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The Federal Government Dollar
Fiscal Year 1988 Estimate

Where It Comes From
Corporation
Income Taxes
11 ¢

Social
Insurance
Receipts

~:>r-

Borrowing
11¢

33¢
Individual
Income Taxes

38¢

Where It Goes ...




Direct
Benefit
Payments
for
Individuals

National
Defense

29¢

42¢

Grants to States
and Localities
10¢

Other
Federal Operations

5¢

TABLE OF CONTENTS
Page

1. BUDGET MESSAGE OF THE PRESIDENT ........................
2. BUDGET SUMMARY AND PRIORITIES .............................
3. THE ECONOMIC OUTLOOK AND FEDERAL INVESTMENT .........................................................................................
a. Economic outlook.....................................................................
b. Federal credit: Investment in financial assets ...................
c. Capital spending: Investment in physical assets ...............
4. FEDERAL RECEIPTS BY SOURCE......................................
5. FEDERAL PROGRAMS BY FUNCTION: MEETING NATIONAL NEEDS......................................................................
National defense ......... :........... ....... ......................................... ......
International affairs. ................................................... ................
General science, space, ·and technology ...................................
Energy ............................................................................................
Natural resources and environment ........................................
~griculture ....................................................................................
Commerce and housing credit...................................................
Transportation.............................................................. .................
Community and regional development ....................................
Education.......................................................................................
Training, employment, and social services .............................
~ealth ............................................................................................
Medicare ..... :..................................................................................
Income security ..................................................................... ~.......
~ocial security ............................................. ~.................................
Veterans benefits and services ............... '!..................................
Administration of justice.... ............. ............ ......... .......... ......... ...
General government....................................................................
General purpose fiscal assistance .............................................
Net interest ...................................................................................
Allo~ances ............. :.......................................................................
U ndistributed offsetting receipts ..............................................
~alt eltpenciitures..........................................................................
fi. SUPPLEMENTS ..........................................................................
a. The budget process .......................................... :........................
b. Glossary of budget terms..................... ...................................
c. ~elected tables.............................. .............................................

3
15

,

GENERAL NOTES
l

1. All years referred to are fiscal years, unless otherwise n ed.
2. Detail in the tables, text and. charts of this volume may ot add t ta,
totals because of rounding.




3~
3~

42
44
45
50
51
52
55
5f)
58
f)0
62
64
66
68
70
72
73
75
77
78
80

82
83
84
85
8f)
87
8~

89
94
9f)




Percentage Composition of Federal Govemment Receipts
Perce nt

Percent

100~~~~~~~~~~--~~~~--~----~----------100

80

80

60

60
Corporation t - - - - - - - - - - " " ' "
1---------t1ncome Taxes

\J--------1

40

2(1

20

0-4'-'~""'-"""',"",,-,-~""-'-""""""""""""'-"""""""''''''''''-~~'''''''';-+-'''''''''-'-+'"''''-'-''''-'-+-'-'''-'-rI..(-'-'-'-'-~0

1940

45

50

55

60

65

70

75

80

85

92

Estimate

Percentage Composition of Federal Govemment Outlays
Percc!nt

Percent

10(l~~""'t'""'If""""'"""""""t"'"'f'"'~~~~~~~~""'t'""'If"""'t'""'If""""'"""""""t"'"'f'"'~~~~~~~~100

80

80

60

60

40

xx.}UVac:=;.--"i- 40

2()

20

I)

0

'1940

45

50

55

60

65

70 .

75

80

85
Estimate

92

THE BUDGET MESSAGE OF THE PRESIDENT
To the Speaker of the House of Representatives and the
President of the Senate:
The current economic expansion, now in its 50th month, is already one of the longest of -the postwar era and shows promise of
continuing to record length. This has not been d~e simply to
chance-it is the result of successful policies adopted during the
past 6 years. Disposable personal income is at an -all-time high and
is still rising; total production and living standards are both increasing; employment gains have been excellent. Inflation, which
. raged at double-digit rates in 1980, has been reduced dramatically.
Defense capabilities, which had been dangerously weakened during
the 1970's, have heen substantially rebuilt, restoring a more adequate level of national security. Ail insupportable growth in tax
burdens and Federal regulatio~s - as been halted, an intolerably
h
complex and inequitable income tax structure has been radically
reformed, and the largest management improvement program ever
attempted is in full -swing in -all- major Federal - agencies. It has
been a good 6 years.
Now in its 5th year, the current expansion already has exceeded
5 of the 7 previous -postwar expansions in duration, -and leading
economic indicators point to continued growth ahead. Our policies
have worked. Let me mention a few highlights of the current
•
•
economIC expansIon:
• In the :past 4 years 12.4 million new jobs have been created,
. while the total unemployment rate has fallen by 3.7 percentage points. By comparison, jobs in other developed countries
have not grown significantly, and unemployment rates have
remained high.
• Inflation, which averaged 10.3 percent a year during the ~
years before I came to office, has averaged less than a third of
-that during the last 4 years-3.0 percent; inflation in 1986, at
. about 1 percent, was at its lowest rate in over two decades.
• The prime rate of interest, and other key interest rate~, are
less than half what they were in 1981.
• Between 1981 and 1986, numerous changes in the tax code,
including a complete overhaul last year, have simplified reporting, made . the tax law more equitable, and significantly
lowered tax rates for individuals and corporations. Six million




3




low-income taxpayers are being removed from the income tax
lolls. The inhibitive effect of our tax code on individual initiative has been reduced dramatically. Real after-tax personal
income has risen 15 percent during the last 4 years, increasing our overall standard of living.
• ()ur .defense capabilities have been strengthened with modErnized equipment and successful recruiting and retention of
!
ltigher caliber personnel; the readiness, training, and morale
of our troops has been improved.
• JU-ter years of unsustainably rapid growth, Federal spending
for domestic programs other than entitlements has been held
E!ssentially flat over the last 4 years.
• ~ance 1981, the amount of time spent by the public filling out
forms required by the Federal Government has been cut by '.
over 600 million hours, and the number of pages published
smnually in the Federal Register has been reduced by over 45
IterCent.
• ()ur continuing fight against waste, fraud, and abuse in GovErnment programs has paid off, as the President's Council on
!
Integrity and Efficiency ,has saved $84 billion in funds that
Itave been put to more efficient use.
• l~inallY, Federal agencies have instituted the largest managernent improvement program ever attempted to . bring a more
1:~usiness-like approach to Government.
The dramatic improvement in the performance of our economy
stemlIted from steadfast adherence to the four fundamental principles of the economic program I presented in February 1981:

• limiting the growth of Federal spending;
• reducing tax burdens;
• relieving the economy of excessive regulation and paperwork;
smd
• supporting a sound and stable monetary policy.
BUDGET SUMMARY
(In billions of dollars)

1987

1988

1989

1990

1991

1992

842.4
1,015.6

916.6
1,024.3

976.2
1,069.0

1,048.3
1,107.8

1,123.2
1,144.4

1,191.2
1,178.9

SIJrpius or deficit (-) .......... -220.7 -173.2 -107.8
G
ramm-Rudman-Hollings deficit targets .......................... -171.9 -144.0 -108.0

-92.8

-59.5

-21.3

12.3

-72.0

-36.0

0.0

0.0

20.8

23.5

21.3

-12.3

1986

Receipts ...............:................................
Outlays .................................................

Difference................................

769.1
989.8

48.8

Note.-Tolals include social security, which is off-budget.

4

29.2

-0.2

NEED FOR DEfiCIT ' REDUCTION

The foundation has been laid for a sustained era of national
prosperity. But a major threat to our future prosperity remains:
the Federal deficit. If this deficit is not brought under control by
limiting -Government spending, we put in jeopardy all we have
achieved. Deficits brought on by continued high spending threaten
the lower tax rates incorporated in tax reform and inhibit progress
in our balance of trade.
We cannot-permit this to happen. Therefore, one of the major
objectives of this budget is to assure a steady reduction in the
deficit until a balanced budget is reached.
This budget meets the $108 billion deficit target for 1988 set out
in the Balanced ~udget and Emergency Deficit Control Act, com.,monly known for its principal sponsors as Gramm-Rudman-Hol"lings. Gramm-Rudman-Hollings committed both the President and
Congress to a fIXed schedule of progress toward reducing the deficit. In submitting~ this budget, I am keeping my part of the ' bar-gain~and on schedule. I ·ask Congress to do the same. If the deficit
reduction goals were to be abandoned, we could see unparalleled
spending growth that this Nation cannot afford.
This budget shows that eliminating the deficit over time is possible without .raising taxes, without sacrificing our defense preparedness, and without cutting into legitimate programs for the poor and
the elderly, while at the same time providing needed additional
resources for other high priority programs.
DEfiCIT REDUCTION IN 1988

Although the deficit has equalled or exceeded 5 percent of the
gross national product (GNP) in each of the past 4 years, each year
.1 have proposed a path to lower deficits-involving primarily the
c~rtailment of unnecessary domestic spending. Congress, however,
has rejected most of these proposals; hence, our progress toward
reducing the deficit has been much more modest than it could have
been.
.
This year there appears to be a major turn for the better. The
1987 deficit is estimated to be about $48 billion less than in 1986
and should decline to less than 4 percent of GNP. As the economy
expands, Federal receipts will rise faster than the increase in outlays Congress enacted for the year.
However, there is no firm guarantee that progress toward a
steadily smaller deficit and eventual budget balance will continue.
On a current services basis the deficit will continue to decline over
the next 5 years, but this decline is gradual and vulnerable to
potential fiscally irresponsible congressional action on a multitude
of spending programs. It is also threatened by the possibility of a
less robust economic performance than is project~d, for that projec-




5

tion is based on the assumption that the necessary spending cuts
will be made.
This 1988 budget , can deal the deficit a crucial blow. If the
proposals in this budget are adopted and if the economy performs
according to the budget assumptions for growth and inflation, then
for thE~ second consecutive year the deficit should shrink substantially, by $65 billion, and thus decline to less than 2¥2 percent of
GNP. ]Reducing the deficit this far would bring it within the range
of our previous peacetime experience and bring our goal of a balanced lbudget much closer to realization.
Mort~ver, if Congress· adopts the proposals contained in this
budget, it will ensure additional deficit reductions in future years,
becaus1 in many cases the savings from a given action, altho~gh
e
small :in 1988, would mount in later years. Given the good start
made in 1987, Congress has an opportunity this year-by enacting .
this blldget-to put the worst of the deficit problem behind us.
Adol)ting the spending reductions and other reforms proposed in
this budget would reduce the Federal deficit an average of $54 billion
annually for the next 3 years. This represents $220 each year for
every jlndividual American and about $600 for every household. I
believe this is the appropriate way to deal with the deficit: cutting
excessive Federal spending rather than attacking the family
budget by increasing taxes, weakening our national security, breaking faith with the poor and the elderly, or ignoring the requirements for additional resources for other high priority programs.
A MORE COMPETITIVE, PRODUCTIVE AMERICA

The task of deficit reduction is a formidable one-but it can and
should be achieved with serious attention to the effects on America's economy, businesses, State and local governments, social organizations, and individual citizens. Reducing the deficit will reduce
the burden the Federal Government places on private credit markets. ~rhe specific deficit reduction measures proposed in this
budget would also help make our economy more competitive-and
more productive. These objectives have been major considerations
in the formulation of this budget.
High priority programs must be funded adequately. Despite the
very tight overall fISCal environment, this budget provides adequate funds for maintaining and, in selected cases, expanding high
priorit:r programs in key areas of national interest. For example:
e e~lSential services and income support for the aged and needy
aJ expanded;
re
e· tIle prevention, treatment, and research efforts begun-in my
1B87 drug abuse initiative are continued, while resources devoted to drug law enforcement have tripled since my administl-ation began;




6

• the budget allocates $85 million to more intensive health care
for those with the highest incidence of infant mortality;
• over half a billion dollars is provided for AIDS research and
education in 1988-a 28 percent increase above the 1987 level
and more than double our 1986 effort (an additional $100
million is provided for AIDS treatment and blood screening
by the Veterans Administration and the Department of Defense);
• building upon the Nation's preeminence in basic biomedical
research, the budget seeks funding for the full multiyear costs
of biomedical research grants made by the National Institutes
of Health;
.
• a $200 million increase over the 1987 level is proposed for
compensatory education for educationally disadvantaged children;
• current ineffective programs intended to assist dislocated"
workers are replaced by an expanded billion-dollar program
carefully designed to help those displaced from their jobs
move quickly into new careers;
• a 68 percent increase in funding is provided to permit the
Federal Aviation Administration to modernize the Nation's
air traffic control system; this includes the procurement of
doppler radars capable of detecting severe downdrafts that
imperil landings and takeoffs at airports where this is a
hazard;
• for 1988, $400 million is provided to carry out newly enacted
immigration reform legislation;
• substantial increases in funding for clean coal technology
demonstrations, as well as research on acid rain formation
and environmental effects, are provided to address the acid
rain problem; and
• a new civil space technology initiative, together with previously planned increases to construct a space station, develop a
national aerospace plane, and foster the commercial development of space, are provided in this budget.
Restoring our national security also has been one of my highest
priorities over the past 6 years due to the serious weakness arising
from severe underfunding during the middle and late 1970's. None- theless, defen_e and international programs have not escaped the
s
effects of fiscal stringency. The defense budget actually has declined in real terms in each of the past 2 years. This trend cannot
be allowed to continue. I am proposing in this budget a 3 percent
real increase over last year's appropriated level. This requestsome $8 billion less than last year's-is the minimum level consistent with maintaining an adequate defense of our Nation.
Likewise, my request for our international affairs programs is
also crucial to our effort to maintain our national security. I urge




7

CongrE~ss

not to repeat last year's damaging cuts, but rather to
fund tllese programs fully.
The incentive structure for other Federal programs should be
changed to promote efficiencg and competitiveness. One of the problems ~rith many Federal programs is that they provide payments
without encouraging performance or efficiency. They are perceived
to be 'Ifree" and, therefore, there is potentially unlimited demand.
This has to be changed-and this budget proposes creating needed
incentives in critical areas.
Our farm price support programs, under the Food Security Act of
1985, a.re proving much too costly-half again as costly as estimated wh~~n the bill was enacted just one year ago. The $25 billion
being :;pent on farm subsidies in 1987 is 14 percent of our total
Federal deficit and equivalent to taking $415 of each nonfarm
family's taxes to support farmers' incomes-over and above the
amount that price supports add to their grocery bills. Some of the
provisions of the Act encourage farmers to overproduce just to
receivE~ Federal benefits. Other provisions give the greatest benefits
to our largest and most efficient agricultural producers instead of
to thoBe family farmers most in need of help. My administration
will propose amendments to the Food Security Act to focus its
benefits on the full-time family farmer by placing effective limitations on the amount paid to large producers and removing the
incentive for farmers to overproduce solely to receive Federal payments.
Reform of the medicare physician payment system is also proposed. Under the proposals, medicare would pay for radiology,
anesthesiology, and pathology (RAP) services based on average area
costs instead of inflationary fee-for-service reimbursements. The
current fee-for-service payment distorts incentives and induces inappropriate billing for unneeded services. This initiative would
remove the distortions caused by medicare's current reimbursement rules, eliminating a key barrier preventing the restoration of
traditional arrangements between RAP physicians and hospital
staffs.
The budget proposes continued increases in federally supported
basic research that will lead to longer term improvements in the
NatiolJl's productivity and global competitiveness. For example, the
budget projects a doubling within 5 years of the National Science
Foundla tion's support for academic research. I also propose to increase support for training future scientists and engineers, and to
foster greater technology transfer from Government to industry.
Ano1
Gher way of attaching a "value" to Government-provided
servicE~s-and an incentive to use them only as needed-is to '
chargE! user fees where appropriate. Those who receive special
Federal services-not the general taxpayer-should bear a greater
share of the costs of those services. Accordingly, this budget im-




8

poses fees for Federal lending activities, for meat and poultry
inspection, for National park and forest facilities, for Coast Guard
services; for Customs inspections, and for many other services.
The Government should stop competing with the private sector.
The Federal Government interferes with the productivity of the
private sector in many ways. One is through borrowing from the
credit markets to finance programs that are no longer needed-as '
in the case of the rural housing insurance fund, direct student
financial assistance, urban mass transit discretionary grants, vocational education grants, the Federal Crop Insurance Corporation
fund, sewage plant construction grants, justice assistance grants,
- the Legal Services Corporation, and rural electrification loans. I
am proposing in this budget that we terminate these programs and
rely instead on private or State and local government provision of
these services.
The budget also proposes that a number of programs that have
real utility be transferred back to the private sector, through
public offerings or outright sales. Following our successful effort to
authorize sale of Conrail, I am now proposing the sale of the Naval
Petroleum Reserves, AMTRAK, the Alaska Power Administration,
the helium program, and excess real property. In addition, I am
proposing legislation to authorize study of a possible divestiture of
the Southeastern Power Administration. These "privatization" efforts continue to be a high priority of my administration and, I
believe, will result in increased productivity and lower total costs
of ,providing these services. The Federal Government needs to provide essential services that are truly public in nature and national
in scope. It haS no business providing services to individuals that
private markets or their State or local governments can provide
just as well or better.
.The Federal Government sp-ould depend more on the private .
sector to provide ancillary and support services for activities that
. remain in Federal hands. The budget proposes that the work associated with over 40,000 Federal positions be contracted out to the
private sector as yet another way to increase productivity, reduce
costs, and improve services.
Federal credit programs should operate through the private markets and reveal their true costs. The Federal Government provides .
credit for housing, agriculture, small business, education, and
many other purposes. Currently, over a trillion dollars of .F ederal
or federally assisted loans are outstanding. Including lending of
Government-sponsored enterprises, federally assisted len'd ing
amounted to 14 percent of all lending in U.S. credit markets in
1985.
Under current treatment, loan guarantees appear to be "free";
they do not affect the budget until and unless borrowers default.
Direct loans are counted as outlays when they are made, but as




9

"negative outlays" when they are repaid; thus, direct loans seem
"freE~" too, inasmuch as it is presumed they will be repaid. But
neitller direct loans nor loan guarantees are free. Besides the
bettE~r terms and conditions a borrower gets from the Government,
there is the matter of default. When a borrower does not repay a
direct loan, the negative outlay does not occur, and this is a subsidy implicit in the original loan transaction. When a borrower
defalllts on a guaranteed loan, the Government has to make good
on repayment-also a program subsidy.
Si11ce these effects are poorly understood and lead to grave inefficieneies in our credit programs, we will ask Congress to enact
legislation whereby the true cost to the economy of Federal credit
programs would be counted in the budget. By selling a substantial
portion of newly made loans to the private sector and reinsuring
some newly made guarantees, the implicit subsidy in the current
practice will become explicit. This reform will revolutionize the
way Federal credit activities are conducted.
Th.e private sector will also be increasingly involved in the managenlent of our huge portfolio of outstanding loans and loan guaranteles. Delinquent Federal borrowers will be reported to private
credJlt bureaus, and private loan collection agencies will be used to
help in our collection efforts. The Internal Revenue Service (IRS)
will expand its "offsetting" of refunds to payoff delinquent Federal
debt;, and Federal employees who have not paid back Federal
loan:; will have their wages garnisheed.
Inl~reased role for State and local governments. Over the past 6
year::; I have sought to return various Federal services to State and
local governments-which are in a much better position to respond
effectively to the needs of the recipients of these services. To me,
this is a question of reorganizing responsibilities within our Federal system in a manner that will result in more productive delivery
of tIle services that we all agree should be provided. Thus, this
budget phases out inappropriate Federal Government involvement
in local law enforcement, sewage treatment, public schools, and
com1nunity and regional development. Transportation programs
will be consolidated or States will be given greater flexibility in the
use of Federal funds for highways, mass transit, and airports.

Federal regulations must be reduced even further to improve productivity. My administration will continue the deregulation and
regulatory relief efforts that were begun in 1981. The Task Force
on E~egulatory Relief, headed by the Vice President, has been reinstatE~d. In the past, excessive Federal regulations and related paperworl~ have stifled American productivity and individual freedom.
We JrIlust continue our efforts to streamline the regulatory process
and to strike the proper balance between necessary regulation and
assoeiated paperwork on the one hand, . and the costs of these
requirements on the other.

10



,Federal activities should be better managed. The American people
deserve the best managed Federal Government possible. Last year,
I initiated the Federal Government Productivity Program, with the
'goal of improving productivity in selected areas by 20 percent by
o
1992. A substantial portion of t, tal direct Federal employment falls
'.within the program, including such activities as the Department of
Agriculture meat and poultry inspection, Navy aircraft maintenance and repair, social security claims processing, National Park
maintenance, operation of Federal prisons, and IRS processing of ·
tax returns.
Credit reform, privatization, productivity improvement, and
~ , ther proposals will be described in more detail in the Management
o
" Report to be issued this month. It will also identify further measures to reduce waste, fraud, and abuse; to improve management of
the Government's $1.7 trillion cashflow; to institute compatible
financial management systems across all Federal agencies; and
other initiatives to improve the management of Government oper- '
ations. These ambitious management reform undertakings, called
"Reform '~8," constitute the largest management reform effort
ever attempted.
The budget also proposes a new approach to paying Federal
employees who increase their productivity. I ask that Congress
approve a new plan to tra~sform the current system of virtually
automatic "within-grade" salary increases for the roughly 40 percent of employees eligible each year for these 3 percent hidden pay
raises to one that is "performance-oriented". This will give Federal
employees stronger incentives to improve service delivery. '
I include with this budget my recommendatio·n s for increases in
executive level pay for the executive, legislative, and judicial
branches of the Federal Government. , he Quadrennial Commission
T
report submitted to me on December 15, 1986 documented both the
substantial erosion in the real level of Federal executive pay that
has occurred since 1969 and the recruitment and retention prob·lems that have resulted, especially for the Federal judiciary. The
Commission is to be commended for its diligent and conscientious
effort to address the complicated and complex problems associated
with Federal pay levels.
, Every one of the Quadrennial Commissions that have met over
the past 18 years has recognized that a pay increase for key Federal officials was ·necessary. Each Commission concluded that pay for
senior Government officials fell far behind that of their counterparts in the private sector. They also understood that we cannot
afford a Government composed primarily of those who are wealthy
enough to serve. Unfortunately, the last major Quadrennial Commission pay adjustment was in 1977-a decade ago.
However, I recognize that we are under mandated efforts to
reduce the Federal deficit and hold down the costs of Government




11




to the absolute minimum level. In this environment, I do not
believe it would be appropriate to implement fully the Quadrennial
Comrrdssion recommendations.
Accordingly, I have decided to propose a pay increase, but have
cut stlbstantially the recommendations made by the Quadrennial
Comrrdssioners in their report to me last month. Moreover, I have
decided to establish a Career Manager Pay Commission to review
and report to me by next August on appropriate pay scales for our
elite corps of career Government managers. The pay increases I am
propoBing to Congress, plus the results of this new Commission,
should place Government compensation on a fairer and more comparable footing.

PEACE THROUGH STRENGTH
I have become convinced that the only way we can bring our
adversaries to the bargaining table for arms reduction is to give
them a reason to negotiate-while, at the same time, fulfilling our
respollsibility to our citizens and allies to provide an environment
safe and secure from aggression.
We have built our defense capabilities back toward levels more
in accord with today's requirements for security. Modest and sustainedl growth in defense funding will be required to consolidate
the real gains we have made. Because of severe fiscal constraints,
we ar1 proceeding at a slower pace than I originally planned, and
e
the b1.Ldget I propose provides the minimum necessary to ensure an
adequate defense.
I aln also submitting, for the first time, a two-year budget for
NatioJ
rlal Defense. This will permit greater stability in providing
resources for our defense efforts and should lead to greater economy in using these resources.

BUDGET PROCESS REFORM
The current budget process has failed to provide a disciplined
and rHsponsible mechanism for consideration of the Federal budget.
BudgE~t procedures are cumbersome, complex, and convoluted. They
permit and encourage a process that results in evasion of our duty
to thE~ American people to budget their public resources responsibly. l ,a st year Congress did not complete action on a budget for 8
montllS and 2 weeks-2 weeks past the statutory deadline. Except
for tile initial report of the Senate Budget Committee, Congress
misse~:l every deadline it had set for itself just 9 months earlier. In
the e11d, Congress passed a yearlong, 389-page omnibus appropriations 'bill full of excessive and wasteful spending. Because Congress
had not completed action on the annual appropriations bills, at one
point I was compelled by law to initiate a shutdown of Federal
Government activities. Such abrogation of a responsible budget

12

~

process .not only discourages careful, prudent legislation-it encourages excessive spending and waste.
Furthermore, since I, as President, do not have a line-item veto, I
had to ignore the many objectionable features of the omnibus
appropriations legislation and sign it to avoid a Federal funding
crisis. I am sure that many Members of Congress do not approve of
this method of budgeting the Federal Government.
Last Fall's funding crisis and its slap-dash resolution are only
one of the most obvious manifestations of the flaws in the system.
Congress passes budget resolutions (without the concurrence of the
President) based on functions; it considers 13 separate, but related, .
appropriations bills based on agencies, not functions; it develops a .
reconciliation bill; it passes authorizing legislation, sometimes annually; and it enacts limits on the public debt. The words alone are
obscure and confusing; the process behind it is chaotic. The p.rocess
must be streamlined and made more accountable.
Shortly, I · will outline spec~fic reforms designed to ' make the
process more efficient and increase accountability, so that we can
give the American people what they deserve from us: a budget that
is fiscally responsible and on .time.
I

CONCLUSION

Looking back over the past 6 years, we can feel a sense of pride
and satisfaction in our accomplishments. Inflation has been
brought under control. Growth and investment are up, while interest rates, tax rates, and unemployment rates have all come down
substantially. A foundation for sustained economic expansion is
now in place. Our national security has been restored. to more
adequate levels. The proliferation of unnecessary and burdensome
Federal regulations has been .halted. A significant beginning has
been made toward curbing the excessive growth of domestic spending. 'Management of the Government is being improved, with special emphasis on productivity.
Important tasks, however, still remain to be accomplished. The
large and stubbornly persistent budget deficit has been a . major
source of frustration. It threatens our prosperity and .o ur hopes for
continued economic growth.
Last year,. the legislative and executive branches of Government
responded to this threat by mandating gradual, orderly progress
toward a balanced budget over the next 4 years. The proposals
outlined here achieve the 1988 target while preserving legitimate
programs for the aged and needy, providing for adequate national
security, devoting more resources to other high-priority activities, ..
and doing this without raising taxes.
This budget presents hard choices which must be faced squarely.
Congress must not abandon the statutory deficit targets of GrammRudman-Hollings. Honoring the provisions and promises of this




.

..

13

legislation offers the best opportunity for us to escape the chronic
patterJ of deficit spending that has plagued us for the past half
rl
century. We must realize that the deficit problem is also an oppor-"
tunity of a different kind-an opportunity to construct a new,
leaner, better focused, and better managed Federal structure supportinl~ a more productive and more competitive America.




RONALD REAGAN
JAN1
UARY

14

5, 1987

Part 2
BUDGET SUMMARY AND PRIORITIES
The President's budget for 1988 proposes further reduction in the
deficit while maintaining Federal support for the core functions of
Government. In particular, this budget:
• meets the Gramm-Rudman-Hollings 1988 deficit target of
$108 billion-a reduction of $65 billion in 1988, following a
reduction of $48 billion in 1~87;
• avoids increasing the .Nation's tax burden;
• . reflects bipartisan consensus to protect social security;
• provides 3 percent real growth in .funding for national defense, that is, 3 percent real growth above the 1987 appropriated level; and
• reforms, reduces, or terminates an assortment of programs,
saving taxpayers $19 bil.lion in 1988 alone.
PRESI.DENT'S 1988 BUDGET
(In billions of dollars)

1986

1987

1988

1989

1990

1991

1992

Totals:

769.1
989.8

842.4
1,015.6

916.6
1,024.3

976.2
1,069.0

1,048.3
1,107.8

1,123.2
1,144.4

1,191.2
1,178.9

Deficit or surplus .................. -220.7
Gramm-Rudman-Hollings
targets ............................. -171.9

~173.2

-107.8

-92.8

-59.5

-21.3

12.3

-144.0

-108.0

-72.0

-36.0

0.0

0.0

Receipts ................................
Outlays .................................

,

Year-to-Year Changes:

Receipts ................................
Outlays .................................

35.0
43.5

73.3
25.8

74.2
8.8

59.6
44.6

72.1
38.8

74.9
36.6

68.1
34.5

Deficit...................................

-8.5

+47.5

+65.4

+15.0

+33.3

+38.2

+33.6

As a share of gross national product (GNP), the proposed reduction in the deficit is dramatic-from 5.3 percent of GNP in 1986 to
just 2.3 percent in 1988.
The President's budget calls for holding the outlay increase to $9
billion, from $1,016 billion in 1987 to $1,024 billion in 1988. After
adjustment for inflation, -spending would decline in real terms.




15

The $9 billion increase in proposed outlays reflects the net
impact of:
• an increase of $2 billion for net interest payments;
• an increase of $11 billion for social security benefits under
existing law;
• an increase of $15 billion in spending for national defense;
• an increase of $1 billion for major medical programs; and
• a net decrease of $21 billion for other Fede~al spending. This
decrease reflects the net impact of increased revenues from
asset sales, privatization initiatives, and user fees-a total of
$13 billion-as well as a wide variety of programmatic increases and decreases.
The following sections describe the major budget proposals by
programmatic category. Social security, national defense, major
medical, and the category of other mandatory programs are discussed separately from domestic discretionary programs. Spending
for mandatory programs is determined largely by the number of
individuals or businesses that meet eligibility and benefit criteria
established by law. Funding for national defense and domestic
discretionary programs is determined by authorizations and appropriations, rather than by benefit criteria in substantive legislation.
Domestic discretionary programs are described in three broad
groupings-economic subsidies and development, social programs,
and gE!neral government functions (including the conduct of international affairs). The discussion of programmatic changes is followed 'by a discussion of the proposed changes in revenues from the
sale of assets, the collection of user fees, and other sources. Summary tables on these categories are provided at the end of this
chapter.




PROGRAMMATIC CHANGES
Soci~rzl

Securitg.-The administration proposes no changes• in
social security benefits. Approximately one in every six Americans
is a social security beneficiary. The average benefit for a retired
worker and spouse will be about $10,000 in 1987-an increase of
approl:imately $265 per month (or nearly $3,200 per year) over the
1981 llevel. 'Benefits will continue to increase as new retirees receive ltigher benefits based on higher average wages.
Nea:rly all Americans participate in the social security program,
either by receiving benefits or by paying payroll taxes that finance
them. Primarily because benefits will increase by the change in the
consurner price index and a growing number of beneficiaries, outlays for social security benefits are estimated to increase from $205
billion in 1987 to $217 billion in 1988.
16

National Defense.-Defense budget authority levels declined in
real terms in both 1986 and 1987. The 1987 appropriated amount is
now 6 percent below that- for 1985. In those years, Congress cut $65
billion from administration requests, with reductions in both operations and investment programs. As a result, the rebuilding of our
national security capabilities has been delayed and in the end may
prove more costly. Fewer aircraft,; missiles, and ships are being
purchased than is prudent, and fewer resources are available for
combat readiness.
Specific congressionally mandated reductions in the President's
budget request over the past 2 years include:
• a 65 percent cut in Peacekeeper strategic missiles-a reduction of 45 missiles from a 2-year request of 69 missiles;
• a 30 percent cut in funding for the Strategic Defense Initiative-a reduction of $2.8 billion from a 2-year request of $9.3
billion; and
• a 27 percent cut in a variety of tactical missiles-a reduction
of 14,000 from a 2-year request of over 53,000 missiles;
To meet the most critical unmet needs resulting from the 2-year
decline in real defense budget authority levels, the administration
proposes a· 1987 supplemental appropriation of $2.8 billion to be
followed by sustained moderate real growth of about 3 percent
annually. The amounts requested are those minimally necessary to
maintain national security and to allow the consolidation of real
gains in military strength made in this administration.
The budget resumes improvements in the capabilities of strategic
and conventional forces but at a slower rate than originally
planned. Procurement is being stretched out for several major
ground forces systems-including the Abrams tank and the Bradley Fighting Vehicle. Similarly, ship procurement is being delayed
and the goal of achieving 40 Air Force tactical wings has been
reduced to 37 wings.
In keeping with the requirements of the 1986 Defense Authorization Act, the administration is proposing a 2-year national defense
. budget. Favorable response by Congress should lead to enhanced
program planning and execution, and more stability at the operational level where commanders and program managers carry out
mandated policy.
Major Medical Programs.-Since 1960, Americans' per capita
spending on health care has increased rapidly-more than three
times faster than the rate of inflation. Americans now spend 10.7
percent of GNP on medical care, more than any other industrialized nation. Federal health spending has also continued to grow
rapidly, despite major policy reforms enacted since 1981. Federal
spending for health care is growing even faster than medical




17




HEALTH COSTS AS PERCENT OF GNP, 1975-1984
SGNP

~~.--------------------------------------------~
UNITED STATES

10

--------.- --------

~----

8

6

o

75

80

spending generally and will more than double in this decade unless
present trends are reversed.
Risillg ,m edical costs have been cited as a factor in the declining
international competitiveness of many industries. During the last
decade!, the 'competitive burden of health care costs on American
industry has doubled, widening the gap between the U.S. and its
major trade competitors. More efficient use of health resources
would not diminish the quality of health care, but, as shown by the
experi1
ence of major international competitors, would free the Nation's resources for other productive efforts.
Witl10ut substantial health spending reform, America's competitive position will continue to erode. The Nation's businesses, which
pay for most health care in the U.S. through payroll taxes and
fringe benefits, have recognized the urgent need for ' reform. They
have l:>rought competitive market principles to the health care
Systerr.L, promoting among other reforms the wider use of health
maintHnance organizations (HMOs), i.e., a single institution that is
responsible for all of an individual's health care. So, too, must
Federal health spending be brought under control.

18

Medicare.-By far the largest Federal health program is medicare. Medicare's prospective payment system (PPS) has curbed hospital spending, which increased only 2.0 percent between 1985 and
1986 after almost doubling from 1980 to 1985. In contrast, spending
on physician services grew 8.5 percent between 1985 and 1986, even
though the number of beneficiaries grew only 2 percent and hospital admissions actually declined by 2 percent. And this occurred
during a congressionally imposed freeze on physician charges!
The budget includes urgently needed medicare reforms that will
restrain the rapid growth in Federal health spending and, in turn,
will help improve the Nation's competitive position. The principle
of capitation-paying a fixed, predetermined price for health serv. ices-would be expanded in medicare and medicaid, replacing the
inflationary incentives inherent in cost reimbursement. By creating incentives for the efficient delivery of quality care, capitation
and other reforms can bring to Federal programs the same efficiencies realized by employers and private insurers. This budget proposes that medicare payments to physicians whose practices are
based in hospitals-radiologists, anesthesiologists, and pathologists
(RAPs)-be incorporated in the set price for each procedure, p.roviding incentives for hospitals and these physicians to provide quality
care at lower costs.
The role of capitation in bringing greater efficiencies to the
provision of services paid for by medicare would also be enhanced
d
by encouraging HMOs to participate in me. icare and by promoting
the development of preferred provider organizations (PPOs). A private ·s ector innovation, PPOs lower costs by contracting only with
efficient providers.
Under the budget, medicare payments for hospital capital costs
would become part of the hospital's fIXed, predetermined price per
. admission (depending on the patient's diagnosis). This reform
would reverse the inflationary incentives of the current system,
which rewards hospitals for building excess capacity even though
one out of every three hospital beds currently is empty. Prospective
payment for capital costs would give hospitals the incentive to
allocate resources efficiently and to restrain escalations in costs.
However, consistent with provisions of the Omnibus Budget Reconciliation Act of 1986, capital reforms would not reduce medicare
spending in 1988.
Revenue proposals would restrain spiraling health care costs by
increasing medicare premiums to 35 percent of supplementary
medical insurance costs for new enrollees and extending medicare
coverage to the minority of State and local employees that are not
already covered (most of whom are eligible for medicare benefits).
Medicaid.-The Federal Government's second largest medical
program-medicaid-has grown 10 percent per year since 1980.




19

The aclministration proposes an optional capitation demonstration
program with fISCal incentives for States to place medicaid beneficiaries lllto HMOs.
The administration reproposes the institution of a reasonable
limit ill the growth of Federal medicaid payments to States. Federal paYlrnents would be limited to $1 billion below projected outlays
in 1988 ~d then be allowed to grow at the rate of the medical
conSUDler price index.

Federal Employees Health Benefits (FEHB).-The FEHB program
is the world's largest multiple-choice health plan. The administration proposes that the formula ,used to determine the Government's
contril.ution to enrollees' health premiums be changed to a weighted average that reflects the premiums of all FEHB plans and the
distriblltion of enrollees among those plans. Currently, this contribution is based on a simple average of the high-option coverage
offered. by six of the largest plans. The limitations of this outdated '
formula prevent it from reflecting the recent shift of enrollees from
high-option to low-option coverage and the dramatic growth in the
number of FEHB plans. The proposed formula would reflect these
and otJ changes in the FEHB program, providing more equitable
b.er
cost sharing between the Government and its employees.




$auoNS
200

. ounAYS FOR MAJOR MEDICAL. PROGRAMS*

/----------II::fU/ItJ.----------/---- .---PROJECTED-------/

150

50

SERVICB •••
FY1. aJlGET ••••••

: QIRNT

0
76

77

78

79

80

81

82

1111 UIZ lIIII tal lJJIl 1111 1IR
6.5 4.6 7.4 10.1 9.3 9.1 8.1
8.5 4.5 1.0 8.7 7.1 7.8 7.5

83

84

85

F1SCAL YEAR

86

g]

.

88

89

8& 12

90

6Y£.JUl;£
9.0
6.3
91

92

• INCLUDES WEDICME. WEDICAI). FEDERAL EMPLOYEE t£AL1H 8ENEF11S. HOSPITAL AND WEDICAL CARE FOR VE1ERANS,
All) ...,ltl£AL1H CARE..

20

Veterans Medical Care.-Adequate medical care for America's
disable. and needy veterans is one of the Nation's highest priord
ities. The administration's proposal for Veterans Administration
(VA) medical care provides ample resources to meet this objective. '
No-cost care would be provided to all service-disabled veterans who
request it, as well as to former prisoners of war and veterans
exposed to certain toxic substances and radiation. No-cost care
would also be provided to veterans of wars prior to World War' II .
and those receiving V A pensions. Among other veterans, funding
would be provided· for no-cost care for all earning less than $25,000
per year (for a veteran with one dependent; $20,000 for a single
veteran); funding would not be provided for the care of those whose
annual incomes exceed these levels. The administration believes
that ~ a rule when veterans' illnesses are completely unrelated to
their military service and they are financially able to provide for
their own health care, they should do so.
~

Conclusion.-As the chart above reveals, under current services
major medical expenditures are projected to increase by 54 percent
during the period 1988 through 1992. However, adjusting for the
increase in the expected number of beneficiaries and general inflation, expenditures should have to rise by only 27 percent to maintain .the same level of resources per beneficiary. Without some kind
of reforms, expenditures would rise at -twice the rate that would
appear warranted. The proposals outlined above would increase
real expenditures per beneficiary by 1 percent per year while lowering the overall increase during the next 5 years to 36 percent.
This difference is hardly a trifle; it would save taxpayers $7.2
billion in 1988 and $65.8 billion from 1988 through 1992.
Other Mandatory Programs.-This category includes farm price
supports, deposit insurance, Federal employee retirement, unema
ployment compensation, food . nd nutrition assistance, and other
income maintenance programs, including those for veterans.
The administration proposes no cuts in the benefit levels for
supplemental security income, veterans compensation, and food
stamps. For some "other mandatory" programs, however, the administration proposes carefully targeted reforms to make the
system more equitable and to reduce unnecessary costs.
Restructure Farm Price Supports.-The administration will pro-"" ....~~~ to-modify farm commodity price support programs
in order to solve the farm program problems once and for all.
In the past 5 years, spending on farm programs h~ increased
over sixfold-from $4 billion in 1981 to $25.8 billion in 1986. This
$25.8 billion would amount to an average payment of more than
$16,000 to each of the 1.6 million farm families if made directly.




21

DesJ:,ite this enormous commitment of resources, economic conditions in agriculture are not good, in large part because of contradictor}' and counterproductive farm programs. This situation is
untenBLble and must be changed.
Beca.use current crop programs are designed to support farm
income when prices decline, overproduction generates ever-increasing Fe4ieral support. In addition, too much Federal money goes to a
relatively small proportion of farmers-and those tend to be the
owner~' of the largest and most efficient farms. Finally, certain
farm programs are directly counter to the Federal Government's
international objectives and responsibilities. For example, the GovernmeJrlt's support for domestic sugar producers conflicts with the
. policy to encourage increased trade between the United States and
the Philippines and certain Caribbean countries. _
The administration's proposals address the major shortcomings
of the 1985 farm bill but retain that bill's basic price support
mecha:nisms. Outlay savings of $24 billion over the 1988-1992
period are projected to result from enactment of these proposals.
Specifically, the administration's proposed changes will modify
farm programs to:
• r4~move the incentive for farmers to overproduce by decoupIing program benefits from an obligation to harvest certain
CJ~OpS;

• limit to $50,000 (instead of $250,000 under current law) the
amount of Federal payments each farmer may receive;
• close loopholes that make current pay~ent limitations ineffE~tive for a large number of farmers; and
• reduce target prices by 10 percent per year in order to reduce
illcentives for farmers to overproduce, and to reduce the
b'urden on the taxpayer.
The administration will also seek changes in the counter-productive sU. ar program to make it more market-oriented while providg
ing adjustment assistance to current program participants.

Reform the Civil Service Retirement System (CSRS).-The budget
propos1 that retirement benefits under the existing CSRS program
es
be brought in line with the new Federal employee retirement
system. (FERS) by limiting ~ future cost-of-living adjustments
(COLAs) to the percentage change in the Consumer Price Index
(CPI) rninus 1 percent. This change would be identical to the COLA
that ~ill be granted under the new FERS system for employees
retiring at age 62 and beyond. The administration is also seeking
repeal of the lump sum withdrawal provisions in both CSRS and
FERS, which enable employees to withdraw all their contributions
toward retirement in a lump sum at retirement.




22

Improve the Self-Sufficiency of AFDC Recipients.-The administration is proposing several changes designed to prevent and
reduce welfare dependency in the aid to families with dependent
children (AFDC) and child support enforcement programs. Under a
new AFDC work and training proposal, teenage recipients will be
encouraged to remain in or return to school; older recipients will
participate in a variety of employment and training activities designed to improve their employability. A proposal to require States
to 'e stablish mandatory child support guidelines will also promote
self-sufficiency and family stability.
Withhold Funds From States for Excessive Issuance of Food
Stamp Benefits.-Over the past decade, States have .made substantial progress in giving the proper food stamp benefits to those who
- lawfully deserve them. But State laxity, resulting in the overissuance of food stamps, remains a large problem that costs taxpayers dearly. To date, only $1.3 million of approximately $100 million
in outstanding State food stamp liabilities have been collected.
This budget proposes to withhold from grants to States the value
of their excessive food .s tamp issuance. As States improve their
issuance systems and error rates fall, .Federal withholdings would
also fall. The proposal would save an estimated $264 million in
1988.
Target School Meal Subsidies to Low-Income Students.-The
child nutrition programs give cash and commodity subsidies to
institutions for meals served in schools, child care facilities, and
other places. The administration proposes to maintain Federal nutrition subsidies to institutions for meals served to children from
families with incomes below 185 percent of the poverty level, but
discontinue subsidies for students from families with incomes above
that level. Under the administration's proposals, nearly 13 million
needy children will receive federally subsidized meals in 1988, for
total budget authority of $4 billion: Limiting the subsidy to those
who need it most would save nearly $757 million.
Economic Subsidies and Development.-This category covers discretionary programs for science and space, energy, natural resources and the environment, agricultural research and services,
commerce and housing credit, transportation, community and regional development, and subsidies for health professions. Many
programs in these areas should be and are being increased, including those that improve the -safety and efficiency of the national
airspace system, address the acid rain issue, and encourage investments in science and technology that over the longer run will
enhance America's competitiveness. Many , other programs no
longer warrant current levels of Federal support.




23

Improve the National Airspace System.-The Federal Aviation
Admin:istration (FAA) operates and maintains the national airspace system and provides funds to the Nation's airports to ensure
the safe and efficient movement of the Nation's air traffic. For
these B
lctivities, the administration proposes a 20 percent increase
in bud,get authority-from $4.8 billion in 1987 to $5.8 .billion in
1988. ],{ost of this increase would be used to modernize our Nation's airspace system. Among other activities, these funds would
be used to finance precision landing systems and weather radars
designE~d to detect potentially deadly wind shears.
Increase Efforts To Resolve the Acid Rain Issue.-In March 1985,
the Prt~sident and the Prime Minister of Canada requested a full
report by the Special Envoys on the acid rain issue. In 1986, the
PresidE~nt and the Prime Minister endorsed the Envoys' Report.
As a first step in carrying out the Envoys' recommendations, the
Departm~nt of Energy committed $400 million that already had
been appropriated to share costs with the private sector for nine
clean c:o al technology demonstration projects at an estimated total
cost of just under $1 billion. Over the period 1981 to 1985, the
administration committed over $2 billion to clean coal technology
research and development. From 1986 to 1992, the administration
propos.~s an additional $1 billion for clean coal research.
The .administration proposes an additional $350 million in spending over 5 years for new clean coal technology demonstration
projects, with at least as much funding to be provided by industry.
Together, the Federal and non-Federal investments beginning in
1986 constitute a national effort exceeding $5 billion in research,
develo]>ment, and demonstration of new technologies.
It is critical to know with a significant degree of confidence the
enviro]lmental effects of any further new emission reduction efforts, lbecause such efforts will be extremely expensive for the
Ameriean people. Before assuming a commitment to bear such
costs, the American people should be assured that there will be
sufficiE~ntly positive environmental effects, and should know, with
some degree of certainty, the extent and location of those effects.
The -pI'ogram funded in this budget moves toward these objectives.
Restore America's Competitiveness.-The ability of the Nation to
meet ~~lobal competition, to provide for national security, and to
improve the quality of life for all citizens depends in part upon
nation,al investments in science and technology. The Nation's
future position in global markets will depend upon:
• tl1e allocation of national resources to the generation of new
knowledge; and
• tltte effective and timely transfer of this new knowledge to
s]pecific applications.




24

To satisfy these needs, the administration proposes continued
increases in federally supported basic research, including:
• an increase of about 18 percent in funding for basic research
for the National Science Foundation and a doubling of its
budget by 1992;
• an increase of about 22 percent in basic research activities of
the National Aeronauties and ~pace Administration, including the initiation of two new science and technology programs; and
• an increase of about 15 percent for the general science programs of the Department of Energy, permitting better use of
basic research facilities.
Support. for basic ~esearch, particularly at univ~rsities, is a key
factor in generating sufficient new knowledge to ensure continued
technological innovation. Federal support for basic scientific research is estima~ed to increase by 76 percent between 1982 and
1988-an average rate of growth of nearly 10 percent annually.
A second key element in the continued leadership of the U.S. in
science and industry is the future availability of high-quality scientists and engineers. The administration proposes to increase the
emphasis on research programs that would contribute to the development of such "human capital." This emphasis will be reflected iri
new basic science and technology centers, and in a variety of
ongoing programs of the National Science Foundation (NSF).

Increase the Number of Subsidized Housing Units.-Housing
vouchers continue to be the cornerstone of the administration's
housing policy. They are less expensive than new construction
subsidies and benefit tenants by giving them more freedom of
choice about where they live. For 1988, the administration is pro-

. posing to provide 102,000 additional households with subsidiestwice the level proposed in 1987. Most are vouchers: 79,000 funded
through the Department of Housing and Urban Development
(HUD) · and 20,000 through the Farmers Home Administration
(FmHA). The other 3,000 subsidized units include new construction
of housing specifically for Indians and for the elderly and handic~pped. Another 1,700 vouchers are being proposed in 1988 for
those tenants currently living in HUD or FmHA projects.

Set Federal Highway Funding Equal to User Fee Receipts.-Highway construction and repair on the 834,OOO-mile Federal-aid highway system. is financed by Federal highway user fees in combination with State·and local funds. The administration proposes to set
,annual Federal highway spending equal to the average annual
amount of user fee receipts, excluding interest, deposited in the
highway trust fund. Consolidation of several Federal-aid programs,
together ' with provisions to increase the flexibility States have in



25

spending these funds, would improve the abilities of States to meet
highway needs.

Limit the Federal Role in Mass Transit Funding and Distribute
Funds More Appropriately.-The Federal Government assists
States and localities with their mass transit programs through
grants for capital and operating expenses. These grants are finance<l in part by a dedicated source of funding from a share of
motor fuel tax receipts.
The administration seeks a more appropriate distribution of this
dedicated source of transit funding. Currently, 83 percent of these
funds 'benefit fewer than 20 cities. The administration is proposing
that tllese funds, which are collected in every State, be allocated by
formula to States and local agencies.
The Federal role in transit would be limited to management and
allocation of the dedicated penny tax for transit, with no further
funding of discretionary grants or other transit from general funds
(except for the Washington, D.C. system, which is separately authorizE~d).

Ternlinate Costly and Unjustified Electrification and Telephone
Subsid'ies.-The Rural Electrification Administration (REA) program 'has gone far beyond its original purpose of making loans
availal)le to cooperatives to provide electricity and telephone serv, ice to rural areas. Recipients of subsidized REA loans today include
electrie cooperatives serving prosperous urban or suburban areas of
cities :3uch as Washington, D.C., Atlanta, Houston, Minneapolis,
and DE~nver.
The administration proposes to terminate the costly existing subsidized direct loan program (5 percent interest), the 100 percent
REA I~aranteed Federal Financing Bank (FFB) loans, and the
subsidjzed Rural Telephone Bank lending to electric cooperatives
and telephone companies. Electric and telephone borrowers serving
largel:y urban, suburban, or recreation areas and most telephone
borroV\rers who are subsidiaries of larger holding companies would
no 10I1~ger be eligible for any REA assistance starting in 1988.
Fill the Strategic Petroleum Reserve at 35,000 Barrels per Day.The st:rategic petroleum reserve (SPR) is a Government stockpile of
crude oil to supplement the market in the event of a severe disruption , iI1. world oil supplies. The administration is proposing to continue development and fill of the reserve at the current rate of
75,000 barrels per day during 1987, but to reduce the rate to 35,000
barreh; per day in 1988. This proposal is consistent with the administration's support for development of a 750 million barrel reserve
and continues to preserve the Nation's energy security.




26

Constrain or Eliminate Community and Economic Development
Programs for State and Local Governments.-In 1988, the admini~­
tration will continue its effort to concentrate Federal resources on
nationB:1 priorities and provide maximum opportunities for State
and local governments to meet their own local community and
development needs. The comprehensive and flexible community
development block grants (CDBG) will be the principal vehicle for
continued Federal support. The ' administration proposes to establish the CDBG program level at $2.6 billion for 1987 and 1988. The
most needy communities will continue to receive adequate resources through legislation to target resources to such areas. The
administration is proposing termination of the urban development
.action grants (UDAG) program, the Economic Development Administration (EDA) , and the Appalachian Regional Commission. (ARC).
Phase Out EPA Sewage Treatment Grants.-The Environmental
Protection Agency's (EPA) sewage treatment grant program provides financial assistance to State and local governments for the
construction of publicly owned sewage treatment systems. The administration's budget provides " billion each in 1987 and 1988 and
$2
declining amounts in future years as part of a major legislative
proposal .to phase out the program by 1994. The Federal commit. -ment will be limited strictly to as~istance for construction of treat.ment facilities and related appurtenances to ensure maximum environmental benefits and cost-effectiveness.
Social Programs.-The Federal Government supports a wide
range of social programs involving education, training and employment, social services, health, and income support. This section
discusses some of the major administration initiatives that affect

discretionary programs in these areas.

-Pr()vide Major Increases for AIDS Research and Education.Acquired immune deficiency syndrome (AIDS) remains the administration's-highest public health priority. The administration proposes $534 million for the Department of Health and Human Services (HHS) AIDS research and education programs in 1988-a 28
percent, or $118 million, increase over the 1987 level and more
than twice the level for 1986.
In addition, the administration propos, s $98 million for use by
e
the Veterans Administration and the Department of Defense to
screen for ' the AIDS antibody and to counsel and provide medical
care for veterans with AIDS.
Provide Stable Support for Basic Biomedical Research.-The administration proposes to adopt a long-term policy of stable . and
sustainable support for basic biomedical research by seeking obliga-




27

tional authority of $5.8 billion for the National Institutes of Health
(NIH) in 1987 and 1988. The 2-year total of $11.6 billion represents
a 12 percent increase over the previous 2-year total of $10.4 billion.

Provide Assistance to the Homeless.-The administration believes
the pr1
0blem of the homeless is one characterized by intense personal sufiering, but one not given to easy solutions. This administration responds to the problem of homelessness in several ways,
including funding emergency needs for food and shelter, and directing that more efforts be made to ensure that the homeless have
access to entitlement programs, such as food stamps, supplemental
security ~income, aid to families with dependent children, VA benefits, aIld social security.
The budget proposes to continue the emergency funds for feeding
and housing the homeless for the Federal Emergency Management
Agenc:v at $80 million in 1988, to be distributed through a national
board of major private charities. This is a $10 million increase
above the 1987 amount.
Limit the Federal Role in the Financing, Content, and Structure
of Education Programs.-Education has always been and should
remalll primarily a State, local, and family responsibility. Althougll the Federal Goverriment plays an important role-particularly for programs for the disadvantaged, the handicapped, and
others in special need of additional support-the administration
seeks to reduce the current size of the Federal financial involvement in education. In total, budget authority for Department of
Educa1
Gion programs is proposed to be $14.0 billion for 1988. Some
of the major program proposals are described below.
.
• F'or programs for the handicapped and for rehabilitation, the
b,u dget allows for increases to offset inflation for the major
8~tate grants in 1987 and 1988 and reductions in selected other
p,rograms.
• F'or compensatory education for the disadvantaged, the ad1l1inistration proposes $4.1 billion in budget authority 'for
1988-a $200 million increase over the 1987 appropriation.
• F'or student aid for higher education, the administration proposes that guaranteed loans that have no direct costs to the
(;.ovemment be made available to all students without any
l; mit other than the cost of education. A Pell grant program
i
£:>r the neediest students would be maintained, with targeting
. ilmprovements allowing funding reductions from $3.8 billion '
il[l 1987 to $2.7 billion in 1988 and $2.0 billion in 1989 and
beyond.




Reform Job Training Programs.-The various programs now providing job search, job training, and cash benefits to dislocated
28

workers, are proposed to be replaced by an entirely new program.
This new worker adjustment assistance program would assist all
dislocated workers without regard to why they are unemployed,
atd will encourage workers to recognize when their old jobs are
g ne and move more quickly on to new c~reers. The new program
w uld receive $980 million in 1988, compared to the $344 million
appropriated. for job search, training, and .c ash assistance in 1987.
The ~ummer youth employment program is proposed.to ,be converted'·into a _year-round program of remedial skill training, subsi. dized -summer jobs, or a mixture of both, as -determined by local
~- areas, for youth in families receiving support from the aid to
families with dependent children (AFDC) program. The administration proposes to provide $800 million, $50 million more than the
1987 enacted appropriat~on for the summer youth employment program.
Legislation will be proposed to decentralize authority, financing,
and responsibility for administering State unemployment insurance and employment service programs to the States.
-

-

Continue Support for Important Social Services Programs; Reduce
Support for Others.-The administration proposes to continue funding for the social services block grant at $2.7 billion in 1988, the
same as the 1987 enacted amount. Selected other programs are
proposed for reductions or termination. The administration proposes to begin to phase out the community services block grant in
1988. General Government.-This category of discretionary programs
includes many core functions of Government: conduct of inte~na­
tional affairs, administration of justice, legislative and central exec-

utive functions, and fiscal operations such as tax collection.

International Affairs.-The President proposes to reverse the
sharp decreases in funding for many international affairs programs
that have taken place over the past 2 years. A 1987 supplemental
appropriation of $1.3 billion in budget authority is proposed.
Budget authority for 1988 is requested at $19.1 billion, which is
$1.0 billion above the 1987 level with the supplemental. Outlays in
1988 are estimated to be $15.2 billion.
International spending will be carefully targeted. A major portion of the proposed increases is needed to make good on firm
commitments of the United States to other countries and organizations, commitments that Congress has fully reviewed and affirmed.
The increases also will allow vital support for the national security
of the United States in a variety of ways, particularly through the
provision of military and economic aid to democratic governments
struggling to maintain their freedom. Further, the increases are




29

~

~

intend.e d to protect the lives of American citizens and officials
against widespread threats by international terrorists. Finally, the
Unite<l States must further strengthen its international information plrograms. These programs reach out to peoples throughout the
world to provide them with the truth about the United States, the
rest of the democratic world, and repressive, totalitarian regimes.
Nearly 60 percent of the 1987 supplemental is directed at international security assistance objectives. Over half of these security
funds are needed to honor the obligations of the United States to
countIies that provide mil-ita ~ base~ or base access for United
States forces. These com ihtIITill®Illi~ ~flIITillply cannot be ignored without imlpairing the Nation'f ~~lill1fflityo ~hch of the remaining security aid will provide crucial economic assistance to four major Central Almerican democracies.
For international development and humanitarian assistance, the
supplemental proposes $100 million in urgently needed reconstruction fllnds for El Salvador in the wake of that country's recent
severe earthquake. The supplemental also partially would reduce
large arrearages in U.S. payments to the multilateral development
banks.
The conduct of foreign affairs is inherently a Federal governmental fUllction carried on for all Americans. The budget calls for
modestly increased funds for the State Department's regular operations--including enhanced reporting and analysis and improved
data processing and telecommunications capability. Most of the
$0.6 bjlliion in increased spending in this area would protect U.S.
facilities and officials abroad from attack. The increase in such




attack:; over the past decade and the resulting loss of life demand a
major upgrade for diplomatic security by the United States.
In trying to communicate more effectively with the peoples of
the world-particularly those of communist countries-the United
States has embarked on a major worldwide modernization and
expanBion of Voice of America and Radio Free Europe/Radio Liberty broadcasting facilities. To ensure that the U.S. message gets
throug'h to a growing audience, increases in radio construction and
moder:nization programs are needed.
EX]Ja,nd Government-wide Drug Enforcement and Fight Drug
Abuse.-Overall, for drug law enforcement, prevention, and treatment, budget authority has climbed from $1.2 billion in 1981 to
more than $3.0 billion proposed in 1988.
Implrovement of the Federal drug law enforcement program has
been one of the administration's top domestic priorities. This
budget proposes resource levels for 1988 necessary to continue the
Federal priority given to drug enforcement. The 1988 request is
$0.5 billion lower than the enacted 1987 level of $3.0 billion for two
reasons. First, $225 million was appropriated in 1987 for grants to
30

assist in drug enforcement activities at the State and local level.
'fhe administration believes that this · one-time infusion of funds
will provide significant assistance to local drug enforcement efforts,
so such grant funds will no longer be needed for 1988. Second,
approximately $350 million ~as appropriated for capital purchases
made in 1987, which need not be repeated in 1988. Partially offsetting these decreases are about $70 million of increases for drug
enforcement operations in 1988. For example, budget authority for
the Drug Enforcement Administration is proposed to increase from
$490 million in 1987 to $522 million in 1988.
The administration also proposes to expand the drug abuse treatment, research, and prevention programs begun in the Preside~t's
drug . abuse initiative, and to continue substantial levels of drug
abuse research funding.

Implement Immigration Reform.-On November 6, 1986, the
President signe~ into law a landmark revision of the Nation's
immigration laws-a r~vision 6 years in the making. The budget
seeks $138 million in supplemental 1987 budget authority and $194
million in 1988 budget authority for the Immigration and Naturalization Service to carry out this legislation.
Provide Necessary Resources for Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC).The administration is proposing budget increases for the independent regulatory agencies responsible for ensuring that the Nation's
financial markets are kept efficient and that their integrity is
preserved.

REVENUE CHANGES'
In addition to · the programmatic changes discussed above, the
administration proposes a number of revenue changes to:
• collect taxes owed but not paid;
• improve the allocation of Federal credit;
• sell loan assets where appropriate;
• shift to the private sector the production of certain goods and
services; and
• charge reasonable user fees for Federal programs that deliver
services to identifiable beneficiaries.
I

Credit Reform.-Tl.te administration proposes to change the way
Federal credit programs are treated in the budget. The proposal
. would charge the true economic cost of credit-the present value of
the subsidy-to any agency making or guaranteeing loans. Adoption of this proposal would be a significant improvement over
.current practice. It would:




31

• a<:curately and equitably measure the benefits of Federal
cl'edit programs;
• el1courage delivery of benefits in the form most appropriate to
tt.le needs of beneficiaries;
• Pl1t the cost of credit programs on an expenditure basis equiv-.
alent to other Federal spending; and
• inlprove the allocation of resources among credit programs
a11d between credit and other spending.
Details of this proposal and specific legislative language will be
preparBd and sent to the Congress at a later date.

Othe; Loan Asset Sales.-The Federal Government will continue
r
and expand its pilot program of selling existing loan assets without
reCOUTI:e-a program first proposed in the 1987 budget. These sales
are designed to achieve four main goals:
• rE~duce the Government's cost of administering credit;
• provide an incentive for agencies to improve loan origination
a11d documentation;
• assist in determining the subsidies on Federal credit programs; and
• inlcrease budgetary offsetting receipts in the year of sale.
The sales program includes loans with a face value of $11.2
billion in 1988, which are estimated to produce offsetting receipts
of $5.3 billion.

PrivtJtization.-Privatization is a strategy to shift the production
of goods and services from the Government to the private sector in
order tn reduce Government expenditures and to take advantage of
the efficiencies that normally result when services are provided
through. the competitive marketplace. Building on the sale of Conrail, wl1ich was approved by the Congress last year and is expected
to take place in 1987, the administration proposes in this budget a
numbe:r of privatization initiatives:

Amtrak.-The administration proposes that the Federal Government get out of the passenger rail business by severing its financial
ties to Amtrak. The budget proposes to terminate all Amtrak subsidies aI1Ld dispose of some or all of Amtrak's assets, the majority of
which are i~ the Boston-to-Washin~on corridor, to one or more
private~ sector companies, rail passenger organizations, or other
entitien. The disposal of Amtrak's assets will generate offsetting
receipts estimated to be $1.0 billion in 1988, which will partially
repay the more than $12 billion in Federal subsidy already paid to
AmtraJ
lt.

Naval Petroleum Reserves (NPRs).-The administration proposes,
as it did last year, that the Federal Government sell the· two oil
32



fields it operates-Elk Hills, California, and Teapot Dom~, Wyoming. Running an oil field is a business, not a Government activity. Private owners can produce and market oil more efficiently and
effectively than can the Federal Government.
Selling the NPRs is estimated to reduce the deficit by $2.5 billion
in 1988 and $0.3 billion in 1989. In addition, if the assets are sold,
they will generate hundreds of millions of dollars in tax receipts
for the Treasury in future years.

Power Marketing Administrations.-The budget reproposes divestiture of the five power marketing administrations (PMAs) , which
supply 6 percent of the electricity generated in the country. These
are commercial activities, which in most areas of the country are
performed by private and other non-Federal enterprises.
The administration continues to believe that divestiture can lead
to creation of new enterprises that are more responsive to regional
and customer needs, without significant increases in power rates.
Administration activities will be coordinated with Congress and
with existing power customers, and legislative authorizations will
be sought when necessary. (Implementation, of course, cannot proceed until there are necessary legislative approvals.)
Auction of the Unassigned Spectrum.-The administration proposes to allow the use of auctions, instead of the present practice of
using hearings and lotteries, in assigning Federal Communications
Commission licenses for use of the unassigned spectrum. Public
auctions will capture the true value of the license and give taxpayers a return for the use of the spectrum, which is considered public
property. Auctioning the assignments for frequencies is expected to
generate $600 million in 1988.
Helium Operations.-The budget proposes an increased role for
industry in supplying helium to U.S. Government users. The private helium industry will provide purification and transportation
services to Federal helium consumers using crude helium from the
Government's existing inventory in the Cliffside field storage reservoir. Government-owned helium facilities and helium program
assets other than the inventory of crude helium will be offered for
sale.
Excess Real Property.-In 1987, Federal agencies will identify
more than $800 million in excess real property for disposal. The
General Services Administration will sell this property over the
next 2 years; the receipts will help reduce the deficit.
User Fees.-Some of the services the Federal Government provides are utilized by narrowly defined groups or individuals. Agen-




33

cies sltould recover a portion of their costs for providing these
services through "user fees," in which recipients of the service are
charged directly. Direct charges to users are appropriate because
those '1Vho benefit from the service pay the cost; taxpayers do not.
User £ees increase efficiency of service delivery by reaching those
willing to pay. Cost-based user fees may also provide an incentive
for the private sector to provide comparable service at lower cost.
The administration proposes to:
• il1crease fees in the mortgage finance programs of the Federal
F[ousing Administration and the Government National Mortgage Association;
• iJlcrease fee for Veterans Administration home loans;
• c:harge for Coast Guard services;
• il1crease recreation user fees;
• c:harge user fees for the Food Safety and Inspection Service;
• rleform pension benefit guaranties;
• rtevise user fees for guaranteed student loans;
• establish user fees for the United States Travel and Tourism
,A\.dministration; and
• blcrease user fees for Commerce products and services.

SUMMARY OF TABLES
The first table in this section shows total outlays for the major
compo:nents of the budget: social security benefits; national defense;
major medical programs; other mandatory programs; programs
that p:rovide economic subsidies and development; social programs;
general government programs; and net interest. The next table
summarizes the deficit reduction proposals described in the sections above. For each of the major categories of programmatic
chang~~s and revenue changes, the table shows budget savings relative to a current services level. The current services level is a
measure of the budget outlook assuming no changes in policy.
Currel1t services estimates are based on an assumption that existing laws and programs will simply be carried forward, adjusted
only for inflation and other anticipated relatively uncontrollable
changes such as increases in the number of beneficiaries.
MAJOR COMPONENTS OF THE BUDGET
(In billions of dollars)

1986

Social sect Irity benefits.........................................
National dl !fense....................................................
Major med ical programs........................................
Other man datory...................................................
Discretion2 ry:
Econom ic subsidies and development.. ..............
Social ~Irograms ................................................

34



1987

1988

1989

1990

1991

1992

196.5
273.4
106.4
151.9

205.5
282.2
111.2
156.3

216.9
297.6
112.3
144.5

230.0
312.2
122.1
143.4

244.4
330.0
130.8
144.8

259.1
349.5
140.7
146.8

273.2
370.9
151.2
148.3

84.5
45.4

81.3
46.6

80.9
44.4

82.2
45.0

82.3
44.8

79.8
45.2

79.9
44.6

MAJOR COMPONENTS OF THE BUDGET-Continued
(In billions of dollars)

1986

General government.. ................................~ .......

1987

1988

1989

1990

1991

1992

28.7

32.1

34.1

38.3

40.2

42.6

44.5

Subtotal, discretionary.................................. 158.7
Net interest. .......................................................... 136.0

160.0
137.5

159.4
139.0

165.4
141.5

167.4
139.0

167.6
134.8

169.0
122.1

Subtotal, gross Federal outlays.................... 1,022.8 1,052.7 1,069.7 1,114.7 1,156.3 1,198.5 1,234.6
Undistributed offsetting receipts ........................... -33.0 -37.1 -45.4 -45.8 -48.5 -54.0 -55.6
Total Federal outlays.................................... 989.8 1,015.6 1,024.3 1,069.0 1,107.8 1,144.4 1,178.9
SUMMARY OF DEFICIT REDUCTIONS
(Change from current services, in billions of dollars)

1987

1988

1989

1990

1991

1992

Programmatic changes:

Major medical programs ..........................
Other mandatory ......................................
Nondefense discretionary:
Economic subsidies and development ..
Social programs ..................................
General government ............................

-0.1
-0.1

-6.7
-3.4

-7.7
-8.2

-10.0
-11.4

-11.8
-13.1

-13.9
-13.9

-1.3
-0.5
1.1

-4.6
-4.5
0.5

-10.7
-7.5
3.2

-11.9
-10.0
2.5

-15.0
-11.3
2.1

-16.2
-12.5
1.5

Subtota I, nondefense discretiona ry ..

-0.7

~8.6

-15.0

-19.3

-24.2

-27.3

Subtotal, programmatic changes ....

-0.9

-18.7

-30.8

-40.8

-49.1

-55.1

-6.1
-1.3
-4.2
-5.4
-3.2

-8.6
0.9
-0.8
-3.8
-3.6
-3.6

-8.8
2.2
-0.3
-6.5
-3.7
-4.3

-8.9
3.6

-2.1

-8.0
-0.6
-1.7
-3.7
-3.5
-2.6

-0.4

-22.4

-20.1

-19.5

-21.5

-21.2

*

-1.3

-3.2

-6.0

-9.3

-14.3

-1.3

-42.4

-54.2

-66.2

-79.9

-90.6

Revenue changes:

Governmental receipts 1 ..........................
-0.1
Credit reform ........................................... ..................
Other loan asset sales ............................. ..................
Privatization ............................................
-0.1
User fees .................................................
-0.3
Other revenue changes ............................ ..................
Subtotal, revenue changes ..................
Interest ....................................................
Total deficit reductions ...................

-

-

*

-5.3
-3.8
-6.7

*$50 million or less.
1 For additional details, see Part 4, "Federal Receipts by Source", and Special Analysis A, "Current Services Estimates."

The administration proposes to reduce the 1988 deficit by $42.4
billion below the current services level. Nearly 56 percent of these
reductions are a result of the various revenue changes discussed
above, and lower interest. Only 44 percent of the reductions are a
result of programmatic changes. Even after these proposed reductions, outlays for many programs will increase between 1987 and
1988. The next table provides additional detail on the dollar
amounts of proposed changes in specific programs. The last table
shows that of the $42.4 billion in reductions, $12.8 billion results
from privatization and other proposed terminations.




35

PROPOSED DEFICIT REDUCTIONS
(Change from current services, in billions of dollars)

1987

1988

1989

1990

1991

1992

-4.6
-1.4
-0.1
-0.5
-0.1

-4.0
-3.0

*

-0.6
-0.1

-5.1
-4.0
-0.1
-0.7
-0.2

-5.6
-5.2
-0.1
-0.8
-0.2

-6.3
-6.6
-0.1
-0.8
-0.2

-6.7

-7.7

-10.0

Other maridatory:
Farm price supports ..............................................
Federal retirement systems ................................... ..••....•..••••
Child n~trition ....................................................... -0.1
Family support payments ...................................... .....•.........
Food s1 amps ......................................................... ......•........
Other ...
*

0.5
-1.5
-0.8
-0.6
-0.3
-0.8

-3.5
-1.7
-0.9
-0.6
-0.3
-1.2

-6.1
-1.9
-1.0
-0.5
-0.2
-1.8

-6.9
-2.1
-1.1
-0.6
-0.1
-2.3

-6.9
-2.2
-1.1
-0.9
-0.1
-2.7

Subtot,II, other mandatory ..................................... -0.1

-3.4

-8.2

-11.4

-13.1

-13.9

Economic subsidies and development: ........................
Rural electrification administration ........................ -0.2
Natural resources and environment ....................... -0.2
Rural ~ ousing insurance fund ................................ -0.8
Rural development insurance fund ........................ - *
Subsidi zed housing ................................................ ...............
Other." .................................................................. -0.1

-1.5
-1.1
-0.8
-0.5
-0.3
-0.4

-1.8
-1.6
-1.4
-1.6
-0.6
-3.6

-2.1
-1.8
-1.5
-0.3
-1.2
-4.9

-3.3
-2.1
-1.7
-0.3
-1.9
-5.8

-3.9
-2.3
-1.8
-0.4
-1.9
-6.0

Subtot,II, economic subsidies and development ..... -1.3

-4.6

-10.7

-11.9 -15.0

-16.2

Social pro grams:
Studen t financial assistance .................................. -0.2
Other E!ducation .....................................................
*
Low in:ome home energy assistance .................... .....••.•....•.
Nationc II Institutes of Health ................................. -0.2
• .
Legal ~ .ervlces Corporal'Ion .................................... ...............
Other.. ................................................................... -0.1

-1.8
-1.1
-0.6
-0.5
-0.3
-0.3

-3.7
-1.9
-0.7
-0.6
-0.3
-0.3

-4.5
-2.5
-0.8
-0.8
-0.3
-1.0

-4.9
-2.9
-0.8
-1.0
-0.3
-1.3

-5.3
-3.2
-0.9
-1.1
-0.3
-1.6

-4.5

-7.5

-10.0

-11.3

-12.5

0.4
0.6
0.4
-0.1
-0.2
-0.4
-0.2

0.6
0.5
0.4
-0.1
-0.2
1.9

0.6
0.3
0.5
-0.1
-0.2
0.1
1.3

0.5
0.4
0.6
-0.2
-0.2
0.1
0.9

0.5
0.4
0.5
-0.2
-0.2
0.2
0.2

1.1

0.5

3.2

2.5

2.1

1.5

Subtotal, programmatic changes ...................... -0.9

-18.7

-30.8 -40.8 -49.1

-55.1

Programma1 tic changes:

Major me< lical:
MedicaliJe •
...............
Medicaid...................
- *
Veteran s medical care ..............
-0.1
Federal employees health benefits .........................
Other...
- *
II ••••••••••••••••• • •• II •••••••••••• ••• II •••• II ••••• II ••••••••

I I •••• II. II ••••••••••••• ••••••• II •••••••• II.

I I II ••••••••••••••••••••• II ••

• II ••••• II •••••

II •••• II II II ••••••••••• • •••••••••••••••••••••••••• II. II ••••• II. II.

Sub1 otal, major medical.. .................................. -0.1
••••••• II II ••••

II ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••

-

-11.8 -13.9

Nondefens e Discretionary:

Sub'total, social programs ................................. -0.5
General gllvernment:
IRS en forcement ....................................................
0.1
Department of Justice ...........................................
0.1
Condu(:t of foreign affairs .....................................
0.2
Public law 480 food aid ....................................... ...............
Federal supply service ........................................... ...............
Export··Import Bank ............................................... ...............
Other .. ...................................................................
0.7
Subtotal, general government ...........................
Revenue

C~Ianges:

Govern mE:ntal receipts ............................................... -0.1
Credit refo rm ............................................................. ........... ....
Other loall asset sales ............................................... ...............
Privatization:
Amtralt sale and grant termination ......................................

36



*

-6.1
-1.3
-4.2

-8.0
-0.6
-1.7

-8.6
0.9
-0.8

-8.8
2.2
-0.3

-8.9
3.6

-1.6

-0.6

-0.7

-0.7

-0.7

-

*

PROPOSED DEFICIT REDUCTIONS-Continued
(Change from current services, in billions of dollars)

1987

1988

1989

1990

1991

1992

0.5
0.7
0.6
Sale of NPRs ......................................................... ............... -2.5 -0.3
Sale of PMAs ........................................................ ............... ............... -1.8 -2.6 -5.4 -4.0
Auction of the unassigned spectrum ..................... ............... -0.6 ............... ............... ............... .............
GSA real property sales ......................................... ............... -0.3 -0.4 -0.2 -0.2 -0.2
Terminate crop insurance ...................................... ............... -0.2 -0.5 -0.6 -0.7 -0.8
-0.2 -0.2 -0.2 -0.2 -0.2
Health professions training subsidies .................... -0.1
-5.4

-3.7

-3.8

-6.5

-5.3

User fees:
Credit fees ............................................................ -0.3
Other user fees ..................................................... - *

-1.6,
-1.7

-1.6
-1.9

-1.7
-1.9

-1.8
-1.9

-1.9
-1.9

Subtotal, user fees ........................................... -0.3

-3.2

-3.5

-3.6

-3.7

-3.8

Other revenue changes:
FSLIC .................................................................... ............... -1.6
Medicare premium increase ................................... ............... -0.6

-0.8
-1.8

-0.5
-3.1

0.1
-4.4

-0.9
-5.8

Subtotal, other revenue changes ...................... ............... -2.1

-2.6

-3.6

-4.3

-6.7

-22.4

-20.1

-19.5

-21.5

-21.2

*

-1.3

-3.2

-6.0

-9.3

-14.3

Total deficit reductions ................................. -1.3

-42.4

-54.2

-66.2

-79.9

-90.6

Subtotal, privatization ....................................... -0.1

Subtotal, revenue changes ................................ -0.4
Interest ......................................................................

-

*$50 million or less.

PROPOSED PHASE-OUTS AND TERMINATIONS
(Outlays, in millions of dollars)
Current
services

1987

Savings from current services

1988

1989

1990

Privatization:

-662
-640
640 -1,617
Amtrak sale and grant termination ...........................................
518
-274
Naval petroleum reserves .......................................................... -442 -2,500
Power marketing administrations .............................................. -501 .................. -1,756 -2,631
Auction of the unassigned spectrum ......................................... .................. -600 .................. ................
GSA real property sales ............................................................. -250
-213
-353
-305
Crop insurance ..........................................................................
-627
-178
-471
637
-201.
Health professions training subsidies ........................................
232
-186
-188
Subtotal, privatization ...........................................................

316

-5,386

-3,682

-3,816

-35
2,999
-5
599
332
168
2
2
1,023

-2,162
-776
-344
-276
-69
-14
-2
-1
-485

-2,266
-1,395
-473
-392
-92
-39
-3
-1
-1,589

-2,267
-1,530
-438
-464
-104
-70
-3
-1
-279

358
12
11

-60
-3
-6

-130

-184

Economic Subsidies and Development:

Department of Agriculture:
Rural electrification loans ..........................................................
Rural housing insurance fund ....................................................
Telephone Bank .........................................................................
Conservation programs ..............................................................
Extension Service categorical grants .........................................
Rural water and waste disposal grants .....................................
Office of Transportation ............................................................
Marketing payments to States ..................................................
Rural development insurance fund ............................................
Department of Commerce:
Economic Development Administration ......................................
Trade adjustment assistance .....................................................
National undersea research pro gram .........................................




.................. ................
-11
-12

37

PROPOSED PHASE-OUTS AND TERMINATIONS-Continued
(Outlays, in millions of dollars)
Current
services

Savings from current services

1988

1989

1990

80
21

-44
-11

-68
-6

-81
-1

515
440
25
157

-10
-23
-97
19

-71
-73
-126
-47

-311
-133
-84
-106

898
115

-52
-9
-12

-219
-9
-27

-406
-10
-39

2,610
15

-90
-39

-230
-45

-390
-50

729
46
12
75
143

-523
-35
-12
-11
-9

-564
-46
-13
-3
-29

-582
-51
-13

Subtotal, economic subsidies and development..................... 11,355

- 5,156

-7,967

- 7,670

-6
-41

-8
-53

-8
-56

124
1,161
200

-38
-312
-23
-80
-1,239
-55

-49
-749
-44
-94
-1,321
-100

-53
-914
-48
-96
-1,367
-139

303
368

- 276
- 54

- 323
-127

- 333
- 220

3,176

- 2,124

- 2,868

- 3,234

267

-118

-259

-375

1987

Coastal zone management and sea grants... ..... ........... .............
Public tHlecommunications facilities ..........................................
Department of Housing and Urban Development:
Categorical housing programs ...................................................
Urban d,~velopment action grants..............................................
Rehabilitation loans ...................................................................
Housing development action grants...........................................
Department of Transportation:
Mass transit discretionary grants..............................................
State mnitime schools..............................................................
Miscella ~eous highway projects ..... ...... ... ... ........ ........... ...... ... ...
Environmental Protection Agency:
Sewage construction grants ......................................................
Asbesto!i-in-schools loans/grants ... .... ... ..... ... ...... ........ ...... ... .....
Other Agencies:
Postal subsidy ...........................................................................
Interstate Commerce Commission..............................................
TVA economic development programs .......................................
Communication technology satellite...........................................
Appalacilian Regional Development Commission ..... .......... .... .....

8

-61

~----~----+-----4-----

Social Progrilms:

Department of Education:
Compensatory education (HEP & CAMP) ..................................
Several elementary and secondary programs.............................
Education for the handicapped (grants for infants and
families) .......... ....... .......... ... ....... ...... ...... ....... ... .... ......... ... ....
Vocational education .... ............................... ................. .... ..... ....
Immigrclnt and refugee education. ... ....... ...... ....... ...... ......... .... ...
Several higher education programs...........................................
Several student aid programs ...... ..... ... ................. ..... .... ....... ....
Library grants .................. ............................... ....... ...................
Other Agencies:
Legal SI~rvices Corporation ........................................................
Commul1 ity services block grant ...............................................
Subtotal, social programs .....................................................

7

48
2

941
22

~----~----+-----~----

~----~----+-----4-----

General Go"ernment:

Justice assistance grants ..........................................................

~----~----+-----~----

Tot211.................................................................................... 15,114

38



-12,784 -14,776 -15,095

Part 3a

ECONOMIC OUTLOOK
The economy and the budget are interrelated. Federal receipts
and outlays depend directly on the level of economic activity, inflation, interest rates, unemployment, and other economic factors.
Likewise, both outlays and the tax structure have substantial effects on the state of the economy-output, employment, and interest rates. In estimating Federal receipts and outlays for future
years, therefore, the economic assumptions underlying the estimates must be clearly specified.
SHORT-RANGE ECONOMIC FORECAST
(Calendar years; dollar amounts in billions)
Item
Gross national product:
Current dollars:
Amount .................................................................................
Percent change, fourth quarter over fourth quarter ..............
Constant (1982) dollars:
Amount .................................................................................
Percent change, fourth quarter over fourth quarter ..............
Incomes (current dollars)
Personal income ........................................................................
Wages and salaries ...................................................................
Corporate profits before tax ......................................................
Price level (percent change, fourth quarter over fourth quarter:
GNP deflator ..............................................................................
Consumer Price Index 2 ............................................................
Unemployment rate (percent) :
Total, fourth quarter 3 ..............................................................
Insured, annual average 4 .........................................................
Federal pay raise, January (percent):
Military 5 ..................................................................................
CIVIlian ......................................................................................
Interest rate, 91-day Treasury bills (percent) 6 ........•.....•.............

Forecast

Actual
1985

1986 6

1988

1987

3,998
6.3

4,218
5.4

4,493
6.9

4,816
7.3

3,585
2.9

3,681
2.7

3,794
3.2

3,928
3.7

3,314
1,966
223

3,493
2,075
240

3,700
2,210
309

3,941
2,371
341

3.3
3.3

2.6
0.9

3.6
3.8

3.5
3.6

6.9
2.8

6.7
2.8

6.5
2.6

6.2
2.4

3.0
3.0
5.4

4.0
2.0
5.6

7.0 ...................
3.5 ...................
7.5
6.0

1 CPI for urban wage earners and clerical workers. Two versions of the CPI are now published. The index shown here is that currently used,
as required by law, in calculating automatic cost-of-living increases for indexed Federal programs.
2 Percent of total labor force, including armed forces residing in the U.S.
3 This indicator measures unemployment under State regular unemployment insurance as a percentage of covered employment under the
program. It does not include recipients of extended benefits under that program.
4 Two military pay raises occurred in calendar year 1985: 4 percent in January and 3 percent in October.
S Average rate on new issues within period, on a bank discount basis.
6 Data released after the January 5th transmittal of the budget indicate a preliminary actual for 1986 GNP of $4,208 billion in current dollars
,and $3,677 billion in constant dollars. The GNP deflator is 114.5; the CPI is unchanged. The fourth quarter unemployment rate is 6.7 percent.




39

LONG-RANGE ECONOMIC ASSUMPTIONS
(Calendar years; dollar amounts in billions)
Item:

Gross nationaI product:
Current d~ liars:
Amoun1 .........................................................................
Percent change, fourth quarter over fourth quarter ..... .
Constant (1982) dollars:
Amoun1 .........................................................................
Percent change, fourth quarter over fourth quarter ......
Incomes (current dollars):
Personal income ................................................................
Wages and salaries ...........................................................
Corporate profits before tax ...............................................
Price level (percent change, fourth quarter over fourth
quarter) :
GNP defla'tor ......................................................................
Consumer Price Index 1 .....................................................
Unemploymellt rate (percent):
Total, fourth quarter 2 ...................................................... .
Insured, annual average 3 ............................................... ..
Federal pay raise, January (percent):
Military ..............................................................................
·
Ivllan
C '1' ...............................................................................
Interest rate, 91-day Treasury bills (percent) 4 .................. ..

Assumptions

1989

1990

1991

1992

5,165
7.2

5,524
6.8

5,879
6.3

6,214
5.4

4,071
3.6

4,218
3.6

4,367
3.5

4,514
3.3

4,201
2,546
377

4,452
2,716
411

4,703
2,885
444

4,959
3,057
459

3.5
3.5

3.0
3.0

2.7
2.6

2.0
2.0

5.9
2.3

5.7
2.2

5.5
2.0

5.5

4.3
3.0
5.3

4.6
3.0

4.5
3.0
4.2

4.2
3.0
3.6

4.7

2.0

1 CPI for urb3n wage earners and clerical workers. Two versions of the cpr are now published. The index shown here is that currently used,
as required by law, in calculating automatic cost-of·living increases for indexed Federal programs.
2 Percent of ':otal labor force, including armed forces residing in the U.S.
3 This indicalor measures unemployment under State regular unemployment insurance as a percentage of covered employment under the
program. It does not include recipients of extended benefits under that program.
4 Average rat ~ on new issues within period, on a bank discount basis.

The accompanying two tables show the economic assumptions
that urlderlie the estimates in this budget. The first table shows
the short-range economic forecast through 1988; the second table
shows 1Ghe long-range assumptions underlying the budget projections. 1~he common practice is followed in showing these assumptions for calendar years, rather than fiscal years. To facilitate
comparisons, the current services estimates are based on the same
economic assumptions; hence, differences between current services
and policy are just due to the direct effects of policy changes, and
do not include the possible budgetary effects of any induced
changes in the economy.
The economic expansion that began in December 1982 is now ·in
its fiftll year. Although it is a mature expansion, it shows no sign
of ending. On the contrary, most of the evidence points to an
acceleration of growth in 1987 and 1988. Moreover, if the administration!'s policy proposals assumed in this budget are enacted, the
economlY could grow above its recent trend rate through 1992,
making this the longest period of uninterrupted growth on record.
Real GNP is projected to rise by 3.2 percent this year and by 3.7
percent in 1988. The inflation rate is projected to rebound from the
oil-pric,e-depressed 1986 rate to the 3 1/2 percent rate of 1983-1985,

40



with some upward push due to the decline in the dollar, but is then
projected to decline steadily to 2.0 percent in 1992.
In constant 1982 dollars, real GNP is projected to continue to
grow at an annual rate of 3.6 percent in 1989 and 1990, progressively slowing to 3.3 percent in 1992, which is close to the economy's
postwar average rate. This is consistent with a decline the unemployment rate to 5.5 percent by the end of 1991.




41

Part 3b
FEDERAL CREDIT:
INVESTMENT IN FINANCIAL ASSETS
The Federal Government is the largest financial intermediary in
the Ullited States. At the end of 1986, it held outstanding loans
with a face value of $252 billion in its direct loan portfolio, and it
had gllaranteed another $450 billion in loans. Government-sponsored enterprises lent another $453 billion. Thus, directly or indirectly, the Government had influenced the allocation of credit
worth more than a trillion dollars.
In 1B86, the Government offered $41 billion in new direct loans
and $159 billion in guaranteed loans to farmers, homeowners, students, small businesses, exporters, utilities and State, local and
foreigIJl governments. The subsidies implicit in these direct and
guararlteed loans amounted to nearly $18 billion. The cost of these
largel:y invisible subsidies has been borne by all borrowers who
have 110t received subsidized credit. The unsubsidized borrowers
have paid higher interest rates or fees for their credit or have not
received credit at all. The cost of defaults on these loans has been
borne by taxpayers.
The Federal credit budget, which was introduced in 1980, measures a:nd controls the volume of credit authority. Credit authority
is simJply the authority to make new direct or guaranteed loans.
The credit budget measures the volume of new credit authority at
the point when the Government legally contracts to provide the
guaraIltee or direct loan. It controls the credit authority through
annual ceilings set in appropriations acts on the amount of new
direct or guaranteed loans that individual credit programs may
offer. ][i'or 1988, the budget proposes new direct loans of $27 billion
and new guaranteed loans of $128 billion. This is a decrease from
1986 ()If 34 percent in direct loans and 20 percent in guaranteed
loans. The chart shows Federal credit activity since 1965.
The economic sectors that receive the most Federal credit are
agriculture and housing. Approximately one-half of new direct
loans over the past decade have gone to agriculture, while twothirds of new guaranteed loans have gone to housing. The basic
rationale of all Federal credit programs is to provide financing on




42

Total Federal Credit Budget
$ Billions

$ Billions

250~----------------------------------------~2~

200

200

150

100

100

50

50

o~~~~~~~~~~~~~~~~~~~~~~o

1965
riscol Years

70

75

80

85

92
Esttmate

terms and conditions that are more favorable to the borrower than
financing otherwise available from private sources. Some of these
subsidies serve worthwhile public purposes and should be continued. Others do not.
The administration is proposing a significant reform of credit
accounting practices. The proposal would charge the true economic
cost of credit-the present value of the subsidy provided to borrowers-to any agency making or guaranteeing loans. The proposed
phase-out or termination of some credit programs is another important initiative. The budget also contains proposals to sell $11.2
billion of face value loans from the portfolios of several Federal
agencies, and to charge higher or new user fees for many credit
programs.




43

Part 3c
CAPITAL SPENDING:
IINVESTMENT IN PHYSICAL ASSETS
FedeI'a l outlays for investment take several forms and are made
for marJlY purposes. They are in the form of direct outlays or grants
and thE!y include the acquisition of physical assets, which yield a
stream of services over a period of years; expenditures for human
capital in the form of education and training; expenditures for
researc]l and development, which provide less tangible long-term
benefits; and lending, which yields a monetary return.

Direct Federal Physical CapitaL-The budget proposes to spend
$4.3 billion in 1988 on physical assets that generate future revenue,
includiIlg those for TVA power generating stations and equipment,
many C~orps of Engineers projects, and Postal Service buildings and
equipmf
ent.
An additional $6.7 billion is proposed to be spent in 1988 on
federally owned nondefense physical capital that will provide longterm bE~nefits, but that is not expected to generate future Federal
revenue. Total direct nondefense physical investment of the Federal Government amounts to $10.9 billion, or 8.7 percent of all Federal invel3tment spending, and 1.3 percent of total Federal outlays.
The remaining purchases of long-lived physical assets by the
Federal Government are for defense. In 1988, $91.2 billion is budgeted fo:r Federal investment in such assets. This amount is 72.7
percent of total Federal physical capital investment and 8.9 percent
of total Federal outlays.

Gran;s for Physical Capital Investment-The Federal Governt
ment also helps pay for many public physical assets that it does
not OW]}. In 1988, grants to State and local governments for investment purposes are proposed to be $23.4 billion, which is 18.6 percent of total Federal physical capital investment and 2.3 percent of
total Federal outlays. All Federal outlays for physical capital investmeJrlt, both direct outlays and grants, come to $125.5 billion or
12.5 percent of total Federal outlays.
44




Part 4

FEDERAL RECEIPTS BY SOURCE
This section describes the major sources of receipts (budget and
off-budget) and the legislative proposals and administrative actions
affecting them. The economic assumptions underlying the estimates are in Part 3a.

Summary
Total receipts in 1988 are estimated to be $916.6 billion, an
increase of $74.2 billion from the $842.4 billion estimated for 1987.
Receipts in 1989 and 1990 are estimated to be $976.2 billion and
$1,048.3 billion, respectively.

Composition of Receipts.-The Federal tax system relies predominantly on income and payroll taxes. In 1988:
• Income taxes paid by individuals and corporations are estimated at $392.8 billion and $117.2 billion, respectively. Combined, these sources account for 55.6 percent of total 1988
receipts.
• Social insurance taxes and contributions-composed largely of
payroll taxes levied on wages and salaries, most of which are
paid equally by employers and employees-will yield an estimated $333.2 billion, 36.4 percent of the total.
• Excise taxes . imposed on selected products, services, and activities are expected to provide $33.4 billion, 3.6 percent of the
total.
• Estate and gift taxes, customs duties, and miscellaneous receipts are estimated at $40.0 billion, the remaining 4.4 percent of the total.
Under the tax policy and economic assumptions presented in this
budget, the income tax share of total receipts is projected to rise to
56.3 percent by 1990, 0.7 percentage point more than for 1988. This
rise is the combined effect of a 0.1 percentage point rise in the
individual income tax share and a 0.5 percentage point rise in the
corporation income tax share. Social insurance taxes and contributions are projected to rise slightly as a share of total receipts to




45

Receipts
$ Billiomi

$ Billions

1.200~-----------------------.-1,200

1,000

1,000

10tol-----..<"
800

800

Excise Taxes and
600

other Receipts
600

~O

400

200

200

o

0

197a 79

80

81

82

83

84

85

86

I1scal Years

87

88

89

90

Estimate

36.6 percent. The projected share of all other receipts declines by
0.9 perclentage point between 1988 and 1990.

Enacted Legislation
Several major tax laws have been enacted since the administration took office in January 1981. The first, the Economic Recovery
Tax Act of 1981 (ERTA), provided incentives for work, saving, and
investment. The major provisions of this Act included an acrossthe-board reduction in individual income tax rates; the annual
adjustm, nt of the zero bracket amount, the personal exemption,
e
and individual income tax brackets for inflation beginning in 1985;
and the accelerated cost recovery of capit~l expenditures.
The slecond major tax law, the Tax Equity and Fiscal Responsibility. Act of 1982 (TEFRA), improved the fairness of the tax system
while preserving the incentives for work, saving, and investment
enacted in 1981. This Act increased receipts primarily by eliminating unintended benefits and obsolete incentives, and providing
mechanisms to improve tax law enforcement and collection tech•
nlques.

46




NET EFFECT OF MAJOR ENACTED LEGISLATION ON RECEIPTS

1

(In billions of dollars)
1986

1987

1988

1989

1990

1986-90

Economic Recovery Tax Act of 1981 ............... -209.8 -238.5 -258.7 -282.0 -309.4 -1,298.4
Tax Equity and Fiscal Responsibility Act of
58.2
1982 ...........................................................
46.7
56.8
280.4
58.8
59.9
Highway Revenue Act of 1982 ........................
4.5
4.7
4.9
5.1
5.1
24.2
101.7
Social Security Amendments of 1983 ..............
10.2
12.1
24.6
31.0
23.8
Interest and Dividends Tax Compliance Act of
1983 ........................................................... -2.1
-1.7
-1.8
-2.0
-2.5
-10.0
5.4
Railroad Retirement Revenue Act of 1983 .......
1.1
1.1
1.0
1.1
1.1
Deficit Reduction Act of 1984 .........................
16.1
22.0
25.3
27.7
31.1
122.1
Consolidated Omnibus Budget Reconciliation
Act of 1985 ................................................
0.9
2.7
3.0
3.1
12.7
3.0
Federal Employees' Retirement System Act of
1986 ........................................................... .................
-0.4
-0.8
-0.8
-0.9
-2.9
2.8
8.8
Omnibus Budget Reconciliation Act of 1986 .... .................
2.6
2.4
1.0
Superfund Amendments and Reauthorization
Act of 1986 ................................................ .................
0.6
1.0
1.1
1.1
3.9
Continuing Resolution for 1987 ........................ .................
1.9
2.7
2.4
2.5
9.5
Tax Reform Act of 1986 2 ............................... .................
18.6
0.9 -11.7
-1.2
-9.0
Net tax reduction .................................... -132.4

-117.6

-136.4

-164.4

-193.1

-743.8

Net effect on receipts by source:
Individual income taxes ............................... -134.4 -157.0
Corporation income taxes ............................ -14.8
18.5
Social insurance taxes and contributions .....
11.3
13.8
Excise taxes ................................................
11.3
14.4
Estate and gift taxes ...................................
-5.9
-7.9
Customs duties ............................................
0.6
*
Miscellaneous receipts .................................
0.1
0.2

-186.2
19.7
27.3
11.2
-9.2
0.5
0.3

-216.9
20.6
33.4
8.7
-11.0
0.6
0.1

-238.6
24.2
25.1
8.5
-12.4

-933.2
68.3
110.9
54.0
-46.4
1.8
0.8

ADDENDUM

*

0.1

*$50 million or less.
1 These estimates are based on the direct effect only of legislative changes at a given level of economic activity, induced effects on the
economy are taken into account in forecasting incomes, however, and in this way affect the receipts estimates by major source and in total.
2 The Tax Reform Act of 1986 also increases outlays by the following amounts: 1987, $0.1 billion; 1988, $1.7 billion; 1989, $2.8 billion; and
1990, $2.8 billion. The cumulative amount for 1987-90 is $7.4 billion.

The Highway Revenue Act of 1982 was the third major tax law
enacted since January 1981. This Act increased the excise tax on
gasoline and diesel fuel and restructured other highway related
taxes.
. Thr~e " major laws affecting receipts were enacted during 1983.
The first, the Social Security Amendments of 1983, restored the
solvency of social security trust funds through a combination of
revenue increases and benefit reductions. The Interest and Dividends Tax Compliance Act of 1983 repealed the withholding of
taxes on interest and dividend income provided in TEFRA. The tax
increases provided in the Railroad Retirement Revenue Act of
1983, together with the benefit reductions provided in the Railroad
Retirement Solvency Act of 1983, were designed to place the railroad industry pension program on a sounder financial basis. Despite these changes, further deterioration in the system has forced
the rail pension actuaries to recommend financing increases in the
•
penSIon program.




47

The I1(1OSt recent major tax law enacted prior to 1986 was the
Deficit :Reduction Act of 1984 (DEFRA). The major provisions of
this Act increased the efficiency of the tax system by curbing tax
shelter abuse, limiting unwarranted tax benefits, and further improving tax law enforcement.
One of the most sweeping overhauls of the tax code in our
Nation's history became law on October 22, 1986, when President
Reagan signed the Tax Reform Act of 1986. The major provisions of
this Act, which broadened the individual and corporation income
tax basl s and substantially lowered individual and corporation
e
income tax rates, were designed to restore simplicity and fairness
to the Federal income tax code.
Other major laws enacted during 1986 affecting receipts included
the Consolidated Omnibus Budget Reconciliation Act of 1985, the
Federal Employees' Retirement System Act of 1986, the Omnibus
Budget :Reconciliation Act of 1986, the Superfund Amendments and
Reauthorization Act of 1986, and the Continuing Resolution for
1987.
.
As a :result of these legislated changes, taxes have been reduced
by $743.8 billion over the 1986-1990 period relative to pre-1981 tax
law.

Receipts Proposals
Interll'41 Revenue Service (IRS) Initiatives.-The administration
proposeB to increase IRS funding in 1988 to ensure the smooth
implementation of tax reform, to improve tax law enforcement,
and to close the gap between taxes owed and taxes paid.
Other..-The administration also proposes that:
• Medicare hospital insurance (HI) coverage be extended to all
State and local government employees.
• E:x:e mptions from gasoline and other highway excise taxes be
repealed.
• Contributions to the rail industry pension fund be increased.
• EI1(1ployers pay the employer portion of the social security
(O.ASDHI) payroll tax on total tips.
• Eji:cise taxes on coal production used to finance black lung
disability benefits be increased.
• Social security (OASDHI) coverage be extended to certain
•
earnIngs.
• CtLstoms user fees scheduled to expire September 30, 1989 be
inereased and extended.

48



EFFECT OF PROPOSED LEGISLATION AND ADMINISTRATIVE ACTION ON RECEIPTS

1

(In billions of dollars)
1987

IRS initiatives ..........................................................................................................
Extend HI coverage to State and local employees ...................................................
Repeal gasoline and other highway tax exemptions 2 ............................................ .
Increase contribution to rail industry pension fund .................................................
Require employer tax on total tips 2 .....•...................................................•.............
Increase tax on coal production 2 .......................................................................... .
Extend OASDHI coverage to certain earnings ..........................................................
Customs user fee 2 ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••..••••
*
Railroad unemployment insurance coverage ............................................................
IRS user fees ..........................................................................................................
Railroad windfall subsidy financing .........................................................................
D.C. employer contribution to CSRS ........................................................................
Nuclear power plant fees .......................................................................
0.1
Other .......................................................................................................................

Total ...........·..................................................................................

0.1

1988

1989

1990

2.4
J.6
0.6
0.1
0.2
0.3
0.3
0.1
0.1
0.1
0.1

3.1
2.2
0.6
0.3
0.3
0.3
0.3
0.1
0.2
0.1
0.1

3.3
2.2
0.6
0.3
0.3
0.3
0.4
0.5
0.2
0.1
0.1

*

*

*

0.1
0.1

0.1
0.4

0.1
0.4

6.1

8.0

8.6

1.1
1.0
2.4
(2.0)
(0.4)
1.2
0.4

1.4
1.5
3.5
(2.9)
(0.6)
1.2
0.5

1.4
1.5
3.5
(2.9)
(0.6)
1.2
1.0

6.1
(5.8)
(0.4 )

8.0
(7.5)
(0.6)

8.6
(8.0)
(0.6)

ADDENDUM

Effect of proposals on receipts by source:
Individual income taxes ........................... .... ....... ........... ................. ...
- *
Corporation income taxes ...................................................................................
Social insurance taxes and contributions ............................................................
On-budget ......................................................................................................
Off-budget..................................................................................... .................
Excise taxes ...................................................................................... .................
Other .................................................................................................
0.1

Total.........................................................................................

0.1

On-budget ... ......... ................ ............... .... ..... .................. ......
(0.1)
Off-budget............................................................................ ................ .

*$50 million or less.
1 These estimates are based on the direct effect of legislative changes at a given level of economic activity. Indirect effects on the economy
are taken into account in forecasting incomes, however, and in tfiis way affect the receipts estimates by major sources and in total.
2

Net of income tax offsets.




\

49

Part 5

FIEDERAL PROGRAMS BY FUNCTION:
MEETING NATIONAL NEEDS
This section discusses the budget in terms of functions, which are
broad eategories of activities with similar purposes. The programs
are grouped into functions so that related Federal activities that
meet particular national needs are considered together, regardless '
of whieh agencies are responsible for them. The functional structure classifies these activities according to their primary purpose.
Each activity is classified only in the function that defines its most
important purpose, even though it may serve more than one.
There are 19 functions, each of which is divided into one or more
subfun,ctions, which are narrower and more homogeneous groupings of programs. There are two additional categories-allowances
and u:ndistributed offsetting receipts-that are not themselves
functions because they do not consist of programs, but are needed
to encompass the entire budget. For purposes of this section, educa-

tion a(~tivities are discussed as if they were a separate function.
There have been no major changes in the functional structure of
the budget since last year.
The function-subfunction hierarchy is used in the outlay chart or
table that is presented for each function. The chart or table displays the outlays including the results from the President's proposals; thle accompanying text explains them. Table 4 at the back of
this volume supplies the outlay data underlying the charts in this
part.
Whille outlays are an important measure of resources allocated to
Federal programs, they do not cover all Federal activities. Federal
loan guarantees generally require no outlays unless the b<?rrower
- defaults. To monitor and control Federal credit activities, a separate credit budget reflects all new guaranteed loan commitments
and direct loan obligations. Table 6 shows these data by agency.
Tax expenditures, also not measured by outlays, are another
means by which the Federal Government can achieve policy objectives. ~rax expenditures are provisions of income tax law that allow
a prefE~rential rate of tax, a special credit, a deferral of tax liability,
50



or a special exclusion, deduction, or exemption. Tax expenditures
are discussed at the end of this section.

NATIONAL DEFENSE
This function includes activities directly related to the defense
and security of the United States. The national defense program
seeks to preserve peace by maintaining sufficient military strength
to deter war and provide for a successful defense if war should
occur. Budget authority for defense declined in real terms in both
1986 and 1987, due to congressional cuts of $65 billion from administration requests. To preserve the real gains in our military capabilities and national security made earlier in this administration,
the budget p· oposes an increase in budget authority for national
r
defense from $293 billion in 1987 to $312 billion in 1988 and $332
billion in 1989. Outlays are estimated to be $282 billion in 1987,
rising to $298 billion in 1988 and $312 billion in 1989.

Conventional Forces.-Conventional forces are required to deter
nonnuclear aggression and to respond to aggression if deterrence
should fail. The major elements supporting these forces are pay
and benefits for military personnel; purchase, operation and maintenance of conventional arms such as tanks, ships and aircraft;
procurement of ammunition and spare parts; and training. Budget
authority of $173.4 billion is requested for these forces in 1988, and
$184.4 billion for 1989. Major acquisitions include new helicopters
and M-1 tanks for the Army, new Navy ships, and Air Force
fighter aircraft.
Strategic Forces.-Strategic forces are required to deter Soviet
conventional or nuclear attack against the United States and its
-allies. /The budget includes proposals for continuing the modernization of our strategic bomber forces by acquiring B-1B bombers, the
Advanced -Technology Bomber, and Advanced Cruise Missiles.
Land-based forces are being modernized by procuJ;ing Peacekeeper
missiles, developing a survivable rail-mobile basing system for the
Peacekeeper, and developing a new, small intercontinental ballistic missile. Our sea-based forces are being modernized by procuring
one Trident submarine a year and by developing and procuring
new Trident II sea-launched missiles. Funding increases are proposed for the President's Strategic Defense Initiative-a research
effort to determine whether an effective defensive system against
ballistic missiles can be deployed.
Supporting Activities.-Supporting defense activities include research and development, training and medical services, central
supply and maintenance, and other overhead and logistic activities.




51

,

Nationc31 Defense (Budget Authority)
$ Billions
$ Billions
~OT-'-----------------------------------------~O

400

400

Atomic Energy Defense
and Defense-Rrelated
Activities

350
300

350

--

~~~~-~- - -- - ----Totol----:::~- - - - - - - - - - - - - _. ~porting t- - - - - -- - ----------------------- --- -------ivitJes ~-----t- - - - - - -

250

300

250

- - - - - - - - - - - - - - - - - - - - - - _ _ _...1-

200

200

150
100

100

50

50

o

0

1979 80

81

82

83

84

85

86

87

Flscal Years

88

89

90

Estimate

Budget a'uthority of $106.2 billion is requested for these activities
in 1988, and $111.2 billion for 1989. 'Defense research and development programs are intended to devise new and better weapons
systems to meet changing military needs. They involve a broad
range of activities, from basic research to construction of full-scale
prototYPE~ of weapons systems.

Atomic Energy Defense and Defense-Related Activities.-The Department of Energy develops, tests, and produces nuclear weapons
and reactors for nuclear-powered ships. Budget authority 0 $8.0
billion is requested for this work in 1988.
Other defense-related activities include stockpiling strategic materials, developing civil defense plans, an~ maintaining a stand-by
selective service system.

INTERNATIONAL AFFAIRS
The Flederal Government has responsibility for protecting and
advanciI1lg the interests of the United States and its people in
international affairs. U. S. foreign pol,icy is directed toward achiev-

52



ing a peaceful world environment, built on international security
and prosperity, in which individuals may enjoy political and economic freedom. The administration proposes to reverse the sharp
decreases of the past 2 years in budget authority for many international affairs programs, decreases which will lead to outlay reductions in later years. For 1987, supplemental appropriations are
proposed that add $0.6 billion in outlays for that year. Outlays for ~
international affairs programs are estimated to be $15.2 billion for
1988. This.is an increase of $0.6 billion from the $14.6 billion
estimated for 1987, assuming enactment of the supplemental appropriation.

Outlays for International Affairs
$ Billions

$ Billions

25~-----------------------------------------r25

Total

20

20

International
Financial
Programs
and Other

15

15

10

10

5

o

0

1978 79

80

Fiscal Years

81

82

83

84

85

86

87

88

89

90

EstImate

Foreign Aid.-Outlays for international security assistance programs for 1988 are estimated to be $7.7 billion. These programs
primarily serve to strengthen democratic countries where the
United States has special security concerns. Over half of the supplemental appropriation will be used to meet prior commitments to
recipients of security assistance. The 1987 spending levels will be
maintained in 1988, but outlays will drop because of estimated
large repayments on loans made in previous years.




53

OutlaYB for international development and humanitarian assistance are estimated to be $4.4 billion for 1987 and $4.9 billion for
1988. Programs include both multilateral and bilateral assistance
to help IJneet the development and humanitarian needs of poorer
countries and to encourage the expansion of a market-oriented
international economic system.
Multilateral development assistance is provided through the
World Bank group of institutions, regional development banks, the
United f'rations, and related organizations. A $0.6 billion increase
in 1988 outlays to $1.6 billion mainly reflects the proposed restoration of prior year funding cuts to enable the United States to honor
pledges tiQ the multilateral banks. Bilateral development assistance
program8 are largely carried out by the Agency for International
DevelopDlent (AID). AID programs support economic growth in
developirtg countries through projects in agriculture, population, '
health, education and energy. The estimated outlays for AID for
1988 are $2.1 billion, about the same level as for 1987. Included in
" that amount is a development fund for Africa, permitting greater
flexibility' in providing development assistance there.
Public Law 480 food aid provides surplus U.S. agricultural commodities to foreign governments under either long-term low interest rate loans, or grants. Outlays for this program in 1988 are
estimated to drop slightly to $1 billion, reflecting falling commodity
prices rather than a reduction in tonnage delivered.

In tern. I tiona I Financial Programs.-The Export-Import Bank administers direct loan and guarantee programs to promote U.S.

export sales. New lending will remain roughly at 1987 levels in
1988. A 8pecial $0.2 billion in budget authority is sought in 1988 for
a fund to continue a program, begun in 1987, that offsets highly
concessional export credits offered by some other governments. By
, demonstrating-- that the United States will not be underbid, this
program aims to force international negotiations to end such predatory fin.a ncing policies.

qther..-Outlays of $2.7 billion for 1987 and $3.0 billion for 1988
are estbnated for the conduct of foreign affairs. Portions of the
increase are to improve security of U.S. embassies overseas and to
pay for limited personnel increases to expand essential reporting
and analysis of diplomatic and political conditions abroad.

Foreign Information and Exchange Activities.-The U.S. Information .Agency will continue the expansion and modernization of
Voice of America radio facilities. Outlays of $1.0 billion for 1987
and $1.1 billion for 1988 are estimated for all foreign information
and exc]lange activities.
54



GENERAL SCIENCE, SPACE, AND TECHNOLOGY
The programs in this function emphasize investments that contribute to long-term economic growth and the- technological
strength of the Nation. Federal support is proposed for general
science and basic research, space research and technology, and
space flight. Outlays are estimated to increase from $9.5 billion in
1987 to $11.4 billion in 1988.

General Science and Basic Research.-Outlays for general science
and basic research are estimated to increase by 14 percent, from
$2.3 billion in 1987 to $2.6 billion in 1988. This area covers the
scientific and engineering research programs supported across all
disciplines by the National Science Foundation (NSF) and the general science programs in nuclear and high energy physics supported by the Department of Energy (DOE). The budget maintains the
Nation's commitment to these important areas of basic research.
With the increased level of support of basic research proposed for
1988, interdisciplinary research would receive special emphasis.

Outlays for General Science, Space, and _echnology
T




$ Billions
$ Billions
14-r--------------------~14

12

12

10

10

........................................._ .............
__________
- -::::::::: Space Flight (Primarily : :::::::::
__ : : : : : : ::::::: Space Shuttle)
:: : : : : : ---

8

8

6

6

4

4
2

o

0

1978 79

80

FIscal Years

81

82

83

84

85

86

87

88

89

90

EstImate

55

Basic re13earch among several disciplines often leads to the ~reation
of important new fields of science. The budget proposes to establish
between 5 and 10 new interdisciplinary basic science and technology cente~rs modeled after the existing engineering research centers.
~ These n, w centers will focus on basic research among scientific
e
. discipliI1 es and will attract and encourage substantial participation
by induBtry and the States to speed the transfer of new knowledge
from thl~ laboratory to the marketplace. Outlays for this and other
researclt activities of the NSF are estimated to be $1.8 billion in
1988, a 15 percent increase from the 1987 level.
The b,u dget also proposes additional funding for operation of the
nuclear and particle physics accelerators supported by DOE. With
the increased level of support, efforts will be enhanced to achieve a
compre11ensive understanding of the basic components of matter
and en€~rgy and the forces that govern 'their interaction. Outlays of
$782 m jillion are estimated for support of these programs in 1988,
an incr~~ase of $185 million or 12 percent over 1987.

Space Programs.-The Federal civilian space program is under
. the jurisdiction of the National Aeronautics and Space Administration. Olltlays for the civilian space program in 1988 are estimated '
to be $8.8 billion. In 1988, emphasis will be placed on returning the
space s:huttle safely to flight. Four shuttle flights are planned for
1988 aJrld nine are planned for 1989. The development of the
manned space station will be continued in 1988. The space station
will facilitate space-based research, help develop advanced technology useful to the economy, and encourage greater commercial use
of space.
Othe'r programs in this area will study the solar system, the
univer8e, and the Earth's resources and environment; support research on materials processing in space; and develop technology for
future space programs. In addition a major new effort, the civil
space technology initiative, will develop a variety of generic space
technologies such as space based propulsion, automation, and robotics. This initiative is intended to strengthen the technology base for
continl1ed U.S. leadership in space.

ENERGY
The Nation needs adequate supplies of energy at reasonable
rhe best way to meet this need is to let market forces work.
costs. I
The role of the Federal Government in this process should be
limited.
Consistent with this philosophy, the budget proposes a number of
reductions in energy programs and major initiatives that both
provide new revenues and curtail the Federal Government's in56



volvement in energy markets. Total outlays for energy are estimated to be $3.3 billion in 1988, compared to $3.8 billion in 1987.

Energy Supplg.-Programs in this area include energy research
and development, direct production programs, and subsidies for
synthetic fuels and for certain electric utilities and telephone systems.
The budget proposes reductions in support for energy research
and development, limiting such support to research that complements, rather than supplants, ongoing research and development
investment by the private sector. Budget authority of $2.2 billion is
requested for 1988.

Outlays for Energy
$ Billions

$ Billions

16~----------------------------------------r16

14

12

12
other

~"'\-_ _ Emergency

10

10

Preparedness

8
6

4
2

o

0

1978 79
fiscal Years

80

81

82

83

84

85

86

87

88

89

90

Estimate

Direct production programs include the enrichment of uranium
for use as fuel at nuclear power plants; development of facilities to
provide for nuclear waste disposal; production of petroleum at the
naval petroleum reserves (NPRs) in California and ,Wyoming; and
the generation and sale of electricity at ·.the Tennessee Valley
Authority and at the five regional power marketing administrations (PMAs). The administration 'proposes to sell the NPR's, which
have outlived their usefulness as national security assets, and to




57

transfer t]~e PMAs out of the Federal Government. Defederalizing
the PMAs can provide greater regional control and resul~ in a
more efficient electric power system. The proceeds from these sales
and transfers are reflected in undistributed offsetting receipts elsewhere in the budget.
The adlninistration proposes to phase out Rural Electrification
Administration direct loans by the end of 1989. A less costly program offering a 70 percent REA guarantee of the principal of
privately originated loans would be substituted.

Energy Conservation.-The budget proposes $86 million in new
budget authority for energy conservation in 1988. State and local
governme~nt grant programs have received $2.8 billion this past
year from the settlement of cases involving petroleum pricing violations urlder the old oil price control program. Consequently, no
new budgHt authority is proposed for these grants.
EmergejrJ,cy Energy Preparedness.-The administration proposes
to continu e development and fill of the strategic petroleum reserve
at the cu'r rent rate of 75,000 barrels a day during 1987, then to
reduce the rate to 35,000 barrels a day in 1988. This proposal is
consistent with the administration's support for a 750 million
, barrel resl rve. Outlays for 1988 are estimated to be $442 million.
e
Other.--Outlays for other energy programs for 1988 are estimated to be $0.7 billion, ' a slight increase over 1987. These funds
support tl1e work of the Nuclear Regulatory Commission and various Department of Energy operating and administrative expenses.

NATURAL RESOURCES AND ENVIRONMENT
The programs in this function are designed to ensure the responsible maIlagement and conservation of the Nation's natural resources. ]~et outlays are estimated to be $14.2 billion in 1988.
Estimated outlays are reduced by $3.1 billion from 1987 levels
through the use of increased user fees, management improvements,
funding £~wer new construction projects, and returning some regulatory po,'Vers.

58



-

OUTLAYS FOR NATURAL RESOURCES AND ENVIRONMENT
(In billions of dollars)
Pollution control
Outlays

1978 ..................................
1979 ..................................
1980 ..................................
1981 ..................................
1982 ..................................
1983 ..................................
1984 ..................................
1985 ..................................
1986 ~.................................
1987 estimate....................
1988 estimate ....................
1989 estimate ....................
1990 estimate....................

4.0
4.7
5.5
5.2
5.0
4.3
4.0
4.5
4.8
4.5
4.6
4.6
4.6

Receipts
-

-

-

*
*
*
*
*
*
*
*
*
*
*
*
*

Conservation, recreation and
other

Water resources
Total

4.0
4.7
5.5
5.2
5.0
4.3
4.0
4.5
4.8
4.5
4.6
4.6
4.6

Outlays

Receipts

3.5
3.9
4.3
4.3
4.1
4.0
4.2
4.3
4.2
4.6
4.6
4.9
4.8

-0.1
-0.1
-0.1
-0.2
-0.2
-0.1
-0.2
-0.2
-0.2
-0.4
-0.5
-0.4
-0.4

Total

3.4
3.9
4.2
4.1
3.9
3.9
4.1
4.1
4.0
4.2
4.1
4.4
4.4

Outlays

Receipts

4.9
5.4
6.2
6.4
6.3
6.4
6.7
7.1
7.0
7.4
8.0
8.8
9.0

-1.3
-1.9
-2.0
-2.2
-2.2
-1.9
-2.2
-2.3
-2.3
-2.3
-2.5
-2.7
-2.7

Total
outlays

Total

3.6
3.6
4.1
4.3
4.0
4.5
4.5
4.8
4.8
5.1
5.5
6.1
6.3

11.0
12.1
13.9
13.6
13.0
12.7
12.6
13.4
13.6
13.9
14.2
15.2
15.3

*$50 million or less.

Pollution Control.-Outlays for pollution control are estimated to
be $4.6 billion in 1988, including $0.9 billion for cleaning up abandoned hazardous waste sites and chemical spills, which continues
the expanded effort begun in 1987.
New budget authority of $2.0 billion will be requested in 1988 for
the construction of sewage treatment systems once an acceptable
program has been reauthorized.

Water Resources.-Outlays for water resources are estimated to
be $4.1 billion in 1988 which is $0.1 billion less than 1987 due to a
sale of loan assets. Most of the proposed funding covers construction of projects started in previous years, and operation and maintenance costs of completed projects.
The administration proposes up to 13 new construction starts for
the Army Corps of Engineers, contingent upon non-Federal cost
sharing in accordance with the Water Resources Development Act
of 1986 (WRDA). WRDA authorized a new 0.04 percent ad valorem
fee for use of the 200 U.S. commerGial harbors, annually recovering
up to 40 percent of Corps of Engineers harbor operations and
maintenance expenses. WRDA also imposed gradual increases in
the existing inland waterway fuel tax, doubling it by 1995.
The Bureau of Reclamation is included in the administration's
loan asset sale initiative. Completed Bureau loans worth about
$350 million will be offered for sale, yielding estimated receipts of
$154 million. Funding for Bureau projects gives highest priority to
completing ongoing construction activities substantially underway,
and constrains funding of new activities and projects.
In addition the administration proposes to terminate the Soil
Conservation Service small watershed program, which provides




59

flood control facilities that are usually within the financial and
engineeri11g capability of non-Federal entities to provide for themselves.

Conservation, Recreation, and Other.-Outlays for conservation
and land .management are estimated to be $2.5 billion in 1988, an
increase 4)f $0.9 billion from 1987. An increase of $1.4 billion for
conservation of agricultural lands is partially offset by decreases in
other con:3ervation and land management programs.
Outlay~, for recreational resources are estimated to be. $1.4 -billion, a d4~crease of $0.2 billion from 1987. This reduction occurs
primarily as a result of a postponement of some construction and
recreatio,lalland acquisition through 1992, and a proposed increase
in user fees.
I

AGRICULTURE
,

The gO~lls of Federal agricultural price support, credit, and insurance prOI~ams are to promote economic stability and a marketoriented farm economy. Total outlays are estimated to be $26.3
billion in 1988, a $4.8 billion decrease from 1987.
To enSl1re a fair deal to taxpayers while meeting commitments to
America's farmers, the administration will propose legislation to
modify f~lrm commodity price support programs. Program changes
that will be proposed within the basic structure of the farm bill are ·
expected to reduce the enormous spending on agricultural programs aJ expand export· markets for agricultural products by
t1d
moving 1
Gowards a more market oriented agricultural sector. In
addition, the budget proposes to scale down Federal intervention
and sub8idies in other areas of agriculture, particularly in crop
insurance, applied research, and other business services.

Farm Income Stabilization.-Expenditures on farm income stabilization programs are estimated to be $24.5 billion in 1988 and
represent 93 percent of total 1988 outlays for all agricultural pro:
grams. ~;pecific programs include those of the Commodity Credit
Corporation which provides producers of agricultural commodities
with priee and income support through loans, purchases, payments,
and othE~r activities. In addition, the Federal Government provides
crop insl1rance and credit to farmers.
Outla~,s for commodity price support and related programs are
estimatE!d to total $21.3 billion in 1988, a $4.0 billion_decrease from
1987. TIle projected decrease is primarily because the administration does not plan to provide advance deficiency payments on 1988
crops du.ring FY 1988.
Legislation to modify the Food Security Act of 1985 will be
proposed to: reduce target prices and decouple program benefits
\.

r

60



-

Outlays for Agriculture
$ Billions

$ Billions

~~--------------------------------------~~
30

30

25

25

20

20

15

15

10

10

5

5

o

0

1978 79

80

FIscal Years

81

82

83

84

85

86

87

88

89

90

Estlmat.

from a requirement to harvest crops; and reduce payment limitations from $250,.000 per farmer to $50,0.00 as well as close loopholes
to make the limitation more effective. These changes will continue
support for the family farmer arid reduce payments to our largest
most efficient producers. Changes will also be proposed to reform
the sugar program . .
Outlays for Federal crop insurance are projected to total $482
million in 1988. Since a 1980 initiative was successful in achieving
its objective of developing a market for private crop insurance, the
budget proposes a privatization of crop insurance services and a 5year phaseout of the Federal role.
The administration's request for agricultural credit contains
almost $4.0 billion in total credit authority in 1988 to help ensure
that viable but higher risk farmers have operating credit available
to continue operations. Within this level of credit authority, direct
Government lending is reduced and Federal guarantees of private
loans are increased.
'

Agricultural Research Program•. -The 1988 research program
outlays are estimated to be $880 million in 1988, an increase of $48




61

/

million over 1987. The increase in research ~ funding results from
expanded genetic and biotechnology research programs. Also, the
1988 . udg,et will emphasize long-term, basic research rather than
b
applied re:search and product development, which are more appropriately fiJ
rlanced by private industry.
Federal outlays for extension programs are proposed to be re. duced froIn $332 million in 1987 to $274 million in 1988. The lower
funding 1evel estimated reflects an administration proposal to
1
. '~ reduce; b: t not eliminate, Federal funding for the Extension Servm
ice by terminating categorical grants to States for such programs
as urban gardening, pest management, support for rural develop. ment centers, financial management, and food and nutrition education. ForIJ(lula grants continue to be available for these purposes.
Other F'e deral expenditures for agricultural services include marketing assistance, animal and plant health programs, and the collection aIJld distribution of economic data. Legislation will be proposed to €: pand the user fees charged for these services. Accordingx
ly, outla~'s for agricultural services are estimated to decrease
slightly fI'o m $757 million in 1987 to $655 million in 1988.

COMMERCE AND HOUSING CREDIT
Commerce and housing credit programs channel credit assistance
to the hO'using sector; support an environment in which all sectors
of the economy may compete equally for credit; insure bank, thrift,
and credit union deposits; and provide postal services. Outlays are
estimated to be $2.5 billion in 1988.
OUTLAYS FOR COMMERCE AND HOUSING CREDIT
(In billions of dollars)
Mortgage
credit and
deposit
insurance

1978 ............ ..
1979 ............ ..
1980 ............ .. ........................................................................................
1981 ............ .. ........................................................................................
1982 ............ .. ... ...... ..... ............ ........... .... .......... .............................
1983 ............ .. ........................................................................................
1984 ............ ..
1985 ............. .
1986 ............ .. .......................................................................................
1987 estimate
1988 estimate .......................................................................................
1989 estimate ........................................................................................
1990 estimate ........................................................................................
•

I I

•••••••• •

•

• •• •• ••••• •

,

••••• •

•• •• •

,

•

•• •

• I I •• •

I

••••••• •

•• I

•• •

•• •• • ••• •

•• •••• •

•

•• •

••••••••• •

,,

I

•• • II •

••• • •••••••••••••••••• • •

,

•• • •••••••••••••••••••••••••••••••

•••••••••••••••••• •

,

,

•••••••• I

••••••••••••••••••••••

,

••••••••••••••••• II •••••••••••••••••••••••••••••••••••••••••••••••••

••••• ••• • •• I

I

II ••••• •

•• • ••••••••••••••••••••••••••••••••••••••••• I I ••••••••••••

,

I •••• •• • ••• ••• • • ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••

,

3.6
2.3
5.6
4.7
4.0
3.9
3.8
0.9
1.9
5.5
-2.0
-2.7
- 3.5

Postal
Service

1.3
0.9
1.2
1.4
0.2
1.1
1.2
1.4
.8
1.8
3.0
1.6
1.8

Other
advancement of
commerce

1.4
1.5
2.5
2.1
2.1
1.7
1.9
2.0
1.8
2.0
1.5
1.7
3.1

Total

6.3
4.7
9.4
8.2
6.3
6.7
6.9
4.2
4.4
9.3
2.6
.7
1.4

Mortgage Credit Insurance.-The Federal Government aids the
housing industry and homebuyers by promoting stable, non-infla62




tionary economic growth. Consistent with the policy to reduce Federal intervention in private markets, the ad~inistration is proposing to terminate, or prjvatize programs in which beneficiaries are
served by existing private market mechanisms. The budget would
also raise user fees for credit programs in which the Government
unfairly competes with the private sector.
The Federal Housing Administration (FHA) insures loans for
housing, particularly home mortgages for low- and moderateincome first-time homebuyers. The administration proposes a guaranteed loan limitation of $70 billion for this purpose in 1988. It also
proposes to allow FHA to charge an insurance premium compara- ,
ble to private market premiums and better target the FHA program to homebuyers with fewer private market alternatives.
The Government National Mortgage Association (GNMA) provides loan guarantees, which enhance the saleability of FHA-insured and VA-guaranteed mortgages in the capital markets. The
administration proposes a $100 billion GNMA loan guarantee ceiling in 1988 and an increase in the GNMA guarantee fee to 10 basis
points in order to increase private issuances of similar securities.
Housing construction loan programs serving low-income families
will be replaced by more cost-effective rental housing vouchers.

Bank, Thrift, and Credit Union Deposit Insurance.-The provision
of deposit insurance is an increasingly important stabilizing influence on the Nation's economy, given the record number of bank
failures in 1986, which were due to severe problems in the agricultural sector and continued financial problems for a segment of the
thrift industry. These insurance programs are operated by the
Federal Deposit Insurance Corporation, the Federal S~vings and
Loan Insurance Corporation, and the National Credit Union Administration. Costs are estimated to exceed receipts for these insurance funds by $7.6 billion in 1987 and $0.5 billion in 1988.
Other Advancement of Commerce.-The Small Business Administration provides credit assistance to small and minority businesses
through loan guarantees. Credit management reforms are -being
proposed that would increase fees and reduce the Federal Government's contingent liability for these guarantees.
In order to strengthen securities and commerce law enforcement,
funding increases are being proposed for the Securities and Exchange Commission and the Commodities Futures Trading Com•
•
mISSIon.
Consistent with a recent Postal Rate Commission study of subsidized postal mailings, the budget proposes to eliminate nearly all
of the subsidy while continuing lower rates for most religious and
charitable mailings. The proposal would also establish separate
subclass pricing for the reduced-rate payers.




63

TRANSPORTATION
The via.bility of the national economy, interstate commerce and
travel, an,d national defense depends on safe and efficient transportation services. The Federal Government promotes this goal through
programs that provide services and assist State and local governments as well as private enterprises.
Outlays for transportation are estimated to be $25.5 billion in
1988, $1.5 billion less than in 1987. This decrease reflects a continuation of fhe policies aimed at: requiring transportation users to pay
the full cost of the transportation benefits they receive; working to
p
eliminate unnecessary Federal trans- ortation regulations and subsidies; and providing reduced, but flexible funding for local transportation projects.
HighWlJtgs.-Total outlays for highway and highway safety programs are estimated to be $13.2 billion in 1988, $0.3 billion more
than 1987. Although, the administration proposes to limit 1988
funding for programs supported by the highway trust fund to anticipated highway user fee receipts, the funding available for high~ way programs would be enhanced by the proposed repeal of existing gas tax loopholes. Closing these tax loopholes would increase
highway trust fund receipts by $0.8 billion in 1988 and $0.9 billion
annually through 1992 (funding generated by additional receipts
would be prorated by existing formulae between highway and mass
transit programs). The 1988 estimates include legislative proposals
to provid.e States with greater flexibility in spending funds provid" ed for construction or repair of interstate or primary highways.
The adm.inistration also proposes to consolidate categorical grants
for urban and secondary highway systems and bridges on those
systems into a $2.2 billion block grant for use on any main public
road.
Mass jrransit.-The $1.6 billion in proposed budget authority for
mass transit in 1988 represents a $1.9 billion decrease from 1987
and reflHcts the administration's efforts to limit the Federal role in
mass trslnsit funding. The budget proposes to eliminate discretionary graIlt funding, which in the past has provided funds for the
construction of unnecessary, costly, and underutilized transit systems in ,a small number of cities. The budget also proposes to
distribute the receipts provided by the one cent per gallon of gasoline tax dedicated to mass transit activities more equitably by
for-mula.
Railr(J'a ds.-In keeping with the administration's policy of reducing Federal responsibility for rail activities unrelated to safety,
proposed budget authority for railroad programs decrease by $667

64






Outlays for Transportation
,

$ Billions
30~--------------------------------------~

$ Billions

29

25

Totals

20

10

5

o

9

1978 79

80

F1scal Years

81

82

83

84

85

86

87

88

89

90

Estimate

million in 1988. Program reductions largely result from the proposed elimination of Amtrak subsidies and the disposal of some or
all of Amtrak's assets, which will increase revenues by about $1
billion.
Air Transportation.-J...Budget authority for air transportation in
1988 is estimated to total $6.5 billion dollars, a $1.0 billion increase
over 1987. M~st of the requested 1988 funding increase is due to a
68 percent proposed increase in funding for the Federal Aviation
Administration's (FAA) program to modernize our Nation's air
traffic control system and a 16 percent increase in funding for FAA
operations to increase the air traffic controller and safety inspection workforces.
Changes being proposed to the airport grant program include:
allowing airports to withdraw from the Federal program and assess
their own fees; allocating 22 percent of'" the funds to States to
administer directly; and targeting discretionary funds to capacity
and safety related projects. In addition, the administration will
again propose that 85 percent of all FAA costs be funded from the
user-supported Airport and Airway Trust Fund. This proposal is
I

65

consistent with studies which have shown that 85 percent of all
FAA costs are attributable to the non-Federal use of the national
airspace system and would end an inappropriate and unnecessary
. general taJ{payer subsidy estimated to be more than $7.4 billion
during the period 1982-1987.
I

Water 1'ransportation.-Outlays for water transportation programs are ,e stimated to be $2.9 billion in 1988, $0.8 billion less than
in 1987. Th.e estimated outlay decrease reflects the administration's
proposal to recover fees for certain Coast Guard services provided
to commereial operators and recreational boaters as well as several
initiatives to reduce unwarranted maritime subsidies. The administration's Dlaritime proposals include terminating Federal aid to
maritime schools and reducing the cost rof the expanded cargo
preference requirement enacted as part of the Food Security Act of
1985. At .the same time, drug law enforcement will continue to
receive major emphasis in 1988 with 22 percent of the Coast
Guard's operating budget supporting interdiction of drug smuggling. The Coast Guard's other missions (e.g., search and rescue)
will continue at or above current operating levels.
\

COMMUNITY AND REGIONAL DEVELOPMENT
Federal programs for community and regional development supplement State and local government efforts to sustain economic
and social growth in urban and rural neighborhoods, communities,
and regioIls. The administration believes that Federal programs

that support community and regional development should transfer
as much I'e sponsibility as possible to the State and local governments the~mselves. The administration proposes to eliminate a
number of Federal categorical programs currently providing support for specific local community and economic projects.
Commu1l~ity

Development.-The community development block

grant (CD:BG) program, administered by the Department of Housing and lrrban Development (HUD), is the principal program in
this category. These grants provide Federal support for cities, counties, India.n tribes, and U.S. territories to help them meet their
communit:v and development needs. The program allows the State
and local 1
9overnments to use their CDBG funds in ways that they
choose, and is therefore less restrictive than many other community development programs. The administration proposes to rescind
$375 million of 1987 budget authority and establish the CDBG
program Jlevel at $2.6 billion for 1987 and 1988. Although this
reduces tl1e total resources available for this program, proposed
legislation changes will help ensure that the most needy communities will continue to receive adequate assistance.

66



Other community development programs include urban development action grants (UDAG), rental rehabilitation grants, and
rental development grants. Both the UDAG program and the
rental development grant program are proposed for termination in
198·\ , while the rental rehabilitation grant program is scheduled to '
receive new budget authority of $95 million in 1987 and $75 million
in 1988. The more flexible CnBG program will allow communities
to meet most of these same program objectives with greater local
discretion.

Outlays for Community and Regional Development
$ Billions

$ Billions

12~--------------------------------------~~
local Public
Works Program

10

10

-------------------8 ----------------------

......

------------------------~

8

......

~~

---------- Area and RegIonal - - --- --- - -- : : : : : : :: Development

6

::: : - --

4

2

-2

-2

1978 79

80

fiscal Years

81

82

83

84

85

86

87

88

89

90

;'

Estimate

Area and Regional Development.-Programs in this category support rural development, development of American Indian reservations and multi-State regional development. Budget authority is
proposed to decrease from $2.9 billion in 1987 to $2.3 billion in
1988. Total outlays are estimated to be $1.8 billion in 1988, only
$0.1 billion below 1987 largely because of spending from prior
years.
Much of the decline in the funding of area and regional development programs can be attributed to program terminations. The
administration proposes to eliminate the Farmers Home Administration (FmHA) rural d~velopment loan and grant programs which
67




finance construction of water and waste-water systems and community facilities. These .projects are primarily a State and local responsibility, and local financing enables communities to better determine the appropriate scope of such projects.
Like tlle FmHA programs, the economic development administration, 'which is part of ' the Department of Commerce, and the
Appalacltian Regional Commission are proposed for termination in
1987. Sinlilar funds for both programs are available through other
Federal ~,ources such as the CDBG program.
Finall)r, Federal Indian programs, which are intended to increase
self-detel'mination for Indian tribal governments, to encou'r age economic d€!velopment on Indian reservations, and to fulfill the trusteeship rE~sponsibilities of the Federal Government, are expected to
have outlays of $1 billion in 1987 and $1.1 billion in 1988. The 1987
figure represents an 8 percent increase over the 1986 figure of $958
million.
Disast~~r Relief and Insurance.-Providing insurance against

losses from floods, hurricanes, tornadoes, and other natural disaster is primarily the responsibility of private insurers. State and
local governments aid recovery when necessary, and Federal insurance and disaster relief programs are available when 'those resources are insufficient. One such Federal program is the Small
Business Administration (SBA) business disaster loan program. For
this program, eligibility changes are proposed to limit coverage to
businesses and households who. could not obtain similar loans elsewhere.

EDUCATION
The administration's policies on education emphasize national
leadership and dedication to excellence in education for all children. Federal programs for education assist parents, States, and
localities in providing education, especially for educationally disadvantaged, low-income, and handicapped persons. Outlays for education are estimated to be $14.5 billion in 1988, a 12.0 percent decrease from the proposed 1987 level, which reflects requested rescis.
Slons.

Elementary, Secondary and Vocational Education.-Programs in
this category are primarily Federal grants designed to help States
educate students with special needs. For 1988, the administration
proposes, to finance most of the major grant programs at or near
the 1987 level, but proposes to eliminate or reduce selected smaller
program.s in which the Federal investment_is inappropriate. The
budget allows for an increase over the 1986 level to offset the
effects of inflation on the major-State grant for the education of
68



Outlays for Education
$ Billions

$ Billions

20~-----------------------------------------r20

15

15

10

10

5

- - : : : Elementary.
-:::::: Secondary,and
------- u
flo aI Educotl
------- - .oca n
on
-- -----

------ --- --- -------- -- ---- -- ---- --------------------------------------------------------------------

----------------------------------------- Education for the --------------- -----------

::::::::::::::::::::::::::::::::: Handtca ped

::::::::::

5

---------------------------------~-~=-----

o

0

1978 79

80

FIscal Years

81

82

83

84

85

86

87

88

89

90

Estimate

handicapped children and provides additional assistance above 1986
amounts to States in the preschool grant for children aged 3-5. The
administration proposes to increase funding for compensatory education programs in 1988 above the 1987 amounts, and is proposing
legislation to revise and strengthen these programs. Estimated outlays for these programs are $7.8 billion in 1988.

Higher Education.-The budget continues the Federal Government's commitment to ensuring access to higher education for the
poor, with significant changes proposed in program structure. The
administration proposes reforms for Federal student aid that would
maintain total aid at about current levels and target subsidized aid
to the most needy students, while substantially decreasing costs to
taxpayers. Major proposals include: elimination of borrowing limits
(other than the cost of education) on guaranteed student loans
(GSLs) that have no direct cost to the Government; expansion of
the income-contingent loan program; continuation of the Pell grant
program with improved targeting; initiation of insurance fees on
new guaranteed borrowing; elimination of the Federal payment of
student interest for regular GSLs; and reduction of GSL subsidies




69

to lenders and intermediary .guarantee agencies. In addition, no
funding is requested for supplemental educational opportunity
grants, college work-study, Perkins loans, or State student incentive grants. These programs inefficiently provide aid to institutions
rather than directly to students and are not needed under the new
policies proposed for other programs. Estimated outlays for higher
education are $5.5 billion in 1988.

TRAINING, EMPLOYMENT, AND SOCIAL SERVICES
Federal programs in this area are designed to facilitate the operation of the labor market and provide social services to needy
individttals. Outlays for these activities are estimated to be $13.9
billion in 1988, an increase of $0.6 billion from 1987.

Training and Employment.-Training and employment 'p rograms
are designed to improve individuals' abilities to obtain and retain jobs by developing job skills and to support services that
match individuals with jobs. The major Federal activities in this
area arle financed through grants to States. These grants include a
block g1~ant that allows States to design training programs to meet
the needs of their disadvantaged population and categorical grants
. for the employment service, public service employment for older
workerB, summer youth employment and training, and job placement a.nd training for workers displaced by changing economic
conditions. In addition, the Federal Government contracts for the
operation of other job training programs, including the .Job Corps.
OutlaYE~

for training . and ' employment are estimated to be $6.0
billion in 1988.
Legislation will be proposed to replace the existing summer
youth :employment program with a year-round program of remedial
skills t:raining, subsidized summer jobs, or a mixture of both, as
determ:tned by local areas. Youth in families receiving support
from tlte aid to families with dependent children (AFDC) program
would l)e eligible.
Two programs that currently help workers whose jobs have disappeared because of changes in the economy-trade adjustment
assistal1c~ and ' Title III of the _
Job Training Partnership Act-are
proposE!d to be replaced by an entirely new program. This new
prOgJraln, which would allow States and local areas to use a variety
of .new approaches to encourage workers to move on more quickly
to new careers, could assist any dislocated worker, without regard
to the reason for the unemployment.

Social Services.-The Federal Government makes gJrants to
States and to public and private institutions for a variety of social
70




Outlays for Training, Employment, and Social Services
$ Billions

$ Billions

20~------------~------------------~--~----20

15

10

10

o~~~~~~~~~~~~~~~~~~~~~~o

1978 79

80

81

82

83

84

85

Rscol Years
·Pro roms ExclusIve for Public ServIce Em 10 ment

86

87

88

89

90

Estimate

services. Beneficiaries include low-income persons, the elderly, the
disabled, children, youth, and Native Americans. Outlays for social
services are estimated to increase from $7.5 billion in 1987 to $7.9
billion in 1988.
The social services block grant gives States discretion to determine which social services will be offered and who will be eligible
to receive them. This grant is proposed to be funded in 1988 at the
same level as enacted for 1987. The administration proposes to
begin phasing out the community services block grant. A phased
reduction will provide community action agencies, which derive
less than 13 percent of their funding from this grant, time to solicit
funds from other sources. A generic appropriation of $2.2 billion for
social services activities will allow the Department of Health and
Human Services to best serve children, older Americans, the developmentally disabled, and Native Americans. Increases over 1986
levels in the v~cational rehabilitation State grant are proposed to
offset the effect of inflation while reducing overall costs from the
1987 enacted level.
The Federal Government also makes grants to help States provide foster care and adoption assistance, and reunite children with




71

their famlilies. Federal funding for these programs has grown uncontrollably since 1981 because of claims for States' administrative
expenses rather than increased benefit payments to families. The
administration therefore proposes to limit Federal reimbursement
for these State administrative costs.

HEALTH
The Federal Government contributes to meeting national health
care needs by financing and providing health care services, promoting ·disease prevention, and supporting research, training and consumer alld occupational health and safety. Federal outlays for
these programs are, excluding medicare and veterans medical programs, estimated to decrease from $40 billion in 1987 to $39 billion
in 1988.

Medicald.-More than two-thirds of Federal outlays for health in
this function is devoted to medicaid. Under current law, estimated
State medicaid outlays of $22.2 billion in 1988 and an additional
$28.1 billion provided by the Federal Government are expected to
finance care for nearly 24 million poor Americans.
The ad:ministration is proposing legislation to give States optional authority to capitate acute care medicaid services. To qualify, a
State program would have to capitate all eligible beneficiaries in a
particula]~ geographic area-such as a county-and must have certain provisions that protect quality of care and access to care.
During tIle first three years of each new capitation project, a State
would reeeive a higher Federal matching rate, which would help
defray the costs of the transition from fee-for-service to capitation.
A secolld legislative proposal would reduce Federal medicaid assistance to States in 1988 by $1.0 billion in outlays and, in subsequent years, constrain the rate of increase in Federal assistance to
States to the rate of increase in medical care prices.
Other llealth Programs.-Programs in this category include the
Indian H,e alth Service, health block grants to States, and research
and education on Acquired Immune Deficiency Syndrome (AIDS).
In addition, the Federal Government provides 85 percent of the
Nation's expenditure on basic, health-related research. Outlays for
this research are estimated to be $6.2 billion in 1988. Because the
supply of health care professionals is now adequate, the administration p:roposes ending direct Federal subsidies for health professions trajlning except for family medicine, geriatric training, and
loan guarantees. Estimated outlays of $0.9 billion in 1988 will help
protect consumers from unsafe products, and workers from occupational hazards.

72



Outlays for Health
$ Billions

$ Billions

~~-----------------------------------------~
40

40

35

35
----------------------------

30

_: : : : : : : : : : : : lOther Health E : : : -:

25

30

25

20

20

15

15

10

10

5

5

o

0

1978 79

80

81

82

83

84

85

nscol Yeors

86

87

88

89

90

EstImate

The administration is proposing to reform the Federal employees
health benefits (FEHB) program. The formula used to determine
the Government's contribution to enrollees health premiums would
be changed to a weighted average that reflects the premiums of all
FEHB plans and the distribution of enrollees among those plans.
This proposed formula would produce a Government contribution
that more accurately reflects the trends and costs of the FEHB
program, providing more equitable cost sharing between the Government and its employees. The administration's proposal is expected to generate outlay savings of $0.2 billion in 1988.

MEDICARE
The Federal Government contributes to the health of aged and
disabled Americans through medicare. Medicare outlays in 1988,
which are estimated to be $73.0 billion, are expected to finance
health insurance for an estimated 32 million persons who are aged,
disabled or suffer from end-stage renal (i.e., kidney) disease.
In 1984 medicare's inflationary cost-reimbursement system for
hospitals was replaced by the prospective payment system (PPS),
which generally sets a flat payment per case in advance for each




73

I

hospital patient based on that patient's diagnosis. PPS has curbed
the rapid increase in spending on hospitals, which increased only
2.0 percent between 1985 and 1986 after almost doubling from 1980
to 1985. For planning purposes, the average payment for a hospital
case is projected to increase 2.5 percent in 1988.

OutlslYs for Medicare
$ Billion:!

$ Billions

100-,-----------------------100

80

80

60

60

4-0

40

20

20

o

0

1978 79

80

FIscal Years

81

82

83

84

85

86

87

88

89

90

EstImate

The aldministration is proposing several programmatic changes.
First, beneficiaries would be offered a voucher with which they
could clloose from a wide variety of plans, each offering benefits at
least eq'uivalent to medicare's.
Second, medicare payments for hospital capital costs would
become part of the hospital's predetermined price per admission,
giving 110spitals the incentive to allocate resources efficiently. Consistent 'with provisions of the Omnibus Budget Reconciliation Act
of 1986:, capital reforms would not reduce medicare spending in
1988.
Third, medicare payments to physicians whose practices are
based in hospitals-radiologists, anesthesiologists, and pathologists-~Tould reflect a set price for each diagnosis, providing incentives for hospitals and these physicians to provide quality care at
lower costs.

74



Spiraling general fund health care costs would be restrained by
increasing medicare premiums to 35 percent of supplementary
medical insurance costs for new enrpllees. Payroll contributions
from extending medicare coverage to the minority of State and
local employees that are not already covered (most of whom are
eligible for medicare benefits) would improve the solvency of the
hospital insurance trust fund.
Even with proposed savings, outlays are projected to increase
$32.8 billion between 1987 and 1992, an increase larger than justified by general inflation and the increase in beneficiaries. Under
the administration's proposals, spending per medicare beneficiary
would increase in real terms through 1992.

INCOME SECURITY
Income security benefits are paid to the aged, the disabled, the
unemployed, and low-income families. Total outlays are estimated
to be $124.8 billion in 1988.

Retirement and Disability.-In 1988, estimated outlays of $42.9
billion will go to retired or disabled Federal civilian workers, military personnel, railroad employees, and coal miners, and their
dependents and survivors.
The administration is proposing to reduce the overly generous
features in the old civil service retirement system (CSRS) to more
closely parallel the new Federal employee retirement system
(FERS) by changing the way cost-of-living adjustments (COLAs) are
provided to annuitants. The administration's proposal generally
would limit future COLA's to the percentage change in the Consumer Price Index (CPI) minus one percentage point. The administration is also seeking repeal of the lump sum withdrawal provisions in both CSRS and FERS, which enable employees to withdraw all their contributions toward retirement in a lump sum at
retirement.
Unemplogment Compensation.-Outlays for unemployment compensation are estimated to be $18.0 billion in 1987 and $17.7 billion
in 1988. About 2.3 million workers per week are estimated to
receive benefits in 1987 and 2.2 million workers in 1988. The administration is proposing legislation to extend Federal-State unemployment insurance coverage to rail workers.
Housing and Food Assistance.-The Federal Government provides assistance for housing and food to low-income households. In




75

Outlays for Income Security
$ Billions
$ Billions
UO-~--------------------------------------~UO
120-

120
Unemployment
Compensation

100-

100

80-

80

60

60
40

20

20

o

0

1978 79

80

FIscal Years

81

82

83

84

85

86

87

88

89

90

ESTIWATE

1988, a11 estimated 6.5 million households will receive housing aid
and thE! estimated monthly food stamps participation will be 19.3
million individuals.
Outla.ys for subsidized housing programs are estimated to increase from $12.9 billion in 1987 to $13.4 billion in 1988. For 1988,
the adnlinistration is proposing to provide 102,000 additional households with subsidies. Virtually all of these households will receive
vouchers, which are less expensive than new construction and benefit tenants by giving them more freedom of choice about where to
live.
Outla.ys for child nutrition and other food programs, excluding
food sta.mps and aid to Puerto Rico, are estimated to be $6.1 billion
in 1988. The administration proposes to better target Federal funds
to the needy by maintaining institutional subsidies for meals
served to students whose family income are below 185 percent of
the poverty level, but discontinuing subsidies to students above that
level.
Unde'r proposed law, estimated food stamp outlays including nutrition assistance to Puerto Rico are $12.5 billion in 1988, compared
to $12.7 billion for 1987. The budget includes proposals to improve

76




State incentives to reduce overpayments and to reform Federal
funding for State and local administrative costs. Similar changes in
funding for administrative costs are proposed for aid to families
with dependent children and medicaid.

Other Income Securitu.-Outlays for the supplemental security
income program (SSI) , which pays benefits to an estimated 4 million needy aged, blind or disabled individuals, are estimated to be
$12.3 billion in 1988. SSI payments continue to be adjusted for
changes in the cost-of-living. Federal outlays f9r aid to families
with dependent children (AFDC) and child support enforcement are
estimated to be $9.8 billion in 1988. Approximately 3.8 million lowincome families are estimated to receive AFDC benefits in 1987.
The budget proposes to increase recipients' work opportunities and
to control excessive State and local administration costs. Other
income security programs include the earned income tax credit and
low-income home energy assistance.

SOCIAL SECURITY
The Federal Government contributes to the income security of
aged and disabled Americans through social security, which is




Outlays for Social Security
$ Billions
2~~---------------------------------------r2~

$ Billions

200

200

150

150

100

100

~

50

o

0

1978 79

80

flscal Years

81

82

83

84

85

86

87

88

89

90

EstImate

77

compris\ d of old-age and survivors insurance (OASI) and disability
e
insurance (DI) programs. Social security represents about one-fifth
of estirrlated total Federal outlays in 1988 and provides benefits to
one in every six Americans.

Social Security.-Social security affects the lives of most Americans, e:ither through benefits received or through payroll taxes
deducted from earnings. Outlays for social security old-age, survivors, aIJld disability programs are estimated to increase from $207.9
billion in 1987 to $219.4 billion in 1988, primarily because of cost-ofliving illcreases and increases in the number of beneficiaries.

VETERANS BENEFITS AND SERVICES
Bene1its and services are provided to meet the Nation's obligation to veterans of military service. Outlays for this function are
expected to be $27.2 billion in 1988.

HospJ'tal and Medical Care.-The Veterans Administration (VA)
operate::; the Nation's largest medical care system. The budget proposes to carry out the comprehensive reform of VA medical care
eligibility that Congress enacted last year. In accordance with this
reform, VA will sustain no-cost quality care, primarily for veterans
injured during military service, former prisoners of war, veterans
exposed to certain toxic substances and radiation, veterans of wars
prior to World War II, those receiving VA pensions and veterans
least able to finance the cost of their own health care (Le., other
veterans earning less than $25,000 per year for a veteran with one
dependent; $20,000 for a single veteran). The administration believes th.at as a rule when veterans' illnesses are completely unrelated to their military service and they are financially able to
provide for their own health care, they should do so.
The '1 A may, however, continue to furnish care to non-servicedisabled veterans with incomes above $25,000 in locations where
resourc~~s remain available. Outlays for hospital and medical care
progranls (excluding third-party reimbursements) are estimated at
$9.4 billion in 1987 and $9.8 billion in 1988.

Compensation.-Compensation benefits are provided to an estimated ~~.6 million veterans with service-connected disabilities and
survivoJ of such veterans. Outlays for veterans compensation benrs
efits arle estimated to increase from $10.5 billion in 1987 to $10.6
billion in 1988. These estimates reflect an administration proposal
to link the compensation cost-of-living adjustment to the annual
change in the consumer price index.
78




Outlays for Veterans Benefits and Services
$ Billions

$ Billions

30~----------------------------------------~30

25

25

..... ----------- 20

~---

- - - : : : : : : : : : : : : : : : : : :: Hospital and :::::: : : : : :
- - - - - - - - - - - - - - - - - - - - - - - - t.4edical Care - - - - - - - - - - -

20

--------------------------

-----------

15

10

-

5

5

o

0

1978 79

80

FIscal Years

81

82

83

84

85

86

87

88

89

90

Estfmate

Pensions.-Pensions are provided to needy veterans with wartime service-both combat and non-combat veterans alike-and to
needy survivors of deceased veterans. Outlays for pension benefits
are estimated at $3.8 billion in both 1987 and 1988. Pension recipients are scheduled to receive an estimated 3.5 percent increase in
benefits, effective with the January 1988 payments.
Education, Training, and Rehabilitation.-The GI bill provides
education benefits to veterans and active duty personnel who
served, at least in part, between February 1, 1955, and December
31, 1976. These benefits are designed primari~y to help veterans
adjust to civilian life.
Individuals who entered military service after 1976 are eligible
for the post-Vietnam era education program. Enrollment in this
program has been closed since July 1985, while the all-volunteer
force educational assistance test program is in effect. The budget
proposes to make the new GI bill permanent and transfer the
funding responsibility for its basic benefit to the Department of
Defense, who would use it as a recruitment and retention incentive. VA would continue to administer the program.




79

Outlays for readjustment benefits are estimated to decrease from
$756 million in 1987 to $626 million in 1988.

Other.-The VA provides additional assistance to veterans
through housing loan guarantees. New guaranteed loan commitments are expected to decrease from $35.0 billion in 1987 to $27.9
billion in 1988. As part of the administration's policy to make
Federal credit programs self-supporting, the existing 1 percent
funding fee charged on VA-guaranteed housing loans would be
increased to 2.5 percent in 1987 and could be added to the mortgage am.o unt. Direct loans are available to disabled veterans eligible for specially adapted housing and to non-veterans who purchase
property' from the VA portfolio.

ADMINISTRATION OF JUSTICE
Federal activities in this function include law enforcement, litigative a.nd judicial activities, the operation of prisons to house
Federal inmates, and criminal justice assistance to State and local
Governnlents. The proposed budget authority for these activities is
$9.0 billion in 1988, $0.2 billion above the 1987 level.

Federul Law Enforcement Activities.-More than one-half of outlays for programs in this function are for law enforcement activities. Budget authority for this purpose is proposed to be $5.1 billion
in 1988, $0.4 billion above the 1987 level.
The ~rustice Department carries out criminal investigations
through the Federal Bureau of Investigation (FBI) and the Drug
Enforcelnent Administration (DEA). The FBI and DEA work together ~,ith other Federal agencies through 13 regional task forces
on orga:nized crime drug enforcement. The administration is requesting' full funding for over 600 domestic and foreign positions
added to the DEA by the Anti-Drug Abuse Act of 1986, as well as
funding to improve DEA's computer and technical equipment capabilities. In 1988, additional resources are also being requested for
the FBl's foreign counterintelligence activities and for intensified
efforts against organized criminal organizations, white collar crime
and terrorist activity.
In thB area of border enforcement, the budget requests $400
million of budget authority in 1988 to implement immigration
reform legislaton. The majority of this money will go to the Immigration and Naturalization Service.
Feder~~l

efforts
80



i jrl

Litigative and Judicial Activities.-The administration's
this area focus on enforcing organized crime and drug

Outlays for Administration of Justice
$ Billions

$ Billions

10~--------------------------------------~10

8

6

Criminal Justice
Assistance

6

4

4

2

o

0

1978 79

80

fiscal Yeors

81

82

83

84

85

86

87

88

89

90

Estimate

statutes; strengthening efforts to combat fraud and waste; recovering delinquent debt owed the Government; and defending civil
claims filed against the Government and its officials.
The budget does not include any funding beyond 1987 for the
Legal Services Corporation, created to assist State and local agencies that provide free civil legal assistance to the poor. The social
services block grant is sufficient to fund legal services activities
through State and local governments. In addition, local bar associations have developed programs to provide free assistance to indigent clients, and these efforts are expected to grow, consistent with
private attorneys' ethical obligations to provide such free services.
Proposed budget authority for litigative and judicial activities is
$2.8 billion in 1988.

Federal Correctional Activities.-The Federal Government is responsible for the care and custody of prisoners charged with or
convicted of violating Federal laws. In response to the continuing
growth of the Federal prisoner population, two new prisons are
proposed for construction in 1988. In addition, renovation and ex-




81

pansioJ projects proposed in this budget would further increase
rl
and irrtprove existing facilities. Proposed budget authority for correction,a l activities is $1.0 billion in 1988, an increase of $0.2 billion
over IH87.

Crintinal Justice Assistance.-The administration is requesting to
terminate the juvenile justice and delinquency prevention programs because the primary objective of the programs-the separation of juvenile from adult offenders-has largely been accomplished. The administration is also proposing that funding for the
State and local assistance program be ended, since the States can
better afford to pay for these programs than can the Federal GovernmeJ~t and because the States and localities benefit from them.
Outlays for criminal justice assistance in 1988 are estimated to be
$0.4 billion, $43 million above the 1987 level.

GENERAL GOVERNMENT
This function comprises central Government activities for both
the legislative branch and the Executive Office of the President. It
also includes tax collection by the Internal Revenue Service (IRS),
general property and procurement activities of the General Serv-

Outllays for General Government
$ Billions

$ Billions

9-~-----------------------------------r9
8-

8

7-

7

6-

6

5-

5

4-

4

3
2-

1-

1

0-

0

1978 79

80

flscal Years

82



81

82

83

84

85

86

87

88

89

EstImate

90

ices Administration, central personnel management activities of
the Office of Personnel Management (OPM), and archive and recordkeeping activities. Outlays for general government are estimated to be $7.5 billion in 1988.
Administration initiatives include expanded efforts to identify
and collect unpaid taxes. The IRS will continue to modernize and
streamline its operations, with the use of new tax processing equipment and automated collection of unpaid tax liabilities. Greater
emphasis on audits and increased litigation of tax shelter cases are
expected to encourage voluntary compliance with the tax laws. A
'substantial increase in the tax audit staff is proposed, which will
have revenue benefits well beyond the increased cost.

GENERAL PURPOSE FISCAL ASSISTANCE
General purpose fiscal assistance provides financial aid to State
and local governments without major restrictions or matching requirements. Outlays for this assistance are estimated to decline
from $1.9 billion in 1987 to $1.5 billion in 1988.

Outlays for General Purpose Rscal Assistance
$ Billions




$ Billions

10~--------------------------------------~10
Antirecession Financial
Assistance

8

8

6

6

4

2

o

0

1978 79

80

flscol Years

81

82

83

84

85

86

87

88

89

90

EstImate

83

Genf~ral

Revenue Sharing.-In 1987, the phasing out of the general revenue sharing program essentially will be completed. This
termiI1lation is consistent with the substantial improvements
during the past decade in the abilities of State and most local
governments to meet their own fiscal needs. The estimated Federal
outlaYB of $82 million in 1987 for this program will be to distribute
the reInainder of funds appropriated in prior years.
Othf~r

General Purpose Fiscal Assistance.-This category includes
payments to the District of Columbia and other payments to States,
localit:ies, and territories. Some jurisdictions receive payments from
the Federal Government based on receipts generated from the
timber' sales, mineral leases, grazing permits and other activities
on Federal property. Outlays for other general purpose fiscal assistance are e~timated to be $1.9 billion in 1987 and $1.5 billion in
1988. 'rhe administration is proposing legislation that will allow
the Federal Government to deduct the costs of managing the lands
that generate timber and mineral receipts before calculating the
States' and counties' shares.

NET INTEREST
Net interest includes the Federal Government's cost of borrowing
and mlost of its income from lending money. It consists 9f the
intereE:t costs of borrowing to finance the public debt and the
collections of interest payments from Government trust funds and
from tJ public.
rte
The public debt is composed of Treasury securities held by the
public and by Government accounts. The interest cost associated
with tllese securities is shown as interest on the public debt. The
gross l~ederal debt is rising significantly, but the projected decline
in interest rates largely offsets the cost associated with this growth.
Net interest outlays were $136.0 billion in 1986 and are estimated
to be $137.5 billion in 1987 and $139.0 billion in 1988.
Most trust fund balances are required by law to be invested in
Federal securities. The interest outlays on this debt are included in
interest on the public debt. However, the interest earned by most
trust fllnds is deducted in this function so that net interest includes
only tt.le Government's net transactions with the public.
Othe! interest income from Federal agencies and the public as
r
well aE~ other interest costs of the Government are also included in
this function in order to show net interest transactions with the
public.




84

Net Interest Outlays
$ Billions

$ Billions

g5~------------------------------~----------~U5

150

150

125

125

100

100

75

50

50

25

25

o

0

1978 79

80

81

82

83

84

85

86

87

88

89

90

Estimate

FIscal Years

NET INTEREST
(In billions of dollars)

1986
actual

1987
estimate

1988
estimate

1989
estimate

1990
estimate

Interest on the public debt. ..................................................
Interest received by on-budget trust funds ..........................
Interest received by off-budget trust funds ..........................
Other interest .......................................................................

190.2
-26.6
-4.3
-23.3

191.7
-28.7
-5.1
-20.5

198.4
-31.6
-6.6
-21.2

205.6
-35.2
-9.2
-19.6

208.6
-38.3
-12.3
-19.0

Net interest outlays ........................................

136.0

137.5

139.0

141.5

139.0

ALLOWANCES
Allowances cover certain forms of budgetary transactions that
are expected to occur but are not reflected in the program details
of the preceding functions. When these transactions take place,
they are reported as outlays or receipts for the appropriate agencies and functions.
The allowance for civilian agency pay raises reflects the assumption that Federal civilian employees will receive a 2.0 percent pay
raise in January 1988 and 3.0 percent in January of each year
thereafter. Also included are amounts for pay increases for top-




85

level officials in the executive, legislative, and judicial branches.
The allowance for Coast Guard military personnel pay raises reflects the administration's proposed 4.0 percent pay increase in
January 1988 and assumes that pay raises in all other years will
match those granted to Department of Defense military employees.
The administration proposes to increase the thresholds of coverrlder the Davis-Bacon and related acts, which cover wages
age uJ
paid to workers on Federal and federally-aided construction
projects, and the Service Contract Act, which covers wages and
benefits paid to workers under Federal service contracts. The
threshold of coverage under the Davis-Bacon Act has not been
revised since it was set at $2,000 in 1935, while the threshold of
coverage under the Service Contract Act has not been revised since
it wru~ set at $~,500 in 1965. The thresholds are proposed to be
raised to $1 million for defense contracts and $100,000 for nondefense eontracts. This proposal is expected to reduce outlays by $24
millio]l in 1988.
The administration proposes to change the budgetary accounting
of Fed.eral credit programs. This proposal, which is estimated to
reduce! outlays by $1.3 billion in 1988, would separate the subsidy
value of a loan from its financing.
The formula used to determine the Government's contribution
for enlployees' health premiums is currently based on a simple
average of the high-option coverage offered by six of the largest
plans. The administration proposes to change the formula to a
weighted average that reflects the premiums of all Federal employees health benefit plans and the distribution of enrollees among
those plans, thereby reducing outlays by $140 million in 1988.
The administration is also proposing personnel reforms to foster
more efficient delivery of Government services; these are estimated
to redllce outlays by at least $200 million in 1989.
An allowance for other requirements contains amounts for potential r€~estimates and minor programmatic changes, which net to
zero.




UNDISTRIBUTED OFFSETTING RECEIPTS
Offsetting receipts are generally deducted from agency and subfunction totals, but in three instances they are deducted from the
budget totals as undistributed offsetting receipts.
Age11cy contributions for employee retirement are counted as
outlaY:3 of the paying accounts. Deductions for the receipt of these
payments are not made against the receiving agencies and functions, because the size of the deductions would seriously distort the
budget totals for these programs. Hence, these collections are deducted as undistributed offsetting receipts. There are two major
catego]~ies of these collections: those received by budget accounts,
primarily the military retirement and civil service retirement trust
86

funds, and those received by the off-budget social security trust
funds. Total collections by the budget accounts are estimated to be
$28.0 billion in 1987 and $32.1 billion in 1988, while the collections
by off-budget accounts amount to $3.3 billion in 1987 and $5.5
billion in 1988. Included in these totals are the effects of the
administration's proposals to require the Postal Service to begin
paying the full employer share of the cost of employee pensions
and to require the Department of Defense to make social security
contributions for wage credits earned by military personnel.
Payments to the Federal Government for rents and royalties on
the Outer Continental Shelf (OCS) are large, and their inclusion in
a particular function would distort the display of budget totals.
Offsetting collections for OCS are estimated to be $3.9 billion in
1987 and $3.7 billion in 1988.
The Omnibus Budget Reconciliation Act of 1986 authorized the
sale of Conrail. It is anticipated that the sale will be concluded in
1987 and that receipts from the sale, including cash transfers already made by Conrail to Treasury, could amount to $1.9 billion.
The administration proposes to sell the naval petroleum reserves for
an estimated $3.3 billion at the end of 1988, and the five Federal
power marketing administrations, beginning in 1989. The administration also proposes to sell some or all of Amtrak's assets in 1988
for $1.0 billion and to auction Federal Communications Commission licenses for use of the unassigned spectrum for approximately
$600 million in 1988. Since the proceeds from these sales are relatively large, they are recorded as undistributed offsetting receipts.

TAX EXPENDITURES
Tax expenditures are features of the individual and corporation
income tax laws that provide special benefits or incentives in comparison with what would be permitted under the general provisions
of the Internal Revenue Code. They arise from special exclusions,
exemptions, or deductions from gross income, or from special credits, preferential tax rates, or deferrals of tax liability.
Tax expenditures are so designated because they are one means
by which the Federal Government carries out public policy objectives; in many cases, they can be considered as alternatives to
direct expenditures. For example, investment in research and development is encouraged by allowing such costs to be expensed; a
program of direct capital grants could also achieve this objective.
Similarly, State and local governments benefit from both direct
grants and the ability to borrow funds at tax-exempt rates.
Because tax expenditures can be viewed as alternatives to direct
. Federal spending programs, it is desirable that estimates of tax
expenditure items be comparable to outlay programs. Thus, tax
expenditures are generally shown as outlay equivalents, that is, the




87

amount of budget outlays required to provide the same level of
after-tax benefits by substituting a direct spending program for the
tax expenditure. The accompanying table displays estimates of tax
expenditures classified by function. Special Analysis G contains
more d.etailed estimates and explanation.
TAX EXPENDITURES ESTIMATED AS OUTLAY EQUIVALENTS
(In billions of dollars)
Function

1986

National defense .............................................................................................................
2.5
4.6
International affairs ........................................................................................................
General science, space, and technology .........................................................................
3.9
Energy ............................................................................................................................
1.4
Natural resources and environment ................................................................................
3.3
Agriculture .....................................................................................................................
1.2
Commerce and housing credit ........................................................................................ 219.6
Transportation ............................................................................................................... .
0.2
Community and regional development ............................................................................
1.1
Education, training, employment, and social services ..................................................... 31.8
Health ............................................................................................................................ 37.9
Income security .............................................................................................................. 107.9
Social security ............................................................................................................... . 18.4
Veterans benefits and services .......................................................................................
2.3
General govE~rnment .......................................................................................................
0.2
General purpose fiscal assistance ...................................................................................
36.3
Net interest ....................................................................................................................
0.8

88



1987

1988

2.4
2.2
4.7
4.4
3.5
3.0
0.5
0.7
3.1
3.4
0.6
0.8
163.7 130.1
0.2
0.1
1.3
1.7
20.0
22.8
34.8
35.6
78.9
90.4
16.6
17.9
2.1
1.9
0.1 .............
27.6
31.2
0.7
0.8

Part 6a

THE BUDGET PROCESS
The Federal Government allocates resources between the private
and public sectors of the ecoriomy through taxing, borrowing, and
spending. Within the Federal Government, the allocation of budget
resources among individual spending programs reflects the national priorities determined by the President and the Congress.

Executive formulation and transmittaL-The budget sets forth
the President's fmancial plan of operation for the Federal Government. The President's transmittal of budget proposals to the Congress is the result of many months of planning and analysis
throughout the executive branch. Formulation of the 1988 budget
began in mid-1986.
First, policy issues are identified, budget projections are made,
and preliminary program plans are presented to the President. The
President reviews the budget projections in light of spending priorities and the economic outlook, and establishes general budget and
fISCal policy guidelines for the fiscal year that begins more than a
year later. The President's guidelines also cover the 4 fiscal years
beyond- the budget year. Tentative policy decisions and planning
ceUings for the budget year and the following 4 years are then
given to the agencies as guidelines for preparing their budgets.
In the summer, agencies prepare their budget requests, which
are reviewed in detail in the fall by the Office of Management and
Budget and presented to the President. The budget sent to the
Congress early each calendar year reflects the needs of individual
programs, the total outlays and receipts that are appropriate in
relation to economic conditions, and the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, which
specifies deficit targets each year designed to achieve a balanced
budget by 1991.
The President is also required by ,law to transmit current services estimates with the ,budget. These estimates are the budget
a'u thority and outlays required to continue Federal programs in




89

Major Steps in the Budget Process
eyon
Fiscal
Year

Period Before the Fiscal Year
March

Jan.

Oct.

Sept. 30

Formulation of
President's budget
Congressional budget
process , including action
on appropriations and
revel.ue measures
(beginning 9 months
before fiscal year)·
Execution of enacted
budget
Final
Data
Available

• If appropriation action is not completed by Sept. 30 , the Congress enacts ;temporary
appropriations (i.e., a continuing resolution).

subsequ.ent fiscal years without any policy changes, thereby providing a base with which to compare proposed changes.

Congressional action.-Before enacting budget authority, which
permits agencies to incur obligations that result in spending, the
Congrens enacts legislation to authorize the program. Many programs are authorized indefinitely, or for a specified number of
years; other programs such as space exploration, foreign affairs,
and sorne construction projects require annual authorizing legislation. Blldget authority is usually provided separately in appropriations bills after the program authorizing legislation has been en- .
acted. In many cases, budget authority becomes available each year
only as: voted by the Congress. In other cases, the Congress has
voted permanent budget authority, under which funds become
available annually without further congressional action. For example, so<iai security, medicare, and interest on the public debt are
paid urlder permanent appropriations.
UndE~r procedures established by law, the Congress considers
budget totals before completing action on individual appropriations. (~ongressional committees are scheduled to report budget
estimates to the House and Senate budget c·o mmittees by February
25. The Congress is scheduled to adopt by April 15 a concurrent
budget resolution as a guide in its subsequent consideration of
90




appropriations and revenue measures. The resolution sets targets
for receipts, outlays and budget authority, and for direct loan obligations and new guaranteed loan commitments.
Congressional budget resolutions do not require Presidential approval. Frequently, however, there is consultation between the congressional leadership and the administration, because subsequent
legislation developed to attain congressional budget targets must be
sent to the President for approval. In some recent years, the Congress enacted omnibus reconciliation legislation that reduced
budget authority and outlays or increased revenues in response to
directives in the concurrent budget resolution.
Congressional consideration of requests for appropriations and
for changes in revenue laws occurs first in the House of Representatives, where the Ways and Means .Committee reviews proposed .
revenue measures and the Appropriations Committee studies the
appropriations requests. These committee~ recommend the action ~
to be taken by the House of Representatives. After the appropriations and tax bills are approved by the House, they are forwarded
to the Senate, which follows a similar process. When the House
and Senate disagree, a conference committee, consisting of Members of both bodies, resolves the issues and submits a report to both
'
.
Houses for approval.
After congressional approval, bills are transmitted to the President for approval or veto. When action on appropriations is not
completed by the beginning of the fISCal year, the Congress enacts
continuing resolutions to provide authority for the affected agencies to continue financing operations up to a specified date or until
their regular appropriations are enacted.
Deficit reductWIL-The Balanced Budget and Emergency Deficit

Control Act of 1985 requires the deficit to be reduced in gradual
stages to zero by 1991. Annual deficit targets are established for
the President's budget and congressional budget resolution~.
During the last 2 months before the start of a fiscal year, the
directors of the Office of Management and Budget and the Congressional Budget Office estimate the deficit for that year. If it exceeds
the specified target by $10 billion, a sequestration (i.e. reduction)
process is triggered. A sequestration occurred in 1986, the first year
to which the act applied. In August, the directors initiated the
sequestration process for 1987 by submitting their initial joint
report. However, their second report indicated that a number of
legislative actions were underway that, if enacted as expected,
would avoid the need for . a sequestration. The Congress . did not
order sequestration.




91

Bud9'e t execution and controL-Once approved, the budget becomes the basis for the financial operations of agencies during the
. fiscal )rear. Most budget authority and other budgetary resources
are made available by the Office of Management and Budget under
an apportionment system designed to ensure the effective and orderly use of available authority.
The lexecutive branch must report to the Congress anyadministrative action to postpone or eliminate spending authorized by law.
Deferrals, which are temporary withholdings of budget authority,
may bE~ overturned by an act of the Congress at any time. Rescissions, v(hich permanently cancel existing budget authority, must be
approv~~d by the full Congress within 45 days of continuou~ session.
Othenvise, the withheld funds must be made available for spend•
lng.

Relation of Budget Authority to Outlays
Not all of the new budget authority for 1988 will be obligated or
spent ill that year.
• Blldget authority for social security and most other major
trust funds arises from their receipts and is used over time as
nE~eded for purposes specified by law.
• Blldget authority for most major construction and procurement programs covers the estimated full cost of projects at
t:he time they are started.
• Blldget authority for many loan and insurance programs provides financing for a period of years or is a backup that may
bE~ used only in the event of defaults.
As a result of' these factors, a large amount of budget authority
carries over from one year to the next. Most is earmarked for
specific uses and is not available for other programs.

92






Relation of Budget Authority to Outlays - 1988
$ Billions

New Authority
Recommended
for 1988
1,142.2

•

•

To be spent in 1988

731.8

Outlays
in 1988
1,024.3

Authority
written off
expired and adjusted
(net)
I

I

28.0

Unspent Authority
Enacted in
Prior Years
1,177.1.

•

To be spent in
Future Years

856.5

•

Unspent Authority
for Outlays in
Future Years
1,266.9

93

Part 6b
GLOSSARY OF BUDGET TERMS

1

AUTHOllIZING LEGISLATION-Legislation enacted by the Congress to set up or
continue the operation of a Federal program or agency. Authorizing legislation
is normally required for subsequent appropriations, but does not usually provide budget authority.
BUDGET-A plan of proposed receipts and spending for the coming fiscal year.
BUDGET AUTHORITY (BA)-Authority provided by law to enter into obligations
that will result in immediate or future outlays. It may be classified by the
per:tod of availability, by the timing of congressional action, or by the manner
of d.etermining the amount available. The basic forms of budget authority are:
Appropriations-Authority that permits Federal agencies to incur obligations and
to r(lake payments.
Authority to borrow-Authority that permits Federal agencies to incur obligations
and to borrow money to make payments.
Contract authority-Authority that permits Federal agencies to enter into contraets or incur other obligations in advance of an appropriation.
CONCUltRENT RESOLUTION ON THE BUDGET-A resolution passed by both
Houses of the Congress, but not requiring the signature of the President,
setting outlay and receipt targets for the Congress.
CONTINUING RESOLUTION-Legislation enacted by the Congress to provide
budget authority for specific ongoing activities when a regular appropriation
for those activities has not been enacted by the beginning of the fiscal year.
CREDIT BUDGET-A plan of proposed direct loan obligations and guaranteed loan
., coInmitments. Budget authority and outlays associated with the credit budget
are included in the budget totals.
CURRE~lT SERVICES ESTIMATES-Estimates of receipts, outlays, and budget
authority for coming fiscal years that assume no policy changes from the year
in progress. The estimates include the effects of anticipated changes in econOInic conditions (such as unemployment or inflation), beneficiary levels, pay
increases, and changes required under existing law.
DEFERE:AL-_
Executive branch action that temporarily delays the obligation of
bud.get authority. Deferrals may be overturned at any time by an act of the
Congress.
FEDERP.~L FUNDS-Amounts collected and used by the Federal Government for
the general purposes of the Government. The major Federal fund is the general fund, which is derived from general taxes and borrowing. The other forms of
Fedleral funds involve earmarked collections, such as those generated by and
used to finance a continuing cycle of business-type operations.
FISCAL YEAR-The Federal Government's yearly accounting period, which begins
on October 1 and ends on the following September 30. The fiscal year is
designated by the calendar year in which it ends; e.g., fiscal year 1987 begins
\

For rno re details, see A Glossary of Terms Used in the Federal Budget Process, United States General
Accou_lting Office, Washington, D.C.
!
.
1

94



on October 1, 1986, and ends on September 30, 1987. (From 1844 to 1976 the
fISCal year began on July 1 and ended on the following June 30.)
OBLIGATIONS-Amounts of orders placed, contracts awarded, services received, or
similar legally binding commitments made by Federal agencies during a given
period that will require outlays during the same or some future period.
OFFSETTING RECEIPTS-Collections deposited in receipt accounts that are offset
against budget authority and outlays rather than being counted as budget
receipts. These collections are derived from Government accounts (intragovernmental transactions) or from the public (proprietary receipts) through activities that are of a business-type or market-oriented nature.
OUTLAYS-Payments, normally in the form of checks issued ~r cash disbursed, net
of refunds, reimbursements, and offsetting collections. Outlays include interest
accrued on the public debt. Social security outlays are now off-budget; all other
outlays are on-budget.
.
RECEIPrS-Income, net of refunds, collected from the public by the Federal Government in its sovereign capacity, primarily through the exercise of its power
to tax. Business-type transactions (such as sales, interest, and loan repayments) and payments between Government accounts are excluded from receipts and offset against outlays (see offsetting receipts). Social security taxes
are now off-budget; all other receipts are on-budget.
RECONCILIATION-A reconciliation directive is a provision in the concurrent
resolution on the budget that calls on various committees of the Congress to
recommend legislative changes that reduce outlays or increase receipts by
specified amounts. A reconciliation bill contains these changes.
RESCISSION-A legislative action canceling budget authority previously provided
by the Congress.
SEQUESTRATION-Reduction of new budget authority or other budgetary resources, as defmed in the Balanced Budget and Emergency Deficit Control Act
of 1985.
SUPPLEMENTAL APPROPRIATION-An appropriation enacted subsequent to a
regular annual appropriation act. Supplemental appropriations acts provide
additional budget authority for programs or activities (including new programs
authorized after the date of the original appropriations act) for which the need
for funds is too urgent to be postponed.
SURPLUS OR DEFICIT-Difference between receipts and outlays.
TAX EXPENDITURES-Provisions of income tax law that allow a special exclusion, exemption, or deduction from gross income or provide a · special credit,
preferential rate of tax, or deferral of tax liability. Tax expenditures frequently have results similar to spending programs, loan guarantees, or regulations.
TRUST FUNDS-Amounts collected and used by the Federal Government for carrying out specific purposes and programs according to a statute or trust agreement and specified by law as being trust fund money, such as the social
security and unemployment trust funds. Trust fund receipts that are not
needed immediately are generally invested in Government securities and earn
interest for the trust fund.




95

Part 6c

SELECTED TABLES
Page

1. Reeeipts, Outlays, and Debt, 1978-90.......................................
2. COJnposition of Receipts and Outlays in Current and Consl ant (Fiscal Year 1982) Prices: 1971-90 ..............................
t
3. Rel:!eipts by Source and Outlays by Function, 1978-88.........
4. Outlays by Function and Subfunction, 1978-90.....................
5. Outlays by Agency, 1986-92.......................................................
6. Credit Budget: New Direct Loan Obligations and Guaranteed Loan Commitments by Agency.....................................
7. Federal Finances and the Gross National Product, 1969~~o

.................................................................................................

97
98
100
103
109
110

111
8. Full-Time Equivalent of Federal Civilian Employment ....... 113
9. Total Receipts and Outlays, 1789-1992.................................... 114

96



Table 1. RECEIPTS, OUTLAYS, AND DEBT, 1978-90
(In billions of dollars)

.

Actual

Description

1978

1979

1980

1981

1982

Estimate

1983

1985

1984

1986

1987

1988

1989

1990

,

Receipts:
On-budget:

,
\

410.4 . 409.3
122.1
106.0
-47.4 -57.1

382.4
147.3
-76.5

474.3

453.2

500.4

166.1

186.2

617.8

600.6

666.5

734.1

496.2
94.2
-47.4

543.4
107.9
-57.1

613.3
124.4
-76.5

476.6

543.0

594.3

661.2

686.0

769.5

806.3

821.1

821.9

857.3

885.4

503.5

590.9

678.2

745.7

808.3

851.8

946.3

989.8

1,015.6

1,024.3

1,069.0

1,107.8

-71.9 -58.5
Trust funds ........................................................ 12.7
18.3

-82.6
8.8

-85.8 -134.2
6.8
6.2

-230.8
23.1

-218.2
32.9

-266.6
54.4

-283.0
62.3

-243.0
69.8

-211.4
103.7

-211.8 -194.9
135.4
119.0

316.4
86.0
-37.0

350.9
94.7
-41.6

365.3

403.9

469.1

130.2

143.5

463.3

517.1

599.3

374.9
65.7
-37.0

433.5
84.8
-41.6

Total on-budget ..................................... 369.1
Off-budget (trust funds) ................................... 89.7

403.5

Total outlays .......................................... 458.7

Fe<teral funds ................................................ 270.5
Trust fu nds ................................................... 76.9
Interfund transactions ................................... -33.2
Total on-budget ..................................... 314.2
Off-budget (trust funds) ................................... 85.4
Total receipts ......................................... 399.6

Outlays:
On-budget:
Federal funds ................................................ 342.4
Trust funds ................................................... 59.9
Interfund transactions ................................... -33.2

98.0

100.0

Sur~~~arfu~d~~~. ~ ~~~ ......................................
.

780.4
Held by the public ............................................. 610.9

-:)




114.3

135.2

151.4

147.3

147.1

473.5
206.9
-111.6

526.1
215.1
-112.9

569.0
232.5
-127.1

547.9

568.9

628.4

674.5

214.0

242.1

769.1

842.4

916.6

726.1
638.6
152.7
124.9
-77.5 -109.4
165.8

176.8

200.2

769.1
780.5
756.5
168.5
161.4
164.8
-111.6 -112.9 -127.1
183.5

.

194.5

202.4

645.7
601.4
243.9
257.3
-132.5 -141.3
712.8

761.6

976.2

1,048.3

263.4

286.6

813.3
840.5
176.6
186.2
-132.5 -141.3
211.7

222.4

Total Surplus or deficit (-) ............... -59.2 -40.2 -73.8 -78.9 -127.9 -207.8 -185.3 -212.3 -220.7 -173.2 -107.2 . -98.2 -59.5
On-budget .........................................:.. ( -59.4) ( -3S.2j ( -72.7) ( -73.9j ( -120.0) ( -20S.0j (-185.6) ( -22l.6j ( -237.5) ( -192.7) (-147.4) ( -144.Sj ( -123.8j
(16.7)
(39.7)
(51.7
Off-budget ........................................... ( -4.3) (-2.0 ( -1.1) ( -5.0 ( -7.9)
(0.3)
(9.4
(64.3
(19.5)
(0.2

De~~o~1~;!~n!eb~~~.~~.~~~..........................
~

113.2

459.5
420".4
197.7
157.5
-77.5 -109.4

833.8
644.6

914.3 1,003.9
715.1 794.4

1,147.0
929.4

1,381.9
1,141.8

1,576.1
1,312.6

Note.-For all years, transactions of the social security trust funds are presented off-budget and transactions of formerly off-budget are presented on-budget.

1,827.5
1,509.9

2,112.0
1,714.0

2,320.6
1,855.7

2,509.0
1,948.7

2,684.3 ................
2,015.4 ................




Table 2. COMPOSITION OF RECEIPTS AND OUTLAYS IN CURRENT PRICES: 1971-90
(In billions of dollars)
Outlays

:
I

Nondefense

!
!

Fiscal year

,

Receipts

Total

National
defense

'

Total

nondefens~

.

Payments
for .
individuals

All other
grants 1

Net Interest

Other

..
J

~

l •
I

1971 ........................................................................................................................ 187.1
1972 ........................................................................................................................ 207.3
1973 ........................................................................................................................ 230.8
1974 ........................................................................................................................ 263.2
1975 ........................................................................................................................ 279.1
1976 ........................................................................................................................ 298.1
1977 ........................................................................................................................ 355.6
1978 ........................................................................................................................ 399.6
1979 ........................................................................................................................ 463.3
1980 ........................................................................................................................ 517.1
1981 ........................................................................................................................ 599.3
1982 ........................................................................................................................ 617.8
1983 ........................................................................................................................ 600.6
1984 ........................................................................................................................ 666.5
1985 ........................................................................................................................ 734.1
1986 .................... ~ ................................................................................................... 769.1
1987 estimate ..............................................·
.....................................-...................... 842.4
;
1988 estimate .......................................................................................................... 916.6
1989 estimate .......................................................................................................... 976.2
1990 estimate .......................................................................................................... 1,048.3
Grants to State and local governments excluding those for payments for individuals.
Note-Excludes transition quarter,
1

210.2
230.7
245.7
269.4
332.3
371.8
409.2
458.7 '
503.5
590.9
678.2
745.7
808.3
851.8
946.3
989.8
1,015.6
1,024:3
1,069.0
1,107.8

78.9
79.2
76.7
79.3
86.5
89.6
97.2
104.5
116.3
134.0
157.5
185.3
209.9
227.4
252.7
273.4
282.2
297.6
312.2
330.0

131.3
151.5
169.0
190.0
245.8
282.2
312.0
354.2
387.1
456.9
520.7
560.4
598.4
624.4
693.6
716.4
733.3
726.8
756.8
777.8

Undistributed
offsetting
receipts

Surplus or
deficit
(- )

~,

.\

:86.4

92.9
104.5
120.1
153.5
180.1
196.3
211.0
232.9
277.5
323.4
356.7
395.3
399.8
425.6
448.0
465.3
481.0
509.5
538.1

17.7
20.6
28.1
28.7
33.3
39.4
46.1
53.7
55.9
59.4
57.8
50.3
50.8
53.2
57.6
60.8
55.5
53.2
53.2
51.6

14.8
15.5
17.3
21.4
23.2
26.7
29.9
35.4
42.6
52.5
68.7
85.0
89.8
111.1
129.4
136.0
137.5
139.0
141.5
139.0

28.5
32.2
32.5
36.5
49.4
50.4
54.5
69.9
73.2
87.4
98.8
94.5
96.5
92.3
113.7
104.7
112.2
98.9
98.3
97.7

-10.1
-9.6
-13.4
-16.7
-13.6
-14.4
-14.9
-15.7
-17.5
-19.9
-28.0
-26.1
-34.0
-32.0
-32.8
-33.0
-37.1
-45.4
-45.8
-48.5

-23.0
-23.4
-14.9
-6.1
-53.2
-73.7
-53.6
-59.2
-40.2
-73.8
-78.9
-127.9
-207.8
-185.3
~212.3

-220.7
-173.2
-107.8
-92.8
-59.5




· Table 2. COMPOSITION OF RECEIPTS AND OUTLAYS IN CONSTANT (FISCAL YEAR 1982) PRICES: 1971-90 - Continued
(In billions of dollars)
Outlays
Nondefense
Fiscal year

1971 .................................................................. ~ .....................................................
1972 ........................................................................................................................
1973 ....................................................................................... ~ ................................
1974 ..............................
197 5........................................................................................................................
1976 ............................. :..........................................................................................
1977 ........................................................................................................................
1978 .........................................................................................................................
1979 ........................................................................................................................
1980 ........................................................................................................................
1981 ........................................................................................................................
1982 ........................................................................................................................
1983 ........................................................................................................................
1984 ........................................................................................................................
1985 ........................................................................................................................
1986 ........................................................................................................................
1987 estimate ..........................................................................................................
1988 estimate ..........................................................................................................
1989 estimate ..........................................................................................................
1990 estimate ......................................
1.1 •••••••••• II ••••••••••• II ••••••••••••••••••• 1 ••••••••••••••• 1 •• 1 •••••••••••••••••••••••

If • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Grants to State and local governments excluding those for payments for individuals.
Note.-Excludes transition quarter.
1

Receipts

453.6
474.2
495.5
516.6
592.1
488.9
541.0
568.0
607.5
611.7
642.0
617.8
576.9
618.1
657.8
673.0
715.2
751.0
773.1
803.0

Total

509.4
527.6
527.5
528.7
586.0
609.8
622.&
652.2
660.2
699.1
726.5
745.7
776.5
789.9
848.0
866.2
862.3
839.3
846.6
848.6

National
defense

202.7
190.9
175.1
163.3
159.8
153.6
154.3
155.0
159.1
164.0
171.4
185.3
201.3
211.5
228.7
242.1
242.6
246.9
250.2
256.0

Total
nondefense

306.7
336.7
352.4
365.3
426.2456.2
468.3
497.1
501.0
535.1
555.2
560.4
575.1
578.4
619.3
624.1
619.7
592.5
596.4
592.6

Payments
for
individuals

181.0
200.1
215.7
228.3
265.8
291.7
295.5
296.8
301.6
324.7
344.3
356.7
378.6
368.6
379.3
389.4
392.2
391.6
400.8
409.6

All other
grants 1

43.3
47.4
60.5
56.8
58.5
64.3
70.1
75.7
71.8
68.4
61.3
50.3
48.8
49.2
50.7
51.5
45.7
42.2
40.8
38.2

Net Interest

34.0
33.6
35.9
41.1
40.4
43.0
44.6
49.4
54.7
62.0
73.7
85.0
86.1
102.6
115.6
117.9
115.6
113.0
111.1
105.6

Other

75.8
79.7
68.4
71.9
84.9
80.1
79.9
97.0
95.9
103.8 ·
106.0
94.5
95.0
88.5
103.3
94.6
98.4
84.1
80.8
77.8

Undistributed
offsetting
receipts

-27.3
-24.1
-28.1
-32.8
-23.4
-22.9
-21.7
-21.7
. 22.9
-23.8
-30.1
-26.1
-33.4
-30.5
-29.5
-29.4
-32.2
-38.4
-37.1
-38.5

Surplus or
deficit
(- )

-55.8
-53.5
-32.0
-12.0
-93.9
-120.9
-81.6
-84.1
-52.7
-87.3
-84.6
'-127.9
-199.6
-171.9
-190.2
-193.2
-147.0
-88.3
-73.5
-45.6

Table 3. RECEIPTS BY SOURCE AND OUTLAYS BY FUNCTION, 1978-88
(In billions of dollars)
i

Actual
Description

Estimate

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

Individual income taxes ..............................
Corporation income taxes ...........................

181.0
60.0

217.8
65.7

244.1
64.6

285.9
61.1

297.7
49.2

288.9 '
37.0

298.4
56.9

334.5
61.3

349.0
63.1

364.0
104.8

392.8
117.2

Social insurance taxes and contributions:
Employment taxes and contributions ......
Unemployment insurance .......................
Other retirement contributions ...............

103.9
13.8
3.2

120.1
15.4
3.5

138.7
15.3
3.7

163.0
15.8
4.0

180.7
16.6
4.2

185.8
18.8
4.4

209.7
25.1
4.6

234.6
25.8
4.8

255.1
24.1
4.7

273.2
23.8
4.4

307.4
22.2
3.5

Total social insurance taxes and
contributions ............................

121.0

138.9

157.8

182.7

201.5

209.0

239.4

265.2

283.9

301.5

333.2

(44.6)
(113.2)

(52.5)
(130.2)

(58.0)
(143.5)

(61.7)
(147.3)

(73.3)
(166.1 )

(79.0)
(186.2)

(83.7)
(200.2)

(87.4 )
(214.0)

(91.1)
(242.1)

5.6
4.1
8.3
2.2
12.1
3.0

5.3
4.7
11.7
2.5
8.9
4.2

5.9
5.9
5.6
5.8
4.8
4.6
4.8
4.6
13.7
13.4
15.1
13.0
3.1
2.7
3.4
2.9
2.3
- * ...................
6.3
3.4 ..................... ..................... ...................

RECEIPTS BY SOURCE

(35.6)
(40.9)
On-budget ................................
(85.4 )
(98.0)
Off-budget ................................
Excise taxes:
Alcohol ...................................................
5.5
5.5
Tobacco .................................................
2.4
2.5
Highway ................................................
7.2
6.9
Airport and airway .................................
1.3
1.5
Windfall profit tax ................................. ..................... .....................
2.0
Other .....................................................
2.2

5.6
2.6
6.3

5.6
2.4
6.6
1.9
6.9
0.9

23.3
3.1

5.4
2.5
6.7
0.1
18.4
3.1

*

Total excise taxes .........................

18.4

18.7

24.3

40.8

36.3

35.3

37.4

36.0

32.9

32.6

33.4

Estate and gift taxes ..................................
Customs duties ...........................................
Miscellaneous receipts ................................

5.3
6.6
7.4

5.4
7.4
9.3

6.4
7.2
12.7

6.8
8.1
13.8

8.0
8.9
16.2

6.1
8.7
15.6

6.0
11.4
17.0

6.4
12.1
18.5

7.0
13.3
19.9

6.0
14.4
19.1

5.8
15.3
18.9

Total receipts .............................

399.6

463.3

517.1

599.3

617.8

600.6

666.5

734.1

769.1

842.4

916.6

(314.2)
(85.4 )

(365.3)
(98.0 )

(403.9)
( 113.2 )

(469.1)
( 130.2 )

(474.3)
(143.5 )

(453.2)
( 147.3 )

(500.4 )
(166.1 )

(547.9)
( 186.2 )

(568.9)
(200.2 )

(628.4 )
(214.0 )

(674.5)
(242.1 )

On-budget ................................
Off-budget ................................







Table 3. RECEIPTS BY SOURCE AND OUTLAYS BY FUNCTION,

197~ontinued

(In billions of dollars)

Estimate

Actual

Description

1978

1979

OUTLAYS BY FUNCTION
116.3
National.defense .........................................
10'4.5
7.5
7.5
International affairs ....................................
4.9
5.2
General science, space, and technology ......
9.2
Energy ......
8.0'
12.1
11.0'
Natural resources and environment.. .......... .
11.2
11.4
Agriculture .................................................
6'.3
4.7
Commerce and housing credit ....................
17.5
Transportation ............................................
.
15.5
11.8
10.5
Community and regional development ........
Educa~ion, training, employment, and
30.2
social serviceS .......................................
26.7
20.5
18.5
Health ........................................................
22.8
26.5
Medicare ....................................................
66.4
Income security ..........................................
61.5
Social Security ...... ~ ...................................
93.9
10'4.1
(0.7)
(0.8)
On-budget ..............................................
Off-budget ...........'..................................
(93.1)
(103.3)
Veterans benefits and services ...................
19.0
19.9
4.2
Administration of justice ............................
3.8
General government ...................................
3.6
3.9
General purpose fiscal assistance ...............
8.4
8.4
Net interest ................................................
35.4
42.6
(37.8)
(44.8)
On-budget ..............................................
( -2.2)
Off-budget .................. ~ .......................... ( -2.4)
Allowances ............................................................................~ ..............
u

••••••••••••••••••••••••••••••••••••••••••••••••

1980

1981

1982

1983

1984

1985

1986

1987

1988

134.0'
12.7
5.8
10'.2
13.9
8.8
9.4
21.3
11.3

157.5
13.1
6.5
15.2
13.6
11.3
8.2
23.4
10.6

185.3
12.3
7.2
13.5
13.0'
15.9
6.3
20'.6
8.3

20'9.9
11.8
7.9
9.4
12.7
22.9
6.7
21.3
7.6

227.4
15.9
8.3
7.1
12.6
13.6
6.9
23.7
7.7

252.7
16.2
8.6
5.7
13.4
25.6
4.2
25.8
7.7

273.4
14.2
9.0'
4.7
13.6
31.4
4.4
28.1
7.2

282.2
14.6
9.5
3.8
13.9
31.1
9.3
27.0'
6.2

297.6
15.2
11.4
3.3
14.2
26.3
2.5
25.5
5.5

26.6
28.6
52.6
122.6
170.7
(20.0)
(150.7)
24.8
5.1
4.8
6.5
89.8
(91.6)
( -1.8)

27.6
30.4
57.5
.112.7
178.2
(7.1)
(171.2)
25.6
5.7
5.1
6.8
111.1
(114.4)
( -3.3)

29.3
33.5
65.8
128.2
188.6
(5.2)
(183.4 )
26.4
6.3
5.2
6.4
129.4
(133.6)
( -4.1)

30.6
35.9
70.2
119.8
212.2
(8.1)
(190.7)
26.4
6.6
6.1
6.4
136.0
(140'.3)
( -4.3)

31.8
23.2
32.1
86.5
118.5
(0.7)
(117.9)
21.2
4.6
4.4
8.6
52.5
(54.9)
( -2.3)
• • • • • • • • • • • • • • •• • • I • • •

..

27.0
27.4
46.6
10'7.7
156.0
(0.8)
(155.1 )
24.0
4.7
4.5
6.4
85.0
(87.1 )
( -2.1)
..................... .....................
33.7
26.9
39.1
99.7
139.6
(0.7)
(138.9)
23.0
4.8
4.6
6.9
68.7
(71.0)
( -2.3)

I"

I ' •••••••• I. I •••••

•••• •••• I ••• I"

••• I ••

I • • • • • • 11 • • • • • • • • • 1 • •

•• •••• I ••••••••••••••

29.8
39.7
71.6
124.9
198.8
(5.0)
(202.9)
26.7
8.3
6.8
1.9
137.5
(142.5)
(- 5.1)
.....................

(

28.4
38.9
73.0
124.8
207.9
(4.9)
(214.5)
27.2
9.2
7.5
1.5
139.0
(145.6)
( -5.6)
-0.8

Table 3. RECEIPTS BY SOURCE AND OUTLAYS BY FUNCTION, 1978-88-Continued
(In billions of dollars)
-

Actual
Description

Estimate

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

-15.7
( -14.7l
( -1.1

-17.5
'(-16.4)
(-1.1)

-19.9
(-18.7l
( -1.2

-28.0
( - 26.6)
( -1.4)

-26.1
(-24.5)
( -1.6)

-34.0
( -32.2)
( -1.8)

-32.0
(- 29.9)
( - 2.0)

-32.8
(-30.3)
( -2.5)

-33.0
( -30.2l
(-2.9

-37.1
(-33.8)
( -3.3)

-45.4
( -- 39.9)
( -5.5)

989.8

1,015.6

1,024.3

(806.3l
(183.5

(821.1)
(194.5)

(821.9)
(202.4 )

OUTLAYS BY FUNCTION

Undistributed offsetting receipts .................
On-budget ..............................................
Off-budget .............................................
Total outlays ..............................

On-budget ................................
Off-budget ................................
*$50 million or less.




458.7

503.5

590.9

678.2

745.7

808.3

851.8

946.3

(369.ll
(89.7

(403.5 )
(100.0)

(476.6)
(114.3)

1 'l
135.2

543 O

594
1 .3) .

(661.2)
(147.1)

686
1 .0)
165.8)

1 .5l
176.8

151.4)

769

Table 4. OUTLAYS BY FUNCTION AND SUBFUNCTION, 1978-90
(In billions of dollars)

Function and subfunction

Actual

Estimate

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

Department of Defense-Military:
Military personnel ......................................
Operation and maintenance .......................
Procurement ..............................................
Research and development ........................
Military construction and other .................

35.6
33.6
20.0
10.5
2.7

37.3
36.4
25.4
11.2
3.3

40.9
44.8
29.0
13.1
3.2

47.9
51.9
35.2
15.3
3.6

55.2
59.7
43.3
17.7
4.9

60.9
64.9
53.6
20.6
4.5

64.2
67.4
61.9
23.1
4.3

67.8
72.3
70.4
27.1
7.7

71.5
75.3
76.5
32.3
10.1

70.8
76.7
82.7
34.2
9.8

75.7
81.4
82.8
38.3
11.2

76.1
86.2
83.6
42.1
15.7

77.7
94.7
88.7
38.9
21.0

Subtotal, Department of DefenseMilitary .............................................
Atomic energy defense activities....................
Defense-related activities ...............................

102.3
2.1
0.1

113.7
2.5
0.1

131.0
2.9
0.1

153.8
3.4
0.3

180.7
4.3
0.3

204.4
5.2
0.3

220.8
6.1
0.5

245.4
7.1
0.3

265.6
7.4
0.3

274.2
7.4
0.6

289.3
7.8
0.4

303.7
8.3
0.2

321.0
8.8
0.2

. Total national defense .......................

104.5

116.3

134.0

157.5

185.3

209.9

227.4

252.7

273.4

282.2

297.6

312.2

330.0

International development and humanitarian
assistance .................................................
International security assistance ....................
Conduct of foreign affairs ..............................
Foreign information and exchange activities ..
International financial programs .....................

2.6
3.9
1.1
0:4
-0.6

2.9
3.7
1.3
0.5
-0.9

3.6
4.8
1.4
0.5
2.4

4.1
5.1
1.3
0.5
2.0

3.8
5.4
1.6
0.6
0.9

4.0
6.6
1.8
0.6
-1.1

4.5
7.9
1.9
0.7
0.9

5.4
9.4
2.1
0.8
-1.5

5.0
10.5
2.3
0.9
-4.5

4.4
8.6
2.7
1.0
-2.1

4.9
7.7
3.0
1.1
-1.5

5.0
9.8
3.1
1.1
-0.9

4.8
9.5
3.3
1.2
-0.9

Total international affairs .................

7.5

7.5

12.7

13.1

12.3

11.8

15.9

16.2

14.2

14.6

15.2

18.1

17.9

1.2
2.3
1.0
0.5

1.3
2.2
1.2
0.6

1.4
2.6
1.3
0.5

1.5
3.1
1.4
0.6

1.6
3.5
1.5
0.6

1.6
4.1
1.5
0.8

1.8
4.0
1.7
0.8

2.0
4.0
1.9
0.8

2.2
3.8
2.1
0.8

2.3
4.3
2.2
0.8

2.6
5.6
2.3
1.0

2.8
6.9
2.4
1.0

3.2
6.6
2.6
1.1

National defense:

International affairs:

General science, space, and technology:
General science and basic research ...............
Space flight ...................................................
.
Space science, applications, and technology ..
Supporting space activities .~ ..........................




Table 4. OUTLAYS BY FUNCTION AND SUBFUNCTION, 1978-9O--Continued
(In billions of dollars)
Actual
~unction

,

and sUbtunction

1978

1979

1980

1981

1982

Estimate

1983

1984

1985

1986

1987

1988

1989

1990

Total general science, space, and
technology ......................................

4.9

5.2

5.8

6.5

7.2

7.9

8.3

8.6

9.0

9.5

11.4

13.2

13.5

Energy supply ................................................
Energy conservation .......................................
Emergency energy preparedness ....................
Energy information, policy, and regulation .....

6.1
0.2
0.9
0.8

7.2
0.3
1.0
0.7

8.4
0.6
0.3
0.9

10.2
0.7
3.3
1.0

8.2
0.5
3.9
0.9

6.1
0.5
1.9
0.9

3.3
0.5
2.5
0.8

2.6
0.5
1.8
0.7

2.8
0.5
0.6
0.8

1.9
0.4
0.7
0.7

2.1
0.2
0.4
0.7

1.7
' 0.1
0.4
0.7

2.1
0.1
0.4
0.7

Total energy .......................................

8.0

9.2

10.2

15.2

13.5

9.4

7.1

5.7

4.7

3.8

3.3

2.9

3.2

Water resources .............................................
Conservation and land management ..............
Recreational resources ...................................
Pollution control and abatement ....................
Other natural resources .................................

3.4
1.0
1.4
4.0
1.2

3.9
0.8
1.5
4.7
1.3

4.2
1.0
1.7
,. ,.

4.1
1.2
1.6

3.9
1.1
1.4

3.9
1.5
1.5

4.1
1.3
1.6

4.1
1.5
1.6

4.0
1.4
1.5

4.2
1.6
1.6

4.1
2.5
1.4

4.4
3.0
1.4

4.4
3.2
1.3

Total natural resources and environment ..........................................

11.0

Farm income stabilization ..............................
Agricultural research and services .................
Total agriculture ................................

Energy:

Natural resources and environment:

,.

1\

,. 1\

..

1'\

• r.

A 0

0.0

J.l

J.U

'+.J

'+.U

'+.~

'+.0

'+.\.1

't.V

't.V

A C

A C
"t.V

1.4

1.5

1.5

1.5

1.6

1.7

1.9

1.9

1.7

1.8

1.8

12.1

13.9

13.6

13.0

12.7

12.6

13.4

13.6

13.9

14.2

15.2

15.3

10.2
1.1

9.9
1.3

7.4
1.4

9.8
1.5

14.3
1.6

21.3
1.6

11.9
1.7

23.8
1.8

29.6
1.8

29.2
1.9

24.5
1.8

20.0
1.8

16.5
1.7

11.4

11.2

8.8

11.3

15.9

22.9

13.6

25.6

31.4

31.1

26.3

21.8

18.2

.. 1\

A C

A

~

Agriculture:

\

Commerce and housing credit:

Mortgage credit ~nd thrift insurance .............
Postal Service ................................................
Other advancement of commerce ...................
Total

commerce

and

2.3
0.9
1.5

5.6
1.2
2.5

4.7
1.4
2.1

4.0 .
0.2
2.1

3.9
1.1
1.7

3.8
1.2
1.9

0.9
1.4
2.0

1.9
0.8
1.8

5.5
1.8
2.0

2.0
3.0
1.5

2.7
1.6
1.7

3.5
1.8
3.1

6.3

4.7

9.4

8.2

6.3

6.7

6.9

4.2

4.4

9.3

2.5

0.7

1.4

housing

credit ..............................................



3.6
1.3
1.4

I
./

Transportation:

,

10.4
3.2
. 1.8
0.1 .

12.1
3.4
2.0
0.1

15.3
3.7
2.2
0.1

17.1
3.8
2.4
0.1

14.3
3.5
2.7
0.1

14.3
4.0
3.0
0.1

16.2
4.4
3.0
0.1

17.6
4.9
3.2
0.1

18.7
5.3
4.0
0.1

17.9
5.3
3.7
0.1

16.6
5.9
2.9
0.1

17.7
6.2
2.8
0.1

17.0
6.4
2.9
0.1

15.5

17.5

21.3

23.4

20.6

21.3

23.7

25.8

28.1

27.0

25.5

26.7

26.4

Community development ...............................·
Area and regional development ..................... ·
Disaster relief and insurance ,
........................·

3.3
5.7
2.9

4.0
4.9
1.6

4.9
4.3
2.0

5.1
3.8
1.7

4.6
3.8
-0.1

4.4
3.2

4.6
3.1

3.7
1.8

-*

4.1
2.7
0.4

4.3
1.9

-*

4.5
3.0
0.1

-*

*

3.1
1.2
0.1

3.0
0.8
0.2

Total community and regional development .....................................·

11.8

10.5

11.3

10.6

8.3

7.6

7.7

7.7

7.2

6.2

5.5

4.4

4.0

Ground transportation .............................:.... .·
Air transportation ........... ~ ............................ .. ·
Water transportation .....................................·
Other transportation .................. ~ .................. .·
Total transportation ....................... ..·
Community and regional development:

,

Education, training, employment, and
social services:

Elementary, secondary, and vocational education .......................................................·
Higher education ........................................... ·
Research and general education aids ............·
Training and employment. .............................·
Other labor services ......................................
Social services ..............................................·
Total education, training, employment, and social services .......... .. ·

f

-

5.2
3.7
1.0
10.8
0.4 .
5.6

6.1
5.1
1.1
10.8
0.5
6.6

6.9
6.7
1.2
10.3
0.6
6.1

7.2
8.9
1.0
9.2
0.6
6.9

6.8
7.2
1.0
5.5
0.6
5.9

6.3
7.2
1.1
5.3
0.6
6.1

6.5
7.4
1.2
4.6
. 0.6
7.2

7.6
8.2
1.1
5.0
0.7
6.7

7.8
8.4
1.2
5.3
0.7
. 7.2

7.6
7.5
1.4
5.0
0.7
7.5

7.8
5.5
1.3
5.2
0.8
7.9

7.6
5.3
1.2
5.9
0.8
8.1

26.7

30.2

31.8

33.7

27.0

26.6

27.6

29.3

30.6

29.8 .

28.4

28.9

13.9
2.8

16.0
3.0

18.0
3.4

21.2
3.8

21.8
3.9

23.0
4.0

24.5
4.4

27.0
4.9

.28.8
5.4

32.0
5.9

31.5
6.2

32.9
6.2

.

7.6
4.2
1.1
5.7
0.8
8.5
28.0

Health:

......,.
~




Health care services ......... ~ ......................... ..·
Health research ............................................·
Education and training of health care work
force ........................................................·

,

34.6
6.3

:

0.9

0.6

0.7

0.8

0.7

0.6

0.4

0.5

0.5

0.5

0.4

0.4

0.4




Table 4. OUTLAYS BY FUNCTION AND SUBFUNCTION, 1978-90-Continued
(In billions of dollars)

Function and subfunction

.
1978

Estimate

Actual

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

Consumer and occupational health and
safety ........................................................

0.8

0.9

1.0

1.0

1.0

1.1

1.1

1.2

1.2

1.2

0.9

0.9

0.9

Total health ........................................

18.5

20.5

23.2

26.9

27.4

28.6

30.4

33.5

35.9

39.7

38.9

40.4

42.2

Medicare ...........................................................

22.8

26.5

32.1

39.1

46.6

52.6

57.5

65.8

70.2

71.6

73.0

81.1

87.9

Income security:
General retirement and disability insurance ...
Federal employee retirement and disability ....
Unemployment compensation .........................
Housing assistance ........................................
Food and nutrition assistance ........................
Other income security ....................................

3.4
19.8
11.8
3.7
8.9
13.9

4.4
22.7
10.7
4.4
10.8
13.4

5.1
26.6
18.0
5.6
14.0
17.2

5.4
31.3
19.7
7.8
16.2
19.4

5.6
34.3
23.7
8.7
15.6
19.8

5.6
36.5
31.5
10.0
18.0
21.1

5.4
38.1
18.4
11.3
18.1
21.4

5.6
38.6
17.5
25.3
18.5
22.7

5.3
41.4
17.8
12.4
18.6
24.4

5.5
43.6
18.0
12.9
19.4
25.5

5.4
42.9
17.7
13.4
18.6
26.8

5.5
45.5
17.5
13.7
19.1
27.3

5.7
48.2
17.9
14.2
\ 19.8
27.7

Total income security ........................

61.5

66.4

86.5

99.7

107.7

122.6

112.7

.128.2

119.8

124.9

124.8

128.7

133.5

Social security .................................................

93.9

104.1

118.5

139.6

156.0

170.7

178.2

188.6

198.8

207.9

219.4

232.5

246.8

On-budget ......................................................
Off-budget .....................................................
Veterans benefits and services:
Income security for veterans .........................
Veterans education, training, and rehabilitation ...........................................................
Hospital and medical care for veterans ..........
Veterans housing ...........................................
Other veterans benefits and services .............

(0.7)
(93.1 )

(0.8)
(103.3)

(0.7)
(117.9)

(0.7)
(138.9)

(0.8)
(155.1 )

(20.0)
(150.7)

(7.1 )
(171.2)

(5.2)
(183.4)

(8.1 )
(190.7)

(5.0)
(202.9)

(4.9)
(214.5)

(5.4 )
(227.0)

(5.4 )
(241.4)

9.7

10.8

11.7

12.9

13.7

14.3

14.4

14.7

15.0

15.1

15.2

15.6

15.9

3.4
5.3

2.3
6.5

1.9
7.5
0.1
0.7

1.1
9.5
0.2
0.8

0.5
9.9
0.1
0.8

0.4
10.3
0.1
0.8

0.9

0.5
10.7
-0.1
0.9

0.4
10.9

0.7

1.4
8.9
0.2
0.8

0.5
10.5

0.7

2.3
7.0
0.2
0.7

1.6
8.3

0.6

2.8
5.6
0.2
0.6

19.0

19.9

21.2

23.0

24.0

24.8

25.6

26.4

26.4

26.7

27.2

27.6

28.0

Total veterans benefits and serv.

Ices .................................................

*

-*

*

-

*

-

*

0.9




Administration of Justice:

1.8
0.9
0.3
0.7
3.8

2.0
1.1
0.3
0.7
4.2

2.2
1.3
0.3
0.7
4.6

2.4
1.5
0.4
0.5
4.8

2.5
1.5
0.4
0.3
4.7

2.9
1.6
0.4
0.2
5.1

3.2
1.8
0.5
0.1
5.7

3.5
2.1
0.5
0.1
6.3

3.6
2.2
0.6
0.2
6.6

4.6
2.6
0.8
0.3
8.3

5.2
2.7
0.9
0.4
9.2

4.9
2.8
1.0
0.2
8.9

4.9
2.8
0.9
0.1
8.8

Legislative functions ..................................... · ,0.9
0.1
Executive direction and management .......... .. ·
2.0
Central fiscal operations ...............................·
General property and records management .. .·
0.3
Central personnel management .................... .·
0.1
0.4
Other general government .......................... .. ·
Deductions for offsetting receipts ................ .· -0.3

0.9
0.1
2.2
0.3
0.1
0.5
-0.2

1.0
0.1
2.6
0.3
0.2
0.6
-0.4

1.0
0.1
2.6
0.1
0.2
0.7
-0.2

1.2
0.1
2.6
0.2
0.1
0.5
-0.2

1.2
0.1
3.1
0.2
0.1
0.8
-0.6

1.3
0.1
3.3
0.2
0.1
0.6
-0.5

1.4
0.1
3.5
0.1
0.2
0.5
-0.5

1.4
0.1
3.6
0.5
0.1
0.5
-0.1

1.7
0.1
4.5

*

0.1
0.9
-0.4

1.8
0.1
5.3
\ -0.2
0.1
0.7
-0.4

1.8
0.1
5.6
0.1
0.1
0.6
-0.4

1.8
0.1
5.5
0.2
0.1
0.6
-0.5

3.6

3.9

4.4

4.6

4.5

4.8

5.1

5.2

6.1

6.8

7.5

7.9

7.9

General revenue sharing ...............................·
Other general purpose fiscal assistance ...... .. ·

6.8
1.6

6.9
1.5

6.8
1.7

5.1
1.7

4.6
1.8

4.6
1.8

4.6
2.2

4.6
1.8

5.1
1.3

0.1
1.9

1.5

1.5

1.6

Total general purpose fiscal assistanee .........................................·

8.4

8.4

8.6

6.9

6.4

6.5

6.8

6.4

6.4

1.9

1.5

1.5

1.6

Interest on the public debt ...........................· 48.7
Interest received by on-budget trust funds .. .· -6.1
Interest received by off-budget trust funds .. .· -2.4
Other interest ...............................................· -4.7

59.8
-7.7
-2.2
-7.3

74.8
-9.7
-2.3
-10.2

95.5
-11.5
-2.3
-13.0

117.2
-14.0
-2.1
-16.1

128.6
-15.3
-1.8
-21.7

153.8
-17.0
-3.3
-22.4

179.1
-22.1
-4.1
-23.4

190.2
-26.6
-4-3
.
-23.3

191.7
-28.7
-5.1
-20.5

198.4
-31.6
-6.6
-21.2

205.6
-35.2
-9.2
-19.6

208.6
-38.3
-12.3
-19.0

35.4

42.6

52.5

68.7

85.0

89.8

111.1

129.4

136.0

137.5

139.0

141.5

139.0

Federal law enforcement activities ................·
Federal litigative and judicial activities ....... ..·
Federal correctional activities ...................... .. •
Criminal justice assistance ..........·..................·

Total administration of justice ...... .. ·

General government:

Total general government .............. .. ·
General purpqse fiscal assistance:

* ................. ...............

Net interest:

Total net interest. ......................:.... .. ·

On-budget .....................................................· (37.8)
(71.0)
(87.1 ) (91.6) (114.4) (133.6) (140.3) (142.5) (145.6) (150.8) (151.3)
(44.8)
(54.9)
Off-budget ....................................................· ( -2.4 ) (-2.2 ) ( -2.3 ) ( -2.3 ) ( -2.1 ) ( -1.8 ) ( -3.3 ) (-4.1 ) ( -4.3 ) ( -5.1 ) ( -6.6 ) ( -9.2 ) ( -12.3 )

Table 4. OUTLAYS BY FUNCTION AND SUBFUNCTION, 1978-90-Continued
(In billions of dollars)
Estimate

Actual
Function and subfunction

1978

1979

1980

1981

1982

1983

1988

1989

0.7
-1.4

1.6
-1.1

2.7
0.1

................. ................. ................. ................. -0.8

0.5

2.8

-32.1

-33.8

-35.5

-5.5

-6.1

-6.7

-3.7
-=- 4.1

-3.5
-2.3

-3.8
-2.5

1-45.4

-45.8

-48.5

1984

1985

1986

1987

Allowances:
Civilian agency pay raises .............................. ................ . ................. ................. ................. ................. ................ . ................. ................. ................. .................
Contingencies for other requirements ............. ................. ................. ................. ................. ................. ................. ................. ................. ................. .................
Total allowances ................................ ................. ................. .................

I ••••••••••••••••

a •••••••••

I ••••••

I ••••••••••••••••

Undistributed offsetting receipts:
Employer share, employee retirement (onbudget) ..................................................... -12.4 -13.1 -14.6 -16.5 -18.2 -21.7 -23.2 -24.7 -25.4 -28.0
Employer share, employee retirement (off-2.9
-2.5
-1.4
-1.6
-3.3
-1.8
-2.0
-1.1
-1.2
budget) ..................................................... -1.1
Rents and royalties on the Outer Continen-4.7
-3.9
-6.7
-6.2 -10.5
-5.5
-4.1 -10.1
-3.3
tal Shelf .................................................... -2.3
.
Sale of major assets ...................................... ................. ................. ................. ................. ................. ................. ................. ................. ................. -1.9
Total undistributed offsetting receipts .............................................. -15.7

-17.5

-19.9

-28.0

-26.1

-34.0

-32.0

-32.8

-33.0

-37.1

1990

On-budget ........................................ ( -14.7) ( -16.4) ( -18.7) ( -26.6) ( -24.5) (-32.2) ( -29.9) ( - 30.3) ( -30.2) ( -33.8) ( -39.9) ( -39.7) ( -41.8)
Off-budget ........................................ (-1.1) (-1.1) ( -1.2) ( -1.4) ( -1.6) ( -1.8) ( -2.0) ( -2.5) ( -2.9) ( -3.3) ( -5.5) ( -6.1) ( -6.7)

Total outlays ......................................

458.7

On-budget ...................................................... (369.1 )
Off-budget ..................................................... (89.7)

503.5

590.9

678.2

745.7

808.3

851.8

946.3

989.8

1,015.6

1,024.3

1,069.0

1,107.8

(403.5)
(100.0)

(476.6)
(114.3)

(543.0)
(135.2)

(594.3)
(151.4)

(661.2)
(147.1)

(686.0)
(165.8)

(769.5)
(176.8)

(806.3)
(183.5)

(821.1 )
(194.5)

(821.9)
(202.4)

(857.3)
(211.7)

(885.4)
(222.4)

Note.-For all years, transactions of the social security trust funds are presented off-budget and transactions of formerly off-budget accounts are presented on-budget.




Table 5. OUTLAYS BY AGENCY, 1986-92
(In billions of dollars)
Estimate

1986

actual

1987

1988

1989

1990

1991

1992

Legislative branch ...............................
1.7
2.1
2.2
2.2
2.2
2.2
2.3
The Judiciary ......................................
1.1
1.2
1.4
1.5
1.5
1.5
1.6
Executive Office of the President.. ......
0.1
0.1
0.1
0.1
0.1
0.1
0.1
Funds appropriated to the President ...
11.4
11.8
11.2
13.3
12.7
12.3
11.7
Agriculture ..........................................
58.7
55.1
50.7
46.5
42.9
39.5
37.6
Commerce...........................................
2.1
2.4
2.3
2.4
3.3
2.0
1.9
Defense-Military 1 ........................... 265.6
274.2
289.3
303.7
321.0
340.0
361.0
Defense-Civil ....................................
20.3
20.9
22.1
23.4
24.5
25.5
26.5
Education ............................................
17.7
14.4
16.8
14.7
13.3
12.8
12.4
Energy ................................................
11.0
10.6
10.2
10.9
11.8
12.5
13.5
Health and_Human Services, except
Social Security ............................... 143.3
145.3
146.8
156.3
165.2
176.4
185.9
Health and Human Services, Social
Security .......................................... 190.7
202.9
214.5
227.0
241.4
256.2
270.6
Housing and Urban Development ........
14.1
14.6
13.9
14.3
14.0
13.6
13.7
Interior ...............................................
4.8
5.2
4.4
4.7
4.6
4.4
4.3
Justice ................................................
3.8
4.8
5.8
5.6
5.4
5.5
5.6
Labor ..................................................
24.1
24.5
25.4
25.4.
25.9
26.2
26.8
State ..................................................
2.9
3.3
3.6
3.7
3.9
4.0
3.9
Transportation .....................................
27.4
26.2
24.6
25.9
25.5
25.0
25.4
Treasury ............................................. 179.2
180.2
187.3
197.0
200.7
202.9
196.0
Environmental Protection Agency ........
4.9
4.6
4.7
4.6
4.7
4.6
4.5
General Services Administration ..........
0.2
-0.1
-0.4
-0.3
-0.2
-0.3
-0.7
National Aeronautics and Space AdministrarIon ....................................
7.4
7.9
11.1
9.5
11.1
11.0
11.0
Office of Personnel Management ........
24.0
27.7
29.9
26.8
28.4
31.5
33.1
Small Business Administration ............
0.6
0.1
-0.3
-0.1
0.4
0.4
0.4
Veterans Administration ......................
26.5
26.8
27.0
27.6
27.9
28.5
28.9
Other independent agencies ................
11.4
17.9
9.2
11.9
11.5
10.5
11.8
Allowances 2 ...................................... ................ ................ -0.8
4.9
7.1
0.5
2.8
Undistributed offsetting receipts·
......... -65.0 -71.8 -84.2 -90.2 -99.1 -110.8 -118.0
Interest .......................................... ( -32.0) ( -34.7) ( -38.8) ( -44.4) ( -50.6) (- 56.8) ( -62.4)
Other .............................................. ( -33.0) ( -37.1) ( -45.4) ( -45.8) ( -48.5) ( -54.0) ( -55.6 )
o

•

Total outlays ...........................
Off-budget .............................
1

2

989.8

1,015.6

1,024.3

1,069.0

1,107.8

1,144.4

1,178.9

16.7

19.5

39.7

51.7

64.3

74.4

81.4

Includes allowances for civilian and military pay raises· for the Department of Defense.
Includes allowances for civilian agenCy pay raises and military pay raises for the Coast Guard.

109






Table 6. CREDIT .BUDGET: NEW DIRECT LOAN OBLIGATIONS AND GUARANTEED LOAN COMMITMENTS
BY AGENCY
(In millions of dollars)
Guaranteed loan commitments

Direct loan obligations
Department or other unit

1986

actual

Funds Appropriated to the President ..................
Agriculture .........................................................
Commerce ..........................................................
Defense ..............................................................
Education ...........................................................
Energy ................................................................
.
Health and Human Services ...............................
Housing and Urban Development 1 ....................
Interior ...............................................................
labor..................................................................
State ..................................................................
Transportation ....................................................
Environmental Protection Agency .......................
Small Business Administration ...........................
Veterans Administration .....................................
Other independent agencies:
Export-Import Bank .......................................
Federal Deposit Insurance Corporation ...........
Federal Savings and loan Insurance Corporation (FHlBB) ........................................
National Credit Union Administration .............
Tennessee Valley Authority ............................
Total ....................................................
ADDENDUM

Secondary guaranteed loans

1 ...........................

1987

estimate

1988

estimate

1986

actual

1987

estimate

1988

estimate

6,443
5,405
5,720
250
282
345
4,117
26,658 22,508 15,915
8,113
6,840
17
72 ...............
10
160
41
568 ................. ................. ................. ................. ...............
1,232
1,404
8,575
9,591
9,398
1,582
4 ................. ................. ................. ................. ...............
47
22
32
374
343
100
1,711
1,060
832 102,673 87,125 70,000
67
67
45
37
40
34
2
3
3 ................. ................. ...............
1
1
1 ................. ................. ...............
1,337
153
48 ................. ...............
658
32 ................. ................. ................. ................. ...............
1,543
2,780
3,617
3,510
916
804
972
933
829 34,297 35,000 27,930
578
900
1,000
5,508 11,355 10,000
128 ................. ................. ................. ... .............. ...............
21
34
268

25
61
301

41,329

34,927

300
103
25
506
1
77
2
6
280 ................. ............... .. ...............
159,243

155,705

128,362

................. ................. ................. 137,962

132,500

100,000

27,136

1 Commitments by GNMA to guarantee securities that are backed by loans previously insured or guaranteed by the Federal Housing
Administration, Veterans Administration, or Farmers Home Administration (secondary guarantees) are excluded from the totals and shown as a
memorandum entry.

110

Table 7. FEDERAL FINANCES AND THE GROSS NATIONAL PRODUCT, 1969-90
(Dollar amounts in billions)
Outlays

Receipts
Gross
national
product

Fiscal year

Total
Amount

Off -budget

On-budget
Percent
of GNP

Amount

Percent
of GNP

Amount

Percent
of GNP

Amount

Off-budget

On-budget

Total

1

Percent
of GNP

Amount

Percent
of GNP

Amount

1

Percent
of GNP

1969 ............................................................................................
1970 ............................................................................................

17.0
16.1

29.0
33.5

3.1
3.4

183.6
195.6

19.8
19.8

158.4
168.0

17.0
17.0

25.2
27.6

2.7
2.8

1,055.9
1,153.1
1,281.4
1,416.5
1,522.5

187.1
207.3
230.8
263.2
279.1

17.7
18.0
18.0
18.6
18.3

151.3
167.4
184.7
209.3
216.6

14.3
14.5
14.4
14.8
14.2

35.8
39.9
46.1
53.9
62.5

3.4
3.5
3.6
3.8
4.1

210.2
230.7,
245.7
269.4
332.3

19.9
20.0
19.2
19.0
21.8

177.3
193.8
200.1
217.3
271.9

16.8
16.8
15.6
15.3
17.9

32.8
36.9
45.6
52.1
60.4

3.1
3.2
3.6
3.7
4.0

1,698.2
1,933.0
2,171.8
2,447.8
2,670.6

298.1
355.6
399.6
463.3
517.1

17.6
18.4
18.4
18.9
19.4

231.7
278.7
314.2
365.3
403.9

13.6
14.4
14.5
14.9
15.1

66.4
76.8
85.4
98.0
113.2

3.9
4.0
3.9
4.0
4.2

371.8
409.2
458.7
503.5
590.9

21.9
21.2
21.1
20.6
22.1

302.2
328.5
369.1
403.5
476.6

17.8
17.0
17.0
16.5
17.8

69.6
80.7
89.7
100.0
114.3

4.1
4.2
4.1
4.1
4.3

2,986.4
3,139.1
3,321.9
3,686.8
3,937.2

599.3
617.8
600.6
666.5
734.1

20.1 ' 469.1
19.7 474.3
18.1 453.2
18.1 500.4
18.6 547.9

15.7
15.1
13.6
13.6
13.9

130.2
143.5
147.3
166.1
186.2

4.4
4.6
4.4
4.5
4.7

678.2
745.7
808.3
851.8
946.3

22.7
23.8
24.3
23.1
24.0

543.0
594.3
661.2
686.0
769.5

18.2
18.9
19.9
18.6
19.5

135.2
151.4
147.1
165.8
176.8

4.5
4.8
4.4
4.5
4.5

1986 ............................................................................................
1987 estimate..............................................................................
1988 estimate ..............................................................................
1989 estimate ..............................................................................
1990 estimate ..............................................................................




157.9
159.3

1981 ............................................................................................
1982 ............................................................................................
1983 ............................................................................................
1984 ............................................................................................
1985 ............................................................................................

~

20.1
19.5

1976 ........................................................ :...................................
1977 ............................................................................................
1978 ............................................................................................
1979 ............................................................................................
1980 ............................................................................................

~

186.9
192.8

1971 ............................................................................................
1972 ............................................................................................
1973 ............................................................... :............................
197 4............................................................................................
1975 ..............................................................~ .............................

i--ol

929.5
990.2

4,163.3 769.1
4,418.9 842.4
4,731.2 916.6
5,076.0 976.2
5,434.2 1,048.3

18.5
19.1
19.4
19.2
19.3

13.7
14.2
14.3
14.0
14.0

200.2
214.0
242.1
263.4
286.6

4.8
4.8
5.1
5.2
5.3

989.8
1,015.6
1,024.3
1,069.0
1,107.8

23.8
23.0
21.7
21.1
20.4

806.3
821.1
821.9
857.3
885.4

19..4
18.6
17.4
16.9
16.3

183.5
194.5
202.4
211.7
222.4

4.4
4.4
4.3
4.2
4.1

·0.05% or less.

1

Social Security trust funds.

Note: Excludes the transition quarter.

568.9
628.4
674.5
712.8
761.6




Table 7. FEDERAL FINANCES AND THE GROSS NATIONAL PRODUCT, 1969-9O-Continued
(Dollar amounts in billions)

-

Federal debt, end of year

Surplus or deficit (-)
Gross
national
product

Fiscal year

On-budget

Total
Amount

Percent
of GNP

Amount

Percent
of GNP

Off-budget
Amount

Gross

1

Percent
of GNP

Held by Government
accounts
Percent
of GNP

Amount

Amount

Percent
of GNP

Held by the public
Amount

Percent
of GNP

1969 ............................................................................................
1970 ............................................................................................

929.5
990.2

3.2
-2.8

0.3
-0.3

-0.5
-8.7

-0.1
-0.9

3.7
5.9

0.4
0.6

367.1
382.6

39.5
38.6

87.7
97.7

9.4
9.9

279.5
284.9

30.1
28.8

1971 ............................................................................................
1972 ........................................ ,...................................................
1973 ............................................................................................
197 4............................................................................................
1975 ............................................................................................

1,055.9
1,153.1
1,281.4
1,416.5
1,522.5

-23.0
-23.4
-14.9
-6.1
-53.2

-2.2
-2.0
-1.2
-0.4
-3.5

-26.1
-26.4
-15.4
-8.0
-55.3

-2.5
-2.3
-1.2
-0.6
-3.6

3.0
3.0
0.5
1.8
2.0

0.3
0.3

*

409.5
437.3
468.4
486.2
544.1

38.8
37.9
36.6
34.3
35.7

105.1
113.6
125.4
140.2
147.2

10.0
9.8
9.8
9.9
9.7

304.3
323.8
343.0
346.1
396.9

28.8
28.1
26.8
24.4
26.1

1976 ............ ,...............................................................................
1977 ............................................................................................
1978 ............................................................................................
1979 ............................................................................................
1980 .......................................... ~ .................................................

1,698.2
1,933.0
2,171.8
2,447.8
2,670.6

-73.7
-53.6
-59.2
-40.2
-73.8

-4.3
-2.8
-2.7
-1.6
-2.8

-70.5
-49.7
- '54.9
-38.2
-72.7

-4.2
-2.6
-2.5
-1.6
-2.7

-3.2
-3.9
-4.3
-2.0
-1.1

-0.2
-0.2
-0.2
-0.1

631.9
709.1
780.4
833.8
914.3

37.2
36.7
35.9
34.1
34.2

151.6
157.3
169.5
189.2
199.2

8.9
8.1
7.8
7.7
7.5

480.3
551.8
610.9
644.6
715.1

28.3
28.5
28.1
26.3
26.8

1981 ............... ~ ............................................................................
1982 ............................................................................................
1983 ............................................................................................
1984 ............................................................................................
1985 .............. ~ .................................................................... ~ ........

2,986.4
3,139.1
3,321.9
3,686.8
3,937.2

-78.9
-127.9
-207.8
-185.3
-212.3

-2.6
-4.1
-6.3
-5.0
-5.4

-73.9
-120.0
-208.0
-185.6
-221.6

-2.5
-3.8
-6.3
-5.0
-5.6

-5.0
-7.9
0.2
0.3
9.4

-0.2 1,003.9
-0.3 1,147.0
* 1,381.9
* 1,576.7
0.2 1,827.2

33.6
36.5
41.6
42.8
46.4

209.5
217.6
240.1
264.2
317.4

7.0 794.4
6.9 929.4
7.2 1,141.8
7.2 1,312.6
8.1 1,509.9

26.6
29.6
34.4
35.6
38.3

1986 ............................................................................................
1987 estimate ..............................................................................
1988 estimate ..............................................................................
1989 estimate ..............................................................................
1990 estimate ..............................................................................

4,163.3
4,418.9
4,731.2
5,076.0
5,434.2

-220.7
-173.2
.-107.8
-92.8
-59.5

-5.3
-3.9
-2.3
-1.8
-1.1

-237.5
-192.7
-147.4
-144.5
-123.8

-5.7
-4.4
-3.1
-2.8
-2.3

16.7
19.5
39.7
51.7
64.3

2,132.9
2,372.4
2,585.5
2,796.9
2,991.3

51.2
53.7
54.6
55.1
55.0

-386.8
464.0
570.4
689.4
824.8

1,746.1
1,908.4
2,015.1
2,107.5
2,166.5

41.9
43.2
42.6
41.5
39.9

·0.05% or less.

1

Social Security trust funds.

,

Note: Excludes transition quarter.

0.1
0.1

-

*

0.4
0.4
0.8
1.0
1.2

:

9.3
10.5
12.1
13.6
15.2

Table 8. FULL-TIME EQUIVALENT OF FEDERAl. CIVILIAN EMPLOYMENT

1

.
Fiscal year

1986

actual

1987 .
2

estimate

1988

estimate

1989
- estimate

difference

1987-88

102,997 106,393
98,894 -7,308
99,085
41,049
43,577
7,200
32,321
33,849
28,348
28,347
28,347
-1
28,511
4,500 .•.•.•...........
4,526
4,500
4,500
16,193
16,100
15,950
15,850
-150
128,105 124,745 119,099 114,208 -5,646
11,720
12,438
11,428
-97
12,535
70,657
71,350
70,400
70,400
-950
77,782
7,457
69,463
76,920
63,307
17,997
-279
18,339
18,060
laoor.......................................................................... 17,931
26,147
26,658
26,803
511
State .......................................................................... 25,261
57,404 . -612
60,480
59,868
T nsportation ............................................................ 60,375
ra
9,381
Treasury ..................................................................... 130,845 136,807 146,188 148,574
14,165
14,323
14,263
12,931
158
Environmental Protection Agency ...............................
21,800
22,425
22,425
625
21,660
National Aeronautics and Space Administration ..........
Veterans Administration ............................................. 220,642 221,227 216,709 215,218 -4,518
Other:
4,825 .................
4,675
4,825
4,825
Agency for International Development ...................
20,877
22,281
21,677
-604
General Services Administration .............................
22,745
3,250
3,180
-li9
Nuclear Regulatory Commission .............................
3,445
3,369
-224
Office of Personnel Management ...........................
5,195
5,005
5,306
5A19
115
8,665
Panama Canal Commission ....................................
8,550
8,665
8,336
112
Small Business Administration ...............................
4,115
4,227
4,050
4,054
29,500 ...........•.....
Tennessee Valley Authority ....................................
29,500
27,613
29,500
-100
9,020
9,120
9,020
United States Information Agency .........................
.
8,981
43,981
520
44,049
Miscellaneous ........................................................ 39,652
43,529
2,647
Estimated nondefense lapse ....................................... ......•.•.........• -21,939 -19,292 -16,452

Agriculture .................................................................
Commerce ..................................................................
Defense-civil functions ............................................
Education ......
Energy ........................................................................
Health and Human Services .......................................
Housing and Urban Development ...............................
Interior .......................................................................
Justice...............................................................
I ' •••••••••••••••••••••••• I ••••••••••••••••••••••••••••• II •••

I I •• I I •••

I

Civilian agency employment. .................... 1,072,789 1,075,017 1,083,135 1,080,321

Defense-military functions

8,118

1,041,352 1,039,000 1,037,000 1,036,000

-2,000

Subtotal ........................................................ 2,114,141 2,114,017 2,120,135 2,116,.321
Postal Service Employment 4 ..................................... 739,574 764,590 794,000 824,000

6,118
29,410

Total, Executive Branch ................................ 2,853,715 2,878,607 2,914,135 2,940,321

35,528

3 ...................................

Excludes developmental positions under the Worker-Trainee Opportunity Program (wroP) as well as certain statutory exemptions.
Data are estimated for portions of Defense-civil functions as well as for the Federal Reserve System, Board of Governors and the
International Trade Commission.
3 Section 904 of the 1982 Defense Authorization Act (Public law 97-86) exempts the Department of Defense from full-time equivalent
employment controls. Data shown are estimated.
.
4 Includes the Postal Rate Commission.
1

2

113






Table 9. TOTAL RECEIPTS AND OUTLAYS, 1789-1992 (in millions of dollars)
Fiscal year

Receipts

Outlays

Surplus
or
deficit (-)

Rscal year

1789-1849 ...
1850-190O ...
1901 ..............
1902 ..............
1903 ..............
1904 ..............
1905 ..............
1906 ..............
1907 .. ~ ...........
1908 ..............
1909 ..............
1910 ..............

1,160
14,462
588
562
562
541
544
595
666
602
604
676

1,090
15,453
525
485
517
584
567
570
579
659
694
694

+70
-991
+63
+77
+45
-43
-23
+25
+87
-57
-89
-18

1911 ..............
1912 ..............
1913 ..............
1914 ..............
1915 ..............
1916 ..............
1917 ..............
1918 ..............
1919 ..............
·1920 ..............

702
693
714
725
683
761
' 1,101
3,645
5,130
6,649

691
690
715
726
746
713
1,954
12,677
18,493
6,358

+11
+3
-63
+48
-853
-9,032
-13,363
+291

1921 ..............
1922 ..............
1923 ..............
1924 ..............
1925 ..............
1926 ..............
1927 ..............
1928 ..............
1929 ..............
1930 ..............

5,571
4,026
3,853
3,871
3,641
3,795
4,013
3,900
3,862
4,058

5,062
3,289
3,140
2,908
2,924
2,930
2,857
2,961
3,127
3,320

+509
+736
+713
+963
+717
+865
+ 1,155
+939
+734
+738

1931 ..............
1932 ..............
1933 ..............
1934 ..............
1935 ..............
1936 ..............
1937 ..............
1938 ..............
1939 ..............
1940 ..............

3,116
1,924
1,997
2,955
3,609
3,923
5,387
6,751
6,295
6,548

3,577
-462
4,659
-2735
,
...:..2,602
4,598
6,541
-3,586
6,412
-2,803
8,228
-4,304
7,580 - -2,193
6,840
-89
9,141
-2,846
9,468
-2,920

1941 ..............
1942 ..............
1943 ..............
1944 ..............
1945 ..............
1946 ..............

8,712
14,634
24,001
43,747
45,159
39,296

13,653
35,137
78,555
91,304
92,712
55,232

*
*

-4,941
-20,503
-54,554
-47,557
-47,553
-15,936

Receipts

Outlays

1947 ..............
1948 ..............
1949 ..............
1950 ..............

38,514
41,560
39,415
39,443

34,496
29,764
38,835
42,562

+4,018
+ 11,796
+580
-3,119

1951 ..............
1952 ..............
1953 ..............
1954 ..............
1955 ..............
1956 ..............
1957 ..............
1958 ..............
1959 .. :...........
1960 ..............

51,616
66,167
69,608
69,701
65,451
74,587
79,990
79,636
79,249
92,492

45,514
67,686
76,101
70,855
68,444
70,640
76,578
82,405
92,098
92,191

+6,102
-1,519
-6,493
-1,154
-2,993
+3,947
+3,412
-2,769
-12,849
+301

1961 ..............
1962 ..............
1963 ..............
1964 ..............
1965 ..............
1966 ..............
1967 ..............
1968 ...............
1969 ..............
1970 ..............

94,388
99,676
106,560
112,613
116,817
130,835
148,822
152,973
186,882
192,807

97,723
106,821
111,316
118,528
118,228
134,532
157,464
178,134
183,640
195,649

-3,335
-7,146
-4,756
-5,915
-1,411
-3,698
-8,643
-25,161
+3,242
-2,842

1971 ..............
1972 ..............
1973 ..............
1974 ..............
1975 ..............
1976 ..............
TQ ..................
1977 ..............
1978 ..............
1979 ..............

187,139
207,309
230,799
263,224
279,090
298,060
81,232
355,559
399,561
463,302

210,172
230,681
245,707
269,359
332,332
371,779
95,973
409,203
458,729
503,464

-23,033
-23,373
-14,908
-6,135
-53,242
-73,719
-14,741
-53,644
-59,168
-40,162

1980 ..............
1981 ..............
1982 ..............
1983 ..............
1984 ..............
1985 ..............
1986 ..............
1987 est ........
1988 est. ......
1989 est. ......

517,112
599,272
617,766
600,562
666,457
734,057
769,091
842,390
916,571
976,197

590,920
678,209
745,706
808,327
851,781
946,316
989,815
1,015,572
1,024,328
1,068,963

-73,808
-78,936
-127,940
-207,764
-185,324
-212,260
-220,725
-173,182
-107,756
-92,766

1,048,295 1,107,795
1,123,155 1,144,445
1,191,208 1,178,942

-59,501
-21,290
12,267

1990 est. ......
1991 est. ......
1992 est. ......

*$500 thousand or less.
Data for 1789-1933 are for the administrative budget; data for 1934 and all following years are for the unified budget.
Beginning in 1937, includes amounts for social security trust funds that are off-budget.

114

Surplus
or
deficit (-)

THE BUDGET DOCUMENTS
Budget of the United States Government, 1988 contains the Budget Message of the
President and presents an overview of the President's budget proposals. It includes
summary information on goals of the 1988 Budget, economic assumptions, receipts
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the United States Government, 1988-Supplement repeats the Budget
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Budget of the United States Government, 1988-Appendix contains detailed information on the various appropriations and funds that constitute the budget. The
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