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Budget Options
  March 2003  





Notes
 

Unless otherwise indicated, all years referred to in this report are fiscal years.

Numbers in the text and tables may not add up to totals because of rounding.

The options in this report do not reflect the governmental reorganization involved in the creation of the Department of Homeland Security.

The budgetary effects of the options are estimated in various ways. For options involving defense discretionary spending, savings are measured relative to the Department of Defense's most recent plan, as modified by lawmakers in enacting 2003 appropriations. For options involving nondefense discretionary spending, savings are measured in comparison with the level of 2003 appropriations adjusted for inflation. (In most cases, that level represents the appropriations outlined in the continuing resolution that was in effect when the options were prepared; in a few cases, it represents the appropriations enacted on February 20, 2003, in the Consolidated Appropriations Resolution for 2003.) For options that affect mandatory spending, savings are measured in relation to the Congressional Budget Office's (CBO's) current-law baseline. For revenue options, the effects are estimated relative to current-law projections; most of the estimates come from the Joint Committee on Taxation, although a few were produced by CBO. For the long-term Social Security and Medicare options in Chapter 4, savings are estimated by CBO and are measured in relation to the size of the economy (as a percentage of gross domestic product).

The tables and charts shown on the cover come from Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2004-2013 (January 2003).





                
Preface

This volume--one of the Congressional Budget Office's (CBO's) regular reports to the House and Senate Committees on the Budget--presents options to alter federal outlays and receipts, both in the near term and over a longer horizon. The report does not adopt a particular fiscal goal or budget target but presents a variety of options to help policymakers in their annual tasks of making budgetary choices, setting priorities, and adapting to changes in circumstances. It is the latest in a series of compendiums of policy options prepared by CBO over the years.

As a nonpartisan Congressional agency, CBO does not make recommendations about policy. Instead, the options discussed in this report stem from various sources. They are derived from legislative proposals, the President's budget, Congressional and CBO staff, other government entities, and private groups. The inclusion or exclusion of a particular idea does not represent an endorsement or rejection by CBO. The options are intended to reflect a range of possibilities; they are neither ranked nor comprehensive. In keeping with CBO's mandate to provide objective and impartial analysis, the discussion of each option presents the cases for and against it.

Budget Options begins with an introductory chapter that discusses the budget outlook, presents general rationales for the policy options that follow, and explains how to use the volume. Chapter 2 presents dozens of options to cut spending or add receipts, organized by the functional categories of the budget--national defense, international affairs, energy, and so on. The options for each function are introduced with a page of background information about spending trends in that function. Chapter 3 contains specific options that affect revenues. Chapter 4 presents a discussion of strategies for slowing the growth of Social Security and Medicare. The appendix lists the many contributors to this report.

Douglas Holtz-Eakin
Director
March 2003




CONTENTS


1  Introduction
      The Budget Outlook
      Rationales for Budget Options
      Using This Volume
      Exclusions and Limitations
   
2  Options to Reduce Spending
      Function 050: National Defense
      Function 150: International Affairs
      Function 270: Energy
      Function 300: Natural Resources and Environment
      Function 350: Agriculture
      Function 370: Commerce and Housing Credit
      Function 400: Transportation
      Function 450: Community and Regional Development
      Function 500: Education, Training, Employment, and Social Services
      Function 550: Health
      Function 570: Medicare
      Function 600: Income Security
      Function 700: Veterans Benefits and Services
      Function 800: General Government
      Function 920: Allowances
   
3  Options That Affect Revenues
   
4  Slowing the Long-Term Growth of Social Security and Medicare
      Social Security
      Medicare
   
  Appendix
      Contributors to This Volume


Tables  
   
4-1.  Increase in the Normal Retirement Age Under Current Law and an Illustrative Option
4-2.  Effects of Illustrative Options for Reducing Growth in Spending for Social Security
4-3.  Effects of Several Illustrative Options for Reducing Growth of Net Medicare Spending
   
Figure  
   
4-1.  Federal Spending Under Illustrative Options for Slowing the Growth in Social Security
   
Boxes  
   
4-1.  Impacts of Illustrative Options on Social Security's Finances
4-2.  Medicaid and Long-Term Care


Options to Reduce Spending
Function 050:
National Defense
 
Forces and Weapons
 
050-01 Cancel Remaining Purchases of the Javelin Missile
050-02 Reverse Organizational Changes that Have Increased the Army's Support Tail Without Increasing Its Combat Tooth
050-03 Reduce the Number of Army Stryker Brigade Conversions
050-04 Delay the Fielding Date of the Future Combat System from 2008 to 2010
050-05 Cancel the Army's Comanche Helicopter Program
050-06 Reduce the Procurement of Virginia Class Submarines and Transfer Six More Subs to Guam
050-07 Cancel the DDX Program and Buy New Frigates Instead
050-08 Eliminate Research and Development Funding for the Second Future Carrier
050-09 Cancel Production of the V-22 Aircraft
050-10 Reduce Purchases of the Air Force's F/A-22 Fighter
050-11 Slow the Schedule of the F-35 Joint Strike Fighter Program
050-12 Substitute Unmanned Combat Air Vehicles for Manned Aircraft
050-13 Accelerate Replacement of the C-5s' Engines
050-14 Reduce Nuclear Delivery Platforms to Achieve the Moscow Treaty's Limits on Operational Nuclear Warheads
050-15 Reduce the Trident Submarine Force to 12 and Buy 48 Fewer D5 Missiles
 
Manpower, Logistics, and Support
 
050-16 Consolidate Military Personnel Costs in a Single Appropriation
050-17 Target Pay to Meet Military Requirements
050-18 Reduce Military Personnel in Overseas Headquarters Positions
050-19 Replace Military Personnel in Some Support Positions with Civilian Employees of the Department of Defense
050-20 Increase the Use of Warrant Officers to Attract and Retain Personnel
050-21 Reduce Recruiting Budgets
050-22 Have the Departments of Defense and Veterans Affairs Purchase Drugs Jointly
050-23 Introduce a "Cafeteria Plan" for the Health Benefits of Family Members of Active-Duty Military Personnel
050-24 Create Incentives for Military Families to Save Energy
050-25 Consolidate and Encourage Efficiencies in Military Exchanges
050-26 Consolidate the Department of Defense's Retail Activities and Provide a Grocery Allowance to Service Members
050-27 Eliminate the Department of Defense's Elementary and Secondary Schools
050-28 Price Military Housing According to Market Rates
050-29 Change Depots' Pricing Structure for Repairs
 
Function 150:
International Affairs
 
150-01 Eliminate the Export-Import Bank, the Overseas Private Investment Corporation, and the Trade and Development Agency
150-02 End the United States' Capital Subscriptions to the European Bank for Reconstruction and Development
 
Function 270:
Energy
 
270-01 Eliminate the Department of Energy's Applied Research for Fossil Fuels
270-02 Eliminate the Department of Energy's Applied Research for Energy Conservation
270-03 Eliminate the Department of Energy's Applied Research for Solar and Renewable Energy Sources
270-04 Eliminate Grant Programs That Support Energy Conservation
270-05 Restructure the Power Marketing Administrations to Charge Higher Rates
270-06 Sell the Southeastern Power Administration and Related Power-Generation Equipment
270-07 Eliminate Federal Funding for the FreedomCAR Partnership
270-08 Reduce the Size of the Strategic Petroleum Reserve
270-09 Require the Tennessee Valley Authority to Impose a Transmission Surcharge on Future Electricity Sales
 
Function 300:
Natural Resources and Environment
 
300-01 Increase Net Receipts from National Timber Sales
300-02 Eliminate Federal Grants for Water Infrastructure
300-03 Reauthorize Holding and Location Fees and Charge Royalties for Hardrock Mining on Federal Lands
300-04 Set Grazing Fees for Federal Lands on the Basis of State Formulas
300-05 Recover Costs Associated with the Issuance of Permits by the Army Corps of Engineers
300-06 Impose Fees on Users of the Inland Waterway System
300-07 Open the Coastal Plain of the Arctic National Wildlife Refuge to Leasing
300-08 Impose a New Harbor Maintenance Fee
300-09 Terminate Economic Assistance Payments Under the South Pacific Fisheries Treaty
300-10 Eliminate Federal Funding of Beach Replenishment Projects
300-11 Eliminate the Environmental Protection Agency's Energy-Efficiency Partnerships
 
Function 350:
Agriculture
 
350-01 Eliminate the Foreign Market Development Program
350-02 Eliminate the Market Access Program
350-03 Reduce the Reimbursement Rate Paid to Private Insurance Companies in the Department of Agriculture's Crop Insurance Program
350-04 Impose New Limits on Farm Program Payments to Producers of Certain Agricultural Commodities
 
Function 370:
Commerce and Housing Credit
 
370-01 End the Credit Subsidy for the Small Business Administration's Major Business Loan Guarantee Programs
370-02 Eliminate the International Trade Administration's Trade Promotion Activities or Charge the Beneficiaries
370-03 Eliminate the Advanced Technology Program
370-04 Eliminate the Manufacturing Extension Partnership and the National Quality Program
370-05 Charge All Banks and Thrifts Deposit Insurance Premiums
 
Function 400:
Transportation
 
400-01 Reduce Federal Subsidies for Amtrak
400-02 Eliminate the Essential Air Service Program
400-03 Eliminate Grants to Large and Medium-Sized Hub Airports
400-04 Increase Fees for Certificates and Registrations Issued by the Federal Aviation Administration
400-05 Establish Fees Based on Costs for Air Traffic Control Services
400-06 Impose a User Fee to Cover the Costs of the Federal Railroad Administration's Rail Safety Activities
400-07 Eliminate Funding for "High-Priority" Highway Projects
400-08 Eliminate Funding for the "New Starts" Transit Program
400-09 Increase Fees for Transportation Security
 
Function 450:
Community and Regional Development
 
450-01 Convert the Rural Community Advancement Program to State Revolving Loan Funds
450-02 Eliminate Region-Specific Development Agencies
450-03 Drop Wealthier Communities from the Community Development Block Grant Program
450-04 Eliminate the Neighborhood Reinvestment Corporation
450-05 Drop Flood Insurance for Certain Repeatedly Flooded Properties
450-06 Phase Out the Flood Insurance Subsidy on Pre-FIRM Structures Other Than Primary Residences
450-07 Eliminate the Community Development Financial Institutions Fund
450-08 Eliminate Grant Funding for Empowerment Zones
 
Function 500:
Education, Training, Employment, and Social Services
 
500-01 Reduce Funding to School Districts for Impact Aid
500-02 Repeal the Safe and Drug-Free Schools and Communities Act
500-03 Eliminate Interest Subsidies on Loans to Graduate Students
500-04 Raise Interest Rates on Federal Student Loans
500-05 Increase Up-Front Fees on Unsubsidized Loans to Dependent Students and Their Parents
500-06 Restrict Eligibility for Subsidized Student Loans by Including Home Equity in the Determination of Financial Need
500-07 Eliminate the Floor on Lenders' Yields from Federally Guaranteed Student Loans
500-08 End New Federal Funding for Perkins Loans
500-09 Eliminate Administrative Fees Paid to Schools in the Campus-Based Student Aid and Pell Grant Programs
500-10 Eliminate the Leveraging Educational Assistance Partnership Program
500-11 Eliminate the Senior Community Service Employment Program
 
Function 550:
Health
 
550-01 Reduce the Enhanced Federal Matching Rates for Certain Administrative Functions in Medicaid
550-02 Restrict the Allocation of Common Administrative Costs to Medicaid
550-03 Reduce Spending for Medicaid Administration
550-04 Convert Medicaid Payments for Acute Care Services into a Block Grant
550-05 Convert Medicaid Disproportionate Share Hospital Payments into a Block Grant
550-06 Require All States to Comply with New Rules About Medicaid's Upper Payment Limit by 2004
550-07 Reform the Process for Listing Drug Patents in the FDA's Orange Book
550-08 Eliminate the 30-Month Stay for Late-Listed Patents
550-09 Reduce Subsidies for Health Professions Education
550-10 Finance the Food Safety Inspection Service Through User Fees
550-11 Adopt a Voucher Plan for the Federal Employees Health Benefits Program
550-12 Base Retirees' Health Benefits on Length of Federal Service
 
Function 570:
Medicare
 
570-01 Reduce Medicare's Payments for the Indirect Costs of Patient Care That Are Related to Hospitals' Teaching Programs
570-02 Reduce Medicare's Direct Payments for Medical Education
570-03 Eliminate Additional Capital-Related Payments for Hospitals with Residency Programs
570-04 Convert Medicare Payments for Graduate Medical Education into a Block Grant and Slow Their Growth
570-05 Convert Medicare Disproportionate Share Hospital Payments into a Block Grant
570-06 Expand Global Payments for Hospitals' and Physicians' Services Provided During an Inpatient Stay
570-07 Further Reduce the Medicare Prospective Payment System Update Factor for Hospitals' Inpatient Operating Costs
570-08 Further Reduce Medicare's Payments for Hospitals' Inpatient Capital-Related Costs
570-09 Increase the Number of Postacute Care Discharges Treated as Hospital Transfers Under Medicare
570-10 Reduce Medicare Payments for Currently Covered Prescription Drugs
570-11 Require Competitive Bidding for High-Volume Items of Durable Medical Equipment
570-12 Increase Medicare's Premium for Supplementary Medical Insurance to 30 Percent of Benefit Costs
570-13 Tie Medicare's Premium for Supplementary Medical Insurance to Enrollees' Income
570-14 Index Medicare's Deductible for Supplementary Medical Insurance Services
570-15 Simplify and Limit Medicare's Cost-Sharing Requirements
570-16 Restrict Medigap Coverage of Medicare's Cost Sharing
570-17 Combine Medicare Cost-Sharing Changes with Medigap Restrictions
570-18 Collect Deductible and Coinsurance Amounts for Clinical Laboratory Services Under Medicare
570-19 Reduce Medicare Payments for Home Health Care
570-20 Impose a Copayment Requirement on Home Health Episodes Covered by Medicare
 
Function 600:
Income Security
 
600-01 Increase Payments by Tenants in Federally Assisted Housing
600-02 Reduce Rent Subsidies for Certain One-Person Households
600-03 Eliminate Small Food Stamp Benefits
600-04 Target the Subsidy for Certain Meals in Child Nutrition Programs
600-05 Reduce the $20 Exclusion for Unearned Income Under the Supplemental Security Income Program
600-06 Create a Sliding Scale for Children's SSI Benefits Based on the Number of Recipients in a Family
600-07 Reduce the Federal Matching Rate for Administrative and Training Costs in the Foster Care and Adoption Assistance Programs
600-08 Limit Some Cost-of-Living Adjustments for Federal Retirees
600-09 Modify the Formula Used to Set Federal Pensions
600-10 Restructure the Government's Matching Contributions to the Thrift Savings Plan
 
Function 700:
Veterans Benefits and Services
 
700-01 Narrow the Eligibility for Veterans' Disability Compensation to Include Only Veterans with High-Rated Disabilities
700-02 Narrow the Eligibility for Veterans' Disability Compensation to Veterans Whose Disabilities Are Related to Their Military Duties
700-03 Increase Beneficiaries' Cost Sharing for Care at Nursing Facilities Operated by the Department of Veterans Affairs
700-04 Establish a Realignment and Closure Commission for Department of Veterans Affairs Facilities
700-05 Reduce Veterans' Disability Compensation to Account for Social Security Disability Insurance Payments
 
Function 800:
General Government
 
800-01 Eliminate General Fiscal Assistance to the District of Columbia
800-02 Require the Internal Revenue Service to Deposit Fees from Installment Agreements in the Treasury as Miscellaneous Receipts
800-03 Eliminate Federal Antidrug Advertising
 
Function 920:
Allowances
 
920-01 Charge Federal Employees Commercial Rates for Parking
920-02 Raise the Threshold for Coverage Under the Davis-Bacon Act
920-03 Impose a Fee on the Investment Portfolios of Government-Sponsored Enterprises
920-04 Eliminate Cargo Preference
 
Options That Affect Revenues
Restrict Itemized Deductions, Credits, and Exclusions Under the Income Tax
 
Option 1 Combine the Personal Exemption and the Standard Deduction
Option 2 Eliminate the Deductibility of Interest on Home-Equity Debt
Option 3 Eliminate Deferred Taxation of Like-Kind Exchanges
Option 4 Limit Deductions for Charitable Gifts of Appreciated Property to the Gifts' Tax Basis
Option 5 Eliminate the Earned Income Tax Credit for People Who Have No Children
Option 6 Include Social Security Benefits in Calculating the Phaseout of the Earned Income Tax Credit
Option 7 Substitute a Tax Credit for the Exclusion of Interest Income on State and Local Debt
 
Restrict the Tax-Favored Treatment of Nonretirement Fringe Benefits
 
Option 8 Restrict the Tax Exclusion for Qualified Parking to Locations from Which Employees Commute in Vans and Carpools
Option 9 Include Employer-Paid Life Insurance in Taxable Income
 
Restrict the Tax-Favored Treatment of Certain Household Income
 
Option 10 Include Investment Income from Life Insurance and Annuities in Taxable Income
Option 11 Raise the Age Limit from 14 to 18 for Taxing Investment Income Under the Kiddie Tax
Option 12 Include in Adjusted Gross Income All Income Earned Abroad by U.S. Citizens
 
Expand the Payroll Tax Base
 
Option 13 Expand the Medicare Payroll Tax to Include All State and Local Government Employees
Option 14 Calculate Taxable Wages in the Same Way for Both Self-Employed People and Employees
Option 15 Subject All Earnings to the Social Security Payroll Tax
 
Change Tax Rules for Income from Worldwide Activity
 
Option 16 Eliminate the Source Rules Exception for Inventory Sales
Option 17 Make Foreign Subnational Taxes Deductible Rather than Creditable
 
Curtail Special Provisions of Income Taxes for Businesses
 
Option 18 Set the Corporate Tax Rate at 35 Percent for All Corporations
Option 19 Repeal the "Lower of Cost or Market" Inventory Valuation Method
Option 20 Reduce Tax Credits for Rehabilitating Buildings, and Repeal the Credit for Nonhistoric Structures
Option 21 Tax Large Credit Unions Like Other Thrift Institutions
Option 22 Repeal the Expensing of Exploration and Development Costs for Extractive Industries
Option 23 Repeal Percentage Depletion for Extractive Industries
Option 24 Repeal the Tax Credit for Enhanced Oil Recovery Costs, and Eliminate the Expensing of Tertiary Injectants
Option 25 Repeal the Partial Exemption from Motor Fuel Excise Taxes Now Given to Alcohol Fuels
Option 26 Capitalize the Costs of Producing Timber
Option 27 Tax the Income Earned by Public Electric Power Utilities
Option 28 Tighten Rules on Interest Deductions for Corporate-Owned Life Insurance
Option 29 Repeal Tax-Free Conversions of Large C Corporations to S Corporations
Option 30 Tax the Income of Cooperatively Owned Electric and Telephone Utilities
Option 31 Eliminate the Exemption of Interest Income on Debt Issued by State and Locally Owned Electric Utilities for New Generating or Transmitting Facilities
Option 32 Apply the Limited Depreciation Schedule to All Business-Use Sport Utility Vehicles and Automobiles
 
Increase Excise Taxes
 
Option 33 Increase the Excise Tax on Cigarettes by 50 Cents per Pack
Option 34 Increase All Alcoholic Beverage Taxes to $16 per Proof Gallon
Option 35 Increase Excise Taxes on Motor Fuel by 12 Cents per Gallon
 
Impose or Adjust Taxes That Affect the Environment
 
Option 36 Impose a Tax on Sulfur Dioxide Emissions
Option 37 Impose a Tax on Nitrogen Oxide Emissions
Option 38 Subject Vehicles with a Gross Vehicle Weight of Between 6,000 and 10,000 Pounds to the Gas Guzzler Tax
Option 39 Impose a One-Time Tax on Emissions of New Automobiles and Light Trucks
Option 40 Eliminate Tax Credits for Producing Unconventional Fuels and for Generating Electricity from Renewable Energy Sources
Option 41 Reinstate the Superfund Taxes
 
Consolidate or Simplify Provisions of the Tax Code
 
Option 42 Consolidate Child-Related Tax Provisions
Option 43 Replace Multiple Tax Rates on Long-Term Capital Gains with a Deduction of 45 Percent
 
Modify Provisions in the Economic Growth and Tax Relief Reconciliation Act of 2001
 
Option 44 Provide Relief from the Individual Alternative Minimum Tax
Option 45 Immediately Eliminate the Personal Exemption Phaseout and the Limit on Itemized Deductions
Option 46 Advance the Marriage Penalty Provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001
Option 47 Freeze Tax Rates and Brackets at the 2002 or 2004 Level Under EGTRRA, and Index the Brackets' Upper Limits for Inflation
Option 48   Extend or Freeze the Estate and Gift Tax Provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001
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