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Unless otherwise noted, all years referred to in this report are fiscal years. Likewise, unless otherwise noted, all dollar amounts are expressed in current dollars. Details in the text, tables, and figures of this report may not add to the totals because of rounding. The Omnibus Budget Reconciliation Act of 1981 (Public Law 97-35) is referred to in the text as the Reconciliation Act of 1981 and the Omnibus Budget Reconciliation Act of 1982 (Public Law 97-253) as the Reconciliation Act of 1982. Similarly, the Economic Recovery Tax Act of 1981 (Public Law 97-34) is referred to as ERTA and the Tax Equity and Fiscal Responsibility Act of 1982 (Public Law 97-248) as TEFRA. |
The Congressional Budget Office (CBO) is required by section 202(f) of the Congressional Budget Act of 1974 to submit an annual report on budgetary options to the Senate and House Committees on the Budget. This year, the report is in three parts, with this report constituting Part III. Part I is entitled The Outlook for Economic Recovery; Part II is Baseline Budget Projections for Fiscal Years 1984-1988. To provide background information for the Congressional debate on the fiscal year 1984 budget, this report examines alternative broad strategies for reducing the federal deficit and analyzes various specific options for cutting budget outlays and raising revenues over the 1984-1988 period. The inclusion of an option in this report, or the omission of one, does not imply a recommendation by CBO. In accordance with CBO's mandate to provide objective and impartial analysis, this report contains no recommendations.
All divisions of the Congressional Budget Office contributed to this report, which was prepared under the general supervision of Raymond C. Scheppach. Principal contributors included Paul R. Cullinan, David M. Delquadro, Sally A. Ferris, Alfred B. Fitt, Paul Ginsburg, John J. Hamre, Robert W. Hartman, Martin D. Levine, Patricia Ruggles, James M. Verdier, and James G. Vertrees. Numerous other CBO analysts made important contributions, including Malcolm Curtis, Howard Conley, Richard L. Miller, Charles E. Seagrave, Robert A. Sunshine, Edward A. Swoboda, and Paul Van de Water.
Robert L. Faherty supervised the editing and production of the report,
assisted by Nancy H. Brooks. Major portions were edited by Francis S. Pierce
and Johanna Zacharias. Mary Pat Gaffney coordinated production of the many
drafts. The final manuscript was prepared for publication by Mary Braxton,
Linda B. Brockman, Toni Foxx, Karelia A. Gumppert, Shirley Hornbuckle,
Betty Jarrells, Norma A. Leake, Janet Stafford, Kathryn Quattrone, and
Philip Willis. Leiss Art Services, Inc. prepared the graphic illustrations
for all three volumes of this annual report.
Alice M. Rivlin
Director
February 1983
CHAPTER I. INTRODUCTION
CHAPTER II. NATIONAL DEFENSE
CHAPTER III. SOCIAL SECURITY
CHAPTER IV. MEDICARE AND MEDICAID
CHAPTER V. OTHER ENTITLEMENT PROGRAMS
CHAPTER VI. AGRICULTURAL PRICE SUPPORT PROGRAMS
CHAPTER VII. NONDEFENSE DISCRETIONARY SPENDING
CHAPTER VIII. COMPENSATION FOR FEDERAL CIVILIAN WORKERS
CHAPTER IX. USER FEES AND OTHER GOVERNMENT CHARGES
CHAPTER X. REVENUES
APPENDIX A. INCOME TAX BASE-BROADENING OPTIONS
APPENDIX B. SUMMARY TABLES OF SPENDING, TAXATION, AND USER CHARGE OPTIONS BY BUDGET FUNCTION
(Page numbers in parentheses with each table entry refer to textual
discussion in the chapters.)
| TABLES | |
| I-1. | BASELINE BUDGET PROJECTIONS |
| I-2. | BASELINE ECONOMIC FORECAST AND ASSUMPTIONS |
| I-3. | FEDERAL BORROWING AND DEBT |
| I-4. | COMPOSITION OF FEDERAL SPENDING, 1965-1980 |
| I-5. | COMPOSITION OF FEDERAL SPENDING, 1980-1988 |
| I-6. | FEDERAL REVENUES BY SOURCE, 1965-1981 |
| I-7. | FEDERAL REVENUES BY SOURCE, 1982-1988 |
| II-1. | ALTERNATIVE LEVELS OF DEFENSE SPENDING |
| II-2. | SAVINGS UNDER ALTERNATIVE SPENDING ASSUMPTIONS RELATIVE TO CBO BASELINE |
| II-3. | SAVINGS UNDER ALTERNATIVE SPENDING ASSUMPTIONS RELATIVE TO ADMINISTRATION REQUEST |
| II-4. | BUDGET SAVINGS TO ALTERNATIVE APPROACHES TO DECREASING DEFENSE EXPENDITURES |
| III-1. | CURRENT LAW PROJECTIONS OF SOCIAL SECURITY TRUST FUND OUTLAYS, INCOMES, AND BALANCES |
| III-2. | IMPACT ON THE SOCIAL SECURITY TRUST FUNDS OF ACROSS-THE-BOARD CHANGES |
| III-3. | IMPACT ON THE SOCIAL SECURITY TRUST FUNDS OF TARGETED STRATEGIES TO REDUCE SOCIAL SECURITY BENEFITS |
| III-4. | REVENUE GAINS FROM TARGETED STRATEGIES TO INCREASE SOCIAL SECURITY TAXES |
| III-5. | REVENUE GAINS FROM EXTENDING SOCIAL SECURITY COVERAGE |
| III-6. | ESTIMATED IMPACT OF THE NATIONAL COMMISSION'S PROPOSALS ON OASDI TRUST FUNDS |
| III-7. | OASDI TAX RATES UNDER CURRENT LAW AND UNDER COMMISSION RECOMMENDATIONS |
| III-8. | OASDI AND OASDI-HI START-OF-YEAR BALANCES AS A PERCENT OF ANNUAL OUTLAYS UNDER CURRENT LAW AND COMMISSION PROPOSALS |
| III-9. | ESTIMATED IMPACT OF THE NATIONAL COMMISSION'S PROPOSALS ON UNIFIED BUDGET DEFICIT |
| IV-1. | FEDERAL OUTLAYS FOR MEDICARE AND MEDICAID |
| IV-2. | BUDGET SAVINGS FROM PROGRAM CHANGES IN MEDICARE AND MEDICAID |
| V-1. | FEDERAL OUTLAYS FOR "OTHER ENTITLEMENT" PROGRAMS |
| V-2. | REVENUE GAINS FROM REVENUE-INCREASING STRATEGIES IN OTHER ENTITLEMENT PROGRAMS |
| V-3. | BUDGET SAVINGS FROM OUTLAY-REDUCING STRATEGIES IN OTHER ENTITLEMENT PROGRAMS |
| VI-1. | FEDERAL OUTLAYS FOR AGRICULTURAL PRICE SUPPORT PROGRAMS |
| VI-2. | BUDGET SAVINGS FROM BROAD REDUCTION STRATEGIES IN AGRICULTURAL PRICE SUPPORT PROGRAMS |
| VI-3. | BUDGET SAVINGS FROM TARGETED REDUCTION STRATEGIES IN AGRICULTURAL PRICE SUPPORT PROGRAMS |
| VII-1. | FEDERAL OUTLAYS FOR NONDEFENSE DISCRETIONARY SPENDING |
| VII-2. | SAVINGS FROM GENERAL BUDGET GUIDELINES FOR NONDEFENSE DISCRETIONARY SPENDING |
| VII-3. | FEDERAL OUTLAYS FOR NONENTITLEMENT STATE AND LOCAL GRANTS |
| VII-4. | BUDGET SAVINGS FROM REDUCTIONS IN STATE AND LOCAL GRANTS |
| VII-5. | BUDGET SAVINGS FROM REDUCTIONS IN ASSISTANCE TO BUSINESS AND COMMERCE |
| VII-6. | BUDGET SAVINGS FROM REDUCTIONS IN BENEFITS AND SERVICES TO INDIVIDUALS |
| VII-7. | BUDGET SAVINGS FROM REDUCTIONS IN INFRASTRUCTURE, ENVIRONMENT, AND RELATED SERVICES |
| VII-8. | BUDGET SAVINGS FROM REDUCTIONS IN RESEARCH AND DEVELOPMENT |
| VII-9. | BUDGET SAVINGS FROM REDUCTIONS IN AID TO FOREIGN GOVERNMENTS AND INTERNATIONAL ORGANIZATIONS |
| VII-10. | BUDGET SAVINGS FROM REDUCTIONS IN OTHER GOVERNMENT OPERATIONS |
| VIII-1. | BUDGETARY OUTLAYS AND RECEIPTS FOR FEDERAL CIVILIAN COMPENSATION |
| VIII-2. | BUDGET SAVINGS FROM STRATEGIES TO REDUCE PAY AND PENSIONS FOR FEDERAL CIVILIAN EMPLOYEES |
| VIII-3. | BUDGET SAVINGS FROM STRATEGIES TO REDUCE FEDERAL EMPLOYMENT COSTS |
| IX-1. | FEDERAL COLLECTIONS FOR SPECIAL SERVICES AND PROGRAMS, BY CATEGORY |
| IX-2. | BUDGET SAVINGS FROM INFRASTRUCTURE USER FEES SET TO RECOVER FULL FEDERAL COSTS |
| IX-3. | BUDGET SAVINGS FROM RESOURCE MANAGEMENT USER' FEES SET AT MARKET PRICES OR FULL COST RECOVERY |
| IX-4. | BUDGET SAVINGS FROM FINANCIAL, INFORMATIONAL, AND SUPPORT SERVICE USER FEES SET TO RECOVER FULL FEDERAL COSTS |
| IX-5. | BUDGET SAVINGS FROM REGULATORY OVERSIGHT ACTIVITY USER FEES SET TO RECOVER FULL FEDERAL COSTS |
| IX-6. | SUMMARY OF BUDGET SAVINGS FROM USER FEES, BY FEDERAL PROGRAM AREA |
| X-1. | FEDERAL REVENUES, BY SOURCE |
| X-2. | REVENUE EFFECTS OF THE ECONOMIC RECOVERY TAX ACT OF 1981 AND THE TAX EQUITY AND FISCAL RESPONSIBILITY ACT OF 1982, BY REVENUE SOURCE |
| X-3. | ESTIMATED REVENUE GAINS FROM BROAD-BASED TAX INCREASES |
| X-4. | REVENUE EFFECTS OF TAX CUTS UNDER ECONOMIC RECOVERY TAX ACT OF 1981 COMPARED WITH INFLATION-INDUCED INCOME TAX INCREASES |
| X-5. | ESTIMATED REVENUE GAINS FROM INCOME TAX BASE-BROADENING OPTIONS |
| X-6. | ESTIMATED REVENUE GAINS FROM ENERGY TAXES |
| X-7. | ESTIMATED NET REVENUE GAINS FROM EXCISE TAX INCREASES |
| X-8. | ESTIMATED REVENUE GAINS FROM USER CHARGES CLASSIFIED AS REVENUES |
| X-9. | REVENUE EFFECTS OF NATIONAL COMMISSION ON SOCIAL SECURITY RECOMMENDATIONS, PRELIMINARY ESTIMATES, FISCAL YEARS 1984-1988 |
| X-10. | ESTIMATED REVENUE GAINS FROM TAXING SELECTED ENTITLEMENT BENEFITS |
| FIGURES | |
| I-1. | FEDERAL DEFICIT AS A PERCENTAGE OF GNP |
| I-2. | MAJOR ECONOMIC ASSUMPTIONS |
| I-3. | FEDERAL DEBT HELD BY THE PUBLIC AS A PERCENTAGE OF GNP |
| I-4. | OUTLAY CATEGORIES AS PERCENTAGES OF GNP |
| I-5. | TOTAL REVENUES AS A PERCENT OF GNP BY SOURCE, 1960-1988 |
| I-6. | STRATEGY EXAMPLE 1-RESTORE TAX SHARE TO 1981 LEVEL, MAINTAIN BASELINE PROJECTION FOR DEFENSE |
| I-7. | STRATEGY EXAMPLE 2-FREEZE TAX SHARE AT 1983 LEVEL, CUT GOVERNMENT SPENDING |
| I-8. | STRATEGY EXAMPLE 3-RAISE TAX SHARE TO INTERMEDIATE LEVEL, LIMIT DEFENSE TO 3 PERCENT REAL GROWTH |
| II-1. | FISCAL YEAR 1983 DEFENSE BUDGET (BUDGET AUTHORITY) |
| II-2. | DEFENSE DEPARTMENT BUDGET, FISCAL YEARS 1984-1988 (BUDGET AUTHORITY) |
The American economy faces unprecedented risks in the years ahead unless the federal government takes measures to narrow the gap between tax revenues and spending. The Congressional Budget Office (CBO) has projected outlays and revenues in coming years, assuming no changes in current laws and policies. These "baseline" projections show federal deficits increasing from $194 billion in 1983 to $267 billion by 1988 (see Table 1-1).
Even when gauged in relation to a growing gross national product (GNP), the size of these deficits is startling. For 1983 and 1984, CBO projects postwar record deficits amounting to 6.1 and 5.6 percent of GNP, respectively (see Figure 1-1). To a great extent, these near-term deficits are attributable to the economic recession, which has reduced federal revenues and increased federal outlays for unemployment compensation and other income maintenance programs. But even as these cyclical causes wither as economic recovery proceeds, the projected deficits remain at the high level of 5.6 percent of GNP throughout the 1984-1988 period. This indicates a long-term mismatch between federal spending and taxing.
This budget outlook is based on CBO's most recent economic forecast for 1983-1984 and on what are believed to be reasonable assumptions for ensuing years. Real economic growth is expected to resume at a moderate pace in 1983, lowering the unemployment rate to 7.6 percent by 1988. Inflation is expected to continue to recede and to stabilize at around 4 percent a year (see Table 1-2 and Figure 1-2).1
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1. 1. For further discussion see Congressional Budget Office, The Outlook for Economic Recovery (February 1983), Chapter III, and Baseline Budget Projections for Fiscal Years 1984-1988 (February 1983), Chapter II.