SPENDING

    Total outlays for 2003 are now estimated to be $2,212 billion, $71 billion above the February Budget estimate. The increase is the result of enactment of legislation, including the Emergency Wartime Supplemental Act and final 2003 appropriations, offset in part by revisions in estimating assumptions. If this year follows the pattern of recent years, outlays for 2003 are likely to be lower than this estimate when final accounting is available in October. For 2004, the estimate of total outlays has increased by $43 billion relative to February, to $2,272 billion. The increase results from continued spending from enacted appropriations, other substantive legislation, and revisions to economic and technical assumptions.

Policy changes

    In total, policy changes increase outlays by $81.4 billion in 2003 and $47.1 billion in 2004. Over the five-year period 2004 through 2008, policy changes increase outlays by $92.8 billion.

    Since the transmittal of the budget, action was completed on 2003 appropriations bills, including a supplemental to support the war in Iraq. In total, this legislation provided additional defense discretionary funding of $72.4 billion. Outlays from this new funding occur over several years, raising 2003 and 2004 outlay estimates by $48.8 billion and $19.6 billion, respectively. These appropriations bills also provided emergency funding for non-defense needs and increased non-emergency funding relative to the level requested by the Administration. In total, appropriations actions increase non-defense discretionary outlays by $17.8 billion and $7.2 billion in 2003 and 2004, respectively.

    Legislation has also increased spending on a number of mandatory programs. The Jobs and Growth Tax Relief Reconciliation Act of 2003 included assistance to states both through the Medicaid program and more general temporary fiscal assistance. It also included acceleration of the increase in the child tax credit for 2003 and 2004, as proposed by the Administration. The Administration continues to support making the increased credit permanent. Other Acts extended temporary extended unemployment compensation, provided additional assistance to farmers, and increased the physician fee schedule under the Medicare program. In addition, reforms were enacted for the Postal Service that reduced contributions the Postal Service is required to make to the civil service retirement system to an actuarially fair level. Initially, the Postal Service will use these savings to repay debt. In 2005, the Postal Service can use the savings for other purposes. Beginning in 2006, it must retain the savings.

    Although the Budget Enforcement Act (BEA) requirements have expired, the Administration has continued to issue reports on substantive legislation with significant outlay impacts. Reports on legislation enacted for the rest of this session of Congress will be based on the assumptions in this Review. The Administration supports extension of the BEA requirements in a manner that ensures fiscal discipline and is consistent with the President's Budget proposals.

Estimating changes

    Changes in estimates can arise from non-policy related factors including changes in economic assumptions, discussed earlier in this Review, and changes in technical factors. For 2003, estimated outlays are $10.1 billion lower than in February for non-policy related reasons. For 2004, estimated outlays are $4.1 billion lower and over the five-year period, 2004 through 2008, they are $74.7 billion lower. All the following changes in outlay projections are the result of estimating changes.

    Discretionary appropriations: Outlays for discretionary programs increase by $2.6 billion in 2004 relative to the February Budget as a result of changes in estimates. Most of this reflects changes in the assumed timing of outlays based largely on actual experience to date, particularly for housing assistance.

    Commodity Credit Corporation (CCC) farm assistance: As a result of estimating assumptions, outlays for CCC farm assistance have increased by $1.6 billion in 2004. This increase is largely the result of a revised crop forecast, which projects lower prices for agricultural products than the forecast used to develop the February estimates.

    Medicaid: As a result of estimating changes, Medicaid outlays in 2003 and 2004 are projected to decrease by $3.0 billion and $4.1 billion, respectively, relative to the February estimates. These decreases are attributed primarily to revised actuarial estimates for Medical Assistance Payments.

    Health tax credit: Outlays for both the current law and proposed refundable tax credits are projected to be lower than in February. Enrollment in the current law trade-related health tax credit has been lower than was anticipated, reducing projections of outlays by $1.0 billion over five years. As a result of this experience, the proposed tax credit is now assumed to be implemented more slowly and to cause less reduction in employer-sponsored health insurance. Costs of the proposal are $8.4 billion lower over five years than projected in February.

    Medicare: Estimating revisions increase estimates of Medicare spending by $2.0 billion in 2003 and $2.3 billion in 2004 relative to the February estimates. The increases result largely from increased fee for service enrollment projections, higher market basket projections that lead to increased costs for inpatient hospitals, home health, and skilled nursing facilities, and higher medical economic indices that increase physician fee schedules.

    Unemployment compensation: As a result of revised estimating assumptions, outlays for unemployment compensation have decreased by $1.3 billion in 2003 and increased by $2.6 billion in 2004 relative to the February Budget. For 2003, the ratio of the insured unemployment rate relative to the civilian unemployment rate dipped temporarily below projected levels and the average weekly payment has declined. This is partially offset by a higher civilian unemployment rate. For 2004, the projections assume both a higher civilian unemployment rate and an increase in the ratio of insured to civilian unemployment based on current experience.

    Social Security: Estimated outlays for Social Security are lower than the February estimates by $3.3 billion in 2003 and $1.3 billion in 2004. This is largely the result of reductions in projections for special disability payments, both from delay in processing cases and a lowering of the number of beneficiaries expected to be eligible for payments.

    Other programs: On a net basis, outlays for other programs have increased by $6.5 billion in 2004 as the result of revised estimating assumptions. Significant increases are projected for deposit insurance ($1.0 billion), student loans ($1.0 billion), the earned income tax credit ($1.9 billion), and supplemental security income ($0.9 billion).

    Net interest: Excluding the debt service costs associated with policy changes, outlays for net interest have declined by $5.5 billion for 2003, $14.2 billion for 2004, and $62.7 for the period 2004 through 2008. The change is due to lower projected interest rates partially offset by increased interest costs associated with the net effect of revenue and outlay reestimates.