Order Code RL31784
Report for Congress
Received through the CRS Web
The Budget for Fiscal Year 2004
Updated April 25, 2003
Philip D. Winters
Analyst in Government Finance
Government and Finance Division
Congressional Research Service ˜ The Library of Congress

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The Budget for Fiscal Year 2004
Summary
The President’s fiscal year (FY) 2004 budget included a deficit of $307 billion
(an estimated 2.7% of gross domestic product, GDP). Under the President’s
proposals and estimates, the deficit would shrink through FY2008, the last year of the
Administration’s estimates, when it will reach $190 billion (1.4% of GDP). The
proposals called for speeding up and making permanent many of the tax cuts enacted
over the last two years, along with tax changes for economic stimulus, tax incentives,
and expiring tax provisions. The tax proposals would reduce taxes an estimated $493
billion between FY2004 and FY2008 and by $1,461 billion between FY2004 and
FY2013. The President would increase spending in some areas (health) and reduce
it in others (natural resources and environment). Overall, the proposals would reduce
outlays, when measured against the baseline estimates, by $40 billion in FY2004 and
by $529 billion over the five years. Even with these changes from baseline levels,
both total receipts and total outlays would be larger in FY2004 than they are
estimated to be in FY2003, and larger in FY2008 than in FY2004.
The Congressional Budget Office (CBO) released the first of its annual budget
reports in late January. The baseline estimates from CBO run through FY2013.
CBO’s baseline estimates are similar in construction to the current services baseline
produced by the Office of Management and Budget (OMB) for the President. CBO’s
January baseline had a $145 billion deficit in FY2004 (down from $199 billion in
FY2003), that becomes a small surplus of $65 billion in FY2008. Because the CBO
baseline estimates are constrained by current policy, they incorporate the scheduled
expiration of the 2001 tax cuts at the end of calendar year 2010. This produces a
rapid increase in receipts between FY2011 and FY2013, producing substantial
surpluses in these years. Under CBO baseline estimates — which CBO points out
contain policy assumptions that may not hold — the surplus would reach $508 billion
in FY2013.
In March, CBO released its report analyzing the President’s policies. CBO’s
estimates of the President’s budget, a recasting of the policies using CBO
assumptions and budget estimating methods, raise the expected deficit for FY2004
to $338 billion from the OMB estimated $307 billion. The report also included an
update to CBO’s January baseline that pushed the deficit for FY2004 to $200 billion
from $145 billion. The revisions delay the return-to-a-surplus from FY2007 to
FY2008 and reduce the cumulative FY2004-FY2013 surplus from $1,336 billion
(January) to $891 billion (March).
A conference to resolve the differences between the budget resolutions passed
by the House (H.Con.Res. 95) and Senate (S.Con.Res. 23) cleared Congress on April
11, 2003. The agreement contained different sized tax-cut reconciliation instructions
for the House Ways and Means Committee ($550 billion) and the Senate Finance
Committee ($350 billion). An agreement within the Senate restricts the size of any
tax cut emerging from a future conference committee on the tax cut to $350 billion.
This report will be updated as events warrant.

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Contents
Background and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Budget Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Budget Proposals and Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Uncertainty in Budget Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Budget Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Outlays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Surpluses And Deficits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
The Budget and the Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
For Additional Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
CRS Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
List of Tables
Table 1. Budget Estimates for FY2003 and FY2004 . . . . . . . . . . . . . . . . . . . . . . . 2
Table 2. CBO’s Alternative Scenarios, Cumulative Surpluses/Deficits(-);
FY2004-2008 and FY2004-2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Table 3. Outlays for FY2003-2008 and FY2013 . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Table 4. Receipts for FY2002-2008 and FY2013 . . . . . . . . . . . . . . . . . . . . . . . . 10
Table 5. Surpluses/Deficits(-) for FY2004-FY2008 and FY2013 . . . . . . . . . . . . 11

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The Budget for Fiscal Year 2004
Background and Analysis
Presidents generally submit their budget proposals for the upcoming fiscal year
(FY) early in each calendar year. For FY2004, the Bush Administration released its
budget document (The Fiscal Year 2004 Budget of the U.S. Government) on February
3, 2003. The multiple volumes contained general and specific descriptions of the
Administration’s policy proposals and expectations for the budget for FY2004 and
for the years through FY2008, with information on the revenue changes through
FY2013 and a section on long-term fiscal issues facing the nation. The full set of
budget documents (Budget, Appendix, Analytical Perspectives, Historical Tables,
among several others) contain extensive and detailed budget 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. In
addition to its presentation of the Administration’s proposals, the budget documents
are an annual basic reference source for federal budget information.
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 legislation, the Administration often revises its original
proposals because of interactions with Congress and changing circumstances in the
economy and the world.
Budget Totals
Table 1 contains budget estimates and proposals for FY2003 and FY2004 from
the Congressional Budget Office (CBO), the Administration (the Office of
Management and Budget, OMB), the revisions produced by OMB and CBO
throughout the year, and, as they become available, from congressional budget
resolutions. Differences in totals occur because of differing underlying economic,
technical, and budget-estimating assumptions and techniques as well as differences
in policy assumptions. Most policy generated dollar differences between the
Administration and congressional proposals or assumptions for an upcoming fiscal
year are often relatively small compared to the budget as a whole. These small
differences may grow, sometimes substantially, producing widely divergent budget
paths over time. Budget estimates should be expected to change over time from
those originally proposed by the President or Congress.
The terrorist attacks on the United States on September 11, 2001, the 2001
recession and the continuing economic uncertainty, changes from expected or

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CRS-2
proposed policies, and changes in the technical components of the underlying budget-
economic relationships, all contributed to the large deterioration in the budget
outlook over the last two years.
Table 1. Budget Estimates for FY2003 and FY2004
(in billions of dollars)
Deficit(-)/
Receipts
Outlays
Surplus
Actual for FY2000
$2,025
$1,789
$236
Actual for FY2001
1,991
1,864
127
Actual for FY2002
1,853
2,011
-158
FY2003 Estimates in 2003
CBO B&E Outlook, 1/31/03
1,922
2,121
-199
OMB, Budget, 2/3/03
1,836
2,140
-304
OMB, Budget, Current Services, 2/3/03
1,867
2,131
-264
CBO Revised Baseline, 3/7/03
1,891
2,137
-246
CBO Estimates of the President’s Policies, 3/7/03
1,856
2,143
-287
House FY2004 Budget Resolution, 3/21/03
1,855
2,143
-288
Senate FY2004 Budget Resolution, 3/26/03
1,865
2,148
-282
Conference FY2004 Budget Resolution, 4/11/03
1,835
2,182
-347
FY2004 Estimates
CBO B&E Outlook, Baseline, 1/31/03
2,054
2,199
-145
OMB, Budget, 2/3/03
1,922
2,229
-307
OMB, Budget, Current Services, 2/3/03
2,031
2,189
-158
CBO Revised Baseline, 3/7/03
2,024
2,224
-200
CBO Estimates of the President’s Policies, 3/7/03
1,907
2,245
-338
House FY2004 Budget Resolution, 3/21/03
1,908
2,232
-324
Senate FY2004 Budget Resolution, 3/26/03
1,958
2,246
-287
Conference FY2004 Budget Resolution, 4/11/03
1,883
2,268
-385
B&E Outlook = The Budget and Economic Outlook, CBO.
Budget Proposals and Estimates
CBO’s first budget report for FY2004, the Budget and Economic Outlook
(January 2003), contained baseline estimates and projections for FY2003 through
FY2013.1 CBO’s report showed the budget in deficit through FY2006, with a $145
billion deficit in FY2004 and a $16 billion deficit in FY2006. The baseline
projections show small surpluses beginning in FY2007 and growing rapidly in
FY2011 through FY2013 as revenues rapidly grow with the scheduled expiration of
the 2001 tax reductions from the Economic Growth and Tax Relief Reconciliation
Act of 2001 (EGTRRA; P.L. 107-16, June 2001).
1 Baseline estimates provide a foundation from which to measure proposed policy changes.
They extrapolate current policies into the future based on expectations of future economic
conditions, other factors that affect the budget, and rules set by Congress that CBO must
follow in creating baseline estimates. They are not meant to predict future budget outcomes.

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President Bush’s FY2004 budget calls for additional tax cuts and both increased
and decreased spending (as measured against baseline estimates) depending on the
activity. The policy changes would increase the FY2004 deficit from OMB’s
baseline of $158 billion to $307 billion. OMB’s current service baseline estimates
move into a small ($5 billion) surplus in FY2006 while the President’s proposals
produce a deficit of $201 billion in that year and would keep the budget in deficit at
least through FY2008, the last year of the Administration’s estimates.2
The Administration’s budget did not include any cost estimates for the (then)
possible war with Iraq, additions to homeland security funding, or for non-war
defense related spending. On March 24, 2003, the President asked Congress for a
$75 billion supplemental appropriation for FY2003, which is likely to have some
outlay effect in FY2004.
The Administration argues that the tax cuts are needed to boost the lagging
economy and that the acceleration of economic growth resulting from the tax cuts
will lead to the recovery of much of the lost revenue over future years. The
President’s Council of Economic Advisors, in its annual report stated,
Although the economy grows in response to tax reductions (because of higher
consumption in the short run and improved incentives in the long run), it is
unlikely to grow so much that lost tax revenue is completely recovered by the
higher level of economic activity.3
Both OMB’s and CBO’s FY2004 budget documents were produced prior to the
completion of final work on the FY2003 appropriations. This forced both agencies
to estimate what (discretionary) spending levels Congress would approve and the
President agree to for FY2003, leaving the FY2003 to FY2004 spending comparisons
in these documents less reliable than usual.
CBO’s March report, An Analysis of the President’s Budgetary Proposals for
Fiscal Year 2004 revised the CBO baseline and estimated the Administration’s
FY2004 budget proposals using CBO’s assumptions and budget estimating
techniques. CBO increased its baseline deficits by $47 billion in FY2003 and by $55
billion in FY2004. CBO attributed $22 billion of the $55 billion increase in the
deficit in FY2004 to legislative changes since January (almost all from the
Consolidated Appropriations Resolution, 2003 (CAR2003; P.L.108-7) adopted in late
February, with the remaining $33 billion attributed to technical changes. Over the
10-year period covered in the CBO report, CBO writes,
For the 2004-2013 period, CBO has reduced its projection of the cumulative
surplus by $446 billion [ — dropping it from $1,336 billion to $891 billion — ],
2 Long-run projections of budget policy existing in FY2003 that are found in the budget (p.
41) indicate that, without substantial policy changes, the budget remains in deficit through
much of this century.
3 Council of Economic Advisers, Economic Report of the President. Feb. 2003. pp. 57-58

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CRS-4
nearly three-quarters of which derives from enactment of the omnibus
appropriation act in February.4
The deterioration in the budget outlook since the January estimates also delays, by
one year, the expected date when CBO’s baseline deficit would move into surplus,
from FY2007 to FY2008.
CBO’s estimates of the President’s policies were similar to the President’s
budget, with little cumulative difference in the amounts generated. CBO estimated
a cumulative deficit of $1.2 trillion under the President’s policies while the
Administration estimated $1.1 trillion.5 CBO’s estimates of the Administration’s
budget show the President’s policies increasing the deficits or eliminating surpluses
compared to the revised CBO baseline in each of the 10 years covered. CBO
estimated that about two-thirds of the increases in the deficits in its estimates of the
President’s proposal, excluding higher net interest, result from lower revenues
(including the effect of the tax cuts in the President’s budget).
The House and Senate Budget Committees both cleared (on party-line votes) 10-
year budget resolutions (H.Con.Res. 95; S.Con.Res. 23) in mid-March, 2003. Both
resolutions mostly followed the lead of the Administration, with some exceptions.
The House passed its resolution on March 21; the Senate passed its resolution on
March 26. The House resolution included, in its reconciliation instructions, the
President’s request for a $726 billion economic stimulus tax cut, but included an
approximately 1% cut in a broad selection of entitlement programs. The Senate
passed a resolution containing reconciliation instructions for a $350 billion economic
stimulus tax cut, but no mandated cuts in entitlement spending. The resolution
moved to a conference committee on April 1, and the committee issued its report on
April 10. The House and Senate accepted the conference agreement on April 11.
Continuing disputes over the size of the tax cut continued after the acceptance of the
conference report.
Uncertainty in Budget Projections
All budget estimates and projections are inherently uncertain. Their dependence
on assumptions that are themselves subject to substantial variation over relatively
short time periods makes budget estimates and projections susceptible to fairly rapid
and dramatic changes. The last couple of years have demonstrated this volatility.
The original proposals and estimates for FY2002, made in early 2001, changed
drastically over the 20 to 21 months of congressional and presidential action on the
budget. (The budget estimates for five to 10 years in the future that are included in
the OMB and CBO budget documents are subject to even greater variability.) The
early 2001 estimates for FY2002 estimated a surplus of $231 billion to $313 billion.
The year ended on September 30, 2002 with a deficit of $158 billion. The September
2001 terrorist attacks on the United States, the legislation adopted in response, the
bursting of the stock market bubble, the weak economy, and a shift in critical
4 Congressional Budget Office, An Analysis of the President’s Budgetary Proposals for
FY2004, March 2003, p. 3.
5 Ibid., p. 1.

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CRS-5
underlying budget relationships, all contributed to a large change in the year’s budget
outcome from the originally proposed or estimated amounts.
Information in chapter 5 (The Uncertainties of Budget Projections) of CBO’s
budget report, The Budget and Economic Outlook: Fiscal Years 2004-2013 (January
2003), indicates how significantly the budget outcome can be altered by changes in
economic and related technical factors that underpin the budget estimates. The
chapter contains optimistic and pessimistic alternative scenarios for its baseline
projection, meaning no changes from current policies. The optimistic scenario
assumes that the favorable economic and budget conditions of the late 1990s and
2000 recur. The pessimistic scenario assumes that the economy and the budget revert
to the unfavorable conditions that prevailed in the 1970s and most of the 1980s.
The numbers in Table 2 are calculated from data in the January 2003 CBO
budget report. The results reflect the wide range of possible budget outcomes with
the same policies but different underlying assumptions about the economy and the
relationship of the budget to the economy. The spread results from varying
reasonable assumptions about future economic conditions and technical components
that underlie the budget estimates.
The President’s budget includes, in the section, “Charting a Course for the
Federal Budget,” the statement that “... five-year projections are fraught with
uncertainty. The ... error in projecting the surplus or deficit since 1982 ... has been
a $90 billion average absolute forecasting error for the first year alone. A 90-percent
confidence range for 2008 would stretch all the way from a $281 billion surplus to
a $661 billion deficit, a range of nearly $1 trillion.”6 The divergence expands as one
moves further into the future.
Table 2. CBO’s Alternative Scenarios,
Cumulative Surpluses/Deficits(-); FY2004-2008 and FY2004-2013
(in billions of dollars; January 31, 2003)
FY2004-FY2008 FY2004-FY2013
CBO Optimistic Scenario Cumulative Surplus
$566
$4,490
CBO Baseline 1/31/03
-143
1,336
CBO Pessimistic Scenario Cumulative Deficit
-855
-1,856
Source: CBO, The Budget and Economic Outlook: Fiscal Years 2004-2013, Jan. 2003, p.106;
CRS calculations.
Budget projections are very dependent on the underlying assumptions about the
direction of the economy and future government policy and how these interact. Any
deviation from the underlying assumptions used in the budget estimates, such as
faster or slower economic growth, higher or lower inflation, differences from the
existing or proposed spending and tax policies, or changes in the technical
6 Office of Management and Budget. Budget of the U.S. Government for FY2004, Feb. 3,
2003, p. 28.

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CRS-6
components of the budget models can, and usually do, have substantial effects on
moving the budget outcomes away from the earlier budget estimates and projections.
Budget Action
CBO and the Administration released their first budget reports for the next fiscal
year, FY2004, in late January and early February 2003. CBO’s report provides
baseline estimates for fiscal years 2003 through 2013. OMB’s documents provide
estimates for FY2004 through FY2008 with a few instances of estimates of
cumulative amounts for fiscal years 2004 through FY2013 (these are limited to
revenues and provide almost no data for the individual fiscal years after FY2008).
The Joint Committee on Taxation put out its estimates of the President’s
revenue provisions on March 4, 2003. In mid-March, CBO made available its report,
An Analysis of the President’s Budgetary Proposals for FY2004, which used the tax
estimates of the Joint Committee on Taxation in its analysis.
The House and Senate Budget Committees adopted their own, differing,
versions of the FY2004 budget resolution (H.Con.Res. 95; S.Con.Res. 23) in mid-
March. The House, after the Republican leadership had to modify the committee-
passed resolution to assure enough support for passage, passed (215-212) its version
on March 21. The Senate spent more than a week considering its resolution. After
adopting and rejecting numerous amendments, the Senate adopted the resolution on
March 26.7 One of the amendments that was adopted limited the size of the
economic stimulus tax-cut to $350 billion (from the committee adopted level of $698
billion). The resolution moved to a conference committee April 1, 2003. The
conference reported its agreement on April 10 (H.Rept. 108-71). The agreement
included different tax cut reconciliation instructions for the House and Senate. The
House reconciliation instructions would let it cut taxes (over 11 years) by up to $550
billion (down from the $726 billion in the House-passed resolution). The Senate
reconciliation instructions limited it to tax cuts of $350 billion. Without other
constraints, this would have allowed a $550 billion tax cut to emerge from any future
reconciliation-induced tax cut legislation. The $550 billion would have been
protected from a Senate filibuster by the reconciliation rules. To make sure the
budget resolution conference report could clear the Senate, the Senate leadership
agreed to moderate Republicans’ demands that any eventual tax cut would not exceed
$350 billion. This agreement, undisclosed to the House leadership, resulted in a
House leadership and some members greatly angered with the Senate.
7 The Senate substituted the text of its resolution, S.Con.Res. 23, for the text of the House-
passed resolution, H.Con.Res. 95.

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CRS-7
Outlays
The Administration’s FY2004 budget proposed $2,229 billion in outlays for
FY2004, rising to $2,711 billion in FY2008, the last year forecast in the President’s
budget. The current services baseline in the President’s budget (estimates of what
future outlays would be if policies remained unchanged over the forecast period)
showed outlays of $2,189 billion in FY2004 growing to $2,541 billion in FY2008.
The Administration’s proposals would raise outlays $89 billion above the
Administration’s proposed FY2003 level and $40 billion above its FY2004 current
services baseline outlay estimate. The dollar difference between the current services
baseline outlay estimate for FY2004 and the outlay amount in the President’s
FY2004 proposal provides the cost of the Administration’s proposed policy changes
in FY2004. The change from FY2003 to FY2004 (the $89 billion increase) combines
policy changes from one year to the next with relatively automatic growth in large
parts of the budget. These automatic increases include cost-of-living adjustments,
growth in populations eligible for program benefits, and inflation driven increases.
The President’s budget does not include estimated costs of any potential conflict with
Iraq for either FY2003 or FY2004.
Table 3. Outlays for FY2003-2008 and FY2013
(in billions of dollars)
FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2013
CBO Adjusted Baseline, 1/31/03 $2,011 a
$2,121
$2,199
$2,298
$2,3878 $2,4795 $2,583 $3,167
President’s F04 Budget, 2/3/03
2,140
2,229
2,343
2,464
2,576
2,711
—
President’s FY04 Current Services, 2/3/03
2,131
2,189
2,276
2,348
2,440
2,541
—
CBO Revised Baseline, 3/03
2,137
2,224
2,328
2,417
2,513
2,621
3,215
CBO Est. of the President’s Policies,3/03
2,143
2,245
2,370
2,491
2,606
2,739
3,452
House FY2004 Budget Resolution, 3/21/03
2,143
2,232
2,337
2,450
2,556
2,675
3,335
Senate FY2004 Budget Resolution,3/26/03
2,148
2,246
2,372
2,491
2,607
2,734
3,338
Conference FY2004 Budg. Res. 4/11/03
2,182
2,268
2,375
2,494
2,607
2,737
3,387
a. Actual outlays for FY2002.
Total outlays, in the President’s budget, were projected to grow at an average
annual rate of 5.0% between FY2004 and FY2008. When the components of
spending are examined, the budget functions show the health budget function
increasing at an annual average rate of 7.9%, the Medicare function increasing at an
annual average rate of 7.8%, and net interest increasing at an annual average rate of
9.6% over these years.8, 9 These three functions account for over 53% of the total
outlay increase during this period. None of the other fifteen budget functions has a
8 Budget functions group, “budget data according to the major purpose served” rather than
by agency or program. OMB, Budget of the U.S. Government for FY2004, Analytical
Perspectives, p. 463.
9 The Energy budget function has an even higher rate of increase, growing by an annual
average rate of 18.3%, but since it only makes up 0.04% of total outlays in FY2004 and
0.07% of outlays in 2008, it therefore has little effect on the overall change in outlays.

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CRS-8
compound rate of growth as large as that of total outlays.10 The relatively low growth
in some budget functions (agriculture 0.8%, education, training, employment, and
social services 1.2%, general government 1.2%, and natural resources and
environment 1.5%), growth that is lower than the expected rate of inflation, will
reduce these functions’ spending in real terms, as well as shares of total spending.
The CBO baseline, like the Administration’s current services baseline estimates,
assumes no changes from current policies, had FY2004 outlays of $2,298 billion,
FY2008 outlays of $2,583 billion, and, because CBO’s estimates extend through
FY2013, FY2013 outlays of $3,167 billion.11
The revisions in CBO’s March report raised FY2004 outlays by $25 billion, to
$2,224 billion (mostly because of the inclusion of the effects of adopting the
Consolidated Appropriations Resolution, 2003 (P.L. 108-7)) in February. Each
year’s outlays in the CBO revisions are larger than they were in the February
baseline. CBO’s baseline outlays grow by an annual average rate of 4.2% between
FY2004 and FY2008 (and by the same rate for the FY2004-FY2013 period). Total
discretionary spending, including defense and homeland security, grows by
approximately 2.5% a year over both the 5- and 10-year period. Mandatory spending,
including Social Security and Medicare, would grow at average annual rates of 4.7%
(FY2004-FY2008) and 5.4% (FY2004-FY2013). Because CBO’s baseline shows the
budget with a surplus starting in FY2008, net interest grows quickly in the first five
years and declines in the second five years. Over the 10 years, net interest grows at
an annual average of 1.5% (it grows at an average annual rate of 7.8% over the five
years, FY2004-FY2008). If the deficits do not disappear, as they would not under the
Administration’s proposals, the net interest growth would not begin falling late in the
period. It would tend to grow as long as the budget is in deficit.
CBO’s March reestimates of the President’s proposals are larger than the
President’s outlays by $16 billion (to $2,245 billion) in FY2004. For FY2008, CBO’s
reestimates push total outlays to $2,739 billion (the Administration’s number was
$2,711 billion). By FY2013, the Administration’s outlay proposal reaches $3,279
billion under the CBO reestimates. Subsequent years show outlays $20 billion to $30
billion higher in the CBO reestimates than in the President’s budget.
The House- and Senate-passed budget resolutions contain different levels of
spending for FY2004 and subsequent years and the differences in components of that
spending. The House resolution had $2,232 billion in outlays for FY2004, while the
Senate amount was $2,246 billion. By FY2013, the House resolution showed outlays
of $3,289 billion and the Senate resolution shows outlays of $3,338 billion. The
House included instructions to cut spending in a wide selection of most mandatory
spending, stating that there should be that much in “waste, fraud, and abuse” in the
programs affected. The Senate resolution has very constrained growth in non-
10 The two budget functions, “allowances”, and “undistributed offsetting receipts”, were
excluded from the total number of functions.
11 Essentially followed the same rule used by the Administration’s to produce its current
services baseline estimates. CBO and OMB used different budget models and a number of
different underlying assumptions

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CRS-9
defense, non-homeland security discretionary spending in the second five years of the
period.
The conference report requires most of the authorizing committees in the House
and Senate to report the amount of “waste, fraud, and abuse” within the programs
under their jurisdiction to their respective Budget Committees.
Receipts
The Administration’s FY2004 budget included proposals to speed up and make
permanent many of the tax changes enacted over the last two years. The
Administration divided its revenue proposals into an economic growth package ($390
billion over FY2004-FY2008); tax incentives ($72 billion over FY2004-FY2008);
tax simplification (which raises receipts by $13 billion over FY2004-2008);
extending expiring tax provisions ($40 billion over FY2004-FY2008); and
miscellaneous changes (which raise receipts by $2 billion over FY2004-FY2008).
The total proposal would reduce revenues from current services baseline levels by
$493 billion between FY2004 and FY2008 and by $1,461 billion between FY2004
and FY2013.12
The proposed changes slow the growth in receipts but do not stop them. They
grow from $1,922 billion in FY2004 to $2,521 billion in FY2008. The
Administration claims that the economic growth tax-cut proposals will speed
economic growth by enough to recover some or all of the forgone revenue (a claim
countered by CBO’s March report that included dynamic macro-economic estimates,
estimates that include the effects of the tax cuts on the economy in the budget
estimates. None of the three budget models CBO used to calculate the tax-cut’s
effect on future revenues (or outlays) showed more than a minimal feed-back effect).
CBO’s baseline estimates, assuming no policy change and using a somewhat
different set of underlying assumptions than the Administration, estimates that
FY2004 revenues will total $2,054 billion. The CBO estimates also assume that the
automatic expiration of the tax cuts of EGTRRA will occur at the end of 2010. The
result is a jump in revenues in the fiscal years after FY2010. CBO estimates that
extending all the EGTRRA tax provisions that would otherwise expire before
FY2013, will reduce cumulative revenues over the FY2004-2013 period by $785
billion (from cumulative baseline revenues of $27,923 billion)13. The effect of
12 These estimate are from the Treasury’s General Explanations of the Administration’s
Fiscal Year 2004 Revenue Proposals. The President’s budget shows a $441 billion revenue
reduction (from baseline estimates) for the FY2004-FY2008 period and a $1,307 billion
reduction for the FY2004-FY2013 period. The Treasury’s estimates were produced after
the release of the President’s budget and reflect adjustments to these estimates. See also the
CRS Report RS21420, President Bush’s 2003 Tax Cut Proposal: A Brief Overview, and the
CRS Issue Brief IB10110, Major Tax Issues in the 108th Congress for more information on
the proposals.
13 This estimate does not include the larger interest payments resulting from the series of
(continued...)

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CRS-10
eliminating the expiring provisions of EGTRRA are most dramatic after FY2010.
In FY2010, the reduction from baseline revenue estimates is $32 billion; in FY2011
it jumps to $156 billion and in FY2013, to $260 billion.
Table 4. Receipts for FY2002-2008 and FY2013
(in billions of dollars)
FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2013
CBO Adjusted Baseline, 1/31/03 $1,853 a
$1,922
$2,054
$2,225
$2,370
$2,505
$2,648
$3,674
President’s F04 Budget, 2/3/03
1,836
1,922
2,135
2,263
2,398
2,521
—
President’s FY04 Current Services 2/3/03
1,867
2,031
2,235
2,352
2,469
2,593
—
CBO Revised Baseline, 3/7/03
1,891
2,024
2,205
2,360
2,504
2,647
3,674
CBO Est. of the President’s Policies,3/7/03
1,856
1,907
2,100
2,273
2,433
2,573
3,350
House FY2004 Budget Resolution, 3/21/03
1,855
1,908
2,107
2,282
2,444
2,587
3,372
Senate FY2004 Budget Resolution, 3/26/03
1,865
1,959
2,154
2,321
2,479
2,620
3,497
Conference FY2004 Budg. Res. 4/11/03
1,835
1,883
2,082
2,277
2,441
2,586
3,424
a. Actual receipts for FY2002.
NA = Not available
CBO’s revised estimates and estimates of the Administration’s budget in March
lowered CBO’s baseline revenue estimates between FY2004 and FY2006, after
which they equaled the January estimates. The CBO estimates of the President’s
proposals fall below the President’s proposed revenue levels over those years. From
FY2007 through FY2008, CBO’s estimates of the President’s proposed revenues
exceed the President’s proposed level.
The House and Senate budget resolutions produced different amounts under
reconciliation in response to the President’s proposed tax cut. The House included
the whole amount (estimated at $726 billion over 11 years) while the Senate reduced
the amount in the reconciliation instructions to no more than $350 billion. The
remainder of the President’s tax proposal (mostly accelerating and making permanent
the 2001 tax cut, EGTRRA 2001) was included in the budget resolutions but not in
the reconciliation instructions. The conference on the budget resolution produced
separate tax cut reconciliation instructions for the House Ways and Means
Committee and the Senate Finance Committee. Reconciliation instructions required
the Ways and Means Committee to reduce receipts by $550 billion ($535 billion in
tax cuts and $15 in increased associated outlays). The reconciliation instructions also
put the overall tax reduction from the Finance Committee at $350 billion with the
proviso that the initial revenue reduction from the Finance Committee not exceed
$350 billion (this would, if there is legislation, put at most a $350 billion tax cut
before the Senate).
Soon after the House had adopted the conference report on the budget resolution
(April 11), the Senate indicated that no eventual tax cut legislation exceeding $350
billion would be presented to the Senate. This implies that an eventual conference
13 (...continued)
deficits occurring over this period that increases public debt.

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CRS-11
agreement on tax cuts produced under the reconciliation instructions is unlikely to
be approved by the Senate. House members, expecting the larger tax cut amount
($550 billion) would eventually emerge from a conference committee on the tax cut
legislation, reacted angrily to the Senate’s internal agreement.
Surpluses And Deficits
Surpluses and deficits are the residuals left after Congress and the President set
policies for spending and receipts. Surpluses reduce federal debt held by the public
which leads to lower net interest payments; deficits increase government debt,
increasing the government’s net interest payments. 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) was a major focus of the
budget debate in the late 1980s and throughout the 1990s. The President’s FY2004
budget has a deficit of $307 billion in FY2004 (CBO’s reestimates of the President’s
proposals put it at $338 billion) and, if his proposed policies are adopted, remains in
deficit throughout the five years (FY2004-FY2008) covered by the budget. The
deficit falls slowly through FY2008 when it reaches $190 billion. The
Administration’s current services baseline, the estimate without policy change, has
a deficit of $158 billion in FY2004, becoming a surplus of $51 billion in FY2008.
Table 5. Surpluses/Deficits(-) for FY2004-FY2008 and FY2013
(in billions of dollars)
FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2013
CBO Adjusted Baseline, 1/31/03
-$158 a
-$199
-$145
-$73
-$16
$26
$65
$508
President’s F04 Budget, 2/3/03
-304
-307
-208
-201
-178
-190
—
President’s FY04 Current Services 2/3/03
-264
-158
-40
5
29
51
—
CBO Revised Baseline, 3/7/03
-246
-200
-123
-57
-9
27
459
CBO Est. of the President’s Policies,3/7/03
-287
-338
-270
-218
-173
-166
-102
House FY2004 Budget Resolution, 3/21/03
-288
-324
-230
-168
-111
-87
37
Senate FY2004 Budget Resolution, 3/26/03
-282
-287
-218
-169
-128
-114
159
Conference FY2004 Budg. Res. 4/11/03
-347
-385
-294
-217
-166
-151
37
a. Actual deficit for FY2002.
CBO’s January baseline estimates (no policy changes) had the budget returning
to surplus in FY2007 and then growing through FY2013. The March revisions
increased the near-term deficits and slowed, by one year, the movement to surplus.
The growth in the surplus, especially after FY2010, is boosted dramatically by the
scheduled expiration of the 2001 tax cut.
The budget resolution from both the House Budget Committee’s budget
resolution moved the budget into surplus in FY2010; the Senate Budget Committee
moved the budget into surplus in FY2013. Both the House- and Senate-passed
budget resolutions, modified from the ones from the committees’ resolutions, showed
the budget moving back into surplus in FY2012.

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CRS-12
Over a longer period, one running far into the century, the Administration
indicates that it expects, under existing policies and assumptions, large and
continually growing deficits. The retirement of the baby boom generation, beginning
in large numbers in the next decade, will rapidly drive up spending on Social
Security, Medicare, and other programs for the elderly, increasing the deficit (or
reducing the surplus, if there is one) and putting a severe strain on both the budget
and the economy.
The Budget and the Economy
The budget and the economy affect each other. The relationship is an unequal
one, with small economic changes having a more significant effect on the budget
than large budget policy changes have on the economy. The worse-than-expected
economic conditions over the last two years played a substantial role, directly or
indirectly, in the deterioration of the budget outlook over those years.
The positive budget outlook produced in early 2001 had been buoyed by the
favorable economic conditions that were then expected. These would have continued
the overall improvement in the budget situation since the early 1990s. Much of the
improvement had come from strong and sustained economic growth. When those
favorable economic conditions faltered, so did a portion of the positive budget
outcomes of the previous few 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, the current continuing
uncertainty over the economic outlook, the lengthy fall in the stock market, the policy
responses to the September 2001 terrorist attacks, along with negative changes in the
technical components of the budget estimates, raised outlays, reduced receipts, and
eliminated the previously expected surpluses.
The FY2004 presidential budget documents and CBO’s budget report include
discussions of the expected economic outlook and the budget’s sensitivity to changes
in selected economic variables. Both reports include a table showing the budget’s
sensitivity to changes in selected economic variables (this year, it is found in chapter
2 of the Analytical Perspectives volume of the President’s budget and in chapter 5
of CBO’s report). The effects of the variables are generally symmetrical. A higher
rate of real economic growth (than assumed in the budget proposal) has
approximately the same effect on the budget as same-sized lower rate of economic
growth has, but in the opposite direction. If a 1% lower rate of economic growth
reduces the surplus (or increases the deficit) by $30 billion in FY2004 (from the
OMB table; Table 2-6, p. 32, The Budget of the United States Government, Fiscal
Year 2004, Analytical Perspectives), a 1% higher than expected rate of economic
growth would reduce the deficit (or increase the surplus) by approximately $30
billion. Changes in other variables generally have a smaller effect on the budgetary
balance than changes in real GDP. Sustained changes in the underlying economic
variables tend to produce larger changes in the budget numbers than the effect of one
or two year change.

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CRS-13
Legislation
H.Con.Res. 95
The Concurrent Resolution on the Budget for Fiscal Year 2004. Adopted by the
House Budget Committee (H.Rept. 108-37) on March 17, 2002, on a party-line vote
after rejecting numerous amendments. It follows many of the proposals of the
Administration. After some adjustments by the House leadership to assure passage,
it was adopted by the House (215-212) on March 21.
S.Con.Res. 23
The Concurrent Resolution on the Budget for Fiscal Year 2004. Adopted by the
Senate Budget Committee (no report but a committee print, S.Prt. 10-19) on March
14, 2002, on a party-line vote. As passed, the resolution included reconciliation
instructions for approximately half of the President’s economic stimulus tax cut
proposal. The language of S.Con.Res. 23 was substituted for the contents of the
House-passed resolution, H.Con.Res. 95.
For Additional Reading
U.S. Congressional Budget Office. The Budget and Economic Outlook: Fiscal
Years 2004-2013. Washington, U.S. Govt. Print. Off., January 31, 2003.
— — Budget Options. Washington, U.S. Govt. Print. Off., March 6, 2003.
U.S. Council of Economic Advisors. The Economic Report of the President.
Washington, U.S. Govt. Print. Off., February 2003.
U.S. Office of Management and Budget. The Budget of the United States
Government for Fiscal Year 2004. Washington, U.S. Govt. Print. Off.,
February 3, 2003.
CRS Products
CRS Electronic Briefing Book, Taxation,
[http://www.congress.gov/brbk/html/ebtxr1.shtml]
CRS Report RL31414. Baseline Budget Projections: A Discussion of Issues, by
Marc Labonte.
CRS Report RL30297. Congressional Budget Resolutions: Selected Statistics and
Information Guide, by Bill Heniff Jr.
CRS Report 98-511. Consideration of the Budget Resolution, by Bill Heniff Jr.
CRS Report RL31235. The Economics of the Federal Budget Deficit, by Brian W.
Cashell.

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CRS-14
CRS Report 95-543. The Financial Outlook for Social Security and Medicare, by
David Koitz and Geoffrey Kollman.
CRS Report RS21136. Government Spending or Tax Reduction: Which Might Add
More Stimulus to the Economy?, by Marc Labonte.
CRS Report RL30839. Income Tax Cuts, the Business Cycle, and Economic
Growth: A Macroeconomic Analysis, by Marc Labonte and Gail Makinen.
CRS Report RS21287. Is Another Double Dip Recession Possible?, by Marc
Labonte and Gail Makinen.
CRS Issue Brief IB10110. Major Tax Issues in the 108th Congress. Possible U.S.
Military Intervention in Iraq: Some Economic Consequences, by Marc Labonte.
CRS Report 98-720. Manual on the Federal Budget Process, by Robert Keith and
Allen Schick.
CRS Report RL31585. Possible U.S. Military Intervention in Iraq: Some Economic
Consequences, by Marc Labonte.
CRS Report RS21420. President Bush’s 2003 Tax Cut Proposal: A Brief Overview,
by David Brumbaugh.
CRS Report RL31498. Social Security Reform: Economic Issues, by Jane Gravelle
and Marc Labonte.
CRS Report RL30708. Social Security, Saving, and the Economy, by Brian W.
Cashell.
CRS Report RS21126. Tax Cuts and Economic Stimulus: How Effective Are the
Alternatives?, by Marc Labonte and Gail Makinen.
CRS Report RL30839 Tax Cuts, the Business Cycle, and Economic Growth: A
Macroeconomic Analysis, by Marc Labonte and Gail Makinen.
CRS Report RL31134. Using Business Tax Cuts to Stimulate the Economy, by Jane
Gravelle.
CRS Report RL30973. 2001 Tax Cut: Description, Analysis, and Background, by
David L. Brumbaugh, Jane G. Gravelle, Steven Maguire, Louis Alan Talley, and
Bob Lyke.

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