The Budget for Fiscal Year 2001

Report for Congress
The Budget for Fiscal Year 2001
January 18, 2002
Philip D. Winters
Analyst in Government Finance
Government and Finance Division

Congressional Research Service ˜ The Library of Congress

The Budget for Fiscal Year 2001
On February 7, 2000, President Clinton submitted the original budget for
FY2001, proposing receipts of $2,019 billion, outlays of $1,835 billion, and a surplus
of $184 billion. The Administration’s proposals included a multitude of large and
small policy changes to both revenues and outlays were projected to preserve a
substantial surplus over the 10-year budget period.
A week earlier, in January 2000, CBO released its baseline estimates for
FY2001 in the Budget and Economic Outlook: Fiscal Years 2001-2010. It contained
three budget baselines for the next 10 years. The surplus estimates for FY2001
ranged from $177 billion to $235 billion, based on different assumptions about the
growth in discretionary spending.
Congress adopted the conference report on the FY2001 budget resolution
(H.Con.Res. 290; H.Rept. 106-577) on April 13, 2000. The resolution set spending
and revenue targets for the year, resulting in a surplus of $170 billion. It included
instructions for two tax-cut reconciliation bills totaling $150 billion over 5 years.
President Clinton vetoed both tax cut bills (H.R. 4810 and H.R. 8).
In the fall of 2000, Congress and President Clinton argued over the content and
size of the appropriations for FY2001. On December 15, 2000, Congress reached an
agreement with the President and passed the remaining appropriations (the
Consolidated Appropriations Act; P.L. 106-554; H.R. 4577; H.Rept. 106-1033) for
FY2001. The legislation, including tax cuts ($31.5 billion over 10 years), completedth
budget action in the 106 Congress for FY2001. This legislation followed a series
of continuing resolutions on appropriations that funded those parts of the government
not covered by regular appropriations or permanent funding during the fall. The
fiscal year had begun with only two of the 13 regular appropriations enacted into law.
In 2001 the congressional budget resolution for FY2002 (H.Con.Res. 83; May
10, 2001) included a revised surplus for FY2001 of $186 billion resulting from an
included proposed tax cut. The tax cut cleared Congress on May 26 (the Economic
Growth and Tax Relief Reconciliation Act of 2001; P.L. 107-16; May 2001). CBO
estimated that it would reduce the FY2001 surplus by $74 billion.
In August 2001, both the Administration and the Congressional Budget Office
(CBO) released revised, final estimates for FY2001 within their updated FY2002
budget reports. These estimates reflected a continuing weak economy, technical
changes, and the effects of the tax cut (P.L. 107-16) and other legislation, and
revealed lower expected surpluses for FY2001, ranging from $153 billion to $158
billion. (In early 2001, the surplus estimates for FY2001 had risen as high as $281
billion (CBO baseline estimates, January 2001)). The September 2001 $40 billion
emergency supplemental appropriation, in response to the terrorist attacks, had little
effect on the FY2001 outlays. Final budget totals for FY2001, included a $127
billion surplus, $1,991 billion in receipts, and $1,864 billion in outlays. This report
is designed for historical background information and will not be updated.

Budget Totals.....................................................1
Uncertainty in Budget Projections.................................5
Budget Action....................................................6
Outlays ..........................................................7
Baseline Discretionary Outlays...................................9
R ecei pt s ........................................................10
Surpluses .......................................................12
Recent Surplus/Deficit History..................................15
The Budget and the Economy.......................................16
List of Tables
Table 1. Budget Proposals and Estimates for FY2001.....................3
Table 2. Outlays for FY1999-2005....................................9
Table 3. Receipts for FY1999-2005...................................11
Table 4. Surpluses for FY1999-FY2005...............................13
Table 5. Projected Cumulative On-Budget Surpluses;
FY2001-2005 and FY2001-2010.................................15
Table 6. CBO’s Alternative Scenarios, Cumulative Surpluses;
FY2001-2005 and FY2001-2010.................................17

The Budget for Fiscal Year 2001
Presidents generally submit their budget proposals for the upcoming fiscal year
early in each calendar year. For FY2001, the Administration presented its budget on
February 7, 2000. The documents contained the Clinton Administration’s policy
proposals and expectations for the budget not only for FY2001, but for the following
five years, with some data available for 10 years. The documents also included
extensive budget and budget related information and data including estimates of the
budget without the proposed policy changes (current service baseline estimates),
historical budget data, detailed outlay and receipt data, selected analysis of specific
budget related topics, and the Administration’s economic forecast. The budget
documents are an annual basic reference source for federal budget information in
addition to their use as a transmitter of the Administration’s policy proposals.
The Administration’s submission is followed by congressional action on the
budget. This includes, in addition to hearings, the annual budget resolution,
appropriations, and, possibly, a reconciliation bill or bills. During the months of
deliberation on budget related legislation, the Administration often modifies its
proposals, not only because of interactions with Congress, but because of changing
circumstances in the economy and the world.
Budget Totals
Table 1 contains budget estimates for FY2001 from the Congressional Budget
Office (CBO), the Administration (the Office of Management and Budget – OMB),
and House and Senate budget documents. Differences in totals occur because of
differing underlying economic, technical, and budget-estimating assumptions and
techniques as well as differences in policy proposals. Most of the funding differences
associated with policy differences among proposals for the upcoming fiscal year are
often relatively small compared to the budget as a whole although these small
changes may have large implications over time. Budget totals should be expected to
change over time.
The Clinton Administration’s original budget proposal for FY2001 (February
2000) had a surplus of $184 billion. President Clinton proposed reducing total
spending below the current service baseline levels.1 Receipts would increase over
the FY2001 current services baseline levels.2 The budget proposed an on-budget

1As measured from the Administration’s current services baseline estimates, outlays would
have fallen $3.8 billion or 0.2% of total baseline outlays.
2 Total receipts would have increased under the President’s proposals by $9.1 billion over

surplus of $9 billion in FY2001 and a cumulative $12 billion on-budget surplus over
the 5 years. The proposed cumulative on-budget surplus was $83 billion below the
estimated cumulative current services baseline on-budget surplus of $95 billion. The
President’s proposals for using the almost $83 billion surplus over 5 years divided
it among tax cuts, spending increases, and debt reduction.3
Congress’ FY2001 budget resolution (H.Con.Res. 290; H.Rept. 106-577; April
13, 2000) was based on the “freeze” baseline in CBO’s revised April budget
estimates. Using these underlying projections, the conference agreement on the
budget resolution had a $170 billion total surplus and a $9 billion on-budget surplus
for FY2002. The 5-year cumulative on-budget surplus in the budget resolution was
$356 billion below the CBO “freeze” cumulative baseline on-budget surplus The
resolution used $150 billion of this difference for tax reductions (split between two
reconciliation bills); much of the rest was to be used in higher spending compared to
baseline spending levels.
CBO’s reestimate of the Administration’s proposals for FY2001 (April 2000;
a preliminary report was released on March 9), differed little from the
Administration’s original numbers for FY2001. The reestimates put the
Administration surplus at $190 billion for FY2001. The differences between the
original Administration proposals and the CBO reestimates, given the size of the
amounts involved, remained relatively modest over the forecast.
Both OMB’s and CBO’s original and revised estimates showed receipts
remaining fairly stable and outlays falling as percentages of gross domestic product
(GDP) in FY2001. As shares of GDP, receipts rose towards levels last seen during
World War II while outlays continued a decline that began most recently in FY1992.
What to do with the non-Social Security portion of the surplus remained a focus
of the budget debate. An understanding developed in the previous year that the
Social Security surplus, essentially the off-budget surplus, would be used only for
reducing the debt held by the public.4 The House adopted two bills (H.R. 5173 and
H.R. 5203) in mid-September 2000 that contained essentially the same procedural
“lock-boxes” to reserve both the Social Security and Medicare surpluses for debt
reduction. The remaining part of the total surplus, the on-budget surplus, was the
focus of policy proposals and debates over increased spending, reduced taxes, and
additional debt reduction. Any increase in spending or reduction in taxes would
reduce the surplus compared to baseline levels.

2 (...continued)
the current services baseline levels in FY2001. Over the 5- and 10-year periods shown in
his budget, the proposals reduced receipts from baseline estimates.
3 The Administration proposed using part of the on-budget surplus in FY2001 and FY2002
for what it called “Medicare solvency transfers”. The proposed transfers would be $15
billion in FY2001 and $13 billion in FY2002. The result would have increased the
government debt holdings of the Medicare trust funds and reserve $28 billion for reduction
of federal debt held by the public.
4The off-budget accounts consist of Social Security and the Postal Service; Social Security
makes up almost all of the amounts in the off-budget accounts.

Table 1. Budget Proposals and Estimates for FY2001
(in billions of dollars)
Re ve nue s O ut l a ys D e fi c i t ( -) /Sur p lus
Actual for FY1997$1,579$1,601$-22
Actual for FY19981,7221,65369
Actual for FY19991,8281,703124
Actual for FY20002,0251,789236
CBOInflated” baseline estimate for 1/26/002,0161,839177
CBOFrozen” baseline estimate for 1/26/002,0161,829188
CBOCapped” baseline estimate for 1/26/002,0161,781235
Presidents budget for 2/7/002,0191,835184
Presidents budget, current services est. for 2/7/002,0101,839171
CBO reestimates of Presidents budget for 3/9/002,0261,836190
CBOInflated” rev. baseline estimate for 3/9/002,0161,835181
CBOFrozen” rev. baseline estimate for 3/9/002,0161,824192
CBOCapped” rev. baseline estimate for 3/9/002,0161,777239
House Budget Resolution for 3/24/002,0061,823183
Senate Budget Resolution for 4/7/002,0031,834169
Conference Budget Resolution for 4/13/002,0051,835170
Presidents MSR for 6/26/002,0961,848228 a/
CBO reestimates of the MSR 7/28/002,1191,845254
CBOInflated” Update baseline estimate for 7/18/002,1091,841268
CBOFrozen” Update baseline estimate for 7/18/002,1091,828281
CBOCapped” Update baseline estimate for 7/18/002,1091,780329
Clinton Administration Baseline 1/16/012,1251,868256
CBO Baseline 1/31/012,1351,853281
Bush Administration 2/28/01 & 4/9/012,1371,856281
House Budget Resolution (FY2002) 3/28/012,1291,857272
Senate Budget Resolution (FY2002) 4/6/01 b/2,1341,949186
Conference Budget Resolution (FY2002) 5/10/01 b/2,1351,948186
CBO Revised Baseline (FY2002) 5/20012,1151,839275
MSR (FY2002) 8/22/012,0131,855158
CBO Update (FY2002) 8/28/012,0111,858153
Actual Totals, 2/4/021,9911,864127
Note: The three CBO baseline estimates from its 2000 budget reports represent three alternative paths
that discretionary spending might follow over the years covered by the estimates and projections. The
“Inflated path increases discretionary spending by the rate of inflation. The “Frozen” path keeps
discretionary spending at its level in FY2000 throughout the period. The “Capped path keeps
discretionary spending within the existing statutory discretionary spending caps through FY2002 when
they expire and allows it to grow at the rate of inflation thereafter.
a. The surplus reflects the $20 billion in unspecified revenue reductions or spending increases in the
Administrations proposed Reserve for America’s Future”. Without the reserved amounts the
surplus for FY2001 would be $248 billion.
b. FY2001 outlays contain $85 billion in surplus reductions as part of $100 billion “economic
stimulus” package spread over FY2001 and FY2002 as called for in the Senate passed budget
resolution and in the conference report on the budget resolution for FY2002 (see H.Rept. 107-
MSR – OMB. Mid-Session Review
Update – CBO. Budget and Economic Outlook: An Update

The Clinton Administration revised some of its original proposals in its Mid-
Session Review (MSR; June 2000). Both the size of the proposed tax cuts and
spending increases were modified. The Administration also proposed a “Reserve for
America’s Future” of unspecified future spending increases or tax cuts that would
grow from $20 billion in FY2001 to $27 billion in FY2005 before expanding to $85
billion in FY2010. The MSR also included proposed changes in budget accounting
that would move the Medicare Hospital Insurance (HI) trust fund off-budget where
it would join Social Security and the Postal Service. This accounting change would
drop the on-budget surplus reported in the MSR from $68 billion (including the
surplus of the Medicare Hospital Insurance trust fund) to $9 billion.5
The summer 2000 MSR (June 26, 2000) revealed continuing improvement in
the budget outlook. It showed a FY2001 surplus of $228 billion and a 5-year
cumulative surplus of $1,211 billion (the 5-year cumulative current service baseline
surplus – the surplus without the proposed policy changes – was $1,497 billion). The
MSR had an on-budget surplus of $9 billion in FY2001. If the Medicare surplus (off-
budget in the MSR) is added back into the on-budget amounts (which makes them
comparable to the President’s original request, the congressional budget resolution,
and CBO baseline estimates and forecasts) the on-budget surplus jumps to $68
billion in FY2001.
The three revised baseline estimates in the CBO Update (July 2000) had total
surpluses ranging from $268 billion for the “inflated” baseline to $329 billion for the
“capped” baseline. The CBO on-budget surpluses (these include the Medicare HI
trust fund surpluses) ranged from $102 billion to $163 billion for FY2001.
These summer 2000 budget revisions from both OMB and CBO continued a
several year-long pattern of rising budget surplus estimates in each new budget
report. The better summer budget estimates and projections came from continuing,
steady economic growth and larger than expected receipts rather than any substantial
legislative changes.
Revised budget estimates for FY2001 were released in association with the
FY2002 budget estimates, proposals, and actions beginning early in 2001. For the
most part, these revised estimates showed continued improvement in the overall
budget outlook for FY2001. The January and February estimates from the
Administration and CBO budget documents contained a FY2001 surplus of $281
billion. Congress, in adopting the budget resolution for FY2002 (H.Con.Res. 83),
included reconciliation instructions for an 11-year tax cut that would increase outlays
(through an advance tax rebate) by not more than $100 billion over FYs 2001 and
2002 for “economic stimulus.” The FY2002 budget resolution put the FY2001
surplus at $186 billion. The tax cut legislation became law in June 2001 (P.L. 107-

5The change has no effect on the total surplus. CBO stated in its An Analysis of the
President’s Mid-Session Review of the Budget for Fiscal Year 2001 (July 28, 2000),
“Placing the HI [Hospital Insurance] trust fund off-budget would ..., by itself, have no effect
on the economy or on the resources available to meet future needs. But if lawmakers chose
to adopt a goal of preserving off-budget surpluses for debt reduction, the proposed
accounting change... [might enhance] the prospects for long-term economic growth.” p. 4

16). Subsequent estimates from OMB and CBO measured the cost of the tax cut
wholly as reduction in receipts.
Uncertainty in Budget Projections
All budget estimates and projections are inherently uncertain. Their dependence
on assumptions that are themselves subject to substantial variation makes budget
estimates and projections susceptible to fairly rapid and dramatic changes.
One can get a sense of this uncertainty by comparing projections for FY2000
made 5 or more years ago with the actual results. The President’s budget for FY1996
came out early in 1995. CBO’s Budget and Economic Outlook for fiscal years 1996
through 2000 was also released early in 1995. The Administration projected, for
FY2000, a deficit of $194.4 billion; CBO projected a deficit of between $243 billion
and $284 billion.6 These 1995 projected deficits for FY2000 turned into a substantial
surplus of $236 billion. The $400 billion to $500 billion turnaround in the budget
balance outlook in five years may produce some wariness when contemplating policy
changes based on budget estimates that extend five to 10 years into the future.
CBO made this caution more explicit in its January 2000 report. In addition to
the three baselines, CBO provided an optimistic and a pessimistic scenario for each.
The optimistic one assumed that the current favorable economic and budgetary
conditions continue indefinitely into the future. The effect is to further boost receipts
and hold down spending. The pessimistic scenario assumed that the then existing
favorable conditions were temporary and that they would revert to the less favorable
conditions of the 1980s and early 1990s. These assumptions slow the growth of
receipts and force up federal spending. The results of these alternative forecasts were
dramatic. In the optimistic scenario, surpluses double over the 10 years. In the
pessimistic scenario, the expected surpluses turn into deficits by FY2003 in one of
the three baselines.
The pessimistic and optimistic scenarios are not more likely to occur than one
of the three baselines. But like the historical example above, they serve as a warning
when one considers how to resolve the surplus issue. Surpluses can be used to reduce
taxes, increase spending, or pay down the portion of the federal debt held by the
public. If the surpluses are reduced through additional spending commitments or
reduced taxes and these changes are combined with an economy that turns sour, the
government’s budget outlook deteriorates.
Budget projections are dependent on the underlying assumptions about the
direction of the economy and future policy. Any deviation from the expected
underlying assumptions such as faster or slower economic growth, higher or lower
inflation, or changes in assumed spending and tax policy, can have substantial effects
on the budget projections.

6The smaller CBO deficit estimate assumed no growth in discretionary spending after
FY1998 and the larger number assumed discretionary spending growing with the rate of
inflation after FY1998.

Budget Action
The House Budget Committee approved its version of the FY2001 concurrent
resolution on the budget (H.Con.Res. 290; H.Rept. 106-530) on March 15, 2000.
The budget resolution is the congressional blueprint for subsequent budget action.
The resolution provided for tax cuts of $150 billion over 5 years (FY2001-FY2005)
and net spending increases compared to the CBO freeze baseline. Discretionary
spending would increase less than the rate of inflation. After extended negotiations
and the rejection of five alternative budget resolutions, the House passed the HBC’s
resolution, essentially unchanged, on March 24, 2000.
The Senate Budget Committee approved its version of the FY2001 budget
resolution on March 30, 2000 (S.Con.Res. 101; S.Rept. 106-251). The Senate
adopted the resolution with changes on April 7. The Senate version followed the
general pattern of the resolution adopted by the House, but included higher levels of
spending and differed in other aspects.
The conference committee on the budget resolution issued a report on April 12,
2000 (H.Rept. 106-577). The result modified both the House and Senate passed
versions of the budget resolution. It included reconciliation instructions for a 5-year
$150 billion tax cut (in two reconciliation bills) and up to $40 billion for Medicare
reform and a prescription drug benefit. The conference report cleared Congress late
on April 13, 2000.
In mid-summer (July 21, 2000), Congress cleared the first of two tax cut
reconciliation bills as called for in the budget resolution. It was a marriage penalty
relief bill, (H.R. 4810; H.Rept. 106-765; see CRS Report RL30420, Marriage Taxth
Penalties: Legislative Proposals in the 106 Congress) and would have cut taxes an
estimated $14 billion in FY2001 and $84 billion over 5 years. President Clinton
vetoed the legislation on August 5, 2000. Congress cleared a non-reconciliation tax
cut bill (H.R. 8; H.Rept. 106-651; the Death Tax Elimination Act of 2000) on July
14. It would have reduced revenues by $8 million in FY2001 and by $28 billion over
the 5 years (and by $105 billion over the 10 years). The President vetoed this bill on
August 31.
The summer saw little progress on appropriations needed to fund discretionary
spending in FY2001. As the new fiscal year began, only two of 13 regular7
appropriations had become law. The first of a series of continuing resolutions on
appropriations (CRs) was passed by Congress (H.J.Res. 109) and signed by the
President (P.L. 106-275; September 29, 2000) to fund activities not already covered
by an appropriation or by permanent funding. The struggle over appropriations, and
other legislation, continued through the fall, with Congress adopting several of the
regular appropriations but needing a series of CRs for the unfunded parts of the
government into mid-December. Congress and the President reached agreement on

7Appropriations, mostly for discretionary spending, account for approximately a third of
total spending in the budget for FY2001. The remaining two-thirds the budget goes for
mandatory spending (Social Security, Medicare, etc.), almost all of which does not need
annual appropriations.

funding levels for the remaining four appropriations in mid-December. Congress
adopted H.R. 4577, the Consolidated Appropriations Act of 2001, on December 15
(signed into law by the President on December 21, 2000; P.L. 106-544), which also
included a modest tax cut ($31.5 billion over 10 years).8
In 2001, both President Bush and Congress proposed changes to the FY2001
budget in their respective budget proposals for FY2002. The Bush Administration
called for fairly modest changes to spending and revenues. The conference
agreement on the congressional budget resolution for FY2002 (H.Con.Res. 83) called
for $100 billion in advance tax rebates (a part of the tax cut adopted in late spring

2001; see below) over the fiscal years 2001 and 2002. The 11-year tax cut bill (P.L.

107-16; the Economic Growth and Tax Relief Reconciliation Act of 2001) cleared
Congress in late May 2001 and the President signed it in early June 2001. It included
a rate reduction tax credit in the form of checks mailed to taxpayers during FY2001
(see the CRS Report RS20939, The Rate Reduction Tax Credit (the “Tax Rebate”)
in P.L. 107-16, by Gregg Esenwein). The legislation was estimated to reduce the
surplus by approximately $74 billion in FY2001.
In early June 2001, the Administration sent Congress a request for $6.5 billion
in supplemental spending for the current fiscal year. Most of the additional money
was for the Department of Defense or defense-related activities. The House
responded with a supplemental appropriation bill (H.R. 2216) that somewhat
modified the original request, which it passed on June 20, 2001. The Senate
followed by passing a supplemental appropriations (S. 1077; July 10, 2001) that
differed both from the President’s request and the House- passed version. A
conference reported the legislation on July 19. The House and Senate passed the
legislation on July 20 and the President signed it into law on July 24, 2001 (P.L. 107-


In response to the terror attacks on the United States on September 11, 2001,
Congress and the President agreed on a $40 billion emergency supplemental
appropriation (P.L. 107-38; September 18, 2001) for recovery and response.
Although it was a supplemental appropriation for FY2001, the lateness in the fiscal
year of its passage means that actual increase in outlays (that will reduce the surplus)
will occur in FY2002.
The original FY2001 budget proposals from the Clinton Administration (in
January 2000) included relatively modest policy changes in outlays for FY2001,
whether measured against the FY2000 levels or against the current service baseline
estimates for FY2001. The changes would produce more substantial changes in
outlays over time. The congressional budget resolution also contained relatively
small policy changes to total outlays for FY2001 with larger effects from these
changes occurring in future years.

8See, CRS Report RS20756, FY2001 Consolidated Appropriations Act: Reference Guide.

In President Clinton’s original budget, total outlays rose by $45 billion (2.5%)
between FY2000 and FY2001. They rose by $290 billion (15.8%) from FY2001 to
FY2005. CBO’s reestimates of these proposals put the FY2000 to FY2001 outlay
increase at $57 billion (3.2%) and the 5-year increase at $278 billion (15.1%). The
Clinton Administration’s Mid-Session Review (summer 2000) revisions barely
changed the FY2000 to FY2001 outlay increase in dollars or percent.
The congressional budget resolution (for FY2001) would have increased total
outlays by $51 billion (2.9%) from FY2000 to FY2001 (the resolution used CBO’s
FY2000 baseline outlay estimate, which differed slightly from OMB’s). It also had
total outlays rising by $250 billion (13.6%) during the FY2001 through FY2005
The three baseline estimates in the CBO July 2000 Update showed outlays
growing between $16 billion (0.2%) and $65 billion (3.7%) from FY2000 and
FY2001. The Update baselines showed outlays growing between $155 billion (8.5%)
and $243 billion (13.2%) over the 5-year period. Revised outlay numbers in January
2001, increased outlays slightly for FY2001, reflecting the legislative changes
adopted during the fall of 2000.
The Bush Administration included only modest changes to FY2001 outlays, less
than $5 billion, within its original budget proposals for FY2002 (February 2001).
Congress, in adopting its budget resolution for FY2002 (H.Con.Res. 83), included
significant outlay changes for FY2001 in order to accommodate the reconciliation
instructions for a tax cut. The rate-reduction-tax-rebate part of the tax cut was
designed to use outlays in FY2001 and FY2002 to send checks to taxpayers. The
budget resolution showed it increasing outlays by $100 billion over the two years
(this cost has since been scored against receipts, reducing receipts by a net $70 billion
in FY2001).
The final official budget estimates for FY2001 from OMB and CBO were
contained in their mid-year reports for FY2002, released in late August 2001. These
showed total outlays for FY2001 of approximately $1,855 billion.

Table 2. Outlays for FY1999-2005
(in billions of dollars)
FY1999 aFY2000FY2001FY2002FY2003FY2004FY2005
CBOInflated” baseline 1/26/00$1,703.0$1,769$1,839$1,888$1,950$2,017$2,093
CBOFrozen” baseline 1/26/001,7691,8291,8641,9051,9512,006
CBOCapped” baseline 1/26/001,7691,7811,8021,8561,9181,985
Presidents budget 2/7/001,7901,8351,8951,9632,0412,126
Presidents current services baseline 2/7/001,7761,8391,8831,9582,0252,103
CBOs reestimate of Presidents budget 3/9/001,7781,8361,9021,9582,0332,114
CBO rev.Inflated baseline 4/001,7661,8351,8851,9452,0122,089
CBO rev.Frozen” baseline 4/001,7661,8241,8601,9041,9482,004
CBO rev.Capped” baseline 4/001,7661,7771,7991,8531,9151,982
House budget resolution 3/24/001,7841,8231,8761,9301,9882,058
Senate budget resolution 4/7/001,7801,8341,8901,9512,0152,088
Congressional budget resolution 4/13/001,7841,8351,8891,9472,0102,085
Presidents MSR 6/26/001,8021,8481,9191,9842,0592,145
CBO reestimate of the MSR 7/28/001,7881,8451,9241,9792,0572,140
CBO Update “Inflated baseline 7/001,7761,8411,8901,9462,0112,084
CBO UpdateFrozen” baseline 7/001,7761,8281,8591,8491,9331,983
CBO UpdateCapped” baseline 7/001,7761,7801,7971,8441,9021,964
Clinton Administration Baseline 1/16/01 b1,7891,8681,9331,9942,0572,145
CBO Baseline 1/31/01 1,8531,9231,9842,0562,137
Bush Administration Blueprint 2/28/011,8561,9592,0122,0712,164
House Budget Resolution (FY2002) 3/28/011,8571,9412,0072,0862,176
Senate Budget Resolution (FY2002) 4/6/01 c/1,9491,9792,0462,1232,209
Conf. Budget Resolution (FY2002) 5/10/01 c/1,9481,9522,0212,1032,196
CBO Revised Baseline (FY2002) 5/18/20011,8391,9221,9852,0542,133
MSR (FY2002) 8/22/011,8551,9622,0252,1112,208
MSR Baseline (FY2002) 8/22/011,8551,9492,0112,0842,172
CBO Update (FY2002) 8/28/011,8581,9582,0242,1062,194
a Actual outlays for FY1999.
b Actual outlays for FY2000.
c FY2001 outlays contain $85 billion in surplus reductions as part of $100 billioneconomic stimuluspackage
spread over FY2001 and FY2002 as called for in the Senate passed budget resolution and in the conference
report on the budget resolution for FY2002 (see H.Rept. 107-60)
MSR Mid-Session Review .
UpdateThe Budget and Economic Outlook: An Update. CBO.
Baseline Discretionary Outlays
Numerous assumptions can be used to produce baseline paths for discretionary
spending for FY2001. President Clinton’s (and later, President Bush’s) current
service baseline estimates incorporated, as most have in the past, the assumption of
an inflation adjustment for discretionary spending (in spite of the more restrictive
existing statutory discretionary spending caps that last through FY2002). CBO, in
its FY2001 estimates, used three different assumptions about discretionary spending
in producing their three baseline estimates. Congress used the CBO baseline that
assumed a freeze in discretionary spending when developing the congressional
budget resolution.

Changing the assumptions underlying the baselines ( the assumptions about the
future of discretionary spending in particular were prominent) can increase or
decrease the apparent effect of proposed policies when compared to the baselines.
For example, the President Clinton’s total discretionary spending proposals showed
little difference over the 5-year period from the current services baseline estimates,
a baseline that incorporated an inflation adjustment assumption for discretionary
spending. If instead, the baseline assumed that discretionary spending was frozen for
the 5 years (which is not a very realistic assumption), the President’s discretionary
proposals would have shown increases when compared to this alternative baseline.
Whatever the comparison with the current services baseline shows in the way
of proposed policy changes, all broad measures of federal spending, except net
interest, grow in the numbers of dollars spent from year-to-year throughout the
projection period. This was true for the President Clinton’s proposals as well as the
congressional budget resolution.
The February 2000 Clinton Administration proposal requested gross tax relief
(including refundable tax credits) of $101.7 billion over 5 years (FY2001 through
FY2005). The budget also included a proposed $47.2 billion in net increases from
“eliminat[ing] unwarranted benefits and adopt[ing] other revenue measures.”
Combining the two produced an Administration-claimed net tax cut of $54.6 billion
for the FY2001 through FY2005 period. However, the budget included another
$44.2 billion in net receipt increases made up of both increases and decreases to
receipts that the Administration called “Other provisions that affect receipts.” The
major component of this increase was a proposed $31.2 billion increase in tobacco
related excise taxes and a levy on youth smoking. The overall net impact of the
proposed policy changes on receipts over the 5-year period was a $10.4 billion
reduction in receipts. The MSR in the summer of 2000, although making some
changes to these numbers, ended with a similar sized mix of increases and decreases
in receipts and a relatively small net tax reduction over the 5 years.
Over the 10-year period (FY2001 through FY2010), the Administration’s
original proposal called for a $351 billion gross tax cuts (including refundable tax
credits) and $96 billion in net increases for a net tax cut of $256 billion. The “Other
provisions that affect receipts” netted an $85 billion increase ($66 billion from
increased tobacco related receipts). The overall effect on receipts of the original
proposals was a $171 billion reduction for the ten period. The 10-year tax reduction
in the summer 2000 MSR was approximately $7 billion larger ($178 billion) than in
the original budget.
The budget resolution adopted by Congress included reconciliation instructions
for “two bills that reduce revenue by a total of $11.6 billion for FY2001 and $150

billion for the period for FY2001 through FY2005.”9 The bills, adopted by Congress,
were vetoed by the President.
Table 3. Receipts for FY1999-2005
(in billions of dollars)

CBO baseline 1/26/00 b$1,827.5 $1,945$2,016$2,096$2,177$2,263$2,361
Presidents budget 2/7/001,9562,0192,0812,1482,2362,341
Presidents current services 2/7/001,9562,0102,0802,1512,2382,350
CBO’s reestimate of President’s Budget1,9462,0262,0972,1712,2622,352
House budget resolution 3/24/001,9452,0062,0742,1462,2212,316
Senate budget resolution 4/7/001,9442,0032,0722,1472,2262,319
Congressional budget resolution 4/13/001,9452,0052,0732,1462,2232,317
Presidents MSR 6/26/002,0132,0962,1682,2452,3392,440
Presidents MSR baseline 6/26/002,0142,0872,1672,2492,3442,452
CBO reestimate of the MSR 7/28/002,0082,1192,2032,2852,3792,477
CBO Update 7/18/00 b2,0082,1092,2022,2902,3802,486
Clinton Administration Baseline 1/16/01 c2,0252,1252,2102,3012,4012,525
CBO Baseline 1/31/01 2,1352,2362,3432,4532,570
Bush Administration Blueprint 2/28/012,1372,1902,2582,3392,436
House Budget Resolution (FY2002)2,1292,1682,2602,3442,437
Senate Budget Resolution (FY2002) 4/6/012,1342,1772,2842,3802,474
Conf. Budget Resolution (FY2002) 5/10/012,1352,1712,2672,3692,473
CBO Revised Baseline (FY2002)2,1152,2262,3382,4532,570
MSR (FY2002) 8/22/012,0132,1352,2202,3282,463
MSR Baseline (FY2002) 8/22/012,0132,1352,2212,3332,476
CBO Update (FY2002) 8/28/012,0112,1342,1962,3072,438
a Actual receipts for FY1999.
b All three CBO baseline alternatives have the same receipt estimates and projections throughout the
period. c
Actual receipts for FY2000.
MSR – Mid-Session Review
Update – Budget and economic Outlook: an Update
Note: The revenue estimates and projections did not change in the April 2000 revisions from CBO.
Combining the proposed changes to receipts and the normal growth experienced
by receipts, the Clinton Administration’s February 2000 budget showed receipts
increasing by $63 billion (3.2%) between FY2000 and FY2001. CBO’s April 2000
reestimates of the President’s proposals put the receipt increase at $80 billion (4.1%).
The congressional budget resolution had a year-over-year increase of $60 billion
(3.1%). The June 2000 MSR raised the increase to $83 billion (4.1%) from FY2000
to FY2001. The CBO July 2000 Update of baseline estimates showed a $101 billion

9Conference Report on the Concurrent Resolution on the Budget for Fiscal Year 2001,
H.Rept. 106-577, page 66.

(5.0%) increase in receipts between FY2000 and FY2001. Much of these later
receipt increases resulted from changes in underlying factors and assumptions rather
than any proposed or adopted policy changes.
Revised receipt estimates for FY2001, in the first half of 2001 (in the FY2002
budget reports), showed receipts continuing to grow in response to expectations of
improving economic conditions. The estimates and proposals from OMB, CBO, and
the congressional budget resolution for FY2002, all showed increases in the
estimated size of receipts for FY2001. Even the tax cuts proposed by the
Administration (which, under its proposal, would not have begun until FY2002) and
as proposed in the conference report on the FY2002 congressional budget resolution
would not reduce FY2001 receipts.
The cost of the proposed advance tax rebates fell on outlays in the FY2002
budget resolution proposal for the 11-year tax cut. Subsequent measures of the effect
of the change produced after the adoption of the tax cut legislation (P.L. 107-16),
have shown this cost as a reduction in receipts. The August 2001 mid-year reports
from OMB and CBO estimated this receipt reduction to be between $35 billion and
$37 billion. Another $33 billion in FY2001 receipt reductions result from the
requirement in the tax legislation to shift the final corporate tax payment from the last
quarter of FY2001 to the first quarter of FY2002. The mid-year reports also reflected
the effect of the weakened economy and changes in technical aspects of the estimates
by reducing receipts between $34 billion (CBO) and $56 (OMB) billion from earlier
estimates. These estimates show total receipts actually falling from FY2000 to
Surpluses or deficits are the residuals left after Congress and the President
determine the level of federal spending and receipts. Reducing the deficit and
eventually reaching a balanced budget or generating and keeping a surplus (the
government had the first surplus in almost 30 years in FY1998) has been a major
focus of the budget debate for over a decade.
The Clinton Administration’s February 2000 budget proposed a surplus of $184
billion for FY2001 and projected growing surpluses for each of the following years
in the forecast. A surplus in FY2001 would be the fourth year in a row with a
surplus. CBO’s reestimate of the President’s proposals (April 2000) put the FY2001
surplus at $190 billion. The congressional budget resolution for FY2001 (April

2000) contained a $170 billion surplus for FY2001. The OMB MSR (June 2000)

raised the surplus to $228 billion for FY2001. CBO’s reestimate of the MSR’s
numbers (July 2000) put the FY2001 surplus at $254 billion. CBO’s baseline
estimates in its Update (July 2000) raised the FY2001 surplus to between $268
billion and $329 billion, depending on which of the three baselines was used. The
January 2001 baseline revisions put the FY2001 surplus at $256 billion (OMB) and
$281 billion (CBO). The Bush Administration’s budget included a surplus of $281
billion for FY2001.

Table 4. Surpluses for FY1999-FY2005
(in billions of dollars)
FY1999 a FY2000 FY2001 FY2002 FY2003 FY2004 FY2005
CBOInflated” baseline 1/26/00$124$176$177$209$227$246$268
CBOFrozen” baseline 1/26/00176188232271312355
CBOCapped” baseline 1/26/00176235294321345376
Presidents budget 2/7/00167184186185195215
Presidents current services 2/7/00180171197193213247
CBO’s reestimate of President’s. Budget168190196213228238
CBOInflated” revised 4/00179181212231250273
CBOFrozen” revised 4/00179192237273315358
CBOCapped” revised 4/00179239297324348379
House budget resolution 3/24/00161183198215231257
Senate budget resolution 4/7/00164169182196211231
Congressional budget res. 4/13/00161170184198212232
Presidents MSR 6/26/00211228224236255268
Presidents MSR baseline 6/26/00224239279295324360
CBO reestimate of the MSR 7/28/00221254254280296309
CBO UpdateInflated” 7/18/00232268312345369402
CBO UpdateFrozen” 7/18/00232281344397447503
CBO UpdateCapped” 7/18/00232329405446478522
Clinton Administration Baseline 1/16/01 b236256277307343380
CBO Baseline 1/31/01281313359397433
Bush Administration 2/28/01 & 4/9/01281231246268273
House Budget Resolution (FY2002) 3/28/01272227253259261
Senate Budget Resolution (FY2002) 4/6/01186198238257265
Conf. Budget Resolution (FY2002) 5/10/01186219247266277
CBO Revised Baseline (FY2002) 5/18/2001275304353400437
MSR (FY2002) 8/22/01158173195217254
MSR Baseline (FY2002) 8/22/01158187210250304
CBO Update (FY2002) 8/28/01153176172201244
aActual surplus for FY1999.
b Actual surplus for FY2000
In the conference report on the FY2002 budget resolution (H.Con.Res. 83; May
3, 2001), the surplus for FY2001 began shrinking instead of growing. The
conference report reduced the expected surplus to $186 billion for the year because
of its proposals for a tax cut and higher spending. The 2001 mid-year budget reports
from OMB and CBO showed further drops in the estimated surplus for the year, with
OMB putting it at $158 billion and CBO estimating it to be $153 billion. The
combination of the tax cut, the weakening economy, and technical estimating
changes produced the ongoing surplus reductions. CBO’s September 2001 Monthly
Budget Review reduced the estimated surplus for FY2001 even further, to
approximately $121 billion for FY2001. The negative effect on the budget of
deteriorating economic conditions on receipts produced much of the decline in the

What to do with the surplus remained one focus of the budget debates in 2000
as it had in 1999. Surpluses can be deliberately used up by increasing spending or
decreasing receipts. If unused, they would reduce the debt held by the public.10 The
Clinton Administration and the FY2001 congressional budget resolution included
combinations of spending increases, tax cuts, and debt reduction, although in
different amounts and with different mixes. The policy proposals would reduce the
surplus from baseline levels, reducing the amount of surplus available for reducing
federal debt held by the public.
An agreement that budget debate participants reached in 1999 was meant to
reserve surpluses from the Social Security accounts, essentially the off-budget
surplus, for debt reduction. This left the on-budget surplus as the focus of efforts to
adopt either spending increases or tax cuts or to do neither and use it for additional
debt reduction. (Reserving the off-budget surplus means that at least that part of the
surplus would be used to reduce the publicly held debt.) Any unused on-budget
surplus would contribute to debt reduction. To further limit the on-budget surplus
available for use (and to “protect” Medicare), the Administration in the June 2000
MSR proposed taking the Medicare Hospital Insurance trust fund off-budget. This
would have had the effect of dropping the FY2001 on-budget surplus from $69
billion to $9 billion. Table 5 shows estimates and projections of cumulative on-
budget surpluses for FY2001- FY2005 and for FY2001-FY2010.
The President’s proposals and the congressional budget resolution both would
have reserved the bulk of the surplus, consisting of the off-budget portion of the
surplus (at least in the first 5 years), for reducing the debt. Most of the on-budget
surplus would be used for additional spending and tax cuts, with some left for
additional debt reduction. President Clinton’s budget indicated that, under its
proposals, federal debt held by the public could be eliminated by 2013 (the 2000
MSR moved this result to 2012). All of CBO’s baselines with their generally larger
surpluses than the Clinton Administration proposals would retire all the maturing
debt held by the public by at least FY2009 (some longer-term debt will not yet have
matured by then and will continue to be held by the public). The estimates in 2001,
with the much larger expected surpluses, showed the government retiring most of its
debt held by the public early in the second half of the decade.

10 Unless the surpluses are used for increased spending or decreased receipts (tax cuts) they
will be used by the Treasury, pretty much automatically, to reduce federal debt held by the
public. The Treasury can, and has, taken a more active role in retiring debt held by the
public by purchasing securities on the market and retiring some callable federal debt. The
Treasury could also hold the surplus cash and build up government cash balances, but this
would make little sense.

Table 5. Projected Cumulative On-Budget Surpluses;
FY2001-2005 and FY2001-2010
(in billions of dollars)
FY2001-FY2005 FY2001-FY2010
CBOInflated” baseline 1/26/00$148$837
CBOFrozen” baseline 1/26/003791,859
CBOCapped” baseline 1/26/005941,919
Presidents budget 2/7/0041350
President’s current services 2/7/0095745
CBOs reestimate of Presidents Budget 3/9/0090423
CBO revised “Inflated” baseline 4/00171893
CBO revised “Frozen” baseline 4/003961,891
CBO revised “Capped” baseline 4/006101,948
House budget resolution 3/24/0093.3
Senate budget resolution 4/7/0012.1
Congressional budget resolution 4/13/0039.8
Presidents MSR 6/26/002749
CBO reestimate of the MSR 7/28/00172407
Presidents MSR 6/26/00 a254594
CBO reestimate of the MSR 7/28/00 a395863
Presidents MSR baseline 6/26/003601,470
Presidents MSR baseline 6/26/00 a5391,873
CBO UpdateInflated” baseline 7/18/006952,173
CBO UpdateFrozen” baseline 7/18/009693,349
CBO UpdateCapped” baseline 7/18/001,1793,387
Clinton Administration Baseline 1/16/015492,066
CBO Baseline 1/31/018462,688
Bush Administration 2/28/01 & 4/9/01317782
House Budget Resolution (FY2002) 3/28/01333713
Senate Budget Resolution (FY2002) 4/6/01207643
Conf. Budget Resolution (FY2002) 5/10/01257743
CBO Revised Baseline (FY2002) 5/18/20018292,707
MSR (FY2002) 8/22/0132418
MSR Baseline (FY2002) 8/22/01145948
CBO Update (FY2002) 8/28/01-7555
a Assumes Medicare remains on-budget.
Recent Surplus/Deficit History
The large deficits of the early 1990s dropped substantially and turned into
surpluses by the end of the 1990s. After climbing to over $200 billion in FY1990
through FY1994, with a peak of $290 billion in FY1992, the deficit fell to $107
billion in FY1996 and to $22 billion in FY1997. The government had a total surplus
of $69 billion in FY1998, its first in almost 30 years.
As a percentage of GDP, the deficit fell from its 1990s peak of 4.9% in FY1992
to 1.4% in FY1996 and 0.3% of GDP in FY1997. The surplus in FY1998 was 0.8%

of GDP and 1.4% of GDP in FY1999.11 CBO’s January 2001 baseline expected the
total surplus to reach 2.7% of GDP in FY2001. (The conference report on the budget
resolution for FY2002 would drop this to 1.8% of GDP.) The summer 2001 budget
reports have dropped this further, to an estimated 1.5% of GDP in CBO’s Update.
The actual surplus for the year was 1.3% of GDP.
A portion of the deficit reduction in the latter 1990s resulted from the many and
varied policy changes, in particular, the decreases in defense and net interest
spending that was adopted or occurred since the early 1990s. The constraints on non-
discretionary spending added to the deficit reductions. A substantial portion of the
changes resulted from steady, strong economic growth that resulted in substantially
higher revenues than forecast.
The surplus as currently defined is measured by the difference between total
federal receipts and total federal outlays. It represents the “extra” money the
government collects from the public over what the government spends on the public.
The Budget and the Economy
The budget and the economy affect each other. The relationship is an unequal
one, with the economy shoving and pushing around the budget with every economic
twinge while even relatively large changes in the budget, as measured by
policy-induced changes in the size of the deficit or surplus, may bounce off the
economy with little consequence. This imbalance became obvious in the second half
of 2001 as the continuing weakness in the economy persistently reduced the size of
subsequent surplus estimates. The Clinton Administration’s originally proposed
change in the government’s budget balance for FY2001 was very small when
measured against its current service baseline estimate. The economy, at over an
expected $10 trillion in 2001, is just too large to be measurably affected by the less
than $15 billion in originally proposed policy changes for FY2001.
Since a large part of the improvement in the budget situation since the early
1990s resulted from strong and sustained economic growth, one should remain aware
that what the economy gives (growing surpluses) it can also take away (which it
seems to have begun to do, at least in the short-term). A sustained recession or
slower than expected economic growth (which has happened) or a deterioration in
other economic variables may disrupt, at least for a time, the expectations of
continued budget improvement. CBO’s budget report, The Budget and economic
Outlook: Fiscal Years 2001-2010 (January 2000) in its chapter on The Uncertainties
of Budget Projections, states that, “...considerable uncertainty surrounds ...[budget]
projections for two reasons. First, the U.S. economy and the federal budget are
highly complex and are affected by many economic and technical factors that are
difficult to predict. Second, future legislation is likely to alter the paths of federal
spending and revenues. As a result, actual budgetary outcomes will almost certainly
differ from the Congressional Budget Office’s baseline projections.” (p.97).

11 The deficit reached 6.3% of GDP in FY1983, a post-World War II peak as a percentage
of GDP.

To further illustrate the power of changing the underlying assumptions (both
economic and budget) to change the budget outcome, CBO produces an optimistic
and pessimistic alternative scenario for its baseline projections (see Table 6). The
optimistic scenario assumes that the good economic and budget conditions of the last
few years continue indefinitely into the future. The pessimistic scenario assumes that
the recent favorable conditions have been an anomaly and the economy and the
budget revert to the conditions that prevailed in the 1980s and early 1990s. Under
the optimistic scenario, the surpluses accumulate over the 10-year period (FY2001-
2010) to $7.672 trillion (based on revised CBO estimates from January 2001). Under
the pessimistic scenarios, the surpluses are much smaller, accumulating to $1.761
trillion over the10 years.
Table 6. CBO’s Alternative Scenarios, Cumulative Surpluses;
FY2001-2005 and FY2001-2010
(in billions of dollars)
F Y 2001-F Y 2005 F Y 2001-F Y 2010
CBO Optimistic Scenario 1/31/01$2,440$7,672
CBO Pessimistic Scenario 1/31/011,0251,762
Source: CBO, The Budget and Economic Outlook: Fiscal Years 1992-2011, Jan. 2001.
Tables in the Clinton and Bush Administrations’ original budget documents for
FY2001 and FY2002 (February 2000 and April 2001) and in the CBO Budget and
Economic Outlook reports (January 2000 and January 2001) present the general effect
of economic changes on the budget. The tables contain estimates that show that
changes in economic growth produce the most significant effect on the budget.
Lower growth increases federal spending from those programs that respond to higher
joblessness and earlier retirements and the other events that follow an economic
downturn. Lower growth decreases federal receipts as those losing their jobs pay
lower taxes and business profits turn down, also resulting in lower tax receipts.
Other information in these tables indicates the effects of higher or lower
unemployment, higher or lower interest rates, and higher or lower inflation rates.