Thursday, July 21, 2011

The Accuracy of Forecasting Federal Spending and Revenues

Not Very Good

Lost in all of the excitement about cutting federal spending and cutting the deficit is the simple but incontrovertible fact that when it comes to forecasting spending and revenues, the Federal government is not very good. It was particularly bad 10 years ago when the last major tax and spending changes were made.

Back in 2001 the new Bush Administration prepared its first budget, for Fiscal Year 2002 and it produced estimates for the Fiscal Years 2002 to 2006.  Here is what those projections looked like.


2002-06 Forecast



Surplus

Revenues ($million)
Spending
(Deficit)




2002 Estimate
2,191,734
1,960,564
231,170
2003 Estimate
2,258,240
2,016,226
242,014
2004 Estimate
2,338,816
2,076,718
262,098
2005 Estimate
2,437,783
2,168,745
269,038
2006 Estimate
2,528,711
2,223,902
304,809







1,309,129


Yes, that is correct, a surplus every year and a total surplus of over $1.3 trillion for the five year period.  How great was that!

Well, not all that great.  The years 2002 to 2006 have come and gone, so we can actually see what happened in those five years.







Surplus

Revenues ($million)
Spending
(Deficit)








2002 Actual
1,853,149
2,010,907
(157,758)
2003 Actual
1,782,321
2,159,906
(377,585)
2004 Actual
1,880,126
2,292,853
(412,727)
2005 Actual
2,153,625
2,471,971
(318,346)
2006 Actual
2,406,876
2,655,057
(248,181







(1,514,597)



The $1.3 Trillion surplus turned into a $1.5 Trillion deficit. (Tell us again Mr. Laugher (Laffer) how tax cuts pay for themselves.)

The lesson, well, before you believe how great a deficit reduction package is going to be, try not to believe how great that deficit reduction package is going to be. 

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