When George W. Bush took office, the projected surplus for the next decade was $5.6 trillion. His administration's first budget offered what it called “a new vision of governing for our nation.” As expected, the budget included “fair and reasonable tax relief” but within the context of a measured and cautious fiscal plan. The president's budget message assigned higher priority to additional spending for important defense and domestic needs, retiring $2 trillion in publicly held debt – “the fastest, largest debt reduction in history” – and reserving $1 trillion for “additional needs and contingencies.” “Tax relief,” Bush stated, would be limited to the “remaining…roughly one-fourth” of the projected surplus.

However, the Bush fiscal plan was riskier and more politically problematic than it appeared. On the spending side, it showed the relative size of the federal government falling to its lowest levels since the 1950s. Because tax cuts were expected to accelerate economic growth, revenue levels would remain relatively high, albeit below the Clinton-era peaks. The large surpluses in the Bush budget plan, along with the debt retirement and contingency reserves, were thus predicated on unusually low defense and domestic spending levels and optimistic assumptions about the revenue productivity of large tax cuts.