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The Congressional Budget Office is required by section 308(c) of the Congressional Budget Act of 1974 to issue a report each year that projects new budget authority, outlays, and revenues for the next five fiscal years. This report fulfills that statutory requirement for budget projections for fiscal years 1982 to 1986. The Congressional Budget Act also requires CBO to project tax expenditures for each of the next five fiscal years. A separate report on tax expenditure projections will be issued at a later date.

The revenue projections in this report are identical to the current law revenue estimates used for the conference agreement on the First Concurrent Resolution on the Budget for Fiscal Year 1982. The spending projections in this report were used by the Budget Committees in developing the reconciliation instructions specified in the first budget resolution to achieve spending reductions in 1982-1984. These projections also serve as the baseline that CBO used to prepare estimates of savings for legislation contained in the House and Senate reconciliation bills.

The budget projections in this report are based on Congressional action through the end of the 96th Congress and the economic assumptions used for the first budget resolution for fiscal year 1982. They do not include final Congressional action on the 1981 supplemental appropriations bill nor any new policy initiatives proposed by the Administration or assumed in the 1982 first budget resolution to cut taxes and spending. The report is intended to provide useful background information on the reconciliation instructions to achieve spending reductions.

The report was prepared by staff of the Budget Analysis and Tax Analysis Divisions, under the supervision of James L. Blum. Robert L. Faherty and Francis S. Pierce edited the manuscript, and Paula Spitzig prepared the final manuscript for publication.
 

Alice M. Rivlin
Director
July 1981
 
 

SUMMARY

CHAPTER I. INTRODUCTION

• The Baseline Concept
• The Use of Baseline Projections
• Plan of This Report

CHAPTER II. BASELINE BUDGET PROJECTIONS

• Economic Assumptions
• Baseline Budget Projections
• Budget Resolution Targets
• Reconciliation Instructions
• Sensitivity of the Budget to Economic Assumptions

CHAPTER III. BASELINE REVENUE PROJECTIONS

• The Changing Composition of Revenues
• Budget Resolution Revenue Targets
• The Administration's March Tax Program
• Sensitivity of Revenue Projections to Economic Assumptions

CHAPTER IV. BASELINE SPENDING PROJECTIONS

• Spending Projections for Major Program Categories
• Major Functional Categories
• Budget Resolution Spending Targets
• Sensitivity of Spending Projections to Economic Assumptions

APPENDIX A. BASELINE SPENDING PROJECTIONS BY COMMITTEE JURISDICTION

• Allocation by Spending Jurisdiction
• Allocation by Authorizing Jurisdiction

APPENDIX B. FEDERAL RECEIPTS AND EXPENDITURES IN THE NATIONAL INCOME ACCOUNTS

• Differences Between the Unified Budget and the Federal Sector in the National Income Accounts
• Translation of Unified Budget Estimates to the NIA Federal Sector Basis

APPENDIX C. THE DEFENSE BASELINE PROGRAM

• Summary of the CBO Defense Baseline
• Projection Method

This report provides the Congressional Budget Office (CBO) budget projections for fiscal years 1982-1986 that served as the baseline for the reconciliation instructions contained in the First Concurrent Resolution on the Budget for Fiscal Year 1982. These projections of federal revenues, budget authority, and outlays are based on the economic assumptions of that first budget resolution and essentially assume that tax laws and spending policies in effect at the close of the 96th Congress remain unchanged.

Baseline budget projections typically have the following characteristics:

• Projected revenues grow more rapidly than the economy because of the progressive nature of individual income taxes;
  
  
• Projected outlays grow at a slower pace than the economy because little or no increase in spending in real terms is assumed for a large share of the budget; and
  
  
• The projected baseline budget begins to show a surplus within the five-year projection period because revenues grow faster than outlays.

Baseline projections are not a forecast of future budgets, since changes will undoubtedly be made in existing taxing and spending laws in response to changes in the economy and in national priorities and needs. Baseline projections do, however, provide a useful starting point for developing new budgetary plans such as those contained in the annual Congressional budget resolutions.

The primary purpose of the CBO budget projections is to provide a neutral baseline against which the Congress can consider potential changes during its deliberations on the annual budget resolutions. The Senate Budget Committee uses CBO budget projections as a starting point for formulating its recommendations for the first budget resolution. The committee makes explicit decisions about how spending and revenues should be altered in the future to meet fiscal policy goals and national needs. The House Budget Committee also uses CBO budget projections to show the outyear effects of its recommendations for the first budget resolution.

The CBO budget projections took on added importance this year because they served as the baseline for the reconciliation instructions contained in the first budget resolution for 1982. The reconciliation instructions required 14 Senate committees and 15 House committees to revise existing spending programs to achieve outlay reductions of approximately $36 billion in fiscal year 1982 and even greater amounts in 1983 and 1984. Estimates of spending savings to be generated by committee recommendations have been calculated in terms of reductions from the baseline projections presented in this report.

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