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REDUCING THE FEDERAL BUDGET:
STRATEGIES AND EXAMPLES,
FISCAL YEARS 1982-1986
 
 
February 1981
 
 
PREFACE

This report was written in response to a request by 12 members of the House Budget Committee--Robert N. Giaimo, Chairman of the Committee during the 96th Congress, James R. Jones, Chairman of the Committee for the 97th Congress, Barber B. Conable, Jr., Bill Frenzel, Richard A. Gephardt, Delbert L. Latta, Norman Y. Mineta, Bill Nelson, Leon E. Panetta, Ralph S. Regula, Paul Simon, and Timothy E. Wirth--for a report on the possible strategies that could lead to a reduction in the size of the federal budget.

The report was prepared by all divisions of the Congressional Budget Office under the supervision of Alfred B. Fitt. Robert L. Faherty, Francis S. Pierce, and Patricia H. Johnston edited the manuscript and coordinated its preparation for publication. The final drafts were typed by Mary A. Anders, Linda Brockman, Jill Bury, Shirley Hornbuckle, Norma Leake, Andy McDonald-Houck, Kathleen M. Quinn, Janet Sale, and Janet Stafford. Barry J. Holt, Pierce J. Johnson, John D. Shillingburg, and Martin L. Skutnick also provided valuable assistance in the preparation of this report.

In keeping with CBO's mandate to provide objective analysis, the report contains no recommendations.
 

Alice M. Rivlin
Director
February 1981
 
 

CONTENTS
 

LETTER OF REQUEST

CHAPTER I. INTRODUCTION

CHAPTER II. BUDGET REDUCTION EXAMPLES

APPENDIX: SUMMARY TABLES OF ILLUSTRATIVE EXAMPLES CATEGORIZED BY BUDGET FUNCTION
 
TABLES
 
1.  CBO BASELINE OUTLAY PROJECTIONS, FISCAL YEARS 1982-1986
2.  OUTLAYS FOR BENEFITS TO INDIVIDUALS, FISCAL YEAR 1980
A-1.  ILLUSTRATIVE SAVINGS IN BUDGET AUTHORITY FROM CBO BASELINE PROJECTIONS, BY BUDGET FUNCTION, FISCAL YEARS 1982-1986
A-2.  ILLUSTRATIVE SAVINGS IN OUTLAYS FROM CBO BASELINE PROJECTIONS, BY BUDGET FUNCTION, FISCAL YEARS 1982-1986
A-3.  ILLUSTRATIVE SAVINGS IN BUDGET AUTHORITY FROM CARTER BUDGET PROJECTIONS, BY BUDGET FUNCTION, FISCAL YEARS 1982-1986
A-4.  ILLUSTRATIVE SAVINGS IN OUTLAYS FROM CARTER BUDGET PROJECTIONS, BY BUDGET FUNCTION, FISCAL YEARS 1982-1986
A-5.  ILLUSTRATIVE REVENUE INCREASES FROM CBO BASELINE PROJECTIONS, BY BUDGET FUNCTION, FISCAL YEARS 1982-1986


 

CHAPTER I.
INTRODUCTION

Federal spending has been growing steadily in recent years, both in absolute amounts and in relation to the Gross National Product (GNP). Spending grew from an average of 20,1 percent of GNP during the first half of the 1970s to 21.7 percent in the second half. In fiscal year 1980, unified budget outlays of $579.6 billion amounted to 22.6 percent of GNP, the highest proportion ever in peacetime. Projected fiscal year 1981 outlays of $660 billion will be an even higher proportion, 23.8 percent.

If current policies were to continue unchanged, with no new programs at all, federal spending would still go on growing during the next five years (see Table 1). This growth would not be as fast as the projected growth in the economy, so spending as a percent of GNP would decline by fiscal year 1986 to 21.7 percent--still a high figure by historical standards.

           
TABLE 1.
CBO BASELINE OUTLAY PROJECTIONS, FISCAL YEARS 1982-1986 (In billions of dollars)
Outlays 1982 1983 1984 1985 1986
In Current Dollars 740 819 906 996 1,088
In Constant 1972 Dollars 307 310 314 315 316
As Percent of GNP 23.4 22.8 22.5 22.1 21.7

The areas of spending growth from any one year to the next are easy to identify. In fiscal year 1981, just four budget functions--defense, health, income security, and interest--will account for a rise in outlays of $88 billion. Federal spending in the aggregate for all other purposes will actually decline in 1981 (although within that aggregate there will be pluses to offset some of the minuses).

The reasons for spending growth are also easy to state. The Congress and the nation are evidently committed to large real increases for defense. Past Congresses have legislated other commitments as well: to the aged, the sick, the poor, the jobless, and the disabled, among others. Demographic forces drive up the costs of Social Security, Medicare, and other federal programs for the aged. A recession increases the cost of unemployment compensation, food stamps, Medicaid, welfare, and similar programs. Furthermore, the payments in many of the programs are adjusted at least once a year for inflation; the July 1980 cost-of-living increase mandated by law for Social Security has alone added $17 billion to fiscal year 1981 federal spending.

While it may be easy to identify the areas of federal spending growth and the reasons for that growth, what to do about it is another matter. The Congressional Budget Office (CBO) does not take a position on how much the federal government ought to spend, or on which activities of the government should be continued, expanded, contracted, or eliminated. The size of the government and its programs are for the Congress and the President, and ultimately for the voters, to decide. But if the Congress decides to cut back the size of the federal government, or slow down the growth of spending, it has many available strategies to achieve those ends, and within those strategies an even wider variety of specific actions. The rest of this report discusses those strategies and contains examples of possible actions.

This document is available in its entirety in PDF.