[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 2006 with the current services estimates shown in
the 2006 Budget, published in February 2005.
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 lengthens the focus to estimates made for each year of the
budget horizon, extending four years beyond the budget year. This longer
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 2006
This part of the chapter compares the actual receipts, outlays, and
deficit for 2006 with the current services estimates shown in the 2006
Budget, published in February 2005. \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 2006 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
2005 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 was
based on the current year estimates, excluding one-time emergency
appropriations, adjusted for inflation.
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Receipts
Actual receipts for 2006 were $2,407 billion, $229 billion more than
the $2,178 billion current services estimate in the 2006 Budget
(February 2005). 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.
Table 20-1. COMPARISON OF ACTUAL 2006 RECEIPTS WITH THE INITIAL CURRENT SERVICES ESTIMATES
(In billions of dollars)
----------------------------------------------------------------------------------------------------------------
Enacted
February legislation/ Different Technical Net
2005 administrative economic factors change Actual
estimate actions conditions
----------------------------------------------------------------------------------------------------------------
Individual income taxes................. 965 -11 10 81 79 1,044
Corporation income taxes................ 223 * -5 136 131 354
Social insurance and retirement receipts 819 .............. 16 3 19 838
Excise taxes............................ 76 * -1 -1 -2 74
Estate and gift taxes................... 26 1 * 1 2 28
Customs duties.......................... 27 -* 1 -3 -2 25
Miscellaneous receipts.................. 43 * 3 -1 2 45
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Total receipts........................ 2,178 -10 23 216 229 2,407
----------------------------------------------------------------------------------------------------------------
* $500 million or less.
Policy differences. Several laws were enacted after February 2005
that reduced 2006 receipts by a net $10 billion. The emergency tax
relief provided to individuals and businesses affected by hurricanes
Katrina, Rita and Wilma in the Katrina Emergency Tax Relief Act of 2005
and the Gulf Opportunity Zone Act of 2005 accounted for $5 billion of
the net reduction in 2006 receipts. The provisions of the Tax Increase
Prevention and Reconciliation Act of 2005 (TIPRA), primarily the
increase in the alternative minimum tax (AMT) exemp
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tion amount and a modification of the timing of estimated tax payments
by corporations, also reduced 2006 receipts by a net $5 billion. The
effects of other legislative and administrative changes on 2006 receipts
were largely offsetting.
Economic differences. Differences between the economic assumptions
upon which the current services estimates were based and actual economic
performance increased 2006 receipts by a net $23 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 $10 billion and $16
billion, respectively. These increases were partially offset by a $5
billion decrease in corporation income taxes, attributable to lower-
than-expected corporate profits. Differences between anticipated and
actual economic performance increased other sources of receipts by a net
$3 billion.
Technical reestimates. Technical factors increased 2006 receipts by a
net $216 billion above the February 2005 current services estimate. This
net increase was primarily attributable to higher-than-anticipated
collections of individual and corporation income taxes of $81 billion
and $136 billion, respectively. Different collection patterns and
effective tax rates than assumed in February 2005 were primarily
responsible for the higher-than-anticipated collections of individual
and corporation income taxes. Changes in other sources of receipts
attributable to technical factors were largely offsetting.
Outlays
Outlays for 2006 were $2,655 billion, $116 billion more than the
$2,539 billion current services estimate in the 2006 Budget (February
2005).
Table 20-2 distributes the $116 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 2006 OUTLAYS WITH THE INITIAL CURRENT SERVICES ESTIMATES
(Outlays in billions)
----------------------------------------------------------------------------------------------------------------
Current Changes
Services -----------------------------------------
(Feb. Total Actual
2005) Policy Economic Technical changes
----------------------------------------------------------------------------------------------------------------
Discretionary:
Defense......................................... 437 93 ........ -11 83 520
Nondefense...................................... 477 48 ........ -28 20 497
-------------------------------------------------------------
Subtotal, discretionary....................... 914 141 ........ -39 103 1,017
Mandatory:
Social Security................................. 540 ........ 7 -3 4 544
Other programs.................................. 876 15 -1 -22 -7 868
-------------------------------------------------------------
Subtotal, mandatory........................... 1,416 15 6 -25 -4 1,412
Net interest...................................... 209 3 12 2 17 227
-------------------------------------------------------------
Total outlays................................. 2,539 160 18 -61 116 2,655
----------------------------------------------------------------------------------------------------------------
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 2006, policy changes
increased outlays by an estimated $160 billion relative to the initial
current services estimates.
Policy changes increased discretionary outlays by $141 billion.
Defense discretionary outlays increased by $93 billion and nondefense
discretionary outlays increased by $48 billion. A significant portion of
both defense and nondefense outlay increases resulted from enactment of
emergency supplemental appropriation acts for defense, the Global War on
Terror, and hurricane recovery in 2005 and 2006. Policy changes
increased mandatory outlays by a net $15 billion above current law. This
increase largely reflects a $19 billion increase in outlays for the
National flood insurance program in response to hurricane recovery,
partly offset by a $5 billion decrease in Medicare outlays, largely
enacted in the Deficit Reduction Act of 2005.
Table 20-3. COMPARISON OF THE ACTUAL 2006 DEFICIT WITH THE INITIAL CURRENT SERVICES ESTIMATE
(In billions)
----------------------------------------------------------------------------------------------------------------
Current Changes
Services -----------------------------------------
(Feb. Total Actual
2005) Policy Economic Technical changes
----------------------------------------------------------------------------------------------------------------
Receipts........................................... 2,178 -10 23 216 229 2,407
Outlays............................................ 2,539 160 18 -61 116 2,655
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Deficit.......................................... 361 170 -6 -277 -113 248
----------------------------------------------------------------------------------------------------------------
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 2005
resulted in a net increase in outlays of $18 billion. The most
significant changes consist of a $7 billion increase in Social Security
benefits largely resulting from higher cost-of-living adjustments and a
$12 billion increase in net interest due to higher-than-expected
interest rates.
Technical estimating differences and other changes resulted in a net
decrease in outlays of $61 billion. Technical changes result from
changes in such factors
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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 $39 billion, because budget authority for both defense and
nondefense programs was spent more slowly than expected. Outlays for
mandatory programs decreased by a net $25 billion, largely because
higher-than-anticipated outlays for higher education and mortgage credit
programs were more than offset by lower-than-anticipated outlays for
Medicaid, Medicare, unemployment compensation, and other programs. Net
interest outlays increased by $2 billion due to technical factors
compared to the February 2005 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 2006. This section combines these
effects to show the net impact of these differences.
As shown in Table 20-3, the 2006 current services deficit was
initially estimated to be $361 billion. The actual deficit was $248
billion, which was a $113 billion decrease from the initial estimate.
Receipts were $229 billion more than the initial estimate and outlays
were $116 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 $170 billion. Economic conditions that differed from the
initial assumptions in February 2005 accounted for an estimated $6
billion decrease in the deficit. Technical factors reduced the deficit
by an estimated $277 billion.
Comparison of the Actual and Estimated Outlays for Mandatory and Related
Programs for 2006
This section compares the original 2006 outlay estimates for mandatory
and related programs under current law in the 2006 Budget (February
2005) with the actual outlays. Major examples of these programs include
Social Security and Medicare benefits, 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.
Table 20-4. COMPARISON OF ACTUAL AND ESTIMATED OUTLAYS FOR MANDATORY AND RELATED PROGRAMS UNDER CURRENT LAW
(In billions of dollars)
----------------------------------------------------------------------------------------------------------------
2006
-----------------------------------------
Feb. 2006
estimate Actual Change
----------------------------------------------------------------------------------------------------------------
Mandatory outlays:
Human resources programs:
Education, training, employment, and social services.............. 11 38 27
Health:
Medicaid........................................................ 193 181 -12
Other........................................................... 20 21 1
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Total health.................................................... 213 201 -11
Medicare.......................................................... 340 325 -15
Income security:
Retirement and disability....................................... 106 102 -3
Unemployment compensation....................................... 37 31 -6
Food and nutrition assistance................................... 51 48 -3
Other........................................................... 113 116 3
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Total, income security........................................ 307 298 -9
Social security................................................... 540 544 4
Veterans benefits and services:
Income security for veterans.................................... 35 36 *
Other........................................................... 3 2 -1
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Total veterans benefits and services.......................... 38 37 -1
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Total mandatory human resources programs...................... 1,449 1,444 -6
-----------------------------------------
Other functions:
Agriculture....................................................... 21 20 -1
International..................................................... -2 -7 -4
Deposit insurance................................................. -1 -1 -*
Other functions................................................... 15 24 9
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Total, other functions........................................ 33 37 4
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Undistributed offsetting receipts:
Employer share, employee retirement............................... -60 -61 -1
Rents and royalties on the outer continental shelf................ -7 -7 -*
Other undistributed offsetting receipts........................... -* -* -*
-----------------------------------------
Total undistributed offsetting receipts....................... -67 -68 -1
-----------------------------------------
Total, mandatory................................................ 1,416 1,412 -4
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Net interest:
Interest on Treasury debt securities (gross)........................ 391 406 15
Interest received by trust funds.................................... -172 -169 2
Other interest...................................................... -10 -10 -*
-----------------------------------------
Total net interest............................................ 209 227 17
-----------------------------------------
Total outlays for mandatory and net interest.................. 1,625 1,639 14
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* $500 million or less.
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 2006 and the amounts originally estimated in the 2006
Budget, based on laws in effect at that time. Actual outlays for
mandatory spending and net interest in 2006 were $1,639 billion, which
was $14 billion more than the initial estimate of $1,625 billion, based
on existing law in February 2005.
As Table 20-4 shows, actual outlays for mandatory human resources
programs were $1,444 billion, $6 billion less than originally estimated.
This decrease 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 $4 billion more than
originally estimated. Undistributed offsetting receipts were $1 billion
higher than expected, thus reducing total outlays.
Outlays for net interest were $227 billion, or $17 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 deficits, and technical factors.
Reconciliation of Differences with Amounts Published by Treasury for
2006
Table 20-5 provides a reconciliation of the receipts, outlays, and
deficit totals published by the Department of the Treasury in the
September 2006 Monthly Treasury Statement and those published in this
Budget. The Department of the Treasury made adjustments to the estimates
for the Combined Statement of Receipts, Outlays, and Balances, which
decreased receipts by $6 million and increased outlays by $499 million.
Nearly all of the outlay adjustment was the correction of reporting for
the Exchange Stabilization Fund. Additional adjustments for this Budget
increased receipts and outlays by $579 million and $557 million,
respectively. Several financial transactions that are not reported to
the De
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partment 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.
Reporting for these programs adds roughly equivalent amounts to outlays
and receipts, with little impact on the deficit. Another significant
conceptual difference in reporting is for the National Railroad
Retirement Investment Trust (NRRIT). 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
2005 through August 2006. The budget has been adjusted to reflect
transactions that occurred during the actual fiscal year, which begins
in October.
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Table 20-5. RECONCILIATION OF FINAL AMOUNTS FOR 2006
(In millions of dollars)
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Receipts Outlays Deficit
----------------------------------------------------------------------------------------------------------------
Totals published by Treasury (September 30 MTS)................. 2,406,681 2,654,379 -247,698
Miscellaneous Treasury adjustments............................ -6 499 -505
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Totals published by Treasury in Combined Statement.............. 2,406,675 2,654,878 -248,203
Affordable Housing Program.................................... 307 307 ..............
Public Company Accounting Oversight Board..................... 131 131 ..............
United Mine Workers of America benefit funds.................. 119 114 5
National Railroad Retirement Investment Trust................. .............. -48 48
Other......................................................... 22 53 -31
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Total adjustments, net........................................ 579 557 22
Totals in the budget............................................ 2,407,254 2,655,435 -248,181
MEMORANDUM:
Total change since year-end statement......................... 573 1,056 -483
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Part II: HISTORICAL COMPARISON OF ACTUAL TO ESTIMATED SURPLUSES OR
DEFICITS
This part of the chapter compares estimated surpluses or deficits to
actual outcomes over the last two and a half 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
2006...................................... -390 -141 6 277 142 -248
Average................................... .......... -34 -12 26 -20 ..........
Absolute average \2\...................... .......... 38 39 70 99 ..........
Standard deviation........................ .......... 46 57 94 136 ..........
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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 2006
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 $20 billion over the 25-
year period. Policy outcomes that differed from the original proposals
increased the deficit by an average of $34 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 $26 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 on 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. Since 1982, the average
absolute difference has been $99 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 $136
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
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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 difference 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 $26 billion, but underestimated the deficit in the
budget year by $20 billion. The budget estimates understated the deficit
in the years following, by amounts growing from $59 billion for BY+1 to
$141 billion for BY+4. While these results suggest a tendency to
underestimate deficits toward the end of the budget horizon, the
averages are not statistically different from zero in light of the high
variation in the data.
The average absolute difference between estimated and actual deficits
grows dramatically over the six years from CY through BY+4, from $58
billion in the current year to $99 billion for the budget year, to $269
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 $71 billion for current year estimates
to $136 billion for the budget year estimates and continues to increase
steadily as the estimates extend further out, reaching $289 billion for
BY+4.
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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\........................ 26 -20 -59 -97 -128 -141
Average absolute difference \2\............... 58 99 149 202 245 269
Standard deviation............................ 71 136 202 249 271 289
----------------------------------------------------------------------------------------------------------------
\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 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.