Measuring the Deficit
September 22, 2003
The Office of Management and Budget (OMB) estimates a federal budget deficit of $455 billion in 2003 and $475 in 2004, but it's important to understand how big those figures are relative to the size of the economy and what caused this deficit, says the Joint Economic Committee.
According to the JEC:
- Today's deficits are lower than those in the 1980s and 1990s when measured as a percentage of the gross domestic product (GDP).
- The deficits have been caused primarily by plummeting revenues, a weakened tax base and increased spending due to two wars and homeland security needs.
- Only one-third of the budget deterioration came from President Bush's three tax cuts; the rest resulted from the weak economy and inaccurate estimates.
- The nation's debt will rise to about 41 percent of GDP in 2006 before beginning to drop again; by contrast, the debt ratio was about 43 percent in 1998.
The two keys to balancing the federal budget are steady economic growth and restrained spending. Though spending has risen from 18 percent in 2000 to 20 percent today, most of that can be attributed to the shocks of war, homeland security and increased spending to combat the recession. Once those factors diminish or become better integrated into the budget, the rate of growth in spending can and should decline, says the JEC.
Source: Joint Economic Committee, "Understanding Today's Deficits," Report, July 23, 2003.
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