The White House Office of Management and Budget (OMB) in its annual "Mid-Session Review" recently projected that the U.S. federal budget will see an unprecedented $691 billion deterioration in its budget situation -- moving from record surpluses of $236 billion in 2000 to record deficits of $455 billion in 2003.

The White House Office of Management and Budget (OMB) in its annual "Mid-Session Review" recently projected that the U.S. federal budget will see an unprecedented $691 billion deterioration in its budget situation -- moving from record surpluses of $236 billion in 2000 to record deficits of $455 billion in 2003.

When the social security surplus is excluded, the deficit is currently 5.7 percent of GDP and the second largest percentage since World War II -- only the 1983 budget under Reagan had a larger deficit (see graph).

In addition, the current $455 billion deficit is:

• the highest deficit in current dollar terms in history
• the highest deficit adjusted for inflation since World War II
• $1,561 per person
• 4.2 percent of GDP

There are several reasons for the dramatic deterioration of the budget situation. The primary cause has been the dramatic decline in revenues, which have dropped to 16.3 percent of GDP -- the lowest level since 1959. To a lesser extent, increased expenditures, especially on military activities, have played a role as well.

The role of the economy has also been debated. OMB claims that 53 percent of the deterioration in the deficit was due to economic factors. However, given the severity of the decline in revenue and the fact that the 2001 recession was relatively mild (in terms of GDP), a large part of the deterioration must also be attributed to the massive tax cuts enacted over the past three years.

Deficits do allow the government to finance vital national priorities, and can buffer the effects of economic fluctuations. However, the likely persistence and the magnitude of the deficits, especially considering current and future needs that are going unmet, as well as the unprecedented dive from surplus to deficit, are signs that the current administration is not acting in a responsible manner on tax and budget issues.

For more information, see the OMB Watch analysis Interpreting the Return to Budget Deficits.