John Irons's Blog


Economic News, Data and Analysis

The Official Return of Deficits

The OMB has the official deficit numbers for 2002. Bottom line: receipts down, outlays up, swing from a $127 billion surplus to a $159 billion deficit.
The OMB also published a table showing the reasons why the deficit differed from their original forecast. The numbers they show claim that 7% of the budget deterioration was due to the tax cut, while 64% came from “economic change.”
I’m not sure how to evaluate these numbers since there is no supporting material (that I can find) to show where they came from. The “economic change” number is likely to contain both the actual deterioration in the economy along with economic forecasting errors. The 64% number thus contains the effects of the recession as well as (potentially) overly optimistic economic projections back in February 2001.
The 7% is slightly lower than other estimates I’ve seen for the effect of the income tax reductions (the CBO’s estimate was about 9% according to the preceding link). What’s puzzling as well is that the same table in the FY2003 mid-session review and the FY2002 mid-session review had the effect of the tax cut to be $41 billion (page 6) and $40 billion (page 4) — rather than $32 billion as reported on Friday.
(In Billions) …….. Receipts Outlays Surplus/Deficit (-)
FY 2001 Actual…… 1,991 1,864 127
FY 2002 Actual…… 1,853 2,012 -159


Comparison of OMB’s Original Forecast with Actual for FY 2002
Some have incorrectly attributed the majority of the change in the fiscal outlook to the enactment of the President’s tax relief program, when in fact it was only the cause of 7% of the reduction. In February 2001, OMB forecasted a FY 2002 surplus of $283 billion. The table below compares the original surplus forecast and each of the factors that led to the $159 billion actual deficit for FY 2002.

(in billions of dollars)Surplus Forecast 283
Economic Change -284 -64%
Tax Relief -32 -7%
Stimulus -52 -12%
Subtotal -368 -83%
Defense Department -37 -8%
Unemployment Trust Fund -22 -5%
Interest on the Public Debt 17 4%
Other -27 -6%
Subtotal -74 -17%
Total Change -441 -100%
Actual Deficit -159

Filed under: Economics, Policy, Politics



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