    [Analytical Perspectives]
    [Dimensions of the Budget]
    [20. Comparison of Actual to Estimated Totals]
    [From the U.S. Government Printing Office, www.gpo.gov]

    [[Page 331]]

                  20.  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. Part I of this chapter meets that requirement by comparing
    the actual results for 2005 with the current services estimates shown in
    the 2005 Budget published in February 2004.
      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 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 2005

      This part of the chapter compares the actual receipts, outlays, and
    deficit for 2005 with the current services estimates shown in the 2005
    Budget published in February 2004.\1\ 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 2005 previously published by the Department of the Treasury.
    ---------------------------------------------------------------------------
      \1\ The current services concept is discussed in Chapter 24, ``Current
    Services Estimates.'' For mandatory programs and receipts the February
    2004 current services estimate was based on laws then in place, adjusted
    to reflect extension of certain expiring provisions in the 2001 and 2003
    tax acts. For discretionary programs the current services estimate is
    based on the current year estimates, excluding one-time emergency
    appropriations, adjusted for inflation.
    ---------------------------------------------------------------------------

                                    Receipts

      Actual receipts for 2005 were $2,154 billion, $117 billion more than
    the $2,037 billion current services estimate in the 2005 Budget
    (February 2004). As shown in Table 20-1, this increase 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 2004 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
    2005 receipts by $15 billion.

              Table 20-1.  COMPARISON OF ACTUAL 2005 RECEIPTS WITH THE INITIAL CURRENT SERVICES  ESTIMATES
                                                (In billions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                             Enacted
                                               February   legislation/    Different  Technical     Net
                                                 2004    administrative   economic     factors    change     Actual
                                               estimate      actions     conditions
    ----------------------------------------------------------------------------------------------------------------
    Individual income taxes.................       882           -16            13         48         45        927
    Corporation income taxes................       222            -2           -26         84         56        278
    Social insurance and retirement receipts       794   ..............          8         -8          *        794
    Excise taxes............................        73             2            -*         -2         -*         73
    Estate and gift taxes...................        21             2             *          2          3         25
    Customs duties..........................        22            -*             1         -*          1         23
    Miscellaneous receipts..................        37             *             1         -4         -4         33
    Adjustment for revenue uncertainty......       -15   ..............  ..........        15         15   .........
                                             -----------------------------------------------------------------------
      Total receipts........................     2,037           -14            -3        134        117      2,154
    ----------------------------------------------------------------------------------------------------------------
    * $500 million or less.

    [[Page 332]]

       Policy differences. Certain provisions in the 2001 and 2003 tax cuts
    were assumed to be extended in the February 2004 current services
    estimates. These provisions, which included tax rate reductions,
    marriage penalty relief, and increases in the child tax credit, reduced
    the current services estimate of 2005 receipts by $12 billion. These
    provisions were extended in the Working Families Tax Relief Act of 2004.
    Other legislated tax changes after February 2004 that affected 2005
    receipts included the Pension Funding Equity Act and the American Jobs
    Creation Act of 2005. In total, these legislated tax changes reduced
    2005 receipts by $26 billion, which was $14 billion more than the $12
    billion in tax reductions already reflected in the current services
    estimates.
       Economic differences. Differences between the economic assumptions
    upon which the current services estimates were based and actual economic
    performance accounted for a reduction in 2005 receipts of a net $3
    billion. Higher than anticipated wages and salaries and other sources of
    personal income were in large part responsible for the increases in
    individual income taxes and social insurance and retirement receipts of
    $13 billion and $8 billion, respectively. These increases were more than
    offset by a $26 billion decrease in corporation income taxes,
    attributable to lower-than-expected corporate profits.
       Technical reestimates. Technical factors increased 2005 receipts by a
    net $134 billion above the February 2004 current services estimate. This
    net increase was primarily attributable to higher-than-anticipated
    collections of individual and corporation income taxes of $48 billion
    and $84 billion, respectively. Different collection patterns and
    effective tax rates than assumed in February 2004 were primarily
    responsible for the higher-than-anticipated collections of individual
    and corporation income taxes. Higher-than-anticipated collections of
    estate and gift taxes increased 2005 receipts an additional $2 billion
    above the February 2004 estimate. Lower-than-anticipated collections of
    other sources of receipts of nearly $15 billion were in large part
    captured by the adjustment for revenue uncertainty, resulting in no net
    effect on receipts, relative to the February 2004 estimate.

                                     Outlays

      Outlays for 2005 were $2,472 billion, $75 billion more than the $2,397
    billion current services estimate in the 2005 Budget (February 2004).
      Table 20-2 distributes the $75 billion net increase in outlays among
    discretionary and mandatory programs and net interest. \2\ The table
    also makes rough estimates according to three reasons for the changes:
    policy; economic conditions; and technical estimating differences, a
    residual.
    ---------------------------------------------------------------------------
      \2\ 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 2005 OUTLAYS WITH THE INITIAL CURRENT SERVICES ESTIMATES
                                                  (Outlays in billions)
    ----------------------------------------------------------------------------------------------------------------
                                                         Current                   Changes
                                                         Services -----------------------------------------
                                                          (Feb.                                     Total    Actual
                                                          2004)     Policy   Economic  Technical   changes
    ----------------------------------------------------------------------------------------------------------------
    Discretionary:
      Defense.........................................        439        39  ........         15        55       494
      Nondefense......................................        471        10  ........         -6         4       475
                                                       -------------------------------------------------------------
        Subtotal, discretionary.......................        910        50  ........          9        59       968

    Mandatory:
      Social Security.................................        510        -*         5          3         8       519
      Other programs..................................        799         6        -*         -3         2       801
                                                       -------------------------------------------------------------
        Subtotal, mandatory...........................      1,309         6         5         -*        11     1,320

    Net interest......................................        178         1         3          2         6       184
                                                       -------------------------------------------------------------
        Total outlays.................................      2,397        57         8         11        75     2,472
    ----------------------------------------------------------------------------------------------------------------
    * $500 million or less.

              Table 20-3.  COMPARISON OF THE ACTUAL 2005 DEFICIT WITH THE INITIAL CURRENT SERVICES ESTIMATE
                                                      (In billions)
    ----------------------------------------------------------------------------------------------------------------
                                                          Current                  Changes
                                                         Services -----------------------------------------
                                                           (Feb.                                    Total    Actual
                                                           2004)    Policy   Economic  Technical   changes
    ----------------------------------------------------------------------------------------------------------------
    Receipts...........................................     2,037       -14        -3        134       117     2,154
    Outlays............................................     2,397        57         8         11        75     2,472
                                                        ------------------------------------------------------------
      Deficit..........................................       360        71        11       -123       -42       318
    ----------------------------------------------------------------------------------------------------------------
    Note: Deficit changes are outlays minus receipts. For these changes, a plus indicates fan increase in the
      deficit.

      Table 20-4.  COMPARISON OF ACTUAL AND ESTIMATED OUTLAYS FOR MANDATORY AND RELATED PROGRAMS UNDER CURRENT LAW
                                                (In billions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                              2005
                                                                           -----------------------------------------
                                                                              Feb. 2005
                                                                              estimate       Actual        Change
    ----------------------------------------------------------------------------------------------------------------
    Mandatory outlays:
      Human resources programs:
        Education, training, employment, and social services..............        11            18             8
        Health:
          Medicaid........................................................       183           182            -1
          Other...........................................................        19            18            -*
                                                                           -----------------------------------------
            Total health..................................................       202           200            -2
        Medicare..........................................................       290           294             5

        Income security:
          Retirement and disability.......................................        99           100             1
          Unemployment compensation.......................................        41            32            -8
          Food and nutrition assistance...................................        43            45             2
          Other...........................................................       112           114             2
                                                                           -----------------------------------------
            Total, income security........................................       295           292            -3
        Social security...................................................       510           519             8
        Veterans benefits and services:
          Income security for veterans....................................        37            36            -1
          Other...........................................................         2             4             1
                                                                           -----------------------------------------
            Total veterans benefits and services..........................        39            40             1
                                                                           -----------------------------------------
            Total mandatory human resources programs......................     1,347         1,363            16
                                                                           -----------------------------------------
      Other functions:
        Agriculture.......................................................        17            21             4
        International.....................................................        -2            -4            -2
        Deposit insurance.................................................        -2            -1             *
        Other functions...................................................        12             7            -5
                                                                           -----------------------------------------
            Total, other functions........................................        25            22            -3
                                                                           -----------------------------------------
      Undistributed offsetting receipts:
        Employer share, employee retirement...............................       -57           -59            -2
        Rents and royalties on the outer continental shelf................        -5            -6            -1
        Other undistributed offsetting receipts...........................        -*            -*            -*
                                                                           -----------------------------------------
            Total undistributed offsetting receipts.......................       -62           -65            -3
                                                                           -----------------------------------------
          Total, mandatory................................................     1,309         1,320            11
                                                                           -----------------------------------------
    Net interest:
        Interest on Treasury debt securities (gross)......................       350           352             2
        Interest received by trust funds..................................      -161          -161            -*
        Other interest....................................................       -11            -7             4
                                                                           -----------------------------------------
          Total net interest..............................................       178           184             6
                                                                           -----------------------------------------
            Total outlays for mandatory and net interest..................     1,487         1,504            17
    ----------------------------------------------------------------------------------------------------------------
    * $500 million or less.

                                  Table 20-5.  RECONCILIATION OF FINAL AMOUNTS FOR 2005
                                                (In millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                         Receipts         Outlays         Deficit
    ----------------------------------------------------------------------------------------------------------------
    Totals published by Treasury (September 30 MTS).................       2,154,305       2,472,920        -318,615
      Miscellaneous Treasury adjustments............................            -977          -1,125             148
                                                                     -----------------------------------------------
    Totals published by Treasury in Combined Statement..............       2,153,328       2,471,796        -318,468

      Affordable Housing Program....................................             232             198              34
      Exchange Stabilization Fund...................................  ..............            -169             169
      Public Company Accounting Oversight Board.....................             130             130  ..............
      National Railroad Retirement Investment Trust.................  ..............              70             -70
      United Mine Workers of America benefit funds..................             125             125  ..............
      Other.........................................................              44              55             -11
                                                                     -----------------------------------------------
      Total adjustments, net........................................             531             409             122

    Totals in the budget............................................       2,153,859       2,472,205        -318,346

    MEMORANDUM:
      Total change since year-end statement.........................            -446            -715             269
    ----------------------------------------------------------------------------------------------------------------

      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 themselves reflect
    responses to changed economic conditions. For 2005, policy changes
    increased outlays by an estimated $57 billion relative to the initial
    current services estimates.
      Policy changes increased discretionary outlays by $50 billion. Defense
    discretionary outlays increased by $39 billion and nondefense
    discretionary outlays increased by $10 billion. A significant portion of
    both defense and nondefense outlay increases resulted from enactment of
    the Emergency Hurricane Supplemental Appropriations Acts in 2004 and the
    Emergency Supplemental Appropriations Act for Defense, the Global War on
    Terror, and Tsunami Relief in 2005. Policy changes increased mandatory
    outlays by $6 billion above current law. Drought and other aid to
    farmers enacted in one of the Emergency Hurricane Supplemental Appropria

    [[Page 333]]

    tions Acts in 2004, increased agricultural outlays by $3 billion. In
    addition, child tax credit outlays increased by $2 billion due to
    enactment of the Working Families Tax Relief Act of 2004. The remaining
    $1 billion increase largely consists of tobacco payments and higher
    outlays for other mandatory programs, partially offset by the extension
    of expiring Customs user fees and a delay in obligations by the Crime
    Victims Fund. Debt service costs increased by $1 billion due to outlay
    and revenue policy changes.
      Economic conditions that differed from those forecast in February 2004
    resulted in a net increase in outlays of $8 billion. The most
    significant changes consist of a $5 billion increase in Social Security
    benefits largely resulting from higher cost-of-living adjustments and a
    $3 billion increase in net interest due to higher-than-expected interest
    rates.
      Technical estimating differences and other changes resulted in a net
    increase in outlays of $11 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
    increased an estimated $9 billion because budget authority for defense
    programs was spent faster than expected, partially offset by slower-
    than-expected outlays for nondefense programs. The technical outlay
    change for mandatory programs netted to a decrease of less than $500
    million. Higher-than-anticipated outlays for higher-education programs,
    Medicare, and other mandatory programs were slightly more than offset by
    lower-than-anticipated outlays for unemployment compensation and other
    programs. Net interest outlays increased by $2 billion due to technical
    factors compared to the February 2004 estimates.

                                     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 2005. This section combines these
    effects to show the net impact of these differences.
      As shown in Table 20-3, the 2005 current services deficit was
    initially estimated to be $360 billion. The actual deficit was $318
    billion, which was a $42 billion decrease from the initial estimate.
    Receipts were $117 billion more than the initial estimate and outlays
    were $75 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 $71 billion. Economic conditions that differed from the
    initial assumptions in February 2004 accounted for an estimated $11
    billion increase in the deficit. Technical factors reduced the deficit
    by an estimated $123 billion.

    Comparison of the Actual and Estimated Outlays

                   Outlays for Mandatory and Related Programs

                                Programs for 2005

      This section compares the original 2005 outlay estimates for mandatory
    and related programs under current law in the 2005 Budget (February
    2004) 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 2005 and the amounts originally estimated in the 2005
    Budget, based on laws in effect at that time. Actual outlays for
    mandatory spending and net interest in 2005 were $1,504 billion, which
    was $17 billion more than the initial estimate of $1,487 billion, based
    on existing law in February 2004.
      As table 20-4 shows, actual outlays for mandatory human resources
    programs were $1,363 billion, $16 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 higher than expected, thus reducing total outlays.

    [[Page 334]]

      Outlays for net interest were $184 billion, or $6 billion more than
    the original estimate. This increase 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
                                      2005

      Table 20-5 provides a reconciliation of the receipts, outlays, and
    deficit totals published by the Department of the Treasury in the
    September 2005 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 $977 million and $1,125 million,
    respectively. Most of this adjustment was the correction of reporting
    for the unemployment insurance program. Additional adjustments for this
    Budget increased receipts by $531 million and outlays by $409 million.
    Several financial

    [[Page 335]]

    transactions that are not reported to the Department of the Treasury,
    including those for the Affordable Housing Program, the Public Company
    Accounting Oversight Board, 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 the NRRIT is done with a one month
    lag so that the fiscal year total provided in the Treasury Combined
    Statement covers September 2004 through August 2005. 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.

      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.

                    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
    2005......................................        -364         -67        -11        123         45        -318

    Average...................................                     -30        -12         15        -27
    Absolute average \2\......................                      33         41         61         98
    Standard deviation........................                      42         58         80        134
    ----------------------------------------------------------------------------------------------------------------
    \1\ Surplus or deficit estimate includes the effect of the budget's policy proposals.

    \2\ Absolute average is the average without regard to sign.

    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 for each budget include the Administration's
    policy proposals. Therefore, the original deficit estimate for 2005
    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.
      On average, the estimates for the budget year underestimated actual
    deficits (or overestimated actual surpluses) by $27 billion over the 24-
    year period. Policy outcomes that differed from the original proposals
    increased the deficit by an average of $30 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 $15 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 related to 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
    tax relief in 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.

    [[Page 336]]

    Since 1982, the average absolute difference has been $98 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 $134
    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 subsequently 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 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.
      On average, the budget estimates since 1982 overstated the deficit in
    the current year by $20 billion, but underestimated the deficit in the
    budget year by $27 billion. The budget estimates understated the deficit
    in the years following, by amounts growing from $63 billion for BY+1 to
    $121 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.

    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\........................         20        -27        -63        -99       -118       -121
    Average absolute difference \2\...............         53         98        153        210        240        255
    Standard deviation............................         65        134        206        254        273        281
    ----------------------------------------------------------------------------------------------------------------
    \1\ A positive figure represents an underestimate of the surplus or an overestimate of the deficit.
    \2\ Average absolute difference is the difference without regard to sign.

      The average absolute difference between estimated and actual deficits
    grows dramatically over the six years from CY through BY+4, from $53
    billion in the current year to $98 billion for the budget year, to $255
    billion for BY+4. While under- and overestimates of the deficit have
    historically tended to average out, the

    [[Page 337]]

    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
    $65 billion for current year estimates to $134 billion for the budget
    year estimates and continues to increase steadily as the estimates
    extend further out, reaching $281 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 two standard deviations 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.