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2 The Tax Review 1 (1941)

handle is hein.tera/tafoutaxt0004 and id is 1 raw text is: JANUARY 1941 THE TAX REVIEW Copyright, 1941, by Tax Foundation, New York, N. Y. FEDERAL BUDGET FORECASTS In recePnt years actual federal expenditures have frequently varied widely from the original budget estimates. The lag between the completion of the budget and the beginning of the fiscal year and the fact that deficits in excess of those anticipated were not officially viewed as disturbing were important reasons for the differences. Estimates of receipts have approximated actual re- ceipts more closely. For the six fibal years ended in 1940 actual receipts were 4.59' smaller than the ori- REASONABLY accurate budget estimates are essential in the formulation of fiscal policy. If actual ex- penditures exceed the estimates by substantial amounts or receipts do not come up to expectations, deficits are certain to follow or be increased. Actual receipts and expenditures for recent fiscal years have varied widely from the budget estimates. To some extent these differences may be attributed to the uncertain- ties of the period. Another important factor is that the budget is completed about six months before the beginning of the fiscal year to which it relates. For example, the budget for the fiscal year ending June 30, 1942, released on January 8, 1941, was substantially completed by the end of the calendar year 1940. Until a few years ago when the convening of the Congress was shifted from early December to early January, the lag between the completion of the budget and the beginning of the fiscal year to which it related was approximately seven months. In a period of rapidly changing requirements this lag is an important reason for the differences between the budget estimates and actual receipts and expenditures. ExPENDITURES Estimates of expenditures presented in the budgets for the fiscal years 1935 to 1940 are compared with actual expenditures in Table 1. Direct comparison for the entire period is complicated by the accounting change effective at the beginning of the fiscal year 1939. In Table 1 the budget estimates for earlier years have been adjusted by the differ- ence between actual expenditures on the two bases. This ginal budget estimates. Marked upward increases in estimated deficits resulted primarily from increased expenditures. The original budget estimates of expenditures have come to be regarded as little more than tentative or preliminary indications of actual expenditures. Sub- stantial differences between budget estimates and ac- tual expenditures for defense purposes are to be ex- pected, but at least the non-defense portion of the budget should be regarded as a fiscal plan. adjustment is an approximation, but the margin of error should be small. The significant feature disclosed by Table 1 is that for four of the six years covered the estimates presented in the annual budgets have not served the purpose of indicating the approximate level of expenditure. A difference of 25o or more between the estimate and actual expenditures for any year implies that in the aggregate the estimates for the year were not accepted as a basis for fiscal policy. When the difference is as large as that indicated for 1935, the original estimate in effect loses whatever degree of useful- ness it may seem to have possessed when it was released. TABLE 1: BUDGET ESTIMATES AND ACTUAL EXPENDITURES OF THE FEDERAL GOVERNMENT,1 FISCAL YEARS 1935-1940 Amounts in Millions of Dollars Excess of Expenditures Over Estimates Budget Estimates Actual Expenditures Per Cent Adjusted to On Basis of Adjusted to Accounting Accounting Accounting President's Basis Effective Procedure Used Basis Effective First Second Year Budget July 1, 1938 During Year July 1, 1938 Basis Basis 1935 3,961 4,169 6,802 7,010 71.7 68.1 1936 7,884 8,073 8,477 8,666 7.5 7.3 1937 6,172 6,613 8,001 8,442 29.6 27.7 1938 5,756 5,681 7,701 7,626 33.8 34.2 1939 6,869 - 9,210 9,210 34.1 - 1940 8,996 8,996 9,537 9,537 6.0 6.0 1 Includes refunds, and transfers to trust accounts from the general fund. Excludes debt retirements. 1 SERIES B

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