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Administration Projects Record Deficits

July 18, 2003 - In its annual mid-session budget review released July 15, the Office of Management and Budget (OMB) estimates the federal budget deficit will reach a record $455 billion in FY 2003, an increase of nearly 50 percent over the Administration's $304 billion deficit estimate in February. The OMB report cites "weaker-than-anticipated" economic growth, the costs of military action and reconstruction in Iraq, and increased spending associated with a more costly economic stimulus package and other legislation passed this year as factors contributing to the increased deficit projection.

For future years, OMB estimates the deficit will reach $475 billion in FY 2004 before decreasing to $226 billion by FY 2008. These projections are based on assumptions of stronger economic performance and continued restraint in discretionary spending. OMB assumes nondefense discretionary spending will only increase between 1.1 percent and 1.5 percent a year for FYs 2004-2008. By comparison, OMB estimates nondefense discretionary spending will increase 12.7 percent in FY 2003, including the cost of the wartime supplemental. OMB also projects annual increases in Medicaid spending will drop from the FY 2003-2004 estimates of 11.3 percent to a range of 8.5 percent to 8.8 percent in FYs 2006-2008.

In an effort to minimize the impact of the increased estimates, OMB notes the FY 2003 and FY 2004 deficits represent 4.2 percent of the Gross Domestic Product (GDP), below the postwar deficit peak of 6.0 percent of GDP in FY 1983.

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