The Budget for Fiscal Year 2004

Publication Date: September 2003

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Banking and finance

Type:

Abstract:

The Administration's fiscal year (FY) 2004 Mid-Session Review (MSR; July 15, 2003) estimated the FY2004 deficit at $475 billion, up from the $307 billion deficit included in the President's February 2003 budget proposal. Changes in policy, a slowly recovering economy, and other estimating factors produced the growth in the deficit estimate. The Administration's July estimates "do not reflect ... expected but undetermined additional costs arising from ongoing operations in Iraq, extending beyond 2003" (the Office of Management and Budget [OMB] Mid-Session Review, July 15, 2003, p.1). Any increase in outlays (without offsets) will increase the deficit further.

CBO's Economic and Budget Outlook: An Update (Update; August 26, 2003) projected an FY2004 baseline deficit of $480 billion, a $280 billion increase from its March 2003 baseline estimate and higher than the $458 billion baseline deficit estimate in OMB's MSR. Over 80% of the increase resulted from appropriations and tax cuts adopted between March and August 2003.

The President's February (2003) FY2004 budget proposals included a deficit of $307 billion, assuming the adoption of those proposals. The proposals included speeding up and making permanent many of the tax cuts enacted over the last two years, along with new tax changes for economic stimulus, tax incentives, and expiring tax provisions.

On January 31, 2003, CBO released the first of its budget reports. CBO's baseline estimates are similar in construction to the current services baseline produced by OMB for the President. CBO's baseline had a $145 billion deficit in FY2004. Because the CBO baseline estimates are constrained by existing policy, they do not incorporate any expected policy changes, even if they are very likely to occur.

In March, CBO released its report analyzing the President's policies, a recasting of the proposals using CBO assumptions and budget estimating methods. CBO's estimates produced an expected deficit of $338 billion for FY2004 under the Administration's proposals. CBO's baseline deficit estimate for FY2004 jumped to $200 billion.

Congress cleared the conference report (H.Rept. 108-71, H.Con.Res. 95) on the FY2004 budget resolution on April 11, containing reconciliation instructions for a tax cut. On May 23, Congress adopted the conference report (H.Rept. 108-126) on H.R. 2, the bill containing an 11-year, $350 billion tax cut that followed the reconciliation instructions. It became law (P.L.108-27) on May 28.

As Congress returns in September, it is expected to resume working its way through the 13 regular appropriations for FY2004. The House had passed 11 and the Senate four of the regular appropriations when Congress recessed in August. None has become law. This report will be updated as events warrant.