August 10, 2004

Will Final Deficit Figure Be Presented As Progress In Deficit Reduction?

by Richard Kogan

PDF of this report

Related Reports:
Deficits and the Mid-Session Review
Does the Administration's Budget Overstate the Likely 2004 Deficit?

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On August 2, three days after the Office of Management and Budget (OMB) projected that the fiscal year 2004 deficit will total $445 billion, the Treasury Department issued data indicating a deficit of $418 billion, nearly $30 billion below the OMB projection.[1]  Similarly, the latest deficit forecast from the Congressional Budget Office (CBO), issued August 5, projected a 2004 deficit of $422 billion, more than $20 billion below the OMB figure.[2]  OMB itself has acknowledged that its $445 billion figure is probably too high.

These facts strongly suggest that the final deficit figure for 2004 will be in the $420 billion range, below the OMB estimate of $445 billion.  This somewhat lower deficit figure will not be due to a brightening deficit picture over the next two months but rather to OMB’s forecast being too high in the first place.  In fact, at $420 billion, the 2004 deficit would be $45 billion higher than the 2003 deficit and would also constitute a larger share of the Gross Domestic Product (3.6 percent, up from 3.5 percent in 2003).


Does a $420 Billion Deficit Represent Fiscal Improvement?

Goldman-Sachs on OMB’s Deficit Estimates

“The Office of Management and Budget has perfected the art of underpromising and outperforming in terms of its near-term budget deficit forecasts.  For example, in its semiannual review, the OMB lowered its deficit forecast for fiscal 2004 to $445 billion from $521 billion.  This creates the impression that the deficit is narrowing when, in fact, it will be up sharply from the $375-billion imbalance of a year earlier.  This process is likely to continue in October, when the fiscal 2004 deficit turns out to be lower than the current OMB forecast.” (emphasis added)
Goldman Sachs “US Economic Analyst,” August 6, 2004, page 3.

In its July 30 Mid-Session Review, OMB termed its new $445 billion deficit estimate “progress” because it was lower than OMB’s February forecast of a $521 billion deficit.  But the February forecast was well above what independent analysts were estimating at the time.  In February, we and others noted that the $521 billion figure was likely deliberately overstated so the Administration could claim progress on the deficit later this year as the election approached rather than admit that the 2004 deficit was well above the 2003 level.

The White House may repeat this tactic when it issues the actual deficit figure in late October by comparing the actual deficit — likely to be in the $420 billion range — to OMB’s $521 billion February forecast and its $445 billion July forecast.  Comparing the actual deficit to those earlier, overstated projections could well confuse the press and public about whether deficits are growing or shrinking.

Any Administration claim that a final deficit below OMB’s $445 billion forecast demonstrates “improvement” in the deficit should be questioned on the following grounds:

End Notes:

[1]  The Treasury reported that the actual fiscal 2004 deficit through June 30 was $327 billion.  It also projected a deficit of $91 billion for the period July through September.  Combining those two figures produces a total fiscal 2004 deficit of $418 billion.  See U.S. Treasury, “Monthly Treasury Statement, June 2004,” July 13, 2004.  Also see Office of Debt Management, U.S. Treasury, “Charts (Quarterly Refunding),” August 2, 2004, at

[2]   CBO, “Monthly Budget Review,” August 5, 2004, at

[3]   OMB, “Fiscal Year 2005 Mid-Session Review,” page 4.