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An Analysis of the President's Budgetary
Proposals for Fiscal Year 2006
  March 2005  


Cover Graphic


Notes

Unless otherwise indicated, the years referred to in this report are fiscal years.

Numbers in the text and tables may not add up to totals because of rounding.

Supplemental data on mandatory spending: Supplemental Data





                
Preface

This Congressional Budget Office (CBO) analysis of the President's budgetary proposals for fiscal year 2006--prepared at the request of the Senate Committee on Appropriations--was produced by the staffs of CBO's Budget Analysis, Macroeconomic Analysis, and Tax Analysis Divisions under the supervision of Robert Sunshine, Robert Dennis, and Thomas Woodward, respectively. The baseline revenue estimates and the estimates of certain revenue proposals were prepared by CBO; most of the estimates of the President's revenue proposals were prepared by the Joint Committee on Taxation (JCT). This report expands on CBO's preliminary analysis, which was released on March 4, 2005. In some instances, JCT has slightly revised the estimates incorporated there; those updated revenue estimates are not reflected in this report.

Barry Blom and Ann Futrell of CBO's Projections Unit wrote Chapter 1 under the supervision of Jeff Holland, with assistance from Mark Booth and Pamela Greene. Ben Page of the Macroeconomic Analysis Division wrote Chapter 2 and Appendixes C and D with assistance from Bob Arnold, Paul Burnham, Ufuk Demiroglu, Eva de Francisco, Mark Lasky, Shinichi Nishiyama, Larry Ozanne, Frank Russek, and Sven Sinclair. Thomas Bradley of the Health Cost Estimates Unit wrote Appendix A, and Noah Meyerson of the Health and Human Resources Division wrote Appendix B. The contributors to the revenue and spending projections underlying this report are listed in Appendix E.

Leah Mazade and Christian Spoor edited the report, and Christine Bogusz and John Skeen proofread it. Maureen Costantino took the photograph for the cover and prepared the report for publication. Lenny Skutnik printed the initial copies, and Annette Kalicki produced the electronic version for CBO's Web site.

Douglas Holtz-Eakin
Director
March 2005




CONTENTS
 
1  CBO's Estimates of the President's Budget for 2006

Overview of CBO's Estimates

Policy Proposals That Affect Mandatory Spending

Policy Proposals That Affect Discretionary Spending

Policy Proposals That Affect Revenues

CBO's and the Administration's Economic Assumptions

Differences Between CBO's and the Administration's Budget Estimates

Changes to CBO's Baseline Since January 2005

2  The Economy Under the President's Budget and Under CBO's Baseline Policy Assumptions

How Fiscal Policy Affects the Economy

A Description of CBO's Models and Their Results

A  Changes in CBO's Projections of Medicare Spending for 2005 to 2015

Medicare's Prescription Drug Benefit

Regional Preferred Provider Organizations Under Medicare Advantage

B  The Administration's Proposal for Individual Social Security Accounts

Overview of the Account Proposal

Factors Affecting Participation

C  The Potential Economic Effects of Selected Tax Proposals in the President's 2006 Budget

Extend JGTRRA's Dividend and Capital Gains Tax Rates

Expand Tax-Free Savings Accounts

Extend the Repeal of the Estate Tax

D  The Models Used to Analyze the Macroeconomic Effects of the President's Budget

E  Contributors to the Revenue and Spending Projections

Revenue Projections

Spending Projections


Tables
   
1-1.  Comparison of Projected Deficits and Surpluses in CBO's Estimate of the President's Budget and in CBO's March Baseline
1-2.  CBO's Estimate of the President's Budget for 2006
1-3.  CBO's Estimate of the Effect of the President's Budget on Baseline Deficits or Surpluses
1-4.  Sources of Differences Between CBO's and the Administration's Estimates of the President's Budget
1-5.  CBO's Estimate of the President's Proposed Changes in Discretionary Budget Authority, 2004 to 2006
1-6.  Discretionary Spending Under the President's Budget and in CBO's March Baseline
1-7.  Comparison of Discretionary Budget Authority Enacted for 2005 and Requested by the President for 2006, by Budget Function
1-8.  Comparison of CBO's, the Administration's, and Private-Sector Economic Projections for Calendar Years 2005 to 2010
1-9.  Comparison of CBO's March 2005 Baseline and the Administration's February 2005 Current-Services Baseline
1-10.  CBO's Baseline Budget Projections
1-11.  Changes in CBO's Baseline Projections of the Deficit or Surplus Since January 2005
2-1.  CBO's Estimates of How the President's Budget Would Affect the Deficit After Accounting for Economic Effects
2-2.  CBO's Estimates of Effective Federal Marginal Tax Rates on Labor Income
2-3.  CBO's Estimates of Effective Federal Marginal Tax Rates on Capital Income
2-4.  CBO's Year-by-Year Forecast and Projections for Fiscal Years 2005 Through 2015
2-5.  CBO's Estimates of How the President's Budget Would Affect Real Gross Domestic Product
2-6.  The Budgetary Implications of the Macroeconomic Effects
A-1.  Comparison of CBO's March 2005 and January 2005 Baseline Projections of Medicare Mandatory Spending
B-1.  The Budgetary Impact of Individual Social Security Accounts
   
Figures
   
2-1.  CBO's Estimates, Using Various Models, of How the President's Budget Would Affect the Deficit After Accounting for Economic Effects
2-2.  Effects of the President's Budget on the Deficit and on the Effective Tax Rates on Capital Income and Labor Income
   
Box
   
A-1.  Comparing CBO's March 2005 Projection of Medicare Part D Spending with Its Original Estimate of the Program's Cost
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