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