• Over the past 15 years, the federal budget has swung from deficit to surplus and back to deficit again.
• In the late 1990s, Congress obeyed self-imposed budget constraints and a buoyant economy generated rapidly rising revenues, resulting in budget surpluses. A brief recession, tax cuts, two wars, and the expiration of budget rules after 2000 led to falling revenues and rising spending and pushed the budget back into a deficit.
• More recently, federal revenues have rebounded, reducing but not eliminating the deficit. Congress reimposed budgetary constraints on itself in 2007 but failed to obey them, although their mere existence may nonetheless have restrained spending.
• The President's FY2009 Budget proposes to spend $3.1 trillion, supported by revenues totaling $2.7 trillion. That would leave a deficit of $407 billion, roughly a third larger than what is currently predicted for FY2008. Over the subsequent three years, the administration projects that spending will rise just 3.7 percent, less than a fifth of the 21 percent growth of revenues, and that the FY2012 budget will show a $48 billion surplus. The recent softening of the economy has led to a decline in revenues in FY2008, particularly from the corporate income tax. If that trend continues, the projected FY2012 surplus would likely not occur.

Underlying data: download

• CBO's latest baseline assumes per capita discretionary spending will decline in real terms (after adjusting for inflation), the 2001 and 2003 tax cuts will expire as scheduled in 2011, the alternative minimum tax is not fixed, and entitlement spending grows slower than its historical trend. Relaxing those unrealistic assumptions creates a bleak budget picture with a growing budget deficit over time (see graph).

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  Underlying data: download

• Over the long run, the situation is even worse. Rapid growth in spending on entitlements, particularly Medicare and Medicaid, appear destined to overwhelm any growth in revenues. And extending the Bush tax cuts beyond 2010 and fixing the AMT would only make matters worse.

Learn More:

• Current Analysis
• About the Budget
• Long-Term Issues
• Publications
• Posts about the budget on TaxVox, TPC's blog
  

Other Resources

• Overview of the President's Budget is the administration's view of the 2009 Budget
• Administration's View of the Nation's Fiscal Outlook
• Federal Revenues and Outlays under the President's FY 2008 Budget (chart)
• 18th Annual Urban Institute Roundtable on the Presidents Budget and the Economy (audio)
• The New Congress and the Budget: Perspectives From Three Former CBO Directors (audio) Edward Gramlich, Robert Reischauer and Rudolph Penner previewed how the 110th Congress will approach budgeting for fiscal year 2008 and beyond.
• The Treasury Department's General Explanations of the Administrations Fiscal Year 2008 Revenue Proposals explains all of the President's tax proposals.
• CBO Baseline
• Brookings Institution Budget page
• Description of the Congressional budget process
• Budget terms useful in understanding the budget process.

Spending Proposals

• A 7.5 percent increase in defense spending to $515 billion in FY2009, plus $93 billion in supplemental funds for 2008 and $142 billion for 2009 for the War on Terror, including the wars in Iraq and Afghanistan.
• Slow growth of Medicare and Medicaid spending to save $101 billion over five years and impose higher premiums on high-income participants in the Medicare prescription drug program.
• Hold the rate of growth for non-security discretionary spending to one percent, well below the current 2.5 percent rate of inflation.

Underlying data: download

Revenue Proposals

The administration repeats many of the revenue proposals offered in its FY2008 budget. Again, the major proposals include:

• Make 2001 and 2003 tax cuts permanent
  TPC estimates that more than two-thirds of the extended tax cuts would go to the fifth of the population with the highest incomes in 2011 and more than a third would go to the top 1 percent of the income distribution. After-tax income of the highest income one-tenth of one percent would be nearly 8 percent higher than if the tax cuts were allowed to sunset.li>
• Provide a new standard deduction for health insurance (SDHI) ($15,000 for family coverage and $7,500 for single coverage)
  A TPC analysis of the proposal concludes that although the change would equalize the tax treatment of health insurance obtained through an employer and that purchased in the private non-group market, various features of the proposal could have adverse effects, particularly for low-income and less healthy people. (See all TPC work on health insurance.)
• Provide relief from the alternative minimum tax (AMT) for 2008
  (See TPC analysis of the AMT.)

Budget Documents

• President's budget
• Historical tables
• State-by-state tables
• Summary documents (PDF)

Underlying Data for Outlays and Revenues

• Actual outlays and revenue for 1990-2007
• President's FY 2008 budget numbers for 2008-2013