    [Analytical Perspectives]
    [Dimensions of the Budget]
    [20. 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 2004 with the current services
    estimates shown in the 2004 Budget published in February 2003.
    ---------------------------------------------------------------------------
      \1\ These requirements, for receipts and ``uncontrollable outlays,''
    are in 31 USC 1105(a)(18) through (20).
    ---------------------------------------------------------------------------
      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 2004

      This part of the chapter compares the actual receipts, outlays, and
    deficit for 2004 with the current services estimates \2\ shown in the
    2004 Budget published in February 2003. 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 2004 previously published by the Department of the Treasury.
    ---------------------------------------------------------------------------
      \2\ The current services concept is discussed in Chapter 25, ``Current
    Services Estimates.'' For mandatory programs and receipts the February
    2003 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.
    ---------------------------------------------------------------------------

                                    Receipts

      Actual receipts for 2004 were $1,880 billion, $151 billion less than
    the $2,031 billion current services estimate in the 2004 Budget
    (February 2003). As shown in Table 20-1, 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. In the interest of cautious and prudent forecasting,
    the February 2003 estimate included a downward adjustment beyond what
    the economic and receipts models were forecasting. This adjustment,
    which was not distributed by source of receipt, reduced the estimate of
    2004 receipts by $15 billion.
      Policy differences. Enactment of the Jobs and Growth Tax Relief
    Reconciliation Act in May 2003 reduced 2004 receipts by $138 billion.
    This reduction was partially offset by enactment of the Pension Funding
    Equity Act in April 2004, which increased 2004 receipts by $3 billion.

              Table 20-1.  COMPARISON OF ACTUAL 2004 RECEIPTS WITH THE INITIAL CURRENT SERVICES  ESTIMATES
                                                (in billions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                             Enacted
                                               February   legislation/    Different  Technical     Net
                                                 2003    administrative   economic     factors    change     Actual
                                               estimate      actions     conditions
    ----------------------------------------------------------------------------------------------------------------
    Individual income taxes.................       954          -109           -29         -7       -145        809
    Corporation income taxes................       174           -26            14         27         16        189
    Social insurance and retirement receipts       765             *           -23         -8        -31        733
    Excise taxes............................        71   ..............         -*         -1         -1         70
    Estate and gift taxes...................        24   ..............          *          1          1         25
    Customs duties..........................        21            -*             *          *          *         21
    Miscellaneous receipts..................        38             1            -6         -1         -6         33
    Adjustment for revenue uncertainty......       -15   ..............  ..........        15         15   .........
                                             -----------------------------------------------------------------------
      Total.................................     2,031          -135           -43         27       -151      1,880
    ----------------------------------------------------------------------------------------------------------------
    * $500 million or less.

    [[Page 362]]

      Economic differences. Differences between the economic assumptions
    upon which the current services estimates were based and actual economic
    performance accounted for a reduction in 2004 receipts of $43 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 $29 billion
    and $23 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 2003 estimate. These reductions were only partially offset
    by a $14 billion increase in corporation income taxes, attributable to
    higher-than-expected corporate profits.
      Technical reestimates. Technical factors increased 2004 receipts a net
    $27 billion above the February 2003 current services estimate. This net
    increase was primarily attributable to higher-than-anticipated
    collections of corporation income taxes of $27 billion, which were
    partially offset by lower-than-anticipated collections of other sources
    of receipts (net of the adjustment for revenue uncertainty) of $1
    billion. Different collection patterns and effective tax rates than
    assumed in February 2003 were primarily responsible for the higher-than-
    anticipated collections of corporation income taxes. Lower-than
    anticipated collections in other sources of receipts were in large part
    captured by the adjustment for revenue uncertainty, resulting in a net
    reduction in collections from these sources of receipts of $1 billion.

                                     Outlays

      Outlays for 2004 were $2,292 billion, $103 billion more than the
    $2,189 billion current services estimate in the 2004 Budget (February
    2003).
      Table 20-2 distributes the $103 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.
    ---------------------------------------------------------------------------
      \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 20-2.  COMPARISON OF ACTUAL 2004 OUTLAYS WITH THE INITIAL CURRENT SERVICES ESTIMATES
                                                  (outlays in billions)
    ----------------------------------------------------------------------------------------------------------------
                                                         Current                   Changes
                                                         Services -----------------------------------------
                                                          (Feb.                                     Total    Actual
                                                          2003)     Policy   Economic  Technical   changes
    ----------------------------------------------------------------------------------------------------------------
    Discretionary:
      Defense.........................................        383        63  ........          8        71       454
      Nondefense......................................        412        42  ........        -12        29       441
        Subtotal, discretionary.......................        795       105  ........         -5       100       895

    Mandatory:
      Social Security.................................        493  ........         *         -2        -1       492
      Other programs..................................        728        27         1        -11        17       745
        Subtotal, mandatory...........................      1,221        27         1        -13        15     1,237

    Net interest......................................        173         4       -22          5       -13       160

        Total outlays.................................      2,189       136       -21        -13       103     2,292
    ----------------------------------------------------------------------------------------------------------------
    * $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, which may reflect responses to
    changed economic conditions. For 2004, policy changes increased outlays
    an estimated $136 billion relative to the initial current services
    estimates.
      Policy changes increased discretionary outlays by $105 billion.
    Defense discretionary outlays increased by $63 billion and nondefense
    discretionary outlays increased by $42 billion. A significant portion of
    both defense and nondefense outlay increases resulted from enactment of
    the Emergency Wartime Supplemental Appropriations Acts in 2003 and 2004.
    Policy changes increased mandatory outlays by $27 billion above current
    law. Medicare outlays increased an estimated $11 billion, largely due to
    the Prescription Drug and Medicare Improvement Act of 2003. In addition,
    outlays for temporary state fiscal relief increased by another $11
    billion--$6 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
    largely consists of unemployment compensation outlays resulting from
    extensions of temporary extended unemployment benefits. Debt service
    costs increased by $4 billion due to outlay and revenue policy changes.

              Table 20-3.  COMPARISON OF THE ACTUAL 2004 DEFICIT WITH THE INITIAL CURRENT SERVICES ESTIMATE
                                                      (in billions)
    ----------------------------------------------------------------------------------------------------------------
                                                          Current                  Changes
                                                         Services -----------------------------------------
                                                           (Feb.                                    Total    Actual
                                                           2003)    Policy   Economic  Technical   changes
    ----------------------------------------------------------------------------------------------------------------
    Receipts...........................................     2,031      -135       -43         27      -151     1,880
    Outlays............................................     2,189       136       -21        -13       103     2,292
                                                        ------------------------------------------------------------
      Deficit..........................................       158       271        22        -39       254       412
    ----------------------------------------------------------------------------------------------------------------
    Note: Deficit changes are outlays minus receipts. For these changes, a plus indicates
    an increase in the deficit.

      Economic conditions that differed from those forecast in February 2003
    resulted in a net decrease in outlays of $21 billion. This decrease
    consists almost entirely of a $22 billion decrease in net interest due
    to lower-than-expected interest rates.

    [[Page 363]]

      Technical estimating differences and other changes resulted in a net
    decrease in outlays of $13 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 $5 billion, due to slower-than-expected outlays
    for nondefense programs. Outlays for mandatory programs decreased an
    estimated $13 billion. This largely reflects lower-than-anticipated
    outlays for Medicaid, farm subsidy programs, and unemployment
    compensation, partially offset by higher-than-anticipated outlays for
    mortgage credit programs and Medicare. Net interest outlays increased by
    $5 billion largely due to technical factors compared to the February
    2003 estimates.

      Table 20-4.  COMPARISON OF ACTUAL AND ESTIMATED OUTLAYS FOR MANDATORY AND RELATED PROGRAMS UNDER CURRENT LAW
                                                (in billions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                              2004
                                                                           -----------------------------------------
                                                                              Feb. 2003
                                                                              estimate       Actual        Change
    ----------------------------------------------------------------------------------------------------------------
    Mandatory outlays:
      Human resources programs:
        Education, training, employment, and social services..............        10            13             3
        Health:
          Medicaid........................................................       177           176            -1
          Other...........................................................        18            16            -1
                                                                           -----------------------------------------
          Total health....................................................       194           192            -2
        Medicare..........................................................       249           265            16
        Income security:
          Retirement and disability.......................................        95            95            -*
          Unemployment compensation.......................................        40            42             2
          Food and nutrition assistance...................................        38            41             3
          Other...........................................................        99           103             4
                                                                           -----------------------------------------
            Total, income security........................................       273           281             8
        Social security...................................................       493           492            -1
        Veterans benefits and services:
          Income security for veterans....................................        32            31            -1
          Other...........................................................         3             *            -2
                                                                           -----------------------------------------
            Total veterans benefits and services..........................        34            31            -3
                                                                           -----------------------------------------
            Total mandatory human resources programs......................     1,253         1,273            20
                                                                           -----------------------------------------
      Other functions:
        Agriculture.......................................................        15            10            -5
        International.....................................................        -2            -7            -4
        Deposit insurance.................................................        -1            -2            -1
        Other functions...................................................        13            21             8
                                                                           -----------------------------------------
            Total, other functions........................................        24            22            -2
                                                                           -----------------------------------------
      Undistributed offsetting receipts:
        Employer share, employee retirement...............................       -52           -53            -1
        Rents and royalties on the outer continental shelf................        -4            -5            -1
        Other undistributed offsetting receipts...........................        -*      ............         *
                                                                           -----------------------------------------
            Total undistributed offsetting receipts.......................       -56           -59            -2
                                                                           -----------------------------------------
          Total, mandatory................................................     1,221         1,237            15
                                                                           -----------------------------------------
    Net interest:
      Interest on Treasury debt securities (gross)........................       349           322           -28
      Interest received by trust funds....................................      -164          -154            10
      Other interest......................................................       -12            -7             4
                                                                           -----------------------------------------
            Total net interest............................................       173           160           -13
                                                                           -----------------------------------------
            Total outlays for mandatory and net interest..................     1,394         1,397             2
    ----------------------------------------------------------------------------------------------------------------
    * $500 million or less.

                                  Table 20-5.  RECONCILIATION OF FINAL AMOUNTS FOR 2004
                                                (in millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                         Receipts         Outlays         Deficit
    ----------------------------------------------------------------------------------------------------------------
    Totals published by Treasury (September 30 MTS).................       1,879,799       2,292,352        -412,553
      Miscellaneous Treasury adjustments............................             -22            -291             269
                                                                     -----------------------------------------------
    Totals published by Treasury in Combined Statement..............       1,879,777       2,292,061        -412,284

      National Railroad Retirement Investment Trust.................  ..............            -231             231
      Exchange stabilization fund...................................  ..............             140            -140
      Public Company Accounting Oversight Board.....................             119              68              51
      Standard Setting Body.........................................              38              38  ..............
      United Mine Workers of America benefit funds..................             127             127  ..............
      Other.........................................................              10              12              -2
                                                                     -----------------------------------------------

      Total adjustments, net........................................             294             154             140

    Totals in the budget............................................       1,880,071       2,292,215        -412,144

    MEMORANDUM:
      Total change since year-end statement.........................             272            -137             409
    ----------------------------------------------------------------------------------------------------------------

                                     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 2004. This section combines these
    effects to show the net impact of these differences.
      As shown in Table 20-3, the 2004 current services deficit was
    initially estimated to be $158 billion. The actual deficit was $412
    billion, which was a $254 billion increase from the initial estimate.
    Receipts were $151 billion less than the initial estimate and outlays
    were $103 billion more. The table shows the distribution of the changes
    according to the categories in the preceding two sections.
      The net effect of policy changes for receipts and outlays increased
    the deficit by $271 billion. Economic conditions that differed from the
    initial assumptions in February 2003 accounted for an estimated $22
    billion increase in the deficit. Technical factors reduced the deficit
    by an estimated $39 billion.

    Comparison of the Actual and Estimated Outlays for Mandatory and Related
                                Programs for 2004

      This section compares the original 2004 outlay estimates for mandatory
    and related programs under current law in the 2004 Budget (February
    2003) 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.
      Table 20-4 shows the differences between the actual outlays for these
    programs in 2004 and the amounts originally estimated in the 2004
    Budget, based on laws in effect at that time. Actual outlays for
    mandatory spending and net interest in 2004 were $1,397 billion, which
    was $2 billion more than the initial estimate of $1,394 billion, based
    on existing law in February 2003.
      Actual outlays for mandatory human resources programs were $1,273
    billion, $20 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 $2 billion less than originally estimated.
    Undistributed offsetting receipts were $2 billion higher than expected.
      Outlays for net interest were $160 billion or $13 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
                                      2004

      Table 20-5 provides a reconciliation of the receipts, outlays, and
    deficit totals published by the Department of the Treasury in the
    September 2004 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 and outlays by $22 million and $291 million,
    respectively. Additional adjustments for this budget increased receipts
    by $294 million and outlays by $154 million. Several financial
    transactions that are not reported to the Department of the Treasury,
    including those for the Public Company Accounting Oversight Board, the
    receipt of

    [[Page 364]]

    accounting oversight fees and their payment to the Standard Setting
    Body, and the United Mine Workers of America benefit funds, are included
    in the budget. Other significant conceptual differences in reporting are
    for the National Railroad Retirement Investment Trust (NRRIT) and the
    Exchange Stabilization Fund. Reporting to the Department of the Treasury
    for NRRIT is done with a one month lag, so that the fiscal year total
    provided in the Treasury Combined Statement covers September 2003
    through August 2004. The budget has been adjusted to reflect
    transactions that occurred during the actual fiscal year, which begins
    in October. For the Exchange Stabilization Fund, reporting for the
    budget excludes the gains and losses in the valuation of foreign
    currencies held in the fund.

    [[Page 365]]

      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 20-6 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 2004
    differs from that shown in Table 20-3, 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 20-6 are
    on this basis.

                    Table 20-6.  COMPARISON OF ESTIMATED AND ACTUAL SURPLUSES OR DEFICITS SINCE 1982
                                                (In billions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                  Surplus          Differences due to
                                                or deficit ----------------------------------
                                                    (-)                                                     Actual
                     Budget                      estimated                                       Total    surplus or
                                                    for       Enacted    Economic  Technical  difference   deficit(-
                                                  budget    legislation   factors    factors                   )
                                                 year \1\
    ----------------------------------------------------------------------------------------------------------------

    1982......................................         -62          15        -70        -11        -66        -128
    1983......................................        -107         -12        -67        -22       -101        -208
    1984......................................        -203         -21         38         -0         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        -153
    1990......................................         -91         -21        -31        -79       -131        -221
    1991......................................         -63          21        -85       -143       -206        -269
    1992......................................        -281         -36        -21         48         -9        -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         73        119         236
    2001......................................         184        -129         32         41        -56         128
    2002......................................         231        -104       -201        -84       -389        -158
    2003......................................         -80         -86        -34       -177       -297        -378
    2004......................................        -307        -122        -22         39       -105        -412

    Average...................................  ..........         -28        -12         10        -30   ..........
    Absolute average \2\......................  ..........          32         42         58        100   ..........
    Standard deviation........................  ..........          42         59         79        137   ..........
    ----------------------------------------------------------------------------------------------------------------
    \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 underestimated actual
    deficits (or overestimated actual surpluses) by $30 billion over the 23-
    year period. Policy outcomes that differed from the original proposals
    increased the deficit by an average of $28 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 $10 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.
      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 $137
    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

    [[Page 366]]

    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 12 of this volume,
    ``Economic Assumptions.''

        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 20-7 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.

    Table 20-7.  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  -------------------------------------------
                                                       year       year                            Three       Four
                                                     estimate   estimate   One year  Two years    years      years
                                                                            (BY+1)     (BY+2)     (BY+3)     (BY+4)
    ----------------------------------------------------------------------------------------------------------------
    Average difference \1\........................         16        -30        -65        -86        -95        -99
    Average absolute difference \2\...............         51        100        156        201        223        240
    Standard deviation............................         64        137        210        253        258        271
    ----------------------------------------------------------------------------------------------------------------
    \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.

      On average, the budget estimates since 1982 overstated the deficit in
    the current year by $16 billion, but underestimated the deficit in the
    budget year by $30 billion. The budget estimates understated the deficit
    in the years following, by amounts growing from $65 billion for BY+1 to
    $99 billion for BY+4. While these results suggest a tendency to
    underestimate defi

    [[Page 367]]

    cits 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 $51
    billion in the current year to $100 billion for the budget year, to $240
    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 $64 billion for current year estimates
    to $137 billion for the budget year estimates and continues to increase
    steadily as the estimates extend further out, reaching $271 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 percent of the time.
    Chart 20-1 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.