The President?s FY2004 Budget in Perspective
President Bush’s fiscal year 2004 budget, released yesterday by the Office of Management and Budget (OMB), requests $2.2 trillion in total spending and anticipates $1.9 trillion in total receipts. In other terms, based on administration forecasts, federal spending will be 19.7 percent of Gross Domestic Product (GDP) and receipts will total 17.0 percent of GDP in fiscal year 2004. Spending of $2.2 trillion represents a 2.2 percent increase over the administration’s most recent estimates for the current fiscal year and a 25.3 percent increase compared to a decade ago, fiscal year 1994, after adjusting for inflation. The $1.9 trillion in anticipated collections represents a 2.7 percent increase over the administration’s most recent estimate for the current fiscal year and a 25.5 percent increase compared to a decade ago. Figure 1 shows federal outlays and receipts as a percentage of GDP since 1940.
The administration’s budget shows a current year (fiscal year 2003) net deficit of $304.2 billion and a net deficit of $307.4 billion in fiscal year 2004. The budget shows continued deficits through at least 2008. The deficits over this period will increase outstanding debt held by the public from an estimated $3.9 trillion at the end of fiscal year 2003 to an estimated $5.0 trillion in 2008. Measured as a percentage of GDP, debt held by the public is expected to increase from 36.1 percent of GDP at the end of fiscal year 2003 to 36.4 percent of GDP at the end of fiscal year 2008.
It is important to put the current budget proposal into historical context. To do so, it is necessary to translate current spending and revenue proposals into real terms either by adjusting for inflation or by expressing the proposal in terms of the broader economy. Looking merely at the budget in nominal terms that do not account for inflation or economic growth is misleading and inaccurate. The table below contains information about the current budget in the context of the post-World War II era and the past three administrations. Highlights include:
- The President’s budget proposes spending $390.4 billion on defense related activities in FY 2004. This amounts to 17.5 percent of all spending and 3.5 percent of GDP. This level is roughly the same as defense spending was in 1996, which amounted to 17.0 percent of all federal spending and 3.5 percent of GDP. Defense spending in 1987, the height of the Reagan build up, was 28.1 percent of all federal spending and 6.1 percent of GDP.
- The President’s budget proposes a fiscal year 2004 budget deficit of $307.4 billion, which is 13.8 percent of all spending and 2.8 percent of GDP. This level is roughly the same as the deficit was in 1994, which amounted to 13.9 percent of all spending and 2.9 percent of GDP. Deficit spending in 1983, the highest point during the Reagan administration, was 25.7 percent of all spending and 6.0 percent of GDP.
Comparison of Bush Budget (FY’04) with Past Budget Averages
|FY’04Proposal||Post-WWIIAverage(FY’46 – FY’02)||ClintonBudgets(FY’94 – FY’01)||G.H.W. BushBudgets(FY’90 – FY’93)||ReaganBudgets(FY’82 – FY’89)|
|Total Receipts as percent of GDP||17.0%||17.9%||19.4%||17.7%||18.0%|
|Total outlays as percent of GDP||19.7%||19.5%||19.6%||22.0%||22.3%|
|Deficit (-)/Surplus as percent of GDP||-2.7%||-1.6%||-0.1%||-4.3%||-4.3%|
|Annual growth in total receipts (average % change from previous fiscal year, FY96 $)||2.7%||2.9%||4.9%||0.5%||2.5%|
|Annual growth in total outlays (average % change from previous fiscal year, FY96 $)||2.2%||2.3%||1.5%||1.9%||2.7%|
|Defense spending as a percent of total outlays||17.5%||35.5%||17.1%||21.7%||26.7%|
|Non-defense discretionary spending as a percent of total outlays||19.2%||19.4%*||17.6%||16.6%||17.1%|
|Net interest costs as percent of total outlays||7.9%||10.5%*||13.9%||14.5%||13.2%|
|Other mandatory spending as a percent of total outlays||55.4%||41.6%*||51.4%||46.2%||42.9%|
|Debt held by public at end of fiscal year as percent of GDP||36.9%||44.0%||43.0%||46.3%||36.7%|
|Gross Debt at end of fiscal year as percentof GDP||64.8%||56.2%||63.4%||61.8%||45.4%|
|* includes only data back to 1962 since the distinction between discretionary and mandatory began only in that year.|