Order Code IB10102
Issue Brief for Congress
Received through the CRS Web
The Budget for Fiscal Year 2003
Updated April 10, 2003
Philip D. Winters
Government and Finance Division
Congressional Research Service ˜ The Library of Congress

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CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Budget Totals
Budget Proposals and Estimates
Uncertainty in Budget Projections
Budget Action
Outlays
Receipts
Surpluses Or Deficits
The Budget and the Economy
107th Congress Legislation
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS

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The Budget for Fiscal Year 2003
SUMMARY
Congress adopted the Consolidated
homeland security spending, and little growth
Appropriations Resolution for fiscal year (FY)
in other areas of discretionary spending.
2003 (CAR2003; H.J.Res. 2) on February 13,
2003. The legislation funded the 11 remain-
In early March 2002, CBO released
ing regular appropriations (out of 13; two
reestimates of the President’s policy proposals
were adopted in October 2002, Defense and
using CBO’s economic and technical assump-
Military Construction) for the remainder of
tions. The CBO estimates of the Administra-
the fiscal year. The President signed the
tion’s policy proposals produced a deficit of
resolution into law (P.L. 108-7) on February
$121 billion for FY2003.
20. This followed the adoption of eight con-
tinuing resolutions on appropriations (CRs)
The Bush Administration’s early 2002
that funded those activities not covered by
economic stimulus proposal was superseded
regular appropriations.
by stimulus legislation adopted by Congress
on March 7, 2002 (The Job Creation and
The President proposed a $75 billion
Worker Assistance Act of 2002; H.R. 3090,
supplemental appropriations to pay for the war
P.L. 107-147), that would increase the then
in Iraq and for additional homeland security
estimated deficit (from baseline levels) by $43
funding on March 24. The legislation, after
billion in FY2003.
changes, passed the House and Senate on
April 3 and 7 respectively. Congress is work-
The House Budget Committee adopted
ing to complete action on the legislation on or
its version of the FY2003 budget resolution,
before April 11.
H.Con.Res. 353, on March 13, 2002. The
House passed the resolution on March 20.
The Administration’s FY2004 budget
The resolution contained a deficit of $46
(February 2003) proposal, put the FY2003
billion for the year. Like the President’s
deficit at $304 billion, up from the $80 billion
budget the resolution focused on funding the
in the Administration’s original FY2003
war on terrorism and for homeland security.
proposals. The Congressional Budget Of-
fice’s (CBO) January 2003 budget report had
The Senate Budget Committee reported
an FY2003 baseline deficit of $199 billion.
its version of the FY2003 budget resolution
(S.Con.Res. 100) on March 22. Its provisions
The President released his original FY-
for defense and homeland security were simi-
2003 budget proposals on February 4, 2002,
lar to (but not the same as) those in the House
shortly after the release of the CBO annual
resolution and the President’s budget. The
budget report. The budget balance without the
Senate never considered the budget resolution.
effect of the President’s proposals (the base-
line), showed a small surplus ($41 billion)
The deficit expected now for FY2003,
from the Administration and a small deficit
$250 billion to $305 billion, resulted from a
($14 billion) from CBO.
combination of a weak economy, changes in
underlying technical components of the bud-
The President’s FY2003 budget proposed
get, the government’s budgetary response to
tax cuts and spending increases to stimulate
the terrorist attacks in the fall of 2002, the tax
the economy, rapid increases in defense and
cut adopted in June 2001.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
The President’s February 2003 and CBO’s January and March 2003 budget reports (for
fiscal year (FY) 2004) reflected the continued deterioration in the budget outlook for
FY2003. The Administration’s FY2004 budget raised the estimated FY2003 deficit to $304
billion (or $264 billion without policy changes). The estimate did not include costs of the
war with Iraq. CBO’s March baseline had an FY2003 deficit of $246 under current policies,
meaning no tax cuts, no spending increases, no costs associated with a war with Iraq. CBO’s
analysis of the President’s proposals produced a deficit of $287 billion in FY2003.
Congress adopted, on February 3, 2003, the eighth and final short-term continuing
resolution (CR) on appropriations (P.L.108-5; February 7, 2003), providing funding (mostly
at FY2002 levels) for federal activities not otherwise funded, through February 20, 2003.
A resolution providing funding for the 11 remaining appropriations (H.J.Res. 2) was adopted
by Congress on February 13, 2003 and was signed into law (P.L.108-7) by the President on
February 20.
The President proposed (March 24, 2003) a $75 billion supplemental appropriations for
FY2003 to fund military activities in Iraq and for homeland security. The House (H.R. 1559)
and Senate (S. 762) adopted modified supplemental legislation on March 3 and March 7
respectively. Both raised the amount provided in the supplemental to close to $80 billion.
BACKGROUND AND ANALYSIS
Presidents generally submit their budget proposals for the upcoming fiscal year early
in each calendar year. The Bush Administration presented its FY2003 budget documents on
February 4, 2002. The budget documents contained extensive and detailed budget related
information, including estimates of the budget without the proposed policy changes (current
service baseline estimates), historical budget data, detailed outlay and receipt data, selected
analysis of specific budget related topics, and the Administration’s economic forecast. These
detailed budget documents are an annual basic reference source for federal budget
information in addition to their use as a transmitter of the Administration’s policy proposals.
The Administration’s annual budget submission is followed by congressional action on
the budget. This usually includes the annual budget resolution, appropriations, and, possibly,
a reconciliation bill or bills. During the months of deliberation on budget related legislation,
the Administration often modifies its proposals, not only because of interactions with
Congress, but because of changing circumstances in the economy and the world.
Budget Totals
The annual budget cycle provides the President and Congress with the opportunity to
set policy for the upcoming fiscal year and to determine, in part, policy in subsequent years.
The decisions made for this year can and often do have repercussions for years to come. The
2001 tax cut (the Economic Growth and Tax Relief Reconciliation Act of 2001 – EGTRRA;
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P.L. 107-16; June 7, 2001) will change federal revenues in each year through 2010, when
most of its provisions are scheduled to expire (unless changed as has been proposed).
Although they are provided each year in appropriations bills, changes in the level of
discretionary funding this year influence future levels of discretionary spending.
Table 1. Budget Proposals and Estimates for FY2003 (and FY2002)
(in billions of dollars)
Deficit(-)/
Receipts
Outlays
Surplus
Actual for FY2001
$1,991
$1,864
$127
CBO Budget Outlook for FY2002 1/31/02
1,983
2,003
-21
President’s Budget for FY2002 2/4/02
1,946
2,052
-106
President’s Budget for FY2002 baseline 2/4/02
2,011
2,020
-9
CBO revised baseline for FY2002 3/6/02
2,006
2,001
5
CBO estimate of President’s Budget for FY2002 3/6/02
1,942
2,033
-90
House budget resolution for FY2002 313/02
1,968
2,033
-66
OMB MSR FY2002 7/15/02
1,867
2,032
-165
OMB MSR baselineFY2002 7/15/02
1,868
2,018
-150
CBO Update for FY2002 8/27/02
1,860
2,017
-157
Actual for FY2002
1,853
2,011
-158
CBO Budget Outlook for FY2003 1/31/02
2,070
2,085
-14
President’s Budget for FY2003 2/4/02
2,048
2,128
-80
President’s Budget for FY2003 baseline 2/4/02
2,121
2,070
51
CBO revised baseline for FY2003a 3/6/02
2,086
2,080
6
CBO estimate of President’s Budget for FY2003 3/6/02
2,013
2,134
-121
House budget resolution for FY2003 3/20/02
2,077
2,122
-46
Senate Budget Committee for FY2003 3/22/02
2,046
2,139
-92
OMB MSR FY2003 7/15/02
2,029
2,138
-109
OMB MSR baseline FY2003 7/15/02
2,035
2,097
-62
CBO Update 8/27/02
1,962
2,107
-145
CBO Budget Outlook 1/31/03
1,922
2,121
-199
President’s Budget for FY2004 2/3/03
1,836
2,140
-304
CBO baseline revisions 3/03
1,891
2,137
-246
CBO estimate of Presidents (FY2004) budget 3/03
1,856
2,143
-287
House budget resolution 3/21/03
1,855
2,143
-288
Senate budget resolution 3/26/03
1,865
2,148
-282
MSR – Mid-session review
a. These numbers exclude the effects of the economic stimulus law (P.L. 107-147) enacted on March 9, 2001.
Table 1 contains budget estimates and proposals for FY2002 and FY2003 from the
CBO, the Administration (OMB), and, as they became available, budget proposals and
estimates from Congress. Differences in totals occur because of differing underlying
economic, technical, and budget-estimating assumptions and techniques as well as
differences in policy proposals. Most policy differences between the Administration and
various congressional proposals for the upcoming fiscal year are often relatively small in
dollars compared to the budget as a whole. These often small changes, reflecting differing
policy choices, may have large implications for the shape and content of the budget over
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extended time periods. As the budget works its way through Congress, budget totals will
change from the amounts originally proposed.
Budget Proposals and Estimates
Budget proposals and estimates depend on underlying assumptions about the economy,
technical components and relationships within the budget estimating models, and
assumptions about proposed and assumed current and future government policy. For
FY2004 and for the remainder of FY2003, both the expected underlying economic conditions
and the policy directions appear somewhat less settled than usual. The delayed resolution
of discretionary funding for FY2003, the sluggish economy, and the war with Iraq
contributed to the uncertainty.
CBO’s initial budget report for FY2003, the Budget and Economic Outlook: Fiscal
Years 2003-2012 (January 2002), contained baseline estimates and projections for FY2002
through FY2012.1 CBO estimated that without any changes from existing policy, the
FY2003 budget would have $2,070 billion in revenues, $2,085 billion in outlays, with a
(rounded) deficit of $14 billion. Over the 10-year forecast period (FY2003 - FY2012) CBO’s
projections produce a cumulative surplus of $2,263 billion. Of that amount, $1,078 billion
is generated in the last two years of the projection period when the 2001 tax cuts would fully
expire as required by current law.2 The 5-year (FY2003 - FY2007) cumulative surplus,
reflecting the deficits and relatively small surpluses expected over this period, is $437 billion.
President Bush’s FY2003 budget proposed receipts of $2,048 billion, outlays of $2,128
billion, with a resulting deficit of $80 billion. The Administration’s proposals produced a
10-year total cumulative surplus of $1.0 trillion. Its 5-year cumulative surplus was $157
billion. (The President’s budget provided most data for the 5-year period, FY2003 through
FY2007; the budget provided very little data for either the individual years beyond FY2007
or cumulatively for the 10-year period, FY2003 through FY2012.)
The Administration’s current services baseline estimates (the Administration’s estimate
of what the budget numbers would be without policy changes) show FY2003 receipts of
$2,121 billion, outlays of $2,080 billion, with a resulting surplus of $41 billion.3 The
differences between these baseline numbers and the proposed amounts measure the dollar
1 Baseline estimates provide a foundation from which to measure proposed policy changes. They
extrapolate current policies into the future based on expectations of the future economy and other
factors that affect the budget formulated under fairly explicit rules. They are not meant to predict
future budget outcomes.
2 CBO estimated that extending the expiring provisions immediately would reduce cumulative
revenues over the 10year period by $735 billion. The implication is that the cumulative surplus over
the 10-years would be reduced by at least that much and probably more if higher interest costs are
included.
3 The Administration also produced a variant of the standard baseline. The alternative assumed that
the increased (mostly) emergency spending in FY2002 flowing from the September 11, 2001
terrorist attacks was a one-time event and would not be repeated. Making this assumption increases
the baseline surplus to $51 billion in FY2003. The Administration measured its policy against this
altered baseline. This report uses the standard baseline.
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effect on the budget, in FY2003, of the Administration’s proposals. The proposals would
increase outlays by $58 billion, reduce receipts by $73 billion, and move the budget from a
$41 billion current services baseline surplus to an $80 billion deficit. Over the FY2003
through FY2007 period, the time period covered by the Administration’s baseline estimates,
they show a cumulative surplus of $668 billion, meaning that the Administration’s proposals
reduce the cumulative baseline surplus by $511 billion over the 5 years.
CBO’s estimate of the Administration’s proposals (An Analysis of the President’s
Budgetary Proposals for Fiscal Year 2003, March 2002), using CBO’s economic and
technical assumptions, raises the estimated deficit for FY2003 (from the Administration’s
proposed $80 billion) to $121 billion. CBO’s reestimates reduce revenues by $35 billion and
increase outlays by $6 billion from the Administration’s numbers, producing the $41 billion
difference in the deficit estimate.
The CBO report (2002) also included updated CBO’s baseline estimates that made
relatively small changes in the estimates for FY2003. The updated numbers showed a
surplus of $6 billion for FY2003, instead of the $14 billion deficit estimated in January.
Most of the change occurred because of higher expected revenues ($15 billion) and slightly
smaller expected outlays ($5 billion).4 Expectations of better short-term economic
conditions produced most of the improvement in the budget outlook.5 Over the 10-year
(FY2003-FY2012) CBO forecast period, the changes increased the cumulative surplus from
$2,263 billion to $2,380 billion, a 5% increase over the January cumulative surplus estimate.
The House passed FY2003 budget resolution (H.Con.Res. 353; March 20, 2002)
followed, in general, the policy lead of the President’s budget. Using the same underlying
budget assumptions as the Administration, the resolution had revenues of $2,077 billion,
outlays of $2,123 billion, with a deficit of $46 billion. The resolution, like the President’s
budget, contained estimates and projections for 5 years, through FY2007. The resolution
expected the government to return to a small surplus in FY2004. Over the 5-year period, the
resolution produced a cumulative surplus of $231 billion.
The Senate Budget Committee reported its version of the FY2003 budget resolution
(S.Con.Res. 100; S.Rept. 107-141) on March 22. Using CBO’s underlying assumptions
(rather than the Administration’s), the Senate Budget Committee resolution provided similar
amounts of funding in FY2003 for defense and homeland security as the House-passed
resolution but differed in other areas. Total revenues were $2,046 billion, total outlays were
$2,139 billion, and the resolution had a deficit of $92 billion (most of the difference between
the House and Senate Budget Committees’ total for FY2003 was from differences in the
underlying assumptions used rather than major policy differences in FY2003).
4 CBO estimates that incorporating the effects of the economic stimulus package signed into law
(P.L. 107-147) on March 9, 2002, (and not included in CBO’s revised baseline) would produce a $40
billion deficit in FY2003.
5 The $20 billion improvement in the budget balance represents only 1% of total receipts or outlays
for the year. Relatively small changes in the underlying factors supporting the budget estimates can
easily change receipts or outlays by larger amounts than this without any change in policy.
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The Mid-Session Review (MSR, August 2002) from the Administration forecast a fairly
rapid recovery for both the economy and federal revenues. Under the assumptions and policy
choices in the MSR, the deficit would decline from FY2002 to FY2003 (from $165 billion
to $109 billion) and return to surplus in FY2005. Under baseline assumptions, the budget
would return to surplus in FY2004. CBO’s August Update had access to newer and revised
budget and economic data than did OMB. CBO’s baseline estimates put the FY2003 deficit
at $145 billion, somewhat smaller than its earlier FY2002 deficit estimate of $157 billion.
It expects the budget to return to surplus in FY2006, assuming no change from existing
policies.
In the 2003 budget reports, the continuing economic weakness along with various
budget pressures raised the FY2003 estimated deficits and subsequent years above the levels
expected in the 2002 budget reports. By January 2003, CBO was estimating a baseline
deficit of $199 billion (revised upward to $246 billion in March 2003) for FY2003. The
President’s FY2004 budget (not including any expected costs of the war with Iraq) had a
deficit of $304 billion. CBO’s report analyzing the President’s policy proposals (March
2003) had a deficit of $287 billion for FY2003. The cumulative deficits, under this estimate,
for FY2003-FY2007 is $1.3 trillion; the deficit for the cumulative period, FY2003-2012 is
$2.1 trillion. The CBO estimates of the President’s policies show the budget remaining in
deficit through FY2013.
Part of the annual budget debate’s intensity results from the awareness that the decisions
made each year affect, in some cases substantially, the funding levels or policy choices
available to Congress in future years.
Uncertainty in Budget Projections
All budget estimates and projections are inherently uncertain. Their dependence on
assumptions that are themselves subject to substantial uncertainty and variation makes
budget estimates and projections susceptible to fairly rapid and dramatic changes.
Nonetheless, budget estimates can help differentiate the budgetary effects of alternative
proposals and the approximate magnitudes of various policy proposals even if the estimates
do not match the actual outcomes.
The uncertainty of budget estimates was apparent over the last year. The estimates for
fiscal year, 2002, produced early in 2001, projected baseline surpluses of between $283
billion (OMB) and $313 billion (CBO). The Administration’s FY2002 proposals (February
2001), included a combination of tax cuts and spending increases that produced a surplus of
an estimated $231 billion. By the time the summer 2002 budget estimates were released (the
OMB Mid-Session Review and the CBO Update, in August), the baseline deficits ranged
from $150 billion to $157 billion in FY2002. The actual deficit for that year was $158
billion. The large baseline surpluses expected early in 2001 evaporated in a weak economy,
the June 2001 tax cut, the spending increases in response to the terrorist attacks of September
2001, and substantial changes in the technical components and relationships underlying the
budget estimates.
The unavoidable inaccuracy of budget projections is also obvious over longer periods
of time. As CBO stated in its January 2002 budget report,
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Uncertainty compounds as the projection horizon lengthens. Even small annual
differences in the many key factors that influence the budget projections – factors such
as inflation, increases in productivity, economic growth, the distribution of income, and
growth rates from Medicare and Medicaid spending – can add to substantial differences
in the budget outcome 10 years from now.6
Budget projections are dependent on underlying assumptions about the direction of the
economy, future government policy, and the technical assumptions of the budget models, and
how these interact. Any deviation from expected underlying assumptions, such as faster or
slower economic growth, higher or lower inflation, changes in assumed spending and tax
policy or alterations in the fundamental underlying relationships between the budget and
economic variables (and the underlying technical assumptions) can have substantial effects
on the budget projections.
Budget Action
Congress passed an economic stimulus bill in early March 2002. The legislation, the
Job Creation and Worker Assistance Act of 2002 (P.L. 107-147; March 9, 2002) increased
FY2003’s expected deficit by an estimated $43 billion (plus another $3 billion in higher
interest costs). The legislation extended unemployment benefits, reduced selected business
taxes, extended selected expiring tax provisions, and made miscellaneous technical
corrections to the tax code.
The House Budget Committee approved its version of the annual concurrent resolution
on the budget for FY2003 (H.Con.Res. 353) on March 13, 2002. The resolution used a
slightly modified version of OMB’s economic and technical assumptions rather than CBO’s.
Like the President’s budget this year, the resolution had 5 years of projections rather than the
10 years that had been used in the last few years.
The resolution contained a $46 billion deficit for FY2003 that closely matched the
estimated cost of the economic stimulus bill adopted days earlier. It included almost $28
billion in unspecified tax cuts over 5 years (with upper limits for the size of the cuts for each
year), a $46 billion year-over-year increase in budget authority for defense, close to a
doubling of funding for homeland security between FY2002 and FY2003, and very small
increases (overall) for remaining discretionary spending. The resolution was adopted in
committee on a party-line vote. The House adopted the resolution on March 20.
The Senate Budget Committee adopted its version of the budget resolution (S.Con.Res.
100) on March 22. The Committee’s resolution differed substantially in policy choices, in
areas other than defense and homeland security, from the one adopted by the House.
Although many of the differences were relatively small in FY2003, they became more
pronounced over the years covered by the two resolutions. (The Senate Budget Committee’s
resolution provided estimates through FY2012.) The Senate never considered the
Committee’s resolution.
6 CBO, The Budget and Economic Outlook: Fiscal Years 2003-2012, Jan. 2002, pp. 5-6.
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To avoid delaying its consideration of appropriations, the House adopted a deeming
resolution (H.Res. 428) on May 22, 2002 (see CRS Report RL31443, The “Deeming
Resolution”: A Budget Enforcement Tool, by Robert Keith). This set the spending levels for
FY2003 that the Appropriations Committee were to follow. The Senate did not adopt a
budget resolution for the year (or a deeming resolution as in the House). In spite of the lack
of guidance from a completed budget resolution, the House adopted five and the Senate
passed three of the 13 regular appropriations bills for FY2003 as the new fiscal year
approached, but none of the regular appropriations bills had cleared Congress before the start
of the new fiscal year.
To avoid a funding crisis, Congress passed a continuing resolution (CR) on
appropriations (H.J.Res. 111; September 26, 2002) that became law (P.L. 107-229) on
September 30. The CR provided funding, mostly at FY2002 spending levels, for federal
activities not otherwise funded, through October 4, 2002. A second CR (H.J.Res. 112),
extending funding through October 11, cleared Congress on October 3, and was signed by
the President (P.L. 107-235) on October 4. Congress adopted a third CR (P.L. 107-240;
H.J.Res. 122) on October 10, providing funding through October 9. Funding was extended
through November 22, 2002, by the fourth CR (H.J.Res. 123) that Congress cleared for the
President on October 16. The bill was signed into law (P.L. 107-244) on October 18, 2002
Congress adopted a fifth CR, (H.J.Res. 124), providing funding, through January 11, 2003.
(Congress had adopted 2 – Defense and Military Construction – of the 13 regular
appropriations in mid-October 2002.) The President signed the bill on November 23, 2002
(P.L. 107-294). A sixth CR (P.L.108-2; H.J.Res. 1) became law on January 10, 2003,
continuing funding at FY2002 levels through January 31, 2003. Congress adopted a seventh
continuing resolution in late January (P.L. 108-4; H.J.Res. 13), extending funding through
February 7, 2003. Congress cleared the eighth and final CR (H.J.Res. 18) on February 5,
2003, becoming law (P.L.108-5). It provided funding through February 20.
A measure (H.J.Res. 2; the Consolidated Appropriations Resolution, 2003) to provide
funding (a net $395 billion) for the remaining 11 regular appropriations for the remaining
months of FY2003 was introduced on January 7, 2003. It cleared the House on January 8;
an amended version passed the Senate on January 23. A conference report was agreed to by
both chambers on February 13, 2003; it was signed into law (P.L. 108-7) on February 20.
The President requested supplemental appropriations of $75 billion to pay for military
activity associated with the war in Iraq and for homeland security (through the remainder of
FY2003). Both the House (H.R. 1559) and Senate (S. 762) passed differing versions of the
legislation, containing approximately $80 billion in additional funding, on March 3, 2003
and March 7, respectively. The legislation was to go to conference the week of April 7,
2003. Congress has indicated that it will try to clear the bill for the President by April 11.
During October 2002, Congress passed two of the 13 regular appropriations bills.
Congress adopted the appropriations for Military Construction (H.R. 5011) on October 10,
2002, and for Defense (H.R. 5010) on October 16, 2002. Both became law on October 23,
2002, with the President’s signature (Defense, P.L. 107-248 and Military Construction, P.L.
107-249).
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Outlays
The President’s original budget for FY2003 (February 2002) proposed total outlays of
$2.138 trillion for FY2003, $76 billion over the Administration’s revised FY2002 level.7
The year-to-year change was composed of proposed policy changes (approximately $26
billion in the President’s proposal) and relatively automatic growth in outlays in mandatory
and a few other programs resulting from inflation adjustments and demand growth. CBO’s
March 2002 estimates of the President’s budget showed a year-to-year increase in outlays of
$101 billion. Of that amount, CBO estimated that $22 billion came from proposed policy
changes with the rest coming from inflation adjustment and demand growth. Outlays in the
Administration’s baseline estimates (the estimates excluding the effects of his proposed
policy changes) increased by $50 billion from FY2002 to FY2003.
Table 2. Outlays for FY2001-2007
(in billions of dollars)
FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007
CBO Outlook 1/31/02
$1,864 a
$2,003
$2,085
$2,152
$2,238
$2,319
$2,402
President’s Budget 2/4/02
2,052
2,128
2,189
2,277
2,369
2,468
OMB Baseline 2/4/02
2,020
2,080
2,142
2,218
2,289
2,366
CBO Revised Baselineb 3/6/02
2,001
2,080
2,148
2,231
2,312
2,394
CBO Estimate of Pres.’s Budget 3/6/02
2,033
2,134
2,201
2,291
2,394
2,493
House Budget Resolution 3/13/02
2,033
2,123
2,192
2,289
2,383
2,479
SBC Budget Resolution 3/22/02
—
2,139
2,207
2,313
2,403
2,496
OMB MSR 7/15/02
2,032
2,138
2,217
2,298
2,390
2,483
OMB MSR baseline 7/15/02
2,018
2,097
2,163
2,232
2,301
2,376
CBO Update 8/27/02
2,017
2,107
2,195
2,283
2,366
2,461
CBO Budget Outlook 1/31/03
2,011 a
2,121
2,199
2,298
2,387
2,479
President’s FY2004 Budget 2/3/03
—
2,140
2,229
2,343
2,464
2,576
CBO baseline revisions 3/03
—
2,137
2,224
2,328
2,417
2,513
CBO est. of President’s budget 3/03
—
2,143
2,245
2,370
2,491
2,606
House budget resolution 3/21/03
—
2,143
2,232
2,337
2,450
2,556
Senate budget resolution 3/26/03
—
2,148
2,246
2,372
2,531
2,656
SBC = Senate Budget Committee
a. Actual outlays for FY2001 and FY2002.
b. These numbers exclude the effects of the economic stimulus law (P.L. 107-147) enacted on March 9, 2001.
Over the 5 years covered in detail in the President’s FY2003 budget (FY2003-FY2007),
total outlays would rise from $2,052 billion in FY2002 to $2,128 billion in FY2003 to
$2,468 billion in FY2007. The average annual rate of growth in outlays over the FY2003
through FY2007 period was 3.8% a year, almost the exact same rate of growth as over the
previous 5-year period (FY1997-FY2002). Over the future 5 years, the Administration
proposed cumulative outlays of $11,431 billion. (Over 10 years, FY2003-FY2012, shown
in a few tables, the Administration proposes cumulative outlays of $25,478 billion.)
7 The Administration proposed a $32 billion increase in FY2002 outlays above baseline levels, most
of which was for its proposed “bipartisan economic security plan.” The FY2002 estimate also did
not include any outlays that might flow from the adoption of the Administration’s $27 billion (in
budget authority) supplemental spending request sent to Congress on March 21, 2002.
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The Administration’s original outlay proposals were $58 billion above the FY2003
baseline estimate. The $58 billion measures the cost of the President’s policy proposals on
outlays for the year. The proposals included an increase in defense spending of $21 billion,
farm support legislation ($7 billion) and the “bipartisan economic security plan” ($8 billion).
The remaining proposed policy changes were scattered throughout other categories of
spending.
CBO’s estimates of the Administration’s proposals (March 2002) increased FY2003
total outlays by $6 billion. CBO’s 5-year cumulative estimate of the President’s policy
proposals differs by $81 billion, of which $44 billion results from higher net interest
payments.8 Over the longer 10-year period, CBO’s estimates increased cumulative outlays
above the President’s budget by slightly more than a 1% increase or $296 billion. Most of
the annual differences between the OMB and CBO estimates of the President’s outlay
proposals were also relatively small compared to total outlays in those years.
The outlays proposed in the House passed budget resolution (H.Con.Res. 353; March
13, 2002) were similar to the ones contained in the President’s budget. The House Budget
Committee, in producing the resolution, used the Administration’s underlying assumptions
and followed many of the policy proposals, ensuring a close similarity between the two
proposals. The Committee report (H.Rept. 107-376) compares the budget resolution to the
President’s proposals (see pages 74-75 in the report). Total outlays in the budget resolution
(H.Con.Res. 353) are $5 billion smaller than the President’s proposed total outlays for
FY2003, but larger in each subsequent year. Over the 5 years covered by the two proposals,
cumulative outlays in the House budget resolution were $35 billion larger than the
President’s proposed cumulative outlays, with both increases and decreases to components
of the budget – compared to the President’s proposals – scattered throughout the budget.
The Senate Budget Committee’s budget resolution (S.Con.Res. 100) used CBO’s
underlying assumptions, in contrast to the House’s use of OMB assumptions. This difference
by itself would generate different numbers in the two budget resolutions even if they
contained the same policy assumptions (which they did not). The Senate Budget
Committee’s budget resolution generally followed the policies of the House and
Administration outlay levels for defense and homeland security for FY2003 and FY2004, and
in general, the spending levels for mandatory programs. Spending for non-defense, non-
homeland security discretionary spending in the Senate Budget Committee budget resolution
were generally larger and had a different distribution than the allocations found in the House
budget resolution or in the President’s budget. Many of the differences were relatively small
in FY2003 but grew over time. The Senate did not considered the Committee’s resolution
resulting in no congressionally adopted budget resolution for FY2003.
The House passed and the Senate Budget Committee reported budget resolutions, as
well as the President’s budget, would all provide a large boost in defense outlays from
FY2002 to FY2003 of approximately 9%, using each proposal’s own numbers. Over the
FY2003 and FY2007 period (the last year shown in the House and presidential budget
8 CBO’s larger deficits and smaller surpluses in its estimates of the President’s budget policies slow
the reduction in federal debt held by the public compared to the level in the Administration’s budget.
The larger debt held by the public in the CBO estimate raises the amount of net interest that the
government must pay.
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proposals) the President’s budget and the House budget resolution show defense outlays
growing by almost 4% annually. The Senate Budget Committee passed budget resolution
had defense outlays growing by 2%annually during these years.
Non-defense discretionary spending also got a larger boost between FY2002 and
FY2003 than in subsequent years in the three proposals. The President’s budget showed
these outlays growing by 4.5%, the House budget resolution by 5.0%, and the Senate Budget
Committee budget resolution by 8.2% between FY2002 and FY2003. The average rate of
growth for non-defense discretionary spending in subsequent years in all three proposals was
less than 2%, a rate that will not maintain spending for these programs against inflation or
population growth. (By comparison, the CBO March 2002 baseline estimates of non-defense
discretionary spending show them growing by 2.7% annually in subsequent years, a rate
designed to adjust spending for inflation but not population growth.)
The Administration’s August 2002 MSR raised estimated total outlay by $10 billion
over the original proposal in February 2002. Two-thirds of the increase resulted from
adopted or newly proposed policy changes and the remaining third was attributed to
economic and technical estimating changes. Over the 5-year period (FY2003-FY2007),
cumulative outlays were 0.8% higher than in the February 2002 budget proposals. Compared
to the original February proposals, discretionary spending shrank (by 1.2%) while mandatory
spending increased (by 1.6%) and net interest increased (by 3.4%) over the 5 years.
CBO’s Update (August 27, 2002) also contained changed outlay estimates for FY2003
(and subsequent years) compared to its earlier estimates. CBO’s estimated outlays had risen
by $28 billion since its March 2002 estimates,. Legislative changes increased estimated
outlays by $40 billion, technical changes raised estimated outlays by $11 billion, while
changes in the economic outlook reduced estimated outlays by $23 billion. The changes
raised estimated outlays from $2,080 billion in March 2002 to $2,107 billion in August 2002.
The revised outlook for FY2003 contained in the FY2004 budget documents and reports
(early 2003) from OMB and CBO raised estimated outlays by $20 billion to $40 billion
above those contained in the August 2002 budget estimates.
Receipts
The President’s FY2003 budget (February 2002) proposed $73 billion in tax cuts for
FY2003 (and a $65 billion tax cut in what remained of FY2002) producing a $102 billion
increase in receipts from FY2002 to FY2003. Without the proposals, receipts would have
increased by $110 billion between the two years. CBO’s March 2002 estimates of the
President’s proposals put the year-to-year increase at $71 billion. The Administration’s
budget proposed $2,048 billion in receipts for FY2003; CBO estimated that the President’s
proposals under CBO’s economic and technical assumptions would produce receipts of
$2,013 billion in FY2003.
The President’s budget also proposed making much of the tax cut adopted last year
(2002), the EGTRRA, permanent, along with extending a number of tax provisions
scheduled to expire during the next five to 10 years. Under current law, most provisions of
last year’s tax cut would expire at the end of calendar year 2010. Making the tax cuts
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permanent would have little effect in FY2003, but would reduce receipts substantially in
FY2011 and FY2012 from baseline estimates.
Table 3. Receipts for FY2001-2007
(in billions of dollars)
FY2001
FY2002
FY2003
FY2004
FY2005
FY2006
FY2007
CBO Outlook 1/31/02
$1,991 a
$1,983
$2,070
$2,206
$2,342
$2,447
$2,568
President’s Budget for FY2003 2/4/02
1,946
2,048
2,175
2,338
2,455
2,571
OMB Baseline 2/4/02
2,011
2,121
2,234
2,366
2,461
2,581
CBO Revised Baseline b 3/6/02
2,006
2,086
2,209
2,342
2,448
2,569
CBO Estimate of Pres.’s Budget 3/6/02
1,942
2,013
2,150
2,314
2,442
2,560
House Budget Resolution 3/13/02
1,968
2,077
2,200
2,356
2,472
2,593
SBC Budget Resolution 3/22/02
—
2,046
2,180
2,338
2,464
2,586
OMB MSR 7/15/02
1,867
2,029
2,169
2,351
2,451
2,567
OMB MSR baseline 7/15/02
1,863
2,035
2,180
2,369
2,475
2,595
CBO Update 8/27/02
1,860
1,962
2,083
2,244
2,381
2,513
CBO Budget Outlook 1/31/03
1,853 a
1,922
2,054
2,225
2,370
2,505
President’s FY2004 Budget 2/3/03
—
1,836
1,922
2,135
2,263
2,398
CBO baseline revisions 3/03
—
1,891
2,024
2,205
2,360
2,504
CBO est. of President’s budget 3/03
—
1,856
1,907
2,100
2,273
2,433
House budget resolution 3/21/03
—
1,855
1,908
2,107
2,282
2,444
Senate budget resolution 3/26/03
—
1,865
1,959
2,154
2,321
2,479
SBC = Senate Budget Committee.
a. Actual receipts for FY2001 and FY2002.
b. These numbers exclude the effects of the economic stimulus law (P.L. 107-147) enacted on March 9, 2001
The Administration estimated that its EGTRRA proposals would reduce revenues by
$7 billion between FY2003 and FY2007 and by $343 billion between FY2003 and FY2012.
CBO and the Joint Committee on Taxation estimated that extending the provisions expiring
in 2010 would reduce revenue by $9 billion between FY2003 and FY2007 and by $374
billion between FY2003 and FY2012 (most of the revenue reduction, $356 billion, occurs
in the last two years).9 The Administration also proposed extending the research and
experimentation (R&E) tax credit, which would reduce revenues by an estimated $14 billion
to $15 billion over the FY2003 to FY2007 period and by $51 billion to $54 billion over the
FY2003 to FY2012 period. CBO and the Joint Committee on Taxation estimated that
extending all the other expiring tax provisions expiring through FY2012 (including the R&E
tax credit) would reduce revenues (from baseline levels) by an estimated $78 billion between
FY2003 and FY2007 and by $205 billion between FY2003 and FY2012.10
The House-passed budget resolution increased receipts by $110 billion between FY2002
and FY2003, with both years showing higher revenues than the President’s budget. The
9 Making permanent the provisions of the 2001 tax cut expiring before 2010 produce estimated
revenue reductions of $36 billion between FY2002 and FY2007 and $194 billion between FY2003
and FY2012.
10 The reduced revenues in these various estimates would increase deficits or reduce surpluses,
raising the federal debt held by the public. The higher debt increases the government’s net interest
payments over the period.
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House resolution reflected the revenue effects of the adoption of the Job Creation and
Worker Assistance Act of 2002 (P.L. 107-147), that came after the presentation of the
President’s budget. The job creation act reduced receipts by an estimated $43 billion in
FY2002 and by an estimated $39 billion in FY2003 (Joint Committee on Taxation). The
resolution accommodated $28 billion in unspecified additional tax reductions through
FY2007. It also accepted, although with relatively little effect because of the assumed offsets
in the years covered by the resolution, the Administration’s proposals to remove EGTRRA’s
sunset provisions.
The Senate Budget Committee’s reported budget resolution showed receipts increasing
by $83 billion between FY2002 to FY2003. Like the House resolution, the Senate Budget
Committee resolution reflected the revenue effects of the adoption of the job creation act.
The Senate Budget Committee resolution assumed no changes to the existing sunset
provisions of EGTRRA. The resolution further assumed that any proposed revenue
reductions be offset to avoid a net reduction in receipts.
The Administration’s July 2002 Mid-Session Review (MSR) revenue estimates showed
a deterioration in the revenue outlook produced by changes in underlying policy, economic,
and technical assumptions since the early 2002 estimates. Receipts dropped below the earlier
estimates in each year except for FY2005. For FY2003, the Administration estimated that
changes in the underlying economic and technical assumptions reduced receipts by $51
billion below the February 2002 estimates. Enacted legislation and changed proposals raised
receipts by $31 billion (compared to February proposals: the Administration’s proposed
economic stimulus proposal contained larger tax cuts than did the legislation that became
law, raising estimated revenues). The changes dropped receipts for FY2003 by almost $20
billion from the estimates earlier in the year. (Revised FY2002 estimated receipts in the
MSR, reflecting the substantial fall in receipts, dropped FY2002 receipts by almost $91
billion from the February estimate). The MSR included estimates that cumulative five-year
(FY2003-FY2007) receipts would fall $21 billion below the February level.
CBO’s August 2002 Update had newer budget data and revised economic data than did
the Administration’s MSR. From this, CBO produced its revised baseline estimates. CBO’s
August 2002 baseline revenue estimate for FY2003 was $124 billion lower than CBO’s
March baseline revenue estimate (dropping from $2,086 billion to $1,962 billion). Over the
5-year period, FY2003 through FY2007, cumulative revenues fell by $470 billion between
the March and August CBO baseline revenue estimates. CBO attributes about half of the
FY2003 revenue decline to change in the technical assumptions behind the estimates. One-
third of the change in revenues CBO attributed to legislative changes (since March 2002),
with the remaining portion of the revenue change attributed to differences in the economic
assumptions used in the March and August reports. Over the 5-year period, CBO estimated
that the technical changes produced 65% of the change, differences in economic assumptions
generated 25% of the change, and the remainder came from legislative changes.
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Surpluses Or Deficits
Surpluses or deficits are the residuals left after Congress and the President determine
the general level of spending and receipts. Reducing the deficit and eventually reaching a
balanced budget or generating and keeping a surplus (the government had its first surplus in
30 years in FY1998 and returned to deficit in FY2002) had been a major focus of the budget
debate for over a decade. The original baseline projections from both OMB and CBO (in
early 2002 for FY2003 through FY2007 or FY2012) showed modest deficits in the early
years and small, but growing, surpluses in the years through FY2007 or FY2012.
The budget outlook-changing events of 2001 (the terrorist attacks, the weakened
economy, and policy changes), as reflected in revised budget forecasts in 2002, ended the
2001 forecasts of substantial and growing surpluses throughout the forecast period. The
early 2002 budget estimates and forecasts expected a small ($14 billion – CBO) baseline
deficit or a small ($41 billion – OMB) surplus in FY2003. The President’s proposals turned
the baseline surplus into an $80 billion deficit. CBO later (March 2002) estimated that the
President’s proposals would produce a $121 billion deficit in FY2003. The MSR (July 2002)
raised the Administration’s estimate of the deficit to $109 billion in FY2003 (with a baseline
deficit of $62 billion for the year). CBO’s Update (August 2002) estimated that the FY2003
baseline deficit would be $145 billion. The continued economic sluggishness through much
of 2002 increased the size of the deficit in both CBO’s January 2003 budget report (for
FY2004) and the Administration’s FY2004 budget proposals (February 2003). This CBO
report put the FY2003 baseline deficit at $199 billion. The Administration’s FY2004 policy
proposals boosted the expected FY2003 deficit to $304 billion. CBO released revised budget
estimates in its March 2003 report analyzing the President’s FY2004 proposals. CBO’s
baseline deficit grew to $246 billion: two-thirds because of a continuing fall in expected
revenues and approximately one-third resulting from the adoption of the Consolidated
Appropriations Resolution for 2003 (P.L. 108-7). CBO’s estimate of the President’s policies
produced a deficit of $287 billion for FY2003.
In general, surpluses reduce federal debt held by the public (the government is able to
retire some of the debt it created when it had deficits). An expected surplus can also be used
to finance spending increases or tax reductions, either of which will reduce (or eliminate) the
previously forecast surplus. The Treasury in its normal debt management operations
generally uses the surplus to reduce federal debt held by the public. The Treasury took an
active role in retiring debt held by the public over the 4 years of surplus (FY1998-FY2001)
by purchasing securities on the market and retiring some callable federal bonds. (The
Treasury also could retain the cash generated by a surplus and build up government cash
balances, but this would make little sense for the government or the economy and seems
unlikely.)
The President’s proposals and the House passed budget resolution for FY2003 would
use the (then) forecast baseline surpluses to increase spending and cut taxes. The small
surpluses remaining in future years in these proposals were used to reduce the debt held by
the public. The budget resolution passed by the Senate Budget Committee would have used
the surplus for some spending increases and the rest for reducing the debt held by the public.
None of the proposals reserved the entire Social Security surplus for debt reduction (a goal
striven for in the previous year’s budget proposals).
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Table 4. Deficits(-)/Surpluses for FY2001-FY2007
(in billions of dollars)
FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007
CBO Outlook 1/31/02
$127 a
-$21
-$14
$54
$103
$128
$166
President’s Budget for FY2003 2/4/02
-106
-80
-14
61
86
104
OMB Baseline 2/4/02
-9
41
92
148
172
215
CBO Revised Baseline b 3/6/02
5
6
61
111
135
175
CBO Estimate of Pres.’s Budget 3/6/02
-90
-121
-51
24
48
68
House Budget Resolution 3/13/02
-66
-46
8
67
89
113
SBC Budget Resolution 3/22/02
—
-92
-27
26
60
90
OMB MSR 7/15/02
-165
-109
-48
53
60
80
OMB MSR baseline 7/15/02
-150
-62
17
137
174
219
CBO Update 8/27/02
-157
-145
-111
-39
15
52
CBO Budget Outlook 1/31/03
–158 a
-199
-145
-73
-16
26
President’s FY2004 Budget 2/3/03
—
-304
-307
-208
-201
-178
CBO baseline revisions 3/03
—
-246
-200
-123
-57
-9
CBO est. of President’s budget 3/03
—
-287
-338
-270
-218
-173
House budget resolution 3/21/03
—
-288
-324
-230
-168
-111
Senate budget resolution 3/26/03
—
-282
-287
-218
-169
-128
SBC = Senate Budget Committee.
MSR – Mid-Session Review
a. Actual surplus for FY2001 and actual deficit for FY2002.
b. These numbers exclude the effects of the economic stimulus law (P.L. 107-147) enacted on March 9, 2001.
The Budget and the Economy
The budget and the economy affect each other. The relationship is an unequal one, with
the economy influencing the budget with every economic twinge while even substantial
policy changes may disappear in the overall economy with little notice or consequence.
Until increasingly negative budget estimates appeared from OMB and CBO in August
2001, earlier 10-year budget forecasts in 2001 had been buoyed by the expectation of a
continuation of favorable economic conditions into future years. The previous (until the
August 2001 estimates) economic outlook supported the expectations of a continuation of
the overall improvement in the budget situation since the early 1990s. Much of that budget
improvement came from strong and sustained economic growth along with the congressional
and presidential efforts to balance the budget. When those favorable economic conditions
faltered, so did a major underpinning of the good budget fortunes of the previous several
years. What good economic conditions give, bad economic conditions can take away. The
unexpectedly lengthy economic sluggishness, the start of a recession in March 2001 (along
with the budgetary and economic responses to the September 2001 terrorist attacks), and
changes in underlying technical relationships raised outlays, reduced receipts, and
substantially changed the budget balance expectations and magnitude from what was forecast
(three years of relatively small deficits followed by rapidly growing surpluses) when the
FY2003 budget was introduced (February 2002).
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CBO’s budget report, The Budget and Economic Outlook: Fiscal Years 2004-2013
(January 2003) in its chapter on The Uncertainties of Budget Projections, indicated how
significantly the budget outlook can be altered by changing the underlying economic
assumptions. The chapter contains optimistic and pessimistic alternative scenarios, for the
budget (see Table 5). The optimistic scenario assumes that the positive underlying economic
conditions and other factors of the later 1990s (1996-2000) continue into the future. The
pessimistic scenario assumes that the favorable conditions of those years were an aberration
and that the economy and other underlying factors revert to the conditions that prevailed
from 1974 through 1995.
Table 5. CBO’s Alternative Scenarios,
Cumulative Surpluses/Deficits(-); FY2004-2008, FY2009-FY2013 and
FY2004-2013
(in billions of dollars)
FY2004-
FY2009-
FY2004-
FY2008
FY2013
FY2013
CBO Optimistic Scenario Total Surplus 1/31/03
$566
-$143
$4,490
CBO Baseline 1/31/03
-143
1,479
1,336
CBO Pessimistic Scenario Total Surplus 1/31/03
-855
-1,001
-1,856
Source: CBO, The Budget and Economic Outlook: FY2004-2013, Jan. 31, 2003. CRS calculations.
The result of CBO’s exercise is a wide range of possible budget outcomes over the next
10 years. Under the optimistic scenario, the surpluses accumulate over the 10-year period
(FY2004-2013) to almost $4.5 trillion. Under the pessimistic scenario, a string of deficits
appear, accumulating to almost $1.9 trillion over the same 10 years.

In addition to the alternative scenarios, CBO provides estimates of the effects on the
budget of changes in selected economic assumptions underlying the budget estimates and
projections (see appendix C in the Budget and Economic Outlook: Fiscal Years 2004-2013,
January 2003). OMB provides similar measures in the President’s budget (see chapter 1 in
the Analytical Perspectives volume of the Budget of the United States Government for
FY2003). CBO estimated (January 2003) that a sustained reduction of 0.1% in the real rate
of GDP growth beginning in early 2003, would increase the deficit in FY2003 by $1 billion
and in FY2004 by $4 billion. OMB’s February 2003 FY2004 budget report estimates that
a 1% slower real GDP growth beginning in January 2003 will increase the FY2003 deficit
by $9.3 billion and the FY2004 deficit by $30 billion. Estimates are provided in both reports
for the effects on the budget of other selected economic variables – inflation, unemployment,
and interest rates. Larger changes in the underlying economic variables generally would
produce larger changes in the budget numbers.
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107th Congress Legislation
H.Con.Res. 353 (Nussle). The Concurrent Resolution on the Budget for Fiscal Year
2003. Adopted by the House Budget Committee (H.Rept. 107-376) on March 15, 2002, on
a party line vote after rejecting numerous amendments. It follows most of the proposals of
the Administration. It was adopted by the House on March 20.
S.Con.Res. 100 (Conrad). The Concurrent Resolution on the Budget for Fiscal Year
2003. Adopted by the Senate Budget Committee (H.Rept. 107-141) on March 22, 2002, on
a party line vote. Its proposals for defense and homeland security were similar to those of
the Administration, but differed in many other areas of the budget.
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
U.S. Congress. House. Committee on the Budget. Concurrent Resolution on the Budget –
FY2003; Report to Accompany H.Con.Res. 353. March 15, 2002 Washington, U.S.
G.P.O., 2002. (107th Congress, 2nd session. H.Rept. 107-376).
— Senate. Committee on the Budget. Concurrent Resolution on the Budget FY2003;
Report to Accompany S.Con.Res. 100. April 11, 2002 Washington, U.S. G.P.O., 2002.
(107th Congress, 2nd session. S.Rept. 107-141).
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