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Unless otherwise indicated, 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 and tables of this report may not add to totals because of rounding. The Omnibus Budget Reconciliation Act of 1981 (Public Law 97-35) is referred to frequently in the text as the 1981 reconciliation act. Similarly, the Economic Recovery Tax Act (ERTA) of 1981 (Public Law 97-34) is occasionally referred to as the 1981 tax act. |
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 House and Senate Committees on the Budget. This year, the report is in three parts, with this report constituting Part III. Part I is entitled The Prospects for Economic Recovery; Part II is Baseline Budget Projections for Fiscal Years 1983-1987. As background information for the Congressional debate on the fiscal year 1983 budget, this report: discusses alternative broad strategies for reducing the federal deficit and analyzes various specific options for cutting budget outlays and raising revenues over the 1983-1987 period. The inclusion of an option in this report, or its omission, 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 and Alfred B. Fitt. Major contributors included Earl A. Armbrust,
Richard P. Emery, Jr., Sally A. Ferris, Heywood M. Fleisig, Paul Ginsburg,
Robert F. Hale, Martin D. Levine, David Longanecker, Marilyn Moon, Lynn
Paquette, Elisabeth Rhyne, James M. Verdier, and Philip Webre. Robert L.
Faherty supervised the editing and production of the report, assisted by
Nancy H. Brooks. Major portions were edited by Patricia H. Johnston, Francis
S. Pierce, and Johanna Zacharias. Mary Pat Gaffney coordinated production
of the many drafts. The final drafts were typed by Debra M. Blagburn, Mary
Braxton, Linda B. Brockman, Jill M. Bury, Norma A. Leake, Janet Stafford,
Rosetta Swann, Reba M. Williams, and Antoinette C. Wright.
Alice M. Rivlin
Director
February 1982
CHAPTER I. INTRODUCTION
CHAPTER II. BASELINE PROJECTIONS AND BUDGET STRATEGIES
CHAPTER III. NATIONAL DEFENSE
CHAPTER IV. INTERNATIONAL AFFAIRS
CHAPTER V. NATURAL RESOURCES, ENERGY, AND SCIENCE
CHAPTER VI. AGRICULTURE
CHAPTER VII. TRANSPORTATION, COMMERCE AND HOUSING CREDIT, AND COMMUNITY AND REGIONAL DEVELOPMENT
CHAPTER VIII. EDUCATION, EMPLOYMENT AND TRAINING, SOCIAL SERVICES, AND GENERAL REVENUE SHARING
CHAPTER IX. HEALTH
CHAPTER X. INCOME SECURITY
CHAPTER XI. COMPENSATION FOR THE FEDERAL CIVILIAN WORKFORCE
CHAPTER XII. TAX REVENUES
CHAPTER XIII. THE CREDIT BUDGET-LOANS AND LOAN GUARANTEES
| TABLES | |
| II-l. | BASELINE ECONOMIC ASSUMPTIONS |
| II-2. | BASELINE OUTLAY PROJECTIONS FOR MAJOR PROGRAM CATEGORIES |
| II-3. | BASELINE REVENUE PROJECTIONS BY SOURCE |
| II-4. | BASELINE BUDGET PROJECTIONS |
| III-l. | BUDGET AUTHORITY AND OUTLAYS FOR NATIONAL DEFENSE |
| III-2. | U.S. DEFENSE FORCES |
| III-3. | POTENTIAL SAVINGS RELATIVE TO POSSIBLE ADMINISTRATION PROGRAM, FISCAL YEARS 1983-1987 |
| IV-1. | FEDERAL OUTLAYS FOR INTERNATIONAL AFFAIRS |
| V-l. | FEDERAL OUTLAYS FOR NATURAL RESOURCES, ENERGY, AND SCIENCE |
| VI-1. | FEDERAL OUTLAYS FOR AGRICULTURE |
| VII-1. | FEDERAL OUTLAYS FOR TRANSPORTATION, COMMERCE AND HOUSING CREDIT, AND COMMUNITY AND REGIONAL DEVELOPMENT |
| VIII-1. | FEDERAL OUTLAYS FOR EDUCATION, EMPLOYMENT AND TRAINING, SOCIAL SERVICES, AND GENERAL PURPOSE FISCAL ASSISTANCE |
| IX-1. | FEDERAL OUTLAYS FOR HEALTH |
| X-l. | FEDERAL OUTLAYS FOR INCOME SECURITY PROGRAMS |
| XI-1. | FEDERAL COMPENSATION OUTLAYS FOR CIVILIAN PAY AND RETIREMENT |
| XI-2. | ESTIMATED DISTRIBUTION OF FEDERAL CIVILIAN WORKFORCE BY GOVERNMENTAL ACTIVITY |
| XII-1. | BUDGET REVENUES BY SOURCE, SELECTED FISCAL YEARS, 1960 TO 1987 |
| XII-2. | REVENUE INCREASES FROM SCALING BACK THE INDIVIDUAL INCOME TAX CUTS IN THE ECONOMIC RECOVERY TAX ACT OF 1981 |
| XII-3. | REVENUE EFFECTS OF 1981 INCOME TAX RATE CUTS COMPARED WITH INFLATION-INDUCED INCOME TAX INCREASES |
| XII-4. | REVENUE GAINS FROM POSSIBLE REDUCTIONS IN TAX EXPENDITURES, FISCAL YEARS 1983 AND 1987 |
| XII-5. | GROSS REVENUE INCREASES FROM DOUBLING EXISTING EXCISE TAXES |
| XII-6. | POTENTIAL REVENUE INCREASES FROM SELECTED USER FEES, FISCAL YEARS 1983 AND 1987 |
| FIGURES | |
| III-l. | BUDGET AUTHORITY FOR NATIONAL DEFENSE, 1955-1982 |
| XII-1. | FEDERAL REVENUES AS A PERCENTAGE OF GNP, 1960 TO 1987 |
APPENDIX A. BUDGET REDUCTION OPTIONS
Page National Security (Function 050)
International Affairs (Function 150)
Energy (Function 270)
Natural Resources and Environment (Function 300)
Agriculture (Function 350)
Commerce and Housing Credit (Function 370)
Transportation (Function 400)
Community and Regional Development (Function 450)
Education, Training, Employment, and Social Services (Function 500)
Health (Function 550)
Income Security (Function 600)
Veterans' Benefits and Services (Function 700)
General Government (Function 800)
General Purpose Fiscal Assistance (Function 850)
Undistributed Offsetting Receipts (Function 950)
A-950-a Charge the Postal Service for Certain Retirement Costs
All Budget Functions
APPENDIX B. OPTIONS TO INCREASE TAX REVENUES
International Affairs (Function 150)
Energy (Function 270)
Natural Resources and Environment (Function 300)
Commerce and Housing Credit (Function 370)
Transportation (Function 400)
Community and Regional Development (Function 450)
Education, Training, Employment, and Social Services (Function 500)
Health (Function 550)
Income Security (Function 600)
Veterans' Benefits and Services (Function 700)
General Purpose Fiscal Assistance (Function 850)
APPENDIX C. ASSUMPTIONS USED IN NATIONAL DEFENSE PROJECTIONS-QUANTITIES
OF WEAPONS PROCURED UNDER CBO BASELINE, POSSIBLE ADMINISTRATION PROGRAM,
AND ALTERNATIVE
| TABLE C-l. | Quantities Procured Under "Leapfrog the B-l Bomber and Proceed Directly to an Advanced Technology Bomber While Increasing B-52 Alert Rates" |
| TABLE C-2. | Quantities Procured Under "Modify the Tanker Re-Engining Program" |
| TABLE C-3. | Quantities Procured Under "Modify and Expand Navy Battle Group Structure" |
| TABLE C-4. | Quantities Procured Under "Restructure the Modernization of Naval Air Defenses" |
| TABLE C-5. | Quantities Procured Under "Procure Conventional Submarines to Complement Nuclear Attack Submarines" |
| TABLE C-6. | Quantities Procured Under "Limit Ml Tank Procurement and Supplement it With M60s" |
| TABLE C-7. | Quantities Procured Under "Alter the Composition of the Infantry Fighting Vehicle Program" |
| TABLE C-8. | Quantities Procured Under "Revise the Navy Aircraft Modernization Program" |
The federal deficit in fiscal year 1981 was about $58 billion. The Congressional Budget Office (CBO) estimates that, if current policies were continued unchanged, this total would rise to $109 billion in 1982, $188 billion in 1984, and as much as $248 billion in 1987. Such a substantial increase would raise the deficit as a percentage of gross national product (GNP) from 2 percent in 1981 to approximately 5 percent between 1984 and 1987. If this prospective growth in the federal budget deficit were principally a cyclical phenomenon, it would be cause for little concern. Indeed, rising budget deficits during periods of recession help to counteract declines in economic activity. Unfortunately, however, the budget problem facing the Congress is not a cyclical one. Instead, without significant legislative changes in federal spending or taxing policies, large budget deficits will continue indefinitely.
The prospect of growing deficits represents a major departure from previous CBO baseline budget projections, in which revenues grew faster than outlays and the budget began to show a surplus within two or three years. The surplus in those projections was caused by revenues' increasing more rapidly than GNP as inflation and economic growth pushed taxpayers into higher income tax brackets. Outlays, on the other hand, grew more slowly because most spending was assumed merely to keep pace with inflation.
During its second session, the 97th Congress will be debating various
proposals to reduce these large deficits. This report discusses alternative
strategies for cutting spending; it also analyzes specific options for
each of the major program areas in the budget. In addition, the report
examines a broad range of alternative tax increases, as well as some options
to lower the level of federal credit outstanding.
PLAN OF THE REPORT
Chapter II discusses CBO's baseline budget projections. It sets forth broad strategies that could be used to reduce spending in the areas of defense, benefit payments to individuals, grants-in-aid to state and local governments, and other federal expenditures. Finally, it describes certain issues that should be considered in making budget and tax decisions.
Chapters III through XI detail the broad reduction strategies for each major budget function. Under each strategy, specific options are outlined, together with estimates of potential savings and some of the major programmatic effects. Most of the specific budget options are cross-referenced to Appendix A, where additional budget and program information are given. (Appendix A also presents a number of options that do not fall under any one of the broad strategies outlined in the text chapters.)
Chapter XII discusses options for raising revenues, ranging from postponing some of the income tax reductions now scheduled to introducing new consumption or value-added taxes. It also outlines incremental adjustments to the current tax system, such as eliminating certain tax expenditures. These are treated more fully in Appendix B. Possible new taxes, on items such as natural gas and oil imports, are also briefly discussed in this chapter, along with options for changing excise taxes.
Chapter XIII outlines ways to reduce the amount of federal credit outstanding. Not only do large federal deficits have an impact on financial markets; the fact that the federal government reallocates capital by its loans and loan guarantees also has an impact. For this reason, as well as the fact that credit programs are often viewed as substitutes for spending programs, credit options should be included in a report on reducing the overall federal deficit. Some options would generate outlay reductions, while others would merely lessen the degree of federal intervention in financial markets.
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