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A CITIZEN’S GUIDE TO
THE FEDERAL BUDGET

BUDGET OF THE UNITED STATES GOVERNMENT

Fiscal Year 

Table of Contents
A Note to the Reader . . . . . . . . . . . . . . . . . . .

iii

1. What Is the Budget? . . . . . . . . . . . . . . . . . .

2. Where the Money Comes From—and Where
It Goes . . . . . . . . . . . . . . . . . . . . . . . . . .

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Spending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

“On” and “Off” Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3. How Does the Government Create a Budget? 17
The President’s Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Budget Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Action in Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Monitoring the Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4. Deficits and the Debt. . . . . . . . . . . . . . . . . . 21
Why the Deficit is a Problem . . . . . . . . . . . . . . . . . . . . . . . .

Deficits and Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deficit Reduction Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5. The President’s 1998 Budget. . . . . . . . . . . . 29
Reaching Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Investing in the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Improving Performance in a Balanced Budget World . . . . . . .

Glossary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
List of Charts and Tables . . . . . . . . . . . . . . . . . 39

A Note to the Reader
Next year, your Federal Government will spend nearly $1.7 trillion.
Needless to say, that’s a lot of money. And the Government spends it on lots
of things—on programs as large and popular as Social Security, and on
activities as small and unknown as repairs to the National Zoo. Together,
these programs are what make up the Federal budget.
How much do you know about the budget? If your answer is “not much,”
you’re not alone. In fact, hardly anybody knows everything that’s in the
thousands of pages, and several books, that make up the budget each year.
But we know you care a lot about how the Government spends your money.
That’s why we created A Citizen’s Guide to the Federal Budget two years
ago, and why we have published this third edition. With it, we hope to make
the budget more accessible and understandable.
The Guide is designed to give you a walking tour of the budget. In these
pages, we will outline for you how the Government raises revenues and
spends money, how the President and Congress enact the budget, why the
budget deficit and Federal debt are problems, and what the President hopes
to accomplish with his 1998 budget.
After you read these pages, we hope that you will think the tour was worth
your time. And we hope you will give us your suggestions about how we can
make the Guide more useful to you in the future.

iii

1. What Is the Budget?
The Federal budget is:
•

a plan for how the Government spends your money.
What activities are funded? How much does it spend for defense,
national parks, the FBI, Medicare, issuing passports, and meat and
fish inspection?

•

a plan for how the Government pays for its activities.
How much revenue does it raise through different kinds of
taxes—income taxes, excise taxes, and social insurance payroll
taxes?

•

a plan for Government borrowing.
If spending is greater than revenues, the Government runs a deficit.
To finance deficits, the Government has to borrow money.
Government borrowing adds to the national debt.

•

something that affects the Nation’s economy.
Some types of spending—such as improvements in education and
support for science and technology—increase productivity and raise
incomes in the future.
Taxes, on the other hand, reduce incomes, leaving people with less
money to spend.

•

something that is affected by the Nation’s economy.
When the economy is doing well, people are earning more and
unemployment is low. In this atmosphere, revenues increase and
the deficit shrinks.

•

an historical record.
The budget reports on how the Government has spent money in
the past, and how that spending was financed.

The 1998 budget is a document that embodies the President’s budget
proposal to Congress for fiscal 1998, the fiscal year that begins on October
1, 1997. It reflects the President’s priorities and his plan to balance the
budget by 2002.

Chart 1–1. Government Spending as a Share of GDP, 1996

Total Government
Spending in the U.S.
(31%)
100
90

Pie 1

Total State 80
and
70
Local Spending
(13%) 60
Private
69%

Government
31%

50
40
30

Spending from
State and Local
Revenues
(10%)

Spending for Direct
Federal Programs
(18%)

Federal Grants to
State and Local
Governments
(3%)

Total Federal
Spending
(21%)

20
10
0

Note: Numbers do not add due to rounding.

Total Government spending accounts for about one-third of the
national economy. Federal spending is about two-thirds of this
amount, or 21 percent of GDP.

The Federal budget, of course, is not the only budget that affects the
economy or the American people. The budgets of State and local
governments have an impact as well. While the Federal Government spends
about 21 percent of the Gross Domestic Product (or GDP, which measures
the size of the economy), State and local governments spend about another
10 percent (see Chart 1–1).
State and local governments are independent of the Federal Government,
and they have their own sources of revenue (taxes and borrowing). But the
Federal Government supplements State and local revenues by making grants
to them. Of the $939 billion that State and local governments spent in
1996, $211 billion came from Federal grants.
As shown in Chart 1–2, compared to six other industrialized nations, the
United States allocates the smallest share of its GDP to government (Federal,
State, and local combined).

Chart 1–2. Total Government Outlays as a Percent of GDP

60%
ITALY

FRANCE

50%
GERMANY
CANADA

40%

UNITED KINGDOM

UNITED STATES

30%

JAPAN

20%
1981

1985

1990

1995

Source: OECD, calendar year data.

The United States allocates a smaller portion of its GDP to
government than any other nation shown.

2. Where the Money Comes From—and
Where it Goes
In a typical American household, a father and mother might sit around the
kitchen table to review the family budget. They might discuss how much they
expect to earn each year, how much they can spend on food, shelter,
clothing, transportation, and perhaps a vacation, and how much they might
be able to save for their future needs.
If they do not have enough money to make ends meet, they might discuss
how they can spend less, such as by cutting back on restaurants, movies, or
other entertainment. They also might consider whether to try to earn more
by working more hours or taking another job. If they expect their shortfall to
be temporary, they might try to borrow.

Chart 2–1. Family Budgeting

HOUSEHOLD
APPLIANCES

HOUSING

CLOTHING

RESTAURANTS/
ENTERTAINMENT

TRANSPORTATION
FOOD

EDUCATION

?
?

SOURCES: CASH AND CREDIT

Generally speaking, the Federal Government plans its budget much like
families do. The President and Congress determine how much money they
expect the Government to receive in each of the next several years, where it
will come from, and how much to spend to reach their goal—goals for
national defense, foreign affairs, social insurance for the elderly, health
insurance for the elderly and poor, law enforcement, education, transportation, science and technology, and others.
They decide how much spending they will finance through taxes and how
much through borrowing. They debate how to use the budget to help the
economy grow, or to redistribute income. And, especially lately, they debate
how to reduce spending in order to eliminate the deficit and balance the
budget.
In this chapter, we will discuss these decisions in some detail—that is, how
the Government raises revenues and where it spends money.

Chart 2–2. National Budgeting

CRIME
PREVENTION

RESEARCH

CHILD NUTRITION
HEALTH CARE

EDUCATION
MILITARY
ENVIRONMENTAL CLEANUP

?
?

SOURCES: TAXES AND BORROWING

Revenues
Chart 2–3. The Federal Government Dollar—
Where It Comes From

OTHER
4%

CORPORATE
INCOME TAXES
11%

SOCIAL INSURANCE
PAYROLL TAXES
33%

EXCISE
TAXES
4%

BORROWING
7%
INDIVIDUAL
INCOME TAXES
41%

The money that the Federal Government uses to pay its bills—its
revenues—comes mostly from taxes. In recent years, revenues have been
lower than spending, and the Government has borrowed to finance the
difference between revenues and spending—that is, the deficit.
Revenues come from these sources:
•

Individual income taxes will raise an estimated $691 billion in 1998, equal
to about eight percent of GDP—roughly about the same percent as in
each of the last 40 years.

•

Social insurance payroll taxes—the fastest growing category of Federal
revenues—include Social Security taxes, Medicare taxes, unemployment
insurance taxes, and Federal employee retirement payments. This
category has grown from two percent of GDP in 1955 to nearly seven
percent in 1998.

•

Corporate income taxes, which will raise an estimated $190 billion in
1998, have shrunk steadily as a percent of GDP, from 4.5 percent in
1955 to 2.3 percent today.
7

Table 2–1. Revenues By Source—Summary
(In billions of dollars)

Source

1996
Actual

Estimate
1997

1998

1999

2000

2001

2002

Individual income taxes . .

656

673

691

722

756

795

Corporate income taxes .

172

176

190

200

212

221

840
228

Payroll taxes . . . . . . . . . .

509

536

558

585

614

642

673

Excise taxes . . . . . . . . . .

Estate and gift taxes . . . .

Customs duties . . . . . . . .

Miscellaneous receipts . . .

Total receipts . . . . . . . .

1,453

1,505

1,567

1,643

1,727

1,808

1,897

Notes: The revenues listed in this table do not include revenues from the Government’s business-like activities—i.e., the
sale of electricity and fees to national parks. The Government counts these revenues on the spending side of the budget,
deducting them from other spending to calculate its outlays for the year.
Numbers may not add to the totals due to rounding.

•

Excise taxes apply to various products, including alcohol, tobacco,
transportation fuels, and telephone services. The Government earmarks
some of these taxes to support certain activities—including highways,
airports and airways, and the cleanup of hazardous substances-and
deposits others in the general fund.

•

The Government also collects miscellaneous revenues—e.g., customs
duties, Federal Reserve earnings, fines, penalties, and forfeitures.

Chart 2–4. Composition of Revenues
PERCENT
100

SOCIAL INSURANCE TAXES
80

EXCISE TAXES
60

CORPORATION INCOME TAXES

INDIVIDUAL INCOME TAXES
20

OTHER

0
1957

1962

1967

1972

1977

1982

1987

1992

1997

2002

Between 1960 and 1996, payroll taxes have increased
substantially as a percent of GDP, and corporate income taxes
have declined, but individual income taxes have remained
roughly constant.

Chart 2–5. Revenues as a Percent of GDP—Comparison With Other
Countries
55%
FRANCE

50%

GERMANY

45%

ITALY

UNITED KINGDOM

CANADA

40%
35%

JAPAN

30%

UNITED STATES

25%
20%
1981

1985

1990

1995

Source: OEDC, calendar year data.

The United States and Japan have the lowest revenues as a percent of
GDP of the seven countries listed above.

Spending
As we have said, the Federal Government will spend nearly $1.7 trillion 1 in
1998, which we divided into eight large categories as shown in Chart 2–6.
•

The largest Federal program is Social Security, which provides monthly
benefits to more than 43 million retired and disabled workers, their
dependents, and survivors. It accounts for 23 percent of all Federal
spending.

•

Medicare, which provides health care coverage for over 33 million elderly
Americans and people with disabilities, consists of Part A (hospital
insurance) and Part B (insurance for physician costs and other services).
Since its birth in 1965, Medicare has accounted for an ever-growing share
of spending. In 1998, it will comprise 12 percent.

Chart 2–6. The Federal Government Dollar—
Where It Goes
Pie 1

DISCRETIONARY
NON-DEFENSE
DISCRETIONARY
17%

SOCIAL
SECURITY
23%

NATIONAL
DEFENSE
15%
MEDICAID
6%

NET
INTEREST
15%
MEDICARE
12%

MANDATORY
REMAINING
ENTITLEMENTS
5%

OTHER
MEANS-TESTED
ENTITLEMENTS/1
6%

Note: Numbers do not add due to rounding.
1

Means-tested entitlements are those for which eligibility is based on income. The Medicaid
program is also a means-tested entitlement.

1
In calculating Federal spending, the Government deducts collections (revenues) generated by the
Government’s business-like activities, such as fees to national parks. These collections will total an
estimated $209 billion in 1998. Without them, spending would total an estimated $1.9 trillion in
1998, not $1.7 trillion.

•

Medicaid provides health care services to over 38 million Americans,
including the poor, people with disabilities, and senior citizens in nursing
homes. Unlike Medicare, the Federal Government shares the costs of
Medicaid with the States, paying between 50 and 83 percent of the total
(depending on each State’s requirements). Federal and State costs are
growing rapidly. Medicaid accounts for six percent of the Federal budget.

•

Other means-tested entitlements provide benefits to people and families
with incomes below certain minimum levels that vary from program to
program. The major means-tested entitlements are Food Stamps and food
aid to Puerto Rico, Supplemental Security Income, Child Nutrition, the
Earned Income Tax Credit, and veterans’ pensions. This category will
account for an estimated six percent of the budget in 1998.

•

The remaining entitlements, which mainly consist of Federal retirement
and insurance programs and payments to farmers, comprise five percent
of the budget.

•

National defense discretionary spending will total an estimated $260
billion in 1998, comprising 15 percent of the budget and 3.2 percent of
GDP.

•

Non-defense discretionary spending—a wide array of programs that
include education, training, science, technology, housing, transportation,
and foreign aid—has shrunk as a share of the budget from 23 percent in
1966 to an estimated 17 percent in 1998.

•

Interest payments, primarily the result of previous budget deficits,
averaged seven percent of Federal spending in the 1960s and 1970s. But,
due to the large budget deficits that began in the 1980s, that share quickly
doubled to 15 percent, where it stands today.

Table 2–2. Spending Summary
(Outlays, in billions of dollars)

Category

1996
Actual

Estimate
1997

1998

1999

2000

2001

2002

Discretionary:
National defense . . . . . . . . . . . . . . . .

266

268

260

262

268

269

International. . . . . . . . . . . . . . . . . . . .

274
19

Domestic . . . . . . . . . . . . . . . . . . . . . .

250

263

268

276

277

274

Subtotal, discretionary . . . . . . . . . . .

534

550

547

558

564

561

567

Mandatory:
Programmatic:
Social security . . . . . . . . . . . . . . . .

347

364

381

399

418

438

460

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

171

192

204

217

227

243

261

Medicaid. . . . . . . . . . . . . . . . . . . . .

106

112

118

125

133

Means-tested entitlements (except
Medicaid) . . . . . . . . . . . . . . . . . . . .

104

107

112

117

115

122

Other . . . . . . . . . . . . . . . . . . . . . . .

117

122

147

156

169

167

166
1,142

Subtotal, programmatic . . . . . . . .

822

880

946

995

1,048

1,089

Undistributed offsetting receipts . . . . .

−38

−46

−56

−44

−46

−50

−68

Subtotal, mandatory . . . . . . . . . . . .

785

834

890

951

1,002

1,038

1,074

Net interest . . . . . . . . . . . . . . . . . . . .

241

247

250

252

248

245

239

Subtotal, mandatory and net interest

1,026

1,081

1,140

1,203

1,251

1,283

1,313

Total . . . . . . . . . . . . . . . . . . . . . . . . 1,560 1,631 1,687 1,761 1,814 1,844 1,880
Note: Numbers may not add to the totals due to rounding.

Table 2–3. Spending by Function
(Outlays in billions of dollars)

Function

1996
Actual

Estimate
1997

1998

1999

2000

2001

2002

National defense:
Department of Defense-Military . . . . . . .

253

254

247

249

255

256

Other . . . . . . . . . . . . . . . . . . . . . . . . . .

261
12

Total National defense . . . . . . . . . . . . . .

266

267

259

261

267

268

273

International affairs . . . . . . . . . . . . . . . .

General science, space, and technology .

Energy . . . . . . . . . . . . . . . . . . . . . . . . .

−*

Natural resources and environment . . . .

Agriculture . . . . . . . . . . . . . . . . . . . . . .

Commerce and housing credit . . . . . . . .

−11

−9

Transportation. . . . . . . . . . . . . . . . . . . .

Community and regional development . .

Education, training, employment, and
social service . . . . . . . . . . . . . . . . . . . . .

Health . . . . . . . . . . . . . . . . . . . . . . . . .

119

128

138

145

152

160

165

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

174

194

207

220

229

246

263

Income security . . . . . . . . . . . . . . . . . . .

226

239

247

256

266

269

280

Social Security . . . . . . . . . . . . . . . . . . .

350

368

384

402

421

441

463

Veterans benefits and services . . . . . . . .

Administration of justice . . . . . . . . . . . .

General government . . . . . . . . . . . . . . .

Net interest. . . . . . . . . . . . . . . . . . . . . .

241

247

250

252

248

245

239

Undistributed offsetting receipts . . . . . . .

−38

−46

−56

−44

−46

−50

−68

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

1,560 1,631 1,687 1,761 1,814 1,844 1,880

* $500 million or less.
Notes: Spending that is shown as a minus means that receipts exceed outlays.
Notes: Numbers may not add to the totals due to rounding.

Table 2-4.Spending by Agency
(Outlays, in billions of dollars)

Agency

Estimate

1996
Actual

1997

1998

1999

2000

2001

2002

Legislative Branch . . . . . . . . . . . . . . . . .

The Judiciary . . . . . . . . . . . . . . . . . . . . .

Executive Office of the President . . . . . .

Funds Appropriated to the President. . . .

Agriculture . . . . . . . . . . . . . . . . . . . . . . .

Commerce . . . . . . . . . . . . . . . . . . . . . . .

Defense-Military . . . . . . . . . . . . . . . . . . .

253

254

247

249

255

256

261

Defense-Civil . . . . . . . . . . . . . . . . . . . . .

Education . . . . . . . . . . . . . . . . . . . . . . . .

Energy . . . . . . . . . . . . . . . . . . . . . . . . . .

Health and Human Services . . . . . . . . . .

320

351

376

397

414

439

462

Housing and Urban Development . . . . . .

Interior. . . . . . . . . . . . . . . . . . . . . . . . . .

Justice . . . . . . . . . . . . . . . . . . . . . . . . . .

Labor. . . . . . . . . . . . . . . . . . . . . . . . . . .

State . . . . . . . . . . . . . . . . . . . . . . . . . . .

Transportation . . . . . . . . . . . . . . . . . . . .

Treasury . . . . . . . . . . . . . . . . . . . . . . . . .

365

381

390

398

400

402

403

Veterans Affairs . . . . . . . . . . . . . . . . . . .

Environmental Protection Agency . . . . . .

General Services Administration . . . . . . .

National Aeronautics and Space
Administration . . . . . . . . . . . . . . . . . . . .

Office of Personnel Management . . . . . .

Small Business Administration . . . . . . . . .

Social Security Administration . . . . . . . . .

375

396

413

432

454

471

496

Other Independent Agencies . . . . . . . . . .

Undistributed Offsetting Receipts . . . . . . .

−135

−151

−166

−157

−165

−174

−197

Total . . . . . . . . . . . . . . . . . . . . . . . . . 1,560 1,631 1,687 1,761 1,814 1,844 1,880
* $500 million or less.
Notes: Spending that is shown as a minus means that receipts exceed outlays.
Notes: Numbers may not add to the totals due to rounding.

“On” and “Off” Budget
From time to time, you may hear about programs that are “off-budget,”
meaning that the Government categorizes them separately from other
programs.
Specifically, the law requires that the spending and revenues of two Federal
programs, Social Security and the Postal Service, be excluded from the
budget totals-that is, categorized as “off-budget.” Therefore, the budget
displays “on-budget,” “off-budget,” and “unified budget” totals to satisfy this
legal requirement.
The unified budget is the most useful display of the Government’s finances;
it is vital in calculating how much the Government has to borrow.
The “off-budget” category is designed to give special status to certain
programs. Over the years, the Government has placed numerous programs
“off-budget,” then returned them to the unified budget. But the mere listing
of programs as “off-budget” does not, by itself, protect them from the budget
process—e.g., Administration and congressional review, possible cuts, and
hiring and procurement rules.
Chart 2–7 illustrates the relationship between on- and off-budget items, and
the unified budget.

Chart 2–7. On- and Off-Budget Deficit Projections
DOLLARS IN BILLIONS

BUDGET DEFICIT EXCLUDING
"OFF-BUDGET" ITEMS:
1
SOCIAL SECURITY AND POSTAL SERVICE

-250
-200

-150
-100

UNIFIED BUDGET DEFICIT
-50
0

50
1997

1998

1999

2000

2001

2002

1 By law, the Social Security trust funds and the Postal Service are off-budget.

3. How Does the Government Create a
Budget?
The President and Congress both play major roles in developing the Federal
budget.

The President’s Budget
The law requires that, by the first Monday in February, the President submit
to Congress his proposed Federal budget for the next fiscal year, which
begins October 1.
The White House’s Office of Management and Budget (OMB) prepares the
budget proposal, after receiving direction from the President and consulting
with his senior advisors and officials from Cabinet departments and other
agencies.
The President’s budget—which typically includes a main book and several
accompanying books 1—covers thousands of pages and provides reams of
details.

The Budget Process
Through the budget process, the President and Congress decide how much
to spend and tax in any one fiscal year. More specifically, they decide how
much to spend on each activity, ensure that the Government spends no
more and spends it only for that activity, and report on that spending at the
end of each budget cycle.
The President’s budget is his plan for the next year. But it’s just a proposal.
After receiving it, Congress has its own budget process to follow. Only after
the Congress passes, and the President signs, the required spending bills has
the Government created its actual budget.
1
They are the main budget book, entitled, Budget of the United States Government: Fiscal Year
1998, as well as Analytical Perspectives, Appendix, Historical Tables, and A Citizen’s Guide to the
Federal Budget, which you are now reading.

For fiscal 1998—that is, October 1, 1997 to September 30, 1998—the
major steps in the budget process are outlined in Chart 3–1.

Chart 3-1.Major Steps in the Budget Process
February–December
Formulation of the President’s Executive Branch agencies develop
budget for fiscal 1998.
requests for funds and submit them 1996
to the Office of Management and
Budget. The President reviews the
requests and makes the fiscal
decisions on what goes in his budget.
Budget preparation and trans- The budget documents are prepared December 1996–
mittal.
and transmitted to the Congress.
February 1997
Congressional action on the
budget.

March–September
The Congress reviews the
1997
President’s proposed budget,
develops its own budget, and
approves spending and revenue bills.

The fiscal year begins.

October 1, 1997

Agency program managers execute the budget provided in law.

October 1, 1997–
September 30,
1998

Data on actual spending and receipts for the completed fiscal year
become available.

October–November
1998

Action in Congress
Congress first must pass a “budget resolution”—a framework within which
the Members will make their decisions about spending and taxes. It includes
targets for total spending, total revenues, and the deficit, and allocations
within the spending target for the two types of spending—-discretionary and
mandatory—explained below:

•

Discretionary spending, which accounts for 32 percent of all Federal
spending, is what the President and Congress must decide to spend for
the next year through the 13 annual appropriations bills. It includes
money for such activities as the FBI and the Coast Guard, for housing and
education, for space exploration and highway construction, and for
defense and foreign aid.

•

Mandatory spending, which accounts for 68 percent of all spending, is
authorized by permanent laws, not by the 13 annual appropriations bills.
It includes entitlements—such as Social Security, Medicare, veterans’
benefits, and Food Stamps-through which individuals receive benefits

because they are eligible based on their age, income, or other criteria. It
also includes interest on the national debt, which the Government pays to
individuals and institutions that hold Treasury bonds and other Government securities. The President and Congress can change the law in order
to change the spending on entitlements and other mandatory programs—but they don’t have to.
Think of it this way: For discretionary programs, Congress and the President
must act each year to provide spending authority. For mandatory programs,
they may act in order to change the spending that current laws require.
Currently, the law imposes a limit, or “cap,” through 1998 on total annual
discretionary spending. Within the cap, however, the President and
Congress can, and often do, change the spending levels from year to year
for the thousands of individual Federal spending programs.
In addition, the law requires that legislation that would raise mandatory
spending or lower revenues—compared to existing law-be offset by
spending cuts or revenue increases. This requirement, called “pay-as-yougo,” is designed to prevent new legislation from increasing the deficit.
Once Congress passes the budget resolution, it turns its attention to passing
the 13 annual appropriations bills and, if it chooses, “authorizing” bills to
change the laws governing mandatory spending and revenues.
Congress begins by examining the President’s budget in detail. Scores of
committees and subcommittees hold hearings on proposals under their
jurisdiction. The House and Senate Armed Services Authorizing Committees, and the Defense and Military Construction Subcommittees of the
Appropriations Committees, for instance, hold hearings on the President’s
defense plan. If the President’s budget proposed changes in taxes, the
House Ways and Means and the Senate Finance Committees would hold
hearings. The Budget Director, Cabinet officers, and other Administration
officials work with Congress as it accepts some of the President’s proposals,
rejects others, and changes still others. Congressional rules require that these
committees and subcommittees take actions that reflect the budget
resolution.
If you read through the President’s budget, the budget resolution, or the
appropriations or authorizing bills that Congress drafts, you will notice that
the Government measures spending in two ways—"budget authority" and
“outlays”:
Budget authority (or BA) is what the law authorizes the Federal
Government to spend for certain programs, projects, or activities. What the
Government actually spends in a particular year, however, is an outlay. To
19

see the difference, consider what happens when the Government decides to
build a space exploration system.
The President and Congress may agree to spend $1 billion for the space
system. Congress appropriates $1 billion in BA. But the system may take 10
years to build. Thus, the Government may spend $100 million in outlays in
the first year to begin construction and the remaining $900 million over the
next nine years as construction continues.

Monitoring the Budget
Once the President and Congress approve spending, the Government
monitors the budget through:
•

agency program managers and budget officials, including the Inspectors
General, or IGs, who report only to the agency head;

•

OMB;

•

congressional committees; and

•

the General Accounting Office, an auditing arm of Congress.

This oversight is designed to:
•

ensure that agencies comply with legal limits on spending, and that they
use budget authority only for the purposes intended;

•

see that programs are operating consistently with legal requirements and
existing policy; and, finally,

•

ensure that programs are well managed and achieving the intended
results.

The Government has paid more attention to good management of late,
through the work of Vice President Gore’s National Performance Review
and implementation of the 1993 Government Performance and Results
Act. This law is designed to improve Government programs by using better
measurements of their results in order to evaluate their effectiveness.

4. Deficits and the Debt
You’ve probably heard a lot about the Federal budget deficit and debt in
recent years, primarily because both exploded in size in the 1980s.
Put simply, a deficit occurs when spending exceeds revenues in any
year—just as a surplus occurs when revenues exceed spending. Generally, to
finance our deficits, the Treasury borrows money. The debt is the sum total
of our deficits, minus our surpluses, over the years.
The deficit is not a new phenomenon; the Government incurred its first in
1792, and it generated 69 annual deficits between 1900 and 1996.
Chart 4–1 provides the history of budget surpluses and deficits since 1940.

Chart 4–1. Past and Future Budget Deficits or Surpluses
DOLLARS IN BILLIONS
-350

DEFICIT

-300
-250
-200
-150
-100

ACTUAL

PROJECTED

-50
0

SULPRUS

50
100
1940

1950

1960

1970

1980

1990

2000

Deficits began increasing dramatically in the 1980s, but have begun to
decline. The President’s budget is designed to bring the budget into
balance over the next five years.
21

For most of the Nation’s history, deficits were the result of either wars or
recessions. Wars necessitated major increases in military spending, while
recessions reduced Federal tax revenues from businesses and individuals.
The Government generated deficits during the War of 1812, the recession
of 1837, the Civil War, the depression of the 1890s, and World War I. Once
the war ended or the economy began to grow, the Government followed its
deficits with budget surpluses, with which it paid down the debt.
Deficits returned in 1931 and remained for the rest of the decade—due to
the Great Depression and the spending associated with President
Roosevelt’s New Deal. Then, World War II forced the Nation to spend
unprecedented amounts on defense and to incur unprecedented deficits.
Since then—with Democratic and Republican Presidents, Democratic and
Republican Congresses—the Government has balanced its books only eight
times, most recently in 1969.
Why have deficits become such a perennial problem for budget
decisionmakers? Because spending has been growing faster than revenues.

Chart 4–2. Outlays as a Percent of GDP
PERCENT

NET INTEREST

SOCIAL SECURITY

15
MEDICARE/MEDICAID

OTHER MANDATORY

NATIONAL DEFENSE

5
NON-DEFENSE DISCRETIONARY

0
1965

1969

1973

1977

1981

1985

1989

1993

1997

Between 1965 and 1996, spending on Social Security, Medicare and
Medicaid, and interest as a percentage of GDP grew, while spending on
defense fell.
22

Revenues have stayed relatively constant, at around 17 to 19 percent of
GDP, since the 1960s. In that time, however, outlays have grown from
about 17 percent of GDP in 1965 to up to nearly 24 percent in 1983 before
falling to 21 percent today. Much of the spending growth has come in Social
Security, Medicare, Medicaid, and interest payments (see Chart 4–2).
Nevertheless, the deficits before 1981 paled in comparison to what
followed. That year, the Government cut income tax rates and greatly
increased defense spending, but it did not cut non-defense programs enough
to make up the difference. Also, the recession of the early 1980s reduced
Federal revenues, increased Federal outlays for unemployment insurance
and similar programs that are closely tied to economic conditions, and
forced the Government to pay interest on more national debt at a time when
interest rates were high. As a result, the deficit soared.

Why the Deficit is a Problem
The United States is not alone in struggling with budget deficits. As Chart
4–3 illustrates, this Nation has a good record when compared to the recent
history of six other major developed economies. (To make accurate
comparisons with the governments of other nations, the U.S. data include
the activities of State and local governments).
If budget deficits occur so frequently, here and abroad, should we worry
about them?
The short answer is, yes. The deficit forces the Government to borrow
money in the private capital markets. That borrowing competes with (1)
borrowing by businesses that want to build factories and machines that make
workers more productive and raise incomes, and (2) borrowing by families
who hope to buy new homes, cars, and other goods. The competition for
funds tends to produce higher interest rates.
Deficits increase the Federal debt and, with it, the Government’s obligation
to pay interest. The more it must pay in interest, the less it has available to
spend on education, law enforcement, and other important services, or the
more it must collect in taxes—forever after. Today, the Government spends
15 percent of its budget to pay interest.
The Federal interest burden grew substantially in the 1980s, both in actual
dollars and as a percentage of Federal income tax revenues (see Chart 4–4).
By 1998, net interest spending will be nearly as much as the Government
will spend on national defense.
23

Chart 4–3. Total Government Surplus or Deficit as a
Percent of GDP
-15%

DEFICITS

CANADA
FRANCE

-5%

SURPLUS

UNITED KINGDOM

ITALY

-10%

UNITED STATES

GERMANY

JAPAN

5%
1981

1983

1985

1987

1989

1991

1993

1995

Source: OECD, calendar year data.

Relative to the above economies, the total Government budget deficit in
the United States is low.

In the end, the deficit is a decision about our future. We can provide a solid
foundation for future generations, just as parents try to do within a family by
limiting the amount of debt that they pass on; or we can generate large
deficits and debt for those who come after us.

Deficits and Debt
If the Government incurs a deficit, it must borrow from the public.
Table 4–1 summarizes the relationship between the budget deficit and
Federal borrowing.
Federal borrowing involves the sale, to the public, of notes and bonds of
varying sizes and time periods. The cumulative amount of borrowing from
the public—i.e., the debt held by the public—is the most important measure
of Federal debt because it is what the Government has borrowed in the
24

Chart 4–4. Interest Costs as a Percent of Income Tax
Revenues
PERCENT
35
30
25

ACTUAL

PROJECTED

20
15
10
5
0

1957 1962 1967 1972 1977 1982 1987 1992 1997 2002

private markets over the years, and it determines how much the
Government pays in interest to the public.
Table 4–1. Federal Government Financing and Debt
(In billions of dollars)
1996
Actual

Estimate
1997

1998

1999

2000

2001

2002

Federal Government financing:
Budget deficit (–) or surplus . . . . . . . . .

−107

−126

−121

−117

−87

−36

Other means of financing . . . . . . . . . .

−22

−17

−25

−21

−22

−23

−22

Borrowing from the public . . . . . . . .

130

143

146

138

110

Debt held by the public. . . . . . . . . . . .

3,733

3,876

4,021

4,159

4,269

4,328

4,333

Debt held by government accounts . . .

1,449

1,578

1,715

1,853

2,003

2,157

2,319

Gross Federal debt . . . . . . . . . . . . . .

5,182

5,454

5,736

6,013

6,272

6,485

6,653

Debt subject to legal limit . . . . . . . . . .

5,137

5,411

5,697

5,973

6,233

6,447

6,615

Federal Government debt:

Note: Numbers may not add to the totals due to rounding.

Debt held by the public was $3.7 trillion at the end of 1996—roughly the net
effect of deficits and surpluses over the last 200 years. Debt held by the
public does not include debt the Government owes itself—the total of all trust
fund surpluses and deficits over the years, like the Social Security surpluses,
that the law says must be invested in Federal securities.
The sum of debt held by the public and debt the Government owes itself is
called Gross Federal Debt. At the end of 1996, it totaled $5.2 trillion.
Another measure of Federal debt is debt subject to legal limit, which is similar
to Gross Federal Debt. When the Government reaches the limit, it loses its
authority to borrow more to finance its spending; then, the President and
Congress must enact a law to increase the limit.
The Government’s ability to finance its debt is tied to the size and strength of
the economy, or GDP. Debt held by the public was 50 percent of GDP at the
end of 1996. As a percentage of GDP, debt held by the public was highest at
the end of World War II, at 111 percent, then fell to 24 percent in 1974
before gradually rising to current levels.
That decline, from 111 to 24 percent, occurred because the economy grew
faster than the debt accumulated; debt held by the public rose by amounts
ranging from $242 billion to $344 billion in those years, but the economy
grew faster.
Individuals and institutions in the United States hold over 70 percent of debt
held by the public. The rest is held in foreign countries.

Deficit Reduction Efforts
Ever since the deficit soared in the early 1980s, successive Presidents and
Congresses have tried to cut it. Until recently, they met with only limited
success.
In the early 1980s, President Reagan and Congress agreed on a large tax
cut, but could not agree about cutting spending; the President wanted to cut
domestic spending more than Congress, while Congress sought fewer
defense funds than the President wanted. They wound up spending more on
domestic programs than the President wanted, and more on defense than
Congress wanted. At the same time, a recession led to more spending to aid
those affected by the recession, and reductions in tax revenues due to lower
incomes and corporate profits.
By 1985, both sides were ready for drastic measures. That year, they
enacted the Balanced Budget and Emergency Deficit Control Act, better
known as Gramm-Rudman-Hollings (GRH). It set annual deficit targets for
26

five years, declining to a balanced budget in 1991. If necessary, GRH
required across-the-board cuts in programs to comply with the deficit targets.
Faced with the prospect of huge spending cuts in 1987, however, the
President and Congress amended the law, postponing a balanced budget
until 1993. The President and Congress never achieved those revised
targets, in part because of the extraordinary costs of returning the Nation’s
savings and loan industry to a sound financial footing.
By 1990, President Bush and Congress enacted spending cuts and tax
increases that were designed to cut the accumulated deficits by about $500
billion over five years. They also enacted the Budget Enforcement Act
(BEA)—rather than set annual deficit targets, the BEA was designed to limit
discretionary spending while ensuring that any new entitlement programs or
tax cuts did not make the deficit worse.
First, the BEA set annual limits on total discretionary spending for defense,
international affairs, and domestic programs. Second, it created “pay-asyou-go” rules for entitlements and taxes: those who proposed new spending
on entitlements or lower taxes were forced to offset the costs by cutting
other entitlements or raising other taxes.
For what it was designed to do, the law worked. It did, in fact, limit
discretionary spending and force proponents of new entitlements and tax
cuts to find ways to finance them. But the deficit, which Government and
private experts said would fall, actually rose.
Why? Because the recession of the early 1990s reduced individual and
corporate tax revenues and increased spending that is tied to economic
fluctuations. Federal health care spending also continued to grow rapidly.
In 1993, President Clinton and the Congress made another effort to cut the
deficit. They enacted a five-year deficit reduction package of spending cuts
and higher revenues. The law was designed to cut the accumulated deficits
from 1994 to 1998 by about $500 billion. The new law extended the limits
on discretionary spending and the “pay-as-you-go” rules.
Clearly, the President’s deficit reduction efforts have paid off. The deficit fell
from $290 billion in 1992 to $107 billion in 1996, and by two-thirds as a
share of GDP, to 1.4 percent. Now, as you will see in the next chapter, the
President wants to finish the job by balancing the budget over the next five
years.

5. THE PRESIDENT’S 1998 BUDGET
This budget fulfills the President’s firm commitment to reach balance in
2002, building on the balanced-budget proposals that he outlined in his
negotiations last year with the bipartisan leaders of Congress. Having cut the
deficit by over 60 percent in his first term, the President is determined to
finish the job.
Specifically, the President continues to seek cuts in unnecessary and
lower-priority spending in both discretionary and mandatory programs, and
to eliminate unwarranted tax and other preferences for corporations and
others. The cuts would generate enough savings to provide tax relief to help
middle-income Americans raise their children, send them to college, and
save for the future; and to restore some harsh cuts in anti-poverty programs
that Congress attached to last year’s welfare reform bill.

Reaching Balance
Among its major elements, the budget:
•

saves $137 billion in discretionary spending, cutting unnecessary and
lower-priority programs while investing in education and training, the
environment, science and technology, law enforcement, and other
priorities that would raise living standards and the quality of life for
average Americans;

•

saves $100 billion in Medicare, ensuring the solvency of the Part A trust
fund until 2007 while maintaining the essential quality of Medicare
services for the elderly and people with disabilities;

•

saves $22 billion in Medicaid, building upon the substantial savings that
Federal and State experimentation in this jointly-run program is already
generating, and continuing the guarantee of essential health and
long-term care coverage for the most vulnerable Americans;

•

saves $76 billion by ending corporate subsidies and other tax loopholes,
extending expired tax provisions, and improving tax compliance;

•

saves $36 billion by continuing the Administration’s successful policy of
auctioning segments of the broadcast spectrum;
29

•

provides $18 billion to correct the harsh provisions that Congress
attached to last year’s welfare reform law; and

•

cuts taxes by $98 billion, providing tax relief to tens of millions of
middle-income Americans and small businesses.

Investing in the Future
Balancing the budget is not an end in itself. Rather, it helps fulfill the
President’s main economic goal—to raise the standard of living for average
Americans, both now and in the future. So do his spending priorities.
The budget continues the President’s policy of shifting Federal resources to
education and training, science and technology, and other investments to
enable Americans to get the skills to acquire good jobs, and to give
businesses the tools to become more competitive, in the new economy. It
also continues to shift resources to the environment and law enforcement,
raising the quality of life for average Americans.
For education and training, the budget proposes to fulfill the President’s
commitment to put one million disadvantaged children in the Head Start
program by 2002; to create safe learning environments for more children;
to help more school systems extend high academic standards, better
teaching, and better learning to all students; to enable more Americans to
serve their communities and earn money for college; to bring technology
into more classrooms; to create a $1,000 merit scholarship for the top five
percent of graduates in every high school; to let more parents, teachers, and
communities create public schools to meet their own children’s needs; to
make it easier for parents and students to borrow and repay college loans; to
create the largest increase in Pell Grant scholarships in history in 20 years;
and, finally, to provide Skill Grants to adults for job training.
The budget proposes to maintain environmental enforcement; protect
national parks and other sensitive resources; and provide tax incentives to
encourage companies to clean up “brownfields”—abandoned, contaminated
industrial properties in distressed areas. It would put 17,000 more police on
the street, bringing the total to 81,000 and moving closer to the President’s
goal of 100,000 by the year 2000; and it would provide more funds to
combat juvenile crime and step up the fight against drugs, largely by focusing
on treatment and prevention aimed at young Americans. It would increase
the number of Border Patrol agents and workplace investigations to prevent
illegal immigration and deter the hiring of illegal immigrants.
30

The budget invests in research, including biomedical research at the National
Institutes of Health, in programs to combat infectious diseases at the Centers
for Disease Control, in the Ryan White AIDS program that provides
potentially life-extending drug therapies to many people with AIDS, and in
community health centers and Indian Health Service facilities. The budget
funds full participation in the Special Supplemental Nutrition Program for
Women, Infants, and Children (WIC), which would serve 7.5 million people
by the end of 1998.
Over the last year, the President also has proposed a series of initiatives to
more quickly, and more effectively, meet his goal of higher living standards
and a better quality of life for all Americans.
•

Along with his earlier call for a tax deduction of up to $10,000 for college
tuition and job training, the President proposes a new $1,500-a-year
HOPE scholarship tax credit to make two years of college universal. The
budget also proposes to increase Pell Grants for lower-income families
who lack the tax liability to benefit from the tax cuts.

•

The President proposes America Reads to help ensure that all children
can read by the third grade, and a five-year, $5 billion school construction
fund to help States and communities address the serious problem of
dilapidated school buildings.

•

Building on his earlier proposal to help the unemployed keep their health
care for six months, the President now proposes to help expand health
care coverage to uninsured children.

•

Having taken the first step to reform welfare, the President now proposes
to enhance the Work Opportunity Tax Credit to encourage employers to
hire long-term welfare recipients.

Improving Performance in a Balanced
Budget World
“We still have work to do,” the President declared in late 1996, “for while
the era of big Government is over, the era of big challenges is not.”
Over the last four years, the President has used Federal resources and the
power of his office to begin achieving educational excellence, expanding
opportunity, cleaning up the environment, investing in promising research,
ending welfare as we know it, protecting health care and pensions, making
the tax system fairer, and keeping America strong. Americans want more
31

progress on these and other issues and, with limited funds, the Federal
Government must be able to respond effectively.
Led by Vice President Gore’s National Performance Review, the
Administration promised to create a Government that “works better and
costs less.” It is saving money, cutting the workforce, eliminating needless
regulations and improving the necessary ones, streamlining bureaucracies,
cutting red tape, and finding ways to better serve Government’s
“customers”—the American people.
In 1993, President Clinton pledged to cut the Federal workforce by
252,000 full-time equivalent (FTE) positions. A year later, the President and
Congress enacted the Federal Workforce Restructuring Act, requiring cuts of
272,900 FTEs by the end of this decade. (An FTE is not necessarily
synonymous with an employee. One full-time employee counts as one FTE,
and two half-time employees also count as one FTE.)
To date, the Administration has cut the work force by over 250,000
employees out of 2.2 million in January 1993, creating the smallest Federal
workforce in 30 years and, as a percentage of all civilian workers, the
smallest since 1931. The cuts correspond to a reduction of over 250,000
FTEs (see Chart 5–1).
But, while Americans want a smaller Government, they also deserve one
that works better—that treats them as valued customers at Social Security,
veterans’, and other offices; that uses their tax dollars wisely; and that makes
a real impact on their lives when it addresses the problems of crime and
poverty and the challenges of work and education.
The Administration has found many ways for agencies to improve their
performance and cut costs. Some of them focus on eliminating obsolete
processes, others on improving the ones they have. Because agencies and
programs are so different from one another, not every tool, technique, or
strategy applies to each agency and department. But every agency and
program can benefit from a number of them.
Based on lessons learned over the past four years, the Administration plans
to use the following seven tools.
Restructure Agencies: Agencies are streamlining their workforces;
eliminating redundant layers of bureaucracy; closing small, inefficient field
offices; and creating partnerships with State and local governments and the
private sector to focus on joint goals and the progress toward meeting them.
Improve Effectiveness of the Federal Workplace: Federal workers
are working harder and smarter each and every day, but the Government
must continue to downsize the workforce to live within the means of a
32

Chart 5–1. Cuts in Civilian Employment
FTE CUTS IN THOUSANDS
400

ALREADY CUT

PROJECTED

350
300
300

264

274

250
185

200
150
103
100
50

0
1993

1994

1995

1996

1997

1998

Note: In 1993, the President pledged to cut the Federal work force by 252,000 full-time equivalent (FTE) positions.
Simply put, one full-time employee counts as one FTE, and two employees who work half-time also count as one FTE.

balanced budget. The Administration will continue to closely manage and
target its downsizing, while agencies work to avoid employee disputes and
resolve them quickly when they occur.
Reform Federal Purchasing Practices: Before President Clinton took
office, efforts to make Government work better and cost less were often
hindered by the Government’s unique acquisition system. But now, with
strong bipartisan support from Congress, the Administration is transforming
the system into one that operates much more like those of our most
successful companies.
Expand Competition to Improve Services and Reduce Costs:
Competition spurs efficiency. The Administration is encouraging agencies to
compete with one another, and with the private sector, to provide common
administrative support services. More competition will bring new technologies, capital, management techniques, and opportunity to Federal employees and their customers.
Follow the Best Private Sector Practices in Using Information
Technology: Well-managed information technology should improve
Government’s productivity while cutting costs. Agencies are copying the
33

successful practices of private firms to ensure that the technology provides
workable solutions to real problems at a reasonable cost.
Improve Credit Program Performance: The Government must
manage its cash and loan assets as wisely as possible. It must design and
administer its loan programs prudently, and provide incentives to ensure that
it can collect its “receivables” (the amounts owed) in a timely fashion.
Improve Business Management Practices: An efficient, effective
Government needs sound financial management, reliable information, and,
where appropriate, fees from those who benefit from Government’s
business-like activities.
These tools are designed to do more than let agencies function better for
their own sake. Ultimately, they are designed to help agencies provide
better, more effective services to the American people.
Already, agencies are assessing what their programs actually accomplish and
what they must do to improve their performance. The Government
Performance and Results Act (GPRA)—the landmark legislation that enjoyed
broad bipartisan support in Congress before the President signed it in
1993—makes agencies more accountable for, and focused on, what their
programs achieve.
Agencies now have many of the tools they need. Others will require
legislation. The President wants to work with Congress to help agencies
improve their performance in a balanced budget world.

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Glossary
Appropriation
An appropriation is an act of Congress that enables Federal agencies to
spend money for specific purposes.
Authorization
An authorization is an act of Congress that establishes or continues a
Federal program or agency, and sets forth the guidelines to which it
must adhere.
Balanced Budget
A balanced budget occurs when total revenues equal total outlays for a
fiscal year.
Budget Authority (BA)
Budget authority is what the law authorizes, or allows, the Federal
Government to spend for programs, projects, or activities.
Budget Enforcement Act (BEA) of 1990
The BEA is the law that was designed to limit discretionary spending
while ensuring that any new entitlement program or tax cuts did not
make the deficit worse. It set annual limits on total discretionary
spending and created “pay-as-you-go” rules for any changes in
entitlements and taxes. (See “pay-as-you-go.”)
Balanced Budget and Emergency Deficit Control Act of 1985
(Gramm-Rudman-Hollings, or GRH)
The Balanced Budget and Emergency Deficit Control Act of 1985 was
designed to end deficit spending. It set annual deficit targets for five
years, declining to a balanced budget in 1991. If necessary, it required
across-the-board cuts in programs to comply with the deficit targets. It
was never fully implemented.
Budget Resolution
The budget resolution is the annual framework within which Congress
makes its decisions about spending and taxes. This framework includes
targets for total spending, total revenues, and the deficit, as well as
allocations, within the spending target, for discretionary and mandatory
spending.
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Sat Jan 25 14:55:36 1997

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“Cap”
A “cap” is a legal limit on total annual discretionary spending.
Deficit
The deficit is the difference produced when spending exceeds revenues
in a fiscal year.
Discretionary Spending
Discretionary spending is what the President and Congress must decide
to spend for the next fiscal year through 13 annual appropriations bills.
Examples include money for such activities as the FBI and the Coast
Guard, housing and education, space exploration and highway
construction, and defense and foreign aid.
Entitlement
An entitlement is a program that legally obligates the Federal
Government to make payments to any person who meets the legal
criteria for eligibility. Examples include Social Security, Medicare, and
Medicaid.
Excise Taxes
Excise taxes apply to various products, including alcohol, tobacco,
transportation fuels, and telephone service.
Federal Debt
The gross Federal debt is divided into two categories: debt held by the
public, and debt the Government owes itself. Another category is debt
subject to legal limit.
Debt Held by the Public
Debt held by the public is the total of all Federal deficits, minus
surpluses, over the years. This is the cumulative amount of money the
Federal Government has borrowed from the public, through the sale
of notes and bonds of varying sizes and time periods.
Debt the Government Owes Itself
Debt the Government owes itself is the total of all trust fund surpluses
over the years, like the Social Security surpluses, that the law says
must be invested in Federal securities.
Debt Subject to Legal Limit
Debt subject to legal limit, which is roughly the same as gross Federal
debt, is the maximum amount of Federal securities that may be legally
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outstanding at any time. When the limit is reached, the President and
Congress must enact a law to increase it.
Fiscal Year
The fiscal year is the Government’s accounting period. It begins
October 1 and ends on September 30. For example, fiscal 1998 ends
September 30, 1998.
Gramm-Rudman-Hollings
See Balanced Budget and Emergency Deficit Control Act of 1985.
Gross Domestic Product (GDP)
GDP is the standard measurement of the size of the economy. It is the
total production of goods and services within the United States.
Mandatory Spending
Mandatory spending is authorized by permanent law. An example is
Social Security. The President and Congress can change the law to
change the level of spending on mandatory programs—but they don’t
have to.
“Off-Budget”
By law, the Government must distinguish “off-budget” programs
separate from the budget totals. Social Security and the Postal Service
are “off-budget.”
Outlays
Outlays are the amount of money the Government actually spends in a
given fiscal year.
“Pay-As-You-Go”
Set forth by the BEA, “pay-as-you-go” refers to requirements that new
spending proposals on entitlements or tax cuts must be offset by cuts in
other entitlements or by other tax increases, to ensure that the deficit
does not rise. (See BEA.)
Revenue
Revenue is money collected by the Government.
Social Insurance Payroll Taxes
This tax category includes Social Security taxes, Medicare taxes,
unemployment insurance taxes, and Federal employee retirement
payments.
37

glossary.chp
Sat Jan 25 14:55:42 1997

Color profile: Disabled
Composite Default screen

Surplus
A surplus is the amount by which revenues exceed outlays.
Trust Funds
Trust funds are Government accounts, set forth by law as trust funds,
for revenues and spending designated for specific purposes.
Unified Federal Budget
The unified budget, the most useful display of the Government’s
finances, is the presentation of the Federal budget in which revenues
from all sources and outlays to all activities are consolidated.

glossary.chp
Sat Jan 25 14:55:46 1997

List of Charts and Tables

List of Charts

Page

What Is the Budget?
1–1 Government Spending as a Share of GDP, 1996

. . . . .

1–2 Total Government Outlays as a Percent of GDP . . . . . .

Where the Money Comes From—and Where It Goes
2–1 Family Budgeting . . . . . . . . . . . . . . . . . . . . .

2–2 National Budgeting

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

2–3 The Federal Government Dollar—Where It Comes From . .

2–4 Composition of Revenues . . . . . . . . . . . . . . . . .

2–5 Revenues as a Percent of GDP—Comparison With Other
2-5

Countries . . . . . . . . . . . . . . . . . . . . . . . . .

2–6 The Federal Government Dollar—Where It Goes . . . . . .

2–7 On- and Off-Budget Deficit Projections . . . . . . . . . . .

How Does the Government Create a Budget?
3–1 Major Steps in the Budget Process . . . . . . . . . . . . .

Deficits and the Debt
4–1 Past and Future Budget Deficits or Surpluses . . . . . . . .

4–2 Outlays as a Percent of GDP

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

4–3 Total Government Surplus or Deficit as a Percent of GDP .

4–4 Interest Costs as a Percent of Income Tax Revenues . . . .

The President’s 1998 Budget
5–1 Cuts in Civilian Employment . . . . . . . . . . . . . . . .

List of Tables

Page

Where the Money Comes From—and Where It Goes
2–1 Revenues by Source-Summary

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

2–2 Spending Summary . . . . . . . . . . . . . . . . . . . .

2–3 Spending by Function

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

2–4 Spending by Agency . . . . . . . . . . . . . . . . . . .

Deficits and the Debt
4–1 Federal Government Financing and Debt . . . . . . . . .

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