[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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DIMENSIONS OF THE BUDGET
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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 2007 with the current services estimates shown in
the 2007 Budget, published in February 2006.
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 and a half
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 2007
This part of the chapter compares the actual receipts, outlays, and
deficit for 2007 with the current services estimates shown in the 2007
Budget, published in February 2006. \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 2007 previously published by the Department of the Treasury.
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\1\ The current services concept is discussed in Chapter 25, ``Current
Services Estimates.'' For mandatory programs and receipts, the February
2006 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 2007 were $2,568 billion, $124 billion more than
the $2,444 billion current services estimate in the 2007 Budget
(February 2006). 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 2007 RECEIPTS WITH THE INITIAL CURRENT SERVICES ESTIMATES
(In billions of dollars)
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Enacted
February legislation/ Different Technical Net
2006 administrative economic factors change Actual
estimate actions conditions
----------------------------------------------------------------------------------------------------------------
Individual income taxes................. 1,119 -38 7 75 45 1,163
Corporate income taxes.................. 265 -12 15 102 105 370
Social insurance and retirement receipts 884 .............. -10 -4 -15 870
Excise taxes............................ 75 -* -2 -8 -10 65
Estate and gift taxes................... 24 1 * 1 2 26
Customs duties.......................... 29 -1 1 -3 -3 26
Miscellaneous receipts.................. 48 .............. 2 -3 -1 48
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Total receipts........................ 2,444 -49 13 161 124 2,568
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* $500 million or less.
Policy differences. Several laws were enacted after February 2006
that reduced 2007 receipts by a net $49 billion. The provisions of the
Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA),
primarily the increase in the alternative minimum tax (AMT) exemption
amount and a modification of the timing of estimated tax payments by
corporations, reduced 2007 receipts by a net $34 billion. Enactment of
the Tax Relief and Health Care Act of 2006, which extended a number of
expired or expiring tax provisions,
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reduced 2007 receipts by an additional $16 billion. The effects of other
legislative and administrative changes on 2007 receipts were largely
offsetting.
Economic differences. Differences between the economic assumptions
upon which the current services estimates were based and actual economic
performance increased 2007 receipts by a net $13 billion above the
February 2006 estimate. Higher-than-expected corporation income tax
liability in tax years 2006 and 2007, attributable to higher-than-
expected taxable profits, increased collections of 2007 corporation
income taxes $15 billion above the February 2006 estimate. Higher-than-
anticipated non-wage sources of personal income, which more than offset
lower-than-anticipated wages and salaries, were in large part
responsible for the increase in individual income taxes of a net $7
billion. These increases in individual and corporation income taxes were
partially offset by a $10 billion decrease in social insurance and
retirement receipts, attributable in large part to lower-than-expected
wages and salaries. Differences between anticipated and actual economic
performance increased other sources of receipts by a net $1 billion.
Technical reestimates. Technical factors increased receipts by a net
$161 billion above the February 2006 current services estimate. This net
increase was in large part attributable to higher-than-expected
collections of individual and corporation income taxes and estate and
gift taxes, which were partially offset by lower-than-expected
collections of other sources of receipts. Different collection patterns
and effective tax rates than assumed in February 2006 were primarily
responsible for the higher-than-anticipated collections of individual
and corporation income taxes of $75 billion and $102 billion,
respectively. Greater-than-anticipated numbers and values of taxable
estates increased 2007 receipts an additional $1 billion above the
February 2006 estimate. Court decisions that effectively invalidated
part of the Federal telephone tax were in large part responsible for the
$8 billion reduction in excise tax collections relative to the February
2006 estimate. Technical factors reduced collections of the remaining
sources of receipts (social insurance and retirement receipts, customs
duties and miscellaneous receipts) below the February 2006 estimates by
smaller amounts.
Outlays
Outlays for 2007 were $2,730 billion, $30 billion more than the $2,701
billion current services estimate in the 2007 Budget (February 2006).
Table 20-2 distributes the $30 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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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 2007, policy changes
increased outlays by an estimated $133 billion relative to the initial
current services estimates.
Policy changes increased discretionary outlays by $124 billion.
Defense discretionary outlays increased by $105 billion and nondefense
discretionary outlays increased by $19 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, veterans' care, and hurricane recovery in 2006 and 2007. Policy
changes increased mandatory outlays by a net $6 billion
Table 20-2. COMPARISON OF ACTUAL 2007 OUTLAYS WITH THE INITIAL CURRENT SERVICES ESTIMATES
(Outlays in billions)
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Current Changes
Services -----------------------------------------
(Feb. Total Actual
2006) Policy Economic Technical changes
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Discretionary:
Defense......................................... 463 105 ........ -18 86 549
Nondefense...................................... 500 19 ........ -25 -7 493
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Subtotal, discretionary....................... 962 124 ........ -44 80 1,042
Mandatory:
Social Security................................. 581 ........ 3 -3 * 581
Medicare and Medicaid........................... 589 3 -1 -29 -28 561
Other programs.................................. 324 3 1 -19 -16 308
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Subtotal, mandatory........................... 1,495 6 2 -51 -44 1,451
Net interest...................................... 244 4 3 -14 -7 237
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Total outlays................................. 2,701 133 6 -109 30 2,730
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* $500 million or less.
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above current law. This increase reflects a $3.5 billion increase in
outlays for the Commodity Credit Corporation, enacted in the Emergency
Supplemental Appropriations and Additional Supplemental Appropriations
for Agriculture and Other Emergency Assistance Act for 2007, and a $3
billion increase in Medicare outlays, enacted in the Tax Relief and
Health Care Act of 2006. Debt service costs associated with the policy
receipt and outlay changes were $4 billion.
Economic conditions that differed from those forecast in February 2006
resulted in a net increase in outlays of $6 billion. The most
significant changes consist of a $3 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
decrease in outlays of $109 billion. Technical changes result from
changes in such factors as the number of beneficiaries for entitlement
programs, crop conditions, or other factors not associated with policy
changes or economic conditions. Outlays for discretionary programs
decreased an estimated $44 billion, because budget authority for both
defense and nondefense programs was spent more slowly than expected.
Outlays for mandatory programs decreased a net $51 billion, largely due
to lower-than-anticipated outlays for Medicare, Medicaid, and the
Commodity Credit Corporation. Net interest outlays also decreased by $14
billion due to technical factors compared to the February 2006
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 2007. This section combines these
effects to show the net deficit impact of these differences.
As shown in Table 20-3, the 2007 current services deficit was
initially estimated to be $257 billion. The actual deficit was $162
billion, which was a $95 billion decrease from the initial estimate.
Receipts were $124 billion more than the initial estimate and outlays
were $30 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 $183 billion. Economic conditions that differed from the
initial assumptions in February 2006 accounted for an estimated $7
billion decrease in the deficit. Technical factors reduced the deficit
by an estimated $270 billion.
Comparison of the Actual and Estimated Outlays for Mandatory and Related
Programs
This section compares the original 2007 outlay estimates for mandatory
and related programs under current law in the 2007 Budget (February
2006) 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.
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 2007 and the amounts originally estimated in the 2007
Budget, based on laws in effect at that time. Actual outlays for
mandatory spending and net interest in 2007 were $1,688 billion, which
was $50 billion less than the initial estimate of $1,738 billion, based
on existing law in February 2006.
As Table 20-4 shows, actual outlays for mandatory human resources
programs were $1,525 billion, $28 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 $24 billion less
than originally estimated. Undistributed offsetting receipts were $9
billion lower than expected, thus increasing total outlays.
Outlays for net interest were $237 billion or $7 billion less than the
original estimate. This decrease was the net effect of changes in
interest rates from those ini
Table 20-3. COMPARISON OF THE ACTUAL 2007 DEFICIT WITH THE INITIAL CURRENT SERVICES ESTIMATE
(In billions)
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Current Changes
Services -----------------------------------------
(Feb. Total Actual
2006) Policy Economic Technical changes
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Receipts........................................... 2,444 -49 13 161 124 2,568
Outlays............................................ 2,701 133 6 -109 30 2,730
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Deficit.......................................... 257 183 -7 -270 -95 162
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Note: Deficit changes are outlays minus receipts. For these changes, a plus indicates
an increase in the deficit.
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Table 20-4. COMPARISON OF ACTUAL AND ESTIMATED OUTLAYS FOR MANDATORY AND RELATED PROGRAMS UNDER CURRENT LAW
(In billions of dollars)
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2007
-----------------------------------------
Feb. 2006
estimate Actual Change
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Mandatory outlays:
Human resources programs:
Education, training, employment, and social services.............. 10 12 2
Health:
Medicaid........................................................ 199 191 -9
Other........................................................... 22 23 1
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Total health.................................................... 221 214 -7
Medicare.......................................................... 390 371 -19
Income security:
Retirement and disability....................................... 111 111 1
Unemployment compensation....................................... 38 32 -5
Food and nutrition assistance................................... 49 49 -*
Other........................................................... 114 117 3
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Total, income security........................................ 312 310 -2
Social security................................................... 581 581 *
Veterans benefits and services:
Income security for veterans.................................... 36 36 -*
Other........................................................... 3 2 -1
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Total veterans benefits and services.......................... 39 38 -2
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Total mandatory human resources programs...................... 1,554 1,525 -28
Other functions:
Agriculture....................................................... 21 12 -9
International..................................................... -2 -6 -4
Deposit insurance................................................. -2 -1 *
Other functions................................................... 15 4 -11
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Total, other functions........................................ 32 8 -24
Undistributed offsetting receipts:
Employer share, employee retirement............................... -62 -62 *
Rents and royalties on the outer continental shelf................ -9 -7 3
Other undistributed offsetting receipts........................... -20 -14 6
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Total undistributed offsetting receipts....................... -91 -82 9
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Total, mandatory................................................ 1,495 1,451 -44
Net interest:
Interest on Treasury debt securities (gross)........................ 438 430 -8
Interest received by trust funds.................................... -181 -178 3
Other interest...................................................... -13 -15 -2
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Total net interest............................................ 244 237 -7
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Total outlays for mandatory and net interest.................. 1,738 1,688 -50
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* $500 million or less.
tially assumed, changes in borrowing requirements due to differences in
deficits, and technical factors.
Reconciliation of Differences with Amounts Published by Treasury for
2007
Table 20-5 provides a reconciliation of the receipts, outlays, and
deficit totals published by the Department of the Treasury in the
September 2007 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
increased receipts by $2 million and decreased outlays by $6 million.
Additional adjustments for this Budget increased receipts by $566
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million and decreased outlays by $258 million. Several financial
transactions that are not reported to the Department of the Treasury,
including those for the Affordable Housing Program, the Public Company
Accounting Oversight Board, the Electric Reliability Organization, 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 2006 through August 2007. The budget has been adjusted
to reflect transactions that occurred during the actual fiscal year,
which begins in October.
Table 20-5. RECONCILIATION OF FINAL AMOUNTS FOR 2007
(In millions of dollars)
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Receipts Outlays Deficit
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Totals published by Treasury (September 30 MTS)................. 2,567,671 2,730,505 -162,834
Miscellaneous Treasury adjustments............................ 2 -6 8
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Totals published by Treasury in Combined Statement.............. 2,567,673 2,730,499 -162,826
Affordable Housing Program.................................... 315 315 ..............
Public Company Accounting Oversight Board..................... 122 122 ..............
Electric Reliability Organization............................. 65 65 ..............
United Mine Workers of America benefit funds.................. 44 49 -5
National Railroad Retirement Investment Trust................. .............. -782 782
Other......................................................... 20 -27 47
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Total adjustments, net........................................ 566 -258 824
Totals in the budget............................................ 2,568,239 2,730,241 -162,002
MEMORANDUM:
Total change since year-end statement......................... 568 -264 832
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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.
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 $12 billion over the 26-
year period. Policy outcomes that differed from the original proposals
increased the deficit by an average of $36 billion. Differences between
economic assumptions and actual economic performance increased the
deficit an average of $11 billion. Differences due to these two factors
were partly offset by technical revisions, which reduced the deficit an
average of $35 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 $192 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. As discussed above, the
$192 billion overestimate of the deficit in the 2007 Budget stemmed
largely from higher-than-anticipated collections of individual and
corporation income taxes due to different collection patterns and
effective tax rates than initially assumed, as well as lower-than-
expected outlays due to technical factors.
Because the average deficit difference obscures the degree of under-
and overestimation in the historical
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Table 20-6. COMPARISON OF ESTIMATED AND ACTUAL SURPLUSES OR DEFICITS SINCE 1982
(In billions of dollars)
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Surplus Differences due to
or deficit ----------------------------------
(-) Actual
Budget estimated Total surplus or
for Enacted Economic Technical difference deficit(-
budget legislation factors factors )
year \1\
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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 -413
2005...................................... -364 -67 -11 123 45 -318
2006...................................... -390 -141 6 277 142 -248
2007...................................... -354 -85 7 270 192 -162
Average................................... -36 -11 35 -12
Absolute average \2\...................... 40 38 77 103
Standard deviation........................ 47 56 104 140
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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.
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 $103
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 $140
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 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 $28 billion, but underestimated the deficit in the
budget year by $12 billion. The budget estimates understated the deficit
in the years following, by amounts growing from $50 billion for BY+1 to
$147 billion for BY+4. While
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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)
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Average difference \1\........................ 28 -12 -50 -89 -122 -147
Average absolute difference \2\............... 59 103 149 197 235 269
Standard deviation............................ 70 140 202 246 266 284
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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 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.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]