FY2011 Budget Proposals and Projections
D. Andrew Austin
Analyst in Economic Policy
March 29, 2010
Congressional Research Service
7-5700
www.crs.gov
R41147
CRS Report for Congress
P
repared for Members and Committees of Congress

FY2011 Budget Proposals and Projections

Summary
This report provides an overview of major budget estimates and projections for the FY2011
federal budget cycle. The report presents and compares budget projections calculated by the
Obama Administration’s Office of Management and Budget (OMB) and the Congressional
Budget Office (CBO). In addition, the report discusses major budgetary issues.
The congressional budget process, which includes the annual budget resolution and
appropriations bills, usually begins once the Administration submits its budget to Congress. As
Congress deliberates over the budget, the Administration often revises its proposals as it interacts
with Members of Congress and as national and international economic conditions change.
The current economic climate poses major challenges to policymakers shaping the FY2011
federal budget. Although the economy has shown some signs of recovery from an economic
recession that many economists consider the most severe since the Great Depression,
unemployment remains at high levels. The U.S. economy grew at an annual rate of 5.9% in the
last quarter of 2009 in inflation-adjusted terms, after having fallen at a 5.4% annual rate in the last
quarter of 2008 and 6.4% in the first quarter of 2009. The national unemployment rate, which was
9.7% in February 2010, is projected to decline slowly. Weakness in residential and commercial
real estate, high household debt levels, and fiscal challenges facing state and local governments
may contribute to a long and slow economic recovery. The recession and the prospect of a slow
recovery have strongly affected budget estimates and projections.
Federal spending tied to means-tested social programs has increased due to rising unemployment,
while federal revenues are falling as individuals’ incomes drop and corporate profits sink. Federal
revenues fell 17% between FY2007 and FY2009. Although some costs of federal interventions in
financial markets may be less than expected in late 2008 and early 2009, other interventions may
present continuing fiscal challenges. Federal deficits, according to OMB and CBO projections,
will likely remain high relative to historic norms over the next few years. Long-run fiscal
challenges have received renewed attention as the ratio of federal debt held by the public to GDP,
which compares the accumulation of federal debt (excluding intragovernmental debt) to the size
of the economy as a whole, reached 53% at the end of FY2009 and, according to OMB and CBO
estimates, will exceed 60% at the end of FY2010.
The Obama Administration released its FY2011 budget proposals on February 1, 2010. The
Administration featured policy initiatives targeted at speeding up economic recovery, reducing
the unemployment rate, implementing health insurance reform, overhauling financial regulation,
and stabilizing housing markets and the automobile industry. The Administration also proposed a
three-year freeze in non-security discretionary spending, which currently comprises about 15% of
total federal outlays.
This report will be updated as warranted.

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FY2011 Budget Proposals and Projections

Contents
Overview of the FY2011 Budget Cycle ....................................................................................... 1
Budget Estimates, Proposals, and Projections .............................................................................. 2
Projections of Federal Revenues.................................................................................................. 4
Federal Outlays........................................................................................................................... 7
Outlays and Budget Authority ............................................................................................... 7
Federal Outlay Projections .................................................................................................... 7
Discretionary Outlays............................................................................................................ 9
Mandatory Outlays................................................................................................................ 9
Deficits ..................................................................................................................................... 12
On-Budget Deficits and Off-Budget Surpluses .................................................................... 14
Federal Debt ............................................................................................................................. 17
Economic Projections and Economic Recovery ......................................................................... 20
Issues Regarding Budget Projections......................................................................................... 21
Accuracy and Statistical Bias in Budget Forecasts ............................................................... 22

Tables
Table 1. Budget Estimates and Proposals for FY2011 .................................................................. 5
Table 2. Federal Revenues........................................................................................................... 6
Table 3. Federal Outlays.............................................................................................................. 8
Table 4. Federal Discretionary Outlays ...................................................................................... 10
Table 5. Federal Mandatory Outlays .......................................................................................... 11
Table 6. Total Deficits ............................................................................................................... 13
Table 7. On-Budget Deficits ...................................................................................................... 15
Table 8. Off-Budget Surplus...................................................................................................... 16
Table 9. Debt Held by the Public at End of Fiscal Year .............................................................. 18
Table 10. Economic Projections: Gross Domestic Product (GDP).............................................. 19

Contacts
Author Contact Information ...................................................................................................... 23

Congressional Research Service

FY2011 Budget Proposals and Projections

he federal budget not only outlines spending levels for government programs and how that
spending will be funded, but also reflects the policy priorities of Congress and the
T President. This report provides an overview of major budget estimates and projections for
the FY2011 federal budget cycle. The report presents and compares budget projections calculated
by the Obama Administration’s Office of Management and Budget (OMB) and the Congressional
Budget Office (CBO). In addition, the report discusses selected major budgetary issues.
Overview of the FY2011 Budget Cycle
The congressional budget process, which includes the annual budget resolution and
appropriations bills, usually begins once the Administration submits its budget to Congress.1 As
Congress deliberates over the budget, the Administration often revises its proposals as it interacts
with Members of Congress and as national and international economic conditions change.2
The economy continues to post major challenges to policymakers shaping the FY2011 federal
budget. The economic recession, which many economists consider the most severe American
recession since the Great Depression, has strongly affected budget estimates and projections. The
U.S. economy shrank at an annual inflation-adjusted rate of 5.4% in the last quarter of 2008, the
biggest fall since 1982, followed by a 6.4% fall in annual-rate terms in the first quarter of 2009.
Real GDP grew at an estimated annual rate of 5.9% in the fourth quarter of 2009, perhaps
signaling the end of the recession.3 In addition, financial markets since mid-2009 appear to have
stabilized significantly. While the economy is showing some signs of recovery, some project that
unemployment rates could remain elevated for years. Some economists worry about the
possibility of a “double-dip” recession, which would complicate existing budgetary challenges.
Federal spending tied to means-tested social programs has increased due to rising unemployment,
while federal revenues are projected to fall as individuals’ incomes drop and corporate profits
sink. Total federal revenues fell 17% between FY2007 and FY2009, and corporate income tax
receipts fell even more sharply. Federal deficits, according to OMB and CBO projections, will
likely be high relative to historic norms over the next few years.
The federal government responded to the economic slowdown with an array of policy responses
unprecedented in recent decades, including fiscal stimulus in the form of new spending and tax
cuts. The federal government and the Federal Reserve also expanded or initiated major loan
programs. As the economy recovers, the federal government and Federal Reserve plan to shrink
or discontinue those programs as financial markets return to a more normal state. Some federal
interventions, such as the Troubled Assets Relief Program, are now expected to cost far less than
previous estimates, but the federal government may still face substantial credit risks associated
with the takeovers of AIG, Fannie Mae, Freddie Mac, and large holdings in automobile

1 The Budget and Accounting Act of 1921 requires the President to submit a budget to Congress each year. Current law
(31 U.S.C. 1105(a)) requires the President to submit a budget no earlier than the first Monday in January, and no later
than the first Monday in February.
2 For an overview of federal budgetary issues, see CRS Report R41097, The FY2011 Federal Budget, by Mindy R.
Levit.
3 U.S. Department of Commerce, Bureau of Economic Analysis, “Gross Domestic Product: Fourth Quarter 2009 (2nd
Estimate),” press release BEA 10-05, February 26, 2010, available at http://bea.gov/newsreleases/national/gdp/2010/
pdf/gdp4q09_2nd.pdf.
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FY2011 Budget Proposals and Projections

manufacturers. Furthermore, the federal government could face new fiscal challenges if economic
recovery falters or if financial turmoil reemerges.
The Obama Administration released its FY2011 budget submission on February 1, 2010.4 The
Administration featured policy initiatives targeted at speeding up economic recovery, reducing
the unemployment rate, enacting health insurance reform, overhauling financial regulation, and
stabilizing housing markets and the automobile industry.
On February 18, 2010, President Obama set up the National Commission on Fiscal Responsibility
and Reform, which was charged with finding ways to “improve the fiscal situation in the medium
term and to achieve fiscal sustainability over the long run.”5
Budget Estimates, Proposals, and Projections
Table 1 contains budget estimates for FY2011 from CBO and the Administration (the Office of
Management and Budget, OMB). House and Senate Budget Committees are expected to issue
their own budget totals in a budget resolution that reflects congressional funding priorities.
Budget estimates and projections vary due to differing underlying economic, technical, and
budget-estimating assumptions and techniques, as well as differences in policy assumptions.
Minor differences in underlying assumptions, which may generate small short-term discrepancies,
can produce wide divergences in projected long-term budget paths. In addition, the extraordinary
nature of federal responses to financial turmoil and economic recession have complicated some
scoring issues. Budget estimates issued by the President, CBO, or by others, should be expected
to change as new data arrive or as economic conditions change.
CBO current-law baseline projections are computed using assumptions set forth in budget
enforcement legislation. The CBO baseline projections are not intended to serve as a prediction of
what budget outcomes are most plausible or likely. Rather, the CBO baseline projections are
designed to serve as a budgeting tool, which is used to determine how legislative changes would
increase or decrease the federal deficit.6
CBO baseline projections typically yield estimates of higher growth in revenue and slower
growth of discretionary spending relative to scenarios that independent forecasters consider
likely. CBO baseline projections presume that
• discretionary spending remains constant in inflation-adjusted terms;
• the 2001 and 2003 tax cuts expire after FY2010 (as current law specifies);7

4 The Obama Administration’s FY2011 budget submission materials are available at http://www.whitehouse.gov/omb/
budget/.
5 White House, “National Commission on Fiscal Responsibility and Reform,” Executive Order 13531, February 18,
2010, 75 Federal Register 7927, February 23, 2010, available at http://edocket.access.gpo.gov/2010/pdf/2010-3725.pdf.
6 CBO’s role is set forth in Title II of the Congressional Budget and Impoundment Control Act of 1974 (P.L. 93-344)
and the Balanced Budget and Emergency Deficit Control Act of 1985 (P.L. 99-177). While the portions of that
legislation affecting the CBO current-law baseline expired in September 2006, CBO has not changed how it constructs
baseline projections.
7 See CRS Report R41111, Expiration and Extension of the Individual Income Tax Cuts First Enacted in 2001 and
(continued...)
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• the existing “patch” to the alternative minimum tax (AMT), which currently
applies to tax year 2009, would lapse;8
• emergency unemployment benefits will not be extended;9 and
• cuts scheduled for Medicare physician services (Part B) as a result of
“sustainable growth rate” calculations will not be delayed or cancelled.10
After FY2010, according to baseline projections, the expiration of most of the tax cuts from 2001
and 2003 would increase federal receipts. The assumption that these tax cuts expire and that
growth in discretionary spending is zero in real terms explains much of the declining deficits that
emerge over the 10-year CBO baseline forecast window and in the OMB BEA (Budget
Enforcement Act) baseline. The Joint Committee on Taxation estimates that
• indexing the AMT to inflation for FY2010-FY2020 would cost $584 billion and
• extending tax cuts enacted in 2001 and 2003 (mainly EGTRRA and JGTRRA)
would cost $2,465 billion over the FY2011-FY2020 period.11
Beyond the end of the current 10-year forecast window, federal deficits are expected to grow
rapidly, largely because of growing health care costs and the retirement of the baby boomers,
unless major policy changes are made.12
CBO’s first budget report for the FY2011 budget cycle, released in January 2010, contained
current-law budget baseline and economic projections for FY2011 through FY2020.13 This CBO
report projected a FY2011 current-law baseline total deficit of $980 billion, significantly smaller
than the estimated FY2009 ($1,414 billion) and FY2010 ($1,349) deficits, but far larger than the
FY2008 deficit ($459 billion).
CBO’s January report also included estimated budgetary effects of selected policies on revenues
and outlays. Those projections, which are based on assumptions that differ from current-law
baseline conventions, can be used to assess costs of alternative policies.14 These alternative policy
proposals interact in important ways, so that the costs of enacting two of these proposals may
differ significantly from the sum of the costs of implementing each proposal separately. In

(...continued)
2003, by Maxim Shvedov.
8 The American Recovery and Reinvestment Act of 2009 (P.L. 111-5) included a one-year patch for the 2009 tax year.
For details, see CRS Report RL30149, The Alternative Minimum Tax for Individuals, by Steven Maguire.
9 For details, see CRS Report RS22915, Temporary Extension of Unemployment Benefits: Emergency Unemployment
Compensation (EUC08)
, by Julie M. Whittaker and Alison M. Shelton.
10 For details, see CRS Report R40907, Medicare Physician Payment Updates and the Sustainable Growth Rate (SGR)
System
, by Jim Hahn.
11 U.S. Congress, Joint Committee on Taxation, “Estimated Revenue Effects Of The Revenue Provisions Contained In
The President’s Fiscal Year 2011 Budget,” JCX-7-10, March 8, 2010.
12 U.S. Congress, Congressional Budget Office, The Long-term Budget Outlook, June 2009, available at
http://www.cbo.gov/doc.cfm?index=10297&zzz=39116.
13 U.S. Congress, Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2010 to 2020,
January 2010, available at http://www.cbo.gov/ftpdocs/108xx/doc10871/01-26-Outlook.pdf. CBO calls totals for the
current fiscal year “estimates” and calls totals for future years “projections.”
14 Ibid., Table 1-5.
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particular, the effects of indexing the AMT and the extension of the 2001 and 2003 tax cuts
interact in significant ways.
On March 5, 2010, CBO published a preliminary analysis of the President’s FY2011 proposals.15
CBO issued a more detailed analysis on March 24, which incorporated legislative changes made
before mid-March 2010, although the projections of budget aggregates were only slightly
changed.16 The March CBO budget projections do not reflect enactment of either the Hiring
Incentives to Restore Employment Act (HIRE; P.L. 111-147) or the Patient Protection and
Affordable Care Act (P.L. 111-148).
Administration proposals, according to CBO analysis, would lead to larger federal deficits over
the 10-year FY2011-FY2020 budget window than those projected by the Obama Administration,
in large part because CBO projects that the economy would grow more slowly than does OMB.
CBO and OMB projections of gross domestic product (GDP) are presented in Table 10. A section
following that table discusses some technical challenges of budget forecasting.
Projections of Federal Revenues
Administration and CBO projections of the future path of federal receipts are summarized in
Table 2. Because economic conditions strongly affect federal revenue streams, forecasts of
federal receipts beyond the short term are necessarily imprecise. Economic recession caused
federal receipts to fall sharply in FY2008 and FY2009. Federal revenues fell 17% between
FY2007 and FY2009. Receipts in FY2010 are expected to reflect renewed economic growth, and
a modest rebound is expected in FY2011.
Corporate tax receipts and capital gains receipts can be especially sensitive to cyclical economic
conditions. Asset values and corporate profits—and thus federal corporate income tax and capital
gains revenues—typically recover more quickly after economic downturns than lagging
indicators such as unemployment.
Several major legislative initiatives enacted in the past two years included tax provisions that had
significant effects on federal revenues. The American Recovery and Reinvestment Act of 2009
introduced a temporary Making Work Pay tax credit, included a one-year AMT patch, and altered
rules affecting business depreciation and the treatment of cancelled debts. The Children’s Health
Insurance Program Reauthorization Act of 2009 (P.L. 111-3) raised certain tobacco taxes to help
fund the expansion of the State Children’s Health Insurance Program (CHIP).17


15 U.S. Congress, Congressional Budget Office, A Preliminary Analysis of the President’s Budget Request for 2011,
letter to the Honorable Daniel K. Inouye dated March 5, 2010, available at http://www.cbo.gov/ftpdocs/112xx/
doc11231/index.cfm. Also see Douglas Elmendorf, “Preliminary Analysis of the President’s Budget,” CBO Director’s
blog, available at http://cboblog.cbo.gov/?p=482.
16 U.S. Congress, Congressional Budget Office, An Analysis of the President’s Budgetary Proposals for Fiscal Year
2011
, March 24, 2009, available at http://www.cbo.gov/ftpdocs/112xx/doc11280/03-24-apb.pdf.
17 CRS Report R40444, State Children’s Health Insurance Program (CHIP): A Brief Overview, by Elicia J. Herz, Chris
L. Peterson, and Evelyne P. Baumrucker.
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Table 1. Budget Estimates and Proposals for FY2011
Deficits
Discretionary
Mandatory
Revenues Outlays
Outlays
Outlays Total On-Budget Off-Budget Debt Held by the Public
Billions of current dollars








FY2010 CBO Baseline Estimate (3/10)
2,177
3,537
1,375
1,930
-1,360
-1,434
86
9,012
CBO Baseline, 1/2010
2,670
3,650
1,371
2,045
-980
-1,076
96
9,785
President’s FY2011 Budget, 2/09
2,567
3,834
1,415
2,165
-1,267
-1,363
96
10,498
President’s FY2011 Current Policy Baseline, 2/2010
2,583
3,728
1,376
2,100
-1,145
-1,241
96

President’s FY2011 BEA Baseline, 2/2010
2,782
3,694
1,396
2,050
-912
-1,008
96

Prelim CBO Est. of Pres. Budget 3/2010
2,461
3,802
1,401
2,157
-1,341
-1,435
93
10,510
CBO Rev. Baseline 3/2010
2,673
3,668
1,369
2,032
-995


9,853
As % GDP








FY2010 CBO Baseline Estimate
14.8%
14.9%
9.4%
13.2%
-9.3%
-9.8%
0.6%
61.7%
CBO Baseline, 1/2010
17.8%
24.3%
9.1%
13.6%
-6.5%
-7.2%
0.6%
65.3%
President’s FY2011 Budget, 2/09
16.8%
25.1%
9.2%
14.2%
-8.3%
-8.9%
0.6%
68.6%
President’s FY2011 Current Policy Baseline, 2/2010
16.9%
24.4%
9.0%
13.7%
-8.3%
-8.1%
0.6%

President’s FY2011 BEA Baseline, 2/2010
18.2%
24.1%
9.1%
13.4%
-8.3%
-6.6%
0.6%

Prelim CBO Est. of Pres. Budget 3/2010
16.4%
25.4%
9.3%
14.4%
-8.9%
-9.6%
0.6%
68.7%
CBO Rev. Baseline 3/2010
17.8%
24.5%
9.1%
13.6%
-6.6%


65.7%
Sources: CBO and OMB
Notes: CBO estimates of FY2010 on- and off-budget deficits from January 2010 baseline. Debt held by public is amount projected for September 30, 2011, the end of
FY2011. See text and source documents for additional caveats. “CBO Rev. Baseline 3/2010” data are taken from March 5, 2010, preliminary analysis.
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Table 2. Federal Revenues
Estimates and Projections for the FY2011 Budget
Revenues
FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020
Billions of current dollars














Historical
2,568
2,524
2,105

CBO
Baseline,
1/2010

2,105 2,175 2,670 2,964 3,218 3,465 3,625 3,814 3,996 4,170 4,352 4,563
President’s
FY2011
Budget,
2/09

2,105 2,165 2,567 2,926 3,188 3,455 3,634 3,887 4,094 4,299 4,507 4,710
President’s
FY2011
Current
Policy
Baseline,
2/2010 2,105 2,213 2,583 2,829 3,033 3,269 3,417 3,648 3,838 4,026 4,215 4,400
President’s
FY2011
BEA
Baseline,
2/2010

2,105 2,231 2,782 3,069 3,308 3,581 3,760 4,018 4,235 4,452 4,671 4,885
Prelim
CBO
Est.
of
Pres.
Budget
3/2010

2,105 2,118 2,461 2,807 3,095 3,341 3,504 3,693 3,869 4,031 4,212 4,417
CBO
Rev.
Baseline
3/2010

2,105 2,177 2,673 2,967 3,221 3,469 3,629 3,818 4,000 4,174 4,355 4,567
As % GDP














Historical
18.5%
17.5%
14.8%

CBO
Baseline,
1/2010


14.8% 14.9% 17.8% 18.8% 19.3% 19.7% 19.7% 19.8% 19.9% 20.0% 20.1% 20.2%
President’s
FY2011
Budget,
2/09


14.8% 14.8% 16.8% 18.1% 18.6% 19.0% 18.9% 19.3% 19.4% 19.5% 19.5% 19.6%
President’s
FY2011
Current
Policy
Baseline,
2/2010
14.8% 15.1% 16.9% 17.5% 17.6% 18.0% 17.8% 18.1% 18.2% 18.2% 18.3% 18.3%
President’s
FY2011
BEA
Baseline,
2/2010


14.8% 15.3% 18.2% 18.9% 19.3% 19.7% 19.6% 19.9% 20.0% 20.2% 20.2% 20.3%
Prelim
CBO
Est.
of
Pres.
Budget
3/2010


14.8% 14.5% 16.4% 17.8% 18.6% 19.0% 19.0% 19.2% 19.3% 19.4% 19.4% 19.6%
CBO
Rev.
Baseline
3/2010


14.8% 14.9% 17.8% 18.9% 19.3% 19.7% 19.7% 19.9% 20.0% 20.0% 20.1% 20.3%
Sources: CBO and OMB
Notes: OMB data are divided by OMB GDP estimates; CBO data by CBO GDP estimates. See source documents and text for additional caveats. “CBO Rev. Baseline
3/2010” data are taken from March 5, 2010, preliminary analysis.

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FY2011 Budget Proposals and Projections

Both CBO and OMB estimate that federal revenues as a share of GDP in FY2010 (14.9%) will
remain roughly the same as in FY2009 (14.8%). The CBO baseline forecast for FY2011 expects
economic recovery to boost federal revenues to 17.8% of GDP. At the end of the 10-year budget
window, federal revenues are projected to be just over one-fifth of GDP (20.2% in FY2020). All
projections shown in Table 2 project that FY2011 revenues will exceed FY2010 revenues due to
the expectation that economic recovery will continue.
Federal Outlays
Outlays and Budget Authority
Many budget documents also report spending in terms of budget authority, which specifies what
federal agencies can legally spend. Budget authority has been compared to funds deposited into a
checking account, which then can be used for specified federal purposes. Congress often sets time
limits on the availability of budget authority, although some accounts contain “no-year” funds
that do not automatically expire. Federal agencies with available budget authority can obligate
funds by signing contracts, hiring employees, or by entering into other binding agreements. Until
the federal government disburses funds to make purchases, however, no outlays occur. Outlays
will not increase until those funds are actually disbursed. Budget authority that is not obligated,
aside from “no-year” funds, expires once the period of availability ends.18
Outlay data are more convenient for assessing the macroeconomic effects of the federal budgets,
while analysts focusing on specific federal programs typically rely on budget authority figures.
Appropriations legislation is generally framed in terms of budget authority, because Congress can
control the amount of funds made available for specific purposes. The timing of federal outlays,
on the other hand, often depends on administrative decisions of federal program officials, made
within bounds set by Congress. This report focuses on outlays, rather than budget authority, in
order to highlight broader effects of the federal budget on the economy.
Federal Outlay Projections
Table 3 summarizes Administration and CBO projections of future federal outlays (i.e., disbursed
federal funds). Federal spending is projected to account for about a quarter of the U.S. economy
in FY2011. In FY2008, federal spending accounted for just over one-fifth (20.9%) of the U.S.
economy, nearly equal to its average share of gross domestic product (GDP) since FY1962.
The Administration’s budget submission calls for FY2011 outlays of $3,834 billion (25.1% of
GDP), $166 billion above the March 2010 CBO baseline. Those baseline projections show
outlays rising from $3,537 billion in FY2010 to $3,668 billion in FY2011. CBO estimates that
outlays under the President’s budget plans would total $3,802 billion in FY2011 and $3,722
billion in FY2012.

18 Expired budget authority is kept on the federal government’s books for five years. After five years, balances are
cancelled and expired accounts are closed. For a detailed description of federal appropriations procedures, see U.S.
Government Accountability Office, Principles of Federal Appropriations Law (known as the “Red Book”), vol. 1,
GAO-04-261SP, January 2004, available at http://www.gao.gov/legal/redbook.html.
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Table 3. Federal Outlays
Estimates and Projections for the FY2011 Budget
Outlays FY2007
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013
FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020
Billions of current dollars














Historical
2,729
2,983
3,518

CBO
Baseline,
1/2010

3,518 3,524 3,650 3,613 3,756 3,940 4,105 4,335 4,521 4,712 5,000 5,250
President’s
FY2011
Budget,
2/09

3,518 3,721 3,834 3,755 3,915 4,161 4,386 4,665 4,872 5,084 5,415 5,713
President’s
FY2011
Current
Policy
Baseline,
2/2010
3,518 3,643 3,728 3,762 3,973 4,203 4,400 4,661 4,879 5,103 5,443 5,746
President’s
FY2011
BEA
Baseline,
2/2010

3,518 3,635 3,694 3,682 3,869 4,077 4,252 4,487 4,680 4,874 5,178 5,443
Prelim
CBO
Est.
of
Pres.
Budget
3/2010

3,518 3,618 3,802 3,722 3,842 4,065 4,297 4,587 4,808 5,032 5,364 5,670
CBO
Rev.
Baseline
3/2010

3,518 3,537 3,668 3,608 3,746 3,931 4,100 4,330 4,520 4,707 4,996 5,250
As % GDP














Historical
19.6%
20.7%
24.7%

CBO
Baseline,
1/2010


24.7% 24.1% 24.3% 23.0% 22.5% 22.4% 22.3% 22.6% 22.6% 22.6% 23.1% 23.3%
President’s
FY2011
Budget,
2/09


24.7% 25.4% 25.1% 23.2% 22.8% 22.9% 22.9% 23.1% 23.1% 23.0% 23.5% 23.7%
President’s
FY2011
Current
Policy
Baseline,
2/2010

24.7% 24.9% 24.4% 23.2% 23.1% 23.1% 22.9% 23.1% 23.1% 23.1% 23.6% 23.9%
President’s
FY2011
BEA
Baseline,
2/2010


24.7% 24.9% 24.1% 22.7% 22.5% 22.4% 22.2% 22.3% 22.1% 22.1% 22.4% 22.6%
Prelim
CBO
Est.
of
Pres.
Budget
3/2010


24.7% 24.8% 25.4% 23.7% 23.0% 23.1% 23.3% 23.9% 24.0% 24.2% 24.8% 25.2%
CBO
Rev.
Baseline
3/2010


24.7% 24.2% 24.5% 22.9% 22.5% 22.3% 22.3% 22.5% 22.6% 22.6% 23.1% 23.3%
Sources: CBO and OMB
Notes: OMB data are divided by OMB GDP estimates; CBO data by CBO GDP estimates. See source documents and text for additional caveats. “CBO Rev. Baseline
3/2010” data are taken from March 5, 2010, preliminary analysis.

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FY2011 Budget Proposals and Projections

Discretionary Outlays
Discretionary spending is provided and controlled through appropriations acts, which fund many
of the activities commonly associated with such federal government functions as running
executive branch agencies, congressional offices and agencies, and international operations of the
government.19 Essentially all spending on federal wages and salaries is discretionary.
Table 4 presents projections of discretionary outlays. While discretionary spending was the
largest category of federal spending until the mid-1970s, mandatory spending in FY2010 (13.3%
of GDP) accounted for about 4% more of GDP than discretionary spending (9.4% of GDP).
Discretionary spending will decline to just 6.7% of GDP in FY2020, according to CBO baseline
projections, which assume that discretionary spending is held constant in inflation-adjusted terms.
Discretionary spending over the next several fiscal years is projected to decrease in inflation-
adjusted terms. The Obama Administration has called for a three-year freeze on non-security
discretionary spending. The Obama Administration essentially defines “security” spending as
funding for the Department of Defense, the Department of Energy’s National Nuclear Security
Administration, the Department of Homeland Security, the Department of Veterans Affairs, the
Department of State, and international food aid programs.20 The Obama Administration has
proposed moving funding for some Pell Grants, which are aimed at post-secondary education
students that meet certain eligibility and financial need requirements, from discretionary spending
to mandatory spending.21
Mandatory Outlays
Mandatory spending includes federal government spending on entitlement programs and the
Supplemental Nutrition Assistance Program (SNAP; formerly Food Stamps) as well as other
budget outlays controlled by laws other than appropriation acts.22 Entitlement programs such as
Social Security and Medicare make up the bulk of mandatory spending. Other mandatory
spending programs include Temporary Assistance for Needy Families (TANF), Supplemental
Security Income (SSI), unemployment insurance, some veterans’ benefits, federal employee
retirement and disability, and the earned income tax credit (EITC).
Table 5 summarizes projections of mandatory outlays. According to March 2010 CBO baseline
estimates, mandatory outlays will total $2,045 billion (13.6% of GDP) in FY2011 and $1,996
billion (12.7% of GDP) in FY2012.



19 For details, see CRS Report RL34424, Trends in Discretionary Spending, by D. Andrew Austin and Mindy R. Levit.
20 See notes for Office of Management and Budget, Budget of the U.S. Government, Table S-11, available at
http://www.whitehouse.gov/omb/budget/fy2011/assets/tables.pdf. The George W. Bush Administration used a different
definition for “security” funding.
21 For details, see CRS Report R41127, The SAFRA Act: Amendments to Education Programs through Budget
Reconciliation in the 111th Congress
, coordinated by Cassandria Dortch.
22 For details, see CRS Report RL33074, Mandatory Spending Since 1962, by D. Andrew Austin and Mindy R. Levit.
Congressional Research Service
9


Table 4. Federal Discretionary Outlays
Estimates and Projections for the FY2011 Budget
Discretionary Outlays
FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020
Billions of current dollars














Historical
1,041
1,135
1,219

CBO
Baseline,
1/2010

1,237 1,371 1,371 1,344 1,346 1,357 1,373 1,402 1,426 1,450 1,486 1,518
President’s
FY2011
Budget,
2/09

1,219 1,408 1,415 1,301 1,267 1,283 1,310 1,337 1,371 1,405 1,442 1,484
President’s
FY2011
Current
Policy
Baseline,
2/2010 1,219 1,397 1,376 1,340 1,343 1,367 1,396 1,425 1,460 1,496 1,534 1,573
President’s
FY2011
BEA
Baseline,
2/2010

1,238 1,424 1,396 1,360 1,364 1,388 1,418 1,447 1,482 1,519 1,557 1,597
Prelim
CBO
Est.
of
Pres.
Budget
3/2010

1,237 1,375 1,401 1,334 1,301 1,303 1,323 1,355 1,381 1,407 1,446 1,487
CBO
Rev.
Baseline
3/2010


1,375 1,369 1,344 1,347 1,358 1,374 1,403 1,427 1,451 1,488 1,519
As % GDP














OMB/Historical/Actual
FY2009
7.6%
7.9%
8.6%

CBO
Baseline,
1/2010

8.7% 9.4% 9.1% 8.5% 8.1% 7.7% 7.5% 7.3% 7.1% 7.0% 6.9% 6.7%
President’s
FY2011
Budget,
2/09

8.6% 9.6% 9.2% 8.0% 7.4% 7.1% 6.8% 6.6% 6.5% 6.4% 6.3% 6.2%
President’s
FY2011
Current
Policy
Baseline,
2/2010 8.6% 9.6% 9.0% 8.3% 7.8% 7.5% 7.3% 7.1% 6.9% 6.8% 6.6% 6.5%
President’s
FY2011
BEA
Baseline,
2/2010

8.7% 9.7% 9.1% 8.4% 7.9% 7.6% 7.4% 7.2% 7.0% 6.9% 6.8% 6.6%
Prelim
CBO
Est.
of
Pres.
Budget
3/2010

8.7% 9.4% 9.3% 8.5% 7.8% 7.4% 7.2% 7.0% 6.9% 6.8% 6.7% 6.6%
CBO
Rev.
Baseline
3/2010


9.4% 9.1% 8.5% 8.1% 7.7% 7.5% 7.3% 7.1% 7.0% 6.9% 6.7%
Sources: CBO and OMB
Notes: OMB does not break out some future disaster spending estimates between mandatory and discretionary spending.
OMB data are divided by OMB GDP estimates; CBO data by CBO GDP estimates. “CBO Rev. Baseline 3/2010” data are taken from March 5, 2010, preliminary analysis.
See source documents and text for additional caveats.

CRS-10


Table 5. Federal Mandatory Outlays
Estimates and Projections for the FY2011 Budget
Mandatory Outlays
FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020
Billions of current dollars














OMB/Historical/Actual
FY2009
1,451
1,848
2,112
CBO
Baseline,
1/2010


2,094 1,946 2,045 1,989 2,077 2,188 2,272 2,414 2,524 2,638 2,838 3,008
President’s
FY2011
Budget,
2/09


2,112 2,123 2,165 2,107 2,208 2,364 2,500 2,696 2,815 2,942 3,182 3,384
President’s
FY2011
Current
Policy
Baseline,
2/2010

2,112 2,057 2,100 2,079 2,191 2,316 2,413 2,579 2,698 2,823 3,060 3,256
President’s
FY2011
BEA
Baseline,
2/2010


2,093 2,023 2,050 1,993 2,101 2,224 2,319 2,483 2,600 2,721 2,951 3,142
Prelim CBO Est. of Pres. Budget 3/2010

2,094
2,034
2,157
2,091
2,176
2,322
2,454
2,636
2,752
2,871
3,084
3,267
CBO
Rev.
Baseline
3/2010



1,930 2,032 1,996 2,091 2,199 2,278 2,416 2,525 2,642 2,842 3,011
As % GDP














OMB/Historical/Actual
FY2009
10.4%
12.8%
14.8%
CBO
Baseline,
1/2010


14.7% 13.3% 13.6% 12.6% 12.5% 12.4% 12.3% 12.6% 12.6% 12.7% 13.1% 13.3%
President’s
FY2011
Budget,
2/09


14.8% 14.5% 14.2% 13.0% 12.9% 13.0% 13.0% 13.4% 13.3% 13.3% 13.8% 14.1%
President’s
FY2011
Current
Policy
Baseline,
2/2010

14.8% 14.1% 13.7% 12.8% 12.8% 12.7% 12.6% 12.8% 12.8% 12.8% 13.3% 13.5%
President’s
FY2011
BEA
Baseline,
2/2010


14.7% 13.8% 13.4% 12.3% 12.2% 12.2% 12.1% 12.3% 12.3% 12.3% 12.8% 13.1%
Prelim
CBO
Est.
of
Pres.
Budget
3/2010


14.7% 13.9% 14.4% 13.3% 13.0% 13.2% 13.3% 13.7% 13.7% 13.8% 14.2% 14.5%
CBO
Rev.
Baseline
3/2010



13.2% 13.6% 12.7% 12.5% 12.5% 12.4% 12.6% 12.6% 12.7% 13.1% 13.4%
Sources: CBO and OMB
Notes: OMB does not break out some future disaster spending estimates between mandatory and discretionary spending.
OMB data are divided by OMB GDP estimates; CBO data by CBO GDP estimates. “CBO Rev. Baseline 3/2010” data are taken from March 5, 2010, preliminary analysis.
See source documents and text for additional caveats.

CRS-11

FY2011 Budget Proposals and Projections

Most of the costs of federal interventions that responded to financial turmoil in 2007 and 2008
were classified as mandatory, which pushed mandatory spending to $2,112 billion (14.8% of
GDP) in FY2009. Stabilization of financial markets is expected to lead to lower mandatory
spending totals in the next few years. Rising entitlement program costs, however, are projected to
lead to significant increases in mandatory spending in later years.
Deficits
Deficits occur when Congress and the President enact policies that cause federal spending to
exceed federal receipts. Deficits increase government debt held by the public, generally
increasing net interest payments. Surpluses occur when federal receipts exceed outlays, which
reduces federal debt held by the public.23 This can, in turn, reduce net interest payments.
Governments run deficits for several reasons. By running short-run deficits, governments can
avoid raising taxes during economic downturns, helping households to smooth consumption over
time. Running deficits can stimulate aggregate demand in the economy, giving policy makers a
valuable fiscal policy tool that can help support macroeconomic stability. Long-run deficits allow
transfers of economic resources from younger to older generations, enabling older generations to
enjoy anticipated benefits of future economic growth, but also may be used to impose large
burdens on future generations.24
Deficits can seriously harm national economies. Governments can spend more than they collect in
revenues by printing money, which can cause inflation, or by borrowing. In the short run, fiscal
overstimulation leads to inflation. In the long term, deficits either reduce capital investment,
which retards economic growth, or increase foreign borrowing, which swells the share of national
income going abroad. In the long run, governments that fail to repay borrowers, at least to the
extent of stabilizing the ratio of government debt to gross domestic product, risk default and
bankruptcy.
Table 6 summarizes Administration and CBO projections of total federal deficits. Long-term
CBO and OMB projections both show substantial increases in budget deficits in the years after
FY2020.25 These deficits result from a projected gap between rising federal outlays and revenues.
The growth of health care spending, as well as demographic changes, plays an important part of
those fiscal trends. The federal government last ran a surplus in FY2001, which amounted to
$128 billion or 1.3% of GDP.



23 Very small surpluses might not reduce debt held by the public in some circumstances. In recent years, major
financial interventions, such as the conservatorships of Fannie Mae and Freddie Mac, have led to increases in federal
indebtedness that do not match federal deficits.
24 See CRS Report RL33657, Running Deficits: Positives and Pitfalls, by D. Andrew Austin.
25 U.S. Congress, Congressional Budget Office, The Long-Term Budget Outlook, June 2009, available at
http://www.cbo.gov/doc.cfm?index=10297.
Congressional Research Service
12


Table 6. Total Deficits
Estimates and Projections for the FY2011 Budget
Total Deficits
FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020
Billions of current dollars














OMB/Historical/Actual
FY2009
-161
-459
-1,413

CBO
Baseline,
1/2010



-1,349 -980 -650 -539 -475 -480 -521 -525 -542 -649 -687
President’s
FY2011
Budget,
2/09



-1,556
-1,267 -828 -727 -706 -752 -778 -778 -785 -908 -1,003
President’s FY2011 Current Policy Baseline, 2/2010


-1,430 -1,145
-934
-940
-934
-983
-1,013 -1,042 -1,077 -1,227 -1,346
President’s FY2011 BEA Baseline, 2/2010


-1,404
-912
-613
-561
-495
-492
-469
-445
-421
-507
-557
Prelim CBO Est. of Pres. Budget 3/2010


-1,500 -1,341
-915
-747
-724
-793
-894
-940
-1,001 -1,152 -1,253
CBO
Rev.
Baseline
3/2010



-1,360 -995 -641 -525 -462 -471 -512 -520 -533 -640 -683
As % GDP














OMB/Historical/Actual
FY2009
-1.2%
-3.2%
-9.9%
CBO
Baseline,
1/2010



-9.2% -6.5% -4.1% -3.2% -2.7% -2.6% -2.7% -2.6% -2.6% -3.0% -3.0%
President’s
FY2011
Budget,
2/09



-10.6% -8.3% -5.1% -4.2% -3.9% -3.9% -3.9% -3.7% -3.6% -3.9% -4.2%
President’s FY2011 Current Policy Baseline, 2/2010


-10.6% -8.3%
-5.1%
-4.2%
-3.9%
-3.9%
-3.9%
-3.7%
-3.6%
-3.9%
-4.2%
President’s FY2011 BEA Baseline, 2/2010


-10.6% -8.3%
-5.1%
-4.2%
-3.9%
-3.9%
-3.9%
-3.7%
-3.6%
-3.9%
-4.2%
Prelim CBO Est. of Pres. Budget 3/2010


-10.3% -8.9%
-5.8%
-4.5%
-4.1%
-4.3%
-4.7%
-4.7%
-4.8%
-5.3%
-5.6%
CBO
Rev.
Baseline
3/2010



-9.3% -6.6% -4.1% -3.1% -2.6% -2.6% -2.7% -2.6% -2.6% -3.0% -3.0%
Sources: CBO and OMB
Notes: OMB data are divided by OMB GDP estimates; CBO data by CBO GDP estimates. “CBO Rev. Baseline 3/2010” data are taken from March 5, 2010, preliminary
analysis. See source documents and text for additional caveats.

CRS-13

FY2011 Budget Proposals and Projections

On-Budget Deficits and Off-Budget Surpluses
The total federal deficit (or surplus) is the sum of the off-budget and on-budget deficits or
surpluses. The U.S. Postal Service net profits or losses and Social Security revenues net of
beneficiary payments are by law considered off-budget entities.
Table 7 summarizes projections of on-budget deficits. The on-budget deficit is estimated to
decline to $1,076 billion (7.2% of GDP) in FY2011 according to CBO March 2010 baseline
projections. None of the projections show an on-budget surplus within the next 5 or 10 years.
Table 8 summarizes projections of off-budget surpluses, which mainly comprise Social Security
surpluses. Since FY1985, Social Security surpluses have led to off-budget surpluses, which has
reduced the size of the total deficit. High unemployment rates and other effects of economic
recession have lowered inflows of payroll taxes, pushing off-budget surpluses below previously
expected levels.

Congressional Research Service
14


Table 7. On-Budget Deficits
Estimates and Projections for the FY2010 Budget
On-Budget Deficits
FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020
Billions of current dollars














OMB/Historical/Actual
FY2009
-342
-638
-1,550

CBO
Baseline,
1/2010



-1,434
-1,076 -757 -659 -608 -619 -659 -659 -669 -765 -793
President’s FY2011 Budget, 2/09



-1,634 -1,363
-949
-863
-852
-910
-952
-952
-959
-1,075 -1,153
President’s
FY2011
Current
Policy
Baseline,
2/2010


-1,508 -1,241 -1,054 -1,074 -1,080 -1,139 -1,183 -1,209 -1,243 -1,385 -1,486
President’s FY2011 BEA Baseline, 2/2010


-1,482 -1,008
-733
-695
-642
-648
-640
-613
-588
-665
-698
Prelim CBO Est. of Pres. Budget 3/2010


-1,585 -1,435 -1,020
-865
-854
-931
-1,033 -1,076 -1,131 -1,273 -1,365
As % GDP














OMB/Historical/Actual
FY2009
-2.5%
-4.4%
-10.9%

CBO
Baseline,
1/2010



-9.8% -7.2% -4.8% -4.0% -3.5% -3.4% -3.4% -3.3% -3.2% -3.5% -3.5%
President’s
FY2011
Budget,
2/09



-11.2% -8.9% -5.9% -5.0% -4.7% -4.7% -4.7% -4.5% -4.3% -4.7% -4.8%
President’s FY2011 Current Policy Baseline, 2/2010


-10.3% -8.1%
-6.5%
-6.3%
-5.9%
-5.9%
-5.9%
-5.7%
-5.6%
-6.0%
-6.2%
President’s FY2011 BEA Baseline, 2/2010


-10.1% -6.6%
-4.5%
-4.0%
-3.5%
-3.4%
-3.2%
-2.9%
-2.7%
-2.9%
-2.9%
Prelim CBO Est. of Pres. Budget 3/2010


-10.9% -9.6%
-6.5%
-5.2%
-4.8%
-5.1%
-5.4%
-5.4%
-5.4%
-5.9%
-6.1%
Sources: CBO and OMB
Notes: OMB data are divided by OMB GDP estimates; CBO data by CBO GDP estimates. “CBO Rev. Baseline 3/2010” data are taken from March 5, 2010, preliminary
analysis. See source documents and text for additional caveats.

CRS-15


Table 8. Off-Budget Surplus
Estimates and Projections for the FY2011 Budget
Off-Budget Deficit/Surplus
FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020
Billions of current dollars














OMB/Historical/Actual
FY2009
181
183
137
CBO
Baseline,
1/2010



86 96 108 120 133 139 138 134 127 116 107
President’s
FY2011
Budget,
2/09



78 96 120 136 146 158 175 174 174 167 151
President’s
FY2011
Current
Policy
Baseline,
2/2010


78 96 120 135 147 156 170 168 166 157 140
President’s
FY2011
BEA
Baseline,
2/2010



78 96 121 135 147 156 170 168 166 158 140
Prelim CBO Est. of Pres. Budget 3/2010


85
93
105
118
130
138
139
136
130
121
112
As % GDP














OMB/Historical/Actual
FY2009
1.3%
1.3%
1.0%
CBO
Baseline,
1/2010



0.6% 0.6% 0.7% 0.7% 0.8% 0.8% 0.7% 0.7% 0.6% 0.5% 0.5%
President’s
FY2011
Budget,
2/09



0.5% 0.6% 0.7% 0.8% 0.8% 0.8% 0.9% 0.8% 0.8% 0.7% 0.6%
President’s
FY2011
Current
Policy
Baseline,
2/2010


0.5% 0.6% 0.7% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.7% 0.6%
President’s
FY2011
BEA
Baseline,
2/2010



0.5% 0.6% 0.7% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.7% 0.6%
Prelim CBO Est. of Pres. Budget 3/2010


0.5%
0.6%
0.8%
0.8%
0.8%
0.8%
0.9%
0.8%
0.8%
0.7%
0.6%
Sources: CBO and OMB
Notes: OMB data are divided by OMB GDP estimates; CBO data by CBO GDP estimates. “CBO Rev. Baseline 3/2010” data are taken from March 5, 2010, preliminary
analysis. See source documents and text for additional caveats.

CRS-16

FY2011 Budget Proposals and Projections

Federal Debt
Gross federal debt is the sum of debt held by the public and intragovernmental (IG) debt.26 IG
debt is the amount owed by the federal government to other federal agencies, which the U.S.
Treasury is obligated to pay at some future time. The Social Security and Medicare trust funds,
which by law must be invested in federal securities, are the largest components of IG debt.27 IG
debt also includes dozens of other federal trust funds.28
Debt held by the public is the total amount the federal government has borrowed from the public
and remains outstanding. This measure is generally considered to be the most relevant in
macroeconomic terms because it is the amount of debt sold in credit markets. Table 9 shows
various projections of debt held by the public.
Congress sets a ceiling on federal debt, which was raised twice in 2009 and once in early 2010.
On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (H.R. 1, P.L. 111-
5) increased the debt limit to $12,104 billion.29
The FY2010 budget resolution (S.Con.Res. 13) recommended policies that would lead to a debt
subject to limit of $13,233 billion at the end of FY2010, a level that would require an increase in
the statutory debt limit. The House’s adoption of the conference report on the FY2010 budget
resolution (S.Con.Res. 13) on April 29, 2009, triggered the automatic passage of H.J.Res. 45 to
raise the debt limit to $13.029 trillion. In August 2009, Treasury reportedly said that the debt limit
would be reached in mid-October, although it later stated that the limit would not be reached until
mid or late December 2009. H.R. 4314, passed by the House on December 16, 2009, and by the
Senate on December 24, raised the debt limit to $12.394 trillion when the President signed the
measure (P.L. 111-123) on December 28. On January 28, the Senate passed an amended version
of H.J.Res. 45, which the House passed on February 4 and the President signed on February 12
(P.L. 111-139), raising the federal debt limit to $14.294 trillion.
Federal debt held by the public rose sharply from 40.8% of GDP at the end of FY2008 to 53.0%
at the end of FY2010.30 That ratio, according to the March 2010 CBO baseline, is projected to
rise to 65.7% at the end of FY2011. CBO’s analysis of the President’s FY2011 budget proposals
suggests that ratio would reach 84.3% of GDP at the end of FY2020.

26 Gross federal debt is also referred to as total debt or total public debt outstanding. Intragovernmental debt is also
referred to as intragovernmental holdings or debt held by federal government accounts.
27 U.S. Executive Office of the President, Office of Management and Budget, Budget of the U.S. Government, Fiscal
Year 2009
, Analytical Perspectives, February 2008, p. 408.
28 Eric M. Patashinik, Putting Trust in the U.S. Budget: Federal Trust Funds and the Politics of Commitment
(Cambridge, UK: Cambridge, 2000).
29 See CRS Report RL31967, The Debt Limit: History and Recent Increases, by D. Andrew Austin and Mindy R. Levit.
30 U.S. Congress, Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2010 to 2020,
January 2010, available at http://www.cbo.gov/ftpdocs/108xx/doc10871/01-26-Outlook.pdf.
Congressional Research Service
17


Table 9. Debt Held by the Public at End of Fiscal Year
Estimates and Projections for the FY2011 Budget
Debt Held By the Public
FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020
Billions of current dollars














OMB/Historical/Actual
FY2009 5,035
5,803
7,545
CBO
Baseline,
1/2010



8,797 9,785 10,479 11,056 11,556 12,055 12,595 13,133 13,678 14,329 15,027
President’s
FY2011
Budget,
2/09



9,298 10,498 11,472 12,326 13,139 13,988 14,833 15,686 16,535 17,502 18,573
Prelim CBO Est. of Pres. Budget 3/2010



9,221 10,510 11,578 12,467 13,329 14,256 15,297 16,396 17,558 18,875 20,298
CBO
Rev.
Baseline
3/2010



9,012 9,853 10,541 11,102 11,595 12,092 12,641 13,209 13,790 14,479 15,211
As % GDP














OMB/Historical/Actual
FY2009 36.2%
40.2%
53.0%
CBO
Baseline,
1/2010



60.3% 65.3% 66.6% 66.3% 65.6% 65.4% 65.5% 65.5% 65.7% 66.1% 66.7%
President’s
FY2011
Budget,
2/09



63.6% 68.6% 70.8% 71.7% 72.2% 72.9% 73.6% 74.2% 74.9% 75.9% 77.2%
Prelim
CBO
Est.
of
Pres.
Budget
3/2010


63.1% 68.7% 71.5% 72.6% 73.3% 74.3% 75.9% 77.6% 79.5% 81.8% 84.3%
CBO
Rev.
Baseline
3/2010



61.7% 65.7% 67.0% 66.6% 65.9% 65.6% 65.8% 65.9% 66.2% 66.8% 67.5%
Sources: CBO and OMB
Notes: OMB data are divided by OMB GDP estimates; CBO data by CBO GDP estimates. “CBO Rev. Baseline 3/2010” data are taken from March 5, 2010, preliminary
analysis. See source documents and text for additional caveats.
CRS-18


Table 10. Economic Projections: Gross Domestic Product (GDP)
Billions of Current Dollars
Gross Domestic Product
FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020
OMB/Historical/Actual
FY2009
13,896 14,439 14,237 14,624 15,299 16,203 17,182 18,193 19,190 20,163 21,136 22,087 23,065 24,067
CBO
Baseline,
1/2010


14,236 14,595 14,992 15,730 16,676 17,606 18,421 19,223 20,036 20,823 21,667 22,544
CBO
Rev.
Baseline
3/2010


14,236 14,595 14,992 15,730 16,676 17,606 18,421 19,223 20,036 20,823 21,667 22,544
Sources: CBO and OMB
Notes: OMB data are divided by OMB GDP estimates; CBO data by CBO GDP estimates. “CBO Rev. Baseline 3/2010” data are taken from March 5, 2010, preliminary
analysis. See source documents and text for additional caveats.
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Economic Projections and Economic Recovery
Budget projections of the Administration and CBO are strongly influenced by expectations of the
future health of the U.S. economy. The recent economic recession has also highlighted links
between the federal budget and the economy. Budgetary projections for FY2011 and beyond
depend in large part on how robust economic recovery is expected to be. The timing and strength
of the economic recovery from the current recession will likely have major effects on the federal
budget. In particular, changes in the expected path of the U.S. economy would affect future
revisions of CBO baseline estimates of federal outlays and revenues. On the one hand, a faster-
than-expected recovery would imply projections for higher federal revenues and lower outlays on
certain “automatic stabilizer” programs whose spending increases when household incomes fall,
which would lead to lower baseline projections of federal deficits. On the other hand, a slower or
weaker-than-expected recovery would tend to increase projected federal deficits.
The current economic recession has been much deeper than many economic forecasters
anticipated in 2007 and 2008. For instance, the U.S. economy contracted at an annual rate of
5.4% in the last quarter of 2008 and 6.4% in the first quarter of 2009, according to Commerce
Department estimates, a sharper decline than many economists had expected. Estimates for the
fourth quarter of 2009, which put annualized GDP growth at 5.9%, may signal an end of the
economic recession.31
Some economic forecasters remain concerned about the medium-term strength of the economy
for several reasons. State and local governments still face daunting fiscal problems, and many
have exhausted rainy-day funds that cushioned them at the beginning of the recession. Interest-
sensitive industries such as housing construction and automobile manufacturing that have helped
spark past economic recoveries are considered unlikely to help economic recovery much in the
near future. Many households are carrying high debt loads relative to historical levels and have
suffered significant capital losses in housing and other investment, which may dampen private
consumption for some time. Foreclosure rates are expected to continue at high levels, and
concerns about the commercial real estate sector lead some to worry about the solvency of banks
with substantial exposure to that sector. Finally, the financial services sector may face continuing
challenges in coming years. For these reasons, many economists expect recovery from this
recession to be more gradual than the economic rebound after shallower recessions in the past
two decades.
Most economists expect unemployment rates to remain elevated for the medium term.
Unemployment rates have risen dramatically, reportedly much more than Administration and
private-sector economists expected in early 2009.32 Unemployment rates are typically a lagging
indicator, meaning that unemployment rates during recessions have stayed high even as other
indicators of economic activity have showed signs of recovery. CBO estimates that the

31 U.S. Department of Commerce, Bureau of Economic Analysis, “Gross Domestic Product: Fourth Quarter 2009 (2nd
Estimate),” press release BEA 10-05, February 26, 2010, available at http://bea.gov/newsreleases/national/gdp/2010/
pdf/gdp4q09_2nd.pdf.
32 David Leonhardt, “A Forecast With Hope Built In,” New York Times, July 1, 2009, p. B1.
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unemployment rate will peak in early 2010 at just over 10% and will decline only to 9.5% in
FY2011.33
Forecasting turning points in economic trends, however, is difficult for technical and substantial
reasons that are discussed in the next section. Table 10 presents forecasts of gross domestic
product (GDP), which measures the size of the economy.
Issues Regarding Budget Projections
Budget projections depend on models that reflect assumptions about the structure of the economy,
expected tax and program changes, and how these interact, along with other factors that affect the
budget. Changed economic conditions, such as faster or slower economic growth, higher or lower
inflation, or new spending and tax policies, affect budget estimates and projections. In addition,
technical components of the budget models may change as the structure of the economy evolves
and as econometric techniques advance. In particular, major recessions can alter the structure of
an economy in significant ways, making models based on historical data less reliable.
Budget forecasts, unlike most other types of economic forecasts, are constructed in order to
estimate the incremental costs of policy changes (i.e., scoring) in a consistent manner. If policy
changes do occur, actual budget outcomes will then differ from baseline estimates. Technical
factors and changes in economic conditions also affect budget forecasts. In recent years, OMB
and CBO have provided information about how past forecasts have varied from actual results.
CBO has analyzed the track record of its budget estimates extensively and now routinely includes
information about its forecast record of baseline projections in its budget publications.34 CBO
also provides detailed explanations of why its projections differ from OMB projections.35 CBO
routinely provides a breakdown of economic, legislative, and technical factors responsible for
divergences between past forecasts and actual outcomes.
Making accurate budget projections is inherently difficult. Reliable forecasting depends on the
stability of trends. Some trends, such as population demographics, are highly predictable. For
instance, many baby boomers will retire in the next decade, leading to higher spending for
Medicare and Social Security. Estimating the growth in the beneficiary populations eligible for
these programs is relatively straightforward. Budget estimates also depend on factors that are
difficult to predict, such as future productivity growth and business cycles. Some factors that
affect federal revenues, such as financial market trends, can be extremely volatile.
Making budget estimates and projections for the FY2011 budget cycle is especially challenging
for several reasons. The economy is starting to recover from a painful recession that differs from
recent downturns in important ways. The economy could emerge from the recession transformed
in ways that may take time to understand fully. Continuing turmoil in financial markets makes
forecasting interest rates, which affect the costs of many federal programs and debt servicing,

33 U.S. Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2010 to 2020, January 26, 2010.
34 U.S. Congress, Congressional Budget Office, “The Uncertainty of Budget Projections: A Discussion of Data and
Methods
,” March 2006.
35 U.S. Congress, Congressional Budget Office, “Comparing Budget and Accounting Measures of the Federal
Government’s Fiscal Condition
,” December 2006.
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difficult. Forecasting economic recoveries, even for milder downturns, is difficult. The Obama
Administration has proposed major program initiatives in many policy areas. Estimating the
budgetary effects of major changes is more difficult than estimating effects of incremental
changes.
Even in less tumultuous times, small changes in projected economic growth trajectories can lead
to large budgetary consequences, especially for longer time horizons. Small changes in economic
conditions, such as GDP growth, can produce large changes in the budget estimates. According to
CBO estimates, a persistent 0.1% decrease in the real GDP growth rate would increase a deficit,
including interest costs, by $61 billion cumulatively over a five-year period and by $273 billion
over 10 years. Faster GDP growth would decrease deficits.36
Accuracy and Statistical Bias in Budget Forecasts
Budget projections are inherently uncertain. Two measures of the quality of economic forecasts
are statistical unbiasedness and accuracy. Statistical unbiasedness means that average forecast
errors over time are close to zero. An unbiased forecasting method may be of little use if forecast
errors are large. Accuracy means that forecast errors are small, meaning that outcomes are close
to predictions. Some forecasting methods may sacrifice unbiasedness in order to gain greater
accuracy. 37 Most forecasters, as far as possible, strive to make projections that are both unbiased
and accurate.
Presidential budget requests in recent years have included measures that can be used to assess the
accuracy and statistical bias of previous forecasts.38 Forecasts diverge from actual results because
of legislative changes, unforeseen economic factors, and other factors. Current-law baseline
projections will diverge from actual results when laws change, either expanding, constricting, or
eliminating current programs, or by creating new programs. Projections that presume a
president’s policy proposals are enacted diverge from actual results if those policies are not
enacted as proposed.
Since FY1982, OMB February deficit projections for the upcoming budget year underestimated
the total deficit by $55 billion. Changes in legislation accounted for most of that divergence. The
standard deviation of Administration budget year deficit/surplus estimates was $233 billion for
the same period FY1982-FY2009.39 A standard deviation measures the average size of forecast
errors. The standard deviation for the corresponding four-years-ahead forecast was $343 billion.
The accuracy of forecasts generally declines as the forecast window extends to later years
because more policy and economic changes can occur in the interim.

36 Slower economic growth would also reduce a budget surplus.
37 There may be a tradeoff between statistical unbiasedness and accuracy because some statistically biased methods
may generate forecasts with greater accuracy. Also, other properties of forecasts may be important, such as predicting
turning points in economic trends. For a nontechnical discussion of economic forecasting, see Peter Kennedy, A Guide
to Econometrics
, 3rd ed., Boston: MIT Press, 1992, ch. 17, pp. 268-277.
38 Office of Management and Budget, Budget of the U.S. Government: Analytical Perspectives, FY2011, ch. 29,
“Comparison of Actual to Estimated Totals,” available at http://www.whitehouse.gov/omb/budget/fy2011/assets/
technical_analyses.pdf.
39 CRS calculation based on OMB data.
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OMB used its standard deviation estimate to compute upper and lower bounds for deficit
projections.40 In the FY2011 budget submission, OMB estimated the FY2015 federal deficit
would be 3.9% of GDP, with an upper bound of 10.4% of GDP and a lower bound of a 2.6%
surplus.41 If the statistical assumptions underlying that calculation were valid, the actual FY2015
deficit should fall within the upper and lower bounds with a 90% probability. The spread between
the upper and lower bounds indicates the estimated precision of the five-years-ahead deficit
forecast.

Author Contact Information

D. Andrew Austin

Analyst in Economic Policy
aaustin@crs.loc.gov, 7-6552



40 The upper and lower bounds were computed assuming that forecast errors for different years are statistically
independent and are normally distributed.
41 Office of Management and Budget, Budget of the U.S. Government: Analytical Perspectives, FY2011,” ch. 3,
“Interactions between the Economy and the Budget,” p. 23, available at http://www.whitehouse.gov/omb/budget/
fy2011/assets/econ_analyses.pdf.
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