FY2011 Budget Proposals and Projections

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R41147

CRS Report for Congress

Prepared 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 usually begins once the Administration submits its budget to

Congress. The Senate Budget Committee passed a version of a budget resolution (S.Con.Res. 60)

in April, and the House adopted a deeming resolution (H.Res. 1500; H.Res. 1493) in July.

The current economic climate continues to pose 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. While the U.S. economy grew at an annual rate of 5.0% in

the last quarter of 2009 in inflation-adjusted terms, after falling sharply in the last quarter of 2008

and the first quarter of 2009, annualized growth was 3.7% in the first quarter of 2010 and 1.6% in

the second quarter. The national unemployment rate stood at 9.5% in July 2010 and 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. OMB issued updated budget projections in July 2010, and CBO

issued a budget baseline update in August 2010.

Federal spending tied to means-tested social programs has risen 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. Estimated costs of federal interventions in

financial markets have fallen since late 2008 and early 2009, although fiscal risks associated with

mortgage giants Fannie Mae and Freddie Mac remain. Federal deficits, according to OMB and

CBO projections, will likely remain high relative to historic norms over the next few years. Longrun 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. The Administration’s Mid Session Review, released on July 23, 2010,

estimated that FY2010 revenues would be $33 billion lower, outlays would be $118 billion lower,

and deficits would be $84 billion lower than estimates issued in February. CBO issued updated

estimates on August 19, 2010.

This report will be updated as warranted.

Congressional Research Service

FY2011 Budget Proposals and Projections

Contents

Overview of the FY2011 Budget Cycle .......................................................................................1

Economic Conditions Present Continuing Budget Challenges................................................1

FY2011 Budget Submission ..................................................................................................2

Budget Estimates, Proposals, and Projections ..............................................................................3

Projections of Federal Revenues..................................................................................................5

Federal Outlays......................................................................................................................... 10

Outlays and Budget Authority ............................................................................................. 10

Federal Outlay Projections .................................................................................................. 10

Discretionary Outlays.......................................................................................................... 13

Mandatory Outlays.............................................................................................................. 14

Deficits ..................................................................................................................................... 19

On-Budget Deficits and Off-Budget Surpluses .................................................................... 22

Federal Debt ............................................................................................................................. 27

Economic Projections and Economic Recovery ......................................................................... 31

Issues Regarding Budget Projections......................................................................................... 32

Accuracy and Statistical Bias in Budget Forecasts ............................................................... 33

Tables

Table 1. Budget Estimates and Proposals for FY2011 ..................................................................6

Table 2. Federal Revenues...........................................................................................................8

Table 3. Federal Outlays............................................................................................................ 11

Table 4. Administration Estimates of Expected Costs of Future Federal Costs of Disaster

Assistance.............................................................................................................................. 13

Table 5. Federal Discretionary Outlays ...................................................................................... 15

Table 6. Federal Mandatory Outlays .......................................................................................... 17

Table 7. Total Deficits ............................................................................................................... 20

Table 8. On-Budget Deficits ...................................................................................................... 23

Table 9. Off-Budget Surplus...................................................................................................... 25

Table 10. Debt Held by the Public at End of Fiscal Year ............................................................ 28

Table 11. Economic Projections: Gross Domestic Product (GDP) .............................................. 30

Contacts

Author Contact Information ...................................................................................................... 34

Congressional Research Service

FY2011 Budget Proposals and Projections

he federal budget outlines spending levels for government programs and how that

spending will be funded, reflecting the policy priorities of Congress and the 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

Economic Conditions Present Continuing Budget Challenges

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 real (i.e., inflation-adjusted) rate of 6.8% in the last quarter of

2008, the biggest fall since 1982, followed by a 4.9% fall in annual-rate terms in the first quarter

of 2009. While real GDP grew at an estimated annual rate of 5.0% in the fourth quarter of 2009,

perhaps signaling the end of the recession, growth in 2010 has been slow relative to many other

economic recoveries.3 Estimates put real annualized growth in the first quarter of 2010 at 3.7%

and only 1.6% for the second quarter.4 While financial markets by mid-2009 have stabilized

significantly, the chairman of the Federal Reserve Board recently described the state of the

economy as “unusually uncertain.”5 While the economy is showing some signs of recovery, the

national unemployment rate, which was 9.5% in July 2010, is projected to decline slowly.6 CBO

estimates that the national unemployment rate will not recede to the 5% level until 2014.7 Some

economists have become increasingly worried about the possibility of a “double-dip” recession,

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.

For an overview of federal budgetary issues, see CRS Report R41097, The FY2011 Federal Budget, by (name red

acted).

U.S. Department of Commerce, Bureau of Economic Analysis, “Gross Domestic Product: Second Quarter 2010 (2nd

Estimate),” press release BEA 10-41, August 27, 2010, available at http://www.bea.gov/newsreleases/national/gdp/

2010/pdf/gdp2q10_2nd.pdf.

Ibid.

Testimony of Benjamin S. Bernanke, Chairman of the Federal Reserve Board, in U.S. Congress, Senate Committee

on Banking, Housing, and Urban Affairs, “Semiannual Monetary Policy Report to the Congress,” hearings, 111th

Cong., 2nd sess., July 21, 2010, available at http://www.federalreserve.gov/newsevents/testimony/

bernanke20100721a.htm.

U.S. Department of Labor, Bureau of Labor Statistics, “The Employment Situation: July 2010,” press release USDL10-1076, August 6, 2010, available at http://www.bls.gov/news.release/pdf/empsit.pdf.

U.S. Congressional Budget Office, The Budget and Economic Outlook: An Update, August 19, 2010, p. 1, available at

http://www.cbo.gov/doc.cfm?index=11705.

Congressional Research Service

FY2011 Budget Proposals and Projections

which would complicate existing budgetary challenges, although many forecasters do not predict

a “double-dip.”

Federal spending tied to means-tested social programs has risen due to elevated levels of

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. CBO estimated in August 2010 that federal

revenues will stabilize in FY2010, increasing from $2,105 billion in FY2009 (14.8% of GDP) to

$2,143 billion in FY2010 (14.6% of GDP), and are projected to rebound somewhat in FY2011 to

$2,648 billion (17.5% of GDP).8 Federal deficits, however, will likely be high relative to historic

norms in FY2011, according to OMB and CBO projections. While federal deficits, according to

CBO current-law baseline projections, will fall to 2.5% of GDP in FY2014, many budget experts

consider the baseline assumptions, which were set in budget enforcement legislation, overly

optimistic (see discussion in next section for details). In the later years of the current 10-year

baseline budget window, federal deficits are projected to rebound, in large part due to the

retirement of baby boomers and rising health care costs.

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

manufacturers. Furthermore, the federal government could face new fiscal challenges if economic

recovery falters or if financial turmoil reemerges.

FY2011 Budget Submission

The Obama Administration released its FY2011 budget submission on February 1, 2010.9 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. The Mid Session Review was released on

July 23, 2010.

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.”10 The commission is slated to issue a

report on December 1.

U.S. Congressional Budget Office, The Budget and Economic Outlook: An Update, August 19, 2010, Table 1-2,

available at http://www.cbo.gov/doc.cfm?index=11705.

The Obama Administration’s FY2011 budget submission materials are available at http://www.whitehouse.gov/omb/

budget/.

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.

Congressional Research Service

FY2011 Budget Proposals and Projections

On April 22, the Senate Budget Committee passed its FY2011 budget resolution (S.Con.Res. 60).

As of the date of this report, however, neither the House nor the Senate had agreed to a budget

resolution. On July 1, 2010, the House, by adopting H.Res. 1500, was considered to have agreed

to a “deeming” resolution (H.Res. 1493), which serves some of the purposes of a budget

resolution. In particular, deeming resolutions provide a basis for ongoing budget enforcement.11

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.12

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);13

•

the existing “patch” to the alternative minimum tax (AMT), which currently

applies to tax year 2009, would lapse;14

See CRS Report RL31443, The “Deeming Resolution”: A Budget Enforcement Tool, by (name redacted). For one

interpretation of the budgetary implications of H.Res. 1493, see U.S. Senate Budget Committee (Minority), “Budget

Perspective: The House ‘Enforcement Resolution,’” press release, July 14, 2010, available at http://budget.senate.gov/

republican/pressarchive/2010-07-14BudgetPerspective.pdf.

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.

See CRS Report R41111, Expiration and Extension of the Individual Income Tax Cuts First Enacted in 2001 and

2003: Background and Analysis, by (name redacted).

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 (name redacted).

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FY2011 Budget Proposals and Projections

•

emergency unemployment benefits will not be extended;15 and

•

cuts scheduled for Medicare physician services (Part B) as a result of

“sustainable growth rate” calculations will not be delayed or cancelled. 16

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.17

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. 18

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 FY2020.19 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. 20 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

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. 21

CBO issued a more detailed analysis on March 24, which incorporated legislative changes made

For details, see CRS Report RS22915, Temporary Extension of Unemployment Benefits: Emergency Unemployment

Compensation (EUC08), by (name redacted), (name redacted), and (name redacted).

For details, see CRS Report R40907, Medicare Physician Payment Updates and the Sustainable Growth Rate (SGR)

System, by (name redacted).

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.

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.

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.”

Ibid., Table 1-5.

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

(continued...)

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FY2011 Budget Proposals and Projections

before mid-March 2010, although the projections of budget aggregates were only slightly

changed. 22 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 11. 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).23

(...continued)

blog, available at http://cboblog.cbo.gov/?p=482.

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.

CRS Report R40444, State Children’s Health Insurance Program (CHIP): A Brief Overview, by (name redacted), (name

redacted), and (name redacted).

Congressional Research Service

Table 1. Budget Estimates and Proposals for FY2011

Deficits

Mandatory

Outlays

Total

On-Budget

Debt Held

by the

Public

Revenues

Outlays

Discretionary

Outlays

CBO Baseline, 1/2010

2,670

3,650

1,371

2,045

-980

-1,076

9,785

President’s FY2011 Budget, 2/09

2,567

3,834

1,415

2,165

-1,267

-1,363

10,498

OMB FY2011 Current Policy Baseline, 2/2010

2,583

3,728

1,376

2,100

-1,145

-1,241

OMB FY2011 BEA Baseline, 2/2010

2,782

3,694

1,396

2,050

-912

-1,008

Prelim CBO Est. of Pres. Budget 3/2010

2,461

3,802

1,401

2,157

-1,341

-1,435

10,510

CBO Est. of Pres. Budget 3/24/2010

2,460

3,802

1,401

2,156

-1,342

-1,435

10,512

CBO Rev. Baseline 3/2010

2,673

3,668

1,373

2,058

-995

-1,089

9,853

CBO Rev. Baseline 3/24/2010

2,673

3,668

1,373

2,058

-996

-1,089

9,862

Budget Resolution - S Budget 4/2010

2,511

3,770

1,413

2,116

-1,260

-1,353

10,173

President’s FY2011 Budget, MSR 7/2010

2,426

3,842

1,433

2,186

-1,416

-1,495

10,550

OMB FY2011 Current Policy Baseline, 7/2010

2,478

3,711

1,394

2,094

-1,233

-1,312

OMB FY2011 BEA Baseline, 7/2010

2,682

3,694

1,419

2,055

-1,012

-1,091

CBO Rev. Baseline 8/2010

2,648

3,714

1,404

2,085

-1,066

-1,154

Off-Budget

Billions of Current Dollars

10,007

As % GDP

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%

OMB FY2011 Current Policy Baseline, 2/2010

16.9%

24.4%

9.0%

13.7%

-8.3%

-8.1%

0.6%

OMB 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 Est. of Pres. Budget 3/24/2010

16.4%

25.4%

9.3%

14.4%

-8.9%

-9.6%

0.6%

70.1%

CBO Rev. Baseline 3/2010

17.8%

24.5%

9.2%

13.7%

-6.6%

-7.3%

0.6%

65.7%

CRS-6

Deficits

Revenues

Outlays

Discretionary

Outlays

Mandatory

Outlays

Total

On-Budget

Off-Budget

Debt Held

by the

Public

CBO Rev. Baseline 3/24/2010

17.8%

24.5%

9.2%

13.7%

-6.6%

-7.3%

0.6%

65.8%

Budget Resolution - S Budget 4/2010

16.6%

24.9%

9.5%

14.0%

-8.3%

-9.9%

0.6%

67.9%

President’s FY2011 Budget, MSR 7/2010

16.4%

25.4%

9.3%

14.4%

-9.3%

-8.9%

0.5%

69.6%

OMB FY2011 Current Policy Baseline, 7/2010

17.7%

24.5%

9.2%

13.8%

-8.1%

-8.7%

0.5%

OMB FY2011 BEA Baseline, 7/2010

17.5%

24.4%

9.4%

13.6%

-6.7%

-7.2%

0.5%

CBO Rev. Baseline 8/2010

17.5%

24.5%

9.3%

13.8%

-7.0%

-7.6%

0.6%

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.

CRS-7

66.1%

Table 2. Federal Revenues

Estimates and projections for the FY2011 budget: billions of current dollars and as % of GDP

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

CBO Baseline, 1/2010

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

2,165

2,567

2,926

3,188

3,455

3,634

3,887

4,094

4,299

4,507

4,710

OMB FY2011 Current Policy

Baseline, 2/2010

2,213

2,583

2,829

3,033

3,269

3,417

3,648

3,838

4,026

4,215

4,400

OMB FY2011 BEA Baseline,

2/2010

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

2,118

2,461

2,807

3,095

3,341

3,504

3,693

3,869

4,031

4,212

4,417

CBO Est. of Pres. Budget

3/24/2010

2,118

2,460

2,808

3,095

3,341

3,504

3,693

3,869

4,036

4,211

4,416

CBO Rev. Baseline 3/2010

2,177

2,673

2,967

3,221

3,469

3,629

3,818

4,000

4,174

4,355

4,567

CBO Rev. Baseline 3/24/2010

2,176

2,673

2,967

3,221

3,469

3,629

3,818

4,000

4,174

4,355

4,567

Budget Resolution - S Budget

4/2010

2,152

2,511

2,734

3,131

3,385

3,583

—

President’s FY2011 Budget, MSR

7/2010

2,132

2,426

2,814

3,102

3,441

3,597

3,853

4,083

4,301

4,523

4,725

OMB FY2011 Current Policy

Baseline, 7/2010

2,142

2,478

2,748

2,997

3,320

3,463

3,708

3,929

4,140

4,353

4,546

OMB FY2011 BEA Baseline,

7/2010

2,142

2,682

2,980

3,260

3,613

3,789

4,064

4,313

4,552

4,793

5,015

CBO Rev. Baseline 8/2010

2,143

2,648

2,953

3,236

3,561

3,743

3,975

4,201

4,421

4,640

4,856

CBO Baseline, 1/2010

14.9%

17.8%

18.8%

19.3%

19.7%

19.8%

19.9%

20.0%

20.1%

20.2%

President’s FY2011 Budget, 2/09

14.8%

16.8%

18.1%

18.6%

19.0%

18.9%

19.3%

19.4%

19.5%

19.6%

Revenues

Historical

2006

2007

2008

2009

2,407

2,568

2,524

2,105

As % GDP

Historical

CRS-8

18.2%

18.5%

17.5%

14.8%

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

OMB FY2011 Current Policy

Baseline, 2/2010

15.1%

16.9%

17.5%

17.6%

18.0%

17.8%

18.1%

18.2%

18.3%

OMB FY2011 BEA Baseline,

2/2010

15.3%

18.2%

18.9%

19.3%

19.7%

19.6%

19.9%

20.0%

20.2%

20.3%

Prelim CBO Est. of Pres. Budget

3/2010

14.5%

16.4%

17.8%

18.6%

19.0%

19.2%

19.3%

19.4%

19.6%

CBO Est. of Pres. Budget

3/24/2010

14.5%

16.4%

17.9%

18.6%

19.0%

19.2%

19.3%

19.4%

19.6%

CBO Rev. Baseline 3/2010

14.9%

17.8%

18.9%

19.3%

19.7%

19.9%

20.0%

20.1%

20.3%

CBO Rev. Baseline 3/24/2010

14.9%

17.8%

18.9%

19.3%

19.7%

19.9%

20.0%

20.1%

20.3%

Budget Resolution - S Budget

4/2010

14.7%

16.6%

17.3%

18.7%

19.1%

19.2%

—

OMB FY2011 Current Policy

Baseline, 7/2010

14.6%

16.4%

17.4%

17.9%

18.7%

18.6%

19.0%

19.3%

19.4%

19.6%

OMB FY2011 BEA Baseline,

7/2010

14.6%

17.7%

18.9%

19.5%

20.3%

20.8%

21.1%

21.4%

21.6%

21.7%

President’s FY2011 Budget, MSR

7/2010

14.6%

17.5%

18.7%

19.4%

20.1%

20.4%

20.6%

20.8%

20.9%

21.0%

CBO Rev. Baseline 8/2010

14.6%

17.5%

18.7%

19.4%

20.1%

20.4%

20.6%

20.8%

20.9%

21.0%

Revenues

2006

2007

2008

2009

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.

CRS-9

FY2011 Budget Proposals and Projections

Updated CBO and OMB estimates predict that federal revenues as a share of GDP in FY2010

(14.6%) will be slightly less than in FY2009 (14.8%). The CBO baseline forecast for FY2011

expects economic recovery to boost federal revenues to 17.5% of GDP. At the end of the 10-year

budget window, federal revenues are projected to be just over one-fifth of GDP (21.0% in

FY2020). All projections shown in Table 2 project that FY2011 revenues will exceed FY2010

revenues.

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.24

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.

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.

Congressional Research Service

Table 3. Federal Outlays

Estimates and projections for the FY2011 budget: billions of current dollars and as % of GDP

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

CBO Baseline, 1/2010

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

3,721

3,834

3,755

3,915

4,161

4,386

4,665

4,872

5,084

5,415

5,713

OMB FY2011 Current

Policy Baseline, 2/2010

3,643

3,728

3,762

3,973

4,203

4,400

4,661

4,879

5,103

5,443

5,746

OMB FY2011 BEA

Baseline, 2/2010

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

3,618

3,802

3,722

3,842

4,065

4,297

4,587

4,808

5,032

5,364

5,670

CBO Est. of Pres.

Budget 3/24/2010

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

3,537

3,668

3,608

3,746

3,931

4,100

4,330

4,520

4,707

4,996

5,250

CBO Rev. Baseline

3/24/2010

3,545

3,668

3,609

3,746

3,931

4,101

4,331

4,521

4,708

4,996

5,251

Budget Resolution - S

Budget 4/2010

3,567

3,770

3,637

3,724

3,933

4,127

—

President’s FY2011

Budget, MSR 7/2010

3,603

3,842

3,725

3,838

4,139

4,359

4,610

4,804

5,051

5,345

5,626

OMB FY2011 Current

Policy Baseline, 7/2010

3,547

3,711

3,715

3,901

4,216

4,448

4,711

4,916

5,177

5,486

5,776

OMB FY2011 BEA

Baseline, 7/2010

3,546

3,694

3,649

3,805

4,094

4,303

4,542

4,721

4,952

5,226

5,479

CBO Rev. Baseline

8/2010

3,485

3,714

3,618

3,760

4,000

4,250

4,560

4,780

4,983

5,274

5,541

Outlays

Historical

CRS-11

2006

2007

2008

2009

2,655

2,729

2,983

3,518

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

CBO Baseline, 1/2010

24.1%

24.3%

23.0%

22.5%

22.4%

22.3%

22.6%

23.1%

23.3%

President’s FY2011

Budget, 2/09

25.4%

25.1%

23.2%

22.8%

22.9%

23.1%

23.0%

23.5%

23.7%

OMB FY2011 Current

Policy Baseline, 2/2010

24.9%

24.4%

23.2%

23.1%

22.9%

23.1%

23.6%

23.9%

OMB FY2011 BEA

Baseline, 2/2010

24.9%

24.1%

22.7%

22.5%

22.4%

22.2%

22.3%

22.1%

22.4%

22.6%

Prelim CBO Est. of

Pres. Budget 3/2010

24.8%

25.4%

23.7%

23.0%

23.1%

23.3%

23.9%

24.0%

24.2%

24.8%

25.2%

CBO Est. of Pres.

Budget 3/24/2010

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

24.2%

24.5%

22.9%

22.5%

22.3%

22.5%

22.6%

23.1%

23.3%

CBO Rev. Baseline

3/24/2010

24.3%

24.5%

22.9%

22.5%

22.3%

22.5%

22.6%

23.1%

23.3%

Budget Resolution - S

Budget 4/2010

24.3%

24.9%

23.1%

22.3%

22.1%

22.2%

—

President’s FY2011

Budget, MSR 7/2010

24.6%

25.4%

23.6%

23.0%

23.3%

23.4%

23.6%

23.5%

23.7%

24.1%

24.3%

OMB FY2011 Current

Policy Baseline, 7/2010

24.2%

24.5%

23.6%

23.4%

23.7%

23.9%

24.1%

24.3%

24.7%

24.9%

OMB FY2011 BEA

Baseline, 7/2010

24.2%

24.4%

23.1%

22.8%

23.1%

23.3%

23.1%

23.3%

23.5%

23.7%

CBO Rev. Baseline

8/2010

23.8%

24.5%

23.0%

22.5%

22.8%

23.4%

23.8%

23.9%

Outlays

2006

2007

2008

2009

20.1%

19.6%

20.7%

24.7%

As % GDP

Historical

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.

CRS-12

FY2011 Budget Proposals and Projections

The Obama Administration outlay projections include an estimate of future disaster costs, which

is not included in either discretionary or mandatory spending projections. These estimates, shown

in Table 4, serve as budgetary “plugs” rather than projections of disaster costs in particular years.

Thus, for both the OMB projections reflecting the President’s budget proposals and the OMB

current policy baseline, estimated future disaster costs would need to be added to discretionary

outlays, mandatory outlays, and net interest in order to equal total outlays.

Table 4. Administration Estimates of Expected Costs of Future Federal Costs of

Disaster Assistance

Billions of current dollars by fiscal year

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

0.625

2.250

3.625

4.125

4.375

4.625

4.875

5.000

Source: OMB

Notes: See text.

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.25 Essentially all spending on federal wages and salaries is discretionary.

Table 5 presents projections of discretionary outlays. While discretionary spending was the

largest category of federal spending until the mid-1970s, mandatory spending in FY2010 (13.1%

of GDP) accounted for about 4% more of GDP than discretionary spending (9.3% of GDP)

according to August 2010 CBO estimates.26 Discretionary spending will decline to just 7.0% 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 inflationadjusted 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.27 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.28

For details, see CRS Report RL34424, Trends in Discretionary Spending, by (name redacted) and (name redacted).

U.S. Congressional Budget Office, The Budget and Economic Outlook: An Update, August 19, 2010, available at

http://www.cbo.gov/doc.cfm?index=11705.

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.

For details, see CRS Report R41127, The SAFRA Act: Education Programs in the FY2010 Budget Reconciliation ,

(continued...)

Congressional Research Service

FY2011 Budget Proposals and Projections

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.29 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 6 summarizes projections of mandatory outlays. According to August 2010 CBO baseline

estimates, mandatory outlays will total $2,085 billion (13.8% of GDP) in FY2011 and $1,971

billion (12.5% of GDP) in FY2012.

(...continued)

coordinated by (name redacted).

For details, see CRS Report RL33074, Mandatory Spending Since 1962, by (name redacted) and (name redacted).

Congressional Research Service

Table 5. Federal Discretionary Outlays

Estimates and projections for the FY2011 budget: billions of current dollars and as % of GDP

Discretionary Outlays

2007

2008

2009

Historical

1,041

1,135

1,219

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

CBO Baseline, 1/2010

1,237

1,371

1,344

1,346

1,357

1,373

1,402

1,426

1,450

1,486

1,518

President’s

FY2011Budget, 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

OMB 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

OMB 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 Est. of Pres. Budget

3/24/2010

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

1,237

1,367

1,373

1,344

1,345

1,356

1,372

1,401

1,425

1,449

1,484

1,517

CBO Rev. Baseline

3/24/2010

1,367

1,373

1,345

1,356

1,372

1,401

1,425

1,449

1,484

1,517

Budget Resolution - S

Budget 4/2010

1,377

1,413

1,347

1,311

1,304

1,316

—

President’s FY2011

Budget, MSR 7/2010

1,219

1,377

1,433

1,316

1,274

1,284

1,309

1,339

1,375

1,406

1,443

1,486

OMB FY2011 Current

Policy Baseline, 7/2010

1,219

1,364

1,394

1,354

1,352

1,371

1,399

1,429

1,466

1,499

1,537

1,576

OMB FY2011 BEA

Baseline, 7/2010

1,219

1,393

1,419

1,375

1,373

1,392

1,421

1,452

1,489

1,523

1,561

1,600

1,358

1,404

1,388

1,399

1,418

1,443

1,481

1,511

1,542

1,584

1,622

CBO Rev. Baseline

8/2010

CRS-15

Discretionary Outlays

2007

2008

2009

7.6%

7.9%

8.6%

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

As % GDP

OMB/Historical/Actual

FY2009

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%

OMB 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%

OMB 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 Est. of Pres. Budget

3/24/2010

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%

9.2%

8.5%

8.1%

7.7%

7.4%

7.3%

7.1%

7.0%

6.9%

6.7%

CBO Rev. Baseline

3/24/2010

9.4%

9.2%

8.5%

8.1%

7.7%

7.4%

7.3%

7.1%

7.0%

6.9%

6.7%

President’s FY2011

Budget, MSR 7/2010

9.4%

9.5%

8.3%

7.6%

7.2%

7.0%

6.9%

6.7%

6.6%

6.5%

6.4%

Budget Resolution - S

Budget 4/2010

9.4%

9.3%

8.5%

7.8%

7.3%

7.1%

—

OMB FY2011 Current

Policy Baseline, 7/2010

9.3%

9.2%

8.6%

8.1%

7.7%

7.5%

7.3%

7.2%

7.0%

6.9%

6.8%

OMB FY2011 BEA

Baseline, 7/2010

9.5%

9.4%

8.7%

8.2%

7.8%

7.6%

7.4%

7.3%

7.2%

7.0%

6.9%

CBO Rev. Baseline

8/2010

9.3%

8.8%

8.4%

8.0%

7.7%

7.6%

7.4%

7.2%

7.1%

7.0%

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 from March 5, 2010, preliminary analysis. See source documents and text for additional caveats.

CRS-16

Table 6. Federal Mandatory Outlays

Estimates and projections for the FY2011 budget: billions of current dollars and as % of GDP

Mandatory Outlays

OMB/Historical/Actual

FY2009

2006

2007

2008

2009

1,412

1,451

1,848

2,112

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

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

OMB 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

OMB 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 Est. of Pres.

Budget 3/24/2010

2,094

2,034

2,156

2,091

2,176

2,322

2,454

2,636

2,752

2,871

3,084

3,267

CBO Rev. Baseline

3/2010

2,094

1,961

2,058

1,982

2,063

2,177

2,267

2,412

2,523

2,633

2,834

3,005

CBO Rev. Baseline

3/24/2010

1,969

2,058

1,982

2,063

2,177

2,267

2,412

2,523

2,633

2,834

3,005

Budget Resolution - S

Budget 4/2010

1,981

2,116

1,998

2,058

2,207

2,320

—

President’s FY2011

Budget, MSR 7/2010

2,112

2,041

2,186

2,112

2,175

2,371

2,491

2,649

2,749

2,911

3,117

3,304

OMB FY2011 Current

Policy Baseline, 7/2010

2,112

1,997

2,094

2,066

2,163

2,359

2,480

2,639

2,738

2,901

3,107

3,295

OMB FY2011 BEA

Baseline, 7/2010

2,112

1,969

2,055

1,988

2,071

2,265

2,384

2,540

2,637

2,796

2,996

3,178

CBO Rev. Baseline

8/2010

2,093

1,925

2,085

1,971

2,035

2,172

2,316

2,515

2,646

2,766

2,964

3,141

CRS-17

Mandatory Outlays

2006

2007

2008

2009

10.7%

10.4%

12.8%

14.8%

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

As % GDP

OMB/Historical/Actual

FY2009

CBO Baseline, 1/2010

14.7%

13.3%

13.6%

12.6%

12.5%

12.4%

12.3%

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%

13.4%

13.3%

13.8%

14.1%

OMB FY2011 Current

Policy Baseline, 2/2010

14.8%

14.1%

13.7%

12.8%

12.7%

12.6%

12.8%

13.3%

13.5%

OMB FY2011 BEA

Baseline, 2/2010

14.7%

13.8%

13.4%

12.3%

12.2%

12.1%

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%

13.8%

14.2%

14.5%

CBO Est. of Pres.

Budget 3/24/2010

13.9%

14.4%

13.3%

13.0%

13.2%

13.3%

13.7%

13.8%

14.2%

14.5%

CBO Rev. Baseline

3/2010

13.4%

13.7%

12.6%

12.4%

12.3%

12.5%

12.6%

13.1%

13.3%

CBO Rev. Baseline

3/24/2010

13.5%

13.7%

12.6%

12.4%

12.3%

12.5%

12.6%

13.1%

13.3%

Budget Resolution - S

Budget 4/2010

13.5%

14.0%

12.7%

12.3%

12.4%

12.5%

—

President’s FY2011

Budget, MSR 7/2010

14.8%

13.9%

14.4%

13.4%

13.0%

13.3%

13.4%

13.6%

13.5%

13.7%

14.0%

14.3%

OMB FY2011 Current

Policy Baseline, 7/2010

14.8%

13.6%

13.8%

13.1%

12.9%

13.3%

13.5%

13.4%

13.6%

14.0%

14.2%

OMB FY2011 BEA

Baseline, 7/2010

14.8%

13.4%

13.6%

12.6%

12.4%

12.8%

13.0%

12.9%

13.1%

13.5%

13.7%

13.1%

13.8%

12.5%

12.2%

12.4%

12.9%

13.0%

13.3%

13.6%

CBO Rev. Baseline

8/2010

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 from March 5, 2010, preliminary analysis. See source documents and text for additional caveats.

CRS-18

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.30 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.31

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 7 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

FY2020.32 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.

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.

See CRS Report RL33657, Running Deficits: Positives and Pitfalls, by (name redacted).

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

Table 7.Total Deficits

Estimates and projections for the FY2011 budget: billions of current dollars and as % of GDP

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

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

-785

-908

-1,003

OMB FY2011 Current

Policy Baseline, 2/2010

-1,430

-1,145

-934

-940

-934

-983

-1,013

-1,042

-1,077

-1,227

-1,346

OMB 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 Est. of Pres.

Budget 3/24/2010

-1,500

-1,342

-914

-747

-724

-793

-894

-940

-996

-1,152

-1,254

CBO Rev. Baseline

3/2010

-1,360

-995

-641

-525

-462

-471

-512

-520

-533

-640

-683

CBO Rev. Baseline

3/24/2010

-1,368

-996

-642

-525

-463

-472

-513

-521

-534

-641

-684

Budget Resolution - S

Budget 4/2010

-1,415

-1,260

-902

-593

-548

-544

—

President’s FY2011

Budget, MSR 7/2010

-1,471

-1,416

-911

-736

-698

-762

-758

-721

-749

-822

-900

OMB FY2011 Current

Policy Baseline, 7/2010

-1,405

-1,233

-967

-904

-896

-985

-1,003

-987

-1,037

-1,132

-1,230

OMB FY2011 BEA

Baseline, 7/2010

-1,404

-1,012

-668

-546

-481

-514

-478

-408

-401

-433

-464

CBO Rev. Baseline

8/2010

-1,342

-1,066

-665

-525

-438

-507

-585

-579

-562

-634

-685

Total Deficits

OMB/Historical/Actual

FY2009

CRS-20

2006

2007

2008

2009

-248

-161

-459

-1,413

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

CBO Baseline, 1/2010

-9.2%

-6.5%

-4.1%

-3.2%

-2.7%

-2.6%

-2.7%

-2.6%

-3.0%

President’s FY2011

Budget, 2/09

-10.6%

-8.3%

-5.1%

-4.2%

-3.9%

-3.7%

-3.6%

-3.9%

-4.2%

OMB FY2011 Current

Policy Baseline, 2/2010

-10.6%

-8.3%

-5.1%

-4.2%

-3.9%

-3.7%

-3.6%

-3.9%

-4.2%

OMB FY2011 BEA

Baseline, 2/2010

-10.6%

-8.3%

-5.1%

-4.2%

-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%

-4.8%

-5.3%

-5.6%

CBO Est. of Pres.

Budget 3/24/2010

-10.3%

-8.9%

-5.8%

-4.5%

-4.1%

-4.3%

-4.7%

-4.8%

-5.3%

-5.6%

CBO Rev. Baseline

3/2010

-9.3%

-6.6%

-4.1%

-3.1%

-2.6%

-2.7%

-2.6%

-3.0%

CBO Rev. Baseline

3/24/2010

-9.4%

-6.6%

-4.1%

-3.1%

-2.6%

-2.7%

-2.6%

-3.0%

Budget Resolution - S

Budget 4/2010

-9.6%

-8.3%

-5.7%

-3.6%

-3.1%

-2.9%

—

President’s FY2011

Budget, MSR 7/2010

-10.0%

-9.3%

-5.8%

-4.4%

-3.9%

-4.1%

-3.9%

-3.5%

-3.7%

-3.9%

OMB FY2011 Current

Policy Baseline, 7/2010

-9.6%

-8.1%

-6.1%

-5.4%

-5.0%

-5.3%

-5.1%

-4.8%

-4.9%

-5.1%

-5.3%

OMB FY2011 BEA

Baseline, 7/2010

-9.6%

-6.7%

-4.2%

-3.3%

-2.7%

-2.8%

-2.4%

-2.0%

-1.9%

-2.0%

CBO Rev. Baseline

8/2010

-9.1%

-7.0%

-4.2%

-3.1%

-2.5%

-2.7%

-3.0%

-2.8%

-2.6%

-2.9%

-3.0%

Total Deficits

2006

2007

2008

2009

-1.9%

-1.2%

-3.2%

-9.9%

As % GDP

OMB/Historical/Actual

FY2009

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-21

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 8 summarizes projections of on-budget deficits. The on-budget deficit is estimated to

decline to $1,154 billion (7.6% of GDP) in FY2011 according to CBO August 2010 baseline

projections. None of the projections show an on-budget surplus within the next 5 or 10 years.

Table 9 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

Table 8. On-Budget Deficits

Estimates and projections for the FY2011 budget: billions of current dollars and as % of GDP

On-Budget Deficits

FY2010

FY2011

FY2012

FY2013

FY2014

FY2015

FY2016

CBO Baseline, 1/2010

-1,434

-1,076

-757

-659

-608

-619

-659

President’s FY2011 Budget, 2/09

-1,634

-1,363

-949

-863

-852

-910

-952

OMB FY2011 Current Policy Baseline, 2/2010

-1,508

-1,241

-1,054

-1,074

-1,080

-1,139

-1,183

OMB FY2011 BEA Baseline, 2/2010

-1,482

-1,008

-733

-695

-642

-648

-640

Prelim CBO Est. of Pres. Budget 3/2010

-1,585

-1,435

-1,020

-865

-854

-931

-1,033

CBO Est. of Pres. Budget 3/24/2010

-1,585

-1,435

-1,019

-865

-853

-931

-1,033

CBO Rev. Baseline 3/2010

-1,444

-1,089

-747

-642

-593

-609

-648

CBO Rev. Baseline 3/24/2010

-1,453

-1,089

-747

-643

-593

-609

-649

Budget Resolution - S Budget 4/2010

-1,499

-1,353

-1,007

-711

-679

-682

—

President’s FY2011 Budget, MSR 7/2010

-1,545

-1,495

-1,015

-851

-823

-895

-904

OMB FY2011 Current Policy Baseline, 7/2010

-1,479

-1,312

-1,071

-1,019

-1,021

-1,118

-1,148

OMB FY2011 BEA Baseline, 7/2010

-1,478

-1,091

-773

-661

-607

-647

-623

CBO Rev. Baseline 8/2010

-1,419

-1,154

-766

-639

-569

-650

-732

CBO Baseline, 1/2010

-9.8%

-7.2%

-4.8%

-4.0%

-3.5%

-3.4%

President’s FY2011 Budget, 2/09

-11.2%

-8.9%

-5.9%

-5.0%

-4.7%

OMB FY2011 Current Policy Baseline, 2/2010

-10.3%

-8.1%

-6.5%

-6.3%

-5.9%

OMB FY2011 BEA Baseline, 2/2010

-10.1%

-6.6%

-4.5%

-4.0%

-3.5%

-3.4%

-3.2%

Prelim CBO Est. of Pres. Budget 3/2010

-10.9%

-9.6%

-6.5%

-5.2%

-4.8%

-5.1%

-5.4%

CBO Est. of Pres. Budget 3/24/2010

-10.9%

-9.6%

-6.5%

-5.2%

-4.8%

-5.1%

-5.4%

CBO Rev. Baseline 3/2010

-9.9%

-7.3%

-4.7%

-3.9%

-3.4%

-3.3%

-3.4%

CBO Rev. Baseline 3/24/2010

-10.0%

-7.3%

-4.8%

-3.9%

-3.4%

-3.3%

-3.4%

OMB/Historical/Actual FY2009

FY2006

FY2007

FY2008

FY2009

-435

-342

-638

-1,550

As % GDP

OMB/Historical/Actual FY2009

CRS-23

-3.3%

-2.5%

-4.4%

-10.9%

On-Budget Deficits

FY2006

FY2007

FY2008

FY2009

FY2010

FY2011

FY2012

FY2013

FY2014

FY2015

FY2016

President’s FY2011 Budget, MSR 7/2010

-10.5%

-9.9%

-6.4%

-5.1%

-4.6%

-4.8%

-4.6%

Budget Resolution - S Budget 4/2010

-10.2%

-8.9%

-6.4%

-4.3%

-3.8%

-3.7%

—

OMB FY2011 Current Policy Baseline, 7/2010

-10.1%

-8.7%

-6.8%

-6.1%

-5.8%

-6.0%

-5.9%

OMB FY2011 BEA Baseline, 7/2010

-10.1%

-7.2%

-4.9%

-4.0%

-3.4%

-3.5%

-3.2%

CBO Rev. Baseline 8/2010

-9.7%

-7.6%

-4.9%

-3.8%

-3.2%

-3.5%

-3.8%

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-24

Table 9. Off-Budget Surplus

Estimates and projections for the FY2011 budget: billions of current dollars and as % of GDP

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

CBO Baseline, 1/2010

108

120

133

139

138

134

127

116

107

President’s FY2011

Budget, 2/09

120

136

146

158

175

174

167

151

OMB FY2011 Current

Policy Baseline, 2/2010

120

135

147

156

170

168

166

157

140

OMB FY2011 BEA

Baseline, 2/2010

121

135

147

156

170

168

166

158

140

Prelim CBO Est. of

Pres. Budget 3/2010

105

118

130

138

139

136

130

121

112

CBO Est. of Pres.

Budget 3/24/2010

105

118

130

138

139

136

130

121

112

CBO Rev. Baseline

3/2010

106

118

131

137

136

131

124

113

102

CBO Rev. Baseline

3/24/2010

106

118

131

137

136

131

124

113

102

Budget Resolution - S

Budget 4/2010

105

118

131

138

—

President’s FY2011

Budget, MSR 7/2010

104

115

126

133

146

144

141

133

117

OMB FY2011 Current

Policy Baseline, 7/2010

104

115

125

132

145

141

138

130

113

OMB FY2011 BEA

Baseline, 7/2010

104

115

126

133

145

142

138

131

114

CBO Rev. Baseline

8/2010

101

114

131

143

148

149

143

132

OMB/Historical/Actual

FY2009

CRS-25

2006

2007

2008

2009

186

181

183

137

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

1.4%

1.3%

1.0%

CBO Baseline, 1/2010

0.6%

0.7%

0.8%

0.7%

0.6%

0.5%

President’s FY2011

Budget, 2/09

0.5%

0.6%

0.7%

0.8%

0.9%

0.8%

0.7%

0.6%

OMB FY2011 Current

Policy Baseline, 2/2010

0.5%

0.6%

0.7%

0.8%

0.7%

0.6%

OMB FY2011 BEA

Baseline, 2/2010

0.5%

0.6%

0.7%

0.8%

0.7%

0.6%

Prelim CBO Est. of

Pres. Budget 3/2010

0.6%

0.7%

0.8%

0.7%

0.6%

0.5%

CBO Est. of Pres.

Budget 3/24/2010

0.6%

0.7%

0.8%

0.7%

0.6%

0.5%

CBO Rev. Baseline

3/2010

0.6%

0.7%

0.6%

0.5%

CBO Rev. Baseline

3/24/2010

0.6%

0.7%

0.6%

0.5%

Budget Resolution - S

Budget 4/2010

0.6%

0.7%

—

President’s FY2011

Budget, MSR 7/2010

0.5%

0.7%

0.6%

0.5%

OMB FY2011 Current

Policy Baseline, 7/2010

0.5%

0.7%

0.6%

0.5%

OMB FY2011 BEA

Baseline, 7/2010

0.5%

0.7%

0.6%

0.5%

CBO Rev. Baseline

8/2010

0.5%

0.6%

0.7%

0.8%

0.7%

0.6%

As % GDP

OMB/Historical/Actual

FY2009

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-26

FY2011 Budget Proposals and Projections

Federal Debt

Gross federal debt is the sum of debt held by the public and intragovernmental (IG) debt.33 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.34 IG

debt also includes dozens of other federal trust funds. 35

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 10 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. 1115) increased the debt limit to $12,104 billion. 36

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 FY2010.37 That ratio, according to the August 2010 CBO baseline, is projected to

rise to 66.1% 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.

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.

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.

Eric M. Patashinik, Putting Trust in the U.S. Budget: Federal Trust Funds and the Politics of Commitment

(Cambridge, UK: Cambridge, 2000).

See CRS Report RL31967, The Debt Limit: History and Recent Increases, by (name redacted) and (name redacted).

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

Table 10. Debt Held by the Public at End of Fiscal Year

Estimates and projections for the FY2011 budget: billions of current dollars and as % of GDP

Debt Held By the

Public

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

OMB/Historical/Actual

FY2009

4,829

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 Est. of Pres.

Budget 3/24/2010

9,221

10,512

11,579

12,467

13,329

14,256

15,297

16,396

17,553

18,870

20,294

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

CBO Rev. Baseline

3/24/2010

9,021

9,862

10,551

11,112

11,606

12,103

12,653

13,222

13,803

14,493

15,226

Budget Resolution - S

Budget 4/2010

9,067

10,173

11,122

11,752

12,331

12,900

—

President’s FY2011

Budget, MSR 7/2010

9,199

10,550

11,602

12,459

13,264

14,134

14,984

15,795

16,619

17,514

18,505

CBO Rev. Baseline

8/2010

9,031

10,007

10,790

11,422

11,950

12,544

13,214

13,885

14,546

15,281

16,073

CBO Baseline, 1/2010

60.3%

65.3%

66.6%

66.3%

65.6%

65.4%

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%

As % GDP

OMB/Historical/Actual

FY2009

CRS-28

36.5%

36.2%

40.2%

53.0%

Debt Held By the

Public

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

CBO Est. of Pres.

Budget 3/24/2010

63.2%

70.1%

73.6%

74.8%

75.7%

77.4%

79.6%

81.8%

84.3%

87.1%

90.0%

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%

CBO Rev. Baseline

3/24/2010

61.8%

65.8%

67.1%

66.6%

65.9%

65.7%

65.8%

66.0%

66.3%

66.9%

67.5%

Budget Resolution - S

Budget 4/2010

62.1%

67.9%

70.7%

70.5%

70.0%

—

President’s FY2011

Budget, MSR 7/2010

62.7%

69.6%

73.6%

74.6%

74.7%

75.9%

76.8%

77.4%

78.0%

78.9%

79.9%

CBO Rev. Baseline

8/2010

61.6%

66.1%

68.5%

68.4%

67.3%

67.7%

68.1%

68.3%

68.8%

69.4%

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-29

Table 11. Economic Projections: Gross Domestic Product (GDP)

Billions of current dollars

Gross Domestic

Product

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

OMB/Historical/Actual

FY2009

13,225

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

CBO Rev. Baseline

3/24/2010

14,236

14,595

14,992

15,730

16,676

17,606

18,421

19,223

20,036

20,823

21,667

22,544

President’s FY2011 Budget,

MSR 7/2010

14,230

14,666

15,148

15,764

16,705

17,760

18,630

19,508

20,398

21,293

22,205

23,154

CBO Rev. Baseline 8/2010

14,230

14,666

15,148

15,764

16,705

17,760

18,630

19,508

20,398

21,293

22,205

23,154

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-30

FY2011 Budget Proposals and Projections

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 fasterthan-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, as noted above, has been much deeper than many economic

forecasters anticipated in 2007 and 2008. For instance, the U.S. economy contracted at an

annualized real rate of 6.8% in the last quarter of 2008 and 4.9% 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 5.0%,

seemed to signal an end of the economic recession. 38 More recent economic data indicate a slow

and uncertain period of economic recovery. According to Commerce Department estimates, the

economy grew at an annualized real rate of 3.7% in the first quarter of 2010 and only 1.6% in the

second quarter.39 Given that in past years population growth has been about 1% per year, higher

rates of economic growth would be necessary to reduce unemployment and raise living standards

significantly.

Most economists expect unemployment rates to remain elevated for the medium term.

Unemployment rates have remained at high levels, with the national unemployment rate standing

at 9.5% in July 2010.40 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 national unemployment rate will

not recede to the 5% level until 2014.41

Many 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. Interestsensitive 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

U.S. Department of Commerce, Bureau of Economic Analysis, “Gross Domestic Product: Second Quarter 2010 (2nd

Estimate),” press release BEA 10-41, August 27, 2010, available at http://www.bea.gov/newsreleases/national/gdp/

2010/pdf/gdp2q10_2nd.pdf.

Ibid.

U.S. Congressional Budget Office, The Budget and Economic Outlook: An Update, August 19, 2010, p. 1, available

at http://www.cbo.gov/doc.cfm?index=11705.

Congressional Research Service

FY2011 Budget Proposals and Projections

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. Forecasting turning points in economic trends, however, is difficult for technical and

substantial reasons that are discussed in the next section. Table 11 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.42 CBO

also provides detailed explanations of why its projections differ from OMB projections.43 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

U.S. Congress, Congressional Budget Office, “The Uncertainty of Budget Projections: A Discussion of Data and

Methods,” March 2006.

U.S. Congress, Congressional Budget Office, “Comparing Budget and Accounting Measures of the Federal

Government’s Fiscal Condition,” December 2006.

Congressional Research Service

FY2011 Budget Proposals and Projections

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,

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.44

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.45 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.46 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-FY2009.47 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.

Slower economic growth would also reduce a budget surplus.

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.

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.

CRS calculation based on OMB data.

Congressional Research Service

FY2011 Budget Proposals and Projections

OMB used its standard deviation estimate to compute upper and lower bounds for deficit

projections.48 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.49 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

(name redacted)

Analyst in Economic Policy

/redacted/@crs.loc.gov, 7-....

The upper and lower bounds were computed assuming that forecast errors for different years are statistically

independent and are normally distributed.

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.

Congressional Research Service

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