The federal budget outlines spending levels for government programs and how that spending will be funded, reflecting the policy priorities of Congress and the President. This report provides an overview of major budget estimates and projections for the FY2011 federal budget cycle. The report presents and compares budget projections calculated by the Obama Administration's Office of Management and Budget (OMB) and the Congressional Budget Office (CBO). In addition, the report discusses selected major budgetary issues. The congressional budget process, which includes the annual budget resolution and appropriations bills, usually begins once the Administration submits its budget to Congress. As Congress deliberates over the budget, the Administration often revises its proposals as it interacts with Members of Congress and as national and international economic conditions change. The economy continues to post major challenges to policymakers shaping the FY2011 federal budget. The economic recession, which many economists consider the most severe American recession since the Great Depression, has strongly affected budget estimates and projections. The U.S. economy shrank at an annual real (i.e., inflation-adjusted) rate of 6.8% in the last quarter of 2008, the biggest fall since 1982, followed by a 4.9% fall in annual-rate terms in the first quarter of 2009. While real GDP grew at an estimated annual rate of 5.0% in the fourth quarter of 2009, perhaps signaling the end of the recession, growth in 2010 has been slow relative to many other economic recoveries. Estimates put real annualized growth in the first quarter of 2010 at 3.7% and only 1.6% for the second quarter. While financial markets by mid-2009 have stabilized significantly, the chairman of the Federal Reserve Board recently described the state of the economy as "unusually uncertain." While the economy is showing some signs of recovery, the national unemployment rate, which was 9.5% in July 2010, is projected to decline slowly. CBO estimates that the national unemployment rate will not recede to the 5% level until 2014. Some economists have become increasingly worried about the possibility of a "double-dip" recession, which would complicate existing budgetary challenges, although many forecasters do not predict a "double-dip." Federal spending tied to means-tested social programs has risen due to elevated levels of unemployment, while federal revenues are projected to fall as individuals' incomes drop and corporate profits sink. Total federal revenues fell 17% between FY2007 and FY2009, and corporate income tax receipts fell even more sharply. CBO estimated in August 2010 that federal revenues will stabilize in FY2010, increasing from $2,105 billion in FY2009 (14.8% of GDP) to $2,143 billion in FY2010 (14.6% of GDP), and are projected to rebound somewhat in FY2011 to $2,648 billion (17.5% of GDP). Federal deficits, however, will likely be high relative to historic norms in FY2011, according to OMB and CBO projections. While federal deficits, according to CBO current-law baseline projections, will fall to 2.5% of GDP in FY2014, many budget experts consider the baseline assumptions, which were set in budget enforcement legislation, overly optimistic (see discussion in next section for details). In the later years of the current 10-year baseline budget window, federal deficits are projected to rebound, in large part due to the retirement of baby boomers and rising health care costs. The federal government responded to the economic slowdown with an array of policy responses unprecedented in recent decades, including fiscal stimulus in the form of new spending and tax cuts. The federal government and the Federal Reserve also expanded or initiated major loan programs. As the economy recovers, the federal government and Federal Reserve plan to shrink or discontinue those programs as financial markets return to a more normal state. Some federal interventions, such as the Troubled Assets Relief Program, are now expected to cost far less than previous estimates, but the federal government may still face substantial credit risks associated with the takeovers of AIG, Fannie Mae, Freddie Mac, and large holdings in automobile manufacturers. Furthermore, the federal government could face new fiscal challenges if economic recovery falters or if financial turmoil reemerges. The Obama Administration released its FY2011 budget submission on February 1, 2010. The Administration featured policy initiatives targeted at speeding up economic recovery, reducing the unemployment rate, enacting health insurance reform, overhauling financial regulation, and stabilizing housing markets and the automobile industry. The Mid Session Review was released on July 23, 2010. On February 18, 2010, President Obama set up the National Commission on Fiscal Responsibility and Reform, which was charged with finding ways to "improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run." The commission is slated to issue a report on December 1. On April 22, the Senate Budget Committee passed its FY2011 budget resolution ( S.Con.Res. 60 ). As of the date of this report, however, neither the House nor the Senate had agreed to a budget resolution. On July 1, 2010, the House, by adopting H.Res. 1500 , was considered to have agreed to a "deeming" resolution ( H.Res. 1493 ), which serves some of the purposes of a budget resolution. In particular, deeming resolutions provide a basis for ongoing budget enforcement. Table 1 contains budget estimates for FY2011 from CBO and the Administration (the Office of Management and Budget, OMB). House and Senate Budget Committees are expected to issue their own budget totals in a budget resolution that reflects congressional funding priorities. Budget estimates and projections vary due to differing underlying economic, technical, and budget-estimating assumptions and techniques, as well as differences in policy assumptions. Minor differences in underlying assumptions, which may generate small short-term discrepancies, can produce wide divergences in projected long-term budget paths. In addition, the extraordinary nature of federal responses to financial turmoil and economic recession have complicated some scoring issues. Budget estimates issued by the President, CBO, or by others, should be expected to change as new data arrive or as economic conditions change. CBO current-law baseline projections are computed using assumptions set forth in budget enforcement legislation. The CBO baseline projections are not intended to serve as a prediction of what budget outcomes are most plausible or likely. Rather, the CBO baseline projections are designed to serve as a budgeting tool, which is used to determine how legislative changes would increase or decrease the federal deficit. CBO baseline projections typically yield estimates of higher growth in revenue and slower growth of discretionary spending relative to scenarios that independent forecasters consider likely. CBO baseline projections presume that discretionary spending remains constant in inflation-adjusted terms; the 2001 and 2003 tax cuts expire after FY2010 (as current law specifies); the existing "patch" to the alternative minimum tax (AMT), which currently applies to tax year 2009, would lapse; emergency unemployment benefits will not be extended; and cuts scheduled for Medicare physician services (Part B) as a result of "sustainable growth rate" calculations will not be delayed or cancelled. After FY2010, according to baseline projections, the expiration of most of the tax cuts from 2001 and 2003 would increase federal receipts. The assumption that these tax cuts expire and that growth in discretionary spending is zero in real terms explains much of the declining deficits that emerge over the 10-year CBO baseline forecast window and in the OMB BEA (Budget Enforcement Act) baseline. The Joint Committee on Taxation estimates that indexing the AMT to inflation for FY2010-FY2020 would cost $584 billion and extending tax cuts enacted in 2001 and 2003 (mainly EGTRRA and JGTRRA) would cost $2,465 billion over the FY2011-FY2020 period. Beyond the end of the current 10-year forecast window, federal deficits are expected to grow rapidly, largely because of growing health care costs and the retirement of the baby boomers, unless major policy changes are made. CBO's first budget report for the FY2011 budget cycle, released in January 2010, contained current-law budget baseline and economic projections for FY2011 through FY2020. This CBO report projected a FY2011 current-law baseline total deficit of $980 billion, significantly smaller than the estimated FY2009 ($1,414 billion) and FY2010 ($1,349) deficits, but far larger than the FY2008 deficit ($459 billion). CBO's January report also included estimated budgetary effects of selected policies on revenues and outlays. Those projections, which are based on assumptions that differ from current-law baseline conventions, can be used to assess costs of alternative policies. These alternative policy proposals interact in important ways, so that the costs of enacting two of these proposals may differ significantly from the sum of the costs of implementing each proposal separately. In particular, the effects of indexing the AMT and the extension of the 2001 and 2003 tax cuts interact in significant ways. On March 5, 2010, CBO published a preliminary analysis of the President's FY2011 proposals. CBO issued a more detailed analysis on March 24, which incorporated legislative changes made before mid-March 2010, although the projections of budget aggregates were only slightly changed. The March CBO budget projections do not reflect enactment of either the Hiring Incentives to Restore Employment Act (HIRE; P.L. 111-147 ) or the Patient Protection and Affordable Care Act ( P.L. 111-148 ). Administration proposals, according to CBO analysis, would lead to larger federal deficits over the 10-year FY2011-FY2020 budget window than those projected by the Obama Administration, in large part because CBO projects that the economy would grow more slowly than does OMB. CBO and OMB projections of gross domestic product (GDP) are presented in Table 11 . A section following that table discusses some technical challenges of budget forecasting. Administration and CBO projections of the future path of federal receipts are summarized in Table 2 .