CRS Updates Report on Fiscal 2008 Budget

President Bush presented his fiscal year (FY) 2008 budget to Congress on February 5, 2007. For FY2008, the budget shows a deficit of $239 billion, which would become a surplus of $61 billion in FY2012, the last year projected. The proposals include large defense supplementals for FY2007 and FY2008, extending the expiring tax cuts, constraining domestic discretionary spending (and, after FY2008, doing the same to defense spending), slightly slowing the growth of Medicare and Medicaid, and stopping the expanding coverage of the Alternative Minimum Tax (AMT) in FY2007 and FY2008 (but not in subsequent years).

Although the budget proposes a positive outlook over the next five years, it also discusses the long-term fiscal problems facing the nation. According to the longer-term projections from the Administration, the Congressional Budget Office (CBO), and the Government Accountability Office (GAO), the soon-to-begin retirement of the baby boom generation will increase the demand for resources from the federal programs for the elderly (in particular, Medicare, Social Security, and Medicaid). Under any responsible set of projections, the expanding eligible populations and continued growth in medical care costs (in particular) will drive the growth in these programs in the next decades. If overall federal spending is not allowed to grow as a share of gross domestic product (GDP), the growth in these programs will require reductions in most other federal activities. The consequences of unchecked growth in these programs could, at some future date, disrupt the economy's ability to provide the resources needed for the programs.

Earlier in the year (January 24, 2007), the CBO released its annual budget report (The Budget and Economic Outlook: Fiscal Years 2008-2017). The report's baseline estimates and projections attempt to show what happens to the budget with no changes from current policy. CBO makes certain assumptions (and certain assumptions have been provided in law in the past) to generate a baseline. CBO's report projects a deficit of $98 billion for FY2008, becoming a $170 billion surplus in FY2012 and a $249 billion surplus in FY2017. The baseline assumes the large tax cuts enacted in the first half of the decade expire as currently scheduled, discretionary spending grows more slowly than its historical trend, relief from the Alternative Minimum Tax (AMT) is not provided, and there is no further funding for the wars in Iraq and Afghanistan. The baseline is designed to be a benchmark against which policy changes can be measured, rather than a prediction of likely outcomes.

The Senate was expected to complete its deliberation on its budget resolution (S.Con.Res. 21) on March 23, 2007. The House Budget Committee reported its version of the FY2008 budget resolution (no number yet) on March 22. The House is expected to consider the resolution during the week of March 26. Both resolutions differ from the budget proposed by the President.

This report will be updated as events warrant.

 Contents

The Administration's annual budget submission is followed by congressional action on the budget. This usually includes the annual budget resolution, appropriations, and, possibly, a reconciliation bill (or bills) as required by the budget resolution. Over the course of deliberation on the budget, the Administration often revises its original proposals as it interacts with Congress, and as conditions change in the economy and the world.

The President sent his FY2008 budget to Congress on February 5, 2007. Various congressional committees held hearings on the budget during that same week. The congressional budget committees have indicated a desire to produce their respective budget resolution for FY2008 by mid-March 2007.

       Table 1. Budget Estimates and Proposals for FY2008

CBO's first budget report for FY2008 contained baseline and economic estimates and projections for FY2007 through FY2017. The report estimated an FY2008 baseline deficit of $98 billion (down from the estimated FY2007 baseline deficit of $172 billion). By FY2012, the CBO baseline shows a surplus of $170 billion, which grows to $249 billion in FY2017.

CBO's baseline assumes discretionary spending grows at the rate of inflation, the 2001 and 2003 tax cuts fully expire after 2010 (as required under current law), and the "patch" to the alternative minimum tax (AMT), which expired at the end of calendar year 2006, is not revived. The effects of these assumptions raise receipts and slow discretionary spending growth. Receipts would grow substantially after calendar year 2010, when most of the tax cuts from 2001 and 2003 expire, which, along with sluggish growth in discretionary spending, explains most of the declining deficit and the emerging surpluses over the 10 years in the CBO baseline. As CBO warns, the 10-year baseline results understate the longer-term size and persistence of the deficit.

CBO's report includes the estimated budgetary effects on revenues and outlays of selected policies not included in the baseline estimates. These include policy choices that may be more or less likely to occur than the policies assumed to produce the baseline. CBO's January 2007 report includes estimates of alternative policies that, among a few others, estimate the budgetary effects of making the 2001 and 2003 tax cuts permanent, indexing the AMT to limit its expanding coverage, increasing discretionary appropriations at the rate of growth of gross domestic product (GDP), and freezing total discretionary appropriations at the level provided in FY2007.

President Bush's FY2008 budget calls for extending and making permanent most of the tax cuts adopted in 2001 and 2003, as well as extending other expiring tax provisions. The President's proposals would reduce receipts by almost $600 billion between FY2008 and FY2012, and by an estimated $1.9 trillion between FY2008 and FY2017 (these estimates do not include the resulting higher debt-service costs resulting from the change).²

The President also proposes changes to some mandatory programs, in particular Medicare and Medicaid, to slow their growth. The changes would save, according to Administration estimates, $59 billion over five years and $359 billion over 10 years. This overall reduction reflects increases such as a new tax credit for health care, personal accounts for Social Security (beginning in FY2012), and increases in need-based grants for higher education.

The Administration's budget provided a limited amount of information for the years beyond FY2012. The budget does include estimates of the cumulative proposed revenue changes and proposed mandatory spending changes for the periods FY2008 through FY2012, and FY2008 through FY2017, but these projections contained no information for the individual years after FY2012. No estimates are provided for other components of the budget or for budget totals beyond FY2012.

Although not included in the budget documents (they were made available on February 12, 2007), the President, as he had last year, proposed the elimination of, the reduction in, or the reform of approximately 141 programs, both discretionary and mandatory. Many of the proposals are the same as last year's. This set of policy changes will, according to Administration estimates, save an estimated $22 billion in budget authority (not outlays) in FY2008 compared to FY2007 levels.

Uncertainty in Budget Projections

All budget projections are inherently uncertain (albeit, some more than others). Their dependence on assumptions that are themselves subject to substantial variation over short time periods makes budget estimates and projections susceptible to fairly rapid and dramatic changes.³ Small changes in economic conditions (from those assumed in the estimates), particularly the rate of GDP growth, can produce large changes in the budget estimates. According to CBO estimates, a persistent 0.1% decrease in the growth rate of real GDP would increase the deficit (including interest costs) by $61 billion cumulatively over a five-year period and by $273 billion over 10 years. Increases in the rate of GDP growth would decrease the deficit or increase a surplus by similar amounts over the same time periods. In addition to budget changes resulting from economic variations, the adoption of policies that differ from those assumed in the baseline, such as supplemental appropriations for operations in Iraq and Afghanistan or extending the expiring tax provisions, would also change the budget outlook.

The President's (FY2008) budget includes a chapter in the Analytical Perspectives volume titled "Comparison of Actual to Estimated Totals." The chapter examines the causes of the changes from the initial Administration budget estimates for FY2006 (from February 2005) through the actual results for that year. OMB extends the analysis to find upper and lower bounds to the deficit or surplus estimates over a five-year period, based on data going back to FY1982. It finds that the upper and lower bounds, based on the Administration's statistical analysis of past experience, ranges over $1.1 trillion at the end of a five-year period. In other words, the Administration's projected surplus for FY2012, $61 billion, could range from a surplus of approximately $600 billion to a deficit of approximately $500 billion (with a 90% chance of the budget balance falling between those two numbers). Even the Administration's $239 billion FY2008 deficit estimate has a 90% chance of falling between a $28 billion deficit and a $516 billion deficit.

Budget projections depend on underlying assumptions about the direction of the economy, expected tax and program changes, and how these interact, along with other factors (such as changing demographics) that affect the budget. Any deviation from the assumptions used in the budget estimates -- such as faster or slower economic growth, higher or lower inflation, differences from the expected or proposed spending and tax policies, or changes in the technical components of the budget models -- will change the budget estimates and projections.

The FY2007 supplemental appropriations (H.R.1591) passed the House on March 23. A significant amount of the outlays flowing from the legislation (if and when it clears Congress and the President signs it) will occur in FY2008. The Senate is expected to take up a similar bill next week (March 26). Most of the funding in the supplemental appropriations is for military activities overseas while the remainder (an amount that the President does not want attached) is for domestic programs.

         Table 2. Outlays for FY2006-FY2012 and FY2017

Measured against the Administration's FY2008 current services baseline ($2,752 billion), the proposed level of outlays ($2,902 billion) is $150 billion (5.5%) higher than the baseline.⁴ This difference represents the "cost" of the Administration's proposed policies. For FY2008, almost all of the increase comes from the Administration's proposed additional funding for "security" activities (which comprise the combined spending for defense, homeland security, and foreign affairs). Most of the proposed additional security funding is for the wars in Iraq and Afghanistan. The budget also proposes, compared to baseline levels, an increase ($8 billion, 1.8%) for "non-security" discretionary spending and a $10 billion (0.7%) reduction in mandatory spending. The Administration's budget shows a net interest increase of $7 billion (2.8%) from baseline levels in FY2008.

The year-to-year change in outlays (the $118 billion increase in outlays from FY2007 to FY2008) is composed of all the factors that make outlays change from one year to the next. These include automatic cost-of-living adjustments in many federal programs, growth in populations eligible for program benefits, policy changes from year-to-year, and inflation-driven costs of goods and services bought by the federal government.

As a share of gross domestic product (GDP), the Administration's proposals would reduce outlays from 20.2% of GDP in FY2007 to 20.0% of GDP in FY2008 (it averaged 20.6% of GDP between FY1966 and FY2006). By FY2012, the Administration's projections show that outlays will have fallen to 18.3% of GDP (lower than in any year since FY1960). The Administration shows non-defense discretionary spending falling by 0.7% of GDP over these five years. Defense spending falls by 1.1% of GDP over the same period. Mandatory programs increase their share of GDP by 0.3%, while net interest falls by 0.2% of GDP. Both Medicare and Medicaid grow slightly as percentages of GDP, despite the Administration proposals to trim their growth.

The President's budget showed defense spending increasing by 6.0% from FY2007 ($569 billion) to FY2008 ($603 billion), including the $140 billion proposed supplemental for military actions overseas. By FY2012, the Administration's projections drop defense spending to $546 billion.

For FY2008, the Administration's proposed level of non-defense discretionary outlays is larger than the current services baseline estimates (by $19 billion) in the Administration's budget. Over the five years, the current services estimates for nondefense discretionary outlays grows by an average 0.7% annually, while the Administration's proposed levels fall by an average 0.7% annually. The Administration's budget shows non-defense discretionary spending falling from $511 billion in FY2007 and FY2008 to $493 billion in FY2012. As shares of GDP, the fall is more substantial, dropping from 3.7% of GDP in FY2007 to 3.5% of GDP in FY2008 to 2.8% of GDP in FY2012. If these levels are achieved, non-defense discretionary spending would be smaller as a percentage of GDP in FY2012 than in any year since at least FY1962. How the Administration plans to achieve these reductions, particularly after FY2008, is not illuminated in the budget.

Mandatory spending in the President's budget grows by 4.2% ($62 billion) from FY2007 to FY2008. The budget includes proposals to reduce, from baseline levels, mandatory outlays by $10 billion in FY2008. The reductions would be achieved by slowing the growth of selected mandatory spending activities such as Medicare and Medicaid, among others. The effort would reduce total mandatory spending over the five years by almost $60 billion (out of total mandatory spending over the period of approximately $1,100 billion). Mandatory spending would remain the largest broad category of federal spending, growing from $1,465 billion in FY2007 to $1,527 billion in FY2008 and to $1,923 billion in FY2012. The budget showed it growing from 10.5% of GDP in FY2008 to 10.8% of GDP in FY2012.

The President's FY2008 budget shows net interest outlays rising by $22.1 billion from FY2007 to FY2008. The growth in federal debt in the recent past, and its continued growth under the Administration's proposals (at least in the very short term), leads to the higher net interest outlays. The proposed net interest outlays in FY2008 are $7.8 billion larger than the Administration's current services baseline estimate for FY2008. The Administration's policy proposals would raise FY2012 net interest outlays almost $30 billion above its current services net interest outlay estimate. The Administration's estimates show net interest changing very little as a percentage of GDP throughout the five years (ranging between 1.6% of GDP to 1.8% of GDP).

CBO's January 2007 baseline estimates show outlays falling over its projection period (FY2007-FY2017), from 19.9% of GDP in FY2007 to 19.7% of GDP in FY2008 to 18.8% of GDP in FY2012 and remaining near that level through FY2017 (18.9% of GDP). Under a selection of CBO provided alternative policies that would increase outlays above baseline levels, with outlays rising over the 10-year period from 20.2% of GDP in FY2008 to 21.2% of GDP in FY2017. One of the alternative policies that CBO estimates, freezing total discretionary appropriations at the level provided for FY2007, would reduce outlays as a percentage of GDP faster than what CBO shows occurring under the baseline.

The CBO baseline estimates for defense spending (which excluded any new supplemental funding) increases outlays by $7 billion (from $490 billion to $497 billion) between FY2007 and FY2008. CBO's baseline assumptions, which increase total discretionary spending by the rate of inflation, show defense spending rising to $575 billion in FY2012 (and to $652 billion in FY2017). As percentages of GDP, defense spending falls slowly throughout the 10-year projection. CBO estimates that it will be 3.9% of GDP in FY2007 and 3.8% of GDP in FY2008. It would then fall to 3.3% of GDP in FY2012 and to 3.1% of GDP in FY2017 in CBO's projections. CBO's non-defense discretionary spending rises from an estimated $490 billion in FY2007 to $497 billion in FY2008, to a projected $525 billion in FY20012, and to $586 billion in FY2017. Under the CBO baseline projections, non-defense discretionary spending falls as a percentage of GDP, from 3.6% of GDP in FY2007 to 3.5% of GDP in FY2008, to 3.1% of GDP in FY2012, and to 2.8% of GDP in FY2017. These latter numbers, like the ones from the Administration, are very low by historical standards.

The mandatory spending baseline estimates from CBO rises from $1,455 billion in FY2007 to $1,533 billion in FY2008, a 5.4% increase. By FY2012, CBO's projections increases mandatory spending to $1,866 billion and to $2,568 billion by FY2017. As shares of GDP, CBO's projections raise mandatory spending slowly early in the period and faster later in the period from 10.7% in both FY2007 and FY2008 to 10.8% in FY2012 and to 12.1% of GDP in FY2017.

CBO's baseline estimates show net interest growing by $15 billion from FY2007 to FY2008 (from $235 billion to $250 billion). The smaller deficits in subsequent years in the CBO baseline projections reduce the growth in the debt, slowing the rise and then reversing the rise, in net interest payments. They peak at approximately $270 billion in FY2011 and FY2012 before sliding to $228 billion in FY2017. As shares of GDP, the CBO January 2007 projections show net interest holding fairly steady or falling throughout the ten-year period (from approximately 1.7% of GDP in FY2007 and FY2008 to 1.1% of GDP in FY2017).

 

Figure 1. Outlays by Type,

 

FY2000-FY2012

 

(percent of GDP)

 

 

 

 

Figure 2. Outlays, FY2000-FY2017

 

(percent of GDP)

 

 

 

The President's proposed outlays fall sharply after FY2007, a result of the Administration's proposals to reduce discretionary spending, both defense and nondefense, and moderate the rate of growth in some mandatory programs. By FY2012, spending would be just below its percentage of GDP in FY2000.

The alternative estimate is based on selected policy alternatives from CBO that are not included in its baseline. The alternative estimate incorporates two of several available assumptions directly affecting outlays. The first has discretionary appropriations growing at the rate of nominal GDP growth (rather than at the rate of inflation). The second reduces the number of troops deployed in Iraq and Afghanistan as well as other anti-terror activities to 75,000 by FY2013. Both of these assumptions increase outlays above the baseline projections, increasing the deficit (or reducing a surplus), increasing federal debt and subsequent net interest payments. These higher net interest payments are included in the alternative estimate. In addition, the alternative estimate for outlays includes the outlay effects of the changes to the deficit and debt that occur in the alternative estimate for receipts (see the next section). The outlay effects are mostly higher net interest. The alternative estimate grows over the 10 years as a percentage of GDP, rising to 21.1% in FY2017.

         Table 3. Receipts for FY2006-FY2012 and FY2017

The Administration estimates that making the 2001 and 2003 tax cuts permanent will reduce cumulative receipts by $374 billion between FY2008 and FY2012 and by $1,617 billion between FY2008 and FY2017. The effect of these and the other Administration proposals for receipts would reduce receipts, from baseline levels, by an estimated $599 billion in the first five years and by $1,854 billion over 10 years (as can be seen in Table 3, the proposed reductions do not reduce receipts in dollars over time).

CBO's January 2007 budget report estimates that extending the expiring provisions of the major tax cuts passed in 2001 and 2003 would reduce revenues by an estimated $418 billion over the first five years and by $1,937 billion over 10 years. Extending all the tax cuts that expire over the 10-year period would reduce revenues (from CBO baseline levels) by $870 billion in the first five years and by $3,178 billion over the full 10 years of the forecast.⁵

Figure 3 shows the President's January receipt estimates by type for the fiscal years 2000 through 2012. Actual receipts are shown for FY2000 through FY2006. All are shown as percentages of GDP. Excise and other receipts each remain at or below 1% of GDP for the period shown. Corporate income taxes, after rising through FY2006, decline slowly and stabilize near 2% of GDP under the Administration's projection. Social Insurance receipts remain fairly steady from FY2006 through FY2012. Individual income taxes, having fallen from over 10% of GDP in FY2000 to 7% of GDP in FY2004, regain some of their lost share under the Administration's proposals, but remain 1% of GDP below their FY2000 level.

 

Figure 3. OMB Receipts

 

FY2000-FY2012

 

(percent of GDP)

 

 

 

As shares of GDP, total receipts in the President's budget are expected to remain near their average (between FY1966 and FY2006) of 18.3% throughout the five years. CBO's baseline estimates (January 2007), which exclude the extension of the 2001 and 2003 tax cuts, are larger, rising to over 20% of GDP by FY2017.

The last two years (FY2006, FY2007) saw unexpectedly rapid growth in receipts. Neither OMB nor CBO expects the rapid growth to continue. Receipts rose from 16.3% of GDP in FY2004 to 18.4% of GDP in FY2006. OMB shows very little change in receipts as a share of GDP over the budget's five years, rising to 18.6% in FY2012. CBO's baseline shows receipts jumping to 19.8% of GDP in FY2012 once the 2001 and 2003 tax cuts expire, but not because of continued revenue growth under current tax law.

Modifying CBO's baseline revenue estimates and projections by using its alternative policy estimates produces slower growth in receipts, both in dollars and as shares of GDP, than in CBO's baseline. The alternative estimate assumes the extensions of all expiring tax cuts, an annual adjustment to the AMT to halt its expanding coverage, and the interaction effect of the extensions and the AMT.⁸ The alternative estimate for receipts shows them falling as a percentage of GDP to approximately 17.5% by FY2012, where they remain through FY2017. In FY2008, CBO estimates that the alternative revenue assumptions would produce $70 billion less revenue than the baseline. By FY2012, the alternative revenue estimate is $389 billion smaller than baseline revenues and in FY2017, the alternative has fallen $560 billion below the baseline projection.

 

Figure 4. Receipts, FY2000-FY2017

 

(percent of GDP)

 

 

 

The President's FY2008 budget has a deficit of $239 billion for FY2008, and a small surplus ($61 billion) in FY2012. The Administration's current service baseline estimates show the budget reaching a surplus in FY2010, two years prior to the budget reaching a surplus. This implies that if the Administration's proposals were not implemented, a surplus would arrive sooner.

  Table 4. Surpluses/Deficits(-) for FY2006-FY2012 and FY2017

Achieving the Administration's deficit reduction goals during the next five years would require strict limits on the growth in total discretionary spending (both defense and domestic), a slowing in the growth rate of some entitlements, and allowing AMT relief to lapse after 2008. Some of the President's proposals would increase spending or reduce receipts, requiring larger spending reductions in other areas of the budget, since the Administration has steadfastly opposed any tax increases to reduce the deficit.⁹

CBO's January 2007 baseline estimates and projections show the deficit falling in dollars and as a percentage of GDP through FY2011, after which surpluses appear through the end of the projections in FY2017. The assumptions that CBO follows to produce the baseline generated the deficit reduction and surpluses. On the revenue side, the baseline assumes the lack of a fix to the expanding coverage of the AMT and the expiration of the 2001 and 2003 tax cuts at the end of calendar year 2010 (as required by current law). Both boost revenues considerably compared to including an AMT fix and extending the tax cuts. On the spending side, discretionary spending is assumed to grow at the rate of inflation, which is a slower rate than it has grown recently.

The result of substituting a selection of the CBO alternative policies not included in its baseline for the policy assumptions used in the baseline, produced a growing deficit from FY2007 through FY2017. The alternative estimate, as discussed in the previous sections, limits the growing coverage of the AMT, extends the 2001 and 2003 tax cuts, and increases discretionary spending at the rate of GDP growth (see the CBO-based alternative estimate in Figure 5). Under these alternative policies, the deficit would grow from an estimated 1.5% of GDP in FY2007 to 3.6% of GDP in FY2017.

 

Figure 5. Surplus/Deficit(-)

 

FY2000-FY2017

 

(percent of GDP)

 

 

 

The CBO baseline deficit estimate assumes the expiration of the 2001 and 2003 tax cuts in 2010, no future adjustments to lessen the expanding coverage of the AMT, and the adjustment of discretionary spending for inflation. The result of these baseline assumptions, as percentages of GDP, is growing receipts, falling outlays, and a rapid fall in the deficit as a share of GDP and the emergence of surpluses after FY2011 (the line moves upward in the figure). The President's policy proposals assume additional spending for defense in FY2007 and FY2008 (and a minimal "placeholder" in FY2009, with no assumptions about additional defense funding in subsequent years), tight controls on domestic discretionary spending, a slight slowing in the growth of Medicare and Medicaid, no additional AMT relief after FY2008, and the creation of personal accounts for Social Security in FY2012. The estimates show a rapid decline in the deficit as a percentage of GDP, with a slight surplus appearing in FY2012.

The alternative estimate in Figure 5 uses selected estimates of alternative policies estimated by CBO. Under these assumptions, the deficit estimates, after a reduction in FY2007, grows almost steadily through FY2017, when the deficit reaches 3.6% of GDP, the same level reached in FY2004 (this line moves downward in Figure 5).

In addition, a CBO report on The Long-Term Budget Outlook (December 2005) stated

U.S. Council of Economic Advisors. The Economic Report of the President. Washington, GPO, Feb. 2007.

U.S. Office of Management and Budget. The Budget of the United States Government for Fiscal Year 2008. Washington, GPO, February 5, 2007.

CRS Report RL31775, Do Budget Deficits Push Up Interest Rates and Is This the Relevant Question? by Marc Labonte.

CRS Report RS21939, The Magnitude of Changes That Would be Required to Balance the FY2008 Budget, by Marc Labonte.

CRS Report RL31414, Baseline Budget Projections, a Discussion of the Issues, by Marc Labonte.

CRS Report RL30149, The Alternative Minimum Tax for Individuals, by Gregg Esenwein.

CRS Report RL30239, Economic Forecasts and the Budget, by Brian W. Cashell.

CRS Report RL31235, The Economics of the Federal Budget Deficit, by Brian W. Cashell.

CRS Report 98-560, Baselines and Scorekeeping in the Federal Budget Process, by Bill Heniff, Jr.

CRS Report RS20095, The Congressional Budget Process: A Brief Overview, by James V. Saturno.

CRS Report RS22605, FY2008 Budget Documents: Internet Access and GPO Availability, by Jennifer Teefy.

CRS Report RL30297, Congressional Budget Resolutions: Selected Statistics and Information Guide, by Bill Heniff Jr.

CRS Report 98-720, Manual on the Federal Budget Process, by Robert Keith and Allen Schick.

CRS Report RL30708, Social Security, Saving, and the Economy, by Brian W. Cashell.

CRS Report RL33868, Medicare: FY2008 Budget Issues, by Hinda Chaikind, and Gretchen A. Jacobsen, coordinators.

² The Administration's current services baseline estimates incorporate some of the Administration's policy proposals, such as the extension of the 2001 and 2003 tax cuts. The effect of the Administration's proposals in this report are taken from OMB tables measuring the full effect of the policy changes.

³ Some of the underlying components of budget estimates are known with some certainty. Demographics are one known component. In the next decade, the expected retirements from the baby boom generation will rapidly increase the spending for Medicare and Social Security as well as other federal activities benefitting the elderly. Because virtually all those who will become eligible for these benefits are alive today, estimating the growth in the populations eligible for these programs is relatively straightforward.

⁴ The current services baseline estimates, like CBO's baseline estimates, are designed to provide "a neutral benchmark against which policy proposals can be measured." For outlays, the modified baseline used this year by OMB assumes that federal pay adjustment assumptions reflect the (usual) first full pay period in January start of paycompatibility-adjusted raises rather than October 1, that emergency spending is not extended, and that the debt service (interest payment) changes are included in the baseline. These modifications reduced the reported current services baseline outlay estimate by approximately $41 billion in FY2008 and by $84 billion in FY2012.

⁵ CBO lists almost 100 expiring provisions between FY2007 and FY2017. Almost all of them would reduce revenues. See table 4-10 in CBO's report, The Budget and Economic Outlook: Fiscal Years 2008-2017, January 2007, [http://www.cbo.gov/showdoc.cfm?index= 7731&sequence=0].

⁶ For discussions of the AMT issue, see CRS Report RL30149, The Alternative Minimum Tax for Individuals; and CRS Report RS22100, The Alternative Minimum Tax for Individuals: Legislative Initiatives In The 109th, both by Gregg A. Esenwein.

⁷ See CRS Report RS21817, The Alternative Minimum Tax (AMT): Income Entry Points and "Take Back" Effects, by Gregg A. Esenwein, for more information on the interaction of the AMT and the tax cuts.

⁸ The interactions of AMT reform and the extension of the 2001 and 2003 tax cuts produces greater revenue losses than the two changes separately. CBO includes in its alternative policies an estimate of this effect.

⁹ The Administration's current services baseline estimate, which assumes current policy, has smaller deficits and a quicker move to surplus than the deficits and surplus in the President's proposed budget. The cumulative five-year deficit would be smaller without the President's proposed policy changes than with them.

¹⁰ GAO. The Nation's Long-Term Fiscal Outlook: January 2007 Update. GAO-07-510R. p.1.

¹¹ CBO. The ABCs of Long-Term budget Challenges, Director's Conference on Budget and Accounting for Long-Term Obligations, Opening Remarks by Donald B. Marron, Acting Director, Dec. 8, 2006. p. 2.

¹² CBO, The Long-Term Budget Outlook, December, 2005, p. 1.

¹³ OMB, Budget of the United States Government for Fiscal Year 2008, February, 2007, p. 16.