The Budget for Fiscal Year 2008

Publication Date: March 2007

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Banking and finance

Type:

Abstract:

President Bush presented his fiscal year (FY) 2008 budget to Congress on February 5, 2007. For FY2008, the budget shows a deficit of $239 billion, which would become a surplus of $61 billion in FY2012, the last year projected. The proposals include large defense supplementals for FY2007 and FY2008, extending the expiring tax cuts, constraining domestic discretionary spending (and, after FY2008, doing the same to defense spending), slightly slowing the growth of Medicare and Medicaid, and stopping the expanding coverage of the Alternative Minimum Tax (AMT) in FY2007 and FY2008 (but not in subsequent years).

Although the budget proposes a positive outlook over the next five years, it also discusses the long-term fiscal problems facing the nation. According to the longerterm projections from the Administration, the Congressional Budget Office (CBO), and the Government Accountability Office (GAO), the soon-to-begin retirement of the baby boom generation will increase the demand for resources from the federal programs for the elderly (in particular, Medicare, Social Security, and Medicaid). Under any responsible set of projections, the expanding eligible populations and continued growth in medical care costs (in particular) will drive the growth in these programs in the next decades. If overall federal spending is not allowed to grow as a share of gross domestic product (GDP), the growth in these programs will require reductions in most other federal activities. The consequences of unchecked growth in these programs could, at some future date, disrupt the economy's ability to provide the resources needed for the programs.

Earlier in the year (January 24, 2007), the CBO released its annual budget report (The Budget and Economic Outlook: Fiscal Years 2008-2017). The report's baseline estimates and projections attempt to show what happens to the budget with no changes from current policy. CBO makes certain assumptions (and certain assumptions have been provided in law in the past) to generate a baseline. CBO's report projects a deficit of $98 billion for FY2008, becoming a $170 billion surplus in FY2012 and a $249 billion surplus in FY2017. The baseline assumes the large tax cuts enacted in the first half of the decade expire as currently scheduled, discretionary spending grows more slowly than its historical trend, relief from the Alternative Minimum Tax (AMT) is not provided, and there is no further funding for the wars in Iraq and Afghanistan. The baseline is designed to be a benchmark against which policy changes can be measured, rather than a prediction of likely outcomes.

Congress has held hearings (and, more are anticipated) on various components of the President's budget proposals. The House and Senate Budget Committees have begun work to produce their respective budget resolutions for FY2008.

This report will be updated as events warrant.