[Analytical Perspectives]
[Dimensions of the Budget]
[19. Comparison of Actual to Estimated Totals]
[From the U.S. Government Printing Office, www.gpo.gov]
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 2003 with the current services estimates shown in
the 2003 Budget published in February 2002.
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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 actual results 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 growth in differences between estimates and
the eventual actual results grows as the estimates extend further into
the future.
PART I: COMPARISON OF ACTUAL TO ESTIMATED TOTALS FOR 2003
This part of the chapter compares the actual receipts, outlays, and
deficit for 2003 with the current services estimates \2\ shown in the
2003 Budget published in February 2002. 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 2003 previously published by the Department of the Treasury.
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\2\ The current services concept is discussed in Chapter 24, ``Current
Services Estimates.'' For mandatory programs and receipts the February
2002 current services estimate is based on laws then in place. For
discretionary programs the current services estimate is based on the
current year estimates adjusted for inflation.
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Receipts
Receipts in 2003 were $1,782 billion, which is $339 billion less than
the current services estimate of $2,121 billion in the 2003 Budget. As
shown in Table 19-1, 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 19-1. COMPARISON OF ACTUAL 2003 RECEIPTS WITH THE INITIAL CURRENT SERVICES ESTIMATES
(in billions of dollars)
----------------------------------------------------------------------------------------------------------------
Enacted
February legislation/ Different Technical Net
2002 administrative economic factors change Actual
estimate actions conditions
----------------------------------------------------------------------------------------------------------------
Individual income taxes................. 1,009 -33 -51 -131 -215 794
Corporation income taxes................ 208 -40 7 -44 -76 132
Social insurance and retirement receipts 750 -2 -13 -23 -37 713
Excise taxes............................ 69 .............. * -2 -2 68
Estate and gift taxes................... 24 .............. -* -2 -2 22
Customs duties.......................... 21 -1 * -* -1 20
Miscellaneous receipts.................. 40 .............. -6 * -6 35
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Total................................. 2,121 -76 -62 -201 -339 1,782
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* $500 million or less.
Policy differences. The Job Creation and Worker Assistance Act, which
was signed by President Bush on March 9, 2002, reduced 2003 receipts by
$36 billion. Enactment of the Jobs and Growth Tax Relief Reconciliation
Act in May 2003 reduced 2003 receipts by an additional $36 billion (see
Chapter 16, ``Federal Receipts'' for a description of this Act). Other
legislative and administrative changes reduced 2003 receipts by an
additional $4 billion.
[[Page 330]]
Economic differences. Differences between the economic assumptions
upon which the current services estimates were based and actual economic
performance accounted for a reduction in 2003 receipts of $62 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 $51 billion
and $13 billion, respectively. Lower-than-expected interest rates, which
affect deposits of earnings by the Federal Reserve, were in large part
responsible for the $6 billion reduction in miscellaneous receipts below
the February 2002 estimate. These reductions were only partially offset
by a $7 billion increase in corporation income taxes, attributable to
higher-than-expected corporate profits.
Technical reestimates. Technical factors reduced 2003 receipts a net
$201 billion below the February 2002 current services estimate. This net
reduction was primarily attributable to lower-than-anticipated
collections of individual and corporation income taxes of $131 billion
and $44 billion, respectively. Lower-than-anticipated collections of
social insurance and retirement receipts reduced 2003 receipts relative
to the February 2002 estimate by an additional $23 billion. Lower
effective tax rates on wages and salaries than estimated in February
2002 were primarily responsible for the net reductions in collections of
individual income taxes and social insurance and retirement receipts.
Different collection patterns and effective tax rates than assumed in
February 2002 were primarily responsible for the lower-than-anticipated
collections of corporation income taxes.
Outlays
Outlays for 2003 were $2,158 billion, $78 billion more than the $2,080
billion current services estimate in the 2003 Budget (February 2002).
Table 19-2 distributes the $78 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.
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Table 19-2. COMPARISON OF ACTUAL 2003 OUTLAYS WITH THE INITIAL CURRENT SERVICES ESTIMATES
(outlays in billions)
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Current Changes
Services -----------------------------------------
(Feb. Total Actual
2002) Policy Economic Technical changes
----------------------------------------------------------------------------------------------------------------
Discretionary:
Defense......................................... 351 70 ........ -16 54 405
Nondefense...................................... 409 18 ........ -6 12 421
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Subtotal, discretionary....................... 759 88 ........ -22 66 826
Mandatory:
Social Security................................. 472 ........ -* -1 -1 470
Other programs.................................. 674 40 * -6 35 708
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Subtotal, mandatory........................... 1,145 40 -* -7 34 1,179
Net interest...................................... 175 4 -28 3 -22 153
-------------------------------------------------------------
Total outlays................................. 2,080 132 -29 -25 78 2,158
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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, which
may reflect legislative responses to changed economic conditions, or
changes in authorizing legislation. For 2003, policy changes increased
outlays an estimated $132 billion relative to the initial current
services estimates.
Policy changes increased discretionary outlays by $88 billion. Defense
discretionary outlays increased by $70 billion and nondefense
discretionary outlays increased by $18 billion, largely due to the 2003
Emergency Wartime Supplemental Appropriations Act. Policy changes
increased mandatory outlays by $40 billion above current law. Farm
income subsidies increased by $13 billion due to the Farm Security and
Rural Investment Act of 2002 and the Consolidated Appropriations Act of
2003. Unemployment compensation outlays increased by another $13 billion
due to the Job Creation and Worker Assistance Act of 2002 and the
subsequent extensions of temporary extended unemployment compensation.
The increase also includes outlays for temporary state fiscal relief
totaling $9 billion, $4 billion for Medicaid and $5 billion for state
fiscal assistance grants, resulting from enactment of the Jobs and
Growth Tax Relief Reconciliation Act of 2003. The remaining $5 billion
increase includes a $2 billion reduction in offsetting receipts from
delaying spectrum auctions. Debt service costs increased by $4 billion
due to outlay and revenue policy changes.
[[Page 331]]
Economic conditions that differed from those forecast in February 2002
resulted in a net decrease in outlays of $29 billion. This decrease
almost entirely consists of a $28 billion decrease in net interest due
to lower-than-expected interest rates.
Technical estimating differences and other changes resulted in a net
decrease in outlays of $25 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 $22 billion, largely due to slower-than-expected
defense outlays. Outlays for mandatory programs decreased an estimated
$7 billion. This reflects lower-than-anticipated outlays for Federal
employee retirement and farm income subsidies, and downward subsidy
reestimate of Export-Import Bank loans, partly offset by higher-than-
anticipated outlays for Medicare. Net interest outlays increased by $3
billion largely due to higher deficits in 2002 and 2003 stemming from
technical factors compared to the February 2002 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 2003. This section combines these
effects to show the net impact of these differences.
As shown in Table 19-3, the initial 2003 current services estimate was
a surplus of $41 billion. The actual result was a deficit of $375
billion, a swing of $416 billion. Receipts were $339 billion less than
the initial estimate and outlays were $78 billion more. The table shows
the distribution of the changes according to the categories in the
preceding two sections.
Table 19-3. COMPARISON OF THE ACTUAL 2003 DEFICIT WITH THE INITIAL CURRENT SERVICES ESTIMATE
(in billions)
----------------------------------------------------------------------------------------------------------------
Current Changes
Services -----------------------------------------
(Feb. Total Actual
2002) Policy Economic Technical changes
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Receipts........................................... 2,121 -76 -62 -201 -339 1,782
Outlays............................................ 2,080 132 -29 -25 78 2,158
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Surplus/Deficit(-)............................... 41 -207 -34 -175 -416 -375
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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 $207 billion. Economic conditions that differed from the
initial assumptions in February 2002 accounted for an estimated $34
billion decrease in the surplus. Technical factors further reduced the
surplus by an estimated $175 billion.
Comparison of the Actual and Estimated Outlays for Mandatory and Related
Programs for 2003
This section compares the original 2003 outlay estimates for mandatory
and related programs under current law in the 2003 Budget (February
2002) 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 mandatory 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.
[[Page 332]]
Table 19-4. COMPARISON OF ACTUAL AND ESTIMATED OUTLAYS FOR MANDATORY AND RELATED PROGRAMS UNDER CURRENT LAW
(in billions of dollars)
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2003
-----------------------------------------
Feb. 2002
estimate Actual Change
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Mandatory outlays:
Human resources programs:
Education, training, employment, and social services.............. 8 11 3
Health:
Medicaid........................................................ 159 161 2
Other........................................................... 17 15 -2
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Total health.................................................... 175 175 -*
Medicare.......................................................... 229 246 17
Income security:
Retirement and disability....................................... 93 91 -2
Unemployment compensation....................................... 41 54 14
Food and nutrition assistance................................... 36 37 2
Other........................................................... 100 100 -*
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Total, income security........................................ 270 283 13
Social security................................................... 472 470 -1
Veterans benefits and services:
Income security for veterans.................................... 28 29 2
Other........................................................... 3 2 -*
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Total veterans benefits and services.......................... 30 31 1
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Total mandatory human resources programs...................... 1,185 1,217 33
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Other functions:
Agriculture....................................................... 12 17 5
International..................................................... -3 -7 -4
Deposit insurance................................................. 1 -1 -3
Other functions................................................... 8 7 -1
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Total, other functions........................................ 19 16 -3
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Undistributed offsetting receipts:
Employer share, employee retirement............................... -50 -49 1
Rents and royalties on the outer continental shelf................ -3 -5 -2
Other undistributed offsetting receipts........................... -5 ............ 5
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Total undistributed offsetting receipts....................... -58 -54 3
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Total, mandatory................................................ 1,145 1,179 34
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Net interest:
Interest on Treasury debt securities (gross)........................ 348 318 -29
Interest received by trust funds.................................... -161 -156 5
Other interest...................................................... -11 -9 2
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Total net interest............................................ 175 153 -22
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Total outlays for mandatory and net interest.................. 1,320 1,332 11
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* $500 million or less.
Table 19-4 shows the differences between the actual outlays for these
programs in 2003 and the amounts originally estimated in the 2003
Budget, based on laws in effect at that time. Actual outlays for
mandatory spending and net interest in 2003 were $1,332 billion, which
was $11 billion more than the initial estimate of $1,320 billion, based
on existing law in February 2002.
Actual outlays for mandatory human resources programs were $1,217
billion, $33 billion more than originally estimated. This increase was
the net effect of legislative action, differences between actual and
assumed economic conditions, differences between the anticipated and
actual number of beneficiaries, and other technical differences.
Outlays for other functions were $3 billion less than originally
estimated. Undistributed offsetting receipts were $3 billion less than
expected, largely due to lower spectrum auction receipts.
[[Page 333]]
Outlays for net interest were $153 billion, or $22 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.
Reconciliation of Differences with Amounts Published by Treasury for
2003
Table 19-5 provides a reconciliation of the receipts, outlays, and
deficit totals published by the Department of the Treasury in the
September 2003 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
decreased receipts by $202 million and increased outlays by $370
million. Additional adjustments for this budget increased receipts and
outlays by $227 million and $731 million, respectively. The major
changes were inclusion of the transactions of the United Mine Workers of
America benefit funds and adjustments of the exchange stabilization fund
principally to exclude gains and losses in the valuation of foreign
currencies held in the fund.
Table 19-5. RECONCILIATION OF FINAL AMOUNTS FOR 2003
(in millions of dollars)
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Receipts Outlays Deficit
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Totals published by Treasury (September MTS).................... 1,782,317 2,156,536 -374,219
Miscellaneous Treasury adjustments............................ -202 370 -572
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Totals published by Treasury in U.S. Government Annual Report... 1,782,115 2,156,906 -374,791
United Mine Workers of America benefit funds.................. 190 190 ..............
Exchange stabilization fund................................... .............. 484 -484
Other......................................................... 37 57 -20
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Total adjustments, net........................................ 227 731 -504
Totals in the budget............................................ 1,782,342 2,157,637 -375,295
MEMORANDUM:
Total change since year-end statement......................... 25 1,101 -1,076
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PART II: HISTORICAL COMPARISON OF ACTUAL TO ESTIMATED SURPLUSES OR
DEFICITS
This part of the chapter compares estimated surpluses or deficits to
actual outcomes over the last two decades. The first section compares
the estimate for the budget year of each budget with the subsequent
actual result. The second section extends the comparison to the
estimated surpluses or deficits 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 estimates of the surplus or deficit versus the subsequent
actual outcomes.
Historical Comparison of Actual to Estimated Results for the Budget Year
Table 19-6 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 original deficit estimate for 2003
differs from that shown in table 19-3, which is on a current services
basis. Earlier comparisons of actual and estimated surpluses or deficits
were on a policy basis, so for consistency the figures in Table 19-6 are
on this basis.
On average, the estimates for the budget year underestimated actual
deficits (or overestimated actual surpluses) by $26 billion over the 22-
year period. Policy outcomes that differed from the original proposals
increased the deficit by an average of $24 billion. Differences between
economic assumptions and actual economic performance increased the
deficit an average of $12 billion. Differences due to these two factors
were partly offset by technical revisions, which reduced the deficit an
average of $9 billion.
The relatively small average difference between actual and estimated
deficits conceals a wide variation in the differences from budget to
budget. The differences ranged from a $389 billion underestimate of the
deficit to a $190 billion overestimate. The $389 billion underestimate,
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 underestimate 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
overestimate of the deficit 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.
[[Page 334]]
Because the average deficit 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 $100 billion.
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 deficit differences since 1982 is $139
billion. Like the average absolute difference, this measure illustrates
the high degree of variation in the difference between estimates and
actual deficits.
The large variability in errors in estimates of the surplus or deficit
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 additional
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 is
discussed further in Chapter 11 of this volume, ``Economic
Assumptions.''
Table 19-6. COMPARISON OF ACTUAL AND ESTIMATED SURPLUSES OR DEFICITS SINCE 1982
(In billions of dollars)
----------------------------------------------------------------------------------------------------------------
Surplus Differences due to
or ----------------------------------
deficit (-
) Total Actual
Budget estimated Enacted Economic Technical difference surplus or
for legislation factors factors deficit(-)
budget
year \1\
----------------------------------------------------------------------------------------------------------------
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
2003....................................... -80 -86 -34 -175 -295 -375
Average.................................... ......... -24 -12 9 -26 ..........
Absolute average \2\....................... ......... 28 43 59 100 ..........
Standard deviation......................... ......... 37 61 80 139 ..........
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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.
Five-Year Comparison of Actual to Estimated Surpluses or Deficits
The substantial differences between actual surpluses or deficits 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 19-7 shows the summary statistics for the
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 overstated the deficit in
the current year by $13 billion, but underestimated the deficit in the
budget year by $26 billion. The budget estimates understated the deficit
in the years following, by amounts growing from $50 billion for BY+1 to
$60 billion for BY+4. While these results suggest a tendency to
underestimate deficits 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 deficits
grows dramatically over the six years from CY through BY+4, from $48
billion in the
[[Page 335]]
current year to $100 billion for the budget year, to $218 billion for
BY+4. While under- and overestimates of the deficit 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 deficit differences shows the same pattern. The
standard deviation grows from $62 billion for current year estimates to
$139 billion for the budget year estimates and continues to increase
steadily as the estimates extend further out, reaching $250 billion for
BY+4.
The estimates of variability in the difference between estimated and
actual deficits can be used to construct a range of uncertainty around a
given set of estimates. Statistically, if these differences are normally
distributed, the actual deficit will be within a range of two standard
deviations above or below the estimate about 90% of the time. Chart 19-1
shows this range of uncertainty applied to the deficit estimates in this
budget. This chart illustrates that unforeseen economic developments,
policy outcomes, or other factors could give rise to large swings in the
deficit estimates.
Table 19-7. DIFFERENCES BETWEEN ESTIMATED AND ACTUAL SURPLUSES OR DEFICITS 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\.................................. 13 -26 -50 -56 -68 -60
Average absolute difference \2\......................... 48 100 145 178 203 218
Standard deviation...................................... 62 139 201 219 234 250
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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.