Hill budget office releases spending outlook

The Congressional Budget Office Thursday released the full text of its annual budget and economic outlook, filling in the gaps from the preview CBO Director Crippen gave congressional budget committees last week. The report provides new information on homeland security spending, the impact of last year's $1.35 trillion tax cut and projections of discretionary spending growth under four different scenarios.

As Crippen told the Budget panels, CBO's total budget surplus estimate for fiscal 2002-2011 has plunged $4 trillion in a year, from the January 2001 estimate of $5.6 trillion to $1.6 trillion.

CBO's current services baseline forecasts deficits of $21 billion in fiscal 2002 and $14 billion in 2003 before surpluses return in 2004. But in all except the last three years of the fiscal 2003-2012 budget window, the baseline projects on-budget, or non-Social Security, deficits. For that 10-year period, CBO projects a cumulative on-budget deficit of $242 billion. The unified budget, however, will run a total surplus of $2.26 trillion.

In the category of homeland security, CBO estimates the government spent $17.2 billion in fiscal 2001 and will spend about $22.2 billion in 2002 in the 13 regular appropriations bills and portions of the $40 billion anti-terrorism supplemental. The White House has proposed devoting nearly $38 billion to homeland security in 2003.

In addition to discretionary spending, CBO reports Congress provided another $9.9 billion in 2002 for homeland security and disaster relief through the airline bailout bill ($7.6 billion in aid to the airlines and $750 million for victims of the Sept. 11 attacks), the USA Patriot Act ($70 million for survivors of public safety officers killed Sept. 11), the aviation security bill ($1.25 billion to establish the new Transportation Security Administration), and the Victims of Terrorism Tax Relief Act ($190 million). Another $7 billion in federal funds went to state and local governments.

On the revenue side, CBO's 10-year revenue projections dropped $2.4 trillion from nearly $28 trillion in January 2001 to the current level of $25.5 trillion, primarily due to last year's tax cut and the recession. Also contributing to the lower projection are the railroad retirement bill, SEC fee relief legislation and tax relief provided to terrorism victims.

According to CBO, extending the tax cut beyond its 2010 expiration date would reduce revenues by $569 billion from 2003 through 2012--which, combined with the resulting $58 billion increase in debt service payments, would reduce the estimated 10-year surplus of $2.26 trillion by $627 billion--to $1.64 trillion.

CBO also lays out four alternative spending scenarios, comparing them to its baseline projection. The baseline projection projects that discretionary spending will grow at the rate of inflation, from $711 billion in budget authority and $733 billion in outlays in 2002, to $921 billion in budget authority and $953 billion in outlays in 2012.

If discretionary spending grew at the rate of nominal gross domestic product after 2002, CBO projects it would reach $1.19 trillion in budget authority and $1.2 trillion in outlays in 2012. Were it to increase at the average annual growth rate from 1998 to 2002 of 7.6 percent, CBO estimates spending would hit $1.48 trillion in budget authority and $1.46 trillion in outlays in 10 years.

Excluding extension of the 2002 supplemental--included in CBO's baseline--and assuming growth at the inflation rate, spending would rise to $896 billion in budget authority and $928 billion in outlays in 2012. Under the fourth scenario, a spending freeze would keep the budget authority level at $711 billion through 2012, but see outlays increase slightly, to $748 billion.