An Analysis of the Administration's Mid-Session Budget 
Jeff Lemieux
July 15, 2003

The Administration's mid-session budget estimates deficits of $455 billion in 2003 and $475 billion in 2004, about 4 percent of GDP.  The Administration projects that the deficit will shrink to less than 2 percent of GDP by 2006, and will remain below 2 percent of GDP through 2008.

Will the deficit really shrink?  No projection is certain, but the Administration's projections assume dramatic reductions in spending that are highly doubtful.  The new budget assumes defense outlays will fall by $15 billion in 2004, grow by only $3 billion in 2005, and thereafter maintain a growth rate slower than the economy as a whole.  By contrast, defense outlays grew by $43 billion in 2002 and $56 billion in 2003.  The Administration's budget also assumes non-defense discretionary outlays will grow by only $5 billion a year in the 2004-2008 period, after growing by between $40 and $50 billion a year in 2002 and 2003.

The Administration's new mid-session budget contains bad news on tax revenues.  The Office of Management and Budget (OMB) estimates that revenues will fall to 16.3 percent of GDP in 2003, and 16.0 percent of GDP in 2004.  For comparison, revenues were 21 percent of GDP in 2000, 20 percent in 2001, and 18 percent of GDP in 2002. 

As the economy recovers, OMB estimates that revenues will likewise recover to about 18 percent of GDP by 2006, as tax collections outpace the growth of the economy as a whole.  Centrists.Org, the Progressive Policy Institute (PPI), the Congressional Budget Office (CBO), and other forecasters generally concur that revenues will increase as a share of the economy over the next several years, if strong economic growth returns and the stock market regains some of its recent losses.

However, the Administration's new budget may be far too optimistic about future spending restraints.  The budget assumes Congress will slow the growth of domestic and defense spending to a crawl.  CBO's projections also assume a significant slowdown, based on budget rules dictated by Congress.

It is more likely that spending will continue to grow as a share of the economy.  Centrists.Org and PPI project that defense and domestic spending will remain roughly constant as a percentage of GDP between 2004 and 2008 (and thereafter), and that entitlement spending and interest costs will surge higher as a Medicare drug benefit is enacted and the public debt mounts.

The following tables compare the Administration's mid-session baseline and the PPI/Centrists.Org baseline last updated on June 22.  Centrists.Org will update its projections of revenues in upcoming weeks to reflect the new information in the Administration's mid-session budget and CBO's August budget update.  However, we are unlikely to reduce the spending projections unless Congress postpones its efforts to add an expensive drug benefit in Medicare, or suddenly embraces austerity in the annual appropriations bills.

 

Table 1.  Comparison of Administration and PPI/Centrists.Org Budget Projections
(as a percent of GDP)
Fiscal Years		2003	2004	2005	2006	2007	2008
Revenues
PPI/Centrists.Org June 22		16.4	16.6	17.4	17.8	18.0	18.2
Mid-Session Review		16.3	16.0	17.2	17.8	18.1	18.1
Outlays
PPI/Centrists.Org June 22		20.2	20.3	20.5	20.9	21.1	21.2
Mid-Session Review		20.6	20.2	19.8	19.8	19.8	19.8
Budget Deficit
PPI/Centrists.Org June 22		3.8	3.7	3.1	3.1	3.1	3.0
Mid-Session Review		4.3	4.2	2.6	2.0	1.7	1.7
Sources: Centrists.Org, Progressive Policy Institute, Office of Management and Budget.

 

Table 2.  Comparison of Administration and PPI/Centrists.Org Spending Projections
(as a percent of GDP)
Fiscal Years		2003	2004	2005	2006	2007	2008
Defense Outlays
PPI/Centrists.Org June 22		3.8	3.8	3.8	3.8	3.8	3.8
Mid-Session Review		4.0	3.6	3.5	3.4	3.4	3.4
Non-Defense Outlays
PPI/Centrists.Org June 22		4.0	4.0	4.0	4.0	4.0	4.0
Mid-Session Review		4.0	3.9	3.8	3.6	3.5	3.4
Entitlements and Interest
PPI/Centrists.Org June 22		12.5	12.5	12.8	13.1	13.3	13.4
Mid-Session Review		12.6	12.7	12.6	12.8	12.9	13.1
Total Spending
PPI/Centrists.Org June 22		20.2	20.3	20.5	20.9	21.1	21.2
Mid-Session Review		20.6	20.2	19.8	19.8	19.8	19.8
Sources: Centrists.Org, Progressive Policy Institute, Office of Management and Budget.

Links:
Centrists.Org No-BS Long-Term Budget Baseline (updated June 22, 2003)
Office of Management and Budget Mid-Session Review, Budget of the U.S. Government (July 15, 2003)