[Analytical Perspectives]
[Other Technical Presentations]
[18. Comparison of Actual to Estimated Totals]
[From the U.S. Government Printing Office, www.gpo.gov]
[[Page 389]]
18. COMPARISON OF ACTUAL TO ESTIMATED TOTALS
In successive budgets, the Administration publishes several estimates
of the surplus or deficit for a particular fiscal year. Initially, the
year appears as an outyear projection at the end of the budget horizon.
In each subsequent budget, the year advances in the estimating horizon
until it becomes the ``budget year.'' One year later, the year becomes
the ``current year'' then in progress, and the following year, it
becomes the just-completed ``actual year.''
The budget is legally required to compare budget year estimates of
receipts and outlays with the subsequent actual receipts and outlays for
that year. \1\ Part I of this chapter meets that requirement by
comparing the actual results for 2002 with the current services
estimates shown in the 2002 Budget published in April 2001.
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\1\ These requirements, for receipts and ``uncontrollable outlays,''
are in 31 USC 1105(a)(18) through (20).
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Part II of the chapter presents a broader comparison of estimates and
actual outcomes. This part first discusses the historical record of
budget year estimates versus actuals over the last two decades. Second,
it broadens the focus to estimates made for each year of the budget
horizon, extending four years beyond the budget year. This broader focus
shows that the differences between estimates and the eventual actual
results grow as the estimates extend further into the future.
PART I: COMPARISON OF ACTUAL TO ESTIMATED TOTALS FOR 2002
This part of the chapter compares the actual receipts, outlays, and
deficit for 2002 with the current services estimates \2\ shown in the
2002 Budget published in April 2001. This part also presents a more
detailed comparison for mandatory and related programs, and reconciles
the actual receipts, outlays, and deficit totals shown here with the
figures for 2002 previously published by the Department of the Treasury.
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\2\ The current services concept is discussed in Chapter 15: ``Current
Services Estimates.'' For mandatory programs and receipts the April 2001
current services estimate is based on laws then in place. For
discretionary programs the current services estimate is based on the
prior year estimates adjusted for inflation.
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Receipts
Receipts in 2002 were $1,853 billion, which is $368 billion less than
the current services estimate of $2,221 billion in the 2002 Budget. As
shown in Table 18-1, this shortfall was the net effect of legislative
and administrative changes; economic conditions that differed from what
had been expected; and technical factors that resulted in different
collection patterns and effective tax rates than had been assumed.
Table 18-1. COMPARISON OF ACTUAL 2002 RECEIPTS WITH THE INITIAL CURRENT SERVICES ESTIMATES
(In billions of dollars)
----------------------------------------------------------------------------------------------------------------
Enacted
April legislation/ Different Technical Net
2001 administrative economic factors change Actual
estimate actions conditions
----------------------------------------------------------------------------------------------------------------
Individual income taxes................. 1,103 -64 -125 -55 -245 858
Corporation income taxes................ 220 -15 -50 -7 -72 148
Social insurance and retirement receipts 726 -* -25 * -25 701
Excise taxes............................ 74 * -3 -4 -7 67
Estate and gift taxes................... 32 -2 -1 -2 -6 27
Customs duties.......................... 23 -* -4 -1 -5 19
Miscellaneous receipts.................. 43 -1 -7 -* -9 34
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Total................................ 2,221 -83 -215 -70 -368 1,853
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* $500 million or less.
Policy differences. The Economic Growth and Tax Relief Reconciliation
Act, which was signed by President Bush on June 7, 2001, reduced 2002
receipts by $32 billion. Enactment of the Job Creation and Worker
Assistance Act in March 2002 reduced 2002 receipts by an additional $53
billion (see Chapter 4: ``Federal Receipts'' for a description of this
Act). These reductions were partially offset by other legislative and
administrative changes, which increased 2002 receipts relative to the
April 2001 current services estimate by a net $3 billion.
Economic differences. Differences between the economic assumptions
upon which the current services estimates were made and actual economic
performance
[[Page 390]]
accounted for a reduction in 2002 receipts of $215 billion. Lower-than-
anticipated wages and salaries and other sources of personal income were
in large part responsible for the reductions in individual income taxes
and social insurance and retirement receipts of $125 billion and $25
billion, respectively. A shortfall in corporation income taxes,
attributable to lower-than-expected corporate profits, reduced 2002
receipts by an additional $50 billion relative to the April 2001
estimate. Lower-than-estimated levels of gross domestic product (GDP),
which affect excise taxes, and lower-than-expected interest rates, which
affect deposits of earnings by the Federal Reserve (miscellaneous
receipts), reduced receipts below the budget estimates by an additional
$3 billion and $7 billion, respectively. Customs duties were $4 billion
below the budget estimate, reflecting lower-than-expected imports.
Technical reestimates. Technical factors reduced 2002 receipts a net
$70 billion below the April 2001 current services estimate. This net
reduction was primarily attributable to lower-than-anticipated
collections of individual and corporation income taxes of $55 billion,
and $7 billion, respectively. Lower effective tax rates on personal
income than estimated in April 2001, and the effect of the stock market
on capital gains, were primarily responsible for the net reduction in
individual income tax receipts. Different collection patterns and
effective tax rates than assumed in April 2001 and the effect of the
stock market on capital gains, were primarily responsible for the lower-
than-anticipated collections of corporation income taxes.
Outlays
Outlays for 2002 were $2,011 billion, $73 billion more than the $1,938
billion current services estimate in the 2002 Budget (April 2001).
Table 18-2 distributes the $73 billion net increase in outlays among
discretionary and mandatory programs and net interest. \3\ The table
also makes rough estimates according to three reasons for the changes:
policy; economic conditions; and technical estimating differences, a
residual.
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\3\ Discretionary programs are controlled by annual appropriations,
while mandatory programs are generally controlled by authorizing
legislation. Mandatory programs are mostly formula benefit or
entitlement programs with permanent spending authority that depend on
eligibility criteria, benefit levels, and other factors.
Table 18-2. COMPARISON OF ACTUAL 2002 OUTLAYS WITH THE INITIAL CURRENT SERVICES ESTIMATES
(In billions of dollars)
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Current Changes
Services -----------------------------------------
(April Total Actual
2001) Policy Economic Technical changes
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Discretionary:
Defense......................................... 312 35 ........ 2 37 349
Nondefense...................................... 372 16 ........ -3 13 385
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Subtotal, discretionary....................... 684 51 ........ -1 50 734
Mandatory:.........................................
Social Security................................. 452 ........ * 1 1 452
Other programs.................................. 616 17 13 7 37 653
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Subtotal, mandatory........................... 1,067 17 13 8 38 1,106
Net interest....................................... 186 4 -28 8 -16 171
------------------------------------------------------------
Total outlays................................. 1,938 73 -15 15 73 2,011
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* $500 million or less.
Policy changes are the result of legislative actions that change
spending levels, primarily through higher or lower appropriations or
changes in authorizing legislation. For 2002, policy changes increased
outlays an estimated $73 billion relative to the initial current
services estimates.
Policy changes increased discretionary outlays by $51 billion. Defense
discretionary outlays increased by $35 billion and nondefense
discretionary outlays increased by $16 billion, largely due to emergency
supplemental appropriations pursuant to the September 11, 2001 terrorist
attacks. Policy changes increased mandatory outlays by $17 billion above
current law. Most significantly, the Job Creation and Worker Assistance
Act increased unemployment compensation outlays by $8 billion and the
Economic Growth and Tax Relief Reconciliation Act increased outlays for
refundable tax credits by $4 billion. Other legislative changes
increased 2002 outlays by a net $5 billion, including $2 billion for
airline grants pursuant to September 11th and another $2 billion for
farm income subsidies. Debt service costs increased by $4 billion due to
policy changes.
Economic conditions that differed from those forecast in April 2001
resulted in a net decrease in outlays of $15 billion. Outlays for
mandatory programs increased an estimated $13 billion, largely due to a
higher-than-expected unemployment rate, which contributed to higher
outlays for unemployment compensation and Food Stamps. The increased
outlays for mandatory programs were more than offset by a decrease of
$28 billion in net interest due to lower-than-expected interest rates.
[[Page 391]]
Technical estimating differences and other changes resulted in a net
increase in outlays of $15 billion. Technical changes result from
changes in such factors as the number of beneficiaries for entitlement
programs, crop conditions, or other factors not associated with policy
changes or economic conditions. Outlays for discretionary programs
decreased an estimated $1 billion. Outlays for mandatory programs
increased an estimated $8 billion, largely due to higher-than-
anticipated outlays for unemployment compensation and lower-than-
anticipated offsetting receipts for spectrum auctions. Net interest
outlays also increased by $8 billion largely due to the lower surplus in
2001 and higher deficit in 2002 stemming from technical factors compared
to the April 2001 estimates.
Surplus/Deficit
The preceding two sections discussed the differences between the
initial current services estimates and the actual amounts of Federal
Government receipts and outlays for 2002. This section combines these
effects to show the net impact of these differences.
As shown in Table 18-3, the initial 2002 current services estimate was
a surplus of $283 billion. The actual result was a deficit of $158
billion, which yields an estimating difference of $441. Receipts were
$368 billion less than the initial estimate and outlays were $73 billion
more. The table shows the distribution of the changes according to the
categories in the preceding two sections.
Table 18-3. COMPARISON OF THE ACTUAL 2002 SURPLUS WITH THE INITIAL CURRENT SERVICES SURPLUS ESTIMATE
(In billions of dollars)
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Current Changes
Services -----------------------------------------
(April Total Actual
2001) Policy Economic Technical changes
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Receipts........................................... 2,221 -83 -215 -70 -368 1,853
Outlays............................................ 1,938 73 -15 15 73 2,011
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Surplus....................................... 283 -156 -201 -84 -441 -158
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Note: Surplus changes are receipts minus outlays. For these changes, a minus indicates a decrease in the
surplus.
The net effect of policy changes for receipts and outlays reduced the
surplus by $156 billion. Economic conditions that differed from the
initial assumptions in April 2001 accounted for an estimated $201
billion decrease in the surplus. Technical factors further reduced the
surplus by an estimated $84 billion.
Comparison of the Actual and Estimated Outlays for Mandatory and Related
Programs for 2002
This section compares the original 2002 outlay estimates for mandatory
and related programs under current law in the 2002 Budget (April 2001)
with the actual outlays. Major examples of these programs include Social
Security and Medicare benefits for the elderly, agricultural price
support payments to farmers, and deposit insurance for banks and thrift
institutions. This category also includes net interest outlays and
undistributed offsetting receipts.
A number of factors may cause differences between the amounts
estimated in the budget and the actual outlays. For example, legislation
may change benefit rates or coverage; the actual number of beneficiaries
may differ from the number estimated; or economic conditions (such as
inflation or interest rates) may differ from what was assumed in making
the original estimates.
Table 18-4 shows the differences between the actual outlays for these
programs in 2002 and the amounts originally estimated in the 2002
Budget, based on laws in effect at that time. Actual outlays for
mandatory spending and net interest in 2002 were $1,277 billion, which
was $23 billion more than the initial estimate of $1,254 billion, based
on existing law in April 2001.
[[Page 392]]
Table 18-4. COMPARISON OF ACTUAL AND ESTIMATED OUTLAYS FOR MANDATORY AND RELATED PROGRAMS UNDER CURRENT LAW
(In billions of dollars)
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2002
-----------------------------------------
April 2001
estimate \1\ Actual Change
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Mandatory outlays:
Human resources programs:..........................................
Education, training, employment, and social services............. 8 8 -*
Health:
Medicaid....................................................... 143 148 4
Other.......................................................... 9 10 *
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Total health................................................. 152 157 5
Medicare......................................................... 226 228 1
Income security:
Retirement and disability...................................... 89 89 -*
Unemployment compensation...................................... 28 51 22
Food and nutrition assistance.................................. 32 33 1
Other.......................................................... 87 92 6
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Total, income security....................................... 235 265 29
Social security.................................................. 452 452 1
Veterans benefits and services:
Income security for veterans................................... 26 27 1
Other.......................................................... 2 * -2
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Total veterans benefits and services......................... 28 27 -1
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Total mandatory human resources programs..................... 1,102 1,137 35
Other functions:
Agriculture...................................................... 13 17 4
Mortgage credit.................................................. -1 -5 -4
Deposit insurance................................................ -1 -1 -*
Other functions.................................................. 6 6 -*
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Total, other functions......................................... 18 17 -1
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Undistributed offsetting receipts:
Employer share, employee retirement.............................. -42 -43 -1
Rents and royalties on the outer continental shelf............... -6 -5 1
Other undistributed offsetting receipts.......................... -4 -* 4
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Total undistributed offsetting receipts........................ -52 -48 4
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Total, mandatory............................................. 1,067 1,106 38
Net interest:
Interest on Treasury debt securities (gross)....................... 349 333 -17
Interest received by trust funds................................... -152 -153 -1
Other interest..................................................... -10 -8 2
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Total net interest............................................... 186 171 -16
-----------------------------------------
Total outlays for mandatory and net interest..................... 1,254 1,277 23
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* $500 million or less
\1\ Estimates reflect the function shift for foster care and adoption assistance in the 2003 Budget.
Note: Estimates may not add due to rounding.
Actual outlays for mandatory human resources programs were $1,137
billion, $35 billion more than originally estimated. This increase was
largely due to outlays for unemployment compensation, mostly due to the
extended unemployment benefits enacted in the Job Creation and Worker
Assistance Act and higher unemployment and average recipiency rates than
initially assumed.
Outlays for other functions were $1 billion less than originally
estimated. Undistributed offsetting receipts were $4 billion less than
expected, largely due to lower spectrum auction receipts.
Outlays for net interest were $171 billion or $16 billion less than
the original estimate. This decrease was the net effect of changes in
interest rates from those initially assumed, changes in borrowing
requirements due to differences in surpluses, and technical factors.
[[Page 393]]
Reconciliation of Differences with Amounts Published by Treasury for
2002
Table 18-5 provides a reconciliation of the receipts, outlays, and
surplus totals published by the Department of the Treasury in the
September 2002 Monthly Treasury Statement and those published in this
budget. The Department of the Treasury made adjustments to the estimates
for the Combined Statement of Receipts, Outlays, and Balances, which
increased receipts by $8 million and reduced outlays by $846 million.
Additional adjustments for this budget reduced receipts by $123 million
and increased outlays by $13 million. The major changes were
reclassification of certain U.S. Trustees System receipts and inclusion
of the transactions of the United Mine Workers of America benefit funds.
Table 18-5. RECONCILIATION OF FINAL AMOUNTS FOR 2002
(In millions of dollars)
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Receipts Outlays Surplus
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Totals published by Treasury (September 30 MTS)................. 1,853,288 2,011,808 -158,520
Federal family education loans............................... .............. -751 751
Other........................................................ 8 -95 103
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Totals published by Treasury in Combined Statement.............. 1,853,296 2,010,962 -157,666
United Mine Workers of America benefit funds................. 124 124 ..............
U.S. Trustees System receipts................................ -180 -180 ..............
Other........................................................ -67 69 -136
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Total adjustments, net......................................... -123 13 -136
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Totals in the budget............................................ 1,853,173 2,010,975 -157,802
MEMORANDUM:
Total change since year-end statement.......................... -115 -833 718
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Part II: HISTORICAL COMPARISON OF ACTUAL TO ESTIMATED SURPLUSES
This part of the chapter compares actual surpluses to estimated
surpluses over the last two decades. The first section compares the
estimate for the budget year of each budget with the subsequent actual
surplus. The second section extends the comparison to the estimated
surpluses for each year of the budget window--that is, for the current
year through the fourth year following the budget year. This part
concludes with some observations on the historical record of surplus
estimates versus the subsequent actual surpluses.
Historical Comparison of Actual to Estimated Surpluses for the Budget
Year
Table 18-6 compares the estimated and actual surpluses or deficits
since the deficit estimated for 1982 in the 1982 Budget. The estimated
surpluses or deficits here for each budget include the Administration's
policy proposals. Therefore, the estimated surplus for 2002 differs from
that shown in table 18-3, which is on a current services basis. Earlier
comparisons of actual and estimated surpluses were on a policy basis, so
for consistency the figures in Table 18-6 are on this basis.
Table 18-6. COMPARISON OF ACTUAL AND ESTIMATED SURPLUSES SINCE 1982
(In billions of dollars)
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Surplus Differences due to
or ----------------------------------
deficit (- Actual
) Total surplus
Budget estimated Enacted Economic Technical difference or
for legislation factors factors deficit(-
budget )
year \1\
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1982........................................ -62 15 -70 -11 -66 -128
1983........................................ -107 -12 -67 -22 -101 -208
1984........................................ -203 -21 38 - 17 -185
1985........................................ -195 -12 -17 12 -17 -212
1986........................................ -180 -8 -27 -7 -41 -221
1987........................................ -144 2 -16 8 -6 -150
1988........................................ -111 -9 -19 -16 -44 -155
1989........................................ -130 -22 10 -11 -23 -152
1990........................................ -91 -21 -31 -79 -131 -221
1991........................................ -63 21 -85 -143 -206 -269
1992........................................ -281 -36 -21 48 -10 -290
1993........................................ -350 -8 -13 115 95 -255
1994........................................ -264 -8 16 52 61 -203
1995........................................ -165 -18 1 18 1 -164
1996........................................ -197 6 53 30 89 -107
1997........................................ -140 1 -4 121 118 -22
1998........................................ -121 -9 48 151 190 69
1999........................................ 10 -22 56 82 116 126
2000........................................ 117 -42 88 74 119 236
2001........................................ 184 -129 32 40 -57 127
2002........................................ 231 -103 -201 -85 -389 -158
Average..................................... ......... -21 -11 18 -14 .........
Absolute average \2\........................ ......... 25 43 53 90 .........
Standard deviation.......................... ......... 35 62 70 128 .........
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\1\ Surplus or deficit estimate includes the effect of the budget's policy proposals.
\2\ Absolute average is the average without regard to sign.
On average, the estimates for the budget year overestimated actual
surpluses (or underestimated actual deficits) by $14 billion over the
21-year period. Policy outcomes that differed from the original
proposals reduced the surplus by an average of $21 billion. Differences
between economic assumptions and actual economic performance reduced the
surplus an average of $11 billion. Differences due to these two factors
were partly offset by technical revisions, which increased the surplus
an average of $18 billion.
The relatively small average difference between actual and estimated
surpluses conceals a wide variation in the differences from budget to
budget. The differences ranged from a $389 billion overestimate to a
$190 billion underestimate. The $389 billion overestimate, in the 2002
Budget, was due largely to receipt shortfalls associated with the 2001
recession and associated weak stock market performance. About a quarter
of the overestimate was due to increased spending for recovery from the
September 11, 2001 terrorist attacks, homeland security measures, and
the war against terror, along with lower receipts due to the March 2002
economic stimulus act. The $190 billion underestimate of the surplus, in
the 1998 Budget, stemmed largely from stronger-than-expected economic
growth and a surge in individual income tax collections beyond that
accounted for by economic factors.
Because the average surplus difference obscures the degree of under-
and overestimation in the historical data, a more appropriate statistic
to measure the magnitude of the differences is the average absolute
difference. This statistic measures the difference without regard to
whether it was an under- or overestimate. Since 1982, the average
absolute difference has been $90 billion.
[[Page 394]]
Another measure of variability is the standard deviation. This
statistic measures the dispersion of the data around the average value.
The standard deviation of the surplus differences since 1982 is $128
billion. Like the average absolute difference, this measure illustrates
the high degree of variation in the difference between estimates and
actual surpluses.
The large variability in estimates of the surplus for the budget year
underscores the inherent uncertainties in estimating the future path of
the Federal budget. Some estimating errors are unavoidable, because of
differences between the President's original budget proposals and the
legislation that Congress actually enacts. Occasionally such differences
are huge, such as Congressional appropriations for disaster recovery,
homeland security, and war efforts in response to the terrorist attacks
of September 11, 2001, which were obviously not envisioned in the
President's budget submitted the previous February. Even aside from
differences in policy outcomes, errors in budget estimates can arise
from new economic developments, unexpected changes in program costs,
shifts in taxpayer behavior, and other factors. The budget impact of
changes in economic assumptions are discussed further in Chapter 2 of
this volume, ``Economic Assumptions.''
Five-Year Comparison of Actual to Estimated Surpluses
The substantial differences between actual surpluses and the budget
year estimates made less than two years earlier raises questions about
the degree of variability for estimates of years beyond the budget year.
Table 18-7 shows summary statistics for the surplus differences for the
current year (CY), budget year (BY), and the four succeeding years (BY+1
through BY+4). These are the years that are required to be estimated in
the budget by the Budget Enforcement Act of 1990.
On average, the budget estimates since 1982 understated the surplus in
the current year by $16 billion, but overestimated the surplus in the
budget year by $14 billion. The budget estimates overstated the surplus
in the years following, by amounts growing from $21 billion for BY+1 to
$35 billion for BY+4. While these results suggest a slight tendency to
overestimate surpluses toward the end of the budget horizon, the
averages are not statistically different from zero in light of the high
variation in the data.
The average absolute difference between estimated and actual surpluses
grows dramatically over the six years from CY through BY+4, from $47
billion in the current year to $90 billion for the budget year, to $203
billion for BY+4. While under- and overestimates of the surplus have
historically tended to average out, the absolute size of the under- or
overestimates grows as the estimates extend further into the future. The
standard deviation of the surplus differences shows the same pattern.
The standard deviation grows from $61 billion for current year estimates
to $128 billion for the budget year estimates and continues to increase
steadily as the estimates extend further out, reaching $236 billion for
BY+4.
[[Page 395]]
The estimates of variability in the difference between estimated and
actual surpluses can be used to construct a range of uncertainty around
a given set of surplus estimates. Statistically, if these differences
are normally distributed, the actual surplus will be within a range of
two standard deviations above or below the estimate about 90% of the
time. Chart 18-1 shows this range of uncertainty applied to the surplus
estimates in this budget. This chart illustrates that unforeseen
economic developments, policy outcomes, or other factors could give rise
to large swings in the surplus estimates.
Table 18-7. DIFFERENCES BETWEEN ESTIMATED AND ACTUAL SURPLUSES FOR FIVE-YEAR BUDGET ESTIMATES SINCE 1982
(In billions of dollars)
----------------------------------------------------------------------------------------------------------------
Estimate for budget year plus
Current Budget -----------------------------------
Measure year year One Two Three Four
estimate estimate year years years years
(BY+1) (BY+2) (BY+3) (BY+4)
----------------------------------------------------------------------------------------------------------------
Average difference \1\.................................. 16 -14 -21 -30 -41 -35
Average absolute difference \2\......................... 47 90 121 158 183 203
Standard deviation...................................... 61 128 158 189 207 236
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\1\ A positive figure represents an underestimate of the surplus or an overestimate of the deficit.
\2\ Average absolute difference is the average difference without regard to sign.