and CBO estimates of t he President’s outlay prop o s al s were rel ativel y small
com p ared t o t o t al out l ays i n each year.
The outlays proposed in the House p assed budget resolution (H.Con.Res. 353;
March 13, 2002) were similar t o t he ones cont ained i n t he President’s budget. The
House Budget Committee, in produc ing t he resolution, used the Administration’s
underlyi ng assumptions and followed m any o f t he policy p roposals, ensuring a close
similarity between the t wo proposal s. The C ommittee report (H.Rept . 107-376)
compares the budget resolution t o t he President’s p roposals (see p ages 74-75 in the
report). Outlays in the budget resolution were $ 5 b illion s maller t han t he President’s
proposed outlays for FY2003, but larger in each subsequent year. Over t he five years
covered b y t he two p roposals, cumulative outlays in the House budget resolution
were $35 billion l arger t han t he President’s p roposed cumulative outlays .
T he S enate Budget Committee’s budget resolution (S.Con.Res. 100) u s ed
CBO’s underlyi ng assumptions. The difference i n underlyi ng assumptions in the t wo
resolutions would p roduce d ifferent outlays even if they contained t he same policy
as s u m p t i o n s (w h i ch t h ey d i d n o t ). T h e S en at e Bu d get Committee’s bud get r es o l u t i o n
generally followed t he p o l i c i e s o f t he H ouse and Administration for defense and
homeland s ecurity for FY2003 and FY2004, and i n general, t he spending levels for
mandatory programs. S pending for non-defense, non-homela n d s e curity
discretionary spending in the S enat e Budget Committee budget resolution was
generally larger and h ad a d ifferent dist ribution t han t h e a l l o cations found in the
House budget resolution o r i n t he President’s budget. M any o f t he differences were
relatively s mall in FY2003 but grew over time. The Senate did not co n s i d er t h e
Committee’s resolution resulting i n n o congressionally adopted budget resolution for
The House p assed and the S enate Budget Commit t e e r e p orted budget
resolu t i ons, as well as t he President’s budget, would all provide a l arge boost i n
defens e out l ays from FY2002 t o FY2003 of appr ox i m at el y 9%, u s i ng each propos al ’s
9 CBO’s larger deficits and smaller surpluses in its estimates o f t h e P r e sident’s budget
policies s low t he reduction i n f ederal debt held by the public compared to the amount in the
Admi nistration’s budget. T he larger debt held by the public in the CBO estimate r aises t he
amount of net i nterest t hat t he gove rnme nt must pay.
own numbers. Over t he FY2003 and FY2007 period (the last year shown i n t he
House and presidential budget proposals) the P resident’s budget and t he House
budget resolution s how defense outlays gr owing by almost 4% annually. The Senate
Budget Committee p assed budget resolutio n h ad defense outlays growing annually
by 2% during t hese years.
Non-defens e d i s cret i onary s p ending al so got a larger boos t b et ween FY2002 and
FY2003 th a n i n s u b s equent years i n t he three p roposals. The P resident’s budget
raised these outlays by 4.5%, t he House budget resolution b y 5.0%, and the S enate
Budget Committee budget resolution b y 8.2% between FY2002 and FY2003. The
average rate o f growth for non-defense d iscr et i o n a r y spending in subsequent years
in all t hree proposals was less than 2%, a ra te that would not maintain spending for
these p rograms agai n s t i n f l ation o r population growth. (By comparison, the C BO
March 2002 baseline estimates o f non-defense d iscretionary spending grew by 2.7%
annually in subsequent years, a rate d esigned t o adjust s pending for i nflation but not
The Administration’s August 2002 MS R raised estimated t otal outlays by $10
billion over t he o r i gi n al proposal in February 2002. Two-thirds of the i ncrease
resulted from adopted or newly p roposed polic y changes and t he remaining t hird was
attributed to economic and t echnical es timating changes . Over t he five-year period
(FY2003-FY2007), cumulative outlays were 0.8% high er than in the February 2002
budget proposals. Compared to the o rigi nal February p roposal s , d i s c retionary
spending shrank (by 1.2%) while mandatory spending increased (by 1.6%) and net
interest increased (by 3.4%) over t he five years.
CBO’s Update (August 27, 2002) revised b aseline outlay estimates for FY2003
(and subsequent years). C BO’s estimated FY2003 outlays had risen by $28 billion
since its March 2002 es timates (a 1.3% increase). Legislative changes increased
es timated outlays by $40 billion, technical changes rai sed t hem by $11 billion, and
changes i n t he ex pect ed econom i c out l ook reduced them by $23 billion. The changes
raised FY2003 estimated outlays from $2,080 billion i n M arch 2002 to $2,107 billion
The revised outlook for FY2003 contained i n t he OMB and CBO 2003 FY2004
budget documents and reports released early in 2003, raised estimated outlays by $20
billion t o $40 billion above those contained i n t he Augu s t 2 0 02 budget estimates.
Continued economic weakness and t he resulting h igher s pending produced much of
t h e ex p ect ed i n crease.
The adoption of t he Consolidated Appropriations Resolution, 2003 (P.L. 108-7;
February 20, 2003) com p l et ed t he act i o n o n t he appropri at i ons fo r FY2003, providing
fundi ng for the 11 regular appropriation bills that had not yet been adopted. In
March, the P resident requested a $75 billion s upplemental appropriation t o p rovide
additional funding for d efense and homel and s ecurity. C ongress passed a $79 billion
supplemental (H.R. 1559) on April 12, which t he President s igned (P.L. 108-11) on
April 16, 2003. It added an estimated $42 billion t o outlays in FY2003.
T h e c o n gressional budget resolution for FY2004 (H.Con.Res. 95; April 10,
Growth Tax Relief Reconciliation Act of 2003 (J GTRRA) o n April 23. The
President s igned i t o n April 28 (P.L. 108-27). The law raised outlays by an estimated
$11 billion i n FY2003 through refundable t ax credits and fiscal aid t o S tates.
The s ummer 2003 budget reports from OM B and CBO pushed estimated outlays
higher. OMB ex pect ed outlays to be $71 billion l arger t han t hey were i n t he J anuary
2003 estimates, rising to $2,212 billion, a 3.3% increase. OMB attributed most of
the i ncrease t o t he adoption o f t he Emergency W artime Supplemental Act and final
FY2003 appropriations earlier i n t he year. OMB also stated that, “If this year follows
the p attern of recent years, outlays for 2003 are likely t o b e l ower than this estimate
w h e n f i n a l accounting i s available....”10 Fi nal outlays were $55 below t his O M B
estimate. C BO’s Augu st baseline estimate rose to $2,170 billion from $2,137 billion
in March, a 1.5% increase. Fi nal outlays were $13 billion below this CBO estimate.
On October 20, 2003, the T reasury released final budget numbers for FY2003,
with total outlays of $2,157 billion for the year. The Treasury i ndicated that slower
t h an ex pect ed spendi ng i n Augu st and S ept em b er produced m o st of t h e change from
OMB’s J uly estimate (The final numbers for t he year are s ubject to revision.)
The P residen t ’s FY2003 budget proposed $73 billion i n t ax cuts for FY2003
(and a $65 billion t ax cut i n what remained o f FY2002). R eceipts would i ncrease b y
$102 billion from FY2002 to FY2003. W ithout the p roposals, receipts would h ave
increased by $110 billion b etween the t wo years. CBO’s M arch 2002 estimates o f
the P resident’s proposals put the year-to-year receipt increase at $71 billion. The
Administration ’ s b u d get p roposed $2,048 billion i n receipts for FY2003; CBO
estim ated that the P resident’s proposal s under C BO’s budget assumptions would
produce receipts o f $2,013 billion i n FY2003.
The P re s i dent’s budget also proposed making much of the t ax cut adopted in
2001 permanent, along with ex tending a number o f t ax provisi o n s scheduled to
ex pire during t he nex t five to 10 year s . U nder l aw current at the time of the
proposals, most provisions of the 2001 tax cut would ex p ire b efore o r b y t he end o f
calendar year 2010. Making the t ax cuts permanent would h ave little effect in
FY2003, but would reduce receipts s ubstantially (from b aseline estimates) after
The Administration estimat e d t hat ex t ending the 2001 tax reductions would
reduce revenues by $7 billion bet ween FY2003 and FY2007 and by $343 billion
between FY2003 and FY2012. CBO and the J oint Committee on Tax ation estimated
that ex tending the provisions ex piring i n 2 0 10 would reduce revenue by $9 billion
b e t w een FY2003 and FY2007 and b y $374 billion b etween FY2003 and FY201 2
10 OM B. Mid-Session Review, J uly 2003, p. 17.
(most o f t he revenue reduction, $356 billion, occurs in the l ast t wo years).11 The
Administration also p roposed ex tending th e research and ex p erimentation (R&E) tax
credit, which would reduce revenues by an estimated $14 billion t o $15 billion over
the FY2003 to FY2007 period and by $51 billion t o $54 billion over t he FY2003 to
FY2012 period. CBO and the J oint Committee on Tax ation estimated t hat ex t ending
all t he other ex p iring t ax provisions thr ough FY2012 (including the R &E tax credit)
would reduce revenues (from b a s e l i n e l evels) by an estimated $78 billion b etween
FY2003 and FY2007 and b y $205 billion b etween FY2003 and FY2012. 12
Table 3. R eceipts f or FY2001-FY2007
(in billions of dollars)
FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007
CB O Outlook 1/31/02 $1,991 a $1,983 $2,070 $2,206 $2,342 $2,447 $2,568
Presid ent’s b ud get for FY2003 2/4/02 1,946 2,048 2,175 2,338 2,455 2,571
OMB b aseline 2 /4 /0 2 2 ,011 2,121 2,234 2,366 2,461 2,581
CB O r evised b a seline b 3/6/02 2,006 2,086 2,209 2,342 2,448 2,569
CB O est. o f P res.’s budget 3/6/02 1,942 2,013 2,150 2,314 2,442 2,560
Ho use b ud get resolutio n 3 /13/02 1,968 2,077 2,200 2,356 2,472 2,593
SB C b ud get resolutio n 3 /22/02 — 2 ,046 2,180 2,338 2,464 2,586
OMB MSR 7/15/02 1,867 2,029 2,169 2,351 2,451 2,567
OMB MSR baseline 7 /15/02 1,863 2,035 2,180 2,369 2,475 2,595
CB O Update 8/27/02 1,860 1,962 2,083 2,244 2,381 2,513
CB O budget outlook 1/31/03 1,853 a 1,922 2,054 2,225 2,370 2,505
Presid ent’s FY2004 budget 2/3/03 — 1 ,836 1,922 2,135 2,263 2,398
Presid ent’s FY2004 baseline 2 /3 /0 3 — 1,867 2,031 2,235 2,352 2,469
CB O b aseline revisio ns 3/03 — 1 ,891 2,024 2,205 2,360 2,504
CB O est. o f P resident’s budget 3/03 — 1 ,856 1,907 2,100 2,273 2,433
Ho use b ud get resolutio n 3 /21/03 — 1 ,855 1,908 2,107 2,282 2,444
Senate budget reso lutio n 3 /26/03 — 1 ,865 1,959 2,154 2,321 2,479
Co nference rept. o n the budg. res. — 1,835 1,883 2,082 2,277 2,441
OMB MSR 7/15/03 — 1 ,756 1,797 2,033 2,215 2,360
OMB MSR, b aseline 7 /15/03 — 1 ,756 1,794 2,063 2,267 2,403
CB O Update, b aseline 8 /26/03 — 1 ,170 1,825 2,064 2,276 2,564
Actual receipt s f or FY2003 — 1 ,782
SB C = Sena te B ud get Co mmittee.
a. Actual receipts for FY2001 and FY2002.
b. T hese numbers exclud e the effects o f the econo mic stimulus law ( P.L. 107-147) enacted on March
The House-passed FY2003 budget resolu tion s howed a $110 billion i ncrease i n
receipts b etween FY2002 and FY2003, with both years s howing h igher revenues t han
the P resident’s budget. The House resolutio n reflected the revenue effects o f t he J o b
Creation and W o rker Assistance Act o f 2002 (P . L. 107-147; March 9 , 2002), t hat
11 Maki ng permanent t he p r ovisions of the 2001 tax c ut expiring before 2010 produce
estimated reve nue reductions of $36 billion between FY2002 and FY2007 and $194 billion
between FY2003 and FY2012.
12 T he r educed revenues i n t hese various estimates wo u l d i n c rease deficits or reduce
surpluses, raising t he federal debt held by t he public. T he higher debt increases the
government’s net i nterest payments over t he period.
became l aw after t he presentation o f t he P resident’s FY2003 budget. The job
creation a c t reduced receipts b y an estimated $43 billion i n FY2002 and b y an
estimated $39 billion i n F Y2003 (J oint Committee o n Tax ation). The resolution
accommodated $28 billion i n unspecified a dditional t ax reductions through FY2007.
It also accepted t he Administration’s p roposals t o remove EGTRRA’s sunset
provisions, although t his would h ave h ad re latively little effect on receipts b ecause
of the resolution’s unspecified offs ets t o t he reductions in the years covered.
The S enate Budget Committee’s reporte d budget resolution s howed receipts
increasing b y $83 billion b etween FY2002 to FY2003. Li ke the House resolution,
the S enate Budget Committee resolution refl ected the revenue effects o f t he adoption
of the j ob creation act . The Senate Budget Commit t e e resolution assumed no
changes t o t he ex isting s unset provisions of EGTRRA. The resolution further
assumed t hat any proposed re venue reductions be offset to avoid a net reduction i n
The Administration’s J uly 2002 Mid-Session Review (MSR) revenue estimates
showed a d eterioration i n t he revenue outlook, produced by change s i n policy and
economic and t echnical assumptions si nce t h e e a r l y 2002 estimates. Receipts
dropped b elow the earlier estimates i n each year ex cept for FY2005. For FY2003,
the Administration estimated t hat changes in the underlyi ng economic and t echnical
assumptions reduced receipts b y $50 billion b elow the February 2002 estimates.
Enacted legi slation and changed p roposal s raised receipts b y $31 billion compared
to February proposals (the Administration’s p roposed economic stimulus p r o posal
contained l arger t ax cuts than did t he legi slation t hat b ecame l aw, resulting i n h igher
estimated revenues i n t he J u ly 2002 estimates). The Administration estimated i n t he
MSR t hat cumulative five-year (FY2003- FY2007) receipts would fall $21 billion
below t he February 2002 estimates.
CBO’s August 2002 Update had n ewer budget and revised economic data than
was available t o OMB when it produced the M SR. C BO’s baseline revenue es timate
for FY2003 was $124 billion l ower than It s M arch baseline revenue estimate
(dropping from $2,086 billion t o $1,962 billion). Over t he five-year period, FY2003
t h r ough FY2007, cumulative revenues fell b y $470 billion b etween the M arch an d
Augu st CBO b aseline revenue estimates. CBO attributed about half of the FY2003
revenue decline t o change i n t he technical assumptions behind the estimates. One-
third of t he change in revenues was attributed to legi slative changes (since March
2002), with the remaining portion o f t he revenue change attributed to differences in
the economic assumptions used in the March and August reports. Over t he five-year
period, CBO estimated t hat t he technical differences produced 6 5 % of the change,
di fferences i n econom i c assumptions generated 25% of the change, and t he remainder
cam e from l egislative changes .
T h e early 2003 budget reports and p roposals (for FY2004) showed a furthe r
deterioration i n revenue collections . C BO’s J anuary 2003 budget report estimated
FY2003 revenues at $1,922 billion, $41 billion s maller t han i n August 2002, mostly
from t echni cal changes . The P res i dent ’s budget for FY2004 incl uded revi s ed FY2003
receipts of $1,836 billion, down from $2,029 billion i n J uly 2002, including $31
billion i n n ewly proposed tax cuts for FY2003. In March 2003, CBO reduced its
revenue estimate by another $30 billion b ecause of technical and economic changes.
The l ate-May 2003 adoption of t h e J GTRRA included an additional $49 billion i n
receipt reductions for FY2003.
The mid-J uly 2003 OMB M SR (two months bef o r e the fiscal year ended)
reduced estimated receipts for FY2003 by $80 billion from the February 2003 budget,
to $1,797 billion. This is $251 billion l ower than the amount for FY2003 receipts
contained i n t he President’s FY2003 budget (February 2002) and i s b elow the actual
receip t s i n b o t h FY2001 and FY2002. CBO’s August 2003 Update had b asel i n e
receipts of $1,770 billion, $122 billion below its March 2003 ba s e l i n e estimates.
Legi sl at i v e act i ons and t echni cal changes p roduced m o st of t h e change.
Actual receipts, as reported b y t he Treasury i n l ate October 2003, were $1,782
billion. Total receipts (in current dollars) for FY2003 were smaller t han t otal receipts
in any year since FY1998. The receipts for FY2003 are 3 % b elow receipts i n
FY2002 ($1,853 billion), 10% below receipts i n FY2001 ($1,991 billion), and 12%
below receipts i n FY2000 ($2,025 billion). As a share o f GDP (16.5% in FY2003),
receipts were t he smallest percentage of GDP that they have been since 1950, with
two ex ceptions in FY1959 and FY1951 (both 16.1% of GDP).
Surpluses Or Deficits
Surpluses or deficits are t he residuals left after C ongress and t he Pres ident
det erm i n e t he general l evel of spendi ng and recei pt s. R educi n g t he defi ci t and
eventually reaching a balanced budget or ge n e r a t i ng and k eeping a surplus (the
government had its first s urplus in 30 years i n FY1998, but returned to deficit i n
FY2002) had b een a m ajor focus o f t he budget debate for over a decade. The budget
outlook-changi ng events of 2001 (the terrorist attacks, the weakened economy, and
policy changes), as reflected in the FY2003 budget forecasts in 2002, ended t he
earlier ex p ectations of substantial and growing s urpluses throughout the d ecade.
Table 4. D eficits(-)/Surpluses for F Y2001-FY2007
(in billions of dollars)
FY2001 F Y 2002 FY2003 FY2004 FY2005 FY2006 FY2007
CB O outlook 1/31/02 $127 a -$21 -$14 $54 $103 $128 $166
Presid ent’s b ud get for FY2003 2/4/02 -106 -8 0 -14 61 86 104
OMB b aseline 2 /4 /0 2 -9 4 1 9 2 148 172 215
CB O r evised b a seline b 3/6/02 5 6 61 111 135 175
CB O estimate o f P res.’s budget 3/6/02 -9 0 -121 -5 1 2 4 4 8 6 8
Ho use b ud get resolutio n 3 /13/02 -6 6 -46 8 6 7 8 9 113
SB C b ud get resolutio n 3 /22/02 — -92 -2 7 2 6 6 0 9 0
OMB MSR 7/15/02 -165 -109 -48 53 60 80
OMB MSR baseline 7 /15/02 -150 -6 2 1 7 137 174 219
CB O Update 8/27/02 -157 -145 -111 -3 9 1 5 5 2
CB O budget outlook 1/31/03 — 158 a -199 -145 -73 -16 26
Presid ent’s FY2004 budget 2/3/03 — -304 -307 -208 -201 -178
Presid ent’s FY2004 baseline 2 /3 /0 3 — -264 -158 -4 0 5 29
CB O b aseline revisio ns 3/03 — -246 -200 -123 -5 7 -9
CB O est. o f P resident’s budget 3/03 — -287 -338 -270 -218 -173
Ho use b ud get resolutio n 3 /21/03 — -288 -324 -230 -168 -111
Senate budget reso lutio n 3 /26/03 — -282 -287 -218 -169 -128
Co nference report o n the budg. res. — -347 -385 -294 -217 -166
OMB MSR 7/15/03 — -455 -475 -304 -238 -213
OMB MSR, b aseline 7 /15/03 — -455 -458 -241 -110 -7 8
CB O Update, b aseline 8 /26/03 — -401 -480 -341 -225 -203
Actual deficit for FY2003 — -374
SB C = Sena te B ud get Co mmittee.
MSR — Mid-Session Review
a. Actual surplus for FY2001 and actual d eficit fo r FY2002.
b. T hese numbers exclud e the effects o f the econo mic stimulus law ( P.L. 107-147) enacted on March
The o rigi nal b aseline p rojections from both OMB and C BO in early 2002 (for
FY2003 through FY2007 or FY2012) showed a b aseline d eficit of $14 billion (CBO)
or a b aseline s urplus of $41 billion (OM B) i n FY2003. The P resident’s proposals
turned his $41 billion bas eline s urplus into an $80 billion deficit and s mall, but
growing, surpluses i n t he years t hrough FY2007 or FY2012. CBO i n M arch 2002
estimated t hat t he President’s p ropos als would produce a $ 121 billion deficit in
FY2003. T h e M S R (J uly 2002) raised the Admin istration’s estimate of the deficit
to $109 billion i n FY2003 (with a baseline deficit of $62 billion for the year). CBO’s
Update (August 2002) estimated t hat t he FY2003 baseline d eficit w ould b e $145
The continued economic sluggi shness through m ost of 2002, along with policy
and t echnical changes, increased the ex p ected d e f i cit for FY2003 in both C BO’s
J anuary 2003 budget report for FY2004 and t he Administration’s February 2003
budget proposals for FY2004. The C BO report raised t he FY2003 baseline d eficit
to $199 billion. The Administration’s FY2004 policy p roposals boosted t he ex pected
FY2003 deficit t o $304 billion. CBO released revised b aseline budget estimates i n
its March 2003 report analyzing the P resi dent’s FY2004 propos al s. The baseline
d e ficit grew t o $246 billion – two-thirds of the i ncrease was attributed to the
ex pect ation of a continuing fall in revenues, and a p p r ox imately one-third was
attri b u t e d t o the adoption of t he Consolidated Appropriations Resolution for 2003
(P.L. 108-7). C BO’s estimate of the P resi dent’s policies p roduced a d eficit of $287
billion for FY2003. The adoption of t he tax cut (P.L. 108-27; May 2 8 , 2003) also
increased the e x p e c t e d deficit for FY2003. By J une 2003, CBO’s m onthly budget
report i ndi c a t e d t h at based o n budget data so far for the fiscal year, t he deficit for
FY2003 could reach $400 billion.
The Administration’s J uly 2003 releas e of t he MSR confirmed t he growth in the
deficit, raising i t t o $455 billion i n FY2003 (which ended o n S eptember 30, 2003).
(Some analysts s peculated t hat t he Administration m ay have provi ded a larger-than-
realistic estimate of the d eficit to produce a p erception t hat t he budget situation was
improving when the act ual deficit cam e i n bel ow the J uly estimate.) CBO’s August
Two-t h i rds of t h e i ncrease cam e from l egi s l at i v e changes b et ween t h e M arch and
A u gu s t 2003 estimates. CBO attributed 20% of the i ncrease t o t echnical changes,
and t he remaining change was attributed to changed economic conditions. The year
ended with a deficit of $374 billion, below both OMB’s and C BO’s summer 2003
estimates. High er t h a n ex pected receipts a nd slower than ex pected (and delayed)
spending generated m ost o f t he improvement in the deficit.
The Budget a nd the E conomy
The budget and t he economy affect each other. The relationship i s an unequal
one, with the economy i nfluencing the budget with ev e r y economic twinge while
even substantial policy changes may d isappear in the overall economy with lit tle
notice o r consequence.
Until increasingl y n egative budget estimates appeared from OMB and C BO in
Augu st 2001, previous 10-year budget forecasts in 2001 had b een buoyed by th e
ex pect ation of a continuation of favorable economic conditions into future years.
This earlier economic outlook supported t he ex pec t a t i o n s of a continuation o f t he
overall improvement in the budget situation s ince the early 1990 s . Much of that
budget improvement came from s trong and s ustained economic growth along with
the congressional and p r e s idential efforts t o b alance the budget. W hen t hose
favorable economic conditions faltered i n 2001, so did a major underpinning of the
good budget fortunes o f t he previous several years. What good economic conditions
gi ve, b ad economic conditions can take aw ay. The unex p ectedly lengthy economic
sluggi shness, the s tart of a recess i o n i n M a rch 2001 (along with the budgetary and
economic responses to the S eptember 2001 terrorist a t t a cks), and changes i n
underlyi ng technical relations hips replaced the ex p ected large and growing s urpluses
in the FY2003 budget (February 2002) with thr e e years o f relatively s mall deficits
before the budget returned to surplus. Since t hen, the weak economic o u tlook had
continued t o worsen for the n ear-term budget balance.
Table 5. CBO’s Alternative Scenarios,
Cumulative Surpluses/Deficits(-); FY2004-FY2008, FY2009-
FY2013 and F Y2004-FY2013
(in billions of dollars)
F Y 2004- F Y 2009- F Y 2004-
F Y 2008 F Y 2013 F Y 2013
CBO Optimistic Scenario T otal Surplus 1/31/03 $566 -$143 $4,490
CBO Baseline 1/31/03 -143 1,479 1,336
CBO Pessimi stic Scenario T otal Surplus 1/31/03 -855 -1,001 -1,856
Source: CB O, T he B ud get and Economic Outlook: FY2004-2013, Jan. 31, 2003. CRS calculatio ns.
CBO’s budget report, The Budget and Economic Outlook: Fiscal Y ears 2004-
indicated how s i gn i f i c antly the budget outlook can be altered b y changing t he
underlyi ng economic assumptions. The ch apter contains optimistic and pessimistic
alternative s cenarios, for t he budget (see Table 5 ). The optimistic scenario assumes
that the positive underlyi ng economic conditions and o ther factors o f t he later 1990s
(1996-2000) continu e i n to the future. The p essimistic scenario assumes t hat t he
favorable conditions o f t h o s e years were an aberration and that the economy and
other underlyi ng factors revert t o t he conditions that prevailed from 1 974 through
The result o f C BO’s ex ercise w a s a w i de range o f possible budget outcomes
over t he nex t 10 years. U n d e r t h e optimistic scenario, t he surpluses would
accumulate over t he 10-year period (FY2004-FY2013) to almost $4.5 trillion. Under
the pessimistic scenario, a string of deficits appear, accumulating t o almost $1.9
trillion over t he same 10 years.
In addition t o t he alternative s cenarios, CBO provides estimates of t he effect s
on the budget of changes i n s elected economic assumptions underlyi ng the b udget
estimates and projections (see appendix C in the Budget and Economic Outlook:
Fiscal Y ears 2004-2013, J anuar y 2003). OMB provides s imilar m easures in the
President’s budget (see chapter 1 in the Analytical Perspectives volume o f t he Budget
of the United S tates Government f or FY 2003 ). CBO estimated (J anuary 2003) that
a s ustained reduction o f 0.1% in the real rate of GDP growth begi nning in early 2003,
would i ncrease t he deficit i n FY2003 by $1 billion and in FY2004 by $4 billion.
OMB’s February 2003 FY2004 budget report estimated t hat a 1% slower real GDP
growth begi nning in J anuary 2003 would i ncrease t he FY2003 deficit b y $9.3 billion
and t he FY2004 deficit by $30 billion. Estimates are provided i n both reports for t he
effects o n t he budget of other s elect ed economic variables — inflati on,
unemploym ent, and i nteres t rat es . Larger changes in the underlying economic
variables generally produce l arger changes in the budget numbers.
For Additional R eading
U.S. Congressional Budget Office. The Budget and E c onomic Outlook: Fiscal
Y ears 2003-2012 . W ashington, U.S. Govt. P rint. Off., J anuary 2002.
——The Budget and Economic Outlook: Fiscal Y ears 2004-20 1 3 . W ashington,
GPO, J anuary 31, 2003.
—— T h e Budget and Economic Outlook: An Update, W ashington, GPO, Augu st
——The Budget and Economic Outlook: An Update, W ashington, GPO, August 26,
——Budget Options. W ashingt on, GPO, March 6 , 2003.
U .S. Council of Economic Advisors. The Economic Report o f t he Pres i d e n t .
W ashingt on, GPO, February 2002.
——The Economic Report o f t he President. W ashington, GPO, February 2003.
U.S. Office of Management and Budget. The Budget o f t h e United S tates
Government f or Fiscal Y ear 2003. W ashington, GPO, February 4, 2002.
——The Budget o f t he United S tates Government f or Fiscal Y ear 2004.
W ashingt on, GPO, February 3, 2003.
——Fiscal Y ear 2003 Mid-Session Review , W ashington, GPO, J uly 15, 2002.
——Fiscal Y ear 2004 Mid-Session Review , W ashington, GPO, J uly 15, 2003.
U.S. Congress. House. Committee on t he Budget . C oncurrent Resolution o n t he
Budget — FY 2003. Report t o accompany H.Con.Res. 353. 107th Congress, 2nd
session. H.Rept. 107-376. W ashingt on: GPO, 2002.
U.S. Congress. Senate. C ommittee on t h e Bu dget . Concurrent Resolution on t he
Budget FY 2003. Report t o ac c o m p a n y S .Con.Res. 100. 107 th Congress, 2nd
session. S.Rept. 107-141. W ashingt on: GPO, 2002.
CRS Electronic Briefing Book, Taxation,
[ http://www.congress.gov/brbk/html/ebtx r1.shtml]
CRS Report R L30973. 2 0 0 1 T ax Cut: Description, Analysis, and Background,by
C R S Report R L31414. Baseline Budget Projections: A Discussion of Iss u e s ,by
CRS Report R L30297. Congressional Budget Resolutions: S elected Statistics and
Information Guide, b y Bill Heniff J r.
CRS Report 98-511. Consideration of t he Budget Resolution, b y Bill Heniff J r.
CRS Report R L31235. The Economics o f t he Federal Budget Deficit ,byBrianW.
CRS Report 95-543. T h e F i n a n cial Outlook for Social S ecurity and Medicare,by
David Koitz and Geoffrey Kollman.
CRS Report R S21136. Government Spending or Tax Reduction: Wh ich Might Add
More Stimulus to the Economy?, b y M arc Labonte.
CRS Report R S21126. Tax C uts and Economic Stimulus: How Effective A re the
Alternatives?, by J ane Gravelle.
CRS Report R L30839. Income Tax C uts, the Business C y c l e , and Economic
Growth: A Macroeconomic Analysis, b y M arc Labonte and Gail Makinen.
CRS Report 98-720. Manual on the Federal Budget Process, by Robert Keith and
CRS Report R S21420. President Bush’s 2003 Tax C ut Proposal: A Brief Overview ,
by David Brumbaugh .
CRS Report R L31498. Social S ecurity Reform: Economic Issues , by J ane Gravelle
CRS Report R L30708. Social S ecurity, Saving, and the Economy,byBrianW.
CRS Report R L31134. Using Business T ax Cuts to Stimulate t he Economy,byJane