The Impact of Major Legislation on Budget
Deficits: 2001 to 2009
Marc Labonte
Specialist in Macroeconomic Policy
Andrew Hanna
Presidential Management Fellow
March 23, 2010
Congressional Research Service
7-5700
www.crs.gov
R41134
CRS Report for Congress
P
repared for Members and Committees of Congress
The Impact of Major Legislation on Budget Deficits: 2001 to 2009
Summary
After recording a fiscal year (FY) 2000 federal budget surplus of $236.2 billion, the
Congressional Budget Office (CBO) in January 2001 projected continued surpluses throughout
the decade. However, enactment of major legislation during the 107th to 111th Congresses, in
combination with changing economic conditions, altered the federal budget outlook for the
decade dramatically. In FY2002, the budget recorded a deficit for the first time since 1997, and
the federal government has run a deficit in each subsequent year.
This report examines to what extent major legislative changes from 2001 to 2009 caused the
budget to move from surplus to deficit. Legislative actions taken in 2009 increased the FY2009
deficit by $509 billion, whereas legislative actions taken between 2001 and 2008 increased the
FY2009 deficit by $903 billion. Furthermore, legislative changes have cumulatively increased
federal budget deficits over FY2001 to FY2009 by $5.4 trillion.
Several major tax laws passed by Congress reduced federal government revenues, including the
Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16), the Jobs and Growth
Tax Relief Reconciliation Act of 2003 (P.L. 108-27), and the Working Families Tax Relief Act of
2004 (P.L. 108-311). On an aggregated basis, estimates by CBO and the Joint Committee on
Taxation (JCT) at the time of legislative enactment placed the total anticipated cost for these three
laws at $1.76 trillion for FY2001 to FY2011.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (P.L. 108-173)
established a new Medicare Part D prescription drug benefit, which CBO originally projected
would cost $552.2 billion over 10 years. However, the Boards of Trustees for Medicare estimated
in May 2009 that Part D expenditures would total $381.3 billion for this same period.
Funding for “Global War on Terror” operations has been provided primarily through emergency
supplemental appropriations law. For FY2001 to FY2009, Congress approved legislation
appropriating about $943.8 billion for military operations in Iraq and Afghanistan, with $887.8
billion of this amount allocated to the Department of Defense.
On September 6, 2008, the Federal Housing Finance Agency exercised authority provided under
the Housing and Economic Recovery Act of 2008 (P.L. 110-289) to place Fannie Mae and
Freddie Mac into conservatorship. In August 2009, CBO estimated net subsidy costs related to
Fannie Mae and Freddie Mac at $291 billion for FY2009. The Emergency Economic Stabilization
Act of 2008 (Division A of P.L. 110-343) established the Troubled Asset Relief Program (TARP).
In January 2010, CBO projected TARP would increase budget deficits by $99 billion over the
complete duration of the program.
In response to significant weakness in the U.S. economy, the Economic Stimulus Act of 2008
(P.L. 110-185) provided a refundable individual income tax rebate. JCT estimated in February
2008 that P.L. 110-185 would increase federal budget deficits by approximately $124.5 billion for
FY2008 to FY2018. To provide additional economic stimulus, Congress enacted the American
Recovery and Reinvestment Act of 2009 (P.L. 111-5) on February 17, 2009. In January 2010
CBO estimated that P.L. 111-5 will increase federal budget deficits by $862 billion over 10 years.
Congressional Research Service
The Impact of Major Legislation on Budget Deficits: 2001 to 2009
Contents
Federal Budget Deficits: 2001 to 2009 ........................................................................................ 1
Mandatory Spending and Federal Revenues: 2001 to 2009 .......................................................... 4
Mandatory Spending ............................................................................................................. 4
Federal Revenues .................................................................................................................. 6
Impact of Major Legislation on Budget Deficits: 2001 to 2009 .................................................... 8
EGTRRA, JGTRRA and Other Major Tax Legislation........................................................... 9
Economic Growth and Tax Relief Reconciliation Act of 2001.......................................... 9
Jobs and Growth Tax Relief Reconciliation Act of 2003 .................................................. 9
Other Tax Legislation With Budgetary Impact: 2004 to 2006......................................... 10
The Alternative Minimum Tax: Increases in the Basic Exemption and Other
Structural Modifications................................................................................................... 12
Agricultural Policy: 2002 and 2008 Farm Bills.................................................................... 13
Funding for Military Operations in Afghanistan, Iraq and Other Global War on Terror
Programs ......................................................................................................................... 14
Sustainable Growth Rate System: Medicare Physician Payment Updates............................. 17
Medicare Part D Prescription Drug Benefit ......................................................................... 19
Deficit Reduction Act of 2005............................................................................................. 21
Emergency Funding in Response to 2005 Hurricanes: Katrina, Rita, and Wilma ................. 21
Financial Crisis of 2008 ...................................................................................................... 23
Federal Conservatorship of Fannie Mae and Freddie Mac.............................................. 23
Emergency Economic Stabilization Act of 2008 ............................................................ 25
Economic Stimulus ............................................................................................................. 27
Economic Stimulus Act of 2008 .................................................................................... 27
American Recovery and Reinvestment Act of 2009 ....................................................... 28
Changes in Non-Defense Discretionary Spending: 2001 to 2009 ............................................... 30
Figures
Figure 1. Difference Between Allowed and Actual Expenditures for Physician Services
Under the SGR System .......................................................................................................... 18
Figure 2. Non-defense Discretionary Spending, FY2001-FY2009.............................................. 32
Tables
Table 1. Differences Between 2001 Baseline Projections and Actual Budget Balance,
FY2001-FY2009...................................................................................................................... 3
Table 2. Mandatory Spending Outlays, FY2001-FY2009............................................................. 5
Table 3. Revenues by Major Source, FY2001-FY2009 ................................................................ 7
Table 4. Budgetary Effects of Legislative Changes by Year of Enactment, FY2001-
FY2009.................................................................................................................................... 8
Table 5. Estimated Budget Effects of Major Tax Cuts, 107th to 109th Congress........................... 11
Congressional Research Service
The Impact of Major Legislation on Budget Deficits: 2001 to 2009
Table 6. Estimated Revenue Effects for AMT Legislative Changes, 107th to 111th
Congresses............................................................................................................................. 13
Table 7. Defense Department, Foreign Operations Funding, and Veterans Affairs Medical
Funding for Iraq, Afghanistan and Other Global War on Terror Operations, FY2001-
FY2009.................................................................................................................................. 15
Table 8. Estimated War Funding by Operation, FY2001-FY2009............................................... 17
Table 9. Legislative Overrides to Medicare Physician Payment Reductions Mandated
Under the Sustainable Growth Rate System, 108th to 111th Congresses.................................... 19
Table 10. Estimated Cost of the Medicare Part D Prescription Drug Benefit,.............................. 20
Table 11. Supplemental Appropriations for Emergency Response to Hurricanes Katrina,
Rita and Wilma, 109th and 110th Congress............................................................................... 22
Table 12. CBO Projections of Subsidy Costs for Federal Conservatorship of Fannie Mae
and Freddie Mac .................................................................................................................... 24
Table 13. Projections of Treasury Department Cash Infusions for Fannie Mae and
Freddie Mac........................................................................................................................... 25
Table 14. Estimated Budgetary Effects of the Troubled Asset Relief Program ............................ 26
Table 15. Estimated Budgetary Effects of the Economic Stimulus Act of 2008........................... 28
Table 16. Budgetary Impact of the American Recovery and Reinvestment Act of 2009:
Estimated by CBO and JCT in February 2009 ........................................................................ 29
Table 17. Non-Defense Discretionary Spending, FY2001 to FY2009......................................... 30
Contacts
Author Contact Information ...................................................................................................... 32
Congressional Research Service
The Impact of Major Legislation on Budget Deficits: 2001 to 2009
he annual federal budget deficit is the amount by which federal government outlays
exceed revenues for a given fiscal year (FY), with surpluses generated when revenues
T exceed outlays.1 Budget deficits or surpluses are often used to gauge national fiscal health,
as budget balances over time determine levels of federal debt held by the public, and
corresponding net interest payments required for debt service.2 During an economic downturn,
budget deficits could be viewed as effective fiscal policy, with lawmakers enacting tax cuts and
increasing federal spending to simulate economic activity. However, recurring deficits can
generate serious longer-term macroeconomic consequences, including a reduction in national
saving and investment, and a decreased rate of capital accumulation.3 This report examines to
what extent major legislative changes from 2001 to 2009 caused the budget to move from surplus
to deficit.
Federal Budget Deficits: 2001 to 2009
After recording a FY2000 federal budget surplus of $236.2 billion, the Congressional Budget
Office (CBO) in January 2001 projected continued surpluses throughout the decade, with a $710
billion positive budget balance expected for FY2009.4 However, enactment of major legislation
during the past decade, in combination with changing economic conditions, altered the long-term
federal budget outlook dramatically. In FY2002, the budget recorded a deficit for the first time
since 1997, and the federal government has run a deficit in each subsequent year. Most recently,
the FY2009 deficit was $1.4 trillion, a $2.1 trillion negative change in budget balance from the
$710 billion FY2009 surplus projected by CBO in 2001.5
The broad reason the budget moved from surplus to deficit is because Congress chose an overall
level of spending that exceeded chosen revenue levels. However, the budget is the sum of its
parts, so no single spending or tax decision can be taken in isolation and be said to have “caused”
the deficit in an absolute sense.
Furthermore, some determinants of spending and revenues are not directly controlled by
Congress. When economic conditions change, spending and revenues automatically change
without any change in law. For example, when economic growth slows, the growth of taxable
income slows, so that less revenue is collected at a given tax rate than previously. Likewise, if a
slowdown in economic growth causes unemployment to rise, spending on unemployment
insurance and other means-tested mandatory spending programs will also increase without any
change in law. Economists refer to these changes as “automatic stabilizers” because they
automatically cause the deficit to rise when the economy slows, thereby helping to offset the
1 The federal budget includes both on-budget and off-budget components. The Balanced Budget and Emergency Deficit
Control Act of 1985 (P.L. 99-177) moved revenues and outlays of the two Social Security Trust Funds off-budget, and
the Postal Service was moved off-budget by the Omnibus Reconciliation Act of 1989. All annual federal budgetary
figures presented in this report use combined on-budget and off-budget totals. For more information, see CRS Report
RS20350, Off-Budget Status of Federal Entities: Background and Current Proposals, by Bill Heniff Jr.
2 See CRS Report RL31235, The Economics of the Federal Budget Deficit, by Brian W. Cashell.
3 See CRS Report R40088, The Federal Budget: Current and Upcoming Issues, by D. Andrew Austin and Mindy R.
Levit.
4 Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2002-2011, Table 1-2, January 2001,
available at http://www.cbo.gov/ftpdocs/27xx/doc2727/entire-report.pdf.
5 Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2010 to 2020, Table 1-3, January
2010, available at http://www.cbo.gov/ftpdocs/108xx/doc10871/01-26-Outlook.pdf.
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The Impact of Major Legislation on Budget Deficits: 2001 to 2009
slowdown in growth because of the deficit’s expansionary effects on aggregate spending. It
should also be noted that when economic growth is strong, the opposite effects occur, with levels
of taxable income increasing and outlays on mandatory spending for unemployment insurance
and other economic support programs decreasing.
For a detailed examination of why the budget moved from surplus to deficit, it is necessary to
have a benchmark against which the actual deficit can be compared. One benchmark would be to
compare the 2009 deficit to the 2001 surplus, but this approach would be fraught with several
difficulties. For one thing, spending and revenues are expected to increase over time because of
inflation and economic growth, among other factors, so that $1 spent in 2009 is not comparable to
$1 spent in 2001. In addition, the economy in 2009 is not at the same level of production or in the
same position in the business cycle as the economy in 2001, so the economy’s effect on the
budget is not the same either. Finally, the same law yields different levels of spending or revenue
over time. For example, entitlement spending can increase automatically if the number of
beneficiaries increases. Therefore, comparing spending or revenue levels from one year to the
next could give the false impression that policy had changed when it had not.
This report uses a different benchmark: it compares the actual budget balance in the past nine
years to CBO’s January 2001 baseline projection of the surplus for each of those years. Generally
speaking, the baseline is a projection of the future path of government spending and revenues
under current policy assuming no changes in the law. The purpose of baseline construction by
CBO is to provide a neutral foundation for which to assess policy options, and it is not intended
to predict future changes in revenue and spending legislation.6 The Deficit Control Act of 1985
(P.L. 99-177) established specific rules for CBO to follow in calculating baseline projections, and
additional information about budgetary baselines as it relates specifically to mandatory spending,
federal revenues, and discretionary spending will be provided later in this discussion. CBO
projected in 2001 that if policy had not changed, the surplus would have grown each year.7 Any
year could have been chosen as the benchmark; this report uses CBO’s 2001 baseline as the
benchmark because estimated 10-year surpluses peaked in this projection. In subsequent reports,
the surplus projections would be continually adjusted downward, as CBO became progressively
more pessimistic about the future path of deficits. Thus, the results that follow are partly a
function of the benchmark chosen.
Table 1 shows the differences between CBO’s January 2001 baseline projections and the actual
budget balance for FY2001 to FY2009, attributing deficit increases to the legislative, economic,
and technical categories. Legislative changes refer to enacted laws affecting revenue, mandatory
spending, or discretionary spending. Along with spending increases and revenue reductions
implemented by the enactment of new laws, legislative changes have also increased the national
debt and the cost of debt servicing. The combined change in debt servicing attributed to the
enactment of new legislation is reported separately in Table 1. Over the past 10 years, legislative
changes have increased federal budget deficits by approximately $5.4 trillion. Each year since
2003, legislative changes that increased the deficit were larger than the annual surplus projected
by CBO in January 2001.
6 See CRS Report 98-560, Baselines and Scorekeeping in the Federal Budget Process, by Bill Heniff Jr.
7 See CRS Report RL31414, Baseline Budget Projections: A Discussion of Issues, by Marc Labonte. For an alternative
evaluation, see Alan Auerbach et al., “New Estimates of the Budget Outlook,” Brookings Institution, Issues in
Economic Policy #3, February 2006.
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The Impact of Major Legislation on Budget Deficits: 2001 to 2009
Table 1. Differences Between 2001 Baseline Projections and Actual Budget Balance,
FY2001-FY2009
(in billions of dollars)
Cumulative
Total:
2001 2002 2003 2004 2005 2006 2007 2008 2009 2001-2009
Baseline Surplus Projection in
281 313 359 397 433 505 573 635 710 4,206
Jan. 2001a
Legislative
Changes
-81 -150 -363 -519 -543 -632 -721 -1,005
-1,361 -5,375
Revenue
-74 -81 -186 -272 -218 -199 -233 -381 -370 -2,014
Nondefense Discretionary
0 -12 -35 -49 -65 -93 -83 -89 -135 -561
Spending
Defense
Spending
0 -38 -84 -122 -155 -177 -205 -245 -283 -1,309
Mandatory
Spending
-7 -14 -43 -41 -41 -72 -72 -118 -345 -753
TARPb
0 0 0 0 0 0 0 0
-152 -152
Other
Mandatory
Spending -7 -14 -43 -41 -41 -72 -72 -118 -193 -601
Debt
Service
0 -5 -15 -37 -60 -93 -131 -175 -227 -743
Economic Changes
-37
-121
-113
-59
2
15
20
1
-143
-345
Technical
Changes
-35 -201 -259 -231 -206 -137 -34 -86 -614 -1,897
Fannie Mae/Freddie Macc 0 0 0 0 0 0 0 0
-291 -291
Other
Technical
Changes -35 -201 -259 -231 -206 -137 -34 -86 -417 -1,606
Total
Changes
-153 -471 -737 -810 -751 -753 -736 -1,090
-2,124 -7625
Actual Budget Surplus (+) /
128 -158 -378 -413 -319 -248 -163 -455 -1,414 -3,420
Deficit (-)
Source: Congressional Research Service. Data compiled from Congressional Budget Office, The Budget and
Economic Outlook (January 2001 to January 2010); and Congressional Budget Office, An Analysis of the President’s
Budgetary Proposals (May 2001 to March 2009).
Notes: Negative numbers indicate an increase in the deficit. Columns may not be additive due to rounding.
a. In the January baseline, CBO does not report changes to the previous year deficit that occurred since the
August baseline. Therefore, any changes between the actual deficit and the baseline deficit projected in
August have been apportioned evenly between economic and technical changes.
b. With regards to the Troubled Asset Relief Program (TARP), CBO in January 2009 projected mandatory
outlays at $184 billion for FY2009. Revised estimates of TARP budgetary impact were provided in March
and August 2009 through the technical changes category. However, al TARP spending in this table is
accounted for as mandatory spending. It should also be noted that in January 2010 CBO projected a
negative outlay level for TARP in FY2010 to reflect changes in economic and market conditions occurring
since the actual FY2009 figure of $152 billion was recorded. This change is included in the total for technical
changes.
c. CBO has accounted for Fannie Mae and Freddie Mac as federal operations since January 2009. In August
2009, CBO estimated Fannie Mae and Freddie Mac FY2009 subsidy costs at $291 billion, which is the
amount presented in this table. However, due to budgetary rules, when CBO released new baseline
projections in January 2010, the actual FY2009 budgetary impact for these entities was scored as the level of
Treasury Department cash infusions, which was $91 billion in FY2009. This change is included in the total
for technical changes.
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The Impact of Major Legislation on Budget Deficits: 2001 to 2009
At the same time, independent of new legislation passed by Congress, economic variables such as
inflation, the unemployment rate, and interest rates have affected both outlays and federal
receipts, and CBO classifies these as economic changes. In addition, differences between budget
projections and the actual annual deficit or surplus were also caused by modifications to CBO
technical assumptions. For example, if more beneficiaries took up an entitlement benefit than
projected, or if fewer taxpayers claimed a tax credit than projected, there would be a technical
change to CBO’s projections.
In 2009, legislative changes accounted for about $1.36 trillion of the shift from surplus to deficit
that has occurred since the 2001 projection. Economic changes to the projection were small
relative to legislative and technical changes. Although there was a severe recession not
anticipated in the 2001 projection, the actual level of GDP in 2009 was still fairly close to what
CBO had projected in 2001. Technical changes made up an estimated $614 billion of this shift to
deficit, although almost half of those changes were due to CBO’s decision to move Fannie Mae
and Freddie Mac on budget after the Treasury took them into conservatorship in 2008. Although
CBO did not consider this to be a legislative change, it can be thought of as a policy change
because it resulted in these entities receiving large-scale direct federal support.
Mandatory Spending and Federal Revenues:
2001 to 2009
Mandatory Spending
Mandatory spending (also referred to as direct spending) consists primarily of outlays on benefit
programs such as Social Security, Medicare, and Medicaid. The level of spending dedicated to
entitlement programs is determined by established rules of eligibility and benefit formulas.
Consequently, mandatory spending outlays are allocated automatically and are not subject to the
annual discretionary appropriations process. In regards to budgetary treatment of mandatory
programs, CBO follows baseline construction rules specified in the Deficit Control Act of 1985
(P.L. 99-177), where direct spending authorizations scheduled to expire by law are assumed to
continue if outlays exceed $50 million, and the program under consideration was established prior
to enactment of the Balanced Budget Act of 1997 (P.L. 105-33).8
Mandatory spending outlays have accounted for a significant proportion of both federal spending
and overall economic activity during the past decade (see Table 2).9 In particular, mandatory
outlays have grown from 9.9% of GDP in FY2001 to 14.7% in FY2009. Among the key drivers
of entitlement growth for FY2001 to FY2009, a cumulative $4.8 trillion was spent on Social
Security benefits and $3.2 trillion was allocated for Medicare.10
8 For CBO’s description of mandatory spending in the context of P.L. 99-177, see Congressional Budget Office, The
Budget and Economic Outlook: Fiscal Years 2010 to 2020, January 2010.
9 For a discussion of historical trends in mandatory spending, see CRS Report RL33074, Mandatory Spending Since
1962, by D. Andrew Austin and Mindy R. Levit.
10 Data on mandatory spending for FY2001 to FY2009 was collected from Congressional Budget Office, The Budget
and Economic Outlook: Fiscal Years 2010 to 2020, Tables F-9 and F-10, January 2010.
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Table 2. Mandatory Spending Outlays, FY2001-FY2009
2001
2002
2003
2004
2005
2006
2007
2008
2009
%
$
%
$
%
$
%
$
%
$
%
$
%
$
%
$
%
$
GDP Billions GDP Billions GDP Billions
GDP Billions GDP Billions GDP Billions GDP Billions GDP Billions GDP Billions
Social
Security 4.2 429.4 4.3 452.1 4.3 470.5 4.2 491.5 4.2 518.7 4.1 543.9 4.2 581.4 4.2 612.1 4.8 677.7
Medicare
2.3 237.9 2.4 253.7 2.5 274.2 2.5 297.2 2.7 332.6 2.8 373.6 3.1 436.0 3.2 456.0 3.5 499.0
Medicaid
1.3 129.4 1.4 147.5 1.5 160.7 1.5 176.2 1.5 181.7 1.4 180.6 1.4 190.6 1.4 201.4 1.8 250.9
Income
Security 1.1 114.7 1.2 129.1 1.3 141.0 1.6 189.9 1.6 196.1 1.5 199.2 1.5 202.4 1.8 259.9 2.4 348.5
Other
Retirement /
0.9 93.0 0.9 96.1 0.9 99.9 0.9 104.0 0.9 111.8 0.9 113.5 0.9 122.9 0.9 129.4 1.0 138.1
Disability
Other
Programs
0.9 91.8 1.1 117.2 1.2 135.9 0.7 87.3 0.9 106.4 1.1 141.4 0.7 95.0 0.9 129.2 2.6 374.5
Offsetting
-0.9 -88.7 -0.9 -89.9 -0.9 -100.6 -0.9 -109.0 -1.0 -127.8 -1.1 -140.5 -1.3 -177.6 -1.3 -193.1 -1.4 -194.7
Receipts
Total
Mandatory
Spending
9.9 1,007.4 10.5 1,105.7 10.8 1,181.4 10.6 1,237.2 10.6 1,319.5 10.7 1,411.8 10.4 1,450.7 11.0 1,595.0 14.7 2,093.9
(Actual)
Memorandum:
Total Mandatory
Spending (Jan.
10.5 1,089 10.6 1,157 10.6 1,219 10.7 1,296 10.9 1,378 10.8 1,441 10.9 1,520 11.0 1,614 11.2 1,713
2001 Baseline
Projection)
Source: Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2010 to 2020 (Tables F-9 and F-10), January 2010.
Notes: Columns may not be additive due to rounding. In the context of mandatory spending, offsetting receipts are fees and other charges recorded by CBO as negative
budget authority and outlays.
CRS-5
The Impact of Major Legislation on Budget Deficits: 2001 to 2009
Although mandatory spending has contributed significantly to increasing federal budget deficits
over the past 10 years, much of this entitlement outlay growth stems from programs established
before 2001.11 Consequently, because this report examines the budgetary impact of major laws
enacted during the past five legislative sessions of Congress, mandatory programs such as Social
Security, Medicare (Part A, Part B and Part C), and Medicaid will not be addressed in detail.
It should also be noted that while direct spending outlays have increased in recent years, much of
this entitlement growth was projected by CBO at the beginning of the decade when future budget
surpluses were projected. As Table 2 indicates, CBO’s January 2001 budget baseline assumed
mandatory outlay levels that exceeded actual amounts for every year from FY2001 to FY2007,
with significant underestimation of actual direct spending only occurring for FY2009, when new
mandatory spending on the Troubled Asset Relief Program (TARP), activities related to Fannie
Mae and Freddie Mac, and other economic stabilization and economic stimulus initiatives were
implemented largely in response to the U.S. financial crisis. Consequently, the expansion in
entitlement spending was not a major determinant of the decade long shift from projected budget
surpluses to actual budget deficits.
Federal Revenues
Similar to mandatory spending, the level of federal receipts is not directly determined by law.
Instead, enacted revenue legislation specifies tax rates and various other features of the tax
system, which in combination with economic conditions determine the actual level of revenues
collected. The enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001
(EGTRRA; P.L. 107-16), the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA;
P.L. 108-27), and other tax legislation impacted the level of federal revenue collected over the
past 10 years, and will be discussed later in this report. In contrast to the budgetary treatment of
mandatory spending, the CBO baseline assumes that most current tax provisions will expire as
scheduled.12
With respect to both total collections and as a share of the overall economy, federal receipts
fluctuated between FY2001 to FY2009. Table 3 illustrates total federal revenues as a proportion
of GDP peaked in FY2001 at 19.5%, declined to 16.1% by FY2004, before rebounding to a
18.5% share of economic activity in FY2007. By FY2009, however, federal receipts reached their
lowest level of the decade—14.8% of GDP. In dollar terms, revenue traced a similar trajectory,
with receipts decreasing from $2.0 trillion in FY2001 to $1.8 trillion for FY2004, before
increasing to a peak level of $2.6 trillion for FY2007, followed by two years of revenue decline.
Individual income taxes, historically the largest source of federal revenue, peaked as proportion
of GDP in FY2001 at 9.7%, before declining to 6.9% of GDP in FY2004. Individual income
receipts increased during FY2005 to FY2007, but then declined to a decade low of 6.4% of GDP
by FY2009.13
11 For instance, the Social Security Act (P.L. 74-271) was signed into law in 1935, and the Social Security
Amendments (P.L. 89-97), which created Medicare and Medicaid, were enacted in 1965.
12 For further discussion of CBO’s budgetary treatment of revenue legislation, see Congressional Budget Office, The
Budget and Economic Outlook: Fiscal Years 2010 to 2020 (Box 4.1 Effect of Expiring Tax Provisions on CBO’s
Revenue Baseline), January 2010.
13 Data on federal revenues for FY2001 to FY2009 was collected from Congressional Budget Office, The Budget and
Economic Outlook: Fiscal Years 2010 to 2020 (Tables F-3 and F-4), January 2010.
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Table 3. Revenues by Major Source, FY2001-FY2009
2001
2002
2003
2004
2005
2006
2007
2008
2009
%
$
%
$
%
$
%
$
%
$
%
$
%
$
%
$
%
$
GDP Billions GDP Billions GDP Billions GDP Billions GDP Billions GDP Billions GDP Billions GDP Billions GDP Billions
Individual Income
Taxes
9.7 994.3 8.1 858.3 7.2 793.7 6.9 809.0 7.5 927.2 7.9 1,043.9 8.4 1,163.5 7.9 1,145.7 6.4 915.3
Corporate
Income Taxes
1.5 151.1 1.4 148.0 1.2 131.8 1.6 189.4 2.2 278.3 2.7 353.9 2.7 370.2 2.1 304.3 1.0 138.2
Social Insurance
Taxes
6.8 694.0 6.6 700.8 6.5 713.0 6.3 733.4 6.4 794.1 6.3 837.8 6.3 869.6 6.2 900.2 6.3 890.9
Excise Taxes
0.6 66.2 0.6 67.0 0.6 67.5 0.6 69.9 0.6 73.1 0.6 74.0 0.5 65.1 0.5 67.3 0.4 62.5
Estate and Gift
Taxes
0.3 28.4 0.3 26.5 0.2
22.0 0.2 24.8 0.2 24.8 0.2 27.9 0.2 26.0 0.2 28.8 0.2 23.5
Custom Duties
0.2 19.4 0.2 18.6 0.2
19.9 0.2 21.1 0.2 23.4 0.2 24.8 0.2 26.0 0.2 27.6 0.2 22.5
Miscellaneous
Receipts
0.4 37.8 0.3 33.9 0.3
34.5 0.3 32.6 0.3 32.8 0.3 44.6 0.3 47.6 0.3 50.0 0.4 51.7
Total Revenues 19.5 1,991.1 17.6 1,853.1 16.2 1,782.3 16.1 1,800.1 17.3 2,153.6 18.2 2,406.9 18.5 2,568.0 17.5 2,524.0 14.8 2,104.6
Source: Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2010 to 2020, Tables F-3 and F-4, January 2010.
Notes: Columns may not be additive due to rounding.
CRS-7
The Impact of Major Legislation on Budget Deficits: 2001 to 2009
Impact of Major Legislation on Budget Deficits:
2001 to 2009
The following sections review legislation enacted from 2001 to 2009 with budgetary impact
greater than $50 billion over 10 years. Most laws examined include key provisions that directly
affect mandatory spending or federal revenues, but supplemental appropriations legislation
related to “Global War on Terror” programs and 2005 Hurricane emergency relief is also covered.
Annual appropriations providing for non-defense discretionary spending is discussed separately at
the end of this report. It should also be noted that the measured impact of legislation does not
include resulting increases in debt service costs.
Table 4 presents the budgetary effect of legislative changes occurring from 2001 to 2009 relative
to CBO’s January 2001 baseline projections. Laws passed by Congress in 2001 and 2003, notably
the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16) and the
Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA; P.L. 108-27), generated the
largest 10-year increases in budget deficits, about $1.7 trillion. Legislation enacted in FY2009,
including the Emergency Economic Stabilization Act (EESA; P.L. 110-343) and the American
Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5), caused the 2009 deficit to increase
by $509 billion, while legislative changes from 2001 to 2008 caused the 2009 deficit to increase
by an additional $903 billion. For the decade as whole, it can be estimated that legislative changes
have increased deficits, relative to the 2001 baseline projections, by about $5.4 trillion.
Table 4. Budgetary Effects of Legislative Changes by Year of Enactment,
FY2001-FY2009
($ in billions)
Cumulative
Total:
2001 2002 2003 2004 2005 2006 2007 2008 2009 2001-2009
2001
Legislation
-81 -52 -107 -131 -138 -174 -201 -221 -241 -1,346
2002
Legislation
0 -98 -131 -127 -113 -99 -103 -112 -121 -904
2003
Legislation
0
0 -125 -259 -212 -159 -164 -182 -189 -1,290
2004
Legislation
0 0 0 -2 -40
-82
-105
-116
-128 -473
2005
Legislation
0 0 0 0 -40
-52
-15 -3 3 -107
2006
Legislation
0 0 0 0 0 -66
-106
-85
-92 -349
2007
Legislation
0 0 0 0 0 0 -27
-36
-32 -95
2008
Legislation
0 0 0 0 0 0 0
-250
-103 -353
2009
Legislation
0 0 0 0 0 0 0 0
-458 -458
Total Legislative
Changes (2001-2009)
-81 -150 -363 -519 -543 -632 -721 -1,005
-1,361 -5,375
Source: Congressional Research Service. Data compiled from Congressional Budget Office, The Budget and
Economic Outlook (January 2001 to January 2010); and An Analysis of the President’s Budgetary Proposals (May 2001
to March 2009).
Notes: Negative numbers indicate an increase in the deficit. Columns may not be additive due to rounding. On a
subsidy basis, conservatorship of Fannie Mae and Freddie Mac added $291 billion to the deficit in 2009. This
amount is not included in the Table because CBO classifies it as a technical, as opposed to legislative, change.
Congressional Research Service
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The Impact of Major Legislation on Budget Deficits: 2001 to 2009
EGTRRA, JGTRRA and Other Major Tax Legislation
From 2001 to 2006, several laws were enacted under the Bush Administration that reduced
federal government revenues. However, since the Joint Committee on Taxation (JCT) and CBO
typically measure the budgetary effect of revenue policy only when legislation is under
consideration by Congress, the actual ex-post impact of specific laws on budget deficits can be
difficult to determine.14 Consequently, in this section all CBO and JCT data on legislative cost is
accompanied by both the approximate date of the estimate, as well as any needed clarification
about the point in the legislative process when the estimate was performed.
Economic Growth and Tax Relief Reconciliation Act of 2001
On June 7, 2001, President Bush signed into law the Economic Growth and Tax Relief
Reconciliation Act of 2001 (EGTRRA; P.L. 107-16). EGTRRA established a new 10% regular
income tax bracket, gradually reduced various income tax rates through 2006, and increased the
child tax credit to $1,000 over 10 years. Additionally, the law phased-in an increase in the basic
standard deduction for married couples filing joint returns in order to provide marriage penalty
relief, raised the annual limit on contributions to education individual retirement accounts (IRAs),
and phased-in an increase in the unified credit exemption amount and a reduction of tax rates for
estate and generation-skipping transfer taxes (including a complete repeal of estate and
generation-skipping transfer taxes for 2010).15 To comply with the Congressional Budget Act of
1974, most provisions in EGTRRA are scheduled to sunset at the end of calendar year 2010.16
In May 2001, JCT estimated that EGTRRA, as cleared by Congress, would have a negative
budgetary impact of $1.35 trillion for FY2001 to FY2011. Among the key components of the cost
estimate, JCT expected the marginal rate reduction provisions to decrease government revenues
by $874.9 billion over 10 years, and for the expanded child tax credit to cost $171.8 billion during
the same timeframe.17
Jobs and Growth Tax Relief Reconciliation Act of 2003
The second major tax cut under the Bush Administration, the Jobs and Growth Tax Relief
Reconciliation Act of 2003 (JGTRRA; P.L. 108-27), was enacted on May 28, 2003 and
accelerated many of the tax reductions previously implemented by EGTRRA. In particular, for
2003 and 2004 the increase in the child tax credit was raised to $1,000, and the basic standard
deduction amount for married taxpayers filing a joint return was increased to twice the basic
standard deduction amount for single individuals. Additional EGTRRA provision accelerations
14 For a CBO discussion about the difficulties in measuring the budgetary impact of EGTRRA and JGTRRA, see
Congressional Budget Office, The Budgetary Costs of EGTRRA and JGTRRA Compared with Projected Deficits, July
20, 2007, available at http://www.cbo.gov/ftpdocs/83xx/doc8337/07-20-EGTRRA-JGTRRA_and_Deficits.pdf.
15 For analysis of EGTRRA and a comparison of House, Senate and Administration proposals prior to enactment of the
law, see CRS Report RL30973, 2001 Tax Cut: Description, Analysis, and Background, by David L. Brumbaugh et al.
16 In contrast to the budgetary treatment of authorization legislation for mandatory programs, CBO assumes that most
current tax provisions will expire as scheduled. Consequently, CBO projected in January 2010 projected that expiring
tax provisions under EGTTRA, JGTRRA, and other legislation would increase revenues by 2.7% of GDP for FY2010
to FY2012.
17 Joint Committee on Taxation, Estimated Budget Effects of the Conference Agreement for H.R. 1836, JCX-51-01,
May 26, 2001, available at http://www.jct.gov/publications.html?func=startdown&id=2001.
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The Impact of Major Legislation on Budget Deficits: 2001 to 2009
implemented by JGTRRA included an expansion of the 15% rate bracket for married couples
filing joint returns, and an acceleration of the regular income tax rate reductions scheduled for
2004 and 2006. JGTRRA also contained tax incentives for businesses such as a first-year
depreciation allowance equal to 50% for certain property acquired after May 5, 2003, and before
January 1, 2005, and provided for significant reductions in taxes on capital gains and dividends
received prior to January 1, 2009.18
In May 2003, JCT and CBO projected that JGTRRA, as enacted, would increase federal budget
deficits by $349.7 billion for FY2003 to FY2013. The acceleration of previously enacted tax
reductions was expected to cost $171.4 billion over the next five years, with new reductions in
taxes on dividends and capital gains estimated to decrease government receipts by another $148.1
billion. 19
Other Tax Legislation With Budgetary Impact: 2004 to 2006
In the 108th and 109th Congress, several laws were passed that extended and in some cases
modified revenue reduction provisions previously enacted under EGTRRA and JGTRRA. The
Working Families Tax Relief Act of 2004 (WFTRA; P.L. 108-311), signed into law on October 4,
2004, extended tax relief for married taxpayers filing a joint return through 2008, maintained the
$1,000 child tax credit through 2009, and extended the 10% income tax bracket through 2010. In
September 2004, JCT and CBO estimated WFTRA would decrease federal revenues by $122.2
billion over FY2005 to FY2014, while raising direct spending (mostly from increased outlays for
refundable tax credits) by $23.8 billion over the same period, for a combined 10-year budgetary
impact of $145.9 billion.20
On May 17, 2006, another tax cut extension was signed into law, the Tax Increase Prevention and
Reconciliation Act of 2005 (TIPRA; P.L. 109-222).21 TIPRA extended the reduced tax rates on
capital gains and dividends through 2010 and extended the exception for active financing income
for controlled foreign corporations, among other provisions. In June 2006, JCT projected that the
conference agreement for TIPRA would reduce federal revenues by $69.1 billion for FY2006 to
FY2015.22
The Pension Protection Act of 2006 (PPA; P.L. 109-280), signed into law on August 17, 2006,
provided comprehensive reform of U.S. pension law.23 PPA included several provisions that
reduced federal government revenues, such as making permanent increases in limits on
contributions to pension plans or IRAs first enacted under EGTRRA, and extending a non-
18 For analysis of JGTRRA, see CRS Report RL32034, The Jobs and Growth Tax Relief Reconciliation Act of 2003 and
Business Investment, by Gary Guenther.
19 Congressional Budget Office, Cost Estimate for H.R. 2, Jobs and Growth Tax Relief Reconciliation Act of 2003, May
23, 2003, available at http://www.cbo.gov/ftpdocs/42xx/doc4249/hr2.pdf.
20 Congressional Budget Office, Cost Estimate for H.R. 1308, Working Families Tax Relief Act of 2004, September 30,
2004, available at http://www.cbo.gov/ftpdocs/58xx/doc5868/hr1308pg.pdf.
21 For a discussion of TIPRA in the context of other reconciliation legislation effecting budget deficits, see CRS Report
RS22098, Deficit Impact of Reconciliation Legislation Enacted in 1990, 1993, 1997, and 2006, by Robert Keith.
22 Joint Committee on Taxation, Estimated Revenue Effects of the Conference Agreement for the “Tax Increase
Prevention and Reconciliation Act of 2005, JCX-18-06, May 9, 2006, available at http://www.jct.gov/
publications.html?func=startdown&id=1502.
23 See CRS Report RL33703, Summary of the Pension Protection Act of 2006, by Patrick Purcell.
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The Impact of Major Legislation on Budget Deficits: 2001 to 2009
refundable credit available to low-income individuals contributing to either a 401(k) savings plan
or an IRA (EGTRRA’s “Saver’s Credit”). In August 2006, JCT estimated that PPA, as cleared by
Congress, would reduce federal revenues by $72.9 billion for FY2007 to FY20016, and CBO
estimated that the legislation would decrease outlays on direct spending by $5.0 billion over 10
years, for a total 10-year budgetary effect of $67.9 billion. 24
In addition to legislation related to EGTRRA and JGTRRA, Congress routinely extends other
expiring tax provisions. Among these tax extenders laws, only the Tax Relief and Health Care Act
of 2006 (TRHCA; P.L. 109-432) meets the criteria of budgetary effect exceeding $50 billion
specified above. TRHCA implemented numerous changes to tax law, including an extension
through 2007 of the research and development credit, the deduction for state and local taxes, and
the deduction for qualified tuition and related expenses. TRHCA also extended several expiring
energy tax provisions through 2008 and made changes to rules governing Health Savings
Accounts. 25 In December 2006, JCT and CBO estimated that the law would decrease federal
government revenues by $40.0 billion for FY2007 to FY2016.26 In addition, CBO projected that
direct spending provisions in TRHCA related to the Medicare payments for physicians’ fee
services and other programmatic changes were expected to increase mandatory outlays by $10.5
billion, and thus in combination TRHCA was estimated to raise deficits by $50.5 billion over 10
years.
Table 5 shows JCT and CBO estimated increases in federal budget deficits related to EGTRRA,
JGTRRA, WFTRA, TIPRA, PPA and TRHCA. For each bill, the projected budgetary impact is
presented over both a 5-year and 10-year budget window.
Table 5. Estimated Budget Effects of Major Tax Cuts, 107th to 109th Congress
($ in billions)
Legislation 5-Year
Budget
Net Budgetary
10-Year Budget
Net Budgetary
Window
Effecta
Window
Effecta
Economic Growth and Tax Relief
FY2001-FY2006 -552.5 FY2001-
FY2011
-1,348.5
Reconciliation Act of 2001b
Jobs and Growth Tax Relief
FY2003-FY2008 -342.9 FY2003-
FY2013 -349.7
Reconciliation Act of 2003b
Working Families Tax Relief Act
FY2005-FY2009 -132.8 FY2005-
FY2014 -145.9
of 2004b
Tax Increase Prevention and
FY2006- FY2010
-70.0
FY2006- FY2015
-69.1
Reconciliation Act of 2005b
Pension Protection Act of 2006
FY2007- FY2011
-5.9
FY2007- FY2016
-67.9
The Tax Relief and Health Care
FY2007- FY2011
-41.0
FY2007- FY2016
-50.5
Act of 2006c
Total
-1,145.1
-2,031.6
Source: CBO and JCT Cost Estimates for EGTRRA, JGTRRA, WFTRA, TIPRA, PPA and TRHCA.
24 Congressional Budget Office, Cost Estimate of H.R. 4, Pension Protection Act of 2006, August 16, 2006, available at
http://www.cbo.gov/ftpdocs/74xx/doc7493/hr4pgo.pdf.
25 See CRS Report RS22551, Tax Provisions in the Tax Relief and Health Care Act of 2006 (H.R. 6111), by Erika K.
Lunder.
26 Congressional Budget Office, Cost Estimate for H.R. 6111, Tax Relief and Health Care Act of 2006, December 28,
2006, available at http://www.cbo.gov/ftpdocs/77xx/doc7714/hr6111pgo.pdf.
Congressional Research Service
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The Impact of Major Legislation on Budget Deficits: 2001 to 2009
Notes: Negative numbers indicate an increase in the deficit. Columns may not be additive due to rounding.
a. Al budgetary effects were estimated by CBO and JCT at the time of legislative enactment.
b. Budgetary effects reported for the Economic Growth and Tax Relief Reconciliation Act of 2001, the Jobs
and Growth Tax Relief Reconciliation Act of 2003, the Working Families Tax Relief Act of 2004, and the
Tax Increase Prevention and Reconciliation Act of 2005 include provisions related to the Alternative
Minimum Tax (AMT).
c. For the Tax Relief and Health Care Act of 2006, budgetary effects for both revenue provisions, and direct
spending provisions related to Medicare and other programs are reported in this table.
The Alternative Minimum Tax: Increases in the Basic Exemption
and Other Structural Modifications
An alternative minimum tax (AMT) is intended to ensure that taxpayers with significant income
pay a minimum amount of tax. An add-on minimum tax was originally passed by Congress
through the Tax Reform Act of 1969 (P.L. 91-72), and the first AMT was enacted as part of the
Tax Equity and Fiscal Responsibility Act of 1982 (P.L. 97-248).27 Provisions of the AMT have
been modified numerous times since 1982, including through the Tax Reform Act of 1986 (P.L.
99-514), and the Omnibus Budget Reconciliation Act of 1993 (P.L. 103-66).28 Under present law,
the AMT is determined by subtracting a basic exemption amount from an individual’s calculated
AMT tax base (computed by adding back various tax adjustments and preferences), with the
remaining tax base assessed under a two-tiered rate structure of 26% for all income up to
$175,000, and 28% on any income above this amount.29
Over the past decade, the combined effects of inflation and new legislative reductions in federal
income tax have increased concern in Congress about the growing number of taxpayers that
might be affected by the AMT. In response, lawmakers have implemented numerous increases in
the AMT basic exemption during the 107th to 111th Congresses.30 The enactment of EGTRRA in
2001 temporarily raised the AMT exemption level to $49,000 for joint returns and $35,750 for
unmarried individuals effective through 2004. JGTRRA increased the basic AMT exemption
amount for 2003 and 2004 to $58,000 for joint returns and $40,250 for unmarried individuals.
WFTRA extended the AMT patches provided in JGTRRA for 2005, and TIPRA increased the
AMT exemption amount for 2006 to $62,550 for joint returns and $42,500 for unmarried
individuals. Other recent AMT patches were enacted through the Tax Extenders and Alternative
Minimum Tax Relief Act of 2008 (TEAMTRA; Division C of P.L. 110-343), and the American
Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5).
Along with the periodic increases in the AMT patch passed by Congress, revenue legislation
signed into law over the past 10 years has also modified other components of the AMT that
reduced federal government revenues. For instance, EGTRRA allowed various nonrefundable
27 See Joint Committee on Taxation, Present Law and Background Relating to the Individual Alternative Minimum Tax
(JCX-38-07), June 25, 2007, available at http://www.jct.gov/x-38-07.pdf.
28 For a description of various legislative changes made to the individual AMT, see CRS Report RL30149, The
Alternative Minimum Tax for Individuals, by Steven Maguire.
29 See CRS Report RL33899, Modifying the Alternative Minimum Tax (AMT): Revenue Costs and Potential Revenue
Offsets, by Jane G. Gravelle.
30 For a discussion about the AMT in the context of the federal budget, see Congressional Budget Office, The
Individual Alternative Minimum Tax, January 15, 2010, available at http://www.cbo.gov/ftpdocs/108xx/doc10800/01-
15-AMT_Brief.pdf.
Congressional Research Service
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The Impact of Major Legislation on Budget Deficits: 2001 to 2009
personal tax credits to fully offset AMT tax liability for 2001 to 2003, a provision extended in
later years by WFTRA, TIPRA, the Tax Increase Prevention Act of 2007 (TIPA; P.L. 110-166),
TEAMTRA and ARRA.
Table 6 reports the expected budgetary impact for all AMT provisions contained in EGTRRA,
JGTRRA, WFTRA, TIPRA, TIPA, TEAMTRA and ARRA. It should be noted that the presented
legislative costs are aggregated amounts including both the increases in the AMT basic
exemption, along with all other AMT structural modifications.
Table 6. Estimated Revenue Effects for AMT Legislative Changes,
107th to 111th Congresses
($ in billion)
Legislation
Fiscal Years with
Net Budgetary
Revenue Effect
Effecta
Economic Growth and Tax Relief Reconciliation Act of 2001
2001-2005 -13.9
Jobs and Growth Tax Relief Reconciliation Act of 2003
2003-2005
-17.8
Working Families Tax Relief Act of 2004
2005-2006 -22.6
Tax Increase Prevention and Reconciliation Act of 2005
2006-2007 -33.9
Tax Increase Prevention Act of 2007
2008
-50.6
Tax Extenders and Alternative Minimum Tax Relief Act of 2008
2009-2010
-64.1
American Recovery and Reinvestment Act of 2009
2009-2011
-69.8
Total
-272.7
Source: JCT Cost Estimates for EGTRRA, JGTRRA, WFTRA, TIPRA, TIPA, TEAMTRA and ARRA
Notes: Negative numbers indicate an increase in the deficit. Columns may not be additive due to rounding.
a. Al budgetary effects were estimated by JCT at the time of legislative enactment
Agricultural Policy: 2002 and 2008 Farm Bills
The Farm Security and Rural Investment Act of 2002 (2002 farm bill; P.L. 107-171) was signed
into law on May 13, 2002, reauthorizing the major federal farm programs administered by the
U.S. Department of Agriculture for FY2002 to FY2007. As mentioned in the above discussion on
mandatory spending, under baseline construction rules direct spending programs are assumed to
continue even after expiration of current law. Thus, the impact of the 2002 farm bill on federal
budget deficits was not measured in terms of the total mandatory outlays to be spent on
agricultural programs covered by the legislation, but instead as compared to the level of March
2002 baseline direct spending that would have occurred during the budgetary window under
provisions of the previous farm bill, the Federal Agriculture Improvement and Reform Act of
1996 (1996 farm bill; P.L. 104-127), as amended.
In May 2002, CBO estimated that the 2002 farm bill would increase federal budget deficits by
$49.2 billion over FY2002 to FY2007, bringing total spending on federal farm programs to
$470.5 billion over six years when baseline spending is included.31 Among the largest
31 Congressional Budget Office, Cost Estimate for H.R. 2646, Farm Security and Rural Investment Act of 2002, May
(continued...)
Congressional Research Service
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The Impact of Major Legislation on Budget Deficits: 2001 to 2009
expenditures, CBO expected the 2002 farm bill to increase direct spending on commodity support
programs by $37.6 billion over six years, and to increase outlays on agricultural conservation
programs by $6.5 billion during the same period.
In the 110th Congress, the main agricultural policies contained in P.L. 107-171 were reauthorized
through the Food, Conservation, and Energy Act of 2008 (2008 farm bill; P.L. 110-246).32 Similar
to P.L. 107-171, financing for most programs covered in the 2008 farm bill only extend through a
limited number of years, FY2008 to FY2012. Relative to CBO’s March 2008 baseline projection
of $301.4 billion in federal farm program direct spending over five years, the 2008 farm bill was
projected in May 2008 to increase mandatory spending by another $5.6 billion for FY2008 to
FY2012, while raising $5.0 billion in federal revenues.33 Consequently, although P.L. 110-246 is
estimated to cover approximately $307.0 billion in spending over FY2008 to FY2012, the
increase in federal deficits scored by CBO is only $0.6 billion.
As estimated by CBO at the time of legislative enactment, the 2002 and 2008 farm bills combined
generate federal budget deficits of $49.8 billion for their authorized time windows. However, due
to the five-month gap between the scheduled expiration of mandatory program authorization
under P.L. 107-171 and the enactment of P.L. 110-246, the actual increase in federal budget
deficits is likely greater than this combined level. Further, it should be noted that if the 2008 farm
bill was scored against CBO’s March 2002 baseline, which assumed continuation of the 1996
farm bill, the 2008 reauthorization would have increased budget deficits by $38.7 billion for
FY2008 to FY2012. Thus the combined budgetary effect of the 2002 and 2008 farm bills would
be $87.9 billion if scored collectively against the March 2002 baseline.
Funding for Military Operations in Afghanistan, Iraq and Other
Global War on Terror Programs
Over the past 10 years, Congress enacted legislation financing military operations in Afghanistan,
Iraq, and other countries, generating significant long-term budgetary effects. From FY2001 to
FY2009, support for Global War on Terror (GWOT) operations has been provided primarily
through emergency supplemental appropriations law.34 Some funds for war programs have also
been made available through regular annual appropriations legislation, such as the Department of
Defense Appropriations Act, 2005 (P.L. 108-287) and the Foreign Operations, Export Financing,
and Related Programs Appropriations Act, 2006 (P.L. 109-102).
Table 7 shows all legislation enacted during the 107th to 111th Congresses supporting GWOT
operations through the end of FY2009. Appropriations for each law are reported for the following
(...continued)
22, 2002, available at http://www.cbo.gov/ftpdocs/34xx/doc3468/hr2646omb.pdf.
32 See CRS Report RL34696, The 2008 Farm Bill: Major Provisions and Legislative Action, coordinated by Renée
Johnson.
33 Congressional Budget Office, Cost Estimate for H.R. 2419, Food, Conservation, and Energy Act of 2008, May 13,
2008, available at http://www.cbo.gov/ftpdocs/92xx/doc9230/hr2419conf.pdf.
34 CRS reports reviewing all of these laws are available, including CRS Report RL31406, Supplemental Appropriations
for FY2002: Combating Terrorism and Other Issues, by Amy Belasco and Larry Nowels; CRS Report RL32783,
FY2005 Supplemental Appropriations for Iraq and Afghanistan, Tsunami Relief, and Other Activities, by Amy Belasco
and Larry Nowels; and CRS Report R40531, FY2009 Spring Supplemental Appropriations for Overseas Contingency
Operations, coordinated by Stephen Daggett and Susan B. Epstein.
Congressional Research Service
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The Impact of Major Legislation on Budget Deficits: 2001 to 2009
three expenditure types: Defense Department, Foreign Operations Funding, and Veterans Affairs
Medical Funding. In total, Congress has approved legislation appropriating $943.8 billion for
military operations Iraq, Afghanistan, and other countries for FY2001 to FY2009, with $887.8
billion of this amount allocated to the Defense Department.
Table 7. Defense Department, Foreign Operations Funding, and Veterans Affairs
Medical Funding for Iraq, Afghanistan and Other Global War on Terror Operations,
FY2001-FY2009
($ in billions)
Foreign
DOD
Aid
VA
Total
Legislation
Funds
Embassy
Medical
Cost
2001 Emergency Supplemental Appropriations Act for Recovery
14.0 0.3 0.0
14.3
from and Response to Terrorist Attacks on the United States
(P.L. 107-38)
Department of Defense Appropriations Act, 2003 (P.L. 107-248)
7.1
0.0
0.0
7.1
Department of Defense and Emergency Supplemental
3.4 0.0 0.0
3.4
Appropriations for Recovery from and Response to Terrorist
Attacks on the United States Act, 2002 (P.L. 107-117)
2002 Supplemental Appropriations Act for Further Recovery
13.8 0.4 0.0
14.1
From and Response to Terrorist Attacks on the United States
(P.L. 107-26)
Foreign Operations, Export Financing, and Related Programs
0.0 0.2 0.0
0.2
Appropriations Act, 2002 (P.L. 107-115)
Consolidated Appropriations Resolution, 2003 (P.L. 108-7)
10.0
0.4
0.0
10.4
Emergency Wartime Supplemental Appropriations Act, 2003
62.6 3.4 0.0
66.0
(P.L. 108-11)
Department of Defense Appropriations Act, 2004 (P.L. 108-87)
-3.5
0.0
0.0
-3.5
Emergency Supplemental Appropriations Act for Defense and for
64.9 21.2 0.0
86.1
the Reconstruction of Iraq and Afghanistan, 2004 (P.L. 108-106)
Consolidated Appropriations Act, 2004 (P.L. 108-199)
0.0
0.5
0.0
0.5
Department of Defense Appropriations Act, 2005, Titles IX and
25.0 0.7 0.0
25.7
X (P.L. 108-287)
Department of Defense Appropriations Act, 2005 (P.L. 108-287)
2.1
0.0
0.0
2.1
Consolidated Appropriations Act, 2005 (P.L. 108-447)
0.0
1.0
0.0
1.0
Emergency Supplemental Appropriations Act for Defense, the
75.9 3.1 0.0
79.0
Global War on Terror, and Tsunami Relief, 2005 (P.L. 109-13)
Department of the Interior, Environment, and Related Agencies
0.0 0.0 0.2
0.2
Appropriations Act, 2006 (P.L. 109-54)
Foreign Operations, Export Financing, and Related Programs
0.0 1.0 0.0
1.0
Appropriations Act, 2006 (P.L. 109-102)
Science, State, Justice, Commerce, and Related Agencies
0.0 0.1 0.0
0.1
Appropriations Act, 2006 (P.L. 109-108)
Military Quality of Life and Veterans Affairs Appropriations Act,
0.0 0.0 0.4
0.4
2006 (P.L. 109-114)
Congressional Research Service
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The Impact of Major Legislation on Budget Deficits: 2001 to 2009
Foreign
DOD
Aid
VA
Total
Legislation
Funds
Embassy
Medical
Cost
Department of Defense, Emergency Supplemental
50.0 0.0 0.0
50.0
Appropriations to Address Hurricanes in the Gulf of Mexico, and
Pandemic Influenza Act, 2006, Title IX (P.L. 109-148)
Department of Defense, Emergency Supplemental
0.8 0.0 0.0
0.8
Appropriations to Address Hurricanes in the Gulf of Mexico, and
Pandemic Influenza Act, 2006 (P.L. 109-148)
Emergency Supplemental Appropriations Act for Defense, the
66.0 3.2 0.0
69.2
Global War on Terror, and Hurricane Recovery, 2006
(P.L. 109-234)
Department of Defense Appropriations Act, 2007 (P.L. 109-289)
70.5
0.0
0.0
70.5
Revised Continuing Appropriations Resolution, 2007 (P.L. 110-5)
0.0
1.3
0.6
1.8
U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and
94.5 3.8 0.4
98.7
Iraq Accountability Appropriations Act, 2007 (P.L. 110-28)
FY2008 Continuing Resolution (P.L. 110-92)
5.2
0.0
0.0
5.2
Department of Defense Appropriations Act, 2008 (P.L. 110-116)
12.2
0.0
0.0
12.2
Consolidated Appropriations Act, 2008 (P.L. 110-161)
70.0
2.1
0.9
73.0
Supplemental Appropriations Act, 2008 (P.L. 110-252)
160.2
3.1
0.4
163.6
Supplemental Appropriations Act, 2009 (P.L. 111-32)
73.3
5.2
1.3
79.8
Subtotal 877.4
51.8
4.2
933.4
Unidentified Transfers
2.0
0.0
0.0
2.0
FY2003 Transfers
1.2
0.0
0.0
1.2
FY2004 Transfers
5.7
0.0
0.0
5.7
FY2005 Transfers
1.5
0.0
0.0
1.5
Subtotal Transfers
10.4
0.0
0.0
10.4
Total Enacted (w/transfers)
887.8
51.8
4.2
943.8
Source: Adapted from “Table C-1. Defense Department, Foreign Operations Funding, and VA Medical Funding
for Iraq, Afghanistan and Other Global War on Terror Activities, FY2001-2009”, presented in CRS Report
RL33110, The Cost of Iraq, Afghanistan, and Other Global War on Terror Operations Since 9/11, by Amy Belasco.
Notes: Columns may not be additive due to rounding. See Table C-1 in CRS Report RL33110, The Cost of Iraq,
Afghanistan, and Other Global War on Terror Operations Since 9/11, for details on CRS calculations of funds
transferred from DOD regular appropriations in FY2003 to FY2005.
Another way to view the cost of military operations in Iraq, Afghanistan, and related GWOT
activities is to examine the amount of funding appropriated for each major operation. Table 8
presents the FY2001 to FY2009 aggregated spending levels for Operation Enduring Freedom
(OEF), which covers ongoing operations in Afghanistan, the Philippines, Somalia and other
nations; Operation Iraqi Freedom (OIF); and Operation Noble Eagle (ONE), which provides
additional security for U.S. military bases and for homeland security purposes. Of the $943.8
billion in allocated funds for FY2001 to FY2009, approximately $682.8 billion has been
approved for OIF, $226.7 billion allocated for OEF, and $28.5 billion appropriated for ONE.
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Table 8. Estimated War Funding by Operation, FY2001-FY2009
($ in billions)
Cumulative
2001-
Total:
Operation
2002 2003 2004 2005 2006 2007 2008 2009 2001-2009
Operation Enduring
20.8 14.7 14.5 20.0 19.0 39.1 43.4 55.2 226.7
Freedom
Operation Iraqi
0.0 53.0 75.9 85.5 101.6 130.8 141.1 94.8
682.8
Freedom
Enhanced
Security 13.0
8.0 3.7 2.1 0.8 0.5 0.1 0.2 28.5
Unal ocated
0.0 5.5 0.0 0.0 0.0 0.0 0.0 0.0 5.5
Total
33.8 81.1 94.1 107.6 121.4 171.0 184.8 150.4 943.8
Memorandum:
38 84 122 155 177 205 245 283 1,309a
Legislative Changes in
Defense Spending
Relative to the Jan.
2001 Baseline
Projection
Source: Adapted from “Table 1. Estimated War Funding by Operation: FY2001-FY2010 War Request”,
presented in CRS Report RL33110, The Cost of Iraq, Afghanistan, and Other Global War on Terror Operations Since
9/11, by Amy Belasco.
Notes: Columns may not be additive due to rounding. Positive numbers in the table represent an increase in
spending, which increases the deficit.
a. For the memorandum, the total includes war spending.
Funding for GWOT operations has been provided primarily through supplemental appropriations,
whereas other changes in national defense policy have been implemented through regular defense
appropriations law. As shown in Table 8, relative to CBO’s January 2001 baseline, which held
projected military outlays for FY2001 to FY2009 constant in inflation-adjusted terms, annual
national defense spending (including both regular and supplemental appropriations) has increased
by about $1.3 trillion over the past nine years.
Sustainable Growth Rate System: Medicare Physician
Payment Updates
Since the establishment of the Medicare program in 1965, various methods have been used to
determine physician payment rates for covered medical services.35 In an effort to better control
Medicare’s outlays for physician services, the Balanced Budget Act of 1997 (P.L. 105-33)
implemented the current Sustainable Growth Rate (SGR) system, which sets target levels for
health expenditures, and adjusts payment rates to account for differences between cumulative
Medicare spending and spending goals. Under the SGR system, when actual spending does not
35 For a review of historical changes to the system for determining physician payment rates under Medicare, see
Congressional Budget Office, The Sustainable Growth Rate Formula for Setting Medicare’s Physician Payment Rates,
September 6, 2006, available at http://www.cbo.gov/ftpdocs/75xx/doc7542/09-07-SGR-brief.pdf.
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exceed the expenditure targets, the annual physician fee schedule updates are calculated as
determined in statue based on the annual change in the Medicare economic index (MEI), changes
in the Medicare population, and other factors.36 Although expenditures did not begin to exceed
SGR targets until 2002, this discrepancy between actual costs and payment limits has grown
larger in each subsequent year.
Figure 1. Difference Between Allowed and Actual Expenditures for Physician
Services Under the SGR System
1996-2008
Source: “Figure 1. Difference Between Cumulative Allowed and Actual Expenditures for Physician Services
Under the SGR System”, CRS Report R40907, Medicare Physician Payment Updates and the Sustainable Growth Rate
(SGR) System, by Jim Hahn.
Notes: Positive numbers shown in this figure indicate that actual expenditures did not exceed target
expenditures al owed under the SGR system for 1996 to 2001. Negative numbers indicate that actual
expenditures exceeded the SGR targets beginning in 2002.
The cumulative difference between allowed and actual expenditures from 1996 to 2008 is shown
in Figure 1. For the second quarter of 2002, actual physician service expenditures exceeded
allowed levels under SGR by $0.6 billion. However, this cumulative difference grew to $24.4
billion by the start of 2005, and has expanded rapidly to an estimated $63.6 billion difference by
the last quarter of 2008.
36 See CRS Report R40907, Medicare Physician Payment Updates and the Sustainable Growth Rate (SGR) System, by
Jim Hahn.
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The Impact of Major Legislation on Budget Deficits: 2001 to 2009
To avoid the reductions in physician fee schedules that have been mandated since 2003 under
SGR, Congress has passed several legislative overrides. The Consolidated Appropriations
Resolution of 2003 (P.L. 108-7) replaced the scheduled 4.4% payment rate reduction with a 1.6%
increase in rates for 2003. The Medicare Prescription Drug, Improvement, and Modernization Act
of 2003 (MMA; P.L. 108-173) replaced rate reductions in 2004 and 2005 with increases of 1.5%
for both years. More recently, legislative overrides to physician fee payment decreases mandated
under SGR were enacted through the Tax Relief and Health Care Act of 2006 (TRHCA; P.L. 109-
432), the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA; P.L. 110-173), the
Medicare Improvement for Patients and Providers Act of 2008 (MIPPA; P.L. 110-275), and the
Temporary Extension Act of 2010 (P.L. 111-144). Table 9 reports the legislative overrides to
scheduled cuts in Medicare physician fees signed into law during the 108th to 111th Congresses.
Table 9. Legislative Overrides to Medicare Physician Payment Reductions Mandated
Under the Sustainable Growth Rate System, 108th to 111th Congresses
Year Formula
Update Actual
Update
Legislation
2003
-4.4%
1.6%
Consolidated Appropriations Resolution
of 2003 (P.L. 108-7)
2004
-4.5%
1.5%
Medicare Modernization Act of 2003
(P.L. 108-173)
2005
-3.3%
1.5% P.L.
108-173
2006
-4.4%
0.2%
Deficit Reduction Act of 2005
(P.L. 109-171)
2007
-5.0%
0%
Tax Relief and Health Care Act of 2006
(P.L. 109-432)
Jan-Jun 2008
-10.1%
0.5%
Medicare, Medicaid, and SCHIP
Extension Act of 2007 (P.L. 110-173)
Jul-Dec 2008
-10.6% reduction from
0% (0.5% from 2007 level)
Medicare Improvement for Patients and
June 2008 level
Providers Act of 2008 (P.L. 110-275)
2009 1.1%
P.L.
110-275
2010
0%
Temporary Extension Act of 2010
(P.L. 111-144)
Source: Adapted from “Table 1. Summary of Updates and Legislative Activity: 2002-2009”, presented in CRS
Report R40907, Medicare Physician Payment Updates and the Sustainable Growth Rate (SGR) System, by Jim Hahn.
Information on budgetary impact for all laws was obtained from CBO cost estimates.
Medicare Part D Prescription Drug Benefit
On December 8, 2003, President Bush signed into law the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 (MMA; P.L. 108-173). The legislation established
a voluntary Medicare prescription drug benefit effective January 1, 2006, under a new Part D of
Title XVIII of the Social Security Act. MMA specified that drug coverage be delivered to
beneficiaries through either a private prescription drug plan, or prescription drug coverage
integrated into Medicare Part C, with all plan providers offering at a minimum “standard
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The Impact of Major Legislation on Budget Deficits: 2001 to 2009
coverage,” or alternative coverage with actuarially equivalent benefits.37 Another key provision of
MMA was the establishment of the Medicare Advantage (MA) program under Part C, which
replaced Medicare+Choice. In addition, the legislation provided for Medicare cost containment
initiatives and changes to Medicare’s fee-for-service program.
Table 10 shows that CBO’s original calculation projected net Medicare Part D outlays to increase
federal budget deficits by approximately $552.2 billion over the next decade. In particular, CBO
estimated that for FY2004 to FY2013 Medicare Part D would require $771.3 billion in payments
for benefits and mandatory administrative costs. However, during this same 10-year budget
window CBO also anticipated these expenditures to be partially offset by $130.6 billion in
premiums paid by beneficiaries, and another $88.5 billion in payments made by states.38 In
addition, other provisions of MMA, including $12.5 billion in savings from changes to Medicare
Part A and Part B, and $144.7 billion in expected savings from reduced spending on Medicaid and
other federal programs was originally projected by CBO to reduce the total cost of the legislation
to $395.0 billion over 10 years.
Table 10. Estimated Cost of the Medicare Part D Prescription Drug Benefit,
($ in billions)
2004-
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2013
CBO Original
0.6 1.5 32.1 52.9 59.9 65.7 72.6 79.5 88.5 98.9 552.2
Cost Estimate
2009 Medicare
0.2 1.2 27.7 41.5 35.3 43.8 52.2 59.3 55.0 65.1 381.3
Trustees Report
Memorandum:
3.8 6.0 27.5 40.2 44.0 46.5 49.8 53.0 58.7 65.5 395.0
CBO Original
Cost Estimate for
all provisions of
P.L. 108-173
Source: Congressional Budget Office, Projection of Spending for the Medicare Part D Benefit: Letter to the Honorable
William “Bill” M. Thomas, February 9, 2005; and The Boards of Trustees of the Federal Hospital Insurance and
Federal Supplementary Medical Insurance Trust Funds, 2009 Medicare Trustees Report (Table V.E8.), May 12,
2009.
Notes: Columns may not be additive due to rounding. Positive numbers indicate an increase in mandatory
spending, and thus reflect a net increase in the deficit. Medicare Part D cost is measured as total expenditures
less premium income and transfers from states.
Since the 2003 enactment of MMA, the Boards of Trustees of the Federal Hospital Insurance and
Federal Supplementary Medical Insurance Trust Funds have included updated information on
Part D expenditures in their annual reports to Congress. As presented in Table 10, the Medicare
37 In 2010, the standard coverage includes a $310 deductible, 25% coinsurance costs up to an initial coverage limit of
$2,830, and no coverage until out-of-pocket costs exceeded $6,440.00. For more information on current features of the
Medicare Part D prescription drug benefit. See CRS Report R40611, Medicare Part D Prescription Drug Benefit, by
Patricia A. Davis.
38 See Congressional Budget Office, Projection of Spending for the Medicare Part D Benefit: Letter to the Honorable
William “Bill” M. Thomas, February 9, 2005, available at http://www.cbo.gov/ftpdocs/60xx/doc6076/ThomasLtr2-9-
05.pdf.
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The Impact of Major Legislation on Budget Deficits: 2001 to 2009
Trustees 2009 report showed total spending on the prescription drug benefit for FY2004 to F2008
at about $105.9 billion, which was lower than the $147.0 billion amount originally projected by
CBO over the same budget window.39 Further, this most recent Medicare Trustees report also
projects Part D expenditures for FY2009 to FY2013 at $275.4 billion, which is also lower than
the $405.2 billion outlay level originally estimated by CBO for this time period. It should be
noted that other provisions of MMA that were originally anticipated to create budgetary savings
through changes in Medicare Part A and Part B, and reduced Medicaid spending are challenging
to quantify in terms of actual expenditures, and are not included in the annual Medicare Trustees
reports.
Deficit Reduction Act of 2005
The Deficit Reduction Act of 2005 (DRA; P.L. 109-171), signed into law by President Bush on
February 8, 2006, stipulated significant reductions in mandatory spending for a variety of
government programs. In regards to student loan programs, DRA mandated lower payments to
education lenders, an increase in the interest rate charged on loans to parents of students, and
decreased insurance reimbursements for lenders, among other changes. DRA also impacted
Medicaid by permitting states to charge beneficiaries higher premiums, while also reducing
Medicaid payments for outpatient prescription drugs. P.L. 109-171 also included provisions that
decreased Medicare spending, increased collections from spectrum license auctions administered
by the Federal Communication Commission, and raised premiums paid by private companies to
the Pension Benefit Guaranty Corporation.
As part of CBO’s March 2006 analysis of the President’s FY2007 Budget, it was estimated that
DRA would reduce mandatory spending by approximately $106 billion for FY2007 to FY2016.40
Included in this cost projection, the programmatic changes to Medicaid and Medicare were
expected to decrease net federal spending respectively by $40 billion and $21 billion over 10
years, whereas student loan program provisions were anticipated to generate net budgetary
savings of about $30 billion over this time period.
Emergency Funding in Response to 2005 Hurricanes:
Katrina, Rita, and Wilma
In the aftermath of Hurricanes Katrina, Rita, and Wilma, several emergency supplemental
appropriations laws were enacted during the 109th and 110th Congresses, adding significantly to
federal budget deficits.41 In September 2005, Congress passed two bills related to Hurricane
Katrina emergency relief and recovery efforts, P.L. 109-61 and P.L. 109-62, providing a combined
39 The Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust
Funds, 2009 Medicare Trustees Report (Table V.E8.), May 12, 2009, available at http://www.cms.hhs.gov/
ReportsTrustFunds/downloads/tr2009.pdf.
40 Congressional Budget Office, An Analysis of the President’s Budgetary Proposals for Fiscal Year 2007 (Appendix
A: Changes to CBO’s Baseline Since January 2006), March 2006, available at http://www.cbo.gov/ftpdocs/70xx/
doc7069/03-14-PresidentsBudget.pdf.
41 For an assessment by CBO on the cost of federal efforts related to the 2005 Hurricanes, see Congressional Budget
Office, The Federal Government's Spending and Tax Actions in Response to the 2005 Gulf Coast Hurricanes, August
1, 2007, available at http://www.cbo.gov/ftpdocs/85xx/doc8514/08-07-Hurricanes_Letter.pdf.
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The Impact of Major Legislation on Budget Deficits: 2001 to 2009
$62.3 billion in supplemental funds.42 Department of Defense appropriations measure in 2006
(P.L. 109-148) provided $29.0 billion to fund the restoration of federal facilities damaged by the
three hurricanes, and another $20.0 billion was made available through a emergency
supplemental appropriations law (P.L. 109-234), which supported recovery assistance performed
by the Department of Agriculture and the Natural Resources Conservation Service, among
others.43 The 2007 emergency supplemental bill financing military operations in Iraq and
Afghanistan (P.L. 110-28) included an estimated $6.9 billion for the Department of Homeland
Security, the U.S. Army Corps of Engineers, and other agencies to provide Gulf Coast relief, and
another supplemental law (P.L. 110-239) allocated $2.9 billion for ongoing disaster relief related
to the 2005 Hurricanes.44
Table 11 shows all appropriations legislation enacted during the 109th and 110th Congresses to
support emergency relief efforts related to Hurricanes Katrina, Rita, and Wilma. In total,
Congress has approved legislation increasing federal budget deficits by $134.1 billion for Gulf
Coast recovery over FY2005 to FY2008.
Table 11. Supplemental Appropriations for Emergency Response to Hurricanes
Katrina, Rita and Wilma, 109th and 110th Congress
($ in billions)
Public Law
Date Enacted
Total Cost
Legislation
No.
Emergency Supplemental Appropriations Act to Meet Immediate
P.L. 109-61
Sept. 2, 2005
10.5
Needs Arising From the Consequences of Hurricane Katrina, 2005
Second Emergency Supplemental Appropriations Act to Meet
P.L. 109-62
Sept. 8, 2005
51.8
Immediate Needs Arising From the Consequences of Hurricane
Katrina, 2005
Department of Defense, Emergency Supplemental Appropriations
P.L. 109-148
Dec. 30, 2005
29.0
to Address Hurricanes in the Gulf of Mexico, and Pandemic
Influenza Act, 2006
Emergency Supplemental Appropriations Act for Defense, the
P.L. 109-234
June 15, 2006
20.0
Global War on Terror, and Hurricane Recovery, 2006
U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq
P.L. 110-28
May 25, 2007
6.9
Accountability Appropriations Act, 2007
Department of Defense Appropriations Act, 2008
P.L. 110-116
Nov. 13, 2007
5.9
Supplemental Appropriations Act, 2008
P.L. 110-252
June 30, 2008
7.0
Consolidated Security, Disaster Assistance, and Continuing
P.L. 110-329
Sept. 30, 2008
2.9
Appropriations Act, 2009
Total
134.1
42 See CRS Report R40708, Disaster Relief Funding and Emergency Supplemental Appropriations, by Bruce R.
Lindsay and Justin Murray.
43 Both P.L. 109-148 and P.L. 109-234 included rescissions designed to partially offset the costs of the emergency
supplemental appropriations. For a discussion of rescissions in P.L. 109-148, see CRS Report RL32153, Across-the-
Board Spending Cuts in End-of-Session Appropriations Acts, by Robert Keith.
44 See CRS Report RL34711, Consolidated Appropriations Act for FY2009 (P.L. 110-329): An Overview, by Robert
Keith.
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Source: Adapted from “Table 3. FY2005-FY2008 Supplemental Disaster Appropriations After Hurricanes
Katrina, Rita, and Wilma”, presented in CRS Report R40708, Disaster Relief Funding and Emergency Supplemental
Appropriations, by Bruce R. Lindsay and Justin Murray.
Notes: Columns may not be additive due to rounding. See Table 3 in CRS Report R40708, Disaster Relief Funding
and Emergency Supplemental Appropriations, for details on rescissions related to P.L. 109-234. These recissions are
included in the $20.0 billion level of appropriations reported in this table.
Additionally in the 109th Congress, tax legislation related to 2005 Hurricane recovery was
enacted, reducing federal government revenues over several years. The Katrina Emergency Tax
Relief Act of 2005 (P.L. 109-73) contained various types of tax relief, including a temporary
suspension of limitations for qualified corporate and individual charitable contributions, and an
extension of the replacement period for non-recognition of gain for property located in the
Hurricane Katrina disaster area. In late September 2005, JCT estimated that P.L. 109-73 would
reduce federal revenues by $6.3 billion for FY2006 and FY2007.45 The Gulf Opportunity Zone
Act of 2005 (P.L. 109-135) offered numerous tax incentives related to business activities in the
Gulf Cost, and was estimated by JCT to reduce government revenues by $8.7 billion for FY2006
to FY2015.46
Financial Crisis of 2008
Federal Conservatorship of Fannie Mae and Freddie Mac
The Housing and Economic Recovery Act of 2008 (HERA; P.L. 110-289), signed into law on
July 30, 2008, implemented numerous changes in federal housing policy. Among other
provisions, HERA authorized the Treasury Secretary to purchase obligations and other securities
issued by government-sponsored enterprises (GSEs) involved in the mortgage market, and
established the Federal Housing Finance Agency (FHFA) as the new single regulator for these
GSEs.
On September 6, 2008, the Director of FHFA exercised authority provided under HERA to place
two GSEs, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan
Mortgage Corporation (Freddie Mac), into conservatorship. FHFA defines conservatorship as “the
legal process in which a person or entity is appointed to establish control and oversight of a
Company to put it in a sound and solvent condition. In a conservatorship, the powers of the
Company’s directors, officers, and shareholders are transferred to the designated Conservator.” 47
At the same time, the Treasury Department contracted with Fannie Mae and Freddie Mac to make
direct cash infusions to maintain their solvency and liquidity. Specifically, Treasury pledged to
purchase senior preferred shares in Fannie Mae and Freddie Mac paying 10% annual dividends,
45 Joint Committee on Taxation, Estimated Revenue Effects of H.R. 3768, The “Hurricane Katrina Tax Relief Act of
2005”, As Amended by the Senate on September 15, 2005 (JCX-66-05 R), September 20, 2005, available at
http://www.jct.gov/publications.html?func=startdown&id=1549.
46 Joint Committee on Taxation, Estimated Revenue Effects of H.R. 4440, The “Gulf Opportunity Zone Act of 2005”,
As Passed by the House of Representatives and Senate on December 16, 2005 (JCX-89-05), December 20, 2005,
available at http://www.jct.gov/publications.html?func=startdown&id=1526.
47 For a review of new programs introduced and other actions taken by the Treasury, Federal Reserve, and Federal
Deposit Insurance related to the 2008 financial crisis, see CRS Report R41073, Government Interventions in Response
to Financial Turmoil, by Baird Webel and Marc Labonte.
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and mortgage-backed securities issued by the firms. In return, Treasury received $1 billion of
senior preferred shares and warrants for 79.9% of these GSEs’ common shares.48
Because of this high level of government control, CBO concluded that Fannie Mae and Freddie
Mac were now effectively federal operations and has accounted for the mortgages owned or
guaranteed by these entities as loans and loan guarantees of the federal government since January
2009.49 Treatment of GSE cost by CBO is similar to the budgetary consideration of federal credit
programs under the Federal Credit Reform Act of 1990, in which the budget records a subsidy
cost for federal loan commitments, with total budgetary impact calculated by discounting future
loan cash flows by interest rates on Treasury securities with comparable maturity. However, in the
case of Fannie Mae and Freddie Mac, CBO replaces the Treasury discount rates with rates
reflecting the market risk associated with the GSEs’ credit obligations.50
In August 2009, CBO estimated that the operations of Fannie Mae and Freddie Mac would
increase the FY2009 federal deficit by $291 billion. Included in this estimate was the $248 billion
subsidy cost for the GSEs’ assets and liabilities at the beginning of the conservatorship, along
with another $43 billion in subsidy costs associated with new business undertaken by Fannie Mae
and Freddie Mac in FY2009. Additionally, CBO projected that the activities of these entities
would add $99 billion to federal budget deficits for FY2010 to FY2019. Table 12 presents the
estimated budgetary effect of Fannie Mae and Freddie Mac conservatorship, as reported in CBO’s
January and August 2009 baseline projections.
Table 12. CBO Projections of Subsidy Costs for Federal Conservatorship of
Fannie Mae and Freddie Mac
($ in billions)
Date of CBO Baseline Budget Projection
FY2009
FY2010-FY2019
January 2009
238
71
August 2009
291
99
Sources: Congressional Budget Office, Budget and Economic Outlook (January 2009 and August 2009).
Note: Positive numbers indicate an increase in mandatory spending, and thus reflect a net increase in the deficit.
Since CBO determined Fannie Mae and Freddie Mac should be accounted for in the federal
budget, the Treasury cash infusions are considered intragovernmental payments, and thus have no
effect on federal budget deficits. In contrast to CBO, the Office of Management and Budget
(OMB) continues to treat Fannie Mae and Freddie Mac as nongovernmental entities for federal
budgeting purposes. Consequently, OMB does not include GSE subsidy costs in its budget
estimates, but instead scores the Treasury cash infusions as the total budgetary effect of federal
48 Treasury Department, Statement by Secretary Henry M. Paulson, Jr. on Treasury and Federal Housing Finance
Agency Action to Protect Financial Markets and Taxpayers, September 7, 2008, available at http://www.treas.gov/
press/releases/hp1129.htm.
49 For an explanation by CBO of the accounting of these GSEs as federal government operations, see Congressional
Budget Office, The Budget and Economic Outlook: An Update, August 2009, available at http://www.cbo.gov/ftpdocs/
105xx/doc10521/08-25-BudgetUpdate.pdf.
50 For information on CBO’s methodology for estimating subsidy costs related to Fannie Mae and Freddie Mac, see
Congressional Budget Office, CBO’s Budgetary Treatment of Fannie Mae and Freddie Mac, January 2010, available at
http://www.cbo.gov/ftpdocs/108xx/doc10878/01-13-FannieFreddie.pdf.
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government operations related to these two entities. Table 13 shows the estimated levels of
Treasury Department GSE cash infusions, as included in CBO’s January and August 2009
baseline projections.
Table 13. Projections of Treasury Department Cash Infusions for
Fannie Mae and Freddie Mac
($ in billions)
Date of CBO Baseline Budget Projection
2009
2010-2019
January 2009
18
78
August 2009
112
51
January 2010
96
NA
Source: Congressional Budget Office, Budget and Economic Outlook (January 2009, August 2009 and January
2010).
Notes: In January 2010, CBO recorded $91 billion in net outlays related to Fannie Mae and Freddie Mac for
FY2009. This reflects $96 billion in Treasury cash infusions offset moderately by over $4 billion in dividends from
Fannie Mae and Freddie Mac stock. At this time, no projections were offered about Treasury GSE cash infusions
for FY2010 to FY2019.
Because of budgetary rules, when CBO released new baseline projections in January 2010, the
actual FY2009 budgetary impact for Fannie Mae and Freddie Mac was scored as the level of net
outlays from Treasury cash infusions, and not as the net subsidy cost associated with federal
conservatorship. In particular, CBO recorded a value of $91 billion for the two GSEs in FY2009,
reflecting almost $96 billion in cash infusions offset moderately by more than $4 billion in
dividends on Fannie Mae and Freddie Mac stock.51 At the same time, as part of this January 2010
estimate, CBO projected GSE future budgetary impact for FY2010 to FY2020 in terms of subsidy
costs, and not as net outlays on Treasury cash infusions.
Emergency Economic Stabilization Act of 2008
The Emergency Economic Stabilization Act of 2008 (EESA; Division A of P.L. 110-343) was
signed into law on October 3, 2008, establishing the Troubled Asset Relief Program (TARP).52
Under TARP, the Treasury Secretary is authorized to purchase or insure up to $700 billion of
mortgage related assets, or any other assets the Secretary, in consultation with the Chairman of
the Federal Reserve, determine would be required to promote stability in the financial markets.53
Among the major TARP initiatives, the Capital Purchase Program has been used by the Treasury
to purchase senior preferred shares from U.S. financial institutions. In addition, Treasury has
invested $20 billion in both Bank of America and Citigroup through the Targeted Investment
Program, provided loans and equity investments to General Motors, GMAC, Chrysler, and
Chrysler Financial under the Automotive Industry Financing Program, and offered various forms
of financial assistance to the American International Group.
51 Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2010 to 2020, January 2010.
52 For an overview of EESA, see CRS Report RL34730, Troubled Asset Relief Program: Legislation and Treasury
Implementation, by Baird Webel and Edward V. Murphy.
53 The Helping Families Save Their Homes Act (P.L. 111-22) was enacted on May 20, 2009, reducing TARP
mandatory authorization by $1.24 billion.
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Similar to CBO’s budgetary treatment of Fannie Mae and Freddie Mac, Section 123 of EESA
stipulates that accounting for the budgetary impact of TARP must be conducted under procedures
outlined in the Federal Credit Reform Act of 1990, but with an adjustment for market risk. In
particular, CBO is not recording the gross cash disbursement of Treasury purchases initiated
under TARP, but is instead estimating the government’s net subsidy costs on a present value basis.
Generally speaking, CBO calculates the subsidy costs for the TARP program by subtracting the
purchase cost from the estimated market of the value acquired assets, discounted at a rate
reflecting market risk.54
The expected effect of EESA on federal budget deficits has been revised numerous times. In
January 2009, CBO estimated that subsidy costs for TARP transactions would total $184 billion
for FY2009 and $5 billion for FY2010. However, in March 2009, changes in market conditions
and increased subsidy costs attributed to new Treasury Department transactions prompted CBO to
increase its projected cost to $336 billion for FY2009 and $20 billion for FY2010. Because of
improved market conditions, CBO in August 2009 once again revised the estimated budgetary
impact of TARP, reducing projected outlays to $133 billion for FY2009, but increasing
anticipated subsidy costs to $108 billion for FY2010 to FY2019. In January 2010, CBO provided
another revision to TARP subsidy costs, recording an actual FY2009 subsidy of $152 billion. As
circumstances have changed since the recording of this figure, a credit re-estimate was provided
for FY2010 through a projected negative outlay of $67 billion. (The negative outlay of $67 billion
does not reflect TARP spending that will take place in 2010.) Consequently, as of January 2010,
CBO estimates a budgetary impact of $99 billion for the full duration of the TARP program.55
Table 14 presents TARP cost estimates as reported in CBO’s January 2009, March 2009, August
2009, and January 2010 baseline projections.
Table 14. Estimated Budgetary Effects of the Troubled Asset Relief Program
($ in billion)
Date of CBO Baseline Budget Projection
FY2009
FY2010
FY2011-FY2014
January 2009
184
5
0
March 2009
336
20
0
August 2009
133
80
28
January 2010
152
-67
14
Source: Congressional Budget Office, Budget and Economic Outlook (January 2009, August 2009, and January
2010); and An Analysis of the President’s Budgetary Proposals (March 2009).
Note: Positive numbers indicate an increase in mandatory spending, and thus reflect a net increase in the deficit.
54 For information on CBO’s methodology for estimating subsidy costs related to TARP, see Congressional Budget
Office, The Troubled Asset Relief Program: Report on Transactions Through June 17, 2009, June 2009, available at
http://www.cbo.gov/ftpdocs/100xx/doc10056/06-29-TARP.pdf.
55 Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2010 to 2020 (Box 1-2: Recent
Activity in the Troubled Asset Relief Program, January 2010.
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The Impact of Major Legislation on Budget Deficits: 2001 to 2009
Economic Stimulus
In response to the deep and long recession that began in December 2007, two major bills were
enacted to stimulate the economy.
Economic Stimulus Act of 2008
On February 13, 2008, President Bush signed into law the Economic Stimulus Act of 2008 (P.L.
110-185). The key provision in P.L. 110-185 was a refundable tax rebate which equaled 10% of
an individual’s first $6,000 of taxable income ($12,000 for couples), with a minimum rebate of
$300 ($600 for couples) and a maximum of $600 ($1,200 for couples). This rebate was phased-
out at a 5% rate for income over $75,000 for individuals ($150,000 for couples), with a full
phase-out at $87,000 ($174,000 for couples).56 Further, a $300 rebate was available to individuals
with no tax liability provided that earned income, Social Security benefits, and veterans disability
payments totaled at least $3,000. Along with the rebate for individuals, P.L. 110-185 also included
two business tax deductions. One provision allowed businesses to deduct 50% of investments
made in 2008 on certain equipment, and another provision increased deductions permitted for
small businesses under Section 179 of the Internal Revenue Code for purchases of certain types
of property.
In February 2008, JCT projected that P.L. 110-185 would increase federal budget deficits by
approximately $124.5 billion over FY2008 to FY2018.57 Most significantly, the individual tax
rebate was expected to reduce federal government revenues by $106.7 billion in FY2008 and by
$10 billion in FY2009. Additionally, the 50% bonus depreciation on certain equipment placed in
service in 2008 was estimated to reduce federal government revenues by $43.9 billion in FY2008,
and by $5.6 billion in FY2009. However, since this business tax provision involved bringing the
deduction forward in time, JCT estimated that the provision would effectively increase revenue
by $42.1 billion over FY2010 to FY2018, with a net 10-year effect of a $7.4 billion revenue
decrease.
Table 15 presents the budgetary effect of all major provisions of P.L. 110-185, estimated by JCT
in February 2008.
56 For an overview of P.L. 110-185, see CRS Report RS22850, Tax Provisions of the 2008 Economic Stimulus
Package, by Jane G. Gravelle.
57 Joint Committee on Taxation, Estimated Budget Effects of the “Economic Stimulus Act of 2008”, as Passed by the
House of Representatives and the Senate on February 7, 2008 (JCX-17-08), February 8, 2008, available at
http://www.jct.gov/publications.html?func=startdown&id=1323.
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The Impact of Major Legislation on Budget Deficits: 2001 to 2009
Table 15. Estimated Budgetary Effects of the Economic Stimulus Act of 2008
($ in billions)
Provision FY2008
FY2009
FY2008-FY2018
Rebates for Individuals
-106.7
-10.0
-116.7
Appropriations to Carry Out Rebates
-0.2
-0.1
-0.3
Increase Section 179 Expensing and Phase-out Amounts for 2008
-0.9
-0.6
-0.1
50% Bonus Depreciation
-43.9
-5.6
-7.4
Total -151.7
-16.3
-124.5
Source: Joint Committee on Taxation, Estimated Budget Effects of the “Economic Stimulus Act of 2008”, as Passed
by the House of Representatives and the Senate on February 7, 2008 (JCX-17-08), February 8, 2008.
Notes: Negative numbers indicate an increase in the deficit. Columns may not be additive due to rounding. All
budgetary effects were estimated by JCT at the time of legislative enactment.
American Recovery and Reinvestment Act of 2009
In response to significant weakness in the U.S. economy, President Obama signed into law the
American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5) on February 17, 2009.
Division A of ARRA provided discretionary spending authority for a broad range of agencies,
programs, and activities, including major authorizations for the State Fiscal Stabilization Fund
and energy and water development initiatives.58 Division B of ARRA contained numerous direct
spending provisions that offered fiscal relief to states under the Medicaid program, increased
benefits for the Temporary Assistance for Needy Families program, extended unemployment
compensation, and provided subsidies for COBRA health insurance premiums. Division B of
ARRA also contained several tax provisions including the Making Work Pay tax credit, which
was a temporary refundable tax credit of up to $400 for individuals and $800 for married couples
for tax years 2009 and 2010. Further, ARRA expanded the Hope education tax credit for 2009 and
2010, modified and extended the first-time homebuyer tax credit, and expanded certain rules
related to net operating losses for businesses.59
CBO and JCT estimated in February 2009 that ARRA would increase federal budget deficits by
$787.2 billion over FY2009 to FY2019.60 For Division A, CBO projected discretionary spending
outlays of $34.8 billion in FY2009, $110.7 billion for FY2010, with discretionary outlays totaling
$308.3 billion over FY2009 to FY2019. With respect to direct spending provisions in Division B
of ARRA, CBO estimated federal budget deficit increases of $85.3 billion in FY2009, $108.6
billion for FY2010, with mandatory outlays totaling $267.0 billion over 10 years. Finally, JCT
estimated that Division B tax provisions would decrease federal government revenues by $64.8
billion in FY2009, $180.1 billion in FY2010, and by $211.8 billion over FY2009 to FY2019.
58 See CRS Report R40537, American Recovery and Reinvestment Act of 2009 (P.L. 111-5): Summary and Legislative
History, by Clinton T. Brass et al.
59 See CRS Report RL34664, The First-Time Homebuyer Tax Credit, by Carol A. Pettit.
60 Congressional Budget Office, Cost Estimate for the Conference Agreement for H.R. 1, American Recovery and
Reinvestment Act of 2009, February 13, 2009, available at http://www.cbo.gov/ftpdocs/99xx/doc9989/
hr1conference.pdf.
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The Impact of Major Legislation on Budget Deficits: 2001 to 2009
Table 16 presents the budgetary impact of discretionary spending, mandatory spending, and
revenue provisions of ARRA, as estimated by CBO and JCT in February 2009.
In January 2010, CBO released a revised projection for the budgetary impact of ARRA,
anticipating that the law would now increase deficits by $75 billion above the original cost
estimate, to $862 billion over FY2009 to FY2010.61 The modification to CBO’s cost projection
for ARRA is attributed in part to increased outlays on unemployment compensation, which as of
January 2010, were calculated to be approximately $21 billion greater than initially anticipated
for 2009 and 2010. In addition, the Build America Bond program, a tax credit bond option for
state and local governments established under ARRA, experienced participation levels
significantly exceeding the original expectations of CBO and JCT. Consequently, CBO’s January
2010 revision to the ARRA cost estimate projects an additional $26 billion in outlays for the
program over FY2010 to FY2019. CBO’s revised ARRA cost projection also included new
estimates related to Medicaid spending and the Making Work Pay tax credit.
Table 16. Budgetary Impact of the American Recovery and Reinvestment Act of
2009: Estimated by CBO and JCT in February 2009
($ in billions)
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2009-
2019
Discretionary Spendinga
(Division A)
Estimated
Outlays
34.8 110.7 76.3 38.1 22.9 12.8 7.0 3.1 1.6 0.8 0.1 308.3
Mandatory Spendinga
(Division B)
Estimated
Outlays
85.3 108.6 49.9 8.1 7.4 15.1 4.7 -4.7 -4.1 -1.9 -1.4 267.0
Revenuesb
(Division B)
Estimated
Outlays
-64.8 -180.1
-8.2 10.0 2.7 5.5 7.1 5.8 5.1 5.0 0.1 -211.8
Net Impact on the Deficita
184.9 399.4 134.4 36.1 27.6 22.4 4.7 -7.3 -7.5 -6.1 -1.4 787.2
Source: Congressional Budget Office, Cost Estimate for the Conference Agreement for H.R. 1: American Recovery and
Reinvestment Act of 2009, February 13, 2009.
Notes: Columns may not be additive due to rounding. Al budgetary effects were estimated by CBO and JCT at
the time of legislative enactment.
a. For figures on discretionary spending, mandatory spending, and net impact on the deficit, positive numbers
indicate an increase in the deficit.
b. For figures on revenues, negative numbers reflect an increase in the deficit.
61 Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2010 to 2020, January 2010.
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The Impact of Major Legislation on Budget Deficits: 2001 to 2009
Changes in Non-Defense Discretionary Spending:
2001 to 2009
Discretionary spending supports a variety of defense, domestic and international federal
government operations, with the latter two categories comprising non-defense discretionary
spending. Domestic discretionary spending funds numerous federal agencies and programs,
including education, law enforcement, and energy, while discretionary spending on international
programs includes financing for diplomatic missions and foreign aid. In relative terms, domestic
outlays comprised about 93% of total annual non-defense discretionary spending during FY2001
to FY2009, while international outlays made up the remaining 7%. With regards to legislation,
annual appropriations laws provides the budget authority for discretionary spending, which can
be granted both for a single year or over a longer time horizon.
Table 17 shows non-defense discretionary spending over the past decade, both in nominal and
constant dollars, and as a percentage of GDP. Adjusted for inflation, domestic and international
outlays increased from $391.0 billion in FY2001 to approximately $477.4 billion in FY2006 (in
FY2005 dollars). After declining in constant dollars in 2007, non-defense discretionary spending
reached its peak for the decade in FY2009 at $516.2 billion, due in large part to economic
stimulus initiatives related to the 2008 financial crisis. Compared with the size of the economy as
a whole, non-defense discretionary spending equaled 3.4% of GDP in FY2001, comprised
approximately 3.8% of GDP for FY2003 to FY2006, and has risen to 4.1% of GDP for FY2009.62
Table 17. Non-Defense Discretionary Spending, FY2001 to FY2009
($ in billions)
Year Nominal
$ Constant
% GDP
FY2005 $
2001 343.3
391.0
3.4
2002 385.4
429.4
3.7
2003 420.5
455.2
3.8
2004 441.4
461.0
3.8
2005 474.8
474.8
3.8
2006 496.7
477.4
3.8
2007 493.0
458.3
3.5
2008 522.3
469.2
3.6
2009 581.0
516.2
4.1
Source: Office of Management and Budget, Budget of the U.S. Government: Fiscal Year 2011 (Historical Tables 8-7.
and 8.8), February 2010; and Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2010 to
2020 (Table F-8), January 2010.
Note: Non-defense discretionary spending figures present the aggregated total of all domestic and international
discretionary spending for the given fiscal year.
62 Data on non-defense discretionary spending for FY2001 to FY2009 was collected from Office of Management and
Budget, Budget of the U.S. Government: Fiscal Year 2011 (Historical Tables 8-7. and 10.1); and Congressional Budget
Office, The Budget and Economic Outlook: Fiscal Years 2010 to 2020 (Tables F-3 and F-4), January 2010.
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The Impact of Major Legislation on Budget Deficits: 2001 to 2009
Unlike mandatory spending or revenue provisions that are authorized permanently or for several
years at a time, appropriation levels are determined annually. This means that there is no
straightforward way to project spending levels under current policy in the future, and hence no
straightforward way to estimate discretionary policy changes over time. Under the Deficit Control
Act of 1985 (P.L. 99-177), CBO is required to project future discretionary spending as the level of
budget authority for the current fiscal year, adjusted using the employment cost index and the
GDP deflator. Consequently, one way to measure policy changes in non-defense discretionary
spending over the past decade is to compare the baseline level of constant spending adjusted for
inflation projected by CBO in January 2001, against actual non-defense discretionary outlays for
FY2001 to FY2009. Under this approach, which is illustrated in Figure 2, actual FY2002 non-
defense discretionary spending was $17 billion above the level estimated by CBO in January
2001 and $81 billion above constant spending in FY2006. Due largely to economic stimulus
spending implemented by the American Recovery and Reinvestment Act of 2009 (ARRA; P.L.
111-5), actual non-defense discretionary spending for FY2009 was $135 billion above this
constant spending benchmark.
Another way to benchmark current policy for non-defense discretionary outlays is to keep
spending constant as a share of GDP. This benchmark could be justified on the grounds that non-
defense discretionary spending has stayed relatively constant as a percentage of GDP over the
past 25 years. Figure 2 compares actual non-defense discretionary outlays during this time period
to outlays fixed at the FY2001 non-defense discretionary spending share of GDP, which was
3.4%. Because GDP tends to grow faster than inflation, this benchmark typically yields smaller
estimates of legislative changes to discretionary spending than the inflation-adjusted benchmark.
Under this approach, actual non-defense outlays in FY2002 were $31.4 billion above the
benchmark and $103.1 billion above the benchmark for FY2009.
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The Impact of Major Legislation on Budget Deficits: 2001 to 2009
Figure 2. Non-defense Discretionary Spending, FY2001-FY2009
700.0
600.0
rs
500.0
lla
o
D
400.0
of
300.0
200.0
illions
B
100.0
0.0
2001 2002 2003 2004 2005 2006 2007 2008 2009
Fiscal Year
A ctual Outlays
Outlays as a Co nstant (FY2001) % o f GDP
Outlays as Co nstant (FY2001) Spending
Source: Office of Management and Budget, Budget of the U.S. Government: Fiscal Year 2011 (Historical Tables
8-7. and 10.1)
Author Contact Information
Marc Labonte
Andrew Hanna
Specialist in Macroeconomic Policy
Presidential Management Fellow
mlabonte@crs.loc.gov, 7-0640
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