Federal budget estimates, fiscal year 2003 - Statistical Data Included

Survey of Current Business, March, 2002 by Claire G. Pitzer, Shelly Smith

THE Federal Budget of the United States Government, Fiscal Year 2003 calls for priority spending on the war on terrorism overseas and at home and a bipartisan economic security plan to promote growth and assist unemployed workers. The fiscal year 2003 budget shows a $80.2 billion deficit, a $26.0 billion decrease from the projected $106.2 billion deficit in fiscal year 2002. (1) Fiscal year 2001 ended with a surplus of $127.1 billion. These Federal budget estimates are derived from all Federal transactions, that is, from all unified budget receipts and all unified budget outlays. (2)

Each year, the Bureau of Economic Analysis prepares an adjusted presentation of the budget's receipts and outlays that puts them on a basis consistent with the framework of the national income and product accounts (NIPA's). The NIPA framework, which differs in concept and timing from the budget, is designed to show the composition of production and the distribution of the incomes earned in production (see the box "Relation Between Budget and NIPA Estimates" on page 17). The NIPA framework provides a means of gauging the effects of the Federal budget on aggregate measures of U.S. economic activity, such as gross domestic product (GDP), that are part of the NIPA's. On the NIPA basis, the current deficit in fiscal year 2003 is $78.1 billion, a $34.3 billion decrease from the projected $112.4 billion deficit in fiscal year 2002.

The administration's fiscal year 2003 budget estimates of receipts and outlays reflect the economic assumptions used in making the budget projections, the projected impact of proposed legislation and program changes, and the laws already enacted. (3) This article summarizes those economic assumptions and proposed legislation and program changes, and it presents the budget estimates for receipts and outlays. (4) It then presents the budget receipts and outlays in the framework of NIPA current receipts and expenditures.

Economic assumptions

In the budget, the administration presents the economic assumptions on a calendar year basis that were used in making the budget projections. The following are the principal assumptions: (5)

* After growing 1.0 percent in 2001 (as projected before end-of-year data were available), the economy will grow 0.7 percent in 2002 and 3.8 percent in 2003.

* The unemployment rate will rise from a projected 4.8 percent in 2001 to 5.9 percent in 2002 and then decline to 5.5 percent in 2003.

* Inflation, as measured by the chain-weighted GDP price index, will slow slightly from a projected 2.3 percent in 2001 to 2.0 percent in 2002 and to 1.8 percent in 2003.

* Long-term interest rates will remain steady, while short-term interest rates will dip in 2002 and turn back up in 2003.

Proposed legislation and program changes

Receipts. The fiscal year 2003 budget presents proposed legislation that would decrease receipts by $64.5 billion in 2002 and $73.0 billion in 2003 (table 1).

Most of the decrease in receipts is accounted for by the proposed economic security plan, which would decrease receipts by $62.0 billion in 2002 and $65.0 billion in 2003. The budget endorses an economic security plan that would include an economic stimulus package and a worker assistance package for those who have lost jobs during the recent economic downturn, but it does not provide details on its exact composition. (6)

The fiscal year 2003 budget proposes tax incentives that would reduce receipts by $1.3 billion in 2002 and $4.9 billion in 2003. Incentives for charitable giving would decrease receipts by $0.8 billion in 2002 and $2.0 billion in 2003; the largest measure, which would allow tax deductions for charitable contributions to nonitemizers, would lower receipts by $0.6 billion in 2002 and $1.4 billion in 2003. A proposal to reform the administrative financing of unemployment insurance and transfer funding control to the States in 2005 would lower receipts by $1.0 billion in 2003. Measures that would provide a refundable tax credit for the purchase of health insurance, a deduction for long-term care insurance premiums in the calculation of adjusted gross income, and an additional personal exemption to home caretakers of family members would decrease receipts by $0.9 billion in 2003. Proposals to increase energy production and promote energy conservation would lower receipts by $0.3 billion in 2002 and $0.7 billion in 2003. These proposals would extend and modify the tax credit for producing energy from certain sources, provide new tax credits for other sources of energy production and conservation, and repeal the limit on deductible contributions to nuclear decommissioning funds.

The fiscal year 2003 budget proposes to extend for 2 years several provisions that expired in 2001; these proposals would lower receipts by $1.4 billion in 2002 and $2.5 billion in 2003. The budget also proposes to permanently extend the repeal of the estate and generation-skipping transfer taxes (currently due to expire in 2010) and to modify the gift tax. Taking into account taxpayers' expected behavioral response, this proposal is estimated to increase receipts by $0.2 billion in 2002, when the capital gains effect is expected to predominate, and to decrease receipts by $0.6 billion in 2003, when the gift-tax effect is expected to predominate.