View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

Analytical Perspectives
BUDGET OF THE U. S. GOVERNMENT
Fiscal Year 2018

Office of Management and Budget

Analytical Perspectives
BUDGET OF THE U. S. GOVERNMENT
Fiscal Year 2018

Office of Management and Budget

THE BUDGET DOCUMENTS
Budget of the United States Government, Fiscal
Year 2018 contains the Budget Message of the President,
information on the President’s priorities, and summary
tables.
Analytical Perspectives, Budget of the United
States Government, Fiscal Year 2018 contains analyses that are designed to highlight specified subject areas or provide other significant presentations of budget
data that place the budget in perspective. This volume
includes economic and accounting analyses; information
on Federal receipts and collections; analyses of Federal
spending; information on Federal borrowing and debt;
baseline or current services estimates; and other technical presentations.
The Analytical Perspectives volume also has supplemental materials that are available on the internet at
www.budget.gov/budget/Analytical_Perspectives and on
the Budget CD-ROM. These supplemental materials include tables showing the budget by agency and account
and by function, subfunction, and program.
Appendix, Budget of the United States
Government, Fiscal Year 2018 contains detailed information on the various appropriations and funds that
constitute the budget and is designed primarily for the
use of the Appropriations Committees. The Appendix
contains more detailed financial information on individual programs and appropriation accounts than any of the
other budget documents. It includes for each agency: the
proposed text of appropriations language; budget schedules for each account; legislative proposals; narrative explanations of each budget account; and proposed general
provisions applicable to the appropriations of entire agen-

cies or group of agencies. Information is also provided on
certain activities whose transactions are not part of the
budget totals.
ELECTRONIC SOURCES OF BUDGET
INFORMATION
The information contained in these documents is available in electronic format from the following sources:
Internet. All budget documents, including documents
that are released at a future date, spreadsheets of many
of the budget tables, and a public use budget database
are available for downloading in several formats from the
internet at www.budget.gov/budget. Links to documents
and materials from budgets of prior years are also provided.
Budget CD-ROM. The CD-ROM contains all of the
printed budget documents in fully indexed PDF format
along with the software required for viewing the documents.
The Internet and CD-ROM also include many of the
budget tables in spreadsheet format, and supplemental
materials that are part of the Analytical Perspectives volume. It also includes Historical Tables that provide data
on budget receipts, outlays, surpluses or deficits, Federal
debt, and Federal employment over an extended time period, generally from 1940 or earlier to 2018 or 2022.
For more information on access to electronic versions
of the budget documents (except CD-ROMs), call (202)
512-1530 in the D.C. area or toll-free (888) 293-6498. To
purchase the Budget CD-ROM or printed documents call
(202) 512-1800.

GENERAL NOTES
1. All years referenced for budget data are fiscal years unless otherwise noted. All years
referenced for economic data are calendar years unless otherwise noted.
2. At the time of this writing, only one of the annual appropriations bills for 2017 had been
enacted (the Military Construction and Veterans Affairs Appropriations Act), as well as
the Further Continuing and Security Assistance Appropriations Act, which provided 2017
discretionary funding for certain Department of Defense accounts; therefore, the programs
provided for in the remaining 2017 annual appropriations bills were operating under a
continuing resolution (Public Law 114-223, division C, as amended). For these programs,
references to 2017 spending in the text and tables reflect the levels provided by the
continuing resolution.
3. Detail in this document may not add to the totals due to rounding.

U.S. GOVERNMENT PUBLISHING OFFICE, WASHINGTON 2017
For sale by the Superintendent of Documents, U.S. Government Publishing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800
Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001

TABLE OF CONTENTS
Page
List of Charts and Tables��������������������������������������������������������������������������������������������������������������������� iii
Introduction
1. Introduction ����������������������������������������������������������������������������������������������������������������������������������3
Economic Assumptions and Interactions with the Budget
2.  Economic Assumptions and Interactions with the Budget���������������������������������������������������������9
3.  Long-Term Budget Outlook��������������������������������������������������������������������������������������������������������19
4.  Federal Borrowing and Debt�������������������������������������������������������������������������������������������������������27
Performance and Management
5.  Social Indicators��������������������������������������������������������������������������������������������������������������������������45
6.  Building and Using Evidence to Improve Government Effectiveness �������������������������������������55
7.  Strengthening the Federal Workforce����������������������������������������������������������������������������������������59
Budget Concepts and Budget Process
8.  Budget Concepts��������������������������������������������������������������������������������������������������������������������������69
9.  Coverage of the Budget���������������������������������������������������������������������������������������������������������������93
10.  Budget Process�����������������������������������������������������������������������������������������������������������������������������99
Federal Receipts
11.  Governmental Receipts�������������������������������������������������������������������������������������������������������������115
12.  Offsetting Collections and Offsetting Receipts������������������������������������������������������������������������121
Federal Receipts
13.  Tax Expenditures�����������������������������������������������������������������������������������������������������������������������127
Special Topics
14.  Aid to State and Local Governments����������������������������������������������������������������������������������������171
15.  Strengthening Federal Statistics����������������������������������������������������������������������������������������������185
16.  Information Technology�������������������������������������������������������������������������������������������������������������191
17.  Federal Investment�������������������������������������������������������������������������������������������������������������������197
18.  Research and Development�������������������������������������������������������������������������������������������������������203
19.  Credit and Insurance����������������������������������������������������������������������������������������������������������������209

i

Page
20.  Budgetary Effects of the Troubled Asset Relief Program��������������������������������������������������������231
21.  Federal Drug Control Funding�������������������������������������������������������������������������������������������������241
Technical Budget Analyses
22.  Current Services Estimates������������������������������������������������������������������������������������������������������245
23.  Trust Funds and Federal Funds�����������������������������������������������������������������������������������������������257
24.  Comparison of Actual to Estimated Totals�������������������������������������������������������������������������������271

*Available on the Internet at http://www.whitehouse.gov/omb/budget/Analytical_Perspectives/ and on the Budget CD-ROM
ii

LIST OF CHARTS AND TABLES

iii

LIST OF CHARTS AND TABLES
LIST OF CHARTS

Page

2–1.  Range of Uncertainty for the Budget Defecit�����������������������������������������������������������������������������18
3-1.  Comparison of Publicly Held Debt����������������������������������������������������������������������������������������������19
3-2.  Comparison of Annual Surplus/Defecit��������������������������������������������������������������������������������������20
3-3.  Alternative Productivity and Interest Assumptions������������������������������������������������������������������21
3-4.  Alternative Health Care Costs����������������������������������������������������������������������������������������������������22
3-6.  Alternative Revenue Assumptions���������������������������������������������������������������������������������������������23
3-5.  Alternative Discretionary Assumptions�������������������������������������������������������������������������������������23
3-7.  Long Term Uncertainties������������������������������������������������������������������������������������������������������������24
7–1.  Changes from 1975 to 2016 in Employment/Population by Sector�������������������������������������������60
7–2.  Masters Degree or Above by Year for Federal and Private Sector��������������������������������������������62
7–3.  High School Graduate or Less by Year for Federal and Private Sectors����������������������������������63
7–4.  Average Age by Year for Federal and Private Sectors���������������������������������������������������������������63
7–5.  Pay Raises for Federal vs. Private Workforce�����������������������������������������������������������������������������64
8–1.  Relationship of Budget Authority to Outlays for 2018��������������������������������������������������������������81
16–1.  Trends in Federal IT Spending�������������������������������������������������������������������������������������������������191
16–2.  IT Portfolio Summary����������������������������������������������������������������������������������������������������������������192
16–3.  Number of Investments by Percentage of IT Spending, 2018�������������������������������������������������193
16–4.  CIO Risk Ratings for Investments�������������������������������������������������������������������������������������������193
16–5.  IT Spending by Category�����������������������������������������������������������������������������������������������������������194
16–6.  Digital Projects in Production to Which Digital Experts have Contributed��������������������������195
19–1.  Face Value of Federal Credit Outstanding�������������������������������������������������������������������������������226

v

LIST OF TABLES
Page
Economic Assumptions and Interactions with the Budget
Economic Assumptions and Interactions with the Budget
2–1.  Economic Assumptions �����������������������������������������������������������������������������������������������������
2–2.  Comparison of Economic Assumptions in the 2017 and 2018 Budgets ������������������������
2–3.  Comparison of Economic Assumptions ����������������������������������������������������������������������������
2–4.  Sensitivity of the Budget to Economic Assumptions �������������������������������������������������������
2–5.  Forecast Errors, January 1982-Present ����������������������������������������������������������������������������
2–6.  Differences Between Estimated and Actual Surpluses or Deficits for
Five-Year Budget Estimates Since 1986 �����������������������������������������������������������������������

11
12
13
16
17
18

Long-Term Budget Outlook
3–1.  Debt Projections in 25 Years Under Alternative Budget Scenarios �������������������������������� 22
3–2.  Intermediate Actuarial Projections for OASDI And HI, 2016 Trustees’ Reports ����������� 24
3–3.  Intermediate Actuarial Projections for OASDI And HI ������������������������������������������������������ *
Federal Borrowing and Debt
4–1.  Trends in Federal Debt Held by the Public and Interest on the
Debt Held by the Public �������������������������������������������������������������������������������������������������
4–2.  Federal Government Financing and Debt ������������������������������������������������������������������������
4–3.  Debt Held by the Public Net of Financial Assets and Liabilities ������������������������������������
4–4.  Agency Debt �����������������������������������������������������������������������������������������������������������������������
4–5.  Debt Held by Government Accounts ���������������������������������������������������������������������������������
4–6.  Federal Funds Financing and Change in Debt Subject to Statutory Limit �������������������
4–7.  Foreign Holdings of Federal Debt �������������������������������������������������������������������������������������

28
30
34
36
37
40
41

Performance and Management
Social Indicators
5–1.  Social Indicators ���������������������������������������������������������������������������������������������������������������� 47
5–2.  Sources for Social Indicators ��������������������������������������������������������������������������������������������� 51
Strengthening the Federal Workforce
7–1.  Federal Civilian Employment in the Executive Branch ��������������������������������������������������
7–2.  Total Federal Employment ������������������������������������������������������������������������������������������������
7–3.  Personnel Pay and Benefits �����������������������������������������������������������������������������������������������
7–4.  Occupations of Federal and Private Sector Workforces ���������������������������������������������������

61
62
65
66

Budget Concepts and Budget Process
Budget Concepts
Budget Calendar �������������������������������������������������������������������������������������������������������������������������� 71
8–1.  Totals for the Budget and the Federal Government �������������������������������������������������������� 76
Coverage of the Budget
9–1.  Comparison of Total, On-Budget, and Off-Budget Transactions ������������������������������������� 94
Budget Process
10–1.  Program Integrity Discretionary Cap Adjustments, including Mandatory Savings ���� 101
10–2.  Mandatory and Receipt Savings from Other Program Integrity Initiatives ���������������� 103
vii

Page
10–3.  Discretionary Pell Funding Needs ���������������������������������������������������������������������������������� 108
Federal Receipts
Governmental Receipts
11–1.  Receipts by Source—Summary ��������������������������������������������������������������������������������������� 116
11–2.  Effect of Budget Proposals ���������������������������������������������������������������������������������������������� 119
11–3.  Receipts by Source ���������������������������������������������������������������������������������������������������������������� *
Offsetting Collections and Offsetting Receipts
12–1.  Offsetting Collections and Offsetting Receipts from the Public ����������������������������������� 122
12–2.  Summary of Offsetting Receipts by Type ����������������������������������������������������������������������� 123
12–3.  Gross Outlays, User Charges, Other Offsetting Collections and Offsetting
Receipts from the Public, and Net Outlays ����������������������������������������������������������������� 124
12–4.  Offsetting Receipts by Type ������������������������������������������������������������������������������������������������� *
Federal Receipts
Tax Expenditures
13–1.  Estimates of Total Income Tax Expenditures for Fiscal Years 2016-2026 ��������������������
13–2A.  Estimates of Total Corporate Income Tax Expenditures for
Fiscal Years 2016-2026 ������������������������������������������������������������������������������������������������
13–2B.  Estimates of Total Individual Income Tax Expenditures for
Fiscal Years 2016–2026 ������������������������������������������������������������������������������������������������
13-3. Income Tax Expenditures Ranked by Total Fiscal Year 2017-2026 Projected
Revenue Effect ��������������������������������������������������������������������������������������������������������������
13–4.  Present Value of Selected Tax Expenditures for Activity in Calendar Year 2016 ��������

130
135
140
145
149

Special Topics
Aid to State and Local Governments
14–1.  Trends in Federal Grants to State and Local Governments ����������������������������������������� 173
14–2.  Federal Grants to State and Local Governments—Budget Authority and Outlays ���� 175
14–3.  Summary of Programs by Agency, Bureau, and Program �������������������������������������������������� *
14–4.  Summary of Programs by State ������������������������������������������������������������������������������������������� *
14–5.–39.  2016 Budget State-by-State Tables ������������������������������������������������������������������������������ *
Strengthening Federal Statistics
15–1.  2016-2018 Budget Authority for Principle Statistical Agencies ����������������������������������� 189
Information Technology
16–1.  Federal IT Spending �������������������������������������������������������������������������������������������������������� 191
16–2.  FY 2018 IT Spending by Agency ������������������������������������������������������������������������������������� 192
Federal Investment
17–1.  Composition of Federal Investment Outlays ������������������������������������������������������������������ 198
17–2.  Federal Investment Budget Authority and Outlays: Grant and Direct
Federal Programs ��������������������������������������������������������������������������������������������������������� 200
Research and Development
18–1.  Total Federal R&D Funding by Agency at the Bureau or Account Level �������������������� 203
*Available on the Internet at http://www.budget.gov/budget/Analytical_Perspectives and on the Budget CD-ROM
viii

Page
18–2.  Federal Research and Development Spending ������������������������������������������������������������� 206
Credit and Insurance
19–1.  Estimated Future Cost of Outstanding Direct Loans and Loan Guarantees �������������� 227
19–2.  Direct Loan Subsidy Rates, Budget Authority, and Loan Levels, 2016-2018 ��������������� 228
19–3.  Loan Guarantee Subsidy Rates, Budget Authority, and Loan Levels, 2016-2018 �������� 229
19–4.  Summary of Federal Direct Loans and Loan Guarantees ��������������������������������������������� 230
19–5. Reestimates of Credit Subsidies on Loans Disbursed Between 1992-2016 ������������������������� *
19–6. Face Value of Government-Sponsored Lending ��������������������������������������������������������������������� *
19–7. Lending and Borrowing by Government-Sponsored Enterprises (GSEs) ���������������������������� *
19–8. Direct Loan Transactions of the Federal Government ���������������������������������������������������������� *
19–9. Guaranteed Loan Transactions of the Federal Government ������������������������������������������������ *
Budgetary Effects of the Troubled Asset Relief Program
20–1.  Change in Programmatic Costs of Troubled Asset Relief Program �����������������������������
20–2.  Troubled Asset Relief Program Current Value ��������������������������������������������������������������
20–3.  Troubled Asset Relief Program Effects on the Deficit and Debt ����������������������������������
20–4.  Troubled Asset Relief Program Effects on the Deficit and Debt Calculated
on a Cash Basis ������������������������������������������������������������������������������������������������������������
20–5.  Troubled Asset Relief Program Reestimates ������������������������������������������������������������������
20–6.  Detailed TARP Program Levels and Costs ���������������������������������������������������������������������
20–7.  Comparison of CBO and OMB TARP Costs �������������������������������������������������������������������

231
232
234
234
235
236
237

Federal Drug Control Funding
21–1.  Drug Control Funding FY 2016—FY 2018 ��������������������������������������������������������������������� 241
Technical Budget Analyses
Current Services Estimates
22–1.  Category Totals for the Baseline ������������������������������������������������������������������������������������� 245
22–2.  Summary of Economic Assumptions ������������������������������������������������������������������������������ 248
22–3.  Baseline Beneficiary Projections for Major Benefit Programs �������������������������������������� 249
22–4. Impact of Regulations, Expiring Authorizations, and Other Assumptions in the Baseline *
22–5.  Receipts by Source in the Projection of Adjusted Baseline ������������������������������������������� 250
22–6.  Effect on Receipts of Changes in the Social Security Taxable Earnings Base ������������� 250
22–7.  Change in Outlay Estimates by Category in the Baseline �������������������������������������������� 251
22–8.  Outlays by Function in the Baseline ������������������������������������������������������������������������������ 252
22–9.  Outlays by Agency in the Baseline ��������������������������������������������������������������������������������� 253
22–10.  Budget Authority by Function In the Baseline �������������������������������������������������������������� 254
22–11.  Budget Authority by Agency in the Baseline ����������������������������������������������������������������� 255
22–12.  Current Services Budget Authority and Outlays by Function, Category, and Program ��� *
Page
Trust Funds and Federal Funds
23–1.  Receipts, Outlays and Surplus or Deficit by Fund Group ��������������������������������������������� 258

*Available on the Internet at http://www.budget.gov/budget/Analytical_Perspectives and on the Budget CD-ROM
ix

23–2.  Comparison of Total Federal Fund and Trust Fund Receipts to Unified
Budget Receipts, Fiscal Year 2016 �������������������������������������������������������������������������������
23–3.  Income, Outgo, and Balances of Trust Funds Group �����������������������������������������������������
23–4.  Income, Outgo, and Balance of Major Trust Funds �������������������������������������������������������
23–5.  Income, Outgo, and Balance of Selected Special Funds ������������������������������������������������
Comparison of Actual to Estimated Totals
24–1.  Comparison of Actual 2016 Receipts with the Initial Current Services Estimates �����
24–2.  Comparison of Actual 2016 Outlays with the Initial Current Services Estimates ������
24–3.  Comparison of the Actual 2016 Deficit with the Initial Current Services Estimate ���
24–4.  Comparison of Actual and Estimated Outlays for Mandatory and Related
Programs Under Current Law ������������������������������������������������������������������������������������
24–5.  Reconciliation of Final Amounts for 2016 ����������������������������������������������������������������������

260
262
263
269
271
272
273
274
275

Detailed Functional Tables
25–1.  Budget Authority and Outlays by Function, Category and Program �������������������������������� *
Federal Budget by Agency and Account
26–1.  Federal Budget by Agency and Account ������������������������������������������������������������������������������ *
California Bay-Delta Federal Budget Crosscut Report �������������������������������������������������������������������������� **

*Available on the Internet at http://www.budget.gov/budget/Analytical_Perspectives and on the Budget CD-ROM
**Available on the Internet at http://www.whitehouse.gov/omb/budget/Analytical_Perspectives only

INTRODUCTION

1

2

1. INTRODUCTION

The Analytical Perspectives volume presents analyses
that highlight specific subject areas or provide other significant data that place the President’s 2018 Budget in
context and assist the public, policymakers, the media,
and researchers in better understanding the budget. This
volume complements the main Budget volume, which
presents the President’s budget policies and priorities,
and the Budget Appendix volume, which provides appropriations language, schedules for budget expenditure
accounts, and schedules for selected receipt accounts.
Presidential budgets have included separate analytical presentations of this kind for many years. The 1947
Budget and subsequent budgets included a separate
section entitled “Special Analyses and Tables” that covered four, and later more, topics. For the 1952 Budget,
the section was expanded to 10 analyses, including many

subjects still covered today, such as receipts, investment,
credit programs, and aid to State and local governments.
With the 1967 Budget this material became a separate
volume entitled “Special Analyses,” and included 13 chapters. The material has remained a separate volume since
then, with the exception of the Budgets for 1991–1994,
when all of the budget material was included in one volume. Beginning with the 1995 Budget, the volume has
been named Analytical Perspectives.
Several supplemental tables as well as several longer
tables that were previously published within the volume are available at http://www.budget.gov/budget/
Analytical_Perspectives and on the Budget CD-ROM.
These tables are shown in the List of Tables in the front
of this volume with an asterisk instead of a page number.

OVERVIEW OF THE CHAPTERS
Economic and Budget Analyses
Economic Assumptions and Interactions with the
Budget. This chapter reviews recent economic developments; presents the Administration’s assessment of the
economic situation and outlook; compares the economic
assumptions on which the 2018 Budget is based with the
assumptions for last year’s Budget and those of other
forecasters; provides sensitivity estimates for the effects
on the Budget of changes in specified economic assumptions; and reviews past errors in economic projections.
Long-Term Budget Outlook. This chapter assesses the
long-term budget outlook under current policies and under
the Budget’s proposals. It focuses on 25-year projections
of Federal deficits and debt to illustrate the long-term
impact of the Administration’s proposed policies, and
shows how alternative long-term budget assumptions affect the results. It also discusses the uncertainties of the
long-term budget projections and discusses the actuarial
status of the Social Security and Medicare programs.
Federal Borrowing and Debt. This chapter analyzes
Federal borrowing and debt and explains the budget estimates. It includes sections on special topics such as
trends in debt, debt held by the public net of financial assets and liabilities, investment by Government accounts,
and the statutory debt limit.
Management
Social Indicators. This chapter presents a selection
of statistics that offers a numerical picture of the United
States and illustrates how this picture has changed over
time. Included are economic, demographic and civic,
socioeconomic, health, security and safety, and environmental and energy statistics.

Building and Using Evidence to Improve Government
Effectiveness. This chapter discusses evidence and its
role in improving government programs and policies. It
articulates important principles and practices including
building and using a portfolio of evidence, developing a
learning agenda, building an evidence infrastructure, and
making better use of administrative data.
Strengthening the Federal Workforce. This chapter
presents summary data on Federal employment and
compensation, and discusses the initial approach the
Administration is taking with Federal human capital
management.
Budget Concepts and Budget Process
Budget Concepts. This chapter includes a basic description of the budget process, concepts, laws, and terminology,
and includes a glossary of budget terms.
Coverage of the Budget. This chapter describes activities that are included in budget receipts and outlays (and
are therefore classified as “budgetary”) as well as those
activities that are not included in the Budget (and are
therefore classified as “non-budgetary”). The chapter also
defines the terms “on-budget” and “off-budget” and includes illustrative examples.
Budget Process. This chapter discusses proposals to
improve budgeting and fiscal sustainability within individual programs as well as across Government.
Federal Receipts
Governmental Receipts. This chapter presents information on estimates of governmental receipts, which
consist of taxes and other compulsory collections. It includes descriptions of tax-related legislation enacted in

3

4
the last year and describes proposals affecting receipts in
the 2018 Budget.
Offsetting Collections and Offsetting Receipts. This
chapter presents information on collections that offset
outlays, including collections from transactions with the
public and intragovernmental transactions. In addition,
this chapter presents information on “user fees,” charges
associated with market-oriented activities and regulatory
fees. A detailed table, “Table 12–4, Offsetting Receipts by
Type” is available at the Internet address cited above and
on the Budget CD-ROM.
Tax Expenditures. This chapter describes and presents estimates of tax expenditures, which are defined as
revenue losses from special exemptions, credits, or other
preferences in the tax code.
Special Topics
Aid to State and Local Governments. This chapter
presents crosscutting information on Federal grants to
State and local governments. The chapter also includes a
table showing historical grant spending, and a table with
budget authority and outlays for grants in this Budget.
Tables showing State-by-State spending for major grant
programs are available at the Internet address cited
above and on the Budget CD-ROM.
Strengthening Federal Statistics. This chapter discusses the vital role of the Federal government’s statistical
agencies and programs in generating data that citizens,
businesses, and governments need to make informed decisions. This chapter also provides examples of innovative
developments and applications throughout the Federal
statistical community and highlights 2018 Budget proposals for the Government’s principal statistical programs.
Information Technology.
This chapter addresses
Federal information technology (IT), highlighting initiatives to improve IT management through modern
solutions to enhance service delivery. The Administration
will engage agencies with PortfolioStat reviews of IT investments, advancing modernization and cost reduction
through the Data Center Optimization Initiative, use
of shared services, migrations to cloud-computing, and
leveraging Federal buying power. Digital experts will
continue to transform many of the Government’s highest
impact programs, while cybersecurity will be strengthened through the Continuous Diagnostics and Mitigation
(CDM) program, and developing new strategies to meet
emerging threats.
Federal Investment. This chapter discusses Federallyfinanced spending that yields long-term benefits. It
presents information on annual spending on physical
capital, research and development, and education and
training.
Research and Development. This chapter presents a
crosscutting review of research and development funding
in the Budget.
Credit and Insurance. This chapter provides crosscutting analyses of the roles, risks, and performance of
Federal credit and insurance programs and Governmentsponsored enterprises (GSEs). The chapter covers the
major categories of Federal credit (housing, education,

ANALYTICAL PERSPECTIVES

small business and farming, energy and infrastructure,
and international) and insurance programs (deposit insurance, pension guarantees, disaster insurance, and
insurance against terrorism-related risks). Five additional tables address transactions including direct loans,
guaranteed loans, and Government-sponsored enterprises. These tables are available at the Internet address
cited above and on the Budget CD-ROM.
Budgetary Effects of the Troubled Asset Relief Program.
The chapter provides special analyses of the Troubled
Asset Relief Program (TARP) as described in Sections 202
and 203 of the Emergency Economic Stabilization Act of
2008, including information on the costs of TARP activity
and its effects on the deficit and debt.
Federal Drug Control Funding. This chapter displays
enacted and proposed drug control funding for Federal departments and agencies.
Note: Previous Analytical Perspectives volumes included a “Homeland Security Funding Analysis” chapter, and
provided additional detailed information on the Internet
address cited above and on the Budget CD-ROM. P.L.
115–31 eliminated the statutory reporting requirement
for this information. Therefore, this information is not
included in this year’s Budget and it will not be included
in future Budgets.
Technical Budget Analyses
Current Services Estimates. This chapter presents estimates of what receipts, outlays, and the deficit would
be if current policies remained in effect, consistent with
the baseline rules in the Balanced Budget and Emergency
Deficit Control Act of 1985 (BBEDCA). Two detailed
tables addressing factors that affect the baseline and providing details of baseline budget authority and outlays
are available at the Internet address cited above and on
the Budget CD-ROM.
Trust Funds and Federal Funds. This chapter provides
summary information about the two fund groups in the
budget—Federal funds and trust funds. In addition, for
the major trust funds and certain Federal fund programs,
the chapter provides detailed information about income,
outgo, and balances.
Comparison of Actual to Estimated Totals. This chapter compares the actual receipts, outlays, and deficit for
2016 with the estimates for that year published in the
2016 Budget, published in February 2015.
The following materials are available at the Internet
address cited above and on the Budget CD-ROM:
Detailed Functional Table
Detailed Functional Table.
Table 25–1, “Budget
Authority and Outlays by Function, Category, and
Program,” displays budget authority and outlays for
major Federal program categories, organized by budget
function (such as health care, transportation, or national
defense), category, and program.
Federal Budget by Agency and Account
The Federal Budget by Agency and Account. Table
26–1, “Federal Budget by Agency and Account,” displays

1. Introduction

budget authority and outlays for each account, organized
by agency, bureau, fund type, and account.
The following report is available at the Internet address cited above:
California Bay-Delta Federal Budget Crosscut
California Bay-Delta Federal Budget Crosscut. The
California Bay-Delta interagency budget crosscut report

5
includes an estimate of Federal funding by each of the
participating Federal agencies to carry out its responsibilities under the California Bay-Delta Program, fulfilling
the reporting requirements of section 106 of Public Law
108-361.

ECONOMIC ASSUMPTIONS AND
INTERACTIONS WITH THE BUDGET

7

8

2. ECONOMIC ASSUMPTIONS AND INTERACTIONS WITH THE BUDGET

This chapter presents the economic assumptions that
underlie the Administration’s Fiscal Year 2018 Budget.1
It describes the recent performance of the U.S. economy,
explains the Administration’s projections for key macroeconomic variables, compares them with forecasts
prepared by other prominent institutions and discusses
the uncertainty inherent in producing an eleven-year
forecast.
After contracting by more than 4 percent over 2007 to
2009, the United States economy has experienced stable
but only relatively modest growth, especially when compared with past recoveries. From the trough in the second
quarter of 2009, it took about two years for the economy to
recover its previous output peak, much longer than in the
other recoveries since World War II. Over the first three
years of recoveries from previous postwar recessions, average output growth was a little over 5 percent annually.
In the first three years following the most recent recession, average annual growth was only about 2.3 percent.
The disappointing recovery is motivating this
Administration’s aggressive economic strategy, which
entails policies aimed at reforming the tax code and the
regulatory framework. In addition, the Administration
will introduce policies to encourage domestic energy development and investments in infrastructure, reform
the health care system, negotiate more attractive trade
agreements, and reduce (and eventually eliminate)
Federal budget deficits. Such actions should encourage
investment by American firms, stimulate productivity
growth, and slow the expected decline in the labor force
participation rate, leading to stronger growth in output
and putting more Americans to work.
This chapter proceeds as follows:
• The first section reviews the performance of the U.S.
economy since the publication of the 2017 Budget,
examining a broad array of economic outcomes.

• The second section provides a detailed exposition of

the Administration’s economic forecast for the 2018
Budget, discussing how a number of macroeconomic
variables are expected to evolve over the years 2017
to 2027.

• The third section compares the forecast of the Ad-

ministration with those prepared by the Congressional Budget Office, the Federal Open Market Committee of the Federal Reserve, and the Blue Chip
panel of private sector forecasters.

• The

fourth section discusses the sensitivity of the
Administration’s projections of Federal receipts and

1 Economic performance is discussed in terms of calendar years. Budget figures are discussed in terms of fiscal years.

outlays to fluctuations in the main macroeconomic
variables discussed in the forecast.

• The

fifth section considers the errors and possible
biases2 in past Administration forecasts, comparing them with the errors in forecasts produced by
the Congressional Budget Office and the Blue Chip
panel.

• The sixth section combines results on the sensitiv-

ity of the budget deficit to economic assumptions
with information on past accuracy of Administration forecasts to provide a sense of the uncertainty
associated with the Administration’s forecast of the
budget balance.
Recent Economic Performance3

The U.S. economy continued to exhibit subdued growth
throughout 2016. In the fourth quarter of 2016, real Gross
Domestic Product (GDP) was 2.0 percent higher than
it had been in the fourth quarter of the preceding year.
This came on the heels of real GDP growing at a 1.9 percent rate over the four quarters of 2015, and an average
growth rate of 2.1 percent (fourth quarter-on-fourth quarter) since 2010. Among the demand components of GDP,
real consumer spending accounted for most of the growth
in 2016, with consumption of nondurables and services
contributing 1.5 percentage points and consumption of
durable goods contributing a further 0.7 percentage point,
on a fourth quarter-over-fourth quarter basis. Gross private domestic investment and government consumption
and gross investment made only minor positive contributions to growth, while net exports had a negative impact.
On the supply side, weak productivity growth limited
overall growth during 2016, as it has over the past several years. Over the four quarters of 2016, real output
per hour in the nonfarm business sector grew by only 1.1
percent, well below the long run average of 2.1 percent
during the post-World War II period.
Labor Markets—Labor markets improved in 2016
across a broad array of metrics. The unemployment rate
continued to decline, falling from 5.0 percent at the end
of 2015 to 4.7 percent at the end of 2016, and further to
4.4 percent in April of 2017, below the long-term average
of 5.8 percent. During the first three months of 2017, the
labor force participation rate averaged 63.0 percent, up
from 62.7 percent in 2015 and and 62.8 percent in 2016.
Although the participation rate has stabilized somewhat
2 As discussed later in this chapter, “bias” here is defined in the statistical sense and refers to whether previous Administrations’ forecasts
have tended to make positive or negative forecast errors on average.
3 The statistics in this section are based on information available in
early May 2017.

9

10
following a steep decline since 2000, it is expected to fall
further as the baby boom generation continues retiring in
large numbers. The proportion of the labor force employed
part-time for economic reasons has fallen to 3.3 percent in
April 2017, well below its peak of over 6.0 percent during the Great Recession. Furthermore, the proportion of
the labor force unemployed for longer than 27 weeks has
fallen to 1.0 percent from a peak of nearly 4.4 percent.
In spite of these improvements, several metrics suggest
that the economy has not regained the ground it had lost.
Compared with the last business cycle peak at the end of
2007, the proportion of the labor force working part-time
for economic reasons and the proportion unemployed for
more than 27 weeks are still elevated, as are the shares
of the working-age population only marginally attached
to the labor force or too discouraged to look for work. The
labor force participation rate among men aged 20 years
old or older has fallen faster than that of the population as a whole, and the same is true of those who have
only a high school diploma. Real average hourly wages
for production and nonsupervisory workers have grown
more slowly than real output since the end of 2007. At
the end of 2016, the employment-to-population ratio for
Americans aged between 25 and 34 years old was still a
full percentage point below where it was at the start of
the Great Recession. Even among workers older than
25 with a bachelor’s degree or higher, the unemployment
rate has stopped falling and remains above the rates seen
before the recession started.
Housing—The housing market continued to bolster
the broader economy in 2016. House prices, as measured
by the Federal Housing Finance Agency’s (FHFA) purchase-only index, were 6.2 percent higher in December
2016 than in December 2015, while the S&P-Case Shiller
price index (another closely watched measure) estimated
the appreciation at 5.5 percent. Higher house prices help
fortify household balance sheets and support personal
consumption expenditures. They also encourage further
activity in the housing sector. Residential fixed investment increased 1.1 percent over the four quarters of 2016.
The number of housing starts rose from an annual rate of
less than 1.2 million in December 2015 to nearly 1.3 million in December 2016, or a 9.9 percent increase. Building
permits increased 2.2 percent over the same period.
Some weakness still remains in the housing market,
however. As of February, while the FHFA index was about
8.0 percent higher than its pre-crisis peak, the S&P-Case
Shiller index had only barely regained its previous apex.
Homeownership rates have steadily declined since the recession began and were near an all-time low at the end
of 2016.
Consumption—Consumer spending was a primary
driver of growth in 2016, and at close to 70 percent of the
economy, it is essential to overall growth. Consumption
growth was spread over a number of different categories,
including motor vehicles and parts (8.6 percent over the
four quarters of 2016), furnishings and household equipment (6.1 percent), recreational goods and vehicles (11.3
percent), food and beverages (4.9 percent), and medical
care (4.7 percent).

ANALYTICAL PERSPECTIVES

Investment—Disappointingly, growth in nonresidential fixed investment was negative in 2016. A 3.8 percent
decline in spending on equipment over the four quarters
of 2016 offset a modest (1.9 percent) increase in spending on structures and a more robust (4.3 percent) rise in
intellectual property products. Growth in overall private
investment (residential and nonresidential) has been below its postwar average in each of the last three years.
Such weakness is likely to be problematic for future productivity growth.
Government—Overall demand from the government
added modestly to GDP in 2016, with the State and local sector driving growth in this component. Government
consumption and gross investment rose by 0.2 percent
over the four quarters of 2016, with 0.4 percent growth
coming from State and local governments. Federal purchases, in contrast, were negative. The Federal deficit
edged up to 3.2 percent of GDP in fiscal year 2016, the
first increase since the end of the Great Recession. While
deficits might be expected to lead to higher interest rates
and subsequent crowding out of private investment, the
low interest rate environment that has obtained in recent
years has mitigated this potentially negative force.
Monetary Policy—After holding nominal interest
rates near zero for seven years, the Federal Open Market
Committee of the Federal Reserve raised the target range
for the federal funds rate by 25 basis points at the end of
2015. After a moderate pause, the Federal Reserve continued normalization of monetary policy, with a 25 basis
point increase in December 2016 and another in March
2017. In its March policy statement, the FOMC cited
“solid” job gains and expectations for continued strengthening of labor markets, as well as rates of inflation around
the 2.0 percent target, as reasons for tightening policy.
Similarly, the yield on the 10-year Treasury note has also
increased recently, from an average of 1.6 percent in the
third quarter of 2016 to an average of 2.4 percent during
the first quarter of 2017.
Oil and Gas Production—After reaching a post-financial crisis peak above $100 per barrel, crude oil prices
began to tumble in mid-2014. They continued to fall in
2015 and bottomed out around $30 in early 2016. Prices
have since rebounded, rising above the $50 mark in late
2016. Higher oil prices act as a kind of tax on consumers’ purchasing power, so their net decline from $100 per
barrel in early 2014 to just above $50 per barrel recently
has effectively raised disposable incomes, which has supported consumer spending. With new technology such as
hydraulic fracturing, U.S. oil producers have emerged as
important swing producers in global oil markets, helping
to lower prices and moderate price fluctuations. Domestic
production of crude oil averaged about 8.9 million barrels
per day in 2016, up from 7.5 million barrels per day in
2013, although slightly down from 9.4 million barrels per
day in 2015. The decline from 2015 reflects the decline
in oil prices. Production of natural gas has experienced
a qualitatively similar path, with production averaging
about 72.3 billion cubic feet per day in 2016, down 2.5
percent from 2015 production levels, but still 9.1 percent
higher than in 2013.

11

2. Economic Assumptions and Interactions with the Budget

External Sector—Although real exports grew by 1.5
percent over the four quarters of 2016, real imports grew
by an even faster 2.6 percent. As a result, net exports became slightly more negative in 2016, coming in at -$563.0
billion, compared with -$540.0 billion in 2015. Worldwide,
2016 was a weak year for economic growth. The growth
rate of real GDP was below 2 percent in all of the other G-7 countries, according to International Monetary
Fund (IMF) data.4 Many large emerging market countries (with the exception of India) have experienced lower
growth rates in recent years, while countries such as
Brazil and Russia have gone through deep recessions.
4 The other G-7 countries are Canada, France, Germany, Italy, Japan,
and the United Kingdom.

These developments, as well as a strengthening dollar,
have contributed to the soft performance of U.S. exports.
Looking ahead, it is possible that faster global growth
and better trade agreements will help U.S. export performance to improve.
Economic Projections
The Administration’s economic forecast is based on
information available at the end of February 2017 and
includes projections for a number of important macroeconomic variables. The forecast is used to inform the Fiscal
Year 2018 Budget and rests on the central assumption
that all of the President’s policy proposals will be enacted.

Table 2–1. ECONOMIC ASSUMPTIONS 1
(Calendar Years, Dollar Amounts In Billions)
Actual

Projections

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

Levels, Dollar Amounts in Billions:
Current Dollars �������������������������������������������������������������
Real, Chained (2009) Dollars ���������������������������������������
Chained Price Index (2009=100), Annual Average ������

18037
16397
110.0

18566
16660
111.4

19367
17045
113.6

20237
17458
115.9

21197
17928
118.2

22253
18452
120.6

23379
19005
123.0

24563
19576
125.5

25806
20163
128.0

27111
20768
130.5

28483
21391
133.1

29924
22033
135.8

31439
22694
138.5

Percent Change, Fourth Quarter over Fourth Quarter:
Current Dollars �������������������������������������������������������������
Real, Chained (2009) Dollars ���������������������������������������
Chained Price Index (2009=100) ����������������������������������

3.0
1.9
1.1

3.5
1.9
1.6

4.4
2.3
2.0

4.5
2.5
2.0

4.9
2.8
2.0

5.1
3.0
2.0

5.1
3.0
2.0

5.1
3.0
2.0

5.1
3.0
2.0

5.1
3.0
2.0

5.1
3.0
2.0

5.1
3.0
2.0

5.1
3.0
2.0

Percent Change, Year over Year:
Current Dollars �������������������������������������������������������������
Real, Chained (2009) Dollars ���������������������������������������
Chained Price Index (2009=100) ����������������������������������

3.7
2.6
1.1

2.9
1.6
1.3

4.3
2.3
1.9

4.5
2.4
2.0

4.7
2.7
2.0

5.0
2.9
2.0

5.1
3.0
2.0

5.1
3.0
2.0

5.1
3.0
2.0

5.1
3.0
2.0

5.1
3.0
2.0

5.1
3.0
2.0

5.1
3.0
2.0

Incomes, Billions of Current Dollars
Domestic Corporate Profits ������������������������������������������������
Employee Compensation ���������������������������������������������������
Wages and Salaries �����������������������������������������������������������
Other Taxable Income (2) �����������������������������������������������������

1702
9693
7855
4290

1684
10102
8189
4385

1806
10556
8551
4587

1859
11037
8950
4785

1928
11572
9384
5025

1972
12171
9880
5325

2033
12801
10387
5669

2086
13466
10922
5990

2154
14169
11489
6314

2228
14909
12085
6628

2311
15698
12725
6938

2452
16497
13371
7253

2581
17339
14066
7545

Consumer Price Index (All Urban) (3):
Level (1982–1984 = 100), Annual Average ������������������������
Percent Change, Fourth Quarter over Fourth Quarter �������
Percent Change, Year over Year �����������������������������������������

237.0
0.4
0.1

240.0
1.8
1.3

246.2
2.5
2.6

251.8
2.3
2.3

257.5
2.3
2.3

263.3
2.3
2.3

269.3
2.3
2.3

275.4
2.3
2.3

281.6
2.3
2.3

288.0
2.3
2.3

294.5
2.3
2.3

301.1
2.3
2.3

307.9
2.3
2.3

Unemployment Rate, Civilian, Percent
Fourth Quarter Level ����������������������������������������������������������
Annual Average ������������������������������������������������������������������

5.0
5.3

4.7
4.9

4.5
4.6

4.4
4.4

4.7
4.6

4.7
4.7

4.8
4.8

4.8
4.8

4.8
4.8

4.8
4.8

4.8
4.8

4.8
4.8

4.8
4.8

Federal Pay Raises, January, Percent
Military (4) ����������������������������������������������������������������������������
Civilian (5) ����������������������������������������������������������������������������

1.0
1.0

1.3
1.3

2.1
2.1

1.9
2.1

NA
NA

NA
NA

NA
NA

NA
NA

NA
NA

NA
NA

NA
NA

NA
NA

NA
NA

3.1
3.8

3.1
3.8

3.1
3.8

3.1
3.8

Gross Domestic Product (GDP)

Interest Rates, Percent
91-Day Treasury Bills (6) ������������������������������������������������������
*
0.3
0.8
1.5
2.1
2.6
2.9
3.0
3.0
10-Year Treasury Notes ������������������������������������������������������
2.1
1.8
2.7
3.3
3.4
3.8
3.8
3.8
3.8
1 Based on information available as of end of Febuary 2017
2 Rent, interest, dividend, and proprietors’ income components of personal income
3 Seasonally adjusted CPI for all urban consumers
4 Percentages apply to basic pay only; percentages to be proposed for years after 2018 have not yet been determined.
5 Overall average increase, including locality pay adjustments. Percentages to be proposed for years after 2018 have not yet been determined.
6 Average rate, secondary market (bank discount basis)
* 0.05 percent or less

12

ANALYTICAL PERSPECTIVES

The Administration’s projections are reported in Table 2-1
and summarized below.
Real GDP—In the near term, real GDP is expected to
grow faster than in recent years, with a 2.3 percent growth
rate in 2017 and a 2.5 percent rate in 2018, on a fourth
quarter-over-fourth quarter basis. The Administration’s
policies for simplifying taxes, cutting regulation, building
infrastructure, reforming health care, boosting domestic
energy production and eliminating deficits are expected
to improve the supply side of the U.S. economy to allow
these growth rates. As for demand, lower taxes and an expected pick up in global growth in 2017 and 2018 should
bolster demand for American goods and services.
Long-Run Growth—In the longer term, the rate of
growth in GDP is expected to increase gradually to 3.0
percent by 2020, and the Administration expects it to remain at that pace for the duration of the forecast window.
The Administration projects a permanently higher trend
growth rate as a result of its productivity-enhancing
policies, such as tax reform, infrastructure investments,
reductions in regulation, and a greatly improved fiscal
outlook. Expected GDP growth of 3.0 percent per year is
slightly below the average growth rate seen in the postWorld War II period.
Unemployment—As of April 2017, the unemployment
rate stood at 4.4 percent. The Administration expects the

unemployment rate to stay low over the next several years,
with an annual average of 4.4 percent in 2018. After that,
the forecast assumes that it will gradually rise back toward
4.8 percent, a rate roughly consistent with stable inflation.
Theory suggests that when the unemployment rate is at this
rate, pressures on inflation are broadly in balance, threatening neither excessive inflation nor deflation.
Interest Rates—As growth increases, the Administration
expects that interest rates will begin to rise to values more
consistent with historical experience. The rate on the 91-day
Treasury bill is expected to increase gradually from 0.8 percent in 2017 to 3.1 percent in 2024. The interest rate on the
10-year Treasury note is expected to rise in a similar fashion, from 2.7 percent in 2017 to 3.8 percent in the long run.
Economic theory suggests that real GDP growth rates and
interest rates are positively correlated, so interest rates are
likely to be propelled higher by the stronger growth that the
Administration anticipates.
Inflation—Since the onset of the financial crisis,
inflation, whether measured by the GDP price index,
the Consumer Price Index (CPI), or the price index for
Personal Consumption Expenditures (PCE), has been
subdued compared with the post-World War II average.
This observation holds even when looking at the “core”
indexes that exclude volatile food and energy prices.
The Administration expects CPI inflation to rise to 2.5

Table 2–2. COMPARISON OF ECONOMIC ASSUMPTIONS IN THE 2017 AND 2018 BUDGETS
(Calendar Years, Dollar Amounts In Billions)
2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

Nominal GDP:
2017 Budget Assumptions 1 ������������������������������������������������������������
2018 Budget Assumptions ���������������������������������������������������������������

18780
18566

19626
19367

20466
20237

21363
21197

22287
22253

23258
23379

24272
24563

25329
25806

26428
27111

27576
28483

28773
29924

Real GDP (2009 Dollars):
2017 Budget Assumptions 1 ������������������������������������������������������������
2018 Budget Assumptions ���������������������������������������������������������������

16839
16660

17273
17045

17694
17458

18108
17928

18524
18452

18950
19005

19386
19576

19832
20163

20288
20768

20754
21391

21232
22033

Real GDP (Percent Change)2:
2017 Budget Assumptions 1 ������������������������������������������������������������
2018 Budget Assumptions ���������������������������������������������������������������

2.7
1.6

2.5
2.3

2.4
2.4

2.3
2.7

2.3
2.9

2.3
3.0

2.3
3.0

2.3
3.0

2.3
3.0

2.3
3.0

2.3
3.0

GDP Price Index (Percent Change)2:
2017 Budget Assumptions 1 ������������������������������������������������������������
2018 Budget Assumptions ���������������������������������������������������������������

1.6
1.3

1.8
1.9

1.9
2.0

2.0
2.0

2.0
2.0

2.0
2.0

2.0
2.0

2.0
2.0

2.0
2.0

2.0
2.0

2.0
2.0

Consumer Price Index (All-Urban; Percent Change)2:
2017 Budget Assumptions ���������������������������������������������������������������
2018 Budget Assumptions ���������������������������������������������������������������

1.5
1.3

2.1
2.6

2.1
2.3

2.3
2.3

2.2
2.3

2.3
2.3

2.3
2.3

2.3
2.3

2.3
2.3

2.3
2.3

2.3
2.3

Civilian Unemployment Rate (Percent)3:
2017 Budget Assumptions ���������������������������������������������������������������
2018 Budget Assumptions ���������������������������������������������������������������

4.7
4.9

4.5
4.6

4.6
4.4

4.6
4.6

4.7
4.7

4.7
4.8

4.8
4.8

4.9
4.8

4.9
4.8

4.9
4.8

4.9
4.8

91-Day Treasury Bill Rate (Percent)3:
2017 Budget Assumptions ���������������������������������������������������������������
2018 Budget Assumptions ���������������������������������������������������������������

0.7
0.3

1.8
0.8

2.6
1.5

3.1
2.1

3.3
2.6

3.4
2.9

3.4
3.0

3.3
3.0

3.3
3.1

3.2
3.1

3.2
3.1

2.9
1.8

3.5
2.7

3.9
3.3

4.1
3.4

4.2
3.8

4.2
3.8

4.2
3.8

4.2
3.8

4.2
3.8

4.2
3.8

4.2
3.8

10-Year Treasury Note Rate (Percent)3:
2017 Budget Assumptions ���������������������������������������������������������������
2018 Budget Assumptions ���������������������������������������������������������������
1 Adjusted for July 2016 NIPA Revisions
2 Calendar Year over Calendar Year
3 Calendar Year Average
* 0.05 percent or less

13

2. Economic Assumptions and Interactions with the Budget

percent in 2017 (on a fourth quarter-over-fourth quarter basis), before settling down to 2.3 percent in the
long run. The GDP price index is forecast to rise to
2.0 percent in 2017 (on a fourth-quarter-over-fourthquarter basis) and maintain that rate throughout the
forecast window.
Changes in Economic Assumptions from Last
Year’s Budget—Table 2-2 compares the Administration’s
forecast for the 2018 Budget with that from the 2017
Budget, submitted by the previous Administration. The
most notable difference is the upward revision to medium- and longer-term GDP growth. Compared with the
previous forecast, the Administration expects much faster
output growth, as a result of its policies designed to boost

productivity and labor force participation. These include
deregulation, tax reform, an improved fiscal outlook, inducements for infrastructure investment, and health care
reform, which should boost investment and bolster the
incentives to save. The Administration’s expectations for
inflation differ little from the previous forecast, except for
the slight boost in CPI inflation in 2017 and 2018 due
to higher demand. The forecast for the unemployment
rate is also broadly similar, although the Administration’s
projections have the unemployment rate dropping to a
trough of 4.4 percent, lower than was previously expected,
and it has a slightly lower estimate of the unemployment
rate at which inflation pressures are broadly balanced.
On 91-day Treasury bills, the Budget’s terminal rate is

Table 2–3. COMPARISON OF ECONOMIC ASSUMPTIONS
(Calendar Years)
2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

Nominal GDP:
2018 Budget ��������������������������������������������������������������������������������������������������������� 18566 19367 20237 21197 22253 23379 24563 25806 27111 28483 29924 31439
CBO ���������������������������������������������������������������������������������������������������������������������� 18563 19352 20114 20838 21565 22381 23261 24182 25143 26142 27181 28258
Blue Chip �������������������������������������������������������������������������������������������������������������� 18570 19336 20221 21099 21973 22883 23831 24843 25872 26943 28059 29222
Real GDP (Year-over-Year):
2018 Budget ���������������������������������������������������������������������������������������������������������
CBO ����������������������������������������������������������������������������������������������������������������������
Blue Chip ��������������������������������������������������������������������������������������������������������������

1.6
1.6
1.6

2.3
2.3
2.1

2.4
2.0
2.4

2.7
1.7
2.1

2.9
1.5
2.0

3.0
1.8
2.0

3.0
1.9
2.0

Real GDP (Fourth Quarter-over-Fourth Quarter):
2018 Budget ���������������������������������������������������������������������������������������������������������
CBO ����������������������������������������������������������������������������������������������������������������������
Blue Chip ��������������������������������������������������������������������������������������������������������������
Federal Reserve Median Projection ���������������������������������������������������������������������

1.9
1.8
1.9
1.9

2.3
2.3
2.1
2.1

2.5
1.9
2.4
2.1

2.8
1.6
2.1
1.9

3.0
1.6
2.0

3.0
1.9
2.0

3.0
1.9
2.0

GDP Price Index 1:
2018 Budget ���������������������������������������������������������������������������������������������������������
CBO ����������������������������������������������������������������������������������������������������������������������
Blue Chip ��������������������������������������������������������������������������������������������������������������

1.3
1.3
1.3

1.9
1.9
2.0

2.0
1.9
2.1

2.0
1.9
2.2

2.0
1.9
2.1

2.0
2.0
2.1

2.0
2.0
2.1

2.0
2.0
2.1

Consumer Price Index (CPI-U) 1:
2018 Budget ���������������������������������������������������������������������������������������������������������
CBO ����������������������������������������������������������������������������������������������������������������������
Blue Chip ��������������������������������������������������������������������������������������������������������������

1.3
1.3
1.3

2.6
2.4
2.4

2.3
2.3
2.2

2.3
2.3
2.3

2.3
2.4
2.4

2.3
2.4
2.3

2.3
2.4
2.3

2.3
2.4
2.3

Unemployment Rate 2:
2018 Budget ���������������������������������������������������������������������������������������������������������
CBO ����������������������������������������������������������������������������������������������������������������������
Blue Chip ��������������������������������������������������������������������������������������������������������������
Federal Reserve Median Projection 3 �������������������������������������������������������������������

4.9
4.9
4.9
4.9

4.6
4.6
4.5
4.5

4.4
4.4
4.3
4.5

4.6
4.5
4.5
4.5

4.7
4.9
4.6

4.8
5.0
4.6

4.8
5.0
4.7

0.3
0.3
0.3

0.8
0.7
1.0

1.5
1.1
1.8

2.1
1.7
2.4

2.6
2.3
2.7

2.9
2.7
2.8

3.0
2.8
2.8

3.0
1.9
2.1

3.0
1.9
2.0

3.0
1.9
2.0

3.0
1.9
2.0

3.0
1.9
2.0

3.0
3.0
1.9
1.9
2.1
2.0
1.8 longer run

3.0
1.9
2.0

3.0
1.9
2.0

3.0
1.9
2.0

2.0
2.0
2.1

2.0
2.0
2.1

2.0
2.1
2.1

2.0
2.0
2.1

2.3
2.4
2.4

2.3
2.4
2.4

2.3
2.4
2.4

2.3
2.4
2.4

4.8
4.8
5.0
4.9
4.7
4.7
4.7 longer run

4.8
4.9
4.7

4.8
4.9
4.7

4.8
4.9
4.7

3.1
2.8
2.9

3.1
2.8
2.9

3.1
2.8
2.9

Interest Rates 2:
91-Day Treasury Bills (discount basis):
2018 Budget ���������������������������������������������������������������������������������������������������
CBO ����������������������������������������������������������������������������������������������������������������
Blue Chip ��������������������������������������������������������������������������������������������������������

3.0
2.8
2.8

3.1
2.8
2.9

10-Year Treasury Notes
2018 Budget ���������������������������������������������������������������������������������������������������
1.8
2.7
3.3
3.4
3.8
3.8
3.8
3.8
3.8
3.8
3.8
3.8
CBO ����������������������������������������������������������������������������������������������������������������
1.8
2.3
2.5
2.8
3.1
3.4
3.5
3.6
3.6
3.6
3.6
3.6
Blue Chip ��������������������������������������������������������������������������������������������������������
1.8
2.6
3.1
3.6
3.7
3.8
3.8
3.8
3.9
3.9
3.9
3.9
Sources: Administration; CBO, The Budget and Economic Outlook: 2017 to 2027, January 2017; March 2017 and May 2017 Blue Chip Economic Indicators, Aspen Publishers, Inc.;
Federal Reserve Open Market Committee, March 15, 2017
1 Year-over-Year Percent Change
2 Annual Averages, Percent
3 Median of Fourth Quarter Values

14

ANALYTICAL PERSPECTIVES

just slightly below that of the 2017 Budget. The yield on
the 10-year Treasury note is lower at all points of the forecast horizon relative to the 2017 Budget. This decline is
largely driven by the secular trend towards lower interest rates observed in the data. If the Administration’s
growth forecast had been lower, the interest rate on 10year Treasuries would be lower still.
Comparison with Other Forecasts
For some additional perspective on the Administration’s
forecast, this section compares it with others prepared by
the Congressional Budget Office (CBO), the Federal Open
Market Committee of the Federal Reserve (FOMC), and
the Blue Chip panel of private sector forecasters. There
are some important differences to bear in mind when
making such a comparison.
The most important difference between these forecasts is that they make different assumptions about the
implementation of the Administration’s policies. As already noted, the Administration’s forecast assumes full
implementation of these proposals. At the opposite end of
the spectrum, CBO produces a forecast that assumes no
changes to current law. It is not clear to what extent the
FOMC participants and the Blue Chip panel incorporate
policy implementation. The Blue Chip, in particular, compiles a large number of private sector forecasts, which are
marked by considerable heterogeneity across individual
forecasters and their policy expectations.
A second difference is the publication dates of the
various forecasts. While the forecasts put out by the
Administration, the Blue Chip, and the FOMC were finalized around March 2017, the CBO forecast was published
earlier, in January of 2017.
In spite of these differences, the forecasts share several attributes. All of them project a further short-run
decline in unemployment, followed by a rise back toward
a rate consistent with stable inflation. They all project a
minor near-term spike in inflation, followed by a stable
path at its long-run rate. The differences among the nearterm forecasts for real output growth are not too large
Finally, they all foresee a gradual rise in interest rates
over the course of the forecast horizon. What separates
the Administration’s forecast from those of the other bodies is their respective views on real output growth in the
long run.
Real GDP—The Administration forecasts a higher path for real GDP growth compared with the CBO,
FOMC, and Blue Chip forecasts. Over 2017 and 2018, its
real GDP forecast is fairly similar to those at the high end
of the Blue Chip panel. The CBO and FOMC, on the other hand, expect a noticeably slower expansion in output
in the very short term. After 2018, the Administration’s
forecast diverges from the other forecasts, with a growth
rate 0.7 percentage points faster than the next fastest
in 2019 and a full percentage point faster than the others at the end of the forecast window. This reflects the
Administration’s expectation of full implementation of its
policy proposals; other forecasters are unlikely to be operating under the same assumption.

Unemployment—On the unemployment rate, the
Administration’s expectations are largely aligned
with those of the other forecasters. Along with the
Administration, the CBO and the Blue Chip panel expect
modest further declines in unemployment in 2018. The
FOMC expects slightly less improvement, projecting a
low point of 4.5 percent. After 2018, all forecasters project a gradual uptick in the unemployment rate to their
respective estimates of the long-term rate (4.8 percent for
the Administration, 4.9 percent for the CBO, and 4.7 percent for the FOMC and the Blue Chip panel).
Interest Rates—For both short- and long-term
rates, the CBO’s projections follow a generally lower
path throughout the forecast window than those of either the Administration or the Blue Chip panel. The
Administration’s forecasts for short- and long-term interest rates finish in similar places relative to the Blue
Chip, but the respective paths are slightly different. The
Blue Chip panel and the Administration expect relatively
steep increases over the next couple of years in the 91day Treasury bill rate, but the Blue Chip path is slightly
steeper. The Administration foresees a sharper increase
in the interest rate on 10-year Treasury notes in the near
term.
Inflation—Expectations for inflation are similar
across the Administration, the CBO, and the Blue Chip.
All three anticipate a bump in CPI inflation in 2017
(with the Administration expecting a slightly greater
increase), before it turns back toward its long run rate.
The Blue Chip and the CBO expect an inflation rate of
2.4 percent in the long run, while the Administration expects a 2.3 percent long run rate. For the GDP price
index, the three forecasts also exhibit little disagreement, other than a marginally higher long-run rate from
the Blue Chip panel.
Sensitivity of the Budget to Economic Assumptions
Federal spending and tax collections are heavily influenced by developments in the economy. Receipts are a
function of growth in incomes for households and firms.
Spending on social assistance programs may rise when
the economy enters a downturn, while increases in spending on Social Security and other programs are dependent
on consumer price inflation. A robust set of projections
for macroeconomic variables assists in budget planning,
but unexpected developments in the economy have ripple
effects for Federal spending and revenues. This section
seeks to provide an understanding of the magnitude of
the effects that unforeseen changes in the economy can
have on the budget.
To make these assessments, the Administration relies
on a set of rules of thumb that can predict how certain
spending and revenue categories will react to a change
in a given subset of macroeconomic variables, holding
almost everything else constant. These rules of thumb
provide a sense of the broad changes one would expect after a given development, but they cannot anticipate how
policy makers would react and potentially change course
in such an event. For example, if the economy were to

15

2. Economic Assumptions and Interactions with the Budget

suffer an unexpected recession, the rules of thumb suggest that tax revenues would decline and that spending
on programs such as unemployment insurance would go
up. In such a situation, however, policy makers might cut
taxes to stimulate the economy, and such behavior would
not be accounted for by the historical relationships captured by the rules of thumb.
Another caveat is that it is often unrealistic to suppose that one macroeconomic variable might change but
that others would remain constant. Most macroeconomic
variables interact with each other in complex and subtle
ways. These are important considerations to bear in mind
when examining Table 2-4.
For real growth and employment:
• The first panel in the table illustrates the effect
on the deficit resulting from a 1 percentage point
reduction in real GDP growth, relative to the Administration’s forecast, in 2017 that is followed by
a subsequent recovery in 2018 and 2019. The unemployment rate is assumed to be half a percentage
point higher in 2017 before returning to the baseline
level in 2018 and 2019. The table shows that receipts would temporarily be somewhat lower and
outlays would temporarily be higher. The long run
effect on the budget deficit would be an increase of
$110 billion over the eleven-year forecast horizon,
due in large part to higher interest payments resulting from higher short-run deficits.

• The next panel in the table reports the effect of a

reduction of 1 percentage point in real GDP growth
in 2017 that is not subsequently made up by faster
growth in 2018 and 2019. In addition, the natural
rate of unemployment is assumed to rise by half a
percentage point relative to that assumed in the
Administration’s forecasts. Here, the effect on the
Budget deficit is more substantial, as receipts are
lowered in every year of the forecast, while outlays
rise gradually over the forecast window. This is because unemployment will be higher, leading to lower
tax revenues and higher outlays on unemployment
insurance, as well as higher interest payments that
follow from increased short-run deficits.

• The third panel in the table shows the impact of a

GDP growth rate that is permanently reduced by 1
percentage point, while the unemployment rate is
not affected. This is the sort of situation that would
arise if, for example, the economy were hit by a permanent decline in productivity growth. In this case,
the effect on the Budget deficit is quite large, with
receipts being reduced substantially throughout the
forecast window and outlays rising due to higher
interest payments. The accumulated effect over the
eleven-year horizon is an additional $3.1 trillion of
deficits.

For inflation and interest rates:
• The fourth panel in Table 2-4 shows the effect on
the Budget in the case of a 1 percentage point higher rate of inflation and a 1 percentage point higher

nominal interest rate in 2017. Both inflation and interest rates return to their assumed levels in 2018.
This would result in a permanently higher price
level and level of nominal GDP over the course of
the forecast horizon. The effect on the Budget deficit would be fairly modest, although receipts would
increase slightly more than outlays over the eleven
years. This is because revenues would respond more
quickly to price increases than outlays, which are
set in advance. Over the years from 2017-2027, the
Budget deficit would be smaller by about $32 billion.

• The fifth panel in the table illustrates the effects on

the Budget deficit of an inflation rate and an interest rate 1 percentage point higher than projected in
every year of the forecast. As in the previous case,
the overall effect on the deficit over the forecast is
modest (only $85 billion accumulated), and receipts
rise faster than outlays because more spending decisions are determined in advance of price increases.
It is still important to note, however, that faster inflation implies that the real value of Federal spending would be eroded.

• The next panel reports the effect on the deficit re-

sulting from an increase in interest rates in every
year of the forecast, with no accompanying increase
in inflation. The result is a much higher accumulated deficit, as the Federal Government would have
to make much higher interest payments on its debt.
Receipts would be slightly higher as the Federal Reserve would earn more on its holdings of securities
and households would pay higher taxes on interest
income, but these increases would not offset the effect on outlays.

• The

seventh panel in the table reports the effect
on the Budget deficit of an inflation rate 1 percentage point higher than projected in every year of the
forecast window, while the interest rate remains as
forecast. In this case, the result is a much smaller
deficit over the eleven years of the forecast relative
to the baseline. Permanently faster inflation results
in much higher revenues over the next eleven years,
which helps to reduce interest payments on debt.
Outlays rise due to higher cost-of-living increases on
items such as Social Security, though not so much as
to offset the revenue increases.

• Finally, the table shows the effect on the budget defi-

cit if the Federal government were to borrow an additional $100 billion in 2017, while all of the other
projections remain constant. Outlays rise over the
forecast window by an accumulated $32.7 billion,
due to higher interest payments.

It is important to note that these simple approximations that inform the sensitivity analysis are symmetric.
This means that the effect of, for example, a 1 percentage point higher rate of growth over the forecast horizon
would be of the same magnitude as a 1 percentage point
reduction in growth, though with the opposite sign.

16

ANALYTICAL PERSPECTIVES

Table 2–4. SENSITIVITY OF THE BUDGET TO ECONOMIC ASSUMPTIONS
(Fiscal Years; In Billions Of Dollars)
Budget Effect

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

Total of Budget
Effects: 20172027

Real Growth and Employment:
Budgetary effects of 1 percent lower real GDP growth:
(1) For calendar year 2017 only, with real GDP recovery
in 2018–2019:1
Receipts ���������������������������������������������������������������������������
Outlays ����������������������������������������������������������������������������
Increase in deficit (+) ��������������������������������������������������
(2) For calendar year 2017 only, with no subsequent
recovery: 1
Receipts ���������������������������������������������������������������������������
Outlays ����������������������������������������������������������������������������
Increase in deficit (+) ��������������������������������������������������
(3) Sustained during 2017–2027, with no change in
unemployment:
Receipts ���������������������������������������������������������������������������
Outlays ����������������������������������������������������������������������������
Increase in deficit (+) ��������������������������������������������������

–16.2
6.9
23.1

–26.0
16.5
42.5

–13.4
8.3
21.6

–2.2
2.3
4.5

0.1
2.4
2.3

0.1
2.6
2.5

0.1
2.6
2.5

0.1
2.7
2.6

0.1
2.7
2.6

0.1
2.8
2.7

0.1
2.9
2.8

–57.1
52.7
109.7

–16.2
6.9
23.1

–34.4
20.1
54.5

–40.2
22.3
62.5

–42.1
23.9
66.0

–44.1
26.8
70.9

–46.3
29.1
75.4

–48.5
31.8
80.2

–50.9
34.8
85.7

–53.3
37.7
91.0

–55.9
41.0
97.0

–58.6
44.1
102.7

–490.5
318.5
809.0

–16.2
–0.1
16.2

–51.0
0.1
51.2

–93.0 –138.6 –188.1 –242.0 –300.0 –363.2 –431.1 –504.2 –582.8
1.3
3.9
8.5
14.1
20.7
28.6
37.7
48.3
60.9
94.3 142.5 196.5 256.1 320.6 391.8 468.8 552.5 643.7

–2,910.2
224.0
3,134.2

17.0
20.4
3.4

34.0
39.3
5.3

36.5
36.6
0.2

37.0
37.6
0.7

38.8
37.7
–1.1

40.7
39.0
–1.7

42.6
37.8
–4.8

44.7
38.3
–6.4

46.9
38.6
–8.3

49.2
40.2
–9.0

51.6
41.5
–10.1

439.0
407.0
–31.8

17.0
18.4
1.4

51.8
60.6
8.8

91.4
105.6
14.2

133.9
152.8
18.9

181.2
202.5
21.3

233.1
257.6
24.4

289.7
308.7
19.0

352.2
360.9
8.7

420.0
422.4
2.3

494.1
484.4
–9.7

574.7
550.1
–24.6

2,839.3
2,923.9
84.6

1.0
6.6
5.6

2.3
27.9
25.6

2.9
47.4
44.5

3.2
65.2
62.0

3.6
82.9
79.4

3.9
100.3
96.4

4.3
114.9
110.7

4.6
128.4
123.8

4.9
139.3
134.4

5.1
149.8
144.7

5.3
159.5
154.3

41.0
1,022.3
981.3

16.0
11.8
–4.2

49.5
32.6
–16.9

88.5
58.2
–30.3

130.6
87.6
–43.0

177.5
119.7
–57.8

229.0
157.6
–71.4

285.2 347.3 414.8 488.5 568.9
194.2 233.1 283.9 335.5 391.8
–91.0 –114.1 –130.9 –153.0 –177.1

2,795.6
1,905.9
–889.7

Inflation and Interest Rates:
Budgetary effects of 1 percentage point higher rate of:
(4) Inflation and interest rates during calendar year
2017 only:
Receipts ���������������������������������������������������������������������������
Outlays ����������������������������������������������������������������������������
Decrease in deficit (–) �������������������������������������������������
(5) Inflation and interest rates, sustained during
2017–2027:
Receipts ���������������������������������������������������������������������������
Outlays ����������������������������������������������������������������������������
Increase in deficit (+) ��������������������������������������������������
(6) Interest rates only, sustained during 2017–2027:
Receipts ���������������������������������������������������������������������������
Outlays ����������������������������������������������������������������������������
Increase in deficit (+) ��������������������������������������������������
(7) Inflation only, sustained during 2017–2027:
Receipts ���������������������������������������������������������������������������
Outlays ����������������������������������������������������������������������������
Decrease in deficit (–) �������������������������������������������������

Interest Cost of Higher Federal Borrowing:
(8) Outlay effect of $100 billion increase in borrowing in
2017 ��������������������������������������������������������������������������������������
0.4
1.3
2.0
2.7
3.2
3.5
1 The unemployment rate is assumed to be 0.5 percentage point higher per 1 percent shortfall in the level of real GDP.

Forecast Errors for Growth,
Inflation, and Interest Rates
As with any forecast, the Administration’s projections
will not be fully accurate. It is impossible to foresee every eventuality over a one–year horizon, much less ten or
more years. This section evaluates the historical accuracy of the forecasts of past Administrations for real GDP,
inflation, and short-term interest rates, especially as compared with the accuracy of forecasts produced by the CBO
or Blue Chip panel. For this exercise, forecasts produced
by all three entities going as far back as the Fiscal Year
1983 Budget are compared with realized values of these
important variables.

3.7

3.8

3.9

4.1

4.2

32.7

The results of this exercise are reported in Table 2-5
and contain three different measures of accuracy. The
first is the average forecast error. When a forecaster has
an average forecast error of zero, it may be said that the
forecast has historically been unbiased, in the sense that
realized values of the variables have not been systematically above or below the forecasted value. The second is
the average absolute value of the forecast error, which offers a sense of the magnitude of errors. Even if the past
forecast errors average to zero, the errors may have been
of a very large magnitude, with both positive and negative values. Finally, the table reports the square root of
the mean of squared forecast error (RMSE). This metric

17

2. Economic Assumptions and Interactions with the Budget

Table 2–5. FORECAST ERRORS, JANUARY 1982-PRESENT
Administration

CBO

Blue Chip

REAL GDP ERRORS
2-Year Average Annual Real GDP Growth
Mean Error ���������������������������������������������������������������������������������������������������������������������
Mean Absolute Error ������������������������������������������������������������������������������������������������������
Root Mean Square Error �����������������������������������������������������������������������������������������������

0.2
1.2
1.5

–0.1
1.0
1.3

–0.1
1.1
1.4

6-Year Average Annual Real GDP Growth
Mean Error ���������������������������������������������������������������������������������������������������������������������
Mean Absolute Error ������������������������������������������������������������������������������������������������������
Root Mean Square Error �����������������������������������������������������������������������������������������������

0.4
1.1
1.3

0.1
1.0
1.2

0.1
0.9
1.1

2-Year Average Annual Change in the GDP Price Index
Mean Error ���������������������������������������������������������������������������������������������������������������������
Mean Absolute Error ������������������������������������������������������������������������������������������������������
Root Mean Square Error �����������������������������������������������������������������������������������������������

0.3
0.7
0.9

0.3
0.7
0.9

0.4
0.7
0.8

6-Year Average Annual Change in the GDP Index
Mean Error ���������������������������������������������������������������������������������������������������������������������
Mean Absolute Error ������������������������������������������������������������������������������������������������������
Root Mean Square Error �����������������������������������������������������������������������������������������������

0.4
0.6
0.8

0.5
0.8
1.0

0.7
0.9
1.0

2-Year Average 91-Day Treasury Bill Rate
Mean Error ���������������������������������������������������������������������������������������������������������������������
Mean Absolute Error ������������������������������������������������������������������������������������������������������
Root Mean Square Error �����������������������������������������������������������������������������������������������

0.3
1.0
1.2

0.5
0.9
1.3

0.6
1.0
1.2

6-Year Average 91-Day Treasury Bill Rate
Mean Error ���������������������������������������������������������������������������������������������������������������������
Mean Absolute Error ������������������������������������������������������������������������������������������������������
Root Mean Square Error �����������������������������������������������������������������������������������������������

0.9
1.4
1.7

1.4
1.5
1.8

1.5
1.6
1.9

INFLATION ERRORS

INTEREST RATE ERRORS

applies an especially harsh penalty to forecasting systems
prone to large errors. The table reports these measures
of accuracy at both the 2-year and the 6-year horizons,
thus evaluating the relative success of different forecasts
in the short run and in the medium term.
For real GDP growth rates, at both the 2-year and
6-year horizons, the mean forecast error suggests that all
of the forecasts (Administration, the CBO, and the Blue
Chip panel) have been broadly unbiased, with small average errors close to zero. The mean absolute error and the
RMSE both suggest that the Administration’s past forecasts have tended to make slightly larger errors than the
others, but the difference has been minor.
When it comes to inflation, there is more evidence of
some systematic bias in all three forecasts. The mean
errors at the 2- and 6-year horizons are all positive and
larger than the errors in projecting real GDP growth.
This implies that the Administration, the CBO, and the
Blue Chip have expected faster inflation than ultimately
materialized. A closer look at the data reveals that the
errors were largest in the 1980s, as the U.S. economy
shifted from a period of high inflation in the 1970s to a
period of more moderate price rises. The mean absolute
error and the RMSE metrics imply that the errors in the
Administration’s inflation forecast have tended to be of

smaller magnitude than those of the CBO or Blue Chip
panel.
Finally, on interest rates, the story is similar to that for
inflation. All of the forecasts have historically projected
interest rates that were higher than what later occurred,
probably because they expected higher inflation as shown
above. Across the three forecasters, the Administration
has generally made errors of lesser magnitude than the
other two.
Uncertainty and the Deficit Projections
This section assesses the accuracy of past Budget forecasts for the deficit or surplus, measured at different time
horizons. The results of this exercise are reported in Table
2-6, where the average error, the average absolute error,
and the RMSE (as well as the standard deviation of the
forecast error) are reported.
In the table, a negative number means that the Federal
Government ran a greater surplus than was expected,
while a positive number in the table indicates a smaller
surplus or a larger deficit. In the current year in which
the Budget is published, the Administration has tended
to understate the surplus (or, equivalently, overstate the
deficit). For every year beyond the current year, however,
the historical pattern has been for the Budget deficit to

18

ANALYTICAL PERSPECTIVES

Table 2–6. DIFFERENCES BETWEEN ESTIMATED AND ACTUAL SURPLUSES OR
DEFICITS FOR FIVE-YEAR BUDGET ESTIMATES SINCE 1986
(As A Percent Of Gdp)
Estimate for Budget Year Plus:
Current Year
Estimate

Budget Year
Estimate

One Year (BY
+ 1)

Two Years (BY
+ 2)

Three Years (BY
+ 3)

Four Years (BY
+ 4)

Average Difference 1 �������������������������������������������������������������������������������������
-0.8
0.2
1.1
1.7
2.1
2.5
Average Absolute Difference 2 ����������������������������������������������������������������������
1.1
1.4
2.2
2.8
3.4
3.7
Standard Deviation ���������������������������������������������������������������������������������������
1.0
2.0
2.8
3.3
3.5
3.5
Root Mean Squared Error ����������������������������������������������������������������������������
1.3
2.0
3.0
3.7
4.0
4.2
1 A positive number represents an overestimate of the surplus or an underestimate of the deficit. A negative number represents an overestimate of the deficit or an underestimate of
the surplus.
2 Average absolute difference is the difference without regard to sign.

be larger than the Administration expected. One possible reason for this is that past Administrations’ policy
proposals have not all been implemented.5 The forecast
errors tend to grow with the time horizon, which is not
surprising given that there is much greater uncertainty
in the medium run about both the macroeconomic situation and the specific details of policy enactments.
It is possible to construct a probabilistic range of outcomes for the deficit. This is accomplished by taking the
RMSE of previous forecast errors and assuming that
these errors are drawn from a normal distribution. This
exercise is undertaken at every forecast horizon from the
current Budget year to five years down the road. Chart
2-1 displays the projected range of possible deficits. In the
chart, the middle line represents the Administration’s ex-

pected budget balance and can be interpreted as the 50th
percentile outcome. The rest of the lines in the chart may
be read in the following fashion. The top line reports the
95th percentile of the distribution of outcomes over 2017
to 2022, meaning that there is a 95 percent probability
that the actual balance in those years will be more negative than expressed by the line. Similarly, there is a 95
percent probability that the balance will be more positive
than suggested by the bottom line in the chart. In 2017,
there is a 95 percent chance of a budget deficit greater
than 1.0 percent of GDP. By 2022, there is only a 5 percent chance of a budget deficit greater than 8.8 percent of
GDP. In addition, the chart reports that there is a substantial probability of a budget surplus by 2022.

Chart 2-1. Range of Uncertainty for the
Budget Deficit
Percent of GDP
6

Percentiles:
95th

4

90th

2

75th

0
Deficit
Forecast

-2
-4

25th

-6
10th

-8

5th

-10
2017

2018

2019

5 Additionally, CBO has on average underestimated the deficit in
their forecasts.

2020

2021

2022

3. LONG-TERM BUDGET OUTLOOK

While current Federal budget deficits are down from
the string of trillion-dollar deficits that resulted from the
2008-2009 recession, the structural excess of spending
over revenue will cause deficits to begin rising again soon
and reach the trillion-dollar mark toward the end of the
10-year budget window. The long-term budget projections
of current policy in this chapter show that the deficit will
continue to rise dramatically beyond the 10-year window
and that publicly held debt will exceed the size of the
economy by 2036 unless significant reforms are enacted.
The Administration is committed to reversing the trend
of untenable Federal spending and to charting a path for
more efficient, responsible, and sustainable use of taxpayer dollars while promoting economic growth.
While the detailed estimates of receipts and outlays in
the President’s Budget extend only 10 years, this chapter reviews the longer-term budget outlook, both under
a continuation of current policies and under the policies
proposed in the Budget. The projections discussed in this
chapter are highly uncertain. Small changes in economic
or other assumptions can make a large difference to the
results. This is even more relevant for projections over
longer horizons.
The chapter is organized as follows:
• The first section details the assumptions used to
create the baseline projection and analyzes the
long-term implications of leaving current policies in
place. This forecast serves as a point of comparison
against the proposals in the 2018 Budget in the second section.

• The

second section demonstrates how the Administration’s policies will significantly alter the current trajectory of the Federal budget by balancing

the budget by 2027 and reducing the Federal debt.
This course-correction will put the Nation on a sustainable path to maintain the financial health of the
Federal government for future generations.

• The third section discusses alternative assumptions
and uncertainties in the projections.

• The

fourth section discusses the actuarial projections for Social Security and Medicare.

• The appendix provides further detail on data sources, assumptions, and other methods for estimation.

Both the Administration and the Congressional Budget
Office (CBO) project that, absent any changes in policy,
the deficit will increase this year and continue to escalate over the following 10 years. Chart 3-1 shows the path
of debt as a percent of GDP under continuation of current policies, without the policy changes proposed in the
President’s Budget, as well as the debt trajectory under
the President’s policies. Under current policy, the ratio of
debt to GDP will rise from 77 percent in 2017 to 85 percent in 2027, an increase of about eight percentage points
over that period. In contrast, the debt ratio is projected to
be 60 percent in 2027 under the proposed policy changes.
By the end of the 25-year horizon, the difference in the
debt burden—111 percent of GDP under current policy
compared to 25 percent of GDP under Budget policy—is
even starker.
Long-Run Projections under
Continuation of Current Policies
For the 10-year budget window, the Administration produces both baseline projections, which show how deficits

Chart 3-1. Comparison of Publicly Held Debt
Debt as a Percent of GDP
120
Continuation of Current Policies
100
80
60
2018 Budget Policy
40
20
0
2000

2010

2020

2030

2040

19

20

ANALYTICAL PERSPECTIVES

and debt would evolve under current policies, and projections showing the impact of proposed policy changes. Like
the budget baseline more generally, long-term projections
should provide policymakers with information about
the Nation’s expected fiscal trajectory in the absence of
spending and tax changes. For this reason, the baseline
projections in this chapter are based on a set of economic
assumptions that remove the growth-increasing effects of
the Administration’s fiscal policies. In past Budgets, the
baseline and policy projections used the same set of economic assumptions, but this approach would understate
the severity of the current-law fiscal problem and fail to
illustrate the full impact of the 2018 Budget policies.
The baseline long-term projections assume that current policy continues for Social Security, Medicare,
Medicaid, other mandatory programs, and revenues.1
For discretionary spending, it is less clear how to project a continuation of current policy. After the expiration
of the statutory caps in 2021, both the Administration’s
and CBO’s 10-year baselines assume that discretionary
funding levels generally grow slightly above the rate of
inflation (about 2.5 percent per year). Thereafter, the
baseline long-run projections assume that per-person discretionary funding remains constant, which implies an
annual growth rate of about three percent.
Over the next 10 years, debt rises from 77 percent
of GDP last year to 85 percent of GDP in 2027. Beyond
the 10-year horizon, debt increases more sharply, reaching 111 percent of GDP by 2042, the end of the 25-year
projection window. The key drivers of that increase are
an aging population and rapid health care cost growth,
which combine to outpace growth in Federal revenues.
Without policy changes, the public debt will continue to
grow, increasing the burden on future generations.
1    The long-run baseline projections are consistent with the Budget’s
baseline concept, which is explained in more detail in Chapter 22, “Current Services Estimates,” in this volume. The projections assume full
payment of scheduled Social Security and Medicare benefits without regard to the projected depletion of the trust funds for these programs. Additional baseline assumptions beyond the 10-year window are detailed
in the appendix to this chapter.

Aging population.—Over the next 10 years, an aging
population will put significant pressure on the budget. In
2008, when the oldest members of the baby boom generation became eligible for early retirement under Social
Security, the ratio of workers to Social Security beneficiaries was 3.2. By the end of the 10-year budget window,
that ratio will fall to 2.4, and it will reach about 2.2 in the
early 2030s, at which point most of the baby boomers will
have retired.
With fewer active workers paying taxes and more retired workers eligible for Social Security, Medicare, and
Medicaid (including long-term care), budgetary pressures will increase. Social Security program costs will
grow from 4.9 percent of GDP today to 6.6 percent of GDP
by 2042, with most of that growth occurring within the
10-year budget window. Likewise, even if per-beneficiary health care costs grew at the same rate as GDP per
capita, Medicare and Medicaid costs would still increase
substantially as a percent of GDP, due solely to the aging
population.
Health costs.—Health care costs per capita have risen much faster than per-capita GDP growth for decades,
leading both public and private spending on health care
to increase as a share of the economy. While spending per
enrollee has grown roughly in line with or more slowly
than per-capita GDP in both the public and private sectors in recent years, slower per-enrollee growth is not
projected to continue. Trends in per-enrollee costs, together with the demographic trends discussed above, are the
primary drivers of long-term fiscal projections.
Based on projections of Medicare enrollment and expenditures included in the 2016 Medicare Trustees
Report, the projections here assume that Medicare perbeneficiary spending growth will accelerate over the next
few years, with the growth rate averaging about 0.8 percentage points above the growth rate of per-capita GDP
over the next 25 years. (This average growth rate is still
below the historical average for the last 25 years.) Under
these assumptions, Medicare and Medicaid costs increase
by a total of 2.6 percentage points as a percent of GDP by
2042.

Chart 3-2. Comparison of Annual Surplus/Deficit
Surplus (+)/Deficit (-) as a Percent of GDP
4
2

2018 Budget Policy

0
-2
-4
-6

Continuation of Current Policy

-8
-10
-12
2000

2010

2020

2030

2040

21

3. Long-Term Budget Outlook

Revenues.—Without any further changes in tax laws,
revenues will grow slightly faster than GDP over the long
run, but not fast enough to keep pace with the increase in
social insurance costs that results from an aging population. The increase in revenues as a percent of GDP occurs
primarily because individuals’ real, inflation-adjusted incomes grow over time, and so a portion of their income
falls into higher tax brackets. (Bracket thresholds are indexed for inflation but do not grow in real terms.)
The Impact of 2018 Budget Policies on
the Long-Term Fiscal Outlook
To show the long-term effects of implementing new
policies, expenditures and revenues are extended through
the 25-year timeframe. The President’s 2018 Budget
proposal reduces deficits while continuing to invest in national security and other critical priorities that promote
economic growth and ultimately balances the budget by
decreasing non-defense discretionary and mandatory
spending over the next 10 years. Beyond the 10-year
window, most categories of mandatory spending grow at
the same long-run rates as under the baseline projection,
discretionary spending keeps up with inflation, and revenues continue as a fixed percentage of GDP based on their
level in 2027. Details about the assumptions are available
in the appendix.
As shown in Chart 3-2, 2018 Budget policies will reduce the deficit to below two percent of GDP by 2022 and
ultimately lead to a balanced budget by 2027. Over the
next decade and a half, the debt-to-GDP ratio reaches 47
percent of GDP and subsequently decreases. At the end
of the 25-year horizon, the debt ratio would be the lowest
since the start of the 1980s, representing significant progress in reducing the Federal debt burden.
One way to quantify the size of the Nation’s long-term
fiscal challenges is to determine the size of the increase
in taxes or reduction in non-interest spending needed to
reach a target debt-to-GDP ratio over a given period. There
is no one optimal debt ratio, but two illustrative targets
are keeping the debt ratio stable and reaching the aver-

age postwar debt ratio of 45 percent. Policy adjustments
of about 1.4 percent of GDP would be needed each year to
keep the debt ratio stable at 77 percent. Alternatively, policy adjustments of about 2.7 percent of GDP would steer
the debt ratio to the postwar average by the end of the
25-year horizon. In comparison, the President’s Budget
policies are projected to decrease the debt ratio within 10
years and reduce it by 53 percentage points by 2042, more
than satisfying the definition of fiscal sustainability.
The Budget achieves these fiscal goals through prioritizing expenditures that promote economic growth and
security while improving the efficiency of the Federal government. For example, the President’s Budget includes
$200 billion to improve the Nation’s crumbling infrastructure and an increase of $54 billion to defense spending
for 2018. Reducing the regulatory burden will promote job
creation, and tax reform will allow families to keep more
of their earnings. At the same time, the Budget eliminates
ineffective or duplicative programs and identifies ways to
make Federal programs more efficient. Despite all the
progress the Budget proposals make towards fiscal goals,
some long-term challenges remain, particularly in Social
Security and Medicare.
Uncertainty and Alternative Assumptions
Future budget outcomes depend on a host of unknowns:
changing economic conditions, unforeseen international
developments, unexpected demographic shifts, and unpredictable technological advances. The longer budget
projections are extended, the more the uncertainties increase. These uncertainties make even short-run budget
forecasting quite difficult. For example, the budget’s projection of the deficit in five years is 1.8 percent of GDP, but
a distribution of probable outcomes ranges from a deficit
of 7.2 percent of GDP to a surplus of 3.6 percent of GDP,
at the 10th and 90th percentiles, respectively.
Productivity and interest rates.— The rate of future
productivity growth has a major effect on the long-run
budget outlook (see Chart 3–3). Higher productivity
growth improves the budget outlook, because it adds di-

Chart 3-3. Alternative Productivity and
Interest Assumptions
Debt as a Percent of GDP
90
80
Lower Productivity Growth

70
60
50
40
30

2018 Budget Policy

20
Higher Productivity Growth

10
0
2000

2010

2020

2030

2040

22

ANALYTICAL PERSPECTIVES

Table 3–1. DEBT PROJECTIONS IN 25 YEARS
UNDER ALTERNATIVE BUDGET SCENARIOS
(Percent of GDP)
2018 Budget Policy ������������������������������������������������������������������������������������������������

24.5

Health:
Excess cost growth averages 1.5% �������������������������������������������������������������������

36.8

Zero excess cost growth ������������������������������������������������������������������������������������

16.6

Discretionary Outlays:
Grow with inflation and population ���������������������������������������������������������������������

26.8

Grow with GDP ��������������������������������������������������������������������������������������������������

32.0

Revenues:
Revenues rise as as a share of GDP, with bracket creep ����������������������������������

20.2

Productivity and Interest: 1
Productivity grows by 0.25 percentage point per year faster than the base
case ��������������������������������������������������������������������������������������������������������������
10.5
Productivity grows by 0.25 percentage point per year slower than the base
case ��������������������������������������������������������������������������������������������������������������
39.7
1 Interest rates adjust commensurately with increases or decreases in productivity.

rectly to the growth of the major tax bases while having
a smaller effect on outlay growth. Meanwhile, productivity and interest rates tend to move together, but have
opposite effects on the budget. Economic growth theory
suggests that a 0.1 percentage point increase in productivity should be associated with a roughly equal increase
in interest rates.
Productivity growth is also highly uncertain. For much
of the last century, output per hour in nonfarm business
grew at an average rate of around 2.1 percent per year,
but there were long periods of sustained output growth
at notably higher and lower rates than the long-term average. The base case long-run projections assume that
real GDP per hour worked will grow at an average annual
rate of 2.0 percent per year and assume interest rates on
10-year Treasury securities of 3.8 percent. The alternative scenarios illustrate the effect of raising and lowering
the projected productivity growth rate by 0.25 percentage point and changing interest rates commensurately.

At the end of the 25-year horizon, the public debt ranges
from almost 11 percent of GDP in the high productivity
scenario to 40 percent of GDP in the low productivity
scenario. This variation highlights the importance of investment and smarter tax policy, which can contribute to
higher productivity.
Health spending.—Health care cost growth represents another large source of uncertainty in the long-term
budget projections. As noted above, the baseline projections follow the Medicare Trustees in assuming that
Medicare per-beneficiary costs grow an average of about
0.8 percentage points faster than per-capita GDP growth
over the next 25 years. But historically, especially prior to 1990, health care costs grew even more rapidly.
Conversely, over the last few years, per-enrollee health
care costs have grown roughly in line with or more slowly
than GDP per capita, with particularly slow growth in
Medicare and Medicaid.
Chart 3-4 shows the large impact that either slower or
faster health care cost growth would have on the budget.
If health care cost growth averaged 1.5 percentage points
faster than per-capita GDP growth, the debt ratio in 25
years would increase from 25 percent of GDP under the
base case Budget policy to 37 percent of GDP. If health
care costs grew with GDP per capita, the debt ratio in 25
years would be 17 percent of GDP.
Policy assumptions.—As evident from the discussion
of the 2018 Budget proposals, policy choices will also have
a large impact on long-term budget deficits and debt. The
base case policy projection for discretionary spending assumes that after 2027, discretionary spending grows with
inflation (see Chart 3–5). Alternative assumptions are to
grow discretionary spending with GDP or inflation and
population. At the end of the 25-year horizon, the debt
ratio ranges from 25 percent of GDP in the base case to
27 percent of GDP if discretionary spending grows with
inflation and population and 32 percent of GDP if discretionary spending grows with GDP.
In the base case policy projection, tax receipts remain a
constant percent of GDP after the budget window. Chart
3–6 shows an alternative receipts assumption. Without
changes in law, revenues would gradually increase with

Chart 3-4. Alternative Health Care Costs
Debt as a Percent of GDP
90
80
70
Higher Average
Excess Growth Rate

60
50
40
30

2018 Budget Policy

20

Zero Excess Growth Rate

10
0
2000

2010

2020

2030

2040

23

3. Long-Term Budget Outlook

Chart 3-5. Alternative Discretionary Assumptions
Debt as a Percent of GDP
90
80
70
60

Discretionary Spending
Grows with GDP

50
40
30

2018 Budget Policy

20

Discretionary Spending Grows
with Inflation and Population

10
0
2000

2010

2020

rising real incomes adding to budget surpluses that can
further improve the debt outlook. At the end of the 25year horizon, the debt ratio falls from 25 percent of GDP
in the base case to 20 percent of GDP in the alternative
case where tax brackets are not regularly increased after
2027.
Finally, Chart 3-7 shows how uncertainties compound
over the forecast horizon. As the chart shows, under the
base case Budget policy projections, debt declines to 25
percent of GDP. Alternatively, assuming a combination of
slower productivity growth and higher health care cost
growth results in less debt reduction, with debt-to-GDP
reaching 53 percent by the end of the window. Meanwhile,
assuming a combination of higher productivity growth
and slower health care cost growth results in the debt-toGDP reaching 3 percent in 2042.
Despite the striking uncertainties, long-term projections are helpful in highlighting some of the known
budget challenges on the horizon, especially the impact of
an aging population. In addition, the projections highlight

2030

2040

the need for policy awareness and potential action to address drivers of future budgetary costs.
Actuarial Projections for Social
Security and Medicare
While the Administration’s long-run projections focus on the unified budget outlook, Social Security and
Medicare Hospital Insurance benefits are paid out of
trust funds financed by dedicated payroll tax revenue.
Projected trust fund revenues fall short of the levels necessary to finance projected benefits over the next 75 years.
The Social Security and Medicare Trustees’ reports
feature the actuarial balance of the trust funds as a summary measure of their financial status. For each trust
fund, the balance is calculated as the change in receipts
or program benefits (expressed as a percentage of taxable
payroll) that would be needed to preserve a small positive
balance in the trust fund at the end of a specified time pe-

Chart 3-6. Alternative Revenue Assumptions
Debt as a Percent of GDP
90
80
70
60
50

2018 Budget
Policy

40
30

Revenues Rise as a share of GDP,
with Bracket Creep

20
10
0
2000

2010

2020

2030

2040

24

ANALYTICAL PERSPECTIVES

Chart 3-7. Long-Term Uncertainties
Debt as a Percent of GDP
90
80
70
Pessimistic

60
50

2018 Budget Policy

40
30
20
Optimistic

10
0
2000

2010

2020

riod. The estimates cover periods ranging in length from
25 to 75 years.
Table 3–2 shows the projected income rate, cost rate,
and annual balance for the Medicare HI and combined
OASDI trust funds at selected dates under the Trustees’
intermediate assumptions in the 2016 reports. There is a
continued imbalance in the long-run projections of the HI
program due to demographic trends and continued high
per-person costs. The HI trust fund is projected to become
insolvent in 2028.
As a result of reforms legislated in 1983, Social Security
had been running a cash surplus with taxes exceeding
costs up until 2009. This surplus in the Social Security
trust fund helped to hold down the unified budget deficit. The cash surplus ended in 2009, when the trust fund
began using a portion of its interest earnings to cover
benefit payments. The 2016 Social Security Trustees’ re-

2030

2040

port projects that the trust fund will not return to cash
surplus, but the program will continue to experience an
overall surplus for several more years because of the interest earnings. After that, however, Social Security will
begin to draw on its trust fund balances to cover current expenditures. Over time, as the ratio of workers
to retirees falls, costs are projected to rise further while
revenues excluding interest are projected to rise slightly.
In the process, the Social Security trust fund, which was
built up since 1983, would be drawn down and eventually be exhausted in 2034. These projections assume that
benefits would continue to be paid in full despite the projected exhaustion of the trust fund to show the long-run
implications of current benefit formulas. Under current
law, not all scheduled benefits could be paid after the
trust funds are exhausted. However, benefits could still
be partially funded from current revenues. According to

Table 3–2. INTERMEDIATE ACTUARIAL PROJECTIONS
FOR OASDI AND HI, 2016 TRUSTEES’ REPORTS
2015

2020

2030

2040

2080

3.8
4.8
–1.0
50 years
–0.7

4.3
5.1
–0.8
75 years
–0.7

13.2
16.6
–3.4
50 years
–2.2

13.3
17.4
–4.1
75 years
–2.7

Percent of Payroll
Medicare Hospital Insurance (HI):
Income Rate ����������������������������������������������������������������������
Cost Rate ���������������������������������������������������������������������������
Annual Balance �����������������������������������������������������������������
Projection Interval ������������������������������������������������������������
Actuarial Balance ����������������������������������������������

3.4
3.4
–0.1

3.4
3.5
–*

3.6
4.2
–0.6
25 years
–0.6

Percent of Payroll
Old Age Survivors and Disability Insurance (OASDI):
Income Rate ����������������������������������������������������������������������
Cost Rate ���������������������������������������������������������������������������
Annual Balance �����������������������������������������������������������������
Projection Interval ������������������������������������������������������������
Actuarial Balance ����������������������������������������������
* 0.05 percent or less.

13.0
14.1
–1.1

13.0
14.1
–1.2

13.2
16.1
–2.9
25 years
–1.5

25

3. Long-Term Budget Outlook

the 2016 Trustees’ report, beginning in 2034, 79 percent
of projected Social Security scheduled benefits would be

funded. This percentage would eventually decline to 74
percent by 2090.

TECHNICAL NOTE: SOURCES OF DATA AND METHODS OF ESTIMATING
The long-run budget projections are based on actuarial
projections for Social Security and Medicare as well as demographic and economic assumptions. A simplified model
of the Federal budget, developed at OMB, is used to compute the budgetary implications of these assumptions.
Demographic and economic assumptions.—For
the years 2017-2027, the assumptions are drawn from the
Administration’s economic projections used for the 2018
Budget. The economic assumptions are extended beyond
this interval by holding inflation, interest rates, and the
unemployment rate constant at the levels assumed in the
final year of the budget forecast. Population growth and
labor force growth are extended using the intermediate
assumptions from the 2016 Social Security Trustees’ report. The projected rate of growth for real GDP is built
up from the labor force assumptions and an assumed rate
of productivity growth. Productivity growth, measured as
real GDP per hour, is assumed to equal its average rate of
growth in the Budget’s economic assumptions—2.0 percent per year. For the baseline projections, GDP growth
is adjusted to remove the growth-increasing effects of the
Administration’s fiscal policies.
Under Budget policies, CPI inflation holds stable at 2.3
percent per year, the unemployment rate is constant at
4.8 percent, the yield on 10-year Treasury notes is steady
at 3.8 percent, and the 91-day Treasury bill rate is 3.0
percent. Consistent with the demographic assumptions
in the Trustees’ reports, U.S. population growth slows
from nearly 1.0 percent per year to about two-thirds that
rate by 2035, and slower rates of growth beyond that
point. By the end of the 25-year projection period total
population growth is slightly above 0.5 percent per year.
Real GDP growth is projected to be less than its historical average of around 3.3 percent per year because the

slowdown in population growth and the increase in the
population over age 65 reduce labor supply growth. In
these projections, real GDP growth averages between 2.5
percent and 2.9 percent per year for the period following
the end of the 10-year budget window.
The economic and demographic projections described
above are set by assumption and do not automatically
change in response to changes in the budget outlook. This
makes it easier to interpret the comparisons of alternative policies and is a reasonable simplification given the
large uncertainties surrounding the long-run outlook.
Budget projections.—For the period through 2027,
receipts and outlays in the baseline and policy projections
follow the 2018 Budget’s baseline and policy estimates
respectively. Under Budget policies, total tax receipts
are constant relative to GDP after 2027. Discretionary
spending grows at the rate of growth in inflation outside
the budget window. Long-run Social Security spending is
projected by the Social Security actuaries using this chapter’s long-run economic and demographic assumptions.
Medicare benefits are projected based on a projection of
beneficiary growth and excess health care cost growth
from the 2016 Medicare Trustees’ report current law
baseline. Medicaid outlays are based on the economic
and demographic projections in the model, which assume
average excess cost growth of approximately 1.0 percentage point above growth in GDP per capita after 2027. For
the policy projections, these assumptions are adjusted
based on the Budget proposal to reform Medicaid funding
to States starting in 2020. Other entitlement programs
are projected based on rules of thumb linking program
spending to elements of the economic and demographic
projections such as the poverty rate.

4. FEDERAL BORROWING AND DEBT

Debt is the largest legally and contractually binding
obligation of the Federal Government. At the end of 2016,
the Government owed $14,168 billion of principal to the
individuals and institutions who had loaned it the money
to fund past deficits. During that year, the Government
paid the public approximately $284 billion of interest on
this debt. At the same time, the Government also held financial assets, net of financial liabilities other than debt,
of $1,699 billion. Therefore, debt held by the public net of
financial assets was $12,469 billion.
In addition, at the end of 2016 the Treasury had issued $5,372 billion of debt to Government accounts. As a
result, gross Federal debt, which is the sum of debt held
by the public and debt held by Government accounts, was
$19,539 billion. Interest on the gross Federal debt was
$430 billion in 2016. Gross Federal debt is discussed in
more detail later in the chapter.
The $14,168 billion debt held by the public at the end
of 2016 represents an increase of $1,051 billion over the
level at the end of 2015. This increase is the result of the
$585 billion deficit in 2016 and other financing transactions that increased the need to borrow by $466 billion.
Debt held by the public increased from 73.3 percent of
Gross Domestic Product (GDP) at the end of 2015 to 77.0
percent of GDP at the end of 2016. Meanwhile, financial assets net of liabilities grew by $464 billion in 2016,
so that debt held by the public net of financial assets increased by $587 billion during 2016. Debt held by the
public net of financial assets was 66.4 percent of GDP at
the end of 2015 and 67.7 percent of GDP at the end of
2016. The deficit is estimated to increase to $603 billion,
or 3.1 percent of GDP, in 2017, and then to decrease to
$440 billion, or 2.2 percent of GDP, in 2018. The deficit is
projected to increase temporarily in 2019, but then to decrease in nominal terms and as a percent of GDP in each
of the subsequent years, reaching surplus in 2027. Debt
held by the public is projected to grow to 77.4 percent of
GDP at the end of 2017 and then to fall in each of the
subsequent years, falling to 59.8 percent of GDP in 2027.
Debt held by the public net of financial assets is expected
to similarly grow to 68.2 percent of GDP at the end of
2017, then to decline in the following years, falling to 52.2
percent of GDP at the end of 2027.
Trends in Debt Since World War II
Table 4–1 depicts trends in Federal debt held by the
public from World War II to the present and estimates
from the present through 2022. (It is supplemented for
earlier years by Tables 7.1–7.3 in the Budget’s historical tables, available as supplemental budget material.1)
Federal debt peaked at 106.1 percent of GDP in 1946, just
1    The historical tables are available at https://www.whitehouse.gov/
omb/budget/Historicals and on the Budget CD-ROM.

after the end of the war. From that point until the 1970s,
Federal debt as a percentage of GDP decreased almost every year because of relatively small deficits, an expanding
economy, and unanticipated inflation. With households
borrowing large amounts to buy homes and consumer
durables, and with businesses borrowing large amounts
to buy plant and equipment, Federal debt also decreased
almost every year as a percentage of total credit market
debt outstanding. The cumulative effect was impressive.
From 1950 to 1975, debt held by the public declined from
78.5 percent of GDP to 24.5 percent, and from 53.3 percent of credit market debt to 17.9 percent. Despite rising
interest rates, interest outlays became a smaller share of
the budget and were roughly stable as a percentage of
GDP.
Federal debt relative to GDP is a function of the Nation’s
fiscal policy as well as overall economic conditions. During
the 1970s, large budget deficits emerged as spending grew
faster than receipts and as the economy was disrupted by
oil shocks and rising inflation. The nominal amount of
Federal debt more than doubled, and Federal debt relative to GDP and credit market debt stopped declining for
several years in the middle of the decade. Federal debt
started growing again at the beginning of the 1980s, and
increased to almost 48 percent of GDP by 1993. The ratio
of Federal debt to credit market debt also rose during this
period, though to a lesser extent. Interest outlays on debt
held by the public, calculated as a percentage of either
total Federal outlays or GDP, increased as well.
The growth of Federal debt held by the public was
slowing by the mid-1990s. In addition to a growing economy, three major budget agreements were enacted in the
1990s, implementing spending cuts and revenue increases and significantly reducing deficits. The debt declined
markedly relative to both GDP and total credit market
debt, with the decline accelerating as budget surpluses
emerged from 1997 to 2001. Debt fell from 47.8 percent
of GDP in 1993 to 31.4 percent of GDP in 2001. Over that
same period, debt fell from 26.3 percent of total credit
market debt to 17.4 percent. Interest as a share of outlays peaked at 16.5 percent in 1989 and then fell to 8.9
percent by 2002; interest as a percentage of GDP fell by a
similar proportion.
The progress in reducing the debt burden stopped and
then reversed course beginning in 2002. A decline in the
stock market, a recession, the attacks of September 11,
2001, and two major wars, and other policy changes all
contributed to increasing deficits, causing debt to rise, both
in nominal terms and as a percentage of GDP. Following
the most recent recession, which began in December 2007,
the deficit began increasing rapidly in 2008 and 2009, as
the Government acted to rescue several major corporations and financial institutions as well as enact a major

27

28

ANALYTICAL PERSPECTIVES

Table 4–1. TRENDS IN FEDERAL DEBT HELD BY THE PUBLIC AND INTEREST ON THE DEBT HELD BY THE PUBLIC
(Dollar amounts in billions)

Fiscal Year

Debt held by the public:
Current
dollars

FY 2016
dollars 1

Debt held by the public as Interest on the debt held by Interest on the debt held by
a percent of:
the public: 3
the public as a percent of: 3
GDP

Credit
market debt 2

Current
dollars

FY 2016
dollars 1

Total outlays

GDP

1946 ���������������������������������������������������������������������������������������������������������

241.9

2,450.9

106.1

N/A

4.2

42.4

7.6

1.8

1950 ���������������������������������������������������������������������������������������������������������
1955 ���������������������������������������������������������������������������������������������������������

219.0
226.6

1,795.5
1,632.7

78.5
55.7

53.3
42.1

4.8
5.2

39.7
37.4

11.4
7.6

1.7
1.3

1960 ���������������������������������������������������������������������������������������������������������
1965 ���������������������������������������������������������������������������������������������������������

236.8
260.8

1,511.8
1,559.2

44.3
36.7

33.1
26.4

7.8
9.6

49.9
57.3

8.5
8.1

1.5
1.3

1970 ���������������������������������������������������������������������������������������������������������
1975 ���������������������������������������������������������������������������������������������������������

283.2
394.7

1,410.8
1,449.1

27.0
24.5

20.3
17.9

15.4
25.0

76.6
91.8

7.9
7.5

1.5
1.6

1980 ���������������������������������������������������������������������������������������������������������
1985 ���������������������������������������������������������������������������������������������������������

711.9
1,507.3

1,819.0
2,939.4

25.5
35.3

18.5
22.2

62.8
152.9

160.3
298.2

10.6
16.2

2.2
3.6

1990 ���������������������������������������������������������������������������������������������������������
1995 ���������������������������������������������������������������������������������������������������������

2,411.6
3,604.4

4,043.6
5,333.4

40.8
47.5

22.5
26.3

202.4
239.2

339.3
353.9

16.2
15.8

3.4
3.2

2000 ���������������������������������������������������������������������������������������������������������
2005 ���������������������������������������������������������������������������������������������������������

3,409.8
4,592.2

4,651.0
5,588.4

33.6
35.6

18.8
17.1

232.8
191.4

317.6
232.9

13.0
7.7

2.3
1.5

2010 ���������������������������������������������������������������������������������������������������������
2011 ���������������������������������������������������������������������������������������������������������
2012 ���������������������������������������������������������������������������������������������������������
2013 ���������������������������������������������������������������������������������������������������������
2014 ���������������������������������������������������������������������������������������������������������

9,018.9
10,128.2
11,281.1
11,982.7
12,779.9

9,934.8
10,934.6
11,960.0
12,492.8
13,085.1

60.9
65.9
70.4
72.6
74.2

25.2
27.5
29.4
30.1
30.8

228.2
266.0
232.1
259.0
271.4

251.3
287.2
246.0
270.0
277.9

6.6
7.4
6.6
7.5
7.7

1.5
1.7
1.4
1.6
1.6

2015 ���������������������������������������������������������������������������������������������������������
2016 ���������������������������������������������������������������������������������������������������������
2017 estimate �������������������������������������������������������������������������������������������
2018 estimate �������������������������������������������������������������������������������������������
2019 estimate �������������������������������������������������������������������������������������������

13,116.7
14,167.7
14,823.8
15,353.0
15,957.4

13,273.5
14,167.7
14,556.5
14,778.0
15,058.6

73.3
77.0
77.4
76.7
76.2

30.6
31.3
N/A
N/A
N/A

260.6
283.8
324.6
362.0
419.2

263.8
283.8
318.7
348.5
395.6

7.1
7.4
8.0
8.8
9.7

1.5
1.5
1.7
1.8
2.0

2020 estimate �������������������������������������������������������������������������������������������
2021 estimate �������������������������������������������������������������������������������������������
2022 estimate �������������������������������������������������������������������������������������������
2023 estimate �������������������������������������������������������������������������������������������
2024 estimate �������������������������������������������������������������������������������������������

16,509.0
17,023.6
17,517.5
17,887.0
18,149.8

15,273.7
15,441.0
15,577.3
15,593.9
15,512.8

75.1
73.7
72.2
70.2
67.8

N/A
N/A
N/A
N/A
N/A

479.6
536.6
586.3
628.0
658.6

443.7
486.7
521.4
547.5
563.0

10.7
11.6
12.1
12.7
13.0

2.2
2.3
2.4
2.5
2.5

2025 estimate �������������������������������������������������������������������������������������������
18,378.9
15,400.6
65.3
N/A
679.2
569.2
12.8
2.4
2026 estimate �������������������������������������������������������������������������������������������
18,541.3
15,232.1
62.7
N/A
694.0
570.2
12.6
2.3
2027 estimate �������������������������������������������������������������������������������������������
18,575.2
14,960.7
59.8
N/A
708.8
570.8
12.4
2.3
N/A = Not available.
1 Amounts in current dollars deflated by the GDP chain-type price index with fiscal year 2016 equal to 100.
2 Total credit market debt owed by domestic nonfinancial sectors. Financial sectors are omitted to avoid double counting, since financial intermediaries borrow in the credit market
primarily in order to finance lending in the credit market. Source: Federal Reserve Board flow of funds accounts. Projections are not available.
3 Interest on debt held by the public is estimated as the interest on Treasury debt securities less the “interest received by trust funds” (subfunction 901 less subfunctions 902 and 903).
The estimate of interest on debt held by the public does not include the comparatively small amount of interest paid on agency debt or the offsets for interest on Treasury debt received by
other Government accounts (revolving funds and special funds).

stimulus bill. Since 2008, debt as a percent of GDP has
grown rapidly, increasing from 35.2 percent at the end of
2007 to 77.0 percent at the end of 2016.
Under the proposals in the Budget, the deficit is projected to increase to $603 billion in 2017, and then generally
fall in subsequent years, reaching a $16 billion surplus in
2027. Gross Federal debt is projected to increase slightly
to 106.2 percent of GDP in 2017 and then decrease in each

of the years thereafter. Debt held by the public as a percent of GDP is estimated to be 77.4 percent at the end of
2017, after which it falls in each of the subsequent years.
Debt held by the public net of financial assets as a percent
of GDP is estimated to grow to 68.2 percent at the end of
2017 and then fall in the following years, to 52.2 percent
of GDP by the end of 2027.

4. Federal Borrowing and Debt

Debt Held by the Public and Gross Federal Debt
The Federal Government issues debt securities for two
main purposes. First, it borrows from the public to provide
for the Federal Government’s financing needs, including
both the deficit and the other transactions requiring financing, most notably disbursements for direct student
loans and other Federal credit programs.2 Second, it issues debt to Federal Government accounts, primarily trust
funds, that accumulate surpluses. By law, trust fund surpluses must generally be invested in Federal securities.
The gross Federal debt is defined to consist of both the
debt held by the public and the debt held by Government
accounts. Nearly all the Federal debt has been issued by
the Treasury and is sometimes called “public debt,’’ but a
small portion has been issued by other Government agencies and is called “agency debt.’’3
Borrowing from the public, whether by the Treasury
or by some other Federal agency, is important because
it represents the Federal demand on credit markets.
Regardless of whether the proceeds are used for tangible or intangible investments or to finance current
consumption, the Federal demand on credit markets has
to be financed out of the saving of households and businesses, the State and local sector, or the rest of the world.
Federal borrowing thereby competes with the borrowing
of other sectors of the domestic or international economy
for financial resources in the credit market. Borrowing
from the public thus affects the size and composition of
assets held by the private sector and the amount of saving imported from abroad. It also increases the amount
of future resources required to pay interest to the public
on Federal debt. Borrowing from the public is therefore
an important concern of Federal fiscal policy. Borrowing
from the public, however, is an incomplete measure of
the Federal impact on credit markets. Different types of
Federal activities can affect the credit markets in different ways. For example, under its direct loan programs,
the Government uses borrowed funds to acquire financial
assets that might otherwise require financing in the credit markets directly. (For more information on other ways
in which Federal activities impact the credit market, see
the discussion at the end of this chapter.) By incorporating the change in direct loan and other financial assets,
debt held by the public net of financial assets adds useful
insight into the Government’s financial condition.
Issuing debt securities to Government accounts
performs an essential function in accounting for the operation of these funds. The balances of debt represent
the cumulative surpluses of these funds due to the excess
2      For the purposes of the Budget, “debt held by the public” is defined as debt held by investors outside of the Federal Government, both
domestic and foreign, including U.S. State and local governments and
foreign governments. It also includes debt held by the Federal Reserve.
3      The term “agency debt’’ is defined more narrowly in the budget
than customarily in the securities market, where it includes not only the
debt of the Federal agencies listed in Table 4–4, but also certain Government-guaranteed securities and the debt of the Government-sponsored
enterprises listed in Table 19–7 in the supplemental materials to the
“Credit and Insurance” chapter. (Table 19-7 is available on the Internet at: https://www.whitehouse.gov/omb/budget/Analytical_Perspectives
and on the Budget CD-ROM.)

29
of their tax receipts, interest receipts, and other collections over their spending. The interest on the debt that
is credited to these funds accounts for the fact that some
earmarked taxes and user fees will be spent at a later
time than when the funds receive the monies. The debt
securities are assets of those funds but are a liability of
the general fund to the funds that hold the securities, and
are a mechanism for crediting interest to those funds on
their recorded balances. These balances generally provide
the fund with authority to draw upon the U.S. Treasury
in later years to make future payments on its behalf to
the public. Public policy may result in the Government’s
running surpluses and accumulating debt in trust funds
and other Government accounts in anticipation of future
spending.
However, issuing debt to Government accounts does not
have any of the credit market effects of borrowing from the
public. It is an internal transaction of the Government,
made between two accounts that are both within the
Government itself. Issuing debt to a Government account
is not a current transaction of the Government with the
public; it is not financed by private saving and does not
compete with the private sector for available funds in the
credit market. While such issuance provides the account
with assets—a binding claim against the Treasury—
those assets are fully offset by the increased liability of
the Treasury to pay the claims, which will ultimately be
covered by the collection of revenues or by borrowing.
Similarly, the current interest earned by the Government
account on its Treasury securities does not need to be financed by other resources.
Furthermore, the debt held by Government accounts
does not represent the estimated amount of the account’s
obligations or responsibilities to make future payments
to the public. For example, if the account records the
transactions of a social insurance program, the debt that
it holds does not necessarily represent the actuarial present value of estimated future benefits (or future benefits
less taxes) for the current participants in the program;
nor does it necessarily represent the actuarial present
value of estimated future benefits (or future benefits less
taxes) for the current participants plus the estimated
future participants over some stated time period. The
future transactions of Federal social insurance and employee retirement programs, which own 90 percent of the
debt held by Government accounts, are important in their
own right and need to be analyzed separately. This can be
done through information published in the actuarial and
financial reports for these programs.4
This Budget uses a variety of information sources to
analyze the condition of Social Security and Medicare, the
Government’s two largest social insurance programs. The
excess of future Social Security and Medicare benefits rel4      Extensive actuarial analyses of the Social Security and Medicare
programs are published in the annual reports of the boards of trustees
of these funds. The actuarial estimates for Social Security, Medicare, and
the major Federal employee retirement programs are summarized in
the Financial Report of the United States Government, prepared annually by the Department of the Treasury in coordination with the Office of
Management and Budget, and presented in more detail in the financial
statements of the agencies administering those programs.

30

ANALYTICAL PERSPECTIVES

Table 4–2. FEDERAL GOVERNMENT FINANCING AND DEBT
(In billions of dollars)
Actual
2016
Financing:
Unified budget deficit/surplus (–) �������������������������������������
Other transactions affecting borrowing from the public:
Changes in financial assets and liabilities: 1
Change in Treasury operating cash balance ���������
Net disbursements of credit financing accounts:
Direct loan accounts �����������������������������������������
Guaranteed loan accounts �������������������������������
Troubled Asset Relief Program equity purchase
accounts ������������������������������������������������������
Subtotal, net disbursements �������������������
Net purchases of non-Federal securities by the
National Railroad Retirement Investment Trust 
Net change in other financial assets and liabilities 2 ����
Subtotal, changes in financial assets and
liabilities �������������������������������������������������������
Seigniorage on coins �������������������������������������������������
Total, other transactions affecting borrowing
from the public ���������������������������������������������
Total, requirement to borrow from the
public (equals change in debt held by
the public) ������������������������������������������
Changes in Debt Subject to Statutory Limitation:
Change in debt held by the public �����������������������������������
Change in debt held by Government accounts ���������������
Less: change in debt not subject to limit and other
adjustments ����������������������������������������������������������������
Total, change in debt subject to statutory limitation ���

Estimate
2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

584.7

602.5

440.2

525.9

488.0

455.8

441.7

318.7

209.1

175.6

110.5

–15.8

154.6

–3.3

.........

.........

.........

.........

.........

.........

.........

.........

.........

.........

82.4
16.3

67.7
–9.4

88.4
2.4

81.4
–1.4

67.7
–2.4

65.5
–5.1

60.9
–7.1

60.7
–8.6

60.4
–5.3

59.7
–4.9

57.7
–4.7

55.0
–4.4

0.1
98.8

–0.3
58.0

–*
90.8

–*
80.0

–*
65.2

–*
60.4

–*
53.8

–*
52.1

.........
55.1

.........
54.7

.........
53.0

.........
50.6

0.4
213.0

–0.6
.........

–1.2
.........

–1.0
.........

–1.0
.........

–1.0
.........

–1.1
.........

–0.7
.........

–0.8
.........

–0.6
.........

–0.5
.........

–0.3
.........

466.9
–0.6

54.1
–0.5

89.6
–0.5

78.9
–0.5

64.2
–0.5

59.3
–0.5

52.7
–0.6

51.4
–0.6

54.3
–0.6

54.1
–0.6

52.5
–0.6

50.3
–0.6

466.4

53.6

89.1

78.4

63.7

58.8

52.2

50.8

53.8

53.5

51.9

49.7

1,051.0

656.1

529.2

604.3

551.7

514.6

493.9

369.5

262.9

229.1

162.3

33.9

1,051.0
368.3

656.1
158.9

529.2
209.6

604.3
142.4

551.7
111.7

514.6
96.2

493.9
39.4

369.5
54.1

262.9
76.0

229.1
0.3

162.3
–20.1

33.9
–139.5

6.1
1,425.5

1.2
816.2

1.6
740.4

2.6
749.3

2.5
665.9

2.2
612.9

1.9
535.2

2.3
425.9

2.0
340.9

1.0
230.3

0.9
143.2

1.7
–103.9

Debt Subject to Statutory Limitation, End of Year:
Debt issued by Treasury �������������������������������������������������� 19,513.1 20,327.7 21,067.0 21,814.8 22,479.1 23,090.8 23,624.8 24,049.5 24,389.4 24,619.8 24,762.6 24,657.8
Less: Treasury debt not subject to limitation (–) 3 ������������
–13.5
–11.9
–10.8
–9.3
–7.7
–6.5
–5.3
–4.1
–3.2
–3.2
–2.8
–2.0
Agency debt subject to limitation �������������������������������������
*
*
*
*
*
*
*
*
*
*
*
*
Adjustment for discount and premium 4 ���������������������������
38.9
38.9
38.9
38.9
38.9
38.9
38.9
38.9
38.9
38.9
38.9
38.9
Total, debt subject to statutory limitation 5 ����������������� 19,538.5 20,354.6 21,095.1 21,844.4 22,510.3 23,123.2 23,658.4 24,084.3 24,425.2 24,655.5 24,798.7 24,694.8
Debt Outstanding, End of Year:
Gross Federal debt: 6
Debt issued by Treasury �������������������������������������������� 19,513.1 20,327.7 21,067.0 21,814.8 22,479.1 23,090.8 23,624.8 24,049.5 24,389.4 24,619.8 24,762.6 24,657.8
Debt issued by other agencies ����������������������������������
26.4
26.7
26.3
25.2
24.2
23.3
22.5
21.5
20.4
19.4
18.8
18.0
Total, gross Federal debt ��������������������������������������� 19,539.4 20,354.4 21,093.3 21,840.0 22,503.3 23,114.1 23,647.4 24,070.9 24,409.8 24,639.2 24,781.4 24,675.8
As a percent of GDP ����������������������������������������� 106.1% 106.2% 105.4% 104.3% 102.4% 100.1% 97.5% 94.4% 91.2% 87.6% 83.8% 79.5%
Held by:
Debt held by Government accounts �������������������������� 5,371.7 5,530.6 5,740.2 5,882.6 5,994.3 6,090.5 6,129.9 6,184.0 6,260.0 6,260.3 6,240.1 6,100.6
Debt held by the public 7 �������������������������������������������� 14,167.7 14,823.8 15,353.0 15,957.4 16,509.0 17,023.6 17,517.5 17,887.0 18,149.8 18,378.9 18,541.3 18,575.2
As a percent of GDP ����������������������������������������������
77.0% 77.4% 76.7% 76.2% 75.1% 73.7% 72.2% 70.2% 67.8% 65.3% 62.7% 59.8%
*$50 million or less.
1 A decrease in the Treasury operating cash balance (which is an asset) is a means of financing a deficit and therefore has a negative sign. An increase in checks outstanding (which is
a liability) is also a means of financing a deficit and therefore also has a negative sign.
2 Includes checks outstanding, accrued interest payable on Treasury debt, uninvested deposit fund balances, allocations of special drawing rights, and other liability accounts; and, as
an offset, cash and monetary assets (other than the Treasury operating cash balance), other asset accounts, and profit on sale of gold.
3 Consists primarily of debt issued by the Federal Financing Bank.
4 Consists mainly of unamortized discount (less premium) on public issues of Treasury notes and bonds (other than zero-coupon bonds) and unrealized discount on Government
account series securities.
5 The statutory debt limit is approximately $19,809 billion, as increased after March 15, 2017.
6 Treasury securities held by the public and zero-coupon bonds held by Government accounts are almost all measured at sales price plus amortized discount or less amortized
premium. Agency debt securities are almost all measured at face value. Treasury securities in the Government account series are otherwise measured at face value less unrealized
discount (if any).
7 At the end of 2016, the Federal Reserve Banks held $2,463.5 billion of Federal securities and the rest of the public held $11,704.3 billion. Debt held by the Federal Reserve Banks is
not estimated for future years.

4. Federal Borrowing and Debt

ative to their dedicated income is very different in concept
and much larger in size than the amount of Treasury securities that these programs hold.
For all these reasons, debt held by the public and debt
held by the public net of financial assets are both better
gauges of the effect of the budget on the credit markets
than gross Federal debt.
Government Deficits or Surpluses
and the Change in Debt
Table 4–2 summarizes Federal borrowing and debt from
2016 through 2027.5 In 2016 the Government borrowed
$1,051 billion, increasing the debt held by the public from
$13,117 billion at the end of 2015 to $14,168 billion at
the end of 2016. The debt held by Government accounts
grew by $368 billion, and gross Federal debt increased by
$1,419 billion to $19,539 billion.
Debt held by the public.—The Federal Government
primarily finances deficits by borrowing from the public,
and it primarily uses surpluses to repay debt held by the
public.6 Table 4–2 shows the relationship between the
Federal deficit or surplus and the change in debt held by
the public. The borrowing or debt repayment depends on
the Government’s expenditure programs and tax laws, on
the economic conditions that influence tax receipts and
outlays, and on debt management policy. The sensitivity of the budget to economic conditions is analyzed in
Chapter 2, “Economic Assumptions and Interactions with
the Budget,’’ in this volume.
The total or unified budget consists of two parts: the onbudget portion; and the off-budget Federal entities, which
have been excluded from the budget by law. Under present law, the off-budget Federal entities are the two Social
Security trust funds (Old-Age and Survivors Insurance
and Disability Insurance) and the Postal Service Fund.7
The on-budget and off-budget surpluses or deficits are
added together to determine the Government’s financing
needs.
Over the long run, it is a good approximation to say
that “the deficit is financed by borrowing from the public’’
or “the surplus is used to repay debt held by the public.’’ However, the Government’s need to borrow in any
given year has always depended on several other factors
besides the unified budget surplus or deficit, such as the
change in the Treasury operating cash balance. These
other factors—“other transactions affecting borrowing
from the public’’—can either increase or decrease the
Government’s need to borrow and can vary considerably
5      For projections of the debt beyond 2027, see Chapter 3, “LongTerm Budget Outlook.”
6      Treasury debt held by the public is measured as the sales price
plus the amortized discount (or less the amortized premium). At the
time of sale, the book value equals the sales price. Subsequently, it
equals the sales price plus the amount of the discount that has been amortized up to that time. In equivalent terms, the book value of the debt
equals the principal amount due at maturity (par or face value) less the
unamortized discount. (For a security sold at a premium, the definition
is symmetrical.) For inflation-indexed notes and bonds, the book value
includes a periodic adjustment for inflation. Agency debt is generally
recorded at par.
7      For further explanation of the off-budget Federal entities, see
Chapter 9, “Coverage of the Budget.’’

31
in size from year to year. The other transactions affecting borrowing from the public are presented in Table 4–2
(where an increase in the need to borrow is represented
by a positive sign, like the deficit).
In 2016 the deficit was $585 billion while these other
factors increased the need to borrow by $466 billion, or 44
percent of total borrowing from the public. As a result, the
Government borrowed $1,051 billion from the public. The
other factors are estimated to increase borrowing by $54
billion (8 percent of total borrowing from the public) in
2017, and $89 billion (17 percent) in 2018. In 2019–2027,
these other factors are expected to increase borrowing by
annual amounts ranging from $50 billion to $78 billion.
Three specific factors presented in Table 4–2 have historically been especially important.
Change in Treasury operating cash balance.—The cash
balance increased by $40 billion, to $199 billion, in 2015,
and by $155 billion, to $353 billion in 2016. The large
increases in the cash balance reflect a number of factors.
First, in 2015, Treasury announced that, for risk management purposes, it would seek to maintain a cash balance
roughly equal to one week of Government outflows, with
a minimum balance of about $150 billion. In addition, for
debt management purposes, in November 2015 Treasury
announced intentions to increase bill financing; because
bills mature more frequently than other longer-dated
debt, this financing decision effectively increases government outflows during any given week. Finally the timing
of end-of-month auction settlements can often increase
end-of-month cash balances dramatically. Changes in the
operating cash balance, while occasionally large, are inherently limited over time. The operating cash balance
is projected to fall by $3 billion, to $350 billion at the end
of 2017. Decreases in cash—a means of financing the
Government—are limited by the amount of past accumulations, which themselves required financing when they
were built up. Increases are limited because it is generally more efficient to repay debt.
Net financing disbursements of the direct loan and
guaranteed loan financing accounts.—Under the Federal
Credit Reform Act of 1990 (FCRA), the budgetary
program account for each credit program records the estimated subsidy costs—the present value of estimated net
losses—at the time when the direct or guaranteed loans
are disbursed. The individual cash flows to and from the
public associated with the loans or guarantees, such as
the disbursement and repayment of loans, the default
payments on loan guarantees, the collection of interest
and fees, and so forth, are recorded in the credit program’s non-budgetary financing account. Although the
non-budgetary financing account’s cash flows to and from
the public are not included in the deficit (except for their
impact on subsidy costs), they affect Treasury’s net borrowing requirements.8
In addition to the transactions with the public, the
financing accounts include several types of intragovernmental transactions. They receive payment from the
8      The FCRA (sec. 505(b)) requires that the financing accounts be
non-budgetary. They are non-budgetary in concept because they do not
measure cost. For additional discussion of credit programs, see Chapter
19, “Credit and Insurance,” and Chapter 8, “Budget Concepts.’’

32
credit program accounts for the subsidy costs of new
direct loans and loan guarantees and for any upward
reestimate of the costs of outstanding direct and guaranteed loans. They also receive interest from Treasury on
balances of uninvested funds. The financing accounts pay
any negative subsidy collections or downward reestimate
of costs to budgetary receipt accounts and pay interest on
borrowings from Treasury. The total net collections and
gross disbursements of the financing accounts, consisting
of transactions with both the public and the budgetary
accounts, are called “net financing disbursements.’’ They
occur in the same way as the “outlays’’ of a budgetary account, even though they do not represent budgetary costs,
and therefore affect the requirement for borrowing from
the public in the same way as the deficit.
The intragovernmental transactions of the credit
program, financing, and downward reestimate receipt accounts do not affect Federal borrowing from the public.
Although the deficit changes because of the budgetary account’s outlay to, or receipt from, a financing account, the
net financing disbursement changes in an equal amount
with the opposite sign, so the effects are cancelled out.
On the other hand, financing account disbursements to
the public increase the requirement for borrowing from
the public in the same way as an increase in budget outlays that are disbursed to the public in cash. Likewise,
receipts from the public collected by the financing account
can be used to finance the payment of the Government’s
obligations, and therefore they reduce the requirement
for Federal borrowing from the public in the same way as
an increase in budgetary receipts.
Borrowing due to credit financing accounts was $99
billion in 2016. In 2017 credit financing accounts are projected to increase borrowing by $58 billion. After 2017,
the credit financing accounts are expected to increase borrowing by amounts ranging from $51 billion to $91 billion
over the next 10 years.
In some years, large net upward or downward reestimates in the cost of outstanding direct and guaranteed
loans may cause large swings in the net financing disbursements.
In 2016, there was a net downward
reestimate of $5.6 billion, due to a large downward reestimate for Federal Housing Administration (FHA) Mutual
Mortgage Insurance guarantees, partly offset by an upward reestimate for direct student loans. In 2017, there
is a net upward reestimate of $49.3 billion, due largely to
upward reestimates for student loan programs and FHA
Mutual Mortgage Insurance guarantees.
Net purchases of non-Federal securities by the National
Railroad Retirement Investment Trust (NRRIT).—
This trust fund, which was established by the Railroad
Retirement and Survivors’ Improvement Act of 2001,
invests its assets primarily in private stocks and bonds.
The Act required special treatment of the purchase or sale
of non-Federal assets by the NRRIT trust fund, treating
such purchases as a means of financing rather than as
outlays. Therefore, the increased need to borrow from the
public to finance NRRIT’s purchases of non-Federal assets is part of the “other transactions affecting borrowing
from the public’’ rather than included as an increase in

ANALYTICAL PERSPECTIVES

the deficit. While net purchases and redemptions affect
borrowing from the public, unrealized gains and losses on
NRRIT’s portfolio are included in both the “other transactions” and, with the opposite sign, in NRRIT’s net outlays
in the deficit, for no net impact on borrowing from the
public. In 2016, net increases, including purchases and
gains, were $0.4 billion. A $0.6 billion net decrease is projected for 2017 and net annual decreases ranging from
$0.3 billion to $1.2 billion are projected for 2018 and subsequent years.9
Net change in other financial assets and liabilities.—
In addition to the three factors discussed above, in 2015
and 2016, the net change in other financial assets and
liabilities was also particularly significant. Generally,
the amounts in this category are relatively small. For
example, this category decreased the need to borrow by
$1 billion in 2012 and increased the need to borrow by
$5 billion in 2011. However, in 2015, this “other” category reduced the need to borrow by a net $228 billion. Of
the net $228 billion, $203 billion was due to the temporary suspension of the daily reinvestment of the Thrift
Savings Plan (TSP) Government Securities Investment
Fund (G-Fund).10 The Department of the Treasury is authorized to suspend the issuance of obligations to the TSP
G-Fund as an “extraordinary measure” if issuances could
not be made without causing the public debt of the United
States to exceed the debt limit. The suspension of the daily
reinvestment of the TSP G-Fund resulted in the amounts
being moved from debt held by the public to deposit fund
balances, an “other” financial liability. Once Treasury is
able to do so without exceeding the debt limit, Treasury
is required to fully reinvest the TSP G-Fund and restore
any foregone interest. Accordingly, the TSP G-Fund was
fully reinvested in November 2015, returning the amount
from deposit fund balances to debt held by the public. The
debt ceiling and the use of the TSP G-Fund are discussed
in further detail below. Due primarily to the $203 billion
reinvestment, the net change in other financial assets of
liabilities totaled $213 billion in 2016.
Debt held by Government accounts.—The amount
of Federal debt issued to Government accounts depends
largely on the surpluses of the trust funds, both on-budget and off-budget, which owned 90 percent of the total
Federal debt held by Government accounts at the end of
2016. Net investment may differ from the surplus due
to changes in the amount of cash assets not currently invested. In 2016, the total trust fund surplus was $185
billion, while trust fund investment in Federal securities
increased by $314 billion. This $129 billion difference
was primarily due to the Civil Service Retirement and
Disability Fund (CSRDF). CSRDF had a surplus of $15
billion but net investment of $156 billion, largely as a
result of reinvesting amounts that had been disinvested
as part of the extraordinary measures that the Treasury
Department is authorized to take with the fund when the
Government is at the debt ceiling. For further details on
9      The budget treatment of this fund is further discussed in Chapter
8, “Budget Concepts.’’
10     The TSP is a defined contribution pension plan for Federal employees. The G-Fund is one of several components of the TSP.

33

4. Federal Borrowing and Debt

such measures, see the discussion below. The remainder of debt issued to Government accounts is owned by
a number of special funds and revolving funds. The debt
held in major accounts and the annual investments are
shown in Table 4–5.
Debt Held by the Public Net of
Financial Assets and Liabilities
While debt held by the public is a key measure for examining the role and impact of the Federal Government
in the U.S. and international credit markets and for other purposes, it provides incomplete information on the
Government’s financial condition. The U.S. Government
holds significant financial assets, which can be offset
against debt held by the public and other financial liabilities to achieve a more complete understanding of
the Government’s financial condition. The acquisition of
those financial assets represents a transaction with the
credit markets, broadening those markets in a way that
is analogous to the demand on credit markets that borrowing entails. For this reason, debt held by the public is
also an incomplete measure of the impact of the Federal
Government in the United States and international credit
markets.
One transaction that can increase both borrowing
and assets is an increase to the Treasury operating cash
balance. When the Government borrows to increase
the Treasury operating cash balance, that cash balance
also represents an asset that is available to the Federal
Government. Looking at both sides of this transaction—
the borrowing to obtain the cash and the asset of the cash
holdings—provides much more complete information
about the Government’s financial condition than looking
at only the borrowing from the public. Another example
of a transaction that simultaneously increases borrowing
from the public and Federal assets is Government borrowing to issue direct loans to the public. When the direct
loan is made, the Government is also acquiring an asset
in the form of future payments of principal and interest, net of the Government’s expected losses on the loan.
Similarly, when NRRIT increases its holdings of non-Federal securities, the borrowing to purchase those securities
is offset by the value of the asset holdings.
The acquisition or disposition of Federal financial assets very largely explains the difference between the
deficit for a particular year and that year’s increase in
debt held by the public. Debt held by the public net of
financial assets is a measure that is conceptually closer to
the measurement of Federal deficits or surpluses; cumulative deficits and surpluses over time more closely equal
the debt held by the public net of financial assets than
they do the debt held by the public.
Table 4–3 presents debt held by the public net of the
Government’s financial assets and liabilities. Treasury
debt is presented in the Budget at book value, with no
adjustments for the change in economic value that results
from fluctuations in interest rates. The balances of credit
financing accounts are based on projections of future cash
flows. For direct loan financing accounts, the balance
generally represents the net present value of anticipated

future inflows such as principal and interest payments
from borrowers. For guaranteed loan financing accounts,
the balance generally represents the net present value
of anticipated future outflows, such as default claim payments net of recoveries, and other collections, such as
program fees. NRRIT’s holdings of non-Federal securities
are marked to market on a monthly basis. Governmentsponsored enterprise (GSE) preferred stock is measured
at market value.
Net financial assets increased by $464 billion, to $1,699
billion, in 2016. This $1,699 billion in net financial assets
included a cash balance of $353 billion, net credit financing account balances of $1,255 billion, and other assets
and liabilities that aggregated to a net asset of $91 billion.
At the end of 2016, debt held by the public was $14,168
billion, or 77.0 percent of GDP. Therefore, debt held by
the public net of financial assets was $12,469 billion, or
67.7 percent of GDP. As shown in Table 4–3, the value
of the Government’s net financial assets is projected to
increase to $1,753 billion in 2017. While debt held by the
public is expected to increase from 77.0 percent to 77.4
percent of GDP during 2017, debt held by the public net of
financial assets is expected to increase from 67.7 percent
to 68.2 percent of GDP.
Debt securities and other financial assets and liabilities do not encompass all the assets and liabilities of the
Federal Government. For example, accounts payable occur in the normal course of buying goods and services;
Social Security benefits are due and payable as of the end
of the month but, according to statute, are paid during the
next month; and Federal employee salaries are paid after
they have been earned. Like debt securities sold in the
credit market, these liabilities have their own distinctive
effects on the economy. The Federal Government also has
significant holdings of non-financial assets, such as land,
mineral deposits, buildings, and equipment. The different types of assets and liabilities are reported annually
in the financial statements of Federal agencies and in the
Financial Report of the United States Government, prepared by the Treasury Department in coordination with
the Office of Management and Budget (OMB).
Treasury Debt
Nearly all Federal debt is issued by the Department
of the Treasury. Treasury meets most of the Federal
Government’s financing needs by issuing marketable securities to the public. These financing needs include both
the change in debt held by the public and the refinancing—or rollover—of any outstanding debt that matures
during the year. Treasury marketable debt is sold at public auctions on a regular schedule and, because it is very
liquid, can be bought and sold on the secondary market at
narrow bid-offer spreads. Treasury also sells to the public a relatively small amount of nonmarketable securities,
such as savings bonds and State and Local Government
Series securities (SLGS).11 Treasury nonmarketable debt
cannot be bought or sold on the secondary market.
11      Under the SLGS program, the Treasury offers special low-yield
securities to State and local governments and other entities for temporary investment of proceeds of tax-exempt bonds.

34

ANALYTICAL PERSPECTIVES

Table 4–3. DEBT HELD BY THE PUBLIC NET OF FINANCIAL ASSETS AND LIABILITIES
(Dollar amounts in billions)
Actual
2016

Estimate
2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

Debt Held by the Public:
Debt held by the public ������������������������������������������������������������ 14,167.7 14,823.8 15,353.0 15,957.4 16,509.0 17,023.6 17,517.5 17,887.0 18,149.8 18,378.9 18,541.3 18,575.2
As a percent of GDP ����������������������������������������������������������� 77.0% 77.4% 76.7% 76.2% 75.1% 73.7% 72.2% 70.2% 67.8% 65.3% 62.7% 59.8%
Financial Assets Net of Liabilities:
Treasury operating cash balance ��������������������������������������������

353.3

350.0

350.0

350.0

350.0

350.0

350.0

350.0

350.0

350.0

350.0

350.0

Credit financing account balances:
Direct loan accounts ����������������������������������������������������������� 1,226.5 1,294.2 1,382.6 1,464.0 1,531.6 1,597.1 1,658.0 1,718.7 1,779.2 1,838.8 1,896.5 1,951.5
Guaranteed loan accounts �������������������������������������������������
27.5
18.1
20.5
19.1
16.7
11.6
4.5
–4.1
–9.4
–14.3
–19.0
–23.4
Troubled Asset Relief Program equity purchase accounts �
0.5
0.3
0.2
0.2
0.2
0.2
0.1
0.1
0.1
0.1
0.1
0.1
Subtotal, credit financing account balances ������������������� 1,254.6 1,312.5 1,403.3 1,483.3 1,548.5 1,608.9 1,662.7 1,714.8 1,769.9 1,824.7 1,877.7 1,928.2
Government-sponsored enterprise preferred stock �����������������
108.6
108.6
108.6
108.6
108.6
108.6
108.6
108.6
108.6
108.6
108.6
108.6
Non-Federal securities held by NRRIT ������������������������������������
24.1
23.5
22.4
21.3
20.3
19.3
18.2
17.5
16.7
16.1
15.5
15.3
Other assets net of liabilities ����������������������������������������������������
–42.0
–42.0
–42.0
–42.0
–42.0
–42.0
–42.0
–42.0
–42.0
–42.0
–42.0
–42.0
Total, financial assets net of liabilities ��������������������������������� 1,698.5 1,752.6 1,842.2 1,921.1 1,985.4 2,044.7 2,097.5 2,148.8 2,203.1 2,257.2 2,309.7 2,360.0
Debt Held by the Public Net of Financial Assets and
Liabilities:
Debt held by the public net of financial assets ������������������������ 12,469.2 13,071.2 13,510.9 14,036.2 14,523.7 14,978.9 15,420.0 15,738.1 15,946.7 16,121.7 16,231.5 16,215.1
As a percent of GDP ����������������������������������������������������������� 67.7% 68.2% 67.5% 67.0% 66.1% 64.9% 63.6% 61.7% 59.5% 57.3% 54.9% 52.2%

Treasury issues marketable securities in a wide range
of maturities, and issues both nominal (non-inflationindexed) and inflation-indexed securities. Treasury’s
marketable securities include:
Treasury Bills—Treasury bills have maturities of one
year or less from their issue date. In addition to the regular auction calendar of bill issuance, Treasury issues
cash management bills on an as-needed basis for various reasons such as to offset the seasonal patterns of the
Government’s receipts and outlays.
Treasury Notes—Treasury notes have maturities of
more than one year and up to 10 years.
Treasury Bonds—Treasury bonds have maturities of
more than 10 years. The longest-maturity securities issued by Treasury are 30-year bonds.
Treasury Inflation-Protected Securities (TIPS)—
Treasury inflation-protected—or inflation-indexed—securities are coupon issues for which the par value of the
security rises with inflation. The principal value is adjusted daily to reflect inflation as measured by changes in
the Consumer Price Index (CPI-U-NSA, with a two-month
lag). Although the principal value may be adjusted downward if inflation is negative, at maturity, the securities
will be redeemed at the greater of their inflation-adjusted
principal or par amount at original issue.
Floating Rate Securities—In 2014, Treasury began to
issue floating rate securities, to complement its existing
suite of fixed interest rate securities and to support its
broader debt management objectives. Floating rate securities have a fixed par value but bear interest rates that
fluctuate based on movements in a specified benchmark
market interest rate. Treasury’s floating rate notes are

benchmarked to the Treasury 13-week bill. Currently,
Treasury is issuing floating rate securities with a maturity of two years.
Historically, the average maturity of outstanding debt
issued by Treasury has been about five years. The average maturity of outstanding debt was 70 months at the
end of 2016. Over the last several years there have been
many changes in financial markets that have ultimately
resulted in significant structural demand for high-quality, shorter-dated securities such as Treasury bills. At the
same time, Treasury bills as a percent of outstanding issuance had fallen to historically low levels of around 10
percent. In recognition of these structural changes, in
November 2015, the Treasury announced that it would
increase issuance of shorter-dated Treasury securities.
In addition to quarterly announcements about the
overall auction calendar, Treasury publicly announces
in advance the auction of each security. Individuals can
participate directly in Treasury auctions or can purchase
securities through brokers, dealers, and other financial
institutions. Treasury accepts two types of auction bids:
competitive and noncompetitive. In a competitive bid, the
bidder specifies the yield. A significant portion of competitive bids are submitted by primary dealers, which
are banks and securities brokerages that have been designated to trade in Treasury securities with the Federal
Reserve System. In a noncompetitive bid, the bidder
agrees to accept the yield determined by the auction.12
At the close of the auction, Treasury accepts all eligible
noncompetitive bids and then accepts competitive bids in
ascending order beginning with the lowest yield bid until
12      Noncompetitive

bids cannot exceed $5 million per bidder.

35

4. Federal Borrowing and Debt

the offering amount is reached. All winning bidders receive the highest accepted yield bid.
Treasury marketable securities are highly liquid and
actively traded on the secondary market, which enhances
the demand for Treasuries at initial auction. The demand
for Treasury securities is reflected in the ratio of bids received to bids accepted in Treasury auctions; the demand
for the securities is substantially greater than the level of
issuance. Because they are backed by the full faith and
credit of the United States Government, Treasury marketable securities are considered to be credit “risk-free.”
Therefore, the Treasury yield curve is commonly used as a
benchmark for a wide variety of purposes in the financial
markets.
Whereas Treasury issuance of marketable debt is based
on the Government’s financing needs, Treasury’s issuance
of nonmarketable debt is based on the public’s demand for
the specific types of investments. Increases in outstanding balances of nonmarketable debt, such as occurred in
2016, reduce the need for marketable borrowing.13
Agency Debt
A few Federal agencies other than Treasury, shown in
Table 4–4, sell or have sold debt securities to the public
and, at times, to other Government accounts. Currently,
new debt is issued only by the Tennessee Valley Authority
(TVA) and the Federal Housing Administration; the remaining agencies are repaying past borrowing. Agency
debt was $26.4 billion at the end of 2016. Agency debt
is less than one-quarter of one percent of Federal debt
held by the public. Primarily as a result of TVA activity,
agency debt is estimated to grow to $26.7 billion at the
end of 2017 and then to decline to $26.3 billion at the end
of 2018.
The predominant agency borrower is TVA, which had
borrowings of $26.2 billion from the public as of the end of
2016, or 99 percent of the total debt of all agencies other
than Treasury. TVA issues debt primarily to finance capital projects.
TVA has traditionally financed its capital construction by selling bonds and notes to the public. Since 2000,
it has also employed two types of alternative financing
methods, lease financing obligations and prepayment obligations. Under the lease financing obligations method,
TVA signs long-term contracts to lease some facilities and
equipment. The lease payments under these contracts ultimately secure the repayment of third party capital used
to finance construction of the facility. TVA retains substantially all of the economic benefits and risks related
to ownership of the assets.14 Under the prepayment obligations method, TVA’s power distributors may prepay a
portion of the price of the power they plan to purchase
in the future. In return, they obtain a discount on a specific quantity of the future power they buy from TVA. The
13      Detail on the marketable and nonmarketable securities issued
by Treasury is found in the Monthly Statement of the Public Debt, published on a monthly basis by the Department of the Treasury.
14      This arrangement is at least as governmental as a “lease-purchase without substantial private risk.’’ For further detail on the current
budgetary treatment of lease-purchase without substantial private risk,
see OMB Circular No. A–11, Appendix B.

quantity varies, depending on TVA’s estimated cost of
borrowing.
OMB determined that each of these alternative financing methods is a means of financing the acquisition
of assets owned and used by the Government, or of refinancing debt previously incurred to finance such assets.
They are equivalent in concept to other forms of borrowing from the public, although under different terms and
conditions. The budget therefore records the upfront cash
proceeds from these methods as borrowing from the public, not offsetting collections.15 The budget presentation
is consistent with the reporting of these obligations as liabilities on TVA’s balance sheet under generally accepted
accounting principles. Table 4–4 presents these alternative financing methods separately from TVA bonds and
notes to distinguish between the types of borrowing. At
the end of 2016, lease financing obligations were $1.8 billion and obligations for prepayments were $0.2 billion.
Although the FHA generally makes direct disbursements to the public for default claims on FHA-insured
mortgages, it may also pay claims by issuing debentures.
Issuing debentures to pay the Government’s bills is equivalent to selling securities to the public and then paying
the bills by disbursing the cash borrowed, so the transaction is recorded as being simultaneously an outlay and
borrowing. The debentures are therefore classified as
agency debt.
A number of years ago, the Federal Government guaranteed the debt used to finance the construction of buildings
for the National Archives and the Architect of the Capitol,
and subsequently exercised full control over the design,
construction, and operation of the buildings. These arrangements are equivalent to direct Federal construction
financed by Federal borrowing. The construction expenditures and interest were therefore classified as Federal
outlays, and the borrowing was classified as Federal agency borrowing from the public.
Several Federal agencies borrow from the Bureau of the
Fiscal Service (Fiscal Service) or the Federal Financing
Bank (FFB), both within the Department of the Treasury.
Agency borrowing from the FFB or the Fiscal Service is
not included in gross Federal debt. It would be double
counting to add together (a) the agency borrowing from
the Fiscal Service or FFB and (b) the Treasury borrowing from the public that is needed to provide the Fiscal
Service or FFB with the funds to lend to the agencies.
Debt Held by Government Accounts
Trust funds, and some special funds and public enterprise revolving funds, accumulate cash in excess of
15      This budgetary treatment differs from the treatment in the
Monthly Treasury Statement of Receipts and Outlays of the United
States Government (Monthly Treasury Statement) Table 6 Schedule C,
and the Combined Statement of Receipts, Outlays, and Balances of the
United States Government Schedule 3, both published by the Department of the Treasury. These two schedules, which present debt issued
by agencies other than Treasury, exclude the TVA alternative financing
arrangements. This difference in treatment is one factor causing minor
differences between debt figures reported in the Budget and debt figures
reported by Treasury. The other factors are adjustments for the timing
of the reporting of Federal debt held by NRRIT and treatment of the
Federal debt held by the Securities Investor Protection Corporation.

36

ANALYTICAL PERSPECTIVES

Table 4–4. AGENCY DEBT
(In millions of dollars)
2016 Actual
Borrowing/
Repayment(–)

2017 Estimate

Debt, End-ofYear

Borrowing/
Repayment(–)

2018 Estimate

Debt, End-ofYear

Borrowing/
Repayment(–)

Debt, End-ofYear

Borrowing from the public:
Housing and Urban Development:
Federal Housing Administration ��������������������������������������������������������������������
Architect of the Capitol ���������������������������������������������������������������������������������������
National Archives ������������������������������������������������������������������������������������������������

.........
–8
–21

19
98
75

.........
–9
–23

19
89
52

.........
–9
–25

19
80
27

Tennessee Valley Authority:
Bonds and notes ���������������������������������������������������������������������������������������������
Lease financing obligations ����������������������������������������������������������������������������
Prepayment obligations ����������������������������������������������������������������������������������
Total, borrowing from the public ������������������������������������������������������������

298
–114
–100
55

24,171
1,818
210
26,390

593
–120
–100
341

24,763
1,698
110
26,731

–185
–125
–100
–444

24,578
1,573
10
26,287

Borrowing from other funds:
Tennessee Valley Authority 1 ��������������������������������������������������������������������������������
Total, borrowing from other funds ���������������������������������������������������������
Total, agency borrowing �������������������������������������������������������������������

–2
–2
53

4
4
26,395

.........
.........
341

4
4
26,735

.........
.........
–444

4
4
26,291

297

24,175

593

24,768

–185

24,583

Memorandum:
Tennessee Valley Authority bonds and notes, total ���������������������������������������������
1 Represents open market purchases by the National Railroad Retirement Investment Trust.

current needs in order to meet future obligations. These
cash surpluses are generally invested in Treasury debt.
The total investment holdings of trust funds and other
Government accounts increased by $368 billion in 2016.
Net investment by Government accounts is estimated
to be $159 billion in 2017 and $210 billion in 2018, as
shown in Table 4–5. The holdings of Federal securities by
Government accounts are estimated to increase to $5,740
billion by the end of 2018, or 27 percent of the gross
Federal debt. The percentage is estimated to decrease
gradually over the next 10 years.
The Government account holdings of Federal securities
are concentrated among a few funds: the Social Security
Old-Age and Survivors Insurance (OASI) and Disability
Insurance (DI) trust funds; the Medicare Hospital Insurance
(HI) and Supplementary Medical Insurance (SMI) trust
funds; and four Federal employee retirement funds. These
Federal employee retirement funds include two trust
funds, the Military Retirement Fund and the Civil Service
Retirement and Disability Fund, and two special funds, the
uniformed services Medicare-Eligible Retiree Health Care
Fund (MERHCF) and the Postal Service Retiree Health
Benefits Fund (PSRHBF). At the end of 2018, these Social
Security, Medicare, and Federal employee retirement funds
are estimated to own 90 percent of the total debt held by
Government accounts. During 2016–2018, the Military
Retirement Fund has a large surplus and is estimated to
invest a total of $205 billion, 28 percent of total net investment by Government accounts. CSRDF is projected to invest
$183 billion, 25 percent of the net total. Some Government
accounts are projected to have net disinvestment in Federal
securities during 2016–2018.
Technical note on measurement.—The Treasury securities held by Government accounts consist almost entirely
of the Government account series. Most were issued at

par value (face value), and the securities issued at a discount or premium are traditionally recorded at par in the
OMB and Treasury reports on Federal debt. However,
there are two kinds of exceptions.
First, Treasury issues zero-coupon bonds to a very few
Government accounts. Because the purchase price is a
small fraction of par value and the amounts are large, the
holdings are recorded in Table 4–5 at par value less unamortized discount. The only two Government accounts
that held zero-coupon bonds during the period of this table
are the Nuclear Waste Disposal Fund in the Department
of Energy and the Pension Benefit Guaranty Corporation
(PBGC). The total unamortized discount on zero-coupon
bonds was $16.9 billion at the end of 2016.
Second, Treasury subtracts the unrealized discount on
other Government account series securities in calculating
“net Federal securities held as investments of Government
accounts.’’ Unlike the discount recorded for zero-coupon
bonds and debt held by the public, the unrealized discount is
the discount at the time of issue and is not amortized over the
term of the security. In Table 4–5 it is shown as a separate
item at the end of the table and not distributed by account.
The amount was $9.8 billion at the end of 2016.
Debt Held by the Federal Reserve
The Federal Reserve acquires marketable Treasury
securities as part of its exercise of monetary policy. For
purposes of the Budget and reporting by the Department
of the Treasury, the transactions of the Federal Reserve
are considered to be non-budgetary, and accordingly the
Federal Reserve’s holdings of Treasury securities are
included as part of debt held by the public.16 Federal
16      For further detail on the monetary policy activities of the Federal
Reserve and the treatment of the Federal Reserve in the Budget, see
Chapter 9, “Coverage of the Budget.”

37

4. Federal Borrowing and Debt

Table 4–5. DEBT HELD BY GOVERNMENT ACCOUNTS 1
(In millions of dollars)
Description

Investment or Disinvestment (–)
2016 Actual

2017 Estimate

2018 Estimate

Holdings, End of
2018 Estimate

Investment in Treasury debt:
Commerce:
Public Safety trust fund ����������������������������������������������������������������������������������������������������������������������������

333

–*

8,740

9,073

Energy:
Nuclear waste disposal fund 1 ������������������������������������������������������������������������������������������������������������������
Uranium enrichment decontamination fund ���������������������������������������������������������������������������������������������

1,746
–686

996
–631

1,043
1,714

37,684
3,580

Health and Human Services:
Federal hospital insurance trust fund ������������������������������������������������������������������������������������������������������
Federal supplementary medical insurance trust fund ������������������������������������������������������������������������������
Vaccine injury compensation fund �����������������������������������������������������������������������������������������������������������
Child enrollment contingency fund ����������������������������������������������������������������������������������������������������������

–3,249
–2,793
152
–1,482

6,193
3,025
113
7

19,513
27,120
136
–578

217,915
93,481
3,854
.........

Homeland Security:
Aquatic resources trust fund ��������������������������������������������������������������������������������������������������������������������
Oil spill liability trust fund �������������������������������������������������������������������������������������������������������������������������
National flood insurance reserve fund �����������������������������������������������������������������������������������������������������

–31
707
784

39
716
–318

–25
736
–337

1,925
6,402
384

Housing and Urban Development:
Federal Housing Administration mutual mortgage fund ��������������������������������������������������������������������������
Guarantees of mortgage-backed securities ��������������������������������������������������������������������������������������������

21,709
3,031

–7,666
1,714

7,219
496

35,994
18,164

Interior:
Abandoned mine reclamation fund ����������������������������������������������������������������������������������������������������������
Federal aid in wildlife restoration fund �����������������������������������������������������������������������������������������������������
Environmental improvement and restoration fund �����������������������������������������������������������������������������������
Natural resource damage assessment fund �������������������������������������������������������������������������������������������
Justice: Assets forfeiture fund �����������������������������������������������������������������������������������������������������������������������

–30
121
31
564
–32

–32
81
14
509
–2,420

–43
55
15
200
–1,644

2,702
2,137
1,457
1,500
2,109

Labor:
Unemployment trust fund ������������������������������������������������������������������������������������������������������������������������
Pension Benefit Guaranty Corporation 1 ��������������������������������������������������������������������������������������������������
State: Foreign service retirement and disability trust fund ���������������������������������������������������������������������������

9,408
5,229
201

12,224
2,877
162

14,000
4,173
200

80,000
30,614
18,708

Transportation:
Airport and airway trust fund �������������������������������������������������������������������������������������������������������������������
Highway trust fund �����������������������������������������������������������������������������������������������������������������������������������
Aviation insurance revolving fund ������������������������������������������������������������������������������������������������������������

685
56,962
–254

518
–8,519
326

1,389
–12,427
81

15,307
43,683
2,279

Treasury:
Exchange stabilization fund ���������������������������������������������������������������������������������������������������������������������
Treasury forfeiture fund ����������������������������������������������������������������������������������������������������������������������������
Comptroller of the Currency assessment fund ����������������������������������������������������������������������������������������

1,907
–3,501
121

–620
–78
6

60
–1,075
22

22,120
1,537
1,684

Veterans Affairs:
National service life insurance trust fund �������������������������������������������������������������������������������������������������
Veterans special life insurance fund ��������������������������������������������������������������������������������������������������������
Corps of Engineers: Harbor maintenance trust fund ������������������������������������������������������������������������������������

–658
–85
93

–647
–123
90

–589
–144
290

3,010
1,433
9,066

Other Defense-Civil:
Military retirement trust fund ��������������������������������������������������������������������������������������������������������������������
Medicare-eligible retiree health care fund �����������������������������������������������������������������������������������������������
Education benefits fund ���������������������������������������������������������������������������������������������������������������������������
Environmental Protection Agency: Hazardous substance trust fund ������������������������������������������������������������
International Assistance Programs: Overseas Private Investment Corporation ������������������������������������������

60,086
7,689
–163
–409
46

67,661
11,843
–188
–124
76

76,964
11,508
–62
–120
66

735,671
236,833
964
4,553
5,808

Office of Personnel Management:
Civil service retirement and disability trust fund ��������������������������������������������������������������������������������������
Postal Service retiree health benefits fund ����������������������������������������������������������������������������������������������
Employees life insurance fund �����������������������������������������������������������������������������������������������������������������
Employees and retired employees health benefits fund ��������������������������������������������������������������������������

155,894
6,258
1,209
708

15,188
3,134
1,226
851

11,981
189
1,431
652

914,330
54,818
47,824
25,232

Social Security Administration:

38

ANALYTICAL PERSPECTIVES

Table 4–5. DEBT HELD BY GOVERNMENT ACCOUNTS 1—Continued
(In millions of dollars)
Investment or Disinvestment (–)

Description

2016 Actual

Federal old-age and survivors insurance trust fund 2 ������������������������������������������������������������������������������
Federal disability insurance trust fund 2 ���������������������������������������������������������������������������������������������������
District of Columbia: Federal pension fund ���������������������������������������������������������������������������������������������������
Farm Credit System Insurance Corporation: Farm Credit System Insurance fund ��������������������������������������
Federal Communications Commission: Universal service fund ��������������������������������������������������������������������
Federal Deposit Insurance Corporation: Deposit insurance fund �����������������������������������������������������������������
National Credit Union Administration: Share insurance fund ������������������������������������������������������������������������
Postal Service fund 2 �������������������������������������������������������������������������������������������������������������������������������������
Railroad Retirement Board trust funds ���������������������������������������������������������������������������������������������������������
Securities Investor Protection Corporation 3 �������������������������������������������������������������������������������������������������
United States Enrichment Corporation fund �������������������������������������������������������������������������������������������������
Other Federal funds ��������������������������������������������������������������������������������������������������������������������������������������
Other trust funds �������������������������������������������������������������������������������������������������������������������������������������������
Unrealized discount 1 ������������������������������������������������������������������������������������������������������������������������������������
Total, investment in Treasury debt 1 ������������������������������������������������������������������������������������������������

2017 Estimate

2018 Estimate

Holdings, End of
2018 Estimate

30,063
4,242
29
298
–104
11,428
721
1,365
–325
345
7
–636
831
–2,260
368,307

23,348
23,487
6
444
–1,200
10,444
811
–5,418
–23
165
–41
–310
–1,072
.........
158,863

–1,175
26,561
–46
481
–817
12,444
648
401
–58
110
–1,580
–9
–262
.........
209,647

2,818,885
95,928
3,713
4,950
6,001
94,412
13,764
3,510
2,138
2,980
.........
4,889
5,014
–9,793
5,740,225

–2
–2
368,305

.........
.........
158,863

.........
.........
209,647

4
4
5,740,229

Investment in agency debt:
Railroad Retirement Board:
National Railroad Retirement Investment Trust ���������������������������������������������������������������������������������������
Total, investment in agency debt 1 ��������������������������������������������������������������������������������������������������
Total, investment in Federal debt 1 ���������������������������������������������������������������������������������������������

Memorandum:
Investment by Federal funds (on-budget) �����������������������������������������������������������������������������������������������������
55,218
20,131
34,373
590,428
Investment by Federal funds (off-budget) ����������������������������������������������������������������������������������������������������
1,365
–5,418
401
3,510
Investment by trust funds (on-budget) ����������������������������������������������������������������������������������������������������������
279,677
97,315
149,487
2,241,271
Investment by trust funds (off-budget) ����������������������������������������������������������������������������������������������������������
34,305
46,835
25,386
2,914,813
Unrealized discount 1 ������������������������������������������������������������������������������������������������������������������������������������
–2,260
.........
.........
–9,793
* $500 thousand or less.
¹ Debt held by Government accounts is measured at face value except for the Treasury zero-coupon bonds held by the Nuclear Waste Disposal Fund and the Pension Benefit Guaranty
Corporation (PBGC), which are recorded at market or redemption price; and the unrealized discount on Government account series, which is not distributed by account. Changes are
not estimated in the unrealized discount. If recorded at face value, at the end of 2016 the debt figures would be $16.8 billion higher for the Nuclear Waste Disposal Fund and $0.1 billion
higher for PBGC than recorded in this table.
2 Off-budget Federal entity.
3 Amounts on calendar-year basis.

Reserve holdings were $2,463 billion (17 percent of debt
held by the public) at the end of 2016. Over the last 10
years, the Federal Reserve holdings have averaged 15
percent of debt held by the public. The historical holdings
of the Federal Reserve are presented in Table 7.1 in the
Budget’s historical tables. The Budget does not project
Federal Reserve holdings for future years.
Limitations on Federal Debt
Definition of debt subject to limit.—Statutory limitations have usually been placed on Federal debt. Until
World War I, the Congress ordinarily authorized a specific
amount of debt for each separate issue. Beginning with
the Second Liberty Bond Act of 1917, however, the nature
of the limitation was modified in several steps until it developed into a ceiling on the total amount of most Federal
debt outstanding. This last type of limitation has been in
effect since 1941. The limit currently applies to most debt
issued by the Treasury since September 1917, whether
held by the public or by Government accounts; and other
debt issued by Federal agencies that, according to explicit

statute, is guaranteed as to principal and interest by the
U.S. Government.
The third part of Table 4–2 compares total Treasury
debt with the amount of Federal debt that is subject to the
limit. Nearly all Treasury debt is subject to the debt limit.
A large portion of the Treasury debt not subject to
the general statutory limit was issued by the Federal
Financing Bank. The FFB is authorized to have outstanding up to $15 billion of publicly issued debt. The FFB has
on occasion issued this debt to CSRDF in exchange for
equal amounts of regular Treasury securities. The FFB
securities have the same interest rates and maturities as
the Treasury securities for which they were exchanged.
The FFB issued: $14 billion of securities to the CSRDF
on November 15, 2004, with maturity dates ranging from
June 30, 2009, through June 30, 2019; $9 billion to the
CSRDF on October 1, 2013, with maturity dates from
June 30, 2015, through June 30, 2024; and $3 billion of
securities to the CSRDF on October 15, 2015, with maturity dates from June 30, 2026, through June 30, 2029. The
outstanding balance of FFB debt held by CSRDF was $13

4. Federal Borrowing and Debt

billion at the end of 2016 and is projected to be $11 billion
at the end of 2017.
The Housing and Economic Recovery Act of 2008 created another type of debt not subject to limit. This debt,
termed “Hope Bonds,” was issued by Treasury to the FFB
for the HOPE for Homeowners program. The outstanding balance of Hope Bonds was $494 million at the end of
2015. The bonds were fully redeemed in 2016 and no new
issues are projected.
The other Treasury debt not subject to the general limit consists almost entirely of silver certificates and other
currencies no longer being issued. It was $482 million at
the end of 2016 and is projected to gradually decline over
time.
The sole agency debt currently subject to the general
limit, $209 thousand at the end of 2016, is certain debentures issued by the Federal Housing Administration.17
Some of the other agency debt, however, is subject to its
own statutory limit. For example, the Tennessee Valley
Authority is limited to $30 billion of bonds and notes
outstanding.
The comparison between Treasury debt and debt subject to limit also includes an adjustment for measurement
differences in the treatment of discounts and premiums.
As explained earlier in this chapter, debt securities may
be sold at a discount or premium, and the measurement of
debt may take this into account rather than recording the
face value of the securities. However, the measurement
differs between gross Federal debt (and its components)
and the statutory definition of debt subject to limit. An
adjustment is needed to derive debt subject to limit (as
defined by law) from Treasury debt. The amount of the
adjustment was $38.9 billion at the end of 2016 compared
with the total unamortized discount (less premium) of
$60.4 billion on all Treasury securities.
Changes in the debt limit.—The statutory debt limit
has been changed many times. Since 1960, the Congress
has passed 82 separate acts to raise the limit, revise the
definition, extend the duration of a temporary increase, or
temporarily suspend the limit.18
The four most recent laws addressing the debt limit
have each provided for a temporary suspension followed
by an increase in an amount equivalent to the debt that
was issued during that suspension period in order to
fund commitments requiring payment through the specified end date. Most recently, the Bipartisan Budget Act
of 2015 suspended the $18,113 billion debt ceiling from
November 2, 2015, through March 15, 2017, and then
raised the debt limit on March 16, 2017, by $1,696 billion
to $19,809 billion.
At many times in the past several decades, including
2013, 2014, 2015, and 2017, the Government has reached
the statutory debt limit before an increase has been enacted. When this has occurred, it has been necessary for
the Department of the Treasury to take extraordinary
17      At the end of 2016, there were also $18 million of FHA debentures
not subject to limit.
18      The Acts and the statutory limits since 1940 are listed in Table
7.3 of the Budget’s historical tables, available at https://www.whitehouse.gov/omb/budget/Historicals.

39
measures to meet the Government’s obligation to pay
its bills and invest its trust funds while remaining below the statutory limit. On March 16, 2017, immediately
following the end of the most recent debt limit suspension period, the Secretary of the Treasury sent a letter
to Congress announcing that Treasury was beginning to
take extraordinary measures.
As mentioned above, one such extraordinary measure is
the partial or full suspension of the daily reinvestment of
the Thrift Savings Plan G-Fund. The Treasury Secretary
has statutory authority to suspend investment of the
G-Fund in Treasury securities as needed to prevent the
debt from exceeding the debt limit. Treasury determines
each day the amount of investments that would allow the
fund to be invested as fully as possible without exceeding the debt limit. At the end of February 2017, the TSP
G-Fund had an outstanding balance of $226 billion. The
Secretary is also authorized to suspend investments in the
CSRDF and to declare a debt issuance suspension period,
which allows him or her to redeem a limited amount of
securities held by the CSRDF. The Postal Accountability
and Enhancement Act of 2006 provides that investments
in the Postal Service Retiree Health Benefits Fund shall
be made in the same manner as investments in the
CSRDF.19 Therefore, Treasury is able to take similar administrative actions with the PSRHBF. The law requires
that when any such actions are taken with the G-Fund,
the CSRDF, or the PSRHBF, the Secretary is required to
make the fund whole after the debt limit has been raised
by restoring the forgone interest and investing the fund
fully. Another measure for staying below the debt limit is
disinvestment of the Exchange Stabilization Fund. The
outstanding balance in the Exchange Stabilization Fund
was $22 billion at the end of February 2017.
As the debt has neared the limit, including in 2017,
Treasury has also suspended the issuance of SLGS to reduce unanticipated fluctuations in the level of the debt.
At times, Treasury has also adjusted the schedule
for auctions of marketable securities. In October 2015,
as Treasury neared the exhaustion of its extraordinary
measures, Treasury postponed the 2-year note auction
originally scheduled for Tuesday, October 27. After the
November 2nd enactment of the Bipartisan Budget Act
of 2015, Treasury rescheduled the auction for Wednesday,
November 4.
In addition to these steps, Treasury has previously
exchanged Treasury securities held by the CSRDF with
borrowing by the FFB, which, as explained above, is not
subject to the debt limit. This measure was most recently
taken in October 2015.
The debt limit has always been increased prior to the
exhaustion of Treasury’s limited available administrative actions to continue to finance Government operations
when the statutory ceiling has been reached. Failure to
enact a debt limit increase before these actions were exhausted would have significant and long-term negative
consequences. The Federal Government would be forced
to delay or discontinue payments on its broad range of ob19      Both the CSRDF and the PSRHBF are administered by the Office
of Personnel Management.

40

ANALYTICAL PERSPECTIVES

ligations, including Social Security and other payments to
individuals, Medicaid and other grant payments to States,
individual and corporate tax refunds, Federal employee
salaries, payments to vendors and contractors, principal
and interest payments on Treasury securities, and other obligations. If Treasury were unable to make timely
interest payments or redeem securities, investors would
cease to view U.S. Treasury securities as free of credit risk
and Treasury’s interest costs would increase. Because interest rates throughout the economy are benchmarked
to the Treasury rates, interest rates for State and local
governments, businesses, and individuals would also rise.
Foreign investors would likely shift out of dollar-denominated assets, driving down the value of the dollar and
further increasing interest rates on non-Federal, as well
as Treasury, debt.
The debt subject to limit is estimated to increase to
$20,355 billion by the end of 2017 and to $21,095 billion by the end of 2018. The Budget anticipates timely
Congressional action to address the statutory limit as
necessary before exhaustion of Treasury’s extraordinary
measures.
Federal funds financing and the change in debt
subject to limit.—The change in debt held by the public,
as shown in Table 4–2, and the change in debt held by the
public net of financial assets are determined primarily by
the total Government deficit or surplus. The debt subject
to limit, however, includes not only debt held by the public
but also debt held by Government accounts. The change
in debt subject to limit is therefore determined both by
the factors that determine the total Government deficit
or surplus and by the factors that determine the change

in debt held by Government accounts. The effect of debt
held by Government accounts on the total debt subject
to limit can be seen in the second part of Table 4–2. The
change in debt held by Government accounts results in 14
percent of the estimated total increase in debt subject to
limit from 2017 through 2027.
The budget is composed of two groups of funds, Federal
funds and trust funds. The Federal funds, in the main,
are derived from tax receipts and borrowing and are used
for the general purposes of the Government. The trust
funds, on the other hand, are financed by taxes or other
receipts dedicated by law for specified purposes, such as
for paying Social Security benefits or making grants to
State governments for highway construction.20
A Federal funds deficit must generally be financed by
borrowing, which can be done either by selling securities to the public or by issuing securities to Government
accounts that are not within the Federal funds group.
Federal funds borrowing consists almost entirely of
Treasury securities that are subject to the statutory debt
limit. Very little debt subject to statutory limit has been
issued for reasons except to finance the Federal funds
deficit. The change in debt subject to limit is therefore
determined primarily by the Federal funds deficit, which
is equal to the difference between the total Government
deficit or surplus and the trust fund surplus. Trust fund
surpluses are almost entirely invested in securities subject to the debt limit, and trust funds hold most of the
debt held by Government accounts. The trust fund surplus reduces the total budget deficit or increases the total
20      For further discussion of the trust funds and Federal funds
groups, see Chapter 23, “Trust Funds and Federal Funds.’’

Table 4–6. FEDERAL FUNDS FINANCING AND CHANGE IN DEBT SUBJECT TO STATUTORY LIMIT
(In billions of dollars)
Description

Actual
2016

Change in Gross Federal Debt:
Federal funds deficit/surplus (–) �����������������������������������������������
769.4
Other transactions affecting borrowing from the public -Federal funds 1 ���������������������������������������������������������������������
465.9
Increase (+) or decrease (–) in Federal debt held by Federal
funds ������������������������������������������������������������������������������������
56.6
Adjustments for trust fund surplus/deficit not invested/
disinvested in Federal securities 2 ����������������������������������������
129.7
Change in unrealized discount on Federal debt held by
Government accounts ���������������������������������������������������������
–2.3
Total financing requirements ������������������������������������������� 1,419.3
Change in Debt Subject to Limit:
Change in gross Federal debt �������������������������������������������������� 1,419.3
Less: increase (+) or decrease (–) in Federal debt not subject
to limit ����������������������������������������������������������������������������������
0.3
Less: change in adjustment for discount and premium 3 ����������
–6.4
Total, change in debt subject to limit ������������������������������� 1,425.5

Estimate
2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

752.9

615.5

626.7

557.8

511.5

441.9

333.3

246.2

138.3

55.8

–198.5

54.2

90.3

79.5

64.7

59.8

53.3

51.5

54.6

54.1

52.4

50.0

14.7

34.8

41.6

41.8

40.5

39.2

39.5

38.9

37.6

34.5

43.2

–6.8

–1.7

–1.0

–1.0

–1.0

–1.1

–0.7

–0.8

–0.6

–0.5

–0.3

.........
815.0

.........
738.9

.........
746.7

.........
663.3

.........
610.8

.........
533.3

.........
423.6

.........
338.9

.........
229.4

.........
142.2

.........
–105.6

815.0

738.9

746.7

663.3

610.8

533.3

423.6

338.9

229.4

142.2

–105.6

–1.2
.........
816.2

–1.6
.........
740.4

–2.6
.........
749.3

–2.5
.........
665.9

–2.2
.........
612.9

–1.9
.........
535.2

–2.3
.........
425.9

–2.0
.........
340.9

–1.0
.........
230.3

–0.9
.........
143.2

–1.7
.........
–103.9

Memorandum:
Debt subject to statutory limit 4 ������������������������������������������������� 19,538.5 20,354.6 21,095.1 21,844.4 22,510.3 23,123.2 23,658.4 24,084.3 24,425.2 24,655.5 24,798.7 24,694.8
1 Includes Federal fund transactions that correspond to those presented in Table 4-2, but that are for Federal funds alone with respect to the public and trust funds.
2 Includes trust fund holdings in other cash assets and changes in the investments of the National Railroad Retirement Investment Trust in non-Federal securities.
3 Consists of unamortized discount (less premium) on public issues of Treasury notes and bonds (other than zero-coupon bonds).
4 The statutory debt limit is approximately $19,809 billion, as increased after March 15, 2017.

41

4. Federal Borrowing and Debt

budget surplus, decreasing the need to borrow from the
public or increasing the ability to repay borrowing from
the public. When the trust fund surplus is invested in
Federal securities, the debt held by Government accounts
increases, offsetting the decrease in debt held by the public by an equal amount. Thus, there is no net effect on
gross Federal debt.
Table 4–6 derives the change in debt subject to limit. In
2016 the Federal funds deficit was $769 billion, and other
factors increased financing requirements by $466 billion.
The change in the Treasury operating cash balance increased financing requirements by $155 billion, the net
financing disbursements of credit financing accounts increased financing requirements by $99 billion, and other
Federal fund factors increased financing requirements by
$212 billion. As discussed earlier in this chapter, this net
$212 billion in other factors was mainly due to the reinvestment of the TSP G-Fund. In addition, special funds
and revolving funds, which are part of the Federal funds
group, invested a net of $57 billion in Treasury securities.
A $130 billion adjustment is also made for the difference
between the trust fund surplus or deficit and the trust
funds’ investment or disinvestment in Federal securities
(including the changes in NRRIT’s investments in nonFederal securities). As discussed above, this unusually
large adjustment amount is due primarily to reinvestment following the extraordinary measures taken with

the CSRDF. As a net result of all these factors, $1,419
billion in financing was required, increasing gross Federal
debt by that amount. Since Federal debt not subject to
limit grew by $0.3 billion and the adjustment for discount
and premium changed by $6 billion, the debt subject to
limit increased by $1,425 billion, while debt held by the
public increased by $1,051 billion.
Debt subject to limit is estimated to increase by $816
billion in 2017 and by $740 billion in 2018. The projected
increases in the debt subject to limit are caused by the
continued Federal funds deficit, supplemented by the
other factors shown in Table 4–6. While debt held by the
public increases by $4,407 billion from the end of 2016
through 2027, debt subject to limit increases by $5,156
billion.
Foreign Holdings of Federal Debt
During most of American history, the Federal debt was
held almost entirely by individuals and institutions within the United States. In the late 1960s, foreign holdings
were just over $10 billion, less than 5 percent of the total
Federal debt held by the public. Foreign holdings began
to grow significantly starting in the 1970s and now represent almost half of outstanding debt. This increase has
been almost entirely due to decisions by foreign central
banks, corporations, and individuals, rather than the direct marketing of these securities to foreign investors.

Table 4–7. FOREIGN HOLDINGS OF FEDERAL DEBT
(Dollar amounts in billions)

Fiscal Year

Change in debt held by
the public 2

Debt held by the public
Total

Foreign 1

Percentage
foreign

Total

Foreign

1965 �������������������������������������������������������������

260.8

12.2

4.7

3.9

0.3

1970 �������������������������������������������������������������
1975 �������������������������������������������������������������

283.2
394.7

14.0
66.0

4.9
16.7

5.1
51.0

3.7
9.1

1980 �������������������������������������������������������������
1985 �������������������������������������������������������������

711.9
1,507.3

126.4
222.9

17.8
14.8

71.6
200.3

1.3
47.3

1990 �������������������������������������������������������������
1995 �������������������������������������������������������������

2,411.6
3,604.4

463.8
820.4

19.2
22.8

220.8
171.3

72.0
138.4

2000 �������������������������������������������������������������
2005 �������������������������������������������������������������

3,409.8
4,592.2

1,038.8
1,929.6

30.5
42.0

–222.6
296.7

–242.6
135.1

2010 �������������������������������������������������������������
2011 �������������������������������������������������������������
2012 �������������������������������������������������������������
2013 �������������������������������������������������������������
2014 �������������������������������������������������������������

9,018.9
10,128.2
11,281.1
11,982.7
12,779.9

4,324.2
4,912.1
5,476.1
5,652.8
6,069.2

47.9
48.5
48.5
47.2
47.5

1,474.2
1,109.3
1,152.9
701.6
797.2

753.6
587.9
564.0
176.7
416.4

2015 �������������������������������������������������������������
13,116.7
6,105.9
46.6
336.8
36.7
2016 �������������������������������������������������������������
14,167.7
6,155.2
43.4
1,051.0
49.3
1 Estimated by Treasury Department. These estimates exclude agency debt, the holdings of which are
believed to be small. The data on foreign holdings are recorded by methods that are not fully comparable with
the data on debt held by the public. Projections of foreign holdings are not available. The estimates include the
effects of benchmark revisions in 1984, 1989, 1994, and 2000, annual June benchmark revisions for 2002–2010,
and additional revisions.
2 Change in debt held by the public is defined as equal to the change in debt held by the public from the
beginning of the year to the end of the year.

42
Foreign holdings of Federal debt are presented in Table
4–7. At the end of 2016, foreign holdings of Treasury debt
were $6,155 billion, which was 43 percent of the total debt
held by the public.21 Foreign central banks and other foreign official institutions owned 63 percent of the foreign
holdings of Federal debt; private investors owned nearly
all the rest. At the end of 2016, the nations holding the
largest shares of U.S. Federal debt were China, which held
19 percent of all foreign holdings, and Japan, which held
18 percent. All of the foreign holdings of Federal debt are
denominated in dollars.
Although the amount of foreign holdings of Federal
debt has grown greatly over this period, the proportion
that foreign entities and individuals own, after increasing
abruptly in the very early 1970s, remained about 15–20
percent until the mid-1990s. During 1995–97, however,
growth in foreign holdings accelerated, reaching 33 percent by the end of 1997. Foreign holdings of Federal debt
resumed growth in the following decade, increasing to 48
percent by the end of 2008. Since 2008, foreign holdings
as a percent of total Federal debt have remained relatively stable. Foreign holdings fell from 47 percent at the
end of 2015 to 43 percent at the end of 2016. The dollar
increase in foreign holdings was about 5 percent of total
Federal borrowing from the public in 2016 and 31 percent
over the last five years.
Foreign holdings of Federal debt are around 25 percent of the foreign-owned assets in the United States,
depending on the method of measuring total assets. The
foreign purchases of Federal debt securities do not measure the full impact of the capital inflow from abroad on

21      The debt calculated by the Bureau of Economic Analysis is different, though similar in size, because of a different method of valuing
securities.

ANALYTICAL PERSPECTIVES

the market for Federal debt securities. The capital inflow
supplies additional funds to the credit market generally,
and thus affects the market for Federal debt. For example, the capital inflow includes deposits in U.S. financial
intermediaries that themselves buy Federal debt.
Federal, Federally Guaranteed, and
Other Federally Assisted Borrowing
The Government’s effects on the credit markets arise
not only from its own borrowing but also from the direct loans that it makes to the public and the provision
of assistance to certain borrowing by the public. The
Government guarantees various types of borrowing by
individuals, businesses, and other non-Federal entities,
thereby providing assistance to private credit markets.
The Government is also assisting borrowing by States
through the Build America Bonds program, which subsidizes the interest that States pay on such borrowing. In
addition, the Government has established private corporations—Government-sponsored enterprises—to provide
financial intermediation for specified public purposes; it
exempts the interest on most State and local government
debt from income tax; it permits mortgage interest to be
deducted in calculating taxable income; and it insures
the deposits of banks and thrift institutions, which themselves make loans.
Federal credit programs and other forms of assistance
are discussed in Chapter 19, “Credit and Insurance,’’ in
this volume. Detailed data are presented in tables accompanying that chapter.

PERFORMANCE AND MANAGEMENT

43

5. SOCIAL INDICATORS

The social indicators presented in this chapter illustrate in broad terms how the Nation is faring in selected
areas. Indicators are drawn from six domains: economic,
demographic and civic, socioeconomic, health, security and
safety, and environment and energy. The indicators shown
in the tables in this chapter were chosen in consultation
with statistical and data experts from across the Federal
Government. These indicators are only a subset of the vast
array of available data on conditions in the United States.
In choosing indicators for these tables, priority was given
to measures that are broadly relevant to Americans and
consistently available over an extended period. Such indicators provide a current snapshot while also making it
easier to draw comparisons and establish trends.
The measures in these tables are influenced to varying degrees by many Government policies and programs,
as well as by external factors beyond the Government’s
control. They do not measure the impacts of Government
policies. Instead, they provide a quantitative picture of
the baseline on which future policies are set and useful
context for prioritizing budgetary resources.
Economic.—The 2008-2009 economic downturn produced the worst labor market since the Great Depression.
The employment-population ratio dropped sharply from
its pre-recession level, and real GDP per person also declined.1 The unemployment rate stood at 4.9 percent in
2016, down from a high of 10 percent in October 2009,
and fell further to 4.4 percent in April 2017. Despite the
recovery in the unemployment rate, growth in real GDP
per person (5-year annual average) remains lower than in
all but 7 years over the period from 1960 to 2007. The employment-population ratio also remains low relative to its
pre-recession levels. From 1985 to 2007, the employmentpopulation ratio ranged from 60.1 to 63.1 percent; after
the 2008-2009 recession, it fell to 58.4 percent in 2011 and
stood at 59.7 percent in 2016.
Over the entire period from 1960 to 2016, the primary
pattern has been one of economic growth and rising living
standards. Real GDP per person has tripled as technological advancements and accumulation of human and
physical capital increased the Nation’s productive capacity. The stock of physical capital including consumer
durable goods, like cars and appliances, amounted to
nearly $54 trillion in 2015, well over four times the size
of the capital stock in 1960 after accounting for inflation.
However, national saving, a key determinant of future
prosperity because it supports capital accumulation, remains low relative to historical standards, standing at 2.9
percent in 2016 versus an average of 6.9 percent over the
period from 1960 to 2007. Meanwhile, the labor force participation rate, also critical for growth, has been on the
1 The employment-population ratio is the percent of the civilian, noninstitutionalized population aged 16 and above that is employed.

decline since 2000. The labor force participation rates in
2015 and 2016 were the lowest since 1977.
In addition to the size of the economy, the structure of
the economy has also changed considerably. From 2000
to 2015, goods-producing industries declined from 24.9
to 21.7 percent of total private goods and services (value
added as a percent of GDP), while services-producing industries increased from 75.1 to 78.3 percent. This period
coincided with a steep decline in manufacturing employment, potentially due to import competition from China
and changes in technology.2 The United States has experienced persistent trade deficits since the early 1980s,
reaching a high of $714 billion in 2005 and standing at
$501 billion in 2016. New business starts fell 29 percent
from 2005 to 2010 and only increased 5 percent from 2010
through 2014.
Demographic and Civic.—The U.S. population
steadily increased from 1970 to 2016, growing from 204
million to 323 million. Since 1970, the foreign born population has rapidly increased, more than quadrupling from
about 10 million in 1970 to 43 million in 2015. Remittances
from the foreign-born population to households abroad increased from $23.4 billion (0.23 percent of GDP) in 2000
to $44.9 billion (0.24 percent of GDP) in 2016. The U.S.
population is getting older, due in part to the aging of the
baby boomers, improvements in medical technology, and
declining birth rates. For example, the rate of births per
1,000 women aged 15-44 dropped from a high of 118.3 in
1955 to 65.0 in 1976, and has hovered between 62.5 and
71.0 since then; in 2015, the rate was at its lowest ever
on record, at 62.5 births.3 From 1970 to 2015, the percent
of the population aged 65 and over increased from 9.8 to
14.9, and the percent aged 85 and over increased from 0.7
to 2.0. In contrast, the percent of the population aged 17
and younger declined from 28.0 in 1980 to 22.8 in 2016.
The composition of American households and families has evolved considerably over time. The percent of
Americans who have ever married continues to decline,
as it has over the last five decades, falling since 1960
from 78.0 to 67.8 percent of Americans aged 15 and over.
Average family sizes have also fallen over this period, a
pattern that is typical among developed countries, from
3.7 to 3.1 members per family household. Births to unmarried women aged 15-17 and the fraction of single parent
households both reached turning points in 1995 after increasing for over three decades. From 1995 to 2015, the
number of births per 1,000 unmarried women aged 15-17
fell from 30 to 10, the lowest level on record. The fraction
2 Autor, David H., David Dorn, and Gordon H. Hanson (2013). The
China Syndrome: Local Labor Market Effects of Import Competition in
the United States, American Economic Review, 103(6).
3 Hamilton, B.E. et al. (2016). Births: Final data for 2015. National
Vital Statistics Reports, 65(3). Hyattsville, MD: National Center for
Health Statistics.

45

46
of single parent households stopped increasing in 1995,
stabilizing at about 9 percent of all households.
Charitable giving among Americans, measured by the
average charitable contribution per itemized tax return,
has generally increased over the past 50 years.4 The effects of the 2008-2009 recession are evident in the sharp
drop in charitable giving from 2005 to 2010, but that decline was reversed by 2014.
Socioeconomic.—Education is a critical component of
the Nation’s economic growth and competitiveness, while
also benefiting society in areas such as health, crime, and
civic engagement. Between 1960 and 1980, the percentage
of 25- to 34-year olds who have graduated from high school
increased from 58 percent to 84 percent, a gain of 13 percentage points per decade. The rate of increase has slowed
since then with a six percentage point gain over the past 35
years. The percentage of 25- to 34-year olds who have graduated from college continues to rise, from only 11 percent
in 1960 to 34 percent in 2015. While the percentage of the
population with a graduate degree has risen over time, the
percentage of graduate degrees in science and engineering
fell by half in the period between 1960 and 1980, from 22
percent to 11 percent, and stood at 15 percent in 2015.
Although national prosperity has grown considerably over
the past 50 years, these gains have not been shared equally.
Real disposable income per capita more than tripled since
1960, but for the median household, real income increased by
only 19 percent since 1970, and has declined since 2000. The
median wealth of households aged 55-64 declined from $311
thousand in 2004 to only $166 thousand in 2013. From 2000
to 2010, the poverty rate, the percentage of food-insecure
households, and the percentage of Americans receiving benefits from the Supplemental Nutrition Assistance Program
(formerly known as the Food Stamp Program), increased.
These measures have declined over the past several years,
but still remain high compared with levels prior to the 20082009 economic downturn.
After increasing from 1990 to 2005, homeownership
rates have fallen continuously since the 2008 housing crisis. The share of families with children and severe housing
cost burdens more than doubled from 8 percent in 1980 to
18 percent in 2010, before falling to 15 percent in 2015.
The share of families with children and inadequate housing steadily decreased from a high of 9 percent in 1980 to
a low of 5 percent in 2013, but has since increased to over
6 percent in 2015.
Health.—America has by far the most expensive
health care system in the world with historically much
higher rates of uninsured than many other countries with
comparable wealth. National health expenditures as a
share of GDP have increased from 5 percent in 1960 to
nearly 18 percent in 2015. This increase in health care
spending coincides with improvements in medical technologies that have improved health. However, the level
of per capita health care spending in the United States
is far greater than in other Organization for Economic
Cooperation and Development (OECD) countries that
4    This

measure includes charitable giving only among those who
claim itemized deductions. It is therefore influenced by changes in tax
laws and in the characteristics of those who itemize.

ANALYTICAL PERSPECTIVES

have experienced comparable health improvements.5
Average private health insurance premiums paid by individuals with private health insurance have increased by
22 percent (10 percent in 2016 dollars) since 2010.
Some key indicators of national health have improved
since 1960. Life expectancy at birth increased by 9.1
years, from 69.7 in 1960 to 78.8 in 2015. Infant mortality
fell from 26 to under 6 per 1,000 live births with a rapid
decline occurring in the 1970s.
Improvements in health-related behaviors among
Americans have been mixed. Although the percent of
adults who smoke cigarettes in 2015 was less than half
of what it was in 1970, rates of obesity have soared. In
1980, 15 percent of adults and 6 percent of children were
obese; in 2014, 38 percent of adults and 17 percent of children were obese. Adult obesity continued to rise even as
the share of adults engaging in regular physical activity
increased from 15 percent in 2000 to 22 percent in 2015.
Security and Safety.—The last three decades have
witnessed a remarkable decline in crime. From 1980 to
2015, the property crime rate dropped by 78 percent while
the murder rate fell by 52 percent. However, the downward
decline in the murder rate ended in 2014, with the rate rising between 2014 and 2015. The prison incarceration rate
increased more than five-fold from 1970 through 2005, before declining by 8 percent from 2005 through 2015. Road
transportation has become safer. Safety belt use increased
by 19 percentage points from 2000 to 2016, and the annual
number of highway fatalities fell by 33 percent from 1970
to 2015 despite the increase in the population.
The number of military personnel on active duty fell
to its lowest level since at least 1960. The highest count
of active duty military personnel was 3.1 million in 1970,
reached during the Vietnam War. It now stands at 1.3 million. The number of veterans has declined from 29 million
in 1980 to 21 million in 2016.
Environment and Energy.—Substantial progress
has been made on air quality in the United States, with
the concentration of particulate matter falling 37 percent
from 2000 to 2015 and ground level ozone falling by 32
percent from 1990 to 2015. Gross greenhouse gas emissions per capita and per real dollar of GDP have fallen
since at least 1990. As of 2016, 91 percent of the population receives drinking water from community water
systems in compliance with water quality standards,
which has remained relatively constant since 1995.
Technological advances and a shift in production
patterns mean that Americans now use less than half
as much energy per real dollar of GDP as they did 50
years ago, and per capita energy consumption is at its
lowest since the 1960s despite rising income levels.
From 2005 to 2016, coal production fell by 36 percent,
with most of that decrease occurring from 2014 to 2016.
The decrease in coal production since 2005 coincided
with increases in the production of natural gas, petroleum, and renewable energy as well as new regulatory
proposals and requirements.
5 Squires, D. and C. Anderson (2015). U.S. Health Care from a Global
Perspective: Spending, Use of Services, Prices and Health in 13 Countries, The Commonwealth Fund.

47

5. Social Indicators

Table 5–1. SOCIAL INDICATORS
Calendar Years

1960

1970

1980

1990

1995

2000

2005

2010

2013

2014

2015

2016

Economic
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

17
18
19
20
21
22
23
24

General Economic Conditions
Real GDP per person (chained 2009 dollars) ��������������������������������� 17,198 23,024 28,325 35,794 38,167 44,475 48,090 47,720 49,317 50,119 51,054 51,523
Real GDP per person change, 5-year annual average ��������������
0.8
2.4
2.6
2.4
1.3
3.1
1.6
–0.1
0.3
1.3
1.4
1.4
Consumer Price Index 1 ������������������������������������������������������������������
12.5
16.4
34.8
55.2
64.4
72.7
82.5
92.1
98.4 100.0 100.1 101.4
Private goods producing (%) ����������������������������������������������������������
#N/A
#N/A
#N/A
#N/A
#N/A
24.9
23.9
22.3
23.0
22.9
21.7
#N/A
Private services producing (%) �������������������������������������������������������
#N/A
#N/A
#N/A
#N/A
#N/A
75.1
76.1
77.7
77.0
77.1
78.3
#N/A
New business starts (thousands) 2 �������������������������������������������������
#N/A
#N/A
452
477
513
482
544
385
404
404
#N/A
#N/A
Business failures (thousands) 3 ������������������������������������������������������
#N/A
#N/A
371
371
386
406
416
417
367
392
#N/A
#N/A
International trade balance (billions of dollars; + surplus / - deficit) 4 �����
3.5
2.3 –19.4 –80.9 –96.4 –372.5 –714.2 –494.7 –461.9 –490.2 –500.4 –500.6
Jobs and Unemployment
Labor force participation rate (%) ���������������������������������������������������
Employment (millions) ��������������������������������������������������������������������
Employment-population ratio (%) ���������������������������������������������������
Payroll employment change - December to December, SA
(millions) ������������������������������������������������������������������������������������
Payroll employment change - 5-year annual average, NSA
(millions) �������������������������������������������������������������������������������
Civilian unemployment rate (%) ������������������������������������������������������
Unemployment plus marginally attached and underemployed (%) 
Receiving Social Security disabled-worker benefits (% of
population) 5 ������������������������������������������������������������������������������
Infrastructure, Innovation, and Capital Investment
Nonfarm business output per hour (average 5 year % change) 6 ���
Corn for grain production (million bushels) �������������������������������������
Real net stock of fixed assets and consumer durable goods
(billions of chained 2009 dollars) �����������������������������������������������
Population served by secondary wastewater treatment or better (%) 7 ���
Electricity net generation (kWh per capita) �������������������������������������
Patents for invention, U.S. origin (per million population) 8 �������������
Net national saving rate (% of GDP) ����������������������������������������������
R&D spending (% of GDP) 9 ����������������������������������������������������������

59.4
65.8
56.1

60.4
78.7
57.4

63.8
99.3
59.2

66.5
118.8
62.8

66.6
124.9
62.9

67.1
136.9
64.4

66.0
141.7
62.7

64.7
139.1
58.5

63.2
143.9
58.6

62.9
146.3
59.0

62.7
148.8
59.3

62.8
151.4
59.7

–0.4

–0.5

0.3

0.0

2.2

2.0

2.5

1.1

2.3

3.0

2.7

2.2

0.7
5.5
#N/A

2.0
4.9
#N/A

2.7
7.1
#N/A

2.8
5.6
#N/A

1.6
5.6
10.1

2.9
4.0
7.0

0.4
5.1
8.9

–0.7
9.6
16.7

–0.2
7.4
13.8

1.5
6.2
12.0

2.3
5.3
10.4

2.5
4.9
9.6

0.9

2.0

2.8

2.5

3.3

3.7

4.5

5.5

5.9

5.9

6.0

#N/A

1.8
3,907

2.1
4,152

1.2
6,639

1.6
7,934

1.6
7,400

2.8
3.2
1.9
1.5
1.1
0.6
0.6
9,915 11,112 12,425 13,829 14,216 13,601 15,226

11,383 16,921 23,265 30,870 34,246 40,217 46,305 50,332 52,139 52,930 53,814
#N/A
#N/A
41.6
56.4
63.7
61.1
71.4
74.3
72.0
74.5
#N/A
#N/A
#N/A
4,202 7,486 10,076 12,170 12,594 13,475 13,723 13,335 12,859 12,850 12,707 12,622
#N/A
231
164
190
209
301
253
348
422
453
439
#N/A
10.8
8.5
7.2
3.9
4.0
5.8
2.7
–0.8
2.5
3.3
3.3
2.9
2.52
2.44
2.21
2.54
2.40
2.61
2.50
2.73
2.74
2.75
2.78
#N/A

Demographic and Civic
25
26
27
28
29
30
31
32
33
34
35
36
37
38

Population
Total population (millions) 10 �����������������������������������������������������������
Foreign born population (millions) 11 ����������������������������������������������
17 years and younger (%) 10 ����������������������������������������������������������
65 years and older (%) 10 ���������������������������������������������������������������
85 years and older (%) 10 ���������������������������������������������������������������
Household Composition
Ever married (% of age 15 and older) 12 ����������������������������������������
Average family size 13 ���������������������������������������������������������������������
Births to unmarried women age 15–17 (per 1,000 unmarried
women age 15–17) ��������������������������������������������������������������������
Single parent households (%) ��������������������������������������������������������
Civic and Cultural Engagement
Average charitable contribution per itemized tax return (2014
dollars) 14 �����������������������������������������������������������������������������������
Voting for President (% of voting age population) 15 �����������������������
Persons volunteering (% age 16 and older) 16 �������������������������������
Attendance at visual or performing arts activity, including moviegoing (% age 18 and older) 17 ���������������������������������������������������
Reading: Novels or short stories, poetry, or plays (not required for
work or school; % age 18 and older) 17 �������������������������������������

#N/A
9.7
#N/A
#N/A
#N/A

204.0
9.6
#N/A
9.8
0.7

227.2
14.1
28.0
11.3
1.0

249.6
19.8
25.7
12.5
1.2

266.3
#N/A
26.1
12.7
1.4

282.2
31.1
25.7
12.4
1.5

295.5
37.5
24.9
12.4
1.6

309.3
40.0
24.0
13.1
1.8

316.4
41.3
23.3
14.1
1.9

318.9
42.4
23.1
14.5
1.9

321.4
43.3
22.9
14.9
2.0

323.1
#N/A
22.8
#N/A
#N/A

78.0
3.7

75.1
3.6

74.1
3.3

73.8
3.2

72.9
3.2

71.9
3.2

70.9
3.1

69.3
3.2

68.6
3.1

68.3
3.1

68.2
3.1

67.8
3.1

#N/A
4.4

17.1
5.2

20.6
7.5

29.6
8.3

30.1
9.1

23.9
8.9

19.4
8.9

16.8
9.1

11.9
9.1

10.6
8.9

9.6
8.8

#N/A
8.7

2,240
63.4
#N/A

2,222
57.0
#N/A

2,563
55.1
#N/A

3,222
56.4
20.4

3,426
49.8
#N/A

4,547
52.1
#N/A

4,654
56.7
28.8

3,962
58.3
26.3

4,462
54.9
25.4

4,790
#N/A
25.3

#N/A
#N/A
24.9

#N/A
#N/A
#N/A

#N/A

#N/A

71.7

72.1

#N/A

70.1

#N/A

63.9

65.4

#N/A

66.5

#N/A

#N/A

#N/A

56.4

54.2

#N/A

46.6

#N/A

50.2

45.0

#N/A

43.1

#N/A

58.1
11.0

71.5
15.5

84.2
23.3

84.1
22.7

#N/A
#N/A

83.9
27.5

86.4
29.9

87.2
31.1

88.6
32.9

89.1
33.5

89.7
34.1

#N/A
#N/A

Socioeconomic
39
40

Education
High school graduates (% of age 25–34) 18 �����������������������������������
College graduates (% of age 25–34) 19 ������������������������������������������

48

ANALYTICAL PERSPECTIVES

Table 5–1. SOCIAL INDICATORS—Continued
Calendar Years
41
42
43
44

45
46
47
48
49
50
51
52
53
54

55
56
57

1960
20

Reading achievement score (age 17) �����������������������������������������
Math achievement score (age 17) 21 ����������������������������������������������
Science and engineering graduate degrees (% of total graduate
degrees) ������������������������������������������������������������������������������������
Receiving special education services (% of age 3–21 public school
students) ������������������������������������������������������������������������������������
Income, Savings, and Inequality
Real median income: all households (2014 dollars) 22 ������������������
Real disposable income per capita (chained 2009 dollars) ������������
Adjusted gross income share of top 1% of all taxpayers ����������������
Adjusted gross income share of lower 50% of all taxpayers ����������
Personal saving rate (% of disposable personal income) ���������������
Foreign remittances (billions of dollars) 23 ��������������������������������������
Poverty rate (%) 24 ��������������������������������������������������������������������������
Food-insecure households (% of all households) 25 �����������������������
Supplemental Nutrition Assistance Program (% of population on
SNAP) ����������������������������������������������������������������������������������������
Median wealth of households, age 55–64 (in thousands of 2013
dollars) 26 �����������������������������������������������������������������������������������
Housing
Homeownership among households with children (%) 27 ���������������
Families with children and severe housing cost burden (%) 28 �������
Families with children and inadequate housing (%) 29 �������������������

1970

1980

1990

1995

2000

2005

2010

2013

2014

2015

2016

N/A
N/A

285
304

285
298

290
305

288
306

288
308

283
305

286
306

287
306

N/A
N/A

N/A
N/A

N/A
N/A

22.0

17.2

11.2

14.7

14.2

12.6

12.7

12.1

13.2

13.7

15.0

N/A

N/A

N/A

10.1

11.4

12.4

13.3

13.7

13.0

12.9

13.0

N/A

N/A

N/A 47,593 48,518 52,684 52,664 57,790 56,224 53,568 54,525 53,718 56,516
N/A
11,877 16,643 20,158 25,555 27,180 31,524 34,424 35,685 36,414 37,415 38,432 39,226
N/A
N/A
8.5
14.0
14.6
20.8
21.2
18.9
19.0
20.6
N/A
N/A
N/A
N/A
17.7
15.0
14.5
13.0
12.9
11.7
11.5
11.3
N/A
N/A
10.0
12.6
10.6
7.8
6.4
4.2
2.6
5.6
5.0
5.6
5.8
5.8
N/A
N/A
N/A
N/A
N/A
23.4
31.3
36.8
39.6
41.8
43.3
44.9
22.2
12.6
13.0
13.5
13.8
11.3
12.6
15.1
14.8
14.8
13.5
N/A
N/A
N/A
N/A
N/A
11.9
10.5
11.0
14.5
14.3
14.0
12.7
N/A
N/A

3.3

9.5

8.2

9.9

6.1

8.9

13.5

15.0

14.6

14.2

13.5

78

N/A

153

177

175

243

311

192

166

N/A

N/A

N/A

N/A
N/A
N/A

N/A
N/A
N/A

N/A
8
9

63.6
10
9

65.1
12
7

67.5
11
7

68.4
14.5
5.4

65.5
17.9
5.3

62.5
15.7
5.0

61.0
15.4
5.6

59.5
15.1
6.3

N/A
N/A
N/A

Health
58
59
60
61
62
63

Health Status
Life expectancy at birth (years) ������������������������������������������������������
Infant mortality (per 1,000 live births) ���������������������������������������������
Low birthweight [<2,500 gms] (% of babies) ����������������������������������
Activity limitation (% of age 5–17) 30 ����������������������������������������������
Activity limitation (% of age 18 and over) 31 ������������������������������������
Difficulties with activities of daily living (% of age 65 and over) 32 �����

69.7
26.0
7.7
N/A
N/A
N/A

70.8
20.0
7.9
N/A
N/A
N/A

73.7
12.6
6.8
N/A
N/A
N/A

75.4
9.2
7.0
N/A
N/A
N/A

75.8
7.6
7.3
N/A
N/A
N/A

76.8
6.9
7.6
7.0
27.9
6.3

77.6
6.9
8.2
8.0
29.1
6.2

78.7
6.1
8.2
9.2
29.9
6.8

78.8
6.0
8.0
9.2
29.5
7.3

78.9
5.8
8.0
9.3
28.9
6.2

78.8
5.9
8.1
9.8
29.6
6.7

N/A
N/A
N/A
N/A
N/A
N/A

64
65
66
67
68

Health Behavior
Engaged in regular physical activity (% of age 18 and older) 33 �����
Obesity (% of age 20–74 with BMI 30 or greater) 34 ����������������������
Obesity (% of age 2–19) 35 �������������������������������������������������������������
Cigarette smokers (% of age 18 and older) ������������������������������������
Heavier drinker (% of age 18 and older) 36 �������������������������������������

N/A
13.4
N/A
N/A
N/A

N/A
N/A
N/A
37.1
N/A

N/A
15.0
5.5
33.1
N/A

N/A
23.2
10.0
25.3
N/A

N/A
N/A
N/A
24.6
N/A

15.0
30.9
13.9
23.1
4.3

16.6
35.1
15.4
20.8
4.8

20.7
36.1
16.9
19.3
5.2

21.0
N/A
N/A
17.9
5.3

21.5
38.2
17.2
17.0
5.2

21.6
N/A
N/A
15.3
5.0

N/A
N/A
N/A
N/A
N/A

5.0

6.9

8.9

12.1

13.3

13.3

15.5

17.4

17.2

17.4

17.8

N/A

N/A
N/A
N/A
N/A
N/A

N/A
N/A
N/A
N/A
N/A

N/A
N/A
N/A
N/A
N/A

N/A
N/A
N/A
N/A
N/A

N/A
N/A
16.9
13.0
N/A

2,655
N/A
18.9
12.6
N/A

3,991
N/A
19.3
9.3
N/A

4,940
2,782
22.3
7.8
56.6

5,571
2,980
20.4
6.5
70.4

5,832
3,107
16.3
5.5
71.6

5,963
3,258
13.0
4.5
72.2

N/A
3,391
N/A
N/A
N/A

N/A

N/A 49,610 34,890 31,547 19,043 15,947 12,541 13,144 11,806 11,072

N/A

N/A
5.1

N/A
7.9

4,940
10.2

4,410
9.4

7,068
8.2

3,749
5.5

2,842
5.6

1,928
4.8

2,317
4.5

2,010
4.4

1,858
4.9

N/A
N/A

118.8

95.8

145.6

311.9

430.4

508.8

518.2

523.3

500.5

491.7

476.7

N/A

69
70
71
72
73
74

Access to Health Care
Total national health expenditures (% of GDP) �������������������������������
Average single premium per enrolled employee at private-sector
establishments (dollars) 37 ���������������������������������������������������������
Average health insurance premium (dollars) 38 ������������������������������
Persons without health insurance (% of age 18–64) 39 ������������������
Persons without health insurance (% of age 17 and younger) 39 ���
Children age 19–35 months with recommended vaccinations (%) 40 �����
Security and Safety

75
76
77
78

79
80

Crime
Property crimes (per 100,000 households) 41 ��������������������������������
Violent crime victimizations (per 100,000 population age 12 or
older) 42 �������������������������������������������������������������������������������������
Murder rate (per 100,000 persons) �������������������������������������������������
Prison incarceration rate (state and federal institutions, rate per
100,000 persons) 43 �������������������������������������������������������������������
National Security
Military personnel on active duty (thousands) 44 ����������������������������
Veterans (thousands) ���������������������������������������������������������������������

2,475 3,065 2,051 2,044 1,518 1,384 1,389 1,431 1,382 1,338 1,314 1,301
22,534 26,976 28,640 27,320 26,198 26,551 24,521 23,032 22,299 21,999 21,681 21,368

49

5. Social Indicators

Table 5–1. SOCIAL INDICATORS—Continued
Calendar Years
81
82

Transportation Safety
Safety belt use (%) �������������������������������������������������������������������������
Highway fatalities ����������������������������������������������������������������������������

1960

1970

1980

1990

1995

2000

2005

2010

2013

2014

2015

N/A
N/A
N/A
N/A
N/A
70.7
81.7
85.1
87.2
86.7
88.5
36,399 52,627 51,091 44,599 41,817 41,945 43,510 32,999 32,894 32,744 35,092

2016
90.1
N/A

Environment and Energy
83
84
85
86
87
88
89
90

Air Quality and Greenhouse Gases
Ground level ozone (ppm) 45 ����������������������������������������������������������
Particulate matter 2.5 (ug/m3) 46 ����������������������������������������������������
Annual mean atmospheric CO2 concentration (Mauna Loa,
Hawaii; ppm) ������������������������������������������������������������������������������
Gross greenhouse gas emissions (teragrams CO2 equivalent) 47 �
Net greenhouse gas emissions, including sinks (teragrams CO2
equivalent) ���������������������������������������������������������������������������������
Gross greenhouse gas emissions per capita (metric tons CO2
equivalent) ���������������������������������������������������������������������������������
Gross greenhouse gas emissions per 2009$ of GDP (kilograms
CO2 equivalent) �������������������������������������������������������������������������
Population that receives drinking water in compliance with
standards (%) 48 ������������������������������������������������������������������������

N/A
N/A

N/A
N/A

0.101
N/A

0.090
N/A

0.091
N/A

0.082
13.5

0.080
12.8

0.073
9.9

0.067
8.9

0.068
8.8

0.069
8.5

N/A
N/A

316.9
N/A

325.7
N/A

338.7
N/A

354.4
6,363

360.8
6,709

369.5
7,214

379.8
7,313

389.9
6,926

396.5
6,680

398.6
6,740

400.8
6,587

404.2
N/A

N/A

N/A

N/A

5,544

5,923

6,462

6,582

6,208

5,917

5,978

5,828

N/A

N/A

N/A

N/A

25.1

24.8

25.2

24.4

22.1

20.8

20.9

20.2

N/A

N/A

N/A

N/A

0.711

0.659

0.574

0.514

0.468

0.428

0.422

0.402

N/A

N/A

N/A

N/A

N/A

83.8

90.8

88.5

92.2

91.2

92.5

91.1

91.2

Energy
91
Energy consumption per capita (million Btu) ����������������������������������
250
331
344
338
342
350
339
315
307
309
303
301
92
Energy consumption per 2009$ GDP (thousand Btu per 2009$) ���
14.5
14.4
12.1
9.4
9.0
7.9
7.0
6.6
6.2
6.2
6.0
N/A
93
Electricity net generation from renewable sources, all sectors (%
of total) 49 �����������������������������������������������������������������������������������
19.7
16.4
12.4
11.8
11.5
9.4
8.8
10.4
12.8
13.2
13.3
14.9
94
Coal production (million short tons) ������������������������������������������������
434
613
830 1,029 1,033 1,074 1,131 1,084
985 1,000
897
728
95
Natural gas production (dry) (trillion cubic feet) 50 ��������������������������
12.2
21.0
19.4
17.8
18.6
19.2
18.1
21.3
24.2
25.9
27.1
26.5
96
Petroleum production (million barrels per day) �������������������������������
8.0
11.3
10.2
8.9
8.3
7.7
6.9
7.5
10.1
11.8
12.8
12.4
97
Renewable energy production (quadrillion Btu) ������������������������������
2.9
4.1
5.4
6.0
6.6
6.1
6.2
8.1
9.2
9.6
9.5
10.1
N/A=Number is not available.
1 Adjusted CPI-U. 2014=100.
2 New business starts are defined as firms with positive employment in the current year and no paid employment in any prior year of the LBD. Employment is measured as of the
payroll period including March 12th.
3 Business failures are defined as firms with employment in the prior year that have no paid employees in the current year.
4 Calculated as the value of U.S. exports of goods and services less the value of U.S. imports of goods and services, on a balance of payments basis. This balance is a component of
the U.S. International Transactions (Balance of Payments) Accounts.
5 Gross prevalence rate for persons receiving Social Security disabled-worker benefits among the estimated population insured in the event of disability at end of year. Gross rates do
not account for changes in the age and sex composition of the insured population over time.
6 Values for prior years have been revised from the prior version of this publication.
7 Data correspond to years 1972, 1982, 1992, 1996, 2000, 2004, 2008, and 2012.
8 Patent data adjusted by OMB to incorporate total population estimates from U.S. Census Bureau.
9 The R&D to GDP ratio data are now revised to reflect the new methodology introduced in the 2013 comprehensive revision of the GDP and other National Income and Product
Accounts by the U.S. Bureau of Economic Analysis (BEA). In late July 2013, BEA reported GDP and related statistics that were revised back to 1929. The new GDP methodology
treats R&D as investment in all sectors of the economy, among other methodological changes. The net effects of these changes are somewhat higher levels of GDP year to year and
corresponding decreases in the R&D to GDP ratios reported annually by the National Science Foundation (NSF). For further details see NSF’s InfoBrief “R&D Recognized as Investment
in U.S. Gross Domestic Product Statistics: GDP Increase Slightly Lowers R&D-to-GDP Ratio” at http://www.nsf.gov/statistics2015 nsf15315 nsf15315.pdf.
10 Data source and values for 2010 to 2015 have been updated relative to the prior version of this publication.
11 Data source for 1960 to 2000 is the decennial census; data source for 2006, 2010, 2011, 2012, 2013, 2014, and 2015 is the American Community Survey.
12 For 1960, age 14 and older.
13 Average size of family households. Family households are those in which there is someone present who is related to the householder by birth, marriage, or adoption.
14 Charitable giving reported as itemized deductions on Schedule A.
15 Data correspond to years 1964, 1972, 1980, 1992, 1996, 2000, 2004, 2008, and 2012. The voting statistics in this table are presented as ratios of official voting tallies, as reported by
the U.S. Clerk of the House, to population estimates from the Current Population Survey.
16 Refers to those who volunteered at least once during a one-year period, from September of the previous year to September of the year specified. For 1990, refers to 1989 estimate
from the CPS Supplement on volunteers.
17 The 1980, 1990, 2000, and 2010 data come from the 1982, 1992, 2002, and 2008 waves of the Survey of Public Participation in the Arts, respectively.
18 For 1960, includes those who have completed 4 years of high school or beyond. For 1970 and 1980, includes those who have completed 12 years of school or beyond. For 1990
onward, includes those who have completed a high school diploma or the equivalent.
19 For 1960 to 1980, includes those who have completed 4 or more years of college. From 1990 onward, includes those who have a bachelor’s degree or higher.
20 Data correspond to years 1971, 1980, 1990, 1994, 1999, 2004, 2008, and 2012.
21 Data correspond to years 1973, 1982, 1990, 1994, 1999, 2004, 2008, and 2012.
22 Beginning with 2013, data are based on redesigned income questions. The source of the 2013 data is a portion of the CPS ASEC sample which received the redesigned income
questions, approximately 30,000 addresses. For more information, please see the report Income and Poverty in the United States: 2014, U.S. Census Bureau, Current Population
Reports, P60-252.

50

ANALYTICAL PERSPECTIVES

Table 5–1. SOCIAL INDICATORS—Continued
23 Foreign remittances, referred to as ‘personal transfers’ in the U.S. International Transactions (Balance of Payments) Accounts, consist of all transfers in cash or in kind sent by the
foreign-born population resident in the United States to households resident abroad.
24 The poverty rate does not reflect noncash government transfers. Beginning with 2013, data are based on redesigned income questions. The source of the 2013 data is a portion of
the CPS ASEC sample which received the redesigned income questions, approximately 30,000 addresses. For more information, please see the report Income and Poverty in the United
States: 2014, U.S. Census Bureau, Current Population Reports, P60-252.
25 Food-insecure classification is based on reports of three or more conditions that characterize households when they are having difficulty obtaining adequate food, out of a total of 10
such conditions.
26 Data values shown are 1962, 1983, 1989, 1995, 2001, 2004, 2010, and 2013. For 1962, the data source is the SFCC; for subsequent years, the data source is the SCF
27 Some data interpolated.
28 Expenditures for housing and utilities exceed 50 percent of reported income. Some data interpolated.
29 Inadequate housing has moderate to severe problems, usually poor plumbing, or heating or upkeep problems. Some data interpolated.
30 Total activity limitation includes receipt of special education services; assistance with personal care needs; limitations related to the child’s ability to walk; difficulty remembering or
periods of confusion; limitations in any activities because of physical, mental, or emotional problems.
31 Activity limitation among adults aged 18 and over is defined as having a basic action difficulty in one or more of the following: movement, emotional, sensory (seeing or hearing), or
cognitive.
32 Activities of daily living include personal care activities: bathing or showering, dressing, getting in or out of bed or a chair, using the toilet, and eating. Persons are considered to have
an ADL limitation if any condition(s) causing the respondent to need help with the specific activities was chronic.
33 Participation in leisure-time aerobic and muscle-strengthening activities that meet 2008 Federal physical activity guidelines.
34 BMI refers to body mass index. The 1960, 1980, 1990, 2000, 2005, 2010, 2014 data correspond to survey years 1960-1962, 1976-1980, 1988-1994, 1999-2000, 2005-2006, 20092010, and 2013-2014, respectively.
35 Percentage at or above the sex-and age-specific 95th percentile BMI cutoff points from the 2000 CDC growth charts. The 1980, 1990, 2000, 2005, 2010, 2014 data correspond to
survey years 1976-1980, 1988-1994, 1999-2000, 2005-2006, 2009-2010, and 2013-2014, respectively.
36 Heavier drinking is based on self-reported responses to questions about average alcohol consumption and is defined as, on average, more than 14 drinks per week for men and
more than 7 drinks per week for women.
37 Includes only employees of private-sector establishments that offer health insurance.
38 Unpublished data. This is the mean total private health insurance premium paid by an individual or family for the private coverage that person is on. If a person is covered by more
than one plan, the premiums for the plans are added together. Those who pay no premiums towards their plans are included in the estimates.
39 A person was defined as uninsured if he or she did not have any private health insurance, Medicare, Medicaid, CHIP (1999-2015), state-sponsored, other government-sponsored
health plan (1997-2015), or military plan. Beginning in 2014, a person with health insurance coverage through the Health Insurance Marketplace or state-based exchanges was
considered to have private coverage. A person was also defined as uninsured if he or she had only Indian Health Service coverage or had only a private plan that paid for one type of
service such as accidents or dental care. In 1993-1996 Medicaid coverage is estimated through a survey question about having Medicaid in the past month and through participation in
Aid to Families with Dependent Children (AFDC) or Supplemental Security Income (SSI) programs. In 1997 to 2015, Medicaid coverage is estimated through a question about current
Medicaid coverage. Beginning in the third quarter of 2004, a Medicaid probe question was added to reduce potential errors in reporting Medicaid status. Persons under age 65 with no
reported coverage were asked explictly about Medicaid coverage.
40 Recommended vaccine series consists of 4 or more doses of either the diphtheria, tetanus toxoids, and pertussis vaccine (DTP), the diphtheria and tetanus toxoids vaccine (DT),
or the diphtheria, tetanus toxoids, and acellular pertussis vaccine (DTaP); 3 or more doses of any poliovirus vaccine; 1 or more doses of a measles-containing vaccine (MCV); 3 or more
doses or 4 or more doses of Haemophilus influenzae type b vaccine (Hib) depending on Hib vaccine product type (full series Hib); 3 or more doses of hepatitis B vaccine; 1 or more
doses of varicella vaccine; and 4 or more doses of pneumococcal conjugate vaccine (PCV).
41 Property crimes, including burglary, motor vehicle theft, and property theft, reported by a sample of households. Includes property crimes both reported and not reported to law
enforcement.
42 Violent crimes include rape, robbery, aggravated assault, and simple assault. Includes crimes both reported and not reported to law enforcement. Due to methodological changes
in the enumeration method for NCVS estimates from 1993 to present, use caution when comparing 1980 and 1990 criminal victimization estimates to future years. Estimates from 1995
and beyond include a small number of victimizations, referred to as series victimizations, using a new counting strategy. High-frequency repeat victimizations, or series victimizations,
are six or more similar but separate victimizations that occur with such frequency that the victim is unable to recall each individual event or describe each event in detail. Including series
victimizations in national estimates can substantially increase the number and rate of violent victimization; however, trends in violence are generally similar regardless of whether series
victimizations are included. See Methods for Counting High-Frequency Repeat Victimizations in the National Crime Victimization Survey, NCJ 237308, BJS web, April 2012 for further
discussion of the new counting strategy and supporting research.
43 Prior to 1977, the National Prisoners Statistics (NPS) Program reports were based on custody population. Beginning in 1977, the report reoriented to jurisdiction population.
Generally, State inmates housed in local jails because of overcrowding are considered to be under State jurisdiction. Most, but not all, States reserve prison for offenders sentenced to a
year or more.
44 For all years, the actuals reflect Active Component only excluding full-time Reserve Component members and RC mobilized to active duty. End Strength for 2016 is preliminary.
45 Ambient ozone concentrations based on 212 monitoring sites meeting minimum completeness criteria.
46 Ambient PM2.5 concentrations based on 480 monitoring sites meeting minimum completeness criteria.
47 The gross emissions indicator does not include sinks, which are processes (sometimes naturally occurring) that remove greenhouse gases from the atmosphere. Gross emissions
are therefore more indicative of trends in energy consumption and efficiency than are net emissions.
48 Percent of the population served by community water systems that receive drinking water that meets all applicable health - based drinking water standards.
49 Includes net generation from solar thermal and photovoltaic (PV) energy at utility-scale facilities. Does not include distributed (small-scale) solar thermal or photovoltaic generation.
50 Dry natural gas is also known as consumer-grade natural gas.

51

5. Social Indicators

Table 5–2. SOURCES FOR SOCIAL INDICATORS
Indicator

Source

Economic
1
2
3
4
5
6
7
8

General Economic Conditions
Real GDP per person (chained 2009 dollars) ����������������������������������������������������������������� Bureau of Economic Analysis, National Economic Accounts Data. http://www.bea.gov/
national/
Real GDP per person change, 5-year annual average ���������������������������������������������� Bureau of Economic Analysis, National Economic Accounts Data. http://www.bea.gov/
national/
Consumer Price Index ���������������������������������������������������������������������������������������������������� Bureau of Labor Statistics, BLS Consumer Price Index Program. https://www.bls.gov/cpi/
Private goods producing (%) ������������������������������������������������������������������������������������������ Bureau of Economic Analysis, National Economic Accounts Data. http://www.bea.gov/
national/
Private services producing (%) ��������������������������������������������������������������������������������������� Bureau of Economic Analysis, National Economic Accounts Data. http://www.bea.gov/
national/
New business starts (thousands) ����������������������������������������������������������������������������������� U.S. Census Bureau, Business Dynamics Statistics. https://www.census.gov/ces/
dataproducts/bds/
Business failures (thousands) ���������������������������������������������������������������������������������������� U.S. Census Bureau, Business Dynamics Statistics. https://www.census.gov/ces/
dataproducts/bds/
International trade balance (billions of dollars; + surplus / - deficit) �������������������������������� Bureau of Economic Analysis, International Economics Accounts, https://www.bea.gov/
International/index.htm

9
10
11
12

Jobs and Unemployment
Labor force participation rate (%) �����������������������������������������������������������������������������������
Employment (millions) ����������������������������������������������������������������������������������������������������
Employment-population ratio (%) �����������������������������������������������������������������������������������
Payroll employment change - December to December, SA (millions) ����������������������������

13

Payroll employment change - 5-year annual average, NSA (millions) �����������������������

14
15
16

Civilian unemployment rate (%) ��������������������������������������������������������������������������������������
Unemployment plus marginally attached and underemployed (%) ��������������������������������
Receiving Social Security disabled-worker benefits (% of population) ���������������������������

17
18
19
20
21

22
23
24

Bureau of Labor Statistics, Current Population Survey. https://www.bls.gov/cps
Bureau of Labor Statistics, Current Population Survey. https://www.bls.gov/cps
Bureau of Labor Statistics, Current Population Survey. https://www.bls.gov/cps
Bureau of Labor Statistics, Current Employment Statistics program. https://www.bls.gov/
ces/
Bureau of Labor Statistics, Current Employment Statistics program. https://www.bls.gov/
ces/
Bureau of Labor Statistics, Current Population Survey. https://www.bls.gov/cps
Bureau of Labor Statistics, Current Population Survey. https://www.bls.gov/cps
Social Security Administration, Office of Research, Evaluation, and Statistics, Annual
Statistical Supplement to the Social Security Bulletin, (tables 4.C1 and 5.A4). http://
www.ssa.gov/policy/docs/statcomps/supplement/

Infrastructure, Innovation, and Capital Investment
Nonfarm business output per hour (average 5 year % change) ������������������������������������� Bureau of Labor Statistics, Major Sector Productivity Program. https://www.bls.gov/lpc/
Corn for grain production (million bushels) ��������������������������������������������������������������������� National Agricultural Statistics Service, Agricultural Estimates Program. http://www.nass.
usda.gov/
Real net stock of fixed assets and consumer durable goods (billions of chained 2009 Bureau of Economic Analysis, National Economic Accounts Data. http://www.bea.gov/
dollars) �����������������������������������������������������������������������������������������������������������������������
national/
Population served by secondary wastewater treatment or better (%) ���������������������������� U.S. Environmental Protection Agency, Clean Watersheds Needs Survey. http://www.epa.
gov/cwns
Electricity net generation (kWh per capita) ��������������������������������������������������������������������� U.S. Energy Information Administration (EIA) calculation from: EIA, Monthly Energy
Review (March 2017); and Table 7.2a https://www.eia.gov/totalenergy/data/monthly/;
and U.S. Census Bureau, Population Division, Vintage 2016 Population Estimates
(2010-2016) https://www.census.gov/data/tables/2016/demo/popest/nation-total.html
Patents for invention, U.S. origin (per million population) ����������������������������������������������� U.S. Patent and Trademark Office, Patent Technology Monitoring Team, U.S. Patent
Statistics Chart, Calendar Years 1963-2015. https://www.uspto.gov/web/offices/ac/ido/
oeip/taf/us_stat.htm; and, U.S. Census Bureau, Population Division.
Net national saving rate (% of GDP) ������������������������������������������������������������������������������ Bureau of Economic Analysis, National Economic Accounts Data. http://www.bea.gov/
national/
R&D spending (% of GDP) ��������������������������������������������������������������������������������������������� National Science Foundation, National Patterns of R&D Resources. http://www.nsf.gov/
statistics/natlpatterns/
Demographic and Civic

25

26
27

28

Population
Total population (millions) ����������������������������������������������������������������������������������������������� U.S. Census Bureau, Population Division, Vintage 2016 Population Estimates (2016),
Vintage 2015 Population Estimates (2010-2015), 2000-2010 Intercensal Estimates
(2000-2005), 1990-1999 Intercensal Estimates (1990-1995), 1980-1990 Intercensal
Estimates (1980), 1970-1980 Intercensal Estimates (1970).
Foreign born population (millions) ���������������������������������������������������������������������������������� U.S. Census Bureau, Population Division, Decennial Census and American Community
Survey. http://www.census.gov/prod/www/abs/decennial/ and http://www.census.gov/
acs
17 years and younger (%) ���������������������������������������������������������������������������������������������� U.S. Census Bureau, Population Division, Vintage 2016 Population Estimates (2016),
Vintage 2015 Population Estimates (2010-2015), 2000-2010 Intercensal Estimates
(2000-2005), 1990-1999 Intercensal Estimates (1990-1995), 1980-1990 Intercensal
Estimates (1980), 1970-1980 Intercensal Estimates (1970).
65 years and older (%) ��������������������������������������������������������������������������������������������������� U.S. Census Bureau, Population Division, Vintage 2016 Population Estimates (2016),
Vintage 2015 Population Estimates (2010-2015), 2000-2010 Intercensal Estimates
(2000-2005), 1990-1999 Intercensal Estimates (1990-1995), 1980-1990 Intercensal
Estimates (1980), 1970-1980 Intercensal Estimates (1970).

52

ANALYTICAL PERSPECTIVES

Table 5–2. SOURCES FOR SOCIAL INDICATORS—Continued
Indicator
29

30
31
32
33
34
35
36
37
38

Source

85 years and older (%) ��������������������������������������������������������������������������������������������������� U.S. Census Bureau, Population Division, Vintage 2016 Population Estimates (2016),
Vintage 2015 Population Estimates (2010-2015), 2000-2010 Intercensal Estimates
(2000-2005), 1990-1999 Intercensal Estimates (1990-1995), 1980-1990 Intercensal
Estimates (1980), 1970-1980 Intercensal Estimates (1970).
Household Composition
Ever married (% of age 15 and older) ���������������������������������������������������������������������������� U.S. Census Bureau, Current Population Survey. http://www.census.gov/hhes/families/
Average family size ��������������������������������������������������������������������������������������������������������� U.S. Census Bureau, Current Population Survey. http://www.census.gov/hhes/families/
Births to unmarried women age 15-17 (per 1,000 unmarried women age 15-17) ���������� National Center for Health Statistics, National Vital Statistics System (natality); Births:
Final data for 2015: https://www.cdc.gov/nchs/data/nvsr/nvsr66/nvsr66_01.pdf.
Single parent households (%) ���������������������������������������������������������������������������������������� U.S. Census Bureau, Current Population Survey. http://www.census.gov/hhes/families/
Civic and Cultural Engagement
Average charitable contribution per itemized tax return (2014 dollars) �������������������������� U.S. Internal Revenue Service, Statistics of Income - Individual Income Tax Returns
(IRS Publication 1304). http://www.irs.gov/uac/SOI-Tax-Stats-Individual-Income-TaxReturns-Publication-1304-(Complete-Report)
Voting for President (% of voting age population) ����������������������������������������������������������� The Office of the Clerk of the U.S. House of Representatives and the U.S. Census
Bureau, Current Population Survey. http://www.census.gov/cps/
Persons volunteering (% age 16 and older) ������������������������������������������������������������������� Bureau of Labor Statistics, Current Population Survey. https://www.bls.gov/cps
Attendance at visual or performing arts activity, including movie-going (% age 18 and The National Endowment for the Arts, Survey of Public Participation in the Arts & Annual
older) �������������������������������������������������������������������������������������������������������������������������
Arts Basic Survey.
Reading: Novels or short stories, poetry, or plays (not required for work or school; % The National Endowment for the Arts, Survey of Public Participation in the Arts & Annual
age 18 and older) ������������������������������������������������������������������������������������������������������
Arts Basic Survey.
Socioeconomic

39
40
41
42
43
44

45
46
47
48
49
50
51
52
53
54

55
56

Education
High school graduates (% of age 25-34) ������������������������������������������������������������������������ U.S. Census Bureau, Decennial Census and American Community Survey. http://www.
census.gov/prod/www/decennial.html and http://www.census.gov/acs
College graduates (% of age 25-34) ������������������������������������������������������������������������������� U.S. Census Bureau, Decennial Census and American Community Survey. http://www.
census.gov/prod/www/decennial.html and http://www.census.gov/acs
Reading achievement score (age 17) ����������������������������������������������������������������������������� National Center for Education Statistics, National Assessment of Educational Progress.
https://nces.ed.gov/nationsreportcard/
Math achievement score (age 17) ���������������������������������������������������������������������������������� National Center for Education Statistics, National Assessment of Educational Progress.
https://nces.ed.gov/nationsreportcard/
Science and engineering graduate degrees (% of total graduate degrees) ������������������� National Center for Education Statistics, Integrated Postsecondary Education Data
System. http://nces.ed.gov/ipeds/
Receiving special education services (% of age 3-21 public school students) �������������� National Center for Education Statistics, Digest of Education Statistics, 2012. http://nces.
ed.gov/programs/digest/d12/tables/dt12_046.asp
Income, Savings, and Inequality
Real median income: all households (2014 dollars) ������������������������������������������������������� U.S. Census Bureau, Current Population Survey, Annual Social and Economic
Supplements. http://www.census.gov/hhes/www/income/data/historical/household/
Real disposable income per capita (chained 2009 dollars) �������������������������������������������� Bureau of Economic Analysis, National Economic Accounts Data. http://www.bea.gov/
national/
Adjusted gross income share of top 1% of all taxpayers ������������������������������������������������ U.S. Internal Revenue Service, Statistics of Income. http://www.irs.gov/uac/SOI-TaxStats-Individual-Statistical-Tables-by-Tax-Rate-and-Income-Percentile
Adjusted gross income share of lower 50% of all taxpayers ������������������������������������������ U.S. Internal Revenue Service, Statistics of Income. http://www.irs.gov/uac/SOI-TaxStats-Individual-Statistical-Tables-by-Tax-Rate-and-Income-Percentile
Personal saving rate (% of disposable personal income) ����������������������������������������������� Bureau of Economic Analysis, National Economic Accounts Data. http://www.bea.gov/
national/
Foreign remittances (billions of dollars) �������������������������������������������������������������������������� Bureau of Economic Analysis, International Economics Accounts, https://www.bea.gov/
International/index.htm
Poverty rate (%) �������������������������������������������������������������������������������������������������������������� U.S. Census Bureau, Current Population Survey, Annual Social and Economic
Supplements. http://www.census.gov/hhes/www/poverty/publications/pubs-cps.html
Food-insecure households (% of all households) ����������������������������������������������������������� Economic Research Service, Household Food Security in the United States report series.
http://www.ers.usda.gov/topics/food-nutrition-assistance/food-security-in-the-us/
readings.aspx
Supplemental Nutrition Assistance Program (% of population on SNAP) ���������������������� Food and Nutrition Service, USDA
Median wealth of households, age 55-64 (in thousands of 2013 dollars) ���������������������� Board of Governors of the Federal Reserve System, Survey of Consumer Finances 2013
Estimates inflation-adjusted to 2013 dollars (Internal Data) http://www.federalreserve.
gov/econresdata/scf/scfindex.htm
Housing
Homeownership among households with children (%) ��������������������������������������������������� U.S. Census Bureau, American Housing Survey (Current Housing Report). Estimated
by Housing and Urban Development’s Office of Policy Development and Research.
http://www.census.gov/housing/ahs
Families with children and severe housing cost burden (%) ������������������������������������������� U.S. Census Bureau, American Housing Survey. Tabulated by Housing and Urban
Development’s Office of Policy Development and Research. http://www.census.gov/
housing/ahs

53

5. Social Indicators

Table 5–2. SOURCES FOR SOCIAL INDICATORS—Continued
Indicator
57

Source

Families with children and inadequate housing (%) ������������������������������������������������������� U.S. Census Bureau, American Housing Survey. Tabulated by Housing and Urban
Development’s Office of Policy Development and Research. http://www.census.gov/
housing/ahs
Health

58
59
60
61

62
63

64
65
66
67
68

69
70
71
72
73
74

Health Status
Life expectancy at birth (years) �������������������������������������������������������������������������������������� National Center for Health Statistics, National Vital Statistics System: Health, United
States 2016 forthcoming, Table 15.
Infant mortality (per 1,000 live births) ����������������������������������������������������������������������������� National Center for Health Statistics, National Vital Statistics System: Health, United
States, 2016 forthcoming, Table 11.
Low birthweight [<2,500 gms] (% of babies) ������������������������������������������������������������������ National Center for Health Statistics, National Vital Statistics System (natality); Births:
Final data for 2015: https://www.cdc.gov/nchs/data/nvsr/nvsr66/nvsr66_01.pdf.
Activity limitation (% of age 5-17) ����������������������������������������������������������������������������������� National Center for Health Statistics, National Health Interview Survey; America’s
Children in Brief: Key National Indicators of Well-Being, 2016, Table HEALTH5,
crude percentages; http://www.childstats.gov/americaschildren/tables/health5.
asp?popup=true (2000-2014 data); America’s Children in Brief: Key National
Indicators of Well-Being, 2017 forthcoming (2015 data).
Activity limitation (% of age 18 and over) ����������������������������������������������������������������������� National Center for Health Statistics, National Health Interview Survey, http://www.cdc.
gov/nchs/nhis.htm: Health, United States, 2016 forthcoming, Table 42, age-adjusted.
Difficulties with activities of daily living (% of age 65 and over) �������������������������������������� National Center for Health Statistics, National Health Interview Survey: http://www.cdc.
gov/nchs/nhis.htm (unpublished data).
Health Behavior
Engaged in regular physical activity (% of age 18 and older) ����������������������������������������� National Center for Health Statistics, National Health Interview Survey, http://www.cdc.
gov/nchs/nhis.htm: Health, United States, 2016 forthcoming, Table 57, age adjusted.
Obesity (% of age 20-74 with BMI 30 or greater) ����������������������������������������������������������� National Center for Health Statistics, National Health and Nutrition Examination Survey,
http://www.cdc.gov/nchs/nhanes.htm. Health E-stat: http://www.cdc.gov/nchs/data/
hestat/obesity_adult_13_14/obesity_adult_13_14.pdf.
Obesity (% of age 2-19) �������������������������������������������������������������������������������������������������� National Center for Health Statistics, National Health and Nutrition Examination Survey,
http://www.cdc.gov/nchs/nhanes.htm. Health E-stat: http://www.cdc.gov/nchs/data/
hestat/obesity_child_13_14/obesity_child_13_14.pdf.
Cigarette smokers (% of age 18 and older) �������������������������������������������������������������������� National Center for Health Statistics, National Health Interview Survey, http://www.cdc.
gov/nchs/nhis.htm: Health, United States, 2016 forthcoming, Table 47 and unpublished
data (1970 and 1980 data), age adjusted.
Heavier drinker (% of age 18 and older) ������������������������������������������������������������������������� National Center for Health Statistics, National Health Interview Survey, http://www.cdc.
gov/nchs/nhis.htm: Health, United States, 2014, Table 58 and unpublished data (2014
and 2015 data), age adjusted.
Access to Health Care
Total national health expenditures (% of GDP) ��������������������������������������������������������������� Centers for Medicare and Medicaid Services, National Health Expenditures Data. http://
www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/
NationalHealthExpendData/index.html
Average single premium per enrolled employee at private-sector establishments
Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey. https://
(dollars) ����������������������������������������������������������������������������������������������������������������������
meps.ahrq.gov
Average health insurance premium (dollars) ������������������������������������������������������������������ Centers for Disease Control and Prevention, National Center for Health Statistics,
National Health Interview Survey, 2010-2015, Family Core component.
Persons without health insurance (% of age 18-64) ������������������������������������������������������� National Center for Health Statistics, National Health Interview Survey.
Persons without health insurance (% of age 17 and younger) ��������������������������������������� National Center for Health Statistics, National Health Interview Survey.
Children age 19-35 months with recommended vaccinations (%) ��������������������������������� National Center for Immunization and Respiratory Diseases, National Immunization
Survey: http://www.cdc.gov/vaccines/imz-managers/coverage/nis/child/: Health, United
States, 2016 forthcoming, Table 66.
Security and Safety

75
76
77
78

79

80

Crime
Property crimes (per 100,000 households) �������������������������������������������������������������������� Bureau of Justice Statistics, National Crime Victimization Survey. http://www.bjs.gov/
index.cfm?ty=dcdetail&iid=245
Violent crime victimizations (per 100,000 population age 12 or older) ��������������������������� Bureau of Justice Statistics, National Crime Victimization Survey. http://www.bjs.gov/
index.cfm?ty=dcdetail&iid=245
Murder rate (per 100,000 persons) ��������������������������������������������������������������������������������� Federal Bureau of Investigation, Uniform Crime Reports, Crime in the United States.
http://www.fbi.gov/about-us/cjis/ucr/ucr
Prison incarceration rate (state and federal institutions, rate per 100,000 persons) ������ U.S. Department of Justice, Bureau of Justice Statistics, National Prisoner Statistics
Program. https://www.bjs.gov/index.cfm?ty=dcdetail&iid=269
National Security
Military personnel on active duty (thousands) ���������������������������������������������������������������� ES actuals for 1960 and 1970 as reported in Table 2-11 of the DoD Selected Manpower
Statistics for FY 1997 (DoD WHS, Directorate for Information Operations and
Reports). The source for the remaining fiscal year actuals are the Service budget
justification books.
Veterans (thousands) ����������������������������������������������������������������������������������������������������� U.S. Department of Veterans Affairs. 1960-1999 (Annual Report of the Secretary
of Veterans Affairs); 2000-2009 (VetPop07); 2010-2012 (VetPop11); 2013-2015
(VetPop2014), Office of the Actuary. http://www.va.gov/vetdata/Veteran_Population.
asp

54

ANALYTICAL PERSPECTIVES

Table 5–2. SOURCES FOR SOCIAL INDICATORS—Continued
Indicator
81
82

Source

Transportation Safety
Safety belt use (%) ��������������������������������������������������������������������������������������������������������� National Highway Traffic Safety Administration, National Center for Statistics and
Analysis. https://crashstats.nhtsa.dot.gov/Api/Public/ViewPublication/812351
Highway fatalities ������������������������������������������������������������������������������������������������������������ National Highway Traffic Safety Administration, National Center for Statistics and
Analysis. https://crashstats.nhtsa.dot.gov/Api/Public/ViewPublication/812261
Environment and Energy

83
84
85
86
87
88
89
90

91
92
93
94
95
96
97

Air Quality and Greenhouse Gases
Ground level ozone (ppm) ���������������������������������������������������������������������������������������������� U.S. Environmental Protection Agency, AirTrends Website. https://www.epa.gov/airtrends/ozone-trends
Particulate matter 2.5 (ug/m3) ���������������������������������������������������������������������������������������� U.S. Environmental Protection Agency, AirTrends Website. https://www.epa.gov/airtrends/particulate-matter-pm25-trends
Annual mean atmospheric CO2 concentration (Mauna Loa, Hawaii; ppm) �������������������� National Oceanic and Atmospheric Administration. http://www.esrl.noaa.gov/gmd/ccgg/
trends/
Gross greenhouse gas emissions (teragrams CO2 equivalent) �������������������������������������� U.S. Environmental Protection Agency (2017). Inventory of U.S. Greenhouse Gas
Emissions and Sinks 1990-2015 (EPA Publication No. 431-P-17-001. https://www.epa.
gov/ghgemissions/inventory-us-greenhouse-gas-emissions-and-sinks
Net greenhouse gas emissions, including sinks (teragrams CO2 equivalent) ���������������� U.S. Environmental Protection Agency (2017). Inventory of U.S. Greenhouse Gas
Emissions and Sinks 1990-2015 (EPA Publication No. 431-P-17-001. https://www.epa.
gov/ghgemissions/inventory-us-greenhouse-gas-emissions-and-sinks
Gross greenhouse gas emissions per capita (metric tons CO2 equivalent) ������������������� U.S. Environmental Protection Agency (2017). Inventory of U.S. Greenhouse Gas
Emissions and Sinks 1990-2015 (EPA Publication No. 431-P-17-001. https://www.epa.
gov/ghgemissions/inventory-us-greenhouse-gas-emissions-and-sinks
Gross greenhouse gas emissions per 2009$ of GDP (kilograms CO2 equivalent) �������� U.S. Environmental Protection Agency (2017). Inventory of U.S. Greenhouse Gas
Emissions and Sinks 1990-2015 (EPA Publication No. 431-P-17-001. https://www.epa.
gov/ghgemissions/inventory-us-greenhouse-gas-emissions-and-sinks
Population that receives drinking water in compliance with standards (%) �������������������� U.S. Environmental Protection Agency, 2016a. Safe Drinking Water Information System,
Federal Version. https://cfpub.epa.gov/roe/indicator.cfm?i=45#1
Energy
Energy consumption per capita (million Btu) ������������������������������������������������������������������ U.S. Energy Information Administration, Monthly Energy Review (March 2017), Table 1.7
https://www.eia.gov/totalenergy/data/monthly
Energy consumption per 2009$ GDP (thousand Btu per 2009$) ����������������������������������� U.S. Energy Information Administration, Monthly Energy Review (March 2017), Table 1.7
https://www.eia.gov/totalenergy/data/monthly/
Electricity net generation from renewable sources, all sectors (% of total) �������������������� U.S. Energy Information Administration, Monthly Energy Review (March 2017), Table 7.2a
https://www.eia.gov/totalenergy/data/monthly/
Coal production (million short tons) �������������������������������������������������������������������������������� U.S. Energy Information Administration, Monthly Energy Review (April 2017), Table 6.1
https://www.eia.gov/totalenergy/data/monthly
Natural gas production (dry) (trillion cubic feet) /50 �������������������������������������������������������� U.S. Energy Information Administration, Monthly Energy Review (April 2017), Table 4.1
https://www.eia.gov/totalenergy/data/monthly
Petroleum production (million barrels per day) ��������������������������������������������������������������� U.S. Energy Information Administration, Monthly Energy Review (April 2017), Table 3.1
https://www.eia.gov/totalenergy/data/monthly
Renewable energy production (quadrillion Btu) �������������������������������������������������������������� U.S. Energy Information Administration, Monthly Energy Review (April 2017), Table 10.1
https://www.eia.gov/totalenergy/data/monthly

6. BUILDING AND USING EVIDENCE TO IMPROVE
GOVERNMENT EFFECTIVENESS
An effective and efficient Federal government requires
evidence—evidence about where needs are greatest, what
works and what does not work, where and how programs
could be improved, and evidence about how programs of
yesterday may no longer be suited for today or prepare
us for tomorrow. Strong evidence about policies and programs should be acted upon, suggestive evidence should
be considered, and where evidence is weak it should be
built to enable better decisions in the future. Agencies
should integrate quality evidence and rigorous evaluation into budget, management, and policy decisions
through a broad set of activities. Doing so requires the
infrastructure and capacity to credibly build and use evidence and develop a culture of learning and continuous
improvement. With a strong evidence infrastructure and
culture agencies constantly (1) ask and answer questions
that help them find, implement, and sustain effective programs and practices, (2) identify and improve or eliminate
ineffective programs and practices, (3) test promising programs and practices to see if they are effective and can be
replicated, and (4) find lower cost ways to achieve better
results.
Building a Portfolio of Evidence
Government agencies should use a range of evidence
types and analytical and management tools to learn what
works and what does not, for whom and under what circumstances, and how to improve results. Evidence refers
to facts or information indicating whether a belief or
proposition is true or valid. Evidence can be quantitative
or qualitative and may come from a variety of sources, including performance measurement, program evaluations,
statistical series, retrospective reviews, data analytics,
and other science and research. A portfolio of evidence
may include:
• Impact evaluations, including randomized control
trials and rigorous quasi-experimental designs,
which can answer questions about a program’s impact relative to a counterfactual—i.e. whether the
outcome was achieved because of the program or due
to some other factor.

• Process or implementation evaluations that can answer questions about whether a program is implemented as designed and whether the program structure is sound.

• Performance monitoring and measurement that can

answer questions about program efficiency, outputs,
and outcomes, but not about causal impact.

• Statistics and other forms of research and analysis
that can provide insight into trends, strategies, and
underlying processes.

There are multiple ways to assess policies and programs. The best approach or method depends on the
specific information that is needed to answer key policy,
programmatic, or operational questions, and on practical
and methodological considerations. While many forms of
evidence are complementary, some evidence that is useful
for one purpose may not be useful for another. For example, performance measures are an essential resource
for agencies to understand ongoing, real-time program
performance so they can use that information to build a
culture of continuous improvement, but they often do not
answer certain key questions, including the effects of programs. Evaluations provide context for the performance
measures and help us better understand what can and
cannot be learned from them. In particular, rigorous impact evaluations, especially randomized experiments, can
provide the most credible information on the impact of the
program on outcomes, isolated from the effects of other
factors. Combining performance and evaluation information, and using the results of one to inform the design of
the other, can be very powerful in understanding program
performance and ensuring that a program is maximizing
performance and impact on an ongoing basis.
One example of building evidence to improve government effectiveness in the FY 2018 Budget is at the
Department of Education, which is refocusing and expanding its signature tiered evidence program, Education
Innovation and Research (EIR), to provide grants to
implement and evaluate innovative approaches to supporting private school choice. The President’s Budget
requests $370 million for EIR, with $250 million reserved
for building evidence on the effectiveness of private school
choice programs. In another example from the Budget,
the Administration is requesting that Congress give the
government’s disability programs authority to mandate
participation in demonstration projects. With this authority the Administration proposes to conduct an aggressive
set of rigorous experiments to improve the labor force participation of people with disabilities.
Developing a Learning Agenda
Agencies are encouraged to adopt a “learning agenda”
in which they collaboratively identify the critical questions that, when answered, will help their programs to
be more effective, and to plan to answer those questions
using the most appropriate tools. An agency learning
agenda will:
• Identify the most important questions that need to
be answered in order to improve program implementation and performance. These questions should reflect the priorities and needs of Administration and
agency leadership, policy and program offices, program partners at state and local levels, researchers
55

56

ANALYTICAL PERSPECTIVES

and additional stakeholders, as well as legislative
requirements and Congressional interests.

• Strategically

prioritize these questions given the
level of current understanding, available resources,
feasibility, and other considerations to determine
which studies or analyses will help the agency make
the most informed decisions.

• Identify

the most appropriate tools and methods
(e.g. evaluations, research, analytics, and/or performance measures) to answer each question.

• Conduct

studies, evaluations, and analyses using
the most rigorous methods that are feasible and
most appropriate.

• Disseminate

findings in ways that are accessible
and useful to Administration and agency leadership,
policy and program offices, state and local partners,
practitioners, and other key stakeholders—including integrating results into performance measurement and strategic planning.

• Act on the results by using the information for policy

decisions and continuous program improvement.
Implementing a learning agenda approach creates an
environment that encourages individuals, offices, and
teams to reflect on and learn from their experience and
from others. It requires a planned approach to learning
in the context of evidence-based decision-making and improving program performance through evaluation and
analysis. A learning agenda should be flexible and also
reinforce and maximize efforts throughout the life of
a program. Once integrated into agency processes, the
agenda can help staff and partners learn rapidly to enable iterative course corrections and improvements.
Building an Evidence Infrastructure

Optimal development and use of evidence is made
possible by an integrated infrastructure. A strong evidence infrastructure requires a variety of capacities,
and developing and supporting the use of evidence and
evaluation in decision-making requires coordination
between those managing the operations of a program, including administrative data collection and maintenance,
and those responsible for using data and evaluation to
understand program effectiveness. It requires strong
leadership from multiple levels of an agency—policy officials, program administrators, performance managers,
strategic planning, policy and budget staff, evaluators,
and statistical staff—to ensure that data and evidence
are developed, analyzed, understood, and appropriately
acted upon. To build the capacity to generate and use
evidence, agencies should:
• Ensure that staff with appropriate analytic skills
and backgrounds are hired, supported, and effectively deployed.

• Safeguard

the ability of Federal principal statistical
agencies to objectively design, collect, process, edit, com-

pile, store, analyze, release, and disseminate data.

• Build

or support independent evaluation offices to
conduct rigorous, independent evaluations.

• Invest in improving administrative data infrastructure, access, and quality, including collecting better
quality data from entities receiving federal funding.

• Make better use of existing administrative data to
build evidence.

• Utilize

new tools and methods such as rapid-cycle
iterative evaluation and approaches that utilize behavioral science.

• Expand

the building and use of evidence in grant
programs.

• Partner with other agencies to share data or jointly
design and fund studies.

Centralized or chief evaluation offices play an important role in an evidence infrastructure that can develop
and sustain agency capacity to build and use evidence.
A recent Government Accountability Office (GAO) report
found that Federal agencies with a centralized evaluation
authority reported greater evaluation coverage of their
performance goals and were more likely to use evaluation
results in decision making1. Centralized or chief evaluation offices are often essential for ensuring that key
evidence and evaluation principles are reflected in practice. The establishment of a centralized evaluation office
and an official, public evaluation policy that reflects these
principles is a particularly strong and mutually reinforcing combination. A centralized office allows the agency to
credibly establish the independence and transparency of
its evaluation activity, develop the specialized expertise
required to implement rigorous evaluations, and have a
centralized entity responsible for coordinating and disseminating research findings.
The Federal evidence infrastructure plays a critical
role in supporting State and local efforts to build and use
evidence. For example, the Department of Education (ED)
has supported a suite of resources that helps States and
districts find and develop evidence-based education interventions that work for them, while strongly protecting
student privacy. The What Works Clearinghouse’s (WWC)
Find What Works tool allows educators and policymakers
to find education programs and interventions shown to
work in a particular context. The Regional Educational
Laboratories serve as the primary dissemination partner for the WWC while also helping States and localities
build and use evidence to improve student outcomes.
Where existing evidence is weak or nonexistent, States
and districts can use ED’s new “RCT-YES” and Rapid
Cycle Evaluation Coach tools to rigorously evaluate innovative, locally tailored educational practices and also
use the new CostOut tool to estimate an intervention’s
costs and cost-effectiveness. ED also provides more inten1 Government Accountability Office Publication No. 15-25, “Program
Evaluation: Some Agencies Reported that Networking, Hiring, and Involving Program Staff Help Build Capacity,” November 2014.

6. Building and Using Evidence to Improve Government Effectiveness

sive support at low cost through Research Collaborations
Grants, which funds partnerships between research institutions and State or local education agencies to promote
evidence-building on topics that have important implications for student outcomes, and through Low-Cost, Short
Duration Evaluations of Education Interventions Grants,
which support rigorous evaluations of education interventions that State or local education agencies believe will
provide meaningful improvements in student outcomes
within a short period of time. Since protecting student
privacy is an essential feature of all education research,
ED’s Privacy Technical Assistance Center provides timely
information and updated guidance on privacy, confidentiality, and security practices through a variety of resources,
including training materials and opportunities to receive
direct assistance with improving the privacy, security, and
confidentiality of longitudinal data systems.
Making Better Use of Administrative
Data to Build Evidence
Making better use of the administrative data—the data
government already collects—is an especially promising
strategy for building evidence. Administrative data are
data collected by government entities for program administration, transparency, regulatory, or law enforcement
purposes. Administrative data, especially when linked
across programs or to survey data, can often make both
performance measurement and rigorous program evaluations more informative, less costly, and less burdensome
to data providers. Federal and state administrative data
include rich information on labor market outcomes, health
care, criminal justice, housing, and other important topics, but they are often greatly underutilized in evaluating
program effects as well as in day-to-day performance measurement and for informing the public about how society
and the economy are faring. Given this, a critical part of
an evidence infrastructure is helping agencies make better use of administrative data while ensuring individual
privacy and data security.
In recent years, Federal agencies have steadily made
progress improving the use of administrative data for
evidence building. Some agencies are creating capacity
to support research and evaluation in a particular policy
area, but most Federal agencies could make greater use
of administrative data to build evidence or allow those
outside government to do so. In addition, many agencies
have data that would be useful to other agencies, other
levels of government, or outside researchers and citizens
to help understand and improve programs. Yet not all
agencies have the technological infrastructure, legislative authority, or expertise needed to utilize, share, or
link data themselves, nor does it make sense to duplicate
these capacities at every agency.
Federal statistical agencies already play a leading role
in bringing together data from multiple sources while
protecting privacy, confidentiality, and data security.
Statistical agencies use data to create a wide variety of
statistical products that can be securely accessed by researchers inside and outside of government to conduct

57

a broad array of policy- and program-relevant analyses.
High-capacity statistical agencies have partnered with
other Federal agencies to link and analyze administrative and survey data for evidence building purposes.
For example, the work of the Census Bureau’s Center
for Administrative Records Research and Applications
(CARRA) builds on the Bureau’s existing strengths by developing a comprehensive infrastructure to prepare and
share administrative data. The Census Bureau’s infrastructure links a variety of different data sets, allowing
pilot projects to measure outcomes such as mobility, earnings, and employment. Current pilots are measuring labor
market outcomes for individuals with former military service and those who obtained manufacturing credentials,
and the Census Bureau continues to enhance its secure
infrastructure for processing and linking data sets to support evidence-building pilots. Partnerships such as these
build on the critical capacities that statistical agencies
already have in order to make better use of existing data
without creating unnecessary duplication.
Using a Portfolio of Evidence
The credible use of evidence in decision-making requires an understanding of what conclusions can and,
equally important, cannot be drawn from the information.
Evidence should be rigorous, relevant, transparent, independent, and generated in an ethical manner. Evidence
has varying degrees of credibility, and the strongest evidence generally comes from a portfolio of high-quality
evidence rather than a single study or data point, i.e., from
multiple sources and/or multiple studies covering different aspects and nuances of the topic. Whenever possible,
critical decisions should be made based on a body of evidence that has been generated about a particular topic or
intervention. One example is the Reemployment Services
and Eligibility Assessments (RESEA) program at the
Department of Labor. The program was originally created
in 2005 and was aimed at reducing improper payments
in the Unemployment Insurance (UI) program. Initial research of this program suggested that it was effective at
reducing State’s UI benefit costs, often in excess of the program’s cost. A 2011 random assignment evaluation again
showed the program’s cost-effectiveness, particularly in
Nevada, which was providing more intensive reemployment services and reducing UI benefit costs at a higher
rate than the other states studied, more than offsetting
the additional program costs. A follow-up evaluation of
the Nevada program demonstrated that the intensive reemployment services were helping participants get back
to work faster and at higher wages than the control group
of UI claimants. As a result of this research, Congress
increased appropriations for the program, ultimately
approving an expanded national program more closely
resembling Nevada’s. The FY 2018 Budget proposes to
continue this expansion of the RESEA program by proposing mandatory funding to provide these services to the
one-half of UI claimants profiled as most likely to exhaust
benefits before returning to employment.

58
Conclusion
There has been meaningful progress in recent years
toward building and using evidence for better government, and a bipartisan consensus has emerged regarding
the need for further progress. This is especially the case
when considering the potential for using existing administrative data for research and evaluation. The bipartisan
Commission on Evidence-Based Policymaking is considering how data, research, and evaluation are currently
used to build evidence and improve public programs
and policies, and how to strengthen evidence-building

ANALYTICAL PERSPECTIVES

to inform program and policy design and implementation. The Commission will present its recommendations
this Fall, and the Administration looks forward to working with Congress to increase the production and use
of evidence throughout the government and for public
use. More and better use of evidence would allow us to
determine where needs are greatest, and what programs
are and are not working and why, in order to develop a
more effective and efficient Federal government. Using
evidence to improve government is what taxpayers expect—smart and careful use of limited resources to best
address national priorities.

7. STRENGTHENING THE FEDERAL WORKFORCE
The Federal Workforce Today
The Federal Government has more than 2.1 million
civilian workers and 1.3 million active duty military
serving throughout the country and the world. Chart 7-1
broadly shows the personnel trends in the Federal security related agencies (inclusive of the Departments of
Defense, Homeland Security, Justice, State, and Veterans
Affairs) and non-security agencies, in comparison to state
and local governments and the private sector.
Table 7-1 shows actual Federal civilian full-time equivalent (FTE) levels in the Executive Branch by agency
for fiscal years (FY) 2015 and 2016, with estimates for
2017 and 2018. When it comes to the FTE estimates for
2017, note that at the time the Budget was prepared,
only one of the annual appropriations bills had been enacted. Funding provided for the remaining 2017 annual
appropriations bills were operating under a continuing
resolution, and FTE estimates reflect this funding. Actual
2017 FTE levels are likely to be different, to account for
final appropriations, administrative decisions within
agencies, and other factors.
Estimated employment levels for 2018 are higher
than the 2016 actual FTE levels, but a decrease from
the 2017 estimates, all of which are around 2.1 million
civilian employees. From 2017 to 2018, increases totaling approximately 23,000 FTE are seen across 7 of the
24 Chief Financial Officers (CFO) Act agencies, and decreases totaling approximately 24,000 FTE occur across
17 of the CFO Act agencies. The increases are primarily
driven by growth of civilians in three security-related
agencies (Departments of Defense, Veterans Affairs and
Homeland Security). Table 7-2 shows actual 2016 total
and estimated 2017 and 2018 total Federal employment,
including the Uniformed Military, Postal Service, Judicial
and Legislative branches.
Total compensation (pay and personnel benefits) is
summarized in Table 7-3. A Congressional Budget Office
(CBO) April 2017 report found Federal employees on average received a combined 17 percent higher wage and
benefits package than the private sector average over the
2011-2015 time period. However, that represented a range
that was broken down by educational level. Taking into
account educational level, employees with a professional
degree received about 18 percent less in total compensation, while those with a high school degree or less received
53 percent higher total compensation.
The Federal government continues to offer a generous
package of retirement benefits. CBO found that on average the cost of benefits was 47 percent higher for Federal
civilian employees than for private-sector employees,
with the Federal defined benefit pension plan (a predetermined set amount regardless of market fluctuation) being
the most important contributing factor to cost differences

between the two sectors. Consistent with the goal of reining in Federal government spending in many areas, as
well as to bring Federal retirement benefits more in line
with the private sector, adjustments to reduce the long
term costs associated with these benefits are included
in this Budget. These proposals include: increasing employee payments to the defined benefit Federal Employee
Retirement System (FERS) pension such that the employee will generally be paying the same amount as the
employing agency; and, reducing or eliminating cost
of living adjustments for existing and future retirees.
Increases to employee pension contributions would be
phased in at a rate of one percent per year to lessen the
impact on existing Federal employees.
Chart 7-5 shows how Federal pay raises have compared to increases in private sector wages since 1978. The
Administration proposes a 1.9 percent pay increase for
Federal civilian employees, and a 2.1 percent pay increase
for uniformed service members for calendar year 2018.
Using data from the Bureau of Labor Statistics on fulltime, full-year workers, Table 7-4 breaks all Federal and
private sector jobs into 22 occupation groups to demonstrate the differences in composition between the Federal
and private workforces. Charts 7-2 and 7-3 present trends
in educational levels for the Federal and private sector
workforces over the past two decades. Chart 7-4 shows
the trends in average age in both the Federal and private
sectors over the past two decades.
In 2016 (as of September 2016), the Federal workforce
is 63.6 percent White, 18.4 percent Black, 8.6 percent
Hispanic, 5.8 percent Asian, 0.5 percent Native Hawaiian/
Pacific Islander, 1.6 percent American Indian/Alaska
Native, and 1.4 percent Non-Hispanic/Multi-Racial. Men
comprised 56.8 percent of all Federal permanent employees and women 43.2 percent. Veterans are 31.1 percent
of the entire Federal workforce, with 12.7 percent of the
veterans disabled. By comparison, veterans comprise
approximately 6 percent of the private sector non-agricultural workforce.
The Federal Workforce Going Forward
Despite growing citizen dissatisfaction with the cost
and performance of the Federal government, too often the
focus has been on creating new programs instead of eliminating or reforming ineffective programs. The result has
been too many overlapping and outdated programs, rules,
and processes, and Federal employees stuck in a system
that is not working. The Federal government should be
lean, accountable, and more effective.
To begin addressing this challenge, on January 23,
2017, the President issued a Presidential Memorandum
(Hiring Freeze PM) imposing a Federal “Hiring Freeze.”

59

60

ANALYTICAL PERSPECTIVES

Chart 7-1. Changes from 1975 to 2016 in
Employment/Population by Sector
50%
Federal - Security

40%

Federal - Non-Security

Private Sector

State & Local

30%
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
1975

1980

1985

1990

1995

2000

2005

2010

2015

Source: Office of Personnel Management and the Bureau of Labor Statistics.
Notes: Federal excludes the military and Postal Service. Security agencies include
the Department of Defense, the Department of Homeland Security, the Department
of State, and the Department of Veterans Affairs. Non-Security agencies include the
remainder of the Executive Branch. State & Local excludes educational workers.

This ensured immediate action was taken to halt the
growth of the Federal workforce until a “long-term plan
to reduce the size of the Federal Government’s workforce”
was put in place. On March 16, 2017, the President submitted his Budget Blueprint to Congress proposing to
eliminate funding for programs that are unnecessary, outdated, or not working. Additionally, on March 13, 2017, the
President issued an Executive Order (Reorganization EO)
directing the Office of Management and Budget (OMB)
to submit a comprehensive plan to reorganize Executive
Branch departments and agencies. OMB Memorandum
M-17-22, “Comprehensive Plan for Reforming the
Federal Government and Reducing the Federal Civilian
Workforce,” provided agencies with guidance on fulfilling the requirements of the Hiring Freeze PM and the
Reorganization EO while aligning those initiatives with
the Federal budget and performance planning processes.
OMB directed agencies to identify workforce reductions
over a four-year period (FY 2018 through 2022) consistent
with forthcoming OMB guidance on 2019 Budget submissions. The Agency Reform Plans combined with public
input and cross-cutting proposals developed by OMB will
inform a Government-wide Reform Plan that will be published as part of the President’s 2019 Budget in February
2018.
Examining the Government’s Mission
As discussed above, the Reorganization EO and
the Hiring Freeze PM directed the development of a
Government-wide Reform Plan for the Executive Branch,
including a long-term plan to reduce the Federal workforce. The objectives of this broad reform effort are to:
1) create a lean, accountable, more efficient government
that works for the American people; 2) focus the Federal
government on effectively and efficiently delivering those

programs that are the highest needs to citizens and where
there is a unique Federal role rather than assuming current programs are optimally designed or even needed; 3)
align the Federal workforce to meet the needs of today
and the future rather than the requirements of the past;
and 4) strengthen agencies by removing barriers that hinder front-line employees from delivering results.
Agencies are drafting Agency Reform Plans that fundamentally examine the agency’s mission, as well as
rethinking how the Federal government can deliver services to its customers, and evaluating options on both
cost and quality dimensions. Agencies’ analyses are
based on several factors, including whether a function
is: duplicative, essential, appropriate as a Federal role,
cost-beneficial, efficient and effective, and providing an
adequate level of customer service. This analysis will
help drive operational changes to improve performance,
efficiency, and effectiveness and it will inform agencydriven assessments about whether to restructure, merge,
or eliminate certain functions and programs.
For example, the growth of the Federal government has
included programs and functions that may be better delivered by the private sector, non-profits, or local, state,
or tribal governments. In these instances, an Agency
Reform Plan might identify these functions and include
a plan for divesting these functions to more appropriate
entities. In other instances, Federal agencies or programs
may have outlived their initial purpose and are performing work that no longer meet the needs of the American
public. In some cases, programs were created without the
knowledge or coordination of similar programs in other agencies. This has resulted in duplicative programs
and functions—such as 16 Federal agencies responsible
for food safety, according to the annual Government
Accountability Office report on opportunities to reduce

61

7. Strengthening the Federal Workforce

Table 7–1. FEDERAL CIVILIAN EMPLOYMENT IN THE EXECUTIVE BRANCH
(Civilian employment as measured by full-time equivalents (FTE) in thousands, excluding the Postal Service)
Agency
Cabinet agencies
Agriculture �����������������������������������������������������������������������������������������������������
Commerce �����������������������������������������������������������������������������������������������������
Defense--Military Programs ���������������������������������������������������������������������������
Education �������������������������������������������������������������������������������������������������������
Energy �����������������������������������������������������������������������������������������������������������
Health and Human Services ��������������������������������������������������������������������������
Homeland Security ����������������������������������������������������������������������������������������
Housing and Urban Development ������������������������������������������������������������������
Interior �����������������������������������������������������������������������������������������������������������
Justice �����������������������������������������������������������������������������������������������������������
Labor �������������������������������������������������������������������������������������������������������������
State ��������������������������������������������������������������������������������������������������������������
Transportation ������������������������������������������������������������������������������������������������
Treasury ���������������������������������������������������������������������������������������������������������
Veterans Affairs ���������������������������������������������������������������������������������������������
Other agencies -- excluding Postal Service
Broadcasting Board of Governors �����������������������������������������������������������������
Bureau of Consumer Financial Protection �����������������������������������������������������
Corps of Engineers--Civil Works �������������������������������������������������������������������
Environmental Protection Agency �����������������������������������������������������������������
Equal Employment Opportunity Commission ������������������������������������������������
Federal Communications Commission ����������������������������������������������������������
Federal Deposit Insurance Corporation ���������������������������������������������������������
Federal Trade Commission ����������������������������������������������������������������������������
General Services Administration �������������������������������������������������������������������
International Assistance Programs ����������������������������������������������������������������
National Aeronautics and Space Administration �������������������������������������������
National Archives and Records Administration ���������������������������������������������
National Credit Union Administration �������������������������������������������������������������
National Labor Relations Board ���������������������������������������������������������������������
National Science Foundation �������������������������������������������������������������������������
Nuclear Regulatory Commission �������������������������������������������������������������������
Office of Personnel Management ������������������������������������������������������������������
Securities and Exchange Commission ����������������������������������������������������������
Small Business Administration ����������������������������������������������������������������������
Smithsonian Institution ����������������������������������������������������������������������������������
Social Security Administration �����������������������������������������������������������������������
Tennessee Valley Authority ����������������������������������������������������������������������������
All other small agencies ���������������������������������������������������������������������������������
Total, Executive Branch civilian employment �����������������������������������������������������
* 50 or less.

Actual
2015

Estimate
2016

2017

Change: 2017 to 2018
2018

FTE

Percent

85.9
40.4
725.0
4.1
14.7
70.6
179.3
8.3
63.5
113.6
16.6
34.0
54.3
95.1
335.3

86.8
40.3
725.3
4.1
14.9
72.6
183.5
8.0
64.2
114.9
16.5
32.1
54.3
93.4
345.1

88.4
43.6
730.6
4.2
15.5
74.6
181.3
7.9
64.0
118.6
16.3
33.8
55.4
93.1
356.4

83.8
42.6
740.1
4.0
15.2
75.1
189.3
7.7
60.0
116.2
15.9
32.4
55.3
87.3
364.1

–4.6
–1.0
9.4
–0.2
–0.2
0.5
8.0
–0.2
–4.1
–2.4
–0.4
–1.4
–0.2
–5.9
7.8

–5.2%
–2.2%
1.3%
–3.8%
–1.4%
0.7%
4.4%
–2.7%
–6.3%
–2.1%
–2.3%
–4.0%
–0.3%
–6.3%
2.2%

1.7
1.5
21.6
14.7
2.2
1.7
6.8
1.1
11.1
5.6
17.3
2.8
1.2
1.6
1.4
3.7
5.0
4.3
3.1
4.9
63.9
10.9
13.2
2,042.0

1.6
1.6
21.8
14.7
2.2
1.6
6.5
1.2
11.2
5.7
17.1
2.9
1.2
1.5
1.4
3.5
5.1
4.6
3.2
4.9
63.7
10.7
13.4
2,057.3

1.7
1.7
21.9
15.5
2.1
1.6
6.8
1.2
12.1
5.7
17.4
2.9
1.2
1.6
1.4
3.6
5.7
4.6
3.3
5.2
61.7
10.7
13.9
2,087.0

1.6
1.6
21.9
11.7
2.0
1.4
6.7
1.1
11.6
5.3
17.3
2.8
1.2
1.3
1.4
3.3
5.9
4.5
3.2
5.1
62.0
10.3
13.6
2,086.0

–0.1
–0.2
.........
–3.8
–0.1
–0.2
–0.1
–*
–0.5
–0.4
–*
–0.1
–*
–0.3
*
–0.3
0.2
–0.1
–0.1
–*
0.3
–0.3
–0.3
–1.0

–6.5%
–9.3%
.........
–24.3%
–6.2%
–12.2%
–1.3%
–1.9%
–3.9%
–7.3%
–0.2%
–2.4%
–1.8%
–17.3%
0.1%
–8.6%
4.1%
–2.0%
–1.7%
–0.5%
0.5%
–3.0%
–2.2%
–*

duplication, overlap or fragmentation in Government. In
other cases, the complex web of agencies and programs
with the same nominal purpose adds unnecessary burden
to the public, as it becomes unclear which agency a citizen
or business needs to turn to when seeking Government
services. While these programs may be well-intentioned,
they inhibit the Government from achieving the best results with limited resources. In developing their Agency
Reform Plans, agencies will consider each of these scenarios and identify steps for creating a leaner, accountable,
more efficient government.

This review of agency missions and scopes of function
is a critical step to ensure we are building the workforce
needed for the future rather than the past.
Building Organizational
Effectiveness and Efficiency
As the Administration reviews the mission and scope
of Federal Government, organizations must ensure they
have the resources and skills to deliver on the mission.
To ensure resources are used effectively and efficiently,
agencies are working on proposals outlining ways that

62

ANALYTICAL PERSPECTIVES

Chart 7-2. Masters Degree or Above By Year for
Federal and Private Sector
30%

Federal
Private Sector All Firms

25%

Private Sector Large Firms

20%
15%
10%
5%
0%

1992 1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Source: 1992-2016 Current Population Survey, Integrated Public Use Microdata
Series.
Notes: Federal excludes the military and Postal Service, but includes all other
Federal workers. Private Sector excludes the self-employed. Neither category includes
State and local government workers. Large firms have at least 1,000 workers. This
analysis is limited to full-time, full-year workers, i.e. those with at least 1,500 annual
hours of work and presents five-year averages. Educational attainment is as of March
in the year following the year on the horizontal axis.

they could: better use technology and improve underlying
business processes; streamline and eliminate processes;
shift to alternative delivery models; streamline missionsupport functions; leverage existing solutions for common
requirements; and build a portfolio of evidence to show
“what works.”

The Administration will explore how to improve effectiveness and efficiency based on what will work best
within each operational context. While the typical shared
service and contracting strategies are available (and are
encouraged to the extent practicable), there is flexibility
for agencies to propose creative alternative delivery solutions such as co-location of facilities and services, increased

Table 7–2. TOTAL FEDERAL EMPLOYMENT
(As measured by Full-Time Equivalents)
Description

2016
Actual

2017
Estimate

2018
Estimate

Change: 2017 to 2018
FTE

PERCENT

Executive Branch Civilian:
All Agencies, Except Postal Service ��������������������������������������������������������������������������������������������������������
Postal Service 1 ����������������������������������������������������������������������������������������������������������������������������������������
Subtotal, Executive Branch Civilian ����������������������������������������������������������������������������������������������������

2,057,256
632,276
2,689,532

2,086,959
588,965
2,675,924

2,085,973
588,380
2,674,353

–986
–585
–1,571

–*
–0.1%
0.1%

Executive Branch Uniformed Military:
Department of Defense 2 ������������������������������������������������������������������������������������������������������������������������
Department of Homeland Security (USCG) ��������������������������������������������������������������������������������������������
Commissioned Corps (DOC, EPA, HHS) ������������������������������������������������������������������������������������������������
Subtotal, Uniformed Military ���������������������������������������������������������������������������������������������������������������

1,343,801
39,992
6,910
1,390,703

1,336,589
40,045
6,930
1,383,564

1,352,081
41,460
7,060
1,400,601

15,492
1,415
130
17,037

1.1%
3.4%
1.8%
1.2%

Subtotal, Executive Branch �����������������������������������������������������������������������������������������������������������������

4,080,235

4,059,488

4,074,954

15,466

0.4%

Legislative Branch 3 ��������������������������������������������������������������������������������������������������������������������������������������

29,718

33,154

33,530

376

1.1%

Judicial Branch ���������������������������������������������������������������������������������������������������������������������������������������������

32,657

33,197

33,541

344

1.0%

Grand Total �����������������������������������������������������������������������������������������������������������������������������������������
4,142,610
4,125,839
4,142,025
16,186
Postal Rate Commission.
2 Includes activated Guard and Reserve members on active duty. Does not include Full-Time Support (Active Guard & Reserve (AGRSs)) paid from Reserve Component
appropriations.
3 FTE data not available for the Senate (positions filled were used for actual year and extended at same level).
* Non-zero less than 0.1%
1 Includes

0.4%

63

7. Strengthening the Federal Workforce

Chart 7-3. High School Graduate or Less By Year
for Federal and Private Sectors
60%
Federal

Private Sector All Firms

Private Sector Large Firms

50%
40%
30%
20%
10%
1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Source: 1992-2016 Current Population Survey, Integrated Public Use Microdata
Series.
Notes: Federal excludes the military and Postal Service, but includes all other
Federal workers. Private Sector excludes the self-employed. Neither category
includes State and local government workers. Large firms have at least 1,000 workers.
This analysis is limited to full-time, full-year workers, i.e. those with at least 1,500
annual hours of work and presents five-year averages. Educational attainment is as of
March in the year following the year on the horizontal axis.

online service delivery, and inter-agency alignment of services. As agencies are fundamentally rethinking missions
and operations, these proposals may alter the composition
of skills necessary for the workforce of the future.

48

Reshaping the Workforce
Any meaningful discussion of Government reform
must include an examination of the Federal workforce to
ensure it is aligned to meet the needs of today and the
future, rather than adhering to requirements of the past

Chart 7-4. Average Age by Year for Federal and
Private Sectors
Federal

Private Sector All Firms

Private Sector Large Firms

46
44
42
40
38
36
1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Source: 1992-2016 Current Population Survey, Integrated Public Use Microdata
Series.
Notes: Federal excludes the military and Postal Service, but includes all other Federal
workers. Private Sector excludes the self-employed. Neither category includes State
and local government workers. Large firms have at least 1,000 workers. This analysis is
limited to full-time, full-year workers, i.e. those with at least 1,500 annual hours of work
and presents five-year averages. Educational attainment is as of March in the year
following the year on the horizontal axis.

64

ANALYTICAL PERSPECTIVES

2%

Chart 7-5. Pay Raises for Federal vs.
Private Workforce

0%
-2%
FEPCA Passed

-4%
-6%
-8%
-10%

Including Increases in Retirement
Contributions for New Employees
Changes in Federal Pay
Scale Relative to Private Pay

1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017

Source: Public Laws, Executive Orders, and the Bureau of Labor Statistics.
Notes: Federal pay is for civilians and includes base and locality pay. Private pay is
measured by the Employment Cost Index wages and salaries, private industry workers
series, lagged 15 months. In 1993 and 2017 no difference existed between the sectors.

that are obsolete. The Hiring Freeze PM put a pause on
the hiring of Federal civilian employees across the board
in the Executive Branch, while requiring OMB to develop recommendations for a Government-wide long-term
workforce reduction plan. The hiring pause allowed the
Administration to take the first steps toward a thoughtful
effort to reshape the Federal workforce to more optimally
meet mission and functional needs. The Hiring Freeze
PM applied to all executive departments and agencies
regardless of the sources of their operational and programmatic funding, but not to military personnel in the
Armed Forces. The Administration allowed exceptions to
ensure public safety and security, as well as certain exemptions for critical functions. The hiring freeze ended
April 12, 2017 with a requirement for agencies to begin
working on long-term Agency Reform Plans to reduce the
size of the Federal civilian workforce. Agency plans will be
incorporated into a Government-wide Reform Plan.
To lift the hiring freeze, OMB also required agencies to take action immediately to achieve near-term
workforce reductions and savings, including planning for budget levels that were released in the 2018
Budget Blueprint, and consistent with budget levels in
this full 2018 Budget. Agency Heads maintained the
discretion to determine the best method to accomplish
this task. Notably, agencies were asked to examine the
total cost of their operations (and not just FTE counts
or headcounts) to incentivize more optimal operational
decisions. Agency long-term planning must be done
within the broader reorganization effort to align the
civilian workforce to evolving needs.
As agencies look at how they can operate more efficiently and effectively, it is important to continue monitoring
employee engagement as a key indicator of success. The
Office of Personnel Management will continue the annual
Federal Employee Viewpoint Survey (FEVS), a collection
of 84 questions that measure employees’ perceptions of

whether, and to what extent, conditions characterizing
successful organizations are present in their agencies.
Using the FEVS results, agencies will continue to monitor employee engagement trends, using an aggregate
Employee Engagement Index derived from a subset of the
questions, as well as trends in additional questions relating to other facets of organizational effectiveness.
In 2016, agencies were able to analyze data from more
than 20,000 distinct work units across the Federal government, which allows for insight into the workforce.
The 2016 survey found that while many work units and
agencies had a highly engaged workforce, others need
leadership and management attention. One issue that
is common across agencies is that fewer than 30 percent
of employees believe managers will address a poor performer who cannot or will not improve.
While FEVS results generally show that managers are
not always perceived by employees as effectively managing
performance issues, it is important to note that supervisors
and agency managers find personnel processes overly complex and difficult to navigate. Most agencies are subject to
more than 3,400 Federal personnel regulatory provisions.
Agency human resources staff are familiar with many, but
often not all, of the rules. This voluminous set of regulations becomes a barrier to managers when it comes to basic
human resources functions, including hiring top talent or
dealing with poorly performing employees.
Rewarding top performers and dealing with poor performers is key to effectively managing the workforce. To
directly address this seemingly intractable problem, all
agencies must: review their employee performance management policies; provide management with training on
how to address performance and conduct issues; eliminate non-statutory barriers to removing those who do not
improve; and develop a mechanism to provide managers
with real-time guidance to ensure managers take the appropriate steps. Poor performers and those with conduct

65

7. Strengthening the Federal Workforce

Table 7–3. PERSONNEL PAY AND BENEFITS
(In millions of dollars)
Description

2016 Actual

2017
Estimate

2018
Estimate

Change: 2017 to 2018
Dollars

Percent

Civilian Personnel Costs:
Executive Branch (excluding Postal Service):
Pay ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Benefits ��������������������������������������������������������������������������������������������������������������������������������������������������������������������
Subtotal ���������������������������������������������������������������������������������������������������������������������������������������������������������������

181,206
74,580
255,786

189,584
77,809
267,393

195,929
79,908
275,837

6,345
2,099
8,444

3.3%
2.7%
3.2%

Postal Service:
Pay ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Benefits ��������������������������������������������������������������������������������������������������������������������������������������������������������������������
Subtotal ���������������������������������������������������������������������������������������������������������������������������������������������������������������

36,208
19,051
55,259

35,853
18,967
54,820

35,768
18,177
53,945

-85
-790
-875

-0.2%
-4.2%
-1.6%

Legislative Branch:
Pay ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Benefits ��������������������������������������������������������������������������������������������������������������������������������������������������������������������
Subtotal ���������������������������������������������������������������������������������������������������������������������������������������������������������������

2,036
614
2,650

2,147
680
2,827

2,228
709
2,937

81
29
110

3.8%
4.3%
3.9%

Judicial Branch:
Pay ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Benefits ��������������������������������������������������������������������������������������������������������������������������������������������������������������������
Subtotal ���������������������������������������������������������������������������������������������������������������������������������������������������������������

3,095
988
4,083

3,375
1,047
4,422

3,418
1,073
4,491

43
26
69

1.3%
2.5%
1.6%

Total, Civilian Personnel Costs ������������������������������������������������������������������������������������������������������������������������������������������

317,778

329,462

337,210

7,748

2.4%

Department of Defense--Military Programs:
Pay ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Benefits ��������������������������������������������������������������������������������������������������������������������������������������������������������������������
Subtotal ���������������������������������������������������������������������������������������������������������������������������������������������������������������

96,160
44,135
140,295

96,118
44,261
140,379

97,856
43,693
141,549

1,738
-568
1,170

1.8%
-1.3%
0.8%

All other Executive Branch uniform personnel:
Pay ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Benefits ��������������������������������������������������������������������������������������������������������������������������������������������������������������������
Subtotal ���������������������������������������������������������������������������������������������������������������������������������������������������������������

3,294
720
4,014

3,317
698
4,015

3,358
698
4,056

41
--41

1.2%
--1.0%

Total, Military Personnel Costs ������������������������������������������������������������������������������������������������������������������������������������������

144,309

144,394

145,605

1,211

0.8%

Grand total, personnel costs ������������������������������������������������������������������������������������������������������������������������������������������

462,087

473,856

482,815

8,959

1.9%

Former Civilian Personnel:
Pensions ������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Health benefits ���������������������������������������������������������������������������������������������������������������������������������������������������������������
Life insurance ����������������������������������������������������������������������������������������������������������������������������������������������������������������
Subtotal ���������������������������������������������������������������������������������������������������������������������������������������������������������������

83,390
11,695
45
95,130

84,326
12,004
47
96,377

86,468
12,984
48
99,500

2,142
980
1
3,123

2.5%
8.2%
2.1%
3.2%

Former Military Personnel:
Pensions ������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Health benefits ���������������������������������������������������������������������������������������������������������������������������������������������������������������
Subtotal ���������������������������������������������������������������������������������������������������������������������������������������������������������������
Total, Former Personnel ����������������������������������������������������������������������������������������������������������������������������������������������������

57,303
9,629
66,932
162,062

57,828
9,898
67,726
164,103

58,771
10,413
69,184
168,684

943
515
1,458
4,581

1.6%
5.2%
2.2%
2.8%

Military Personnel Costs

ADDENDUM

problems have long tainted the positive contributions
of the vast majority of the Federal workforce. Managers
spend a disproportionate amount of time addressing
these individuals while the rest of the team must work
harder to accomplish their mission. Freeing the manag-

ers and employees from the extra burden will allow more
time and resources to developing and rewarding the rest
of the workforce. Dispelling the myth that it is nearly
impossible to hold employees accountable in the Federal
government will enhance credibility and respect for the

66

ANALYTICAL PERSPECTIVES

Table 7–4. OCCUPATIONS OF FEDERAL AND PRIVATE SECTOR WORKFORCES
(Grouped by Average Private Sector Salary)
Percent
Occupational Groups

Federal
Workers

Private Sector
Workers

Highest Paid Occupations Ranked by Private Sector Salary
Lawyers and judges ��������������������������������������������������������������������������������������������������������������
Engineers �����������������������������������������������������������������������������������������������������������������������������
Scientists and social scientists ���������������������������������������������������������������������������������������������
Managers ������������������������������������������������������������������������������������������������������������������������������
Pilots, conductors, and related mechanics ���������������������������������������������������������������������������
Doctors, nurses, psychologists, etc. �������������������������������������������������������������������������������������
Miscellaneous professionals ������������������������������������������������������������������������������������������������
Administrators, accountants, HR personnel �������������������������������������������������������������������������
Inspectors �����������������������������������������������������������������������������������������������������������������������������

2.1%
4.5%
5.0%
12.2%
2.1%
7.2%
16.0%
6.3%
1.1%

0.6%
1.9%
0.7%
13.9%
0.5%
6.4%
9.0%
2.7%
0.3%

Total Percentage ���������������������������������������������������������������������������������������������������������������������

56.5%

36.0%

Medium Paid Occupations Ranked by Private Sector Salary
Sales including real estate, insurance agents ����������������������������������������������������������������������
Other miscellaneous occupations �����������������������������������������������������������������������������������������
Automobile and other mechanics �����������������������������������������������������������������������������������������
Law enforcement and related occupations ���������������������������������������������������������������������������
Office workers �����������������������������������������������������������������������������������������������������������������������
Social workers ����������������������������������������������������������������������������������������������������������������������
Drivers of trucks and taxis ����������������������������������������������������������������������������������������������������
Laborers and construction workers ��������������������������������������������������������������������������������������
Clerks and administrative assistants ������������������������������������������������������������������������������������
Manufacturing �����������������������������������������������������������������������������������������������������������������������

1.2%
3.3%
1.7%
9.1%
2.3%
1.6%
0.8%
3.1%
13.2%
2.8%

6.2%
4.5%
3.1%
0.7%
5.8%
0.5%
3.3%
9.6%
10.6%
7.5%

Total Percentage ���������������������������������������������������������������������������������������������������������������������

39.1%

51.8%

Lowest Paid Occupations Ranked by Private Sector Salary
Other miscellaneous service workers �����������������������������������������������������������������������������������
Janitors and housekeepers ��������������������������������������������������������������������������������������������������
Cooks, bartenders, bakers, and wait staff ����������������������������������������������������������������������������

2.3%
1.4%
0.8%

5.9%
2.4%
4.0%

Total Percentage ���������������������������������������������������������������������������������������������������������������������
4.5%
12.2%
Source: 2012–2016 Current Population Survey, Integrated Public Use Microdata Series.
Notes: Federal workers exclude the military and Postal Service, but include all other Federal workers in the Executive,
Legislative, and Judicial Branches. However, the vast majority of these employees are civil servants in the Executive Branch.
Private sector workers exclude the self-employed. Neither category includes state and local government workers. This
analysis is limited to full-time, full-year workers, i.e. those with at least 1,500 annual hours of work.

many employees who uphold the nation’s values for public service every day.
Fixing human capital issues that have developed over
generations is complex and will take time to unwind and
rebuild. Overall, the Administration is examining administratively burdensome agency activities and processes,
including barriers to efficient human capital management

that exist in policy, legislation, and regulation. There is
a commitment to advocating for policies to help agencies
manage their workforce in a more agile manner, reducing barriers employees face in their jobs, and providing
flexibilities for agency leadership and management that
will allow managers to adopt practices that are common
in high performing organizations.

BUDGET CONCEPTS AND BUDGET PROCESS

67

8. BUDGET CONCEPTS

The budget system of the United States Government
provides the means for the President and the Congress
to decide how much money to spend, what to spend it
on, and how to raise the money they have decided to
spend. Through the budget system, they determine the
allocation of resources among the agencies of the Federal
Government and between the Federal Government and
the private sector. The budget system focuses primarily on dollars, but it also allocates other resources, such
as Federal employment. The decisions made in the budget process affect the Nation as a whole, State and local
governments, and individual Americans. Many budget
decisions have worldwide significance. The Congress and
the President enact budget decisions into law. The budget
system ensures that these laws are carried out.
This chapter provides an overview of the budget system
and explains some of the more important budget concepts.
It includes summary dollar amounts to illustrate major
concepts. Other chapters of the budget documents discuss

these amounts and more detailed amounts in greater
depth.
The following section discusses the budget process,
covering formulation of the President’s Budget, action
by the Congress, and execution of enacted budget laws.
The next section provides information on budget coverage, including a discussion of on-budget and off-budget
amounts, functional classification, presentation of budget
data, types of funds, and full-cost budgeting. Subsequent
sections discuss the concepts of receipts and collections,
budget authority, and outlays. These sections are followed
by discussions of Federal credit; surpluses, deficits, and
means of financing; Federal employment; and the basis
for the budget figures. A glossary of budget terms appears
at the end of the chapter.
Various laws, enacted to carry out requirements of the
Constitution, govern the budget system. The chapter refers to the principal ones by title throughout the text and
gives complete citations in the section just preceding the
glossary.

THE BUDGET PROCESS
The budget process has three main phases, each of
which is related to the others:
1. Formulation of the President’s Budget;
2. Action by the Congress; and
3. Execution of enacted budget laws.
Formulation of the President’s Budget
The Budget of the United States Government consists
of several volumes that set forth the President’s fiscal
policy goals and priorities for the allocation of resources
by the Government. The primary focus of the Budget is
on the budget year—the next fiscal year for which the
Congress needs to make appropriations, in this case 2018.
(Fiscal year 2018 will begin on October 1, 2017, and end
on September 30, 2018.) The Budget also covers the nine
years following the budget year in order to reflect the effect
of budget decisions over the longer term. It includes the
funding levels provided for the current year, in this case
2017, which allows the reader to compare the President’s
Budget proposals with the most recently enacted levels.
The Budget also includes data on the most recently completed fiscal year, in this case 2016, so that the reader can
compare budget estimates to actual accounting data.
In a normal year, the President begins the process of
formulating the budget by establishing general budget

and fiscal policy guidelines, usually by the spring of each
year, at least nine months before the President transmits
the budget to the Congress and at least 18 months before
the fiscal year begins. (See the “Budget Calendar” later
in this chapter.) Based on these guidelines, the Office of
Management and Budget (OMB) works with the Federal
agencies to establish specific policy directions and planning levels to guide the preparation of their budget
requests.
During the formulation of the budget, the President,
the Director of OMB, and other officials in the Executive
Office of the President continually exchange information,
proposals, and evaluations bearing on policy decisions
with the Secretaries of the departments and the heads
of the other Government agencies. Decisions reflected in
previously enacted budgets, including the one for the fiscal year in progress, reactions to the last proposed budget
(which the Congress is considering at the same time the
process of preparing the forthcoming budget begins), and
evaluations of program performance all influence decisions concerning the forthcoming budget, as do projections
of the economic outlook, prepared jointly by the Council of
Economic Advisers, OMB, and the Treasury Department.
In early fall, agencies submit their budget requests to
OMB, where analysts review them and identify issues
that OMB officials need to discuss with the agencies.
OMB and the agencies resolve many issues themselves.
Others require the involvement of White House policy officials and the President. This decision-making process
is usually completed by late December. At that time, the

69

70

ANALYTICAL PERSPECTIVES

final stage of developing detailed budget data and the
preparation of the budget documents begins.
The decision-makers must consider the effects of economic and technical assumptions on the budget estimates.
Interest rates, economic growth, the rate of inflation, the
unemployment rate, and the number of people eligible
for various benefit programs, among other factors, affect
Government spending and receipts. Small changes in
these assumptions can alter budget estimates by many
billions of dollars. (Chapter 2, “Economic Assumptions
and Interactions with the Budget,’’ provides more information on this subject.)
Thus, the budget formulation process involves the
simultaneous consideration of the resource needs of individual programs, the allocation of resources among the
agencies and functions of the Federal Government, and
the total outlays and receipts that are appropriate in light
of current and prospective economic conditions.
The law governing the President’s budget requires
its transmittal to the Congress on or after the first
Monday in January but not later than the first Monday
in February of each year for the following fiscal year,
which begins on October 1. The budget is usually scheduled for transmission to the Congress on the first Monday
in February, giving the Congress eight months to act on
the budget before the fiscal year begins. In years when
a Presidential transition has taken place, this timeline
for budget release is commonly extended to allow the new
Administration sufficient time to take office and formulate its budget policy. While there is no specific timeline
set for this circumstance, the detailed budget is usually
completed and released in April or May. However, in order to aid the congressional budget process (discussed
below), new Administrations often release a budget blueprint or “skinny budget” that contains broad spending
outlines and descriptions of major policies and priorities
in February or March.
Congressional Action1
The Congress considers the President’s budget proposals and approves, modifies, or disapproves them. It
can change funding levels, eliminate programs, or add
programs not requested by the President. It can add or
eliminate taxes and other sources of receipts or make
other changes that affect the amount of receipts collected.
The Congress does not enact a budget as such. Through
the process of adopting a planning document called a budget resolution (described below), the Congress agrees on
targets for total spending and receipts, the size of the deficit or surplus, and the debt limit. The budget resolution
provides the framework within which individual congressional committees prepare appropriations bills and other
spending and receipts legislation. The Congress provides
spending authority—funding—for specified purposes in
appropriations acts each year. It also enacts changes each
1    For a fuller discussion of the congressional budget process, see Bill
Heniff Jr., Introduction to the Federal Budget Process (Congressional
Research Service Report 98–721), and Robert Keith and Allen Schick,
Manual on the Federal Budget Process (Congressional Research Service
Report 98–720, archived).

year in other laws that affect spending and receipts. Both
appropriations acts and these other laws are discussed in
the following paragraphs.
In making appropriations, the Congress does not vote
on the level of outlays (spending) directly, but rather on
budget authority, or funding, which is the authority provided by law to incur financial obligations that will result
in outlays. In a separate process, prior to making appropriations, the Congress usually enacts legislation that
authorizes an agency to carry out particular programs,
authorizes the appropriation of funds to carry out those
programs, and, in some cases, limits the amount that
can be appropriated for the programs. Some authorizing
legislation expires after one year, some expires after a
specified number of years, and some is permanent. The
Congress may enact appropriations for a program even
though there is no specific authorization for it or its authorization has expired.
The Congress begins its work on its budget resolution
shortly after it receives the President’s budget. Under
the procedures established by the Congressional Budget
Act of 1974, the Congress decides on budget targets before commencing action on individual appropriations.
The Act requires each standing committee of the House
and Senate to recommend budget levels and report legislative plans concerning matters within the committee’s
jurisdiction to the Budget Committee in each body. The
House and Senate Budget Committees then each design
and report, and each body then considers, a concurrent
resolution on the budget—a congressional budget plan,
or budget resolution. The budget resolution sets targets
for total receipts and for budget authority and outlays,
both in total and by functional category (see “Functional
Classification’’ later in this chapter). It also sets targets
for the budget deficit or surplus and for Federal debt subject to statutory limit.
The congressional timetable calls for the House and
Senate to resolve differences between their respective
versions of the congressional budget resolution and adopt
a single budget resolution by April 15 of each year.
In the report on the budget resolution, the Budget
Committees allocate the total on-budget budget authority and outlays set forth in the resolution to the
Appropriations Committees and the other committees
that have jurisdiction over spending. These committee allocations are commonly known as “302(a)” allocations, in
reference to the section of the Congressional Budget Act
that provides for them. The Appropriations Committees
are then required to divide their 302(a) allocations of
budget authority and outlays among their subcommittees. These subcommittee allocations are known as
“302(b)” allocations.
There are procedural hurdles
associated with considering appropriations bills (“discretionary” spending) that would breach or further breach an
Appropriations subcommittee’s 302(b) allocation. Similar
procedural hurdles exist for considering legislation that
would cause the 302(a) allocation for any committee to
be breached or further breached. The Budget Committees’
reports may discuss assumptions about the level of funding for major programs. While these assumptions do not

71

8. Budget Concepts

bind the other committees and subcommittees, they may
influence their decisions.
Budget resolutions may include “reserve funds,” which
permit adjustment of the resolution allocations as necessary to accommodate legislation addressing specific
matters, such as health care or tax reform. Reserve funds
are most often limited to legislation that is deficit neutral,
including increases in some areas offset by decreases in
others.
The budget resolution may also contain “reconciliation
directives’’ (discussed below) to the committees responsible for tax laws and for mandatory spending—programs
not controlled by annual appropriation acts—in order to
conform the level of receipts and this type of spending to
the targets in the budget resolution.
Since the concurrent resolution on the budget is not a
law, it does not require the President’s approval. However,
the Congress considers the President’s views in preparing budget resolutions, because legislation developed to
meet congressional budget allocations does require the
President’s approval. In some years, the President and
the joint leadership of Congress have formally agreed on
plans to reduce the deficit or balance the budget. These
agreements were then reflected in the budget resolution
and legislation passed for those years.
If the Congress does not pass a budget resolution, the
House and Senate typically adopt one or more “deeming
resolutions” in the form of a simple resolution or as a provision of a larger bill. A deeming resolution may serve
nearly all functions of a budget resolution, except it may
not trigger reconciliation procedures in the Senate.
Once the Congress approves the budget resolution, it
turns its attention to enacting appropriations bills and
authorizing legislation. Appropriations bills are initiated
in the House. They provide the budgetary resources for
the majority of Federal programs, but only a minority of
Federal spending. The Appropriations Committee in each
body has jurisdiction over annual appropriations. These
committees are divided into subcommittees that hold
hearings and review detailed budget justification materials prepared by the Executive Branch agencies within the

subcommittee’s jurisdiction. After a bill has been drafted by a subcommittee, the full committee and the whole
House, in turn, must approve the bill, sometimes with
amendments to the original version. The House then
forwards the bill to the Senate, where a similar review
follows. If the Senate disagrees with the House on particular matters in the bill, which is often the case, the two
bodies form a conference committee (consisting of some
Members of each body) to resolve the differences. The conference committee revises the bill and returns it to both
bodies for approval. When the revised bill is agreed to,
first in the House and then in the Senate, the Congress
sends it to the President for approval or veto.
Since 1977, when the start of the fiscal year was established as October 1, there have been only three fiscal years
(1989, 1995, and 1997) for which the Congress agreed to
and enacted every regular appropriations bill by that
date. When one or more appropriations bills has not been
agreed to by this date, Congress usually enacts a joint
resolution called a “continuing resolution’’ (CR), which is
an interim or stop-gap appropriations bill that provides
authority for the affected agencies to continue operations
at some specified level until a specific date or until the
regular appropriations are enacted. Occasionally, a CR
has funded a portion or all of the Government for the entire year.
The Congress must present these CRs to the President
for approval or veto. In some cases, Presidents have rejected CRs because they contained unacceptable provisions.
Left without funds, Government agencies were required
by law to shut down operations—with exceptions for some
limited activities—until the Congress passed a CR the
President would approve. Shutdowns have lasted for periods of a day to several weeks.
The Congress also provides budget authority in laws
other than appropriations acts. In fact, while annual appropriations acts fund the majority of Federal programs,
they account for only about a third of the total spending in a typical year. Authorizing legislation controls the
rest of the spending, which is commonly called “mandatory spending.” A distinctive feature of these authorizing

BUDGET CALENDAR
The following timetable highlights the scheduled dates for significant budget events during a normal budget year:
Between the 1st Monday in January and the
1st Monday in February ������������������������������ President transmits the budget
Six weeks later................................................... Congressional committees report budget estimates to Budget Committees
April 15............................................................... Action to be completed on congressional budget resolution
May 15................................................................ House consideration of annual appropriations bills may begin even if the budget resolution has
not been agreed to.
June 10............................................................... House Appropriations Committee to report the last of its annual appropriations bills.
June 15............................................................... Action to be completed on “reconciliation bill” by the Congress.
June 30............................................................... Action on appropriations to be completed by House
July 15................................................................ President transmits Mid-Session Review of the Budget
October 1............................................................. Fiscal year begins

72
laws is that they provide agencies with the authority or
requirement to spend money without first requiring the
Appropriations Committees to enact funding. This category of spending includes interest the Government pays
on the public debt and the spending of several major
programs, such as Social Security, Medicare, Medicaid, unemployment insurance, and Federal employee retirement.
This chapter discusses the control of budget authority and
outlays in greater detail under “Budget Authority and
Other Budgetary Resources, Obligations, and Outlays.”
Almost all taxes and most other receipts also result from
authorizing laws. Article I, Section 7, of the Constitution
provides that all bills for raising revenue shall originate
in the House of Representatives. In the House, the Ways
and Means Committee initiates tax bills; in the Senate,
the Finance Committee has jurisdiction over tax laws.
The budget resolution often includes reconciliation
directives, which require authorizing committees to
recommend changes in laws that affect receipts or mandatory spending. They direct each designated committee
to report amendments to the laws under the committee’s
jurisdiction that would achieve changes in the levels of
receipts or reductions in mandatory spending controlled
by those laws. These directives specify the dollar amount
of changes that each designated committee is expected to
achieve, but do not specify which laws are to be changed or
the changes to be made. However, the Budget Committees’
reports on the budget resolution frequently discuss assumptions about how the laws would be changed. Like
other assumptions in the report, they do not bind the committees of jurisdiction but may influence their decisions.
A reconciliation instruction may also specify the total
amount by which the statutory limit on the public debt is
to be changed.
The committees subject to reconciliation directives
draft the implementing legislation. Such legislation may,
for example, change the tax code, revise benefit formulas
or eligibility requirements for benefit programs, or authorize Government agencies to charge fees to cover some
of their costs. Reconciliation bills are typically omnibus
legislation, combining the legislation submitted by each
reconciled committee in a single act.
Such a large and complicated bill would be difficult
to enact under normal legislative procedures because it
usually involves changes to tax rates or to popular social programs, generally to reduce projected deficits. The
Senate considers such omnibus reconciliation acts under
expedited procedures that limit total debate on the bill.
To offset the procedural advantage gained by expedited
procedures, the Senate places significant restrictions on
the substantive content of the reconciliation measure
itself, as well as on amendments to the measure. Any
material in the bill that is extraneous or that contains
changes to the Federal Old-Age and Survivors Insurance
and the Federal Disability Insurance programs is not in
order under the Senate’s expedited reconciliation procedures. Non-germane amendments are also prohibited.
The House does not allow reconciliation bills to increase
mandatory spending in net, but does allow such bills to
increase deficits by reducing revenues. Reconciliation

ANALYTICAL PERSPECTIVES

acts, together with appropriations acts for the year, are
usually used to implement broad agreements between
the President and the Congress on those occasions where
the two branches have negotiated a comprehensive budget plan. Reconciliation acts have sometimes included
other matters, such as laws providing the means for enforcing these agreements, as described under “Budget
Enforcement.”
Budget Enforcement
The Federal Government uses three primary enforcement mechanisms to control revenues, spending, and
deficits. First, the Statutory Pay-As-You-Go Act of 2010,
enacted on February 12, 2010, reestablished a statutory
procedure to enforce a rule of deficit neutrality on new
revenue and mandatory spending legislation. Second, the
Budget Control Act of 2011 (BCA), enacted on August
2, 2011, amended the Balanced Budget and Emergency
Deficit Control Act of 1985 (BBEDCA) by reinstating
limits (“caps”) on the amount of discretionary budget
authority that can be provided through the annual appropriations process. Third, the BCA also created a Joint
Select Committee on Deficit Reduction that was instructed to develop a bill to reduce the Federal deficit by at least
$1.5 trillion over a 10-year period and imposed automatic
spending cuts to achieve $1.2 trillion of deficit reduction
over 9 years after the Joint Committee process failed to
achieve its deficit reduction goal.
BBEDCA divides spending into two types—discretionary spending and direct or mandatory spending.
Discretionary spending is controlled through annual
appropriations acts. Funding for salaries and other operating expenses of government agencies, for example,
is generally discretionary because it is usually provided
by appropriations acts. Direct spending is more commonly called mandatory spending. Mandatory spending is
controlled by permanent laws. Medicare and Medicaid
payments, unemployment insurance benefits, and farm
price supports are examples of mandatory spending,
because permanent laws authorize payments for those
purposes. Receipts are included under the same statutory
enforcement rules that apply to mandatory spending because permanent laws generally control receipts.
Discretionary cap enforcement. BBEDCA specifies spending limits (“caps”) on discretionary budget
authority for 2012 through 2021. Similar enforcement
mechanisms were established by the Budget Enforcement
Act of 1990 and were extended in 1993 and 1997, but expired at the end of 2002. The caps originally established
by the BCA were divided between security and nonsecurity categories for 2012 and 2013, with a single cap for
all discretionary spending established for 2014 through
2021. The security category included discretionary budget authority for the Departments of Defense, Homeland
Security, and Veterans Affairs, the National Nuclear
Security Administration, the Intelligence Community
Management account, and all budget accounts in the
international affairs budget function (budget function
150). The nonsecurity category included all discretionary

8. Budget Concepts

budget authority not included in the security category.
As part of the enforcement mechanisms triggered by the
failure of the BCA’s Joint Committee process, the security
and nonsecurity categories were redefined and established for all years through 2021. The “revised security
category” includes discretionary budget authority in the
defense budget function 050, which primarily consists
of the Department of Defense. The “revised nonsecurity
category” includes all discretionary budget authority not
included in the defense budget function 050. The redefined categories are commonly referred to as the “defense”
and “non-defense” categories, respectively, to distinguish
them from the original categories.
Since the Joint Committee sequestration that was ordered on March 1, 2013, the Congress and the President
have enacted two agreements to provide more resources
to discretionary programs than would have been available
under the Joint Committee enforcement mechanisms.
These increases to the caps were paid for largely with
savings in mandatory spending. The Bipartisan Budget
Act (BBA) of 2013 set new discretionary caps for 2014 at
$520.5 billion for the defense category and $491.8 billion
for the non-defense category and for 2015 at $521.3 billion
for the defense category and $492.4 billion for the nondefense category. The BBA of 2015 set new discretionary
caps for 2016 at $548.1 billion for the defense category
and $518.5 for the non-defense category and for 2017 at
$551.1 billion for the defense category and $518.5 billion for the non-defense category. In addition, the BBA
of 2013 reaffirmed the defense and non-defense category
limits through 2021 and the BBA of 2015 left these in
place after 2017. However, these limits are still subject
to Joint Committee reductions if those procedures remain
in place.
BBEDCA requires OMB to adjust the caps each year
for: changes in concepts and definitions; appropriations
designated by the Congress and the President as emergency requirements; and appropriations designated by
the Congress and the President for Overseas Contingency
Operations/Global War on Terrorism. BBEDCA also specifies cap adjustments (which are limited to fixed amounts)
for: appropriations for continuing disability reviews and
redeterminations by the Social Security Administration;
the health care fraud and abuse control program at the
Department of Health and Human Services; and appropriations designated by Congress as being for disaster
relief.
BBEDCA requires OMB to provide cost estimates of
each appropriations act in a report to the Congress within
7 business days after enactment of such act and to publish three discretionary sequestration reports: a “preview”
report when the President submits the budget; an “update” report in August, and a “final” report within 15 days
after the end of a session of the Congress.
The preview report explains the adjustments that are
required by law to the discretionary caps, including any
changes in concepts and definitions, and publishes the
revised caps. The preview report may also provide a summary of policy changes, if any, proposed by the President
in the Budget to those caps. The update and final reports

73
revise the preview report estimates to reflect the effects of
newly enacted discretionary laws. In addition, the update
report must contain a preview estimate of the adjustment
for disaster funding for the upcoming fiscal year.
If OMB’s final sequestration report for a given fiscal
year indicates that the amount of discretionary budget
authority provided in appropriations acts for that year exceeds the cap for that category in that year, the President
must issue a sequestration order canceling budgetary resources in nonexempt accounts within that category by
the amount necessary to eliminate the breach. Under sequestration, each nonexempt account within a category is
reduced by a dollar amount calculated by multiplying the
enacted level of sequestrable budgetary resources in that
account by the uniform percentage necessary to eliminate
a breach within that category. BBEDCA specifies special rules for reducing some programs and exempts some
programs from sequestration entirely. For example, any
sequestration of certain health and medical care accounts
is limited to 2 percent. Also, if a continuing resolution is
in effect when OMB issues its final sequestration report,
the sequestration calculations will be based on the annualized amount provided by that continuing resolution.
During the 1990s and so far under the BCA caps, the
threat of sequestration proved sufficient to ensure compliance with the discretionary spending limits. In that
respect, discretionary sequestration can be viewed first as
an incentive for compliance and second as a remedy for
noncompliance.
Supplemental appropriations can also trigger spending reductions. From the end of a session of the Congress
through the following June 30th, a within-session discretionary sequestration of current-year spending is imposed
if appropriations for the current year cause a cap to be
breached. In contrast, if supplemental appropriations
enacted in the last quarter of a fiscal year (i.e., July 1
through September 30) cause the caps to be breached, the
required reduction is instead achieved by reducing the
applicable spending limit for the following fiscal year by
the amount of the breach, because the size of the potential
sequestration in relation to the unused funding remaining for the current year could severely disrupt agencies’
operations.
Direct spending enforcement. The Statutory PayAs-You-Go Act of 2010 requires that new legislation
changing mandatory spending or revenue must be enacted on a “pay-as-you-go” (PAYGO) basis; that is, that the
cumulative effects of such legislation must not increase
projected on-budget deficits. Unlike the budget enforcement mechanism for discretionary programs, PAYGO is a
permanent requirement, and it does not impose a cap on
spending or a floor on revenues. Instead, PAYGO requires
that legislation reducing revenues must be fully offset
by cuts in mandatory programs or by revenue increases,
and that any bills increasing mandatory spending must
be fully offset by revenue increases or cuts in mandatory
spending.
This requirement of deficit neutrality is not enforced
on a bill-by-bill basis, but is based on two cumulative
scorecards that tally the cumulative budgetary effects

74
of PAYGO legislation as averaged over rolling 5- and 10year periods starting with the budget year. Any impacts of
PAYGO legislation on the current year deficit are counted
as budget year impacts when placed on the scorecard.
Like the discretionary caps, PAYGO is enforced by sequestration. Within 14 business days after a congressional
session ends, OMB issues an annual PAYGO report and
determines whether a violation of the PAYGO requirement has occurred. If either the 5- or 10-year scorecard
shows net costs in the budget year column, the President
is required to issue a sequestration order implementing
across-the-board cuts to nonexempt mandatory programs by an amount sufficient to offset those net costs.
The PAYGO effects of legislation may be directed in
legislation by reference to statements inserted into the
Congressional Record by the chairmen of the House and
Senate Budget Committees. Any such estimates are determined by the Budget Committees and are informed by,
but not required to match, the cost estimates prepared by
the Congressional Budget Office (CBO). If this procedure
is not followed, then the PAYGO effects of the legislation
are determined by OMB. During the first year of statutory PAYGO, nearly half the bills included congressional
estimates. In the subsequent six years, OMB estimates
were used for all but one of the enacted bills due to the
absence of a congressional estimate. Provisions of mandatory spending or receipts legislation that are designated
in that legislation as an emergency requirement are not
scored as PAYGO budgetary effects.
The PAYGO rules apply to the outlays resulting from
outyear changes in mandatory programs made in appropriations acts and to all revenue changes made in
appropriations acts. However, outyear changes to mandatory programs as part of provisions that have zero net
outlay effects over the sum of the current year and the
next five fiscal years are not considered PAYGO.
The PAYGO rules do not apply to increases in mandatory spending or decreases in receipts that result
automatically under existing law. For example, mandatory spending for benefit programs, such as unemployment
insurance, rises when the number of beneficiaries rises,
and many benefit payments are automatically increased
for inflation under existing laws. The Senate imposes
points of order against consideration of tax or mandatory
spending legislation that would violate the PAYGO principle, although the time periods covered by the Senate’s
rule and the treatment of previously enacted costs or savings may differ in some respects from the requirements of
the Statutory Pay-As-You-Go Act of 2010.
The House, in contrast, imposes points of order on legislation increasing mandatory spending in net, whether
or not those costs are offset by revenue increases, but the
House rule does not constrain the size of tax cuts or require them to be offset.
Joint Committee reductions. The failure of the Joint
Select Committee on Deficit Reduction to propose, and the
Congress to enact, legislation to reduce the deficit by at
least $1.2 trillion triggered automatic reductions to discretionary and mandatory spending in fiscal years 2013
through 2021. The reductions are implemented through

ANALYTICAL PERSPECTIVES

a combination of sequestration of mandatory spending
and reductions in the discretionary caps. These reductions have already been ordered to take effect for 2013
through 2018, with some modifications as provided for
in the American Taxpayer Relief Act of 2012, the BBA of
2013, and the BBA of 2015. Unless any legislative changes are enacted, further reductions will be implemented by
pro rata reductions to the discretionary caps from 2019
through 2021, which would be reflected in OMB’s discretionary sequestration preview report for those years,
and by a sequestration of non-exempt mandatory spending for 2019 onward, which would be ordered when the
President’s Budget is transmitted to Congress and would
take effect beginning October 1 of the upcoming fiscal
year.
OMB is required to calculate the amount of the deficit
reduction required for 2019 onward as follows:
• The $1.2 trillion savings target is reduced by 18 percent to account for debt service.

• The resulting net savings of $984 billion is divided

by nine to spread the reductions in equal amounts
across the nine years, 2013 through 2021.

• The annual spending reduction of $109.3 billion is

divided equally between the defense and non-defense functions.

• The annual reduction of $54.7 billion for each func-

tional category of spending is divided proportionally
between discretionary and direct spending programs,
using as the base the discretionary cap, redefined as
outlined in the discretionary cap enforcement section above, and the most recent baseline estimate of
non-exempt mandatory outlays.

• The resulting reductions in defense and non-defense

direct spending are implemented through a sequestration order released with the President’s Budget
and taking effect the following October 1st. The reductions in discretionary spending are applied as reductions in the discretionary caps, and are enforced
through the discretionary cap enforcement procedures discussed earlier in this section.

Subsequent to the enactment of the BCA, the mandatory sequestration provisions were extended beyond 2021 by
the BBA of 2013, which extended sequestration through
2023, P.L. 113-82, commonly referred to as the Military
Retired Pay Restoration Act, which extended sequestration through 2024, and the BBA of 2015, which extended
mandatory sequestration through 2025. Sequestration in
these four years is to be applied using the same percentage reductions for defense and non-defense as calculated
for 2021 under the procedures outlined above.2
The 2018 Budget proposes that the discretionary cap
reductions for 2018 for the defense function, as ordered in
the Joint Committee enforcement report issued simulta2 The BBA of 2015 specified that, notwithstanding the 2 percent limit
on Medicare sequestration in the BCA, in extending sequestration into
2025 the reduction in the Medicare program should be 4.0 percent for
the first half of the sequestration period and zero for the second half of
the period.

75

8. Budget Concepts

neously with the 2018 Budget, be reversed, and that the
reductions that would otherwise apply to the defense cap
instead be applied to the non-defense cap. The Budget further proposes that the outyear reductions to the caps for
the defense category be reversed and replaced with further reductions to the non-defense category. In addition,
the Budget proposes that the Joint Committee mandatory
sequestration be extended to 2027. For more information
on these proposals, see Chapter 10 of this volume, “Budget
Process.”
Budget Execution
Government agencies may not spend or obligate more
than the Congress has appropriated, and they may use
funds only for purposes specified in law. The Antideficiency
Act prohibits them from spending or obligating the
Government to spend in advance of an appropriation, unless specific authority to do so has been provided in law.
Additionally, the Act requires the President to apportion
the budgetary resources available for most executive
branch agencies. The President has delegated this authority to OMB. Some apportionments are by time periods
(usually by quarter of the fiscal year), some are by projects or activities, and others are by a combination of both.
Agencies may request OMB to reapportion funds during
the year to accommodate changing circumstances. This

system helps to ensure that funds do not run out before
the end of the fiscal year.
During the budget execution phase, the Government
sometimes finds that it needs more funding than the
Congress has appropriated for the fiscal year because of
unanticipated circumstances. For example, more might
be needed to respond to a severe natural disaster. Under
such circumstances, the Congress may enact a supplemental appropriation.
On the other hand, the President may propose to reduce a previously enacted appropriation. The President
may propose to either “cancel” or “rescind” the amount.
If the President initiates the withholding of funds while
the Congress considers his request, the amounts are apportioned as “deferred” or “withheld pending rescission”
on the OMB-approved apportionment form. Agencies are
instructed not to withhold funds without the prior approval of OMB. When OMB approves a withholding, the
Impoundment Control Act requires that the President
transmit a “special message” to the Congress. The historical reason for the special message is to inform the
Congress that the President has unilaterally withheld
funds that were enacted in regular appropriations acts.
The notification allows the Congress to consider the
proposed rescission in a timely way. The last time the
President initiated the withholding of funds was in fiscal
year 2000.

COVERAGE OF THE BUDGET
Federal Government and Budget Totals
The budget documents provide information on all
Federal agencies and programs. However, because the
laws governing Social Security (the Federal Old-Age and
Survivors Insurance and the Federal Disability Insurance
trust funds) and the Postal Service Fund require that the
receipts and outlays for those activities be excluded from
the budget totals and from the calculation of the deficit or
surplus, the budget presents on-budget and off-budget totals. The off-budget totals include the Federal transactions
excluded by law from the budget totals. The on-budget and
off-budget amounts are added together to derive the totals
for the Federal Government. These are sometimes referred
to as the unified or consolidated budget totals.
It is not always obvious whether a transaction or activity should be included in the budget. Where there is
a question, OMB normally follows the recommendation
of the 1967 President’s Commission on Budget Concepts
to be comprehensive of the full range of Federal agencies,
programs, and activities. In recent years, for example, the
budget has included the transactions of the Affordable
Housing Program funds, the Universal Service Fund,
the Public Company Accounting Oversight Board, the
Securities Investor Protection Corporation, Guaranty
Agencies Reserves, the National Railroad Retirement
Investment Trust, the United Mine Workers Combined
Benefits Fund, the Federal Financial Institutions
Examination Council, Electric Reliability Organizations
(EROs) established pursuant to the Energy Policy Act

of 2005, the Corporation for Travel Promotion, and the
National Association of Registered Agents and Brokers.
In contrast, the budget excludes tribal trust funds
that are owned by Indian tribes and held and managed by the Government in a fiduciary capacity on
the tribes’ behalf. These funds are not owned by the
Government, the Government is not the source of their
capital, and the Government’s control is limited to the
exercise of fiduciary duties. Similarly, the transactions of
Government-sponsored enterprises, such as the Federal
Home Loan Banks, are not included in the on-budget or
off-budget totals. Federal laws established these enterprises for public policy purposes, but they are privately
owned and operated corporations. Nevertheless, because
of their public charters, the budget discusses them and
reports summary financial data in the budget Appendix
and in some detailed tables.
The budget also excludes the revenues from copyright
royalties and spending for subsequent payments to copyright holders where (1) the law allows copyright owners and
users to voluntarily set the rate paid for the use of protected
material, and (2) the amount paid by users of copyrighted
material to copyright owners is related to the frequency or
quantity of the material used. The budget excludes license
royalties collected and paid out by the Copyright Office for
the retransmission of network broadcasts via cable collected under 17 U.S.C. 111 because these revenues meet
both of these conditions. The budget includes the royalties
collected and paid out for license fees for digital audio re-

76

ANALYTICAL PERSPECTIVES

cording technology under 17 U.S.C. 1004, since the amount
of license fees paid is unrelated to usage of the material.
The Appendix includes a presentation for the Board
of Governors of the Federal Reserve System for information only. The amounts are not included in either the
on-budget or off-budget totals because of the independent
status of the System within the Government. However,
the Federal Reserve System transfers its net earnings to
the Treasury, and the budget records them as receipts.
Chapter 9 of this volume, “Coverage of the Budget,”
provides more information on this subject.

Table 8–1. TOTALS FOR THE BUDGET AND
THE FEDERAL GOVERNMENT
Estimate
2017

•A

function must be of continuing national importance, and the amounts attributable to it must be
significant.

• Each

(In billions of dollars)
2016
Actual

seeks to accomplish rather than the means of accomplishment, the objects purchased, the clientele
or geographic area served (except in the cases of
functions 450 for Community and Regional Development, 570 for Medicare, 650 for Social Security,
and 700 for Veterans Benefits and Services), or the
Federal agency conducting the activity (except in
the case of subfunction 051 in the National Defense
function, which is used only for defense activities
under the Department of Defense—Military).

2018

Budget authority
Unified �������������������������������������������������������������������������
On-budget ���������������������������������������������������������������
Off-budget ���������������������������������������������������������������

3,973
3,193
780

4,111
3,297
814

4,279
3,407
872

Receipts:
Unified �������������������������������������������������������������������������
On-budget ���������������������������������������������������������������
Off-budget ���������������������������������������������������������������

3,268
2,458
810

3,460
2,602
857

3,654
2,762
892

Outlays:
Unified �������������������������������������������������������������������������
On-budget ���������������������������������������������������������������
Off-budget ���������������������������������������������������������������

3,853
3,078
775

4,062
3,247
815

4,094
3,228
867

Deficit (–) / Surplus (+):
Unified �������������������������������������������������������������������������
On-budget ���������������������������������������������������������������
Off-budget ���������������������������������������������������������������

–585
–620
36

–603
–644
42

–440
–465
25

Functional Classification
The functional classification is used to organize budget authority, outlays, and other budget data according
to the major purpose served—such as agriculture, transportation, income security, and national defense. There
are 20 major functions, 17 of which are concerned with
broad areas of national need and are further divided
into subfunctions. For example, the Agriculture function
comprises the subfunctions Farm Income Stabilization
and Agricultural Research and Services. The functional
classification meets the Congressional Budget Act requirement for a presentation in the budget by national
needs and agency missions and programs. The remaining
three functions—Net Interest, Undistributed Offsetting
Receipts, and Allowances—enable the functional classification system to cover the entire Federal budget.
The following criteria are used in establishing functional categories and assigning activities to them:
• A function encompasses activities with similar purposes, emphasizing what the Federal Government

basic unit being classified (generally the appropriation or fund account) usually is classified according to its primary purpose and assigned to only
one subfunction. However, some large accounts that
serve more than one major purpose are subdivided
into two or more functions or subfunctions.

In consultation with the Congress, the functional classification is adjusted from time to time as warranted.
Detailed functional tables, which provide information on
Government activities by function and subfunction, are
available online at www.budget.gov/budget/Analytical_
Perspectives and on the Budget CD-ROM.
Agencies, Accounts, Programs,
Projects, and Activities
Various summary tables in the Analytical Perspectives
volume of the Budget provide information on budget authority, outlays, and offsetting collections and receipts
arrayed by Federal agency. A table that lists budget authority and outlays by budget account within each agency
and the totals for each agency of budget authority, outlays, and receipts that offset the agency spending totals is
available online at: www.budget.gov/budget/Analytical_
Perspectives and on the Budget CD-ROM. The Appendix
provides budgetary, financial, and descriptive information
about programs, projects, and activities by account within
each agency.
Types of Funds
Agency activities are financed through Federal funds
and trust funds.
Federal funds comprise several types of funds.
Receipt accounts of the general fund, which is the greater part of the budget, record receipts not earmarked by
law for a specific purpose, such as income tax receipts.
The general fund also includes the proceeds of general
borrowing. General fund appropriations accounts record
general fund expenditures. General fund appropriations
draw from general fund receipts and borrowing collectively and, therefore, are not specifically linked to receipt
accounts.
Special funds consist of receipt accounts for Federal
fund receipts that laws have designated for specific pur-

77

8. Budget Concepts

poses and the associated appropriation accounts for the
expenditure of those receipts.
Public enterprise funds are revolving funds used for
programs authorized by law to conduct a cycle of business-type operations, primarily with the public, in which
outlays generate collections.
Intragovernmental funds are revolving funds that
conduct business-type operations primarily within and between Government agencies. The collections and the outlays
of revolving funds are recorded in the same budget account.
Trust funds account for the receipt and expenditure
of monies by the Government for carrying out specific
purposes and programs in accordance with the terms of
a statute that designates the fund as a trust fund (such
as the Highway Trust Fund) or for carrying out the stipulations of a trust where the Government itself is the
beneficiary (such as any of several trust funds for gifts and
donations for specific purposes). Trust revolving funds
are trust funds credited with collections earmarked by
law to carry out a cycle of business-type operations.
The Federal budget meaning of the term “trust,” as applied to trust fund accounts, differs significantly from its
private-sector usage. In the private sector, the beneficiary
of a trust usually owns the trust’s assets, which are managed by a trustee who must follow the stipulations of the
trust. In contrast, the Federal Government owns the assets of most Federal trust funds, and it can raise or lower
future trust fund collections and payments, or change the
purposes for which the collections are used, by changing
existing laws. There is no substantive difference between
a trust fund and a special fund or between a trust revolving fund and a public enterprise revolving fund.
However, in some instances, the Government does
act as a true trustee of assets that are owned or held for
the benefit of others. For example, it maintains accounts
on behalf of individual Federal employees in the Thrift
Savings Fund, investing them as directed by the individual employee. The Government accounts for such funds
in deposit funds, which are not included in the budget.
(Chapter 23 of this volume, “Trust Funds and Federal
Funds,” provides more information on this subject.)

Budgeting for Full Costs
A budget is a financial plan for allocating resources—deciding how much the Federal Government should
spend in total, program by program, and for the parts of
each program and deciding how to finance the spending.
The budgetary system provides a process for proposing
policies, making decisions, implementing them, and reporting the results. The budget needs to measure costs
accurately so that decision makers can compare the cost
of a program with its benefits, the cost of one program
with another, and the cost of one method of reaching a
specified goal with another. These costs need to be fully
included in the budget up front, when the spending decision is made, so that executive and congressional decision
makers have the information and the incentive to take
the total costs into account when setting priorities.
The budget includes all types of spending, including
both current operating expenditures and capital investment, and to the extent possible, both are measured on
the basis of full cost. Questions are often raised about the
measure of capital investment. The present budget provides policymakers the necessary information regarding
investment spending. It records investment on a cash
basis, and it requires the Congress to provide budget authority before an agency can obligate the Government
to make a cash outlay. However, the budget measures
only costs, and the benefits with which these costs are
compared, based on policy makers’ judgment, must be
presented in supplementary materials. By these means,
the budget allows the total cost of capital investment
to be compared up front in a rough way with the total
expected future net benefits. Such a comparison of total
costs with benefits is consistent with the formal method
of cost-benefit analysis of capital projects in government,
in which the full cost of a capital asset as the cash is paid
out is compared with the full stream of future benefits (all
in terms of present values). (Chapter 17 of this volume,
“Federal Investment,’’ provides more information on capital investment.)

RECEIPTS, OFFSETTING COLLECTIONS, AND OFFSETTING RECEIPTS
In General

Governmental Receipts

The budget records amounts collected by Government
agencies two different ways. Depending on the nature of
the activity generating the collection and the law that established the collection, they are recorded as either:
• Governmental receipts, which are compared in total to outlays (net of offsetting collections and offsetting receipts) in calculating the surplus or deficit; or

Governmental receipts are collections that result from
the Government’s exercise of its sovereign power to tax
or otherwise compel payment. Sometimes they are called
receipts, budget receipts, Federal receipts, or Federal
revenues. They consist mostly of individual and corporation income taxes and social insurance taxes, but also
include excise taxes, compulsory user charges, regulatory fees, customs duties, court fines, certain license fees,
and deposits of earnings by the Federal Reserve System.
Total receipts for the Federal Government include both
on-budget and off-budget receipts (see Table 8–1, “Totals
for the Budget and the Federal Government,” which appears earlier in this chapter.) Chapter 11 of this volume,

• Offsetting

collections or offsetting receipts,
which are deducted from gross outlays to calculate
net outlay figures.

78

ANALYTICAL PERSPECTIVES

“Governmental Receipts,’’ provides more information on
governmental receipts.
Offsetting Collections and Offsetting Receipts
Offsetting collections and offsetting receipts are recorded as offsets to (deductions from) spending, not as
additions on the receipt side of the budget. These amounts
are recorded as offsets to outlays so that the budget totals
represent governmental rather than market activity and
reflect the Government’s net transactions with the public.
They are recorded in one of two ways, based on interpretation of laws and longstanding budget concepts and
practice. They are offsetting collections when the collections are authorized by law to be credited to expenditure
accounts and are generally available for expenditure
without further legislation. Otherwise, they are deposited
in receipt accounts and called offsetting receipts; many of
these receipts are available for expenditure without further legislation.
Offsetting collections and offsetting receipts result
from any of the following types of transactions:
• Business-like transactions or market-oriented
activities with the public—these include voluntary collections from the public in exchange for
goods or services, such as the proceeds from the sale
of postage stamps, the fees charged for admittance
to recreation areas, and the proceeds from the sale
of Government-owned land; and reimbursements
for damages. The budget records these amounts as
offsetting collections from non-Federal sources (for
offsetting collections) or as proprietary receipts (for
offsetting receipts).

• Intragovernmental transactions—collections

from other Federal Government accounts. The budget records collections by one Government account
from another as offsetting collections from Federal
sources (for offsetting collections) or as intragovernmental receipts (for offsetting receipts). For example, the General Services Administration rents
office space to other Government agencies and records their rental payments as offsetting collections
from Federal sources in the Federal Buildings Fund.
These transactions are exactly offsetting and do
not affect the surplus or deficit. However, they are
an important accounting mechanism for allocating
costs to the programs and activities that cause the
Government to incur the costs.

• Voluntary

gifts and donations—gifts and donations of money to the Government, which are treated
as offsets to budget authority and outlays.

• Offsetting

governmental transactions—collections from the public that are governmental in nature and should conceptually be treated like Federal
revenues and compared in total to outlays (e.g., tax
receipts, regulatory fees, compulsory user charges,
custom duties, license fees) but required by law or
longstanding practice to be misclassified as offset-

ting. The budget records amounts from non-Federal
sources that are governmental in nature as offsetting governmental collections (for offsetting collections) or as offsetting governmental receipts (for offsetting receipts).
Offsetting Collections
Some laws authorize agencies to credit collections directly to the account from which they will be spent and,
usually, to spend the collections for the purpose of the
account without further action by the Congress. Most revolving funds operate with such authority. For example,
a permanent law authorizes the Postal Service to use
collections from the sale of stamps to finance its operations without a requirement for annual appropriations.
The budget records these collections in the Postal Service
Fund (a revolving fund) and records budget authority in
an amount equal to the collections. In addition to revolving funds, some agencies are authorized to charge fees to
defray a portion of costs for a program that are otherwise
financed by appropriations from the general fund and
usually to spend the collections without further action by
the Congress. In such cases, the budget records the offsetting collections and resulting budget authority in the
program’s general fund expenditure account. Similarly,
intragovernmental collections authorized by some laws
may be recorded as offsetting collections and budget authority in revolving funds or in general fund expenditure
accounts.
Sometimes appropriations acts or provisions in other
laws limit the obligations that can be financed by offsetting collections. In those cases, the budget records budget
authority in the amount available to incur obligations, not
in the amount of the collections.
Offsetting collections credited to expenditure accounts
automatically offset the outlays at the expenditure account level. Where accounts have offsetting collections,
the budget shows the budget authority and outlays of
the account both gross (before deducting offsetting collections) and net (after deducting offsetting collections).
Totals for the agency, subfunction, and overall budget are
net of offsetting collections.
Offsetting Receipts
Collections that are offset against gross outlays but
are not authorized to be credited to expenditure accounts
are credited to receipt accounts and are called offsetting
receipts. Offsetting receipts are deducted from budget
authority and outlays in arriving at total net budget authority and outlays. However, unlike offsetting collections
credited to expenditure accounts, offsetting receipts do
not offset budget authority and outlays at the account
level. In most cases, they offset budget authority and outlays at the agency and subfunction levels.
Proprietary receipts from a few sources, however, are
not offset against any specific agency or function and are
classified as undistributed offsetting receipts. They are
deducted from the Government-wide totals for net bud-

79

8. Budget Concepts

get authority and outlays. For example, the collections of
rents and royalties from outer continental shelf lands are
undistributed because the amounts are large and for the
most part are not related to the spending of the agency
that administers the transactions and the subfunction
that records the administrative expenses.
Similarly, two kinds of intragovernmental transactions—agencies’ payments as employers into Federal
employee retirement trust funds and interest received
by trust funds—are classified as undistributed offsetting
receipts. They appear instead as special deductions in
computing total net budget authority and outlays for the
Government rather than as offsets at the agency level.
This special treatment is necessary because the amounts
are so large they would distort measures of the agency’s
activities if they were attributed to the agency.
User Charges
User charges are fees assessed on individuals or organizations for the provision of Government services and
for the sale or use of Government goods or resources. The

payers of the user charge must be limited in the authorizing legislation to those receiving special benefits from, or
subject to regulation by, the program or activity beyond
the benefits received by the general public or broad segments of the public (such as those who pay income taxes
or customs duties). Policy regarding user charges is established in OMB Circular A–25, “User Charges.” The term
encompasses proceeds from the sale or use of Government
goods and services, including the sale of natural resources
(such as timber, oil, and minerals) and proceeds from asset sales (such as property, plant, and equipment). User
charges are not necessarily dedicated to the activity they
finance and may be credited to the general fund of the
Treasury.
The term “user charge” does not refer to a separate budget category for collections. User charges are classified in
the budget as receipts, offsetting receipts, or offsetting collections according to the principles explained previously.
See Chapter 12, “Offsetting Collections and Offsetting
Receipts,” for more information on the classification of
user charges.

BUDGET AUTHORITY, OBLIGATIONS, AND OUTLAYS
Budget authority, obligations, and outlays are the primary benchmarks and measures of the budget control
system. The Congress enacts laws that provide agencies
with spending authority in the form of budget authority.
Before agencies can use these resources—obligate this
budget authority—OMB must approve their spending
plans. After the plans are approved, agencies can enter
into binding agreements to purchase items or services
or to make grants or other payments. These agreements
are recorded as obligations of the United States and deducted from the amount of budgetary resources available
to the agency. When payments are made, the obligations
are liquidated and outlays recorded. These concepts are
discussed more fully below.
Budget Authority and Other Budgetary Resources
Budget authority is the authority provided in law to
enter into legal obligations that will result in immediate
or future outlays of the Government. In other words, it is
the amount of money that agencies are allowed to commit
to be spent in current or future years. Government officials may obligate the Government to make outlays only
to the extent they have been granted budget authority.
The budget records new budget authority as a dollar
amount in the year when it first becomes available for obligation. When permitted by law, unobligated balances of
budget authority may be carried over and used in the next
year. The budget does not record these balances as budget
authority again. They do, however, constitute a budgetary
resource that is available for obligation. In some cases,
a provision of law (such as a limitation on obligations or
a benefit formula) precludes the obligation of funds that
would otherwise be available for obligation. In such cases,
the budget records budget authority equal to the amount

of obligations that can be incurred. A major exception to
this rule is for the highway and mass transit programs
financed by the Highway Trust Fund, where budget authority is measured as the amount of contract authority
(described later in this chapter) provided in authorizing
statutes, even though the obligation limitations enacted
in annual appropriations acts restrict the amount of contract authority that can be obligated.
In deciding the amount of budget authority to request
for a program, project, or activity, agency officials estimate the total amount of obligations they will need to
incur to achieve desired goals and subtract the unobligated balances available for these purposes. The amount
of budget authority requested is influenced by the nature
of the programs, projects, or activities being financed. For
current operating expenditures, the amount requested
usually covers the needs for the fiscal year. For major procurement programs and construction projects, agencies
generally must request sufficient budget authority in the
first year to fully fund an economically useful segment of
a procurement or project, even though it may be obligated
over several years. This full funding policy is intended
to ensure that the decision-makers take into account all
costs and benefits fully at the time decisions are made
to provide resources. It also avoids sinking money into a
procurement or project without being certain if or when
future funding will be available to complete the procurement or project.
Budget authority takes several forms:
• Appropriations, provided in annual appropriations acts or authorizing laws, permit agencies to
incur obligations and make payment;

• Borrowing authority, usually provided in permanent laws, permits agencies to incur obligations but

80

ANALYTICAL PERSPECTIVES

requires them to borrow funds, usually from the general fund of the Treasury, to make payment;

• Contract authority, usually provided in permanent

law, permits agencies to incur obligations in advance
of a separate appropriation of the cash for payment
or in anticipation of the collection of receipts that
can be used for payment; and

• Spending authority from offsetting collections,
usually provided in permanent law, permits agencies to credit offsetting collections to an expenditure
account, incur obligations, and make payment using
the offsetting collections.

Because offsetting collections and offsetting receipts
are deducted from gross budget authority, they are referred to as negative budget authority for some purposes,
such as Congressional Budget Act provisions that pertain
to budget authority.
Authorizing statutes usually determine the form of
budget authority for a program. The authorizing statute
may authorize a particular type of budget authority to be
provided in annual appropriations acts, or it may provide
one of the forms of budget authority directly, without the
need for further appropriations.
An appropriation may make funds available from the
general fund, special funds, or trust funds, or authorize
the spending of offsetting collections credited to expenditure accounts, including revolving funds. Borrowing
authority is usually authorized for business-like activities
where the activity being financed is expected to produce
income over time with which to repay the borrowing with
interest. The use of contract authority is traditionally limited to transportation programs.
New budget authority for most Federal programs is normally provided in annual appropriations acts. However,
new budget authority is also made available through permanent appropriations under existing laws and does not
require current action by the Congress. Much of the permanent budget authority is for trust funds, interest on the
public debt, and the authority to spend offsetting collections credited to appropriation or fund accounts. For most
trust funds, the budget authority is appropriated automatically under existing law from the available balance of
the fund and equals the estimated annual obligations of
the funds. For interest on the public debt, budget authority
is provided automatically under a permanent appropriation enacted in 1847 and equals interest outlays.
Annual appropriations acts generally make budget authority available for obligation only during the fiscal year
to which the act applies. However, they frequently allow
budget authority for a particular purpose to remain available for obligation for a longer period or indefinitely (that
is, until expended or until the program objectives have
been attained). Typically, budget authority for current operations is made available for only one year, and budget
authority for construction and some research projects is
available for a specified number of years or indefinitely.
Most budget authority provided in authorizing statutes,
such as for most trust funds, is available indefinitely. If

budget authority is initially provided for a limited period
of availability, an extension of availability would require
enactment of another law (see “Reappropriation” later in
this chapter).
Budget authority that is available for more than one
year and not obligated in the year it becomes available is
carried forward for obligation in a following year. In some
cases, an account may carry forward unobligated budget
authority from more than one prior year. The sum of such
amounts constitutes the account’s unobligated balance.
Most of these balances had been provided for specific uses
such as the multi-year construction of a major project and
so are not available for new programs. A small part may
never be obligated or spent, primarily amounts provided
for contingencies that do not occur or reserves that never
have to be used.
Amounts of budget authority that have been obligated
but not yet paid constitute the account’s unpaid obligations. For example, in the case of salaries and wages, one
to three weeks elapse between the time of obligation and
the time of payment. In the case of major procurement and
construction, payments may occur over a period of several
years after the obligation is made. Unpaid obligations
(which are made up of accounts payable and undelivered
orders) net of the accounts receivable and unfilled customers’ orders are defined by law as the obligated balances.
Obligated balances of budget authority at the end of the
year are carried forward until the obligations are paid or
the balances are canceled. (A general law provides that
the obligated balances of budget authority that was made
available for a definite period is automatically cancelled
five years after the end of the period.) Due to such flows,
a change in the amount of budget authority available in
any one year may change the level of obligations and outlays for several years to come. Conversely, a change in the
amount of obligations incurred from one year to the next
does not necessarily result from an equal change in the
amount of budget authority available for that year and
will not necessarily result in an equal change in the level
of outlays in that year.
The Congress usually makes budget authority available
on the first day of the fiscal year for which the appropriations act is passed. Occasionally, the appropriations
language specifies a different timing. The language may
provide an advance appropriation—budget authority
that does not become available until one year or more
beyond the fiscal year for which the appropriations act
is passed. Forward funding is budget authority that is
made available for obligation beginning in the last quarter
of the fiscal year (beginning on July 1) for the financing of
ongoing grant programs during the next fiscal year. This
kind of funding is used mostly for education programs, so
that obligations for education grants can be made prior to
the beginning of the next school year. For certain benefit
programs funded by annual appropriations, the appropriation provides for advance funding—budget authority
that is to be charged to the appropriation in the succeeding year, but which authorizes obligations to be incurred
in the last quarter of the current fiscal year if necessary
to meet benefit payments in excess of the specific amount

81

8. Budget Concepts

appropriated for the year. When such authority is used,
an adjustment is made to increase the budget authority
for the fiscal year in which it is used and to reduce the
budget authority of the succeeding fiscal year.
Provisions of law that extend into a new fiscal year the
availability of unobligated amounts that have expired
or would otherwise expire are called reappropriations.
Reappropriations of expired balances that are newly
available for obligation in the current or budget year
count as new budget authority in the fiscal year in which
the balances become newly available. For example, if a
2016 appropriations act extends the availability of unobligated budget authority that expired at the end of 2015,
new budget authority would be recorded for 2016. This
scorekeeping is used because a reappropriation has exactly the same effect as allowing the earlier appropriation
to expire at the end of 2015 and enacting a new appropriation for 2016.
For purposes of BBEDCA and the Statutory Pay-AsYou-Go Act of 2010 (discussed earlier under “Budget
Enforcement’’), the budget classifies budget authority
as discretionary or mandatory. This classification indicates whether an appropriations act or authorizing
legislation controls the amount of budget authority that is
available. Generally, budget authority is discretionary if
provided in an annual appropriations act and mandatory
if provided in authorizing legislation. However, the budget authority provided in annual appropriations acts for
certain specifically identified programs is also classified
as mandatory by OMB and the congressional scorekeepers. This is because the authorizing legislation for these
programs entitles beneficiaries—persons, households, or
other levels of government—to receive payment, or otherwise legally obligates the Government to make payment
and thereby effectively determines the amount of budget
authority required, even though the payments are funded
by a subsequent appropriation.
Sometimes, budget authority is characterized as current
or permanent. Current authority requires the Congress to
act on the request for new budget authority for the year
involved. Permanent authority becomes available pursuant to standing provisions of law without appropriations
action by the Congress for the year involved. Generally,
budget authority is current if an annual appropriations
act provides it and permanent if authorizing legislation
provides it. By and large, the current/permanent distinction has been replaced by the discretionary/mandatory
distinction, which is similar but not identical. Outlays are
also classified as discretionary or mandatory according to
the classification of the budget authority from which they
flow (see “Outlays’’ later in this chapter).
The amount of budget authority recorded in the budget
depends on whether the law provides a specific amount
or employs a variable factor that determines the amount.
It is considered definite if the law specifies a dollar
amount (which may be stated as an upper limit, for example, “shall not exceed …”). It is considered indefinite
if, instead of specifying an amount, the law permits the
amount to be determined by subsequent circumstances.
For example, indefinite budget authority is provided for

interest on the public debt, payment of claims and judgments awarded by the courts against the United States,
and many entitlement programs. Many of the laws that
authorize collections to be credited to revolving, special,
and trust funds make all of the collections available for
expenditure for the authorized purposes of the fund, and
such authority is considered to be indefinite budget authority because the amount of collections is not known in
advance of their collection.
Obligations
Following the enactment of budget authority and the
completion of required apportionment action, Government
agencies incur obligations to make payments (see earlier
discussion under “Budget Execution”). Agencies must record obligations when they enter into binding agreements
that will result in immediate or future outlays. Such obligations include the current liabilities for salaries, wages,
and interest; and contracts for the purchase of supplies
and equipment, construction, and the acquisition of office
space, buildings, and land. For Federal credit programs,
obligations are recorded in an amount equal to the estimated subsidy cost of direct loans and loan guarantees
(see “Federal Credit” later in this chapter).
Outlays
Outlays are the measure of Government spending.
They are payments that liquidate obligations (other than
most exchanges of financial instruments, of which the
repayment of debt is the prime example). The budget records outlays when obligations are paid, in the amount
that is paid.
Agency, function and subfunction, and Governmentwide outlay totals are stated net of offsetting collections
and offsetting receipts for most budget presentations.
(Offsetting receipts from a few sources do not offset any
specific function, subfunction, or agency, as explained previously, but only offset Government-wide totals.) Outlay
totals for accounts with offsetting collections are stated
both gross and net of the offsetting collections credited
to the account. However, the outlay totals for special and
trust funds with offsetting receipts are not stated net of
the offsetting receipts. In most cases, these receipts offset the agency, function, and subfunction totals but do
not offset account-level outlays. However, when general
fund payments are used to finance trust fund outlays to
the public, the associated trust fund receipts are netted
against the bureau totals to prevent double-counting budget authority and outlays at the bureau level.
The Government usually makes outlays in the form
of cash (currency, checks, or electronic fund transfers).
However, in some cases agencies pay obligations without
disbursing cash, and the budget nevertheless records outlays for the equivalent method. For example, the budget
records outlays for the full amount of Federal employees’
salaries, even though the cash disbursed to employees is
net of Federal and State income taxes withheld, retirement contributions, life and health insurance premiums,

82

ANALYTICAL PERSPECTIVES

Chart 8-1. Relationship of Budget Authority
to Outlays for 2018
(Billions of dollars)
New Authority
Recommended
for 2018
4,279

Unspent Authority
Enacted in
Prior Years
2,353

To be spent in 2018

Outlays in 2018

3,231
To b
e
in fu spent
ture
year
s
nt
pe
e s 18
b
0
To in 2

-4

4,094

863
1,0

Authority
written off,
expired, and adjusted
(net)

To be spent in
Future Years
1,486

and other deductions. (The budget also records receipts
for the amounts withheld from Federal employee paychecks for Federal income taxes and other payments to
the Government.) When debt instruments (bonds, debentures, notes, or monetary credits) are used in place of cash
to pay obligations, the budget records outlays financed by
an increase in agency debt. For example, the budget records the acquisition of physical assets through certain
types of lease-purchase arrangements as though a cash
disbursement were made for an outright purchase. The
transaction creates a Government debt, and the cash
lease payments are treated as repayments of principal
and interest.
The budget records outlays for the interest on the public
issues of Treasury debt securities as the interest accrues,
not when the cash is paid. A small portion of Treasury
debt consists of inflation-indexed securities, which feature
monthly adjustments to principal for inflation and semi­
annual payments of interest on the inflation-adjusted
principal. As with fixed-rate securities, the budget records
interest outlays as the interest accrues. The monthly adjustment to principal is recorded, simultaneously, as an
increase in debt outstanding and an outlay of interest.
Most Treasury debt securities held by trust funds and
other Government accounts are in the Government account series. The budget normally states the interest on
these securities on a cash basis. When a Government account is invested in Federal debt securities, the purchase
price is usually close or identical to the par (face) value of
the security. The budget generally records the investment
at par value and adjusts the interest paid by Treasury
and collected by the account by the difference between
purchase price and par, if any.
For Federal credit programs, outlays are equal to the
subsidy cost of direct loans and loan guarantees and
are recorded as the underlying loans are disbursed (see
“Federal Credit” later in this chapter).

48
Unspent Authority
for Outlays in
Future Years
2,534

The budget records refunds of receipts that result from
overpayments by the public (such as income taxes withheld in excess of tax liabilities) as reductions of receipts,
rather than as outlays. However, the budget records payments to taxpayers for refundable tax credits (such as
earned income tax credits) that exceed the taxpayer’s
tax liability as outlays. Similarly, when the Government
makes overpayments that are later returned to the
Government, those refunds to the Government are recorded as offsetting collections or offsetting receipts, not
as governmental receipts.
Not all of the new budget authority for 2018 will be
obligated or spent in 2018. Outlays during a fiscal year
may liquidate obligations incurred in the same year or in
prior years. Obligations, in turn, may be incurred against
budget authority provided in the same year or against unobligated balances of budget authority provided in prior
years. Outlays, therefore, flow in part from budget authority provided for the year in which the money is spent and
in part from budget authority provided for prior years.
The ratio of a given year’s outlays resulting from budget
authority enacted in that or a prior year to the original
amount of that budget authority is referred to as the outlay rate for that year.
As shown in the accompanying chart, $3,231 billion
of outlays in 2018 (79 percent of the outlay total) will be
made from that year’s $4,279 billion total of proposed
new budget authority (a first-year outlay rate of 76 percent). Thus, the remaining $863 billion of outlays in 2018
(21 percent of the outlay total) will be made from budget
authority enacted in previous years. At the same time,
$1,048 billion of the new budget authority proposed for
2018 (24 percent of the total amount proposed) will not
lead to outlays until future years.
As described earlier, the budget classifies budget authority and outlays as discretionary or mandatory. This
classification of outlays measures the extent to which

83

8. Budget Concepts

actual spending is controlled through the annual appropriations process. About 31 percent of total outlays in 2016
($1,185 billion) were discretionary and the remaining 69
percent ($2,667 billion in 2016) were mandatory spending
and net interest. Such a large portion of total spending
is mandatory because authorizing rather than appropriations legislation determines net interest ($240 billion in
2016) and the spending for a few programs with large
amounts of spending each year, such as Social Security
($910 billion in 2016) and Medicare ($588 billion in 2016).
The bulk of mandatory outlays flow from budget authority recorded in the same fiscal year. This is not necessarily

the case for discretionary budget authority and outlays.
For most major construction and procurement projects
and long-term contracts, for example, the budget authority covers the entire cost estimated when the projects
are initiated even though the work will take place and
outlays will be made over a period extending beyond the
year for which the budget authority is enacted. Similarly,
discretionary budget authority for most education and job
training activities is appropriated for school or program
years that begin in the fourth quarter of the fiscal year.
Most of these funds result in outlays in the year after the
appropriation.

FEDERAL CREDIT
Some Government programs provide assistance
through direct loans or loan guarantees. A direct loan is
a disbursement of funds by the Government to a non-Federal borrower under a contract that requires repayment
of such funds with or without interest and includes economically equivalent transactions, such as the sale of
Federal assets on credit terms. A loan guarantee is any
guarantee, insurance, or other pledge with respect to the
payment of all or a part of the principal or interest on
any debt obligation of a non-Federal borrower to a nonFederal lender. The Federal Credit Reform Act of 1990, as
amended (FCRA), prescribes the budgetary treatment for
Federal credit programs. Under this treatment, the budget records obligations and outlays up front, for the net
cost to the Government (subsidy cost), rather than recording the cash flows year by year over the term of the loan.
FCRA treatment allows the comparison of direct loans
and loan guarantees to each other, and to other methods
of delivering assistance, such as grants.
The cost of direct loans and loan guarantees, sometimes
called the “subsidy cost,’’ is estimated as the present value of expected payments to and from the public over the
term of the loan, discounted using appropriate Treasury
interest rates.3 Similar to most other kinds of programs,
agencies can make loans or guarantee loans only if the
Congress has appropriated funds sufficient to cover the
subsidy costs, or provided a limitation in an appropriations act on the amount of direct loans or loan guarantees
that can be made.
The budget records the subsidy cost to the Government
arising from direct loans and loan guarantees—the budget authority and outlays—in credit program accounts.
When a Federal agency disburses a direct loan or when
a non-Federal lender disburses a loan guaranteed by a
Federal agency, the program account disburses or outlays
an amount equal to the estimated present value cost, or
subsidy, to a non-budgetary credit financing account.
The financing accounts record the actual transactions
with the public. For a few programs, the estimated subsidy cost is negative because the present value of expected
Government collections exceeds the present value of expected payments to the public over the term of the loan.
3    Present value is a standard financial concept that considers the
time-value of money. That is, it accounts for the fact that a given sum of
money is worth more today than the same sum would be worth in the
future because interest can be earned.

In such cases, the financing account pays the estimated
subsidy cost to the program’s negative subsidy receipt
account, where it is recorded as an offsetting receipt. In
a few cases, the offsetting receipts of credit accounts are
dedicated to a special fund established for the program
and are available for appropriation for the program.
The agencies responsible for credit programs must
reestimate the subsidy cost of the outstanding portfolio
of direct loans and loan guarantees each year. If the estimated cost increases, the program account makes an
additional payment to the financing account equal to
the change in cost. If the estimated cost decreases, the
financing account pays the difference to the program’s
downward reestimate receipt account, where it is recorded as an offsetting receipt. The FCRA provides permanent
indefinite appropriations to pay for upward reestimates.
If the Government modifies the terms of an outstanding direct loan or loan guarantee in a way that increases
the cost as the result of a law or the exercise of administrative discretion under existing law, the program account
records obligations for the increased cost and outlays the
amount to the financing account. As with the original subsidy cost, agencies may incur modification costs only if the
Congress has appropriated funds to cover them. A modification may also reduce costs, in which case the amounts
are generally returned to the general fund, as the financing account makes a payment to the program’s negative
subsidy receipt account.
Credit financing accounts record all cash flows arising
from direct loan obligations and loan guarantee commitments. Such cash flows include all cash flows to and from
the public, including direct loan disbursements and repayments, loan guarantee default payments, fees, and
recoveries on defaults. Financing accounts also record
intragovernmental transactions, such as the receipt of
subsidy cost payments from program accounts, borrowing
and repayments of Treasury debt to finance program activities, and interest paid to or received from the Treasury.
The cash flows of direct loans and of loan guarantees are
recorded in separate financing accounts for programs that
provide both types of credit. The budget totals exclude the
transactions of the financing accounts because they are
not a cost to the Government. However, since financing
accounts record all credit cash flows to and from the public, they affect the means of financing a budget surplus or

84

ANALYTICAL PERSPECTIVES

deficit (see “Credit Financing Accounts” in the next section). The budget documents display the transactions of
the financing accounts, together with the related program
accounts, for information and analytical purposes.
The FCRA grandfathered the budgetary treatment of
direct loan obligations and loan guarantee commitments
made prior to 1992. The budget records these on a cash
basis in credit liquidating accounts, the same as they
were recorded before FCRA was enacted. However, this
exception ceases to apply if the direct loans or loan guarantees are modified as described above. In that case, the
budget records the subsidy cost or savings of the modification, as appropriate, and begins to account for the
associated transactions under FCRA treatment for direct
loan obligations and loan guarantee commitments made
in 1992 or later.
Under the authority provided in various acts, certain activities that do not meet the definition in FCRA
of a direct loan or loan guarantee are reflected pursuant to FCRA. For example, the Emergency Economic
Stabilization Act of 2008 (EESA) created the Troubled
Asset Relief Program (TARP) under the Department of
the Treasury, and authorized Treasury to purchase or

guarantee troubled assets until October 3, 2010. Under
the TARP, Treasury has purchased equity interests in financial institutions. Section 123 of the EESA provides the
Administration the authority to treat these equity investments on a FCRA basis, recording outlays for the subsidy
as is done for direct loans and loan guarantees. The budget
reflects the cost to the Government of TARP direct loans,
loan guarantees, and equity investments consistent with
the FCRA and Section 123 of EESA, which requires an
adjustment to the FCRA discount rate for market risks.
Treasury equity purchases under the Small Business
Lending Fund are treated pursuant to the FCRA, as provided by the Small Business Jobs Act of 2010.The 2009
increases to the International Monetary Fund (IMF) quota and New Arrangements to Borrow (NAB) enacted in
the Supplemental Appropriations Act of 2009 were treated on a FCRA basis through 2015, with a risk adjustment
to the discount rate, as directed in that Act. However,
pursuant to Title IX of the Department of State, Foreign
Operations, and Related Programs Appropriations Act,
2016, these transactions have been restated on a present
value basis with a risk adjustment to the discount rate,
and the associated FCRA accounts have been closed.

BUDGET DEFICIT OR SURPLUS AND MEANS OF FINANCING
When outlays exceed receipts, the difference is a deficit,
which the Government finances primarily by borrowing.
When receipts exceed outlays, the difference is a surplus,
and the Government automatically uses the surplus primarily to reduce debt. The Federal debt held by the public
is approximately the cumulative amount of borrowing to
finance deficits, less repayments from surpluses, over the
Nation’s history.
Borrowing is not exactly equal to the deficit, and debt
repayment is not exactly equal to the surplus, because of
the other transactions affecting borrowing from the public, or other means of financing, such as those discussed in
this section. The factors included in the other means of financing can either increase or decrease the Government’s
borrowing needs (or decrease or increase its ability to
repay debt). For example, the change in the Treasury operating cash balance is a factor included in other means
of financing. Holding receipts and outlays constant, increases in the cash balance increase the Government’s
need to borrow or reduce the Government’s ability to repay debt, and decreases in the cash balance decrease the
need to borrow or increase the ability to repay debt. In
some years, the net effect of the other means of financing
is minor relative to the borrowing or debt repayment; in
other years, the net effect may be significant.
Borrowing and Debt Repayment
The budget treats borrowing and debt repayment as
a means of financing, not as receipts and outlays. If borrowing were defined as receipts and debt repayment as
outlays, the budget would always be virtually balanced by
definition. This rule applies both to borrowing in the form
of Treasury securities and to specialized borrowing in the

form of agency securities. The rule reflects the commonsense understanding that lending or borrowing is just
an exchange of financial assets of equal value—cash for
Treasury securities—and so is fundamentally different
from, say, paying taxes, which involve a net transfer of
financial assets from taxpayers to the Government.
In 2016, the Government borrowed $1,051 billion from
the public, bringing debt held by the public to $14,168 billion. This borrowing financed the $585 billion deficit in
that year, partly offset by the net impacts of the other
means of financing, such as changes in cash balances and
other accounts discussed below.
In addition to selling debt to the public, the Treasury
Department issues debt to Government accounts, primarily trust funds that are required by law to invest in
Treasury securities. Issuing and redeeming this debt does
not affect the means of financing, because these transactions occur between one Government account and another
and thus do not raise or use any cash for the Government
as a whole.
(See Chapter 4 of this volume, “Federal Borrowing and
Debt,” for a fuller discussion of this topic.)
Exercise of Monetary Power
Seigniorage is the profit from coining money. It is the
difference between the value of coins as money and their
cost of production. Seigniorage reduces the Government’s
need to borrow. Unlike the payment of taxes or other receipts, it does not involve a transfer of financial assets
from the public. Instead, it arises from the exercise of the
Government’s power to create money and the public’s desire to hold financial assets in the form of coins. Therefore,
the budget excludes seigniorage from receipts and treats

8. Budget Concepts

it as a means of financing other than borrowing from the
public. The budget also treats proceeds from the sale of
gold as a means of financing, since the value of gold is
determined by its value as a monetary asset rather than
as a commodity.
Credit Financing Accounts
The budget records the net cash flows of credit programs
in credit financing accounts. These accounts include the
transactions for direct loan and loan guarantee programs,
as well as the equity purchase programs under TARP that
are recorded on a credit basis consistent with Section 123
of EESA. Financing accounts also record equity purchases under the Small Business Lending Fund consistent
with the Small Business Jobs Act of 2010. Credit financing accounts are excluded from the budget because they
are not allocations of resources by the Government (see
“Federal Credit” earlier in this chapter). However, even
though they do not affect the surplus or deficit, they can
either increase or decrease the Government’s need to borrow. Therefore, they are recorded as a means of financing.
Financing account disbursements to the public increase
the requirement for Treasury borrowing in the same way
as an increase in budget outlays. Financing account receipts from the public can be used to finance the payment
of the Government’s obligations and therefore reduce the
requirement for Treasury borrowing from the public in
the same way as an increase in budget receipts.
Deposit Fund Account Balances
The Treasury uses non-budgetary accounts, called
deposit funds, to record cash held temporarily until
ownership is determined (for example, earnest money
paid by bidders for mineral leases) or cash held by the
Government as agent for others (for example, State and
local income taxes withheld from Federal employees’ salaries and not yet paid to the State or local government or
amounts held in the Thrift Savings Fund, a defined contribution pension fund held and managed in a fiduciary
capacity by the Government). Deposit fund balances may
be held in the form of either invested or uninvested balances. To the extent that they are not invested, changes
in the balances are available to finance expenditures and
are recorded as a means of financing other than borrowing from the public. To the extent that they are invested
in Federal debt, changes in the balances are reflected as
borrowing from the public (in lieu of borrowing from other
parts of the public) and are not reflected as a separate
means of financing.
United States Quota Subscriptions to the
International Monetary Fund (IMF)
The United States participates in the IMF through a
quota subscription.4 Financial transactions with the IMF
4 For a more detailed discussion of the history of the budgetary treatment of U.S. participation in the quota and NAB, see pages 139-141 in
the Analytical Perspectives volume of the 2016 Budget As discussed in
that volume, the budgetary treatment of the U.S. participation in the

85
are exchanges of monetary assets. When the IMF temporarily draws dollars from the U.S. quota, the United
States simultaneously receives an equal, offsetting, interest-bearing, Special Drawing Right (SDR)-denominated
claim in the form of an increase in the U.S. reserve position in the IMF. The U.S. reserve position in the IMF
increases when the United States makes deposits in its
account at the IMF when the IMF temporarily uses members’ quota resources to make loans and decreases when
the IMF returns funds to the United States as borrowing
countries repay the IMF (and the cash flows from the reserve position to the Treasury letter of credit).
The budgetary treatment of appropriations for the
IMF quota has changed over time. Prior to 1981, the
transactions were not included in the budget because
they are exchanges of cash for monetary assets (SDRs)
of the same value. This was consistent with the scoring
of other exchanges of monetary assets, such as deposits
of cash in Treasury accounts at commercial banks.5 As a
result of an agreement reached with the Congress in 1980
that marked the start of appropriators’ jurisdiction over
changes to U.S. participation in the IMF quota (and later
the NAB), the budget began to record budget authority for
the quotas at the full value of the quota increase, but did
not record outlays because of the continuing view that the
transactions are exchanges of monetary assets of equal
value. This scoring convention continued to be applied
through 2008.6 This approach worked as a method for
scoring new legislation, but because it did not align well
with existing budget concepts, it led to budget presentations and budgetary reporting that showed the full value
of the quota increase as if it were a budgetary cost despite
the reality that these resources involve an exchange of
assets.
In 2009, Congress enacted increases in the U.S. participation in the quota and the NAB in the Supplemental
Appropriations Act, 2009 (Public Law 111–32, Title XIV,
International Monetary Programs) and directed that the
increases in this Act be scored under the requirements of
the Federal Credit Reform Act of 1990 (FCRA), with an adjustment to the discount rate for market risk. Accordingly,
in the budget execution of the quota and the NAB increases provided by the Supplemental Appropriations Act,
2009, the Budget through 2015 reflected obligations and
outlays for the estimated present value cost to the U.S.
Government as if these transactions were direct loans
under FCRA, plus an additional risk premium. While
the FCRA model provided a framework for scoring new
legislation, it did not reflect the actual circumstances of
U.S. participation in the IMF quota and NAB, and budget
execution and presentation were contrived to meet FRCA
requirements with no real programmatic benefits.
Pursuant to Title IX of the Department of State, Foreign
Operations, and Related Programs Appropriations Act,
NAB is similar to the quota.
5 The Report of the 1967 President’s Commission on Budget Concepts
notes that the IMF “is more like a bank in which funds are deposited
and from which funds in the form of needed foreign currencies can be
withdrawn.”
6 This budgetary treatment was also proposed again in the 2014 Budget, after the Supplemental Appropriations Act of 2009 was enacted.

86

ANALYTICAL PERSPECTIVES

2016, the estimated cost of the 2009 increases as well as
the 2016 IMF quota increase and partial rescission of the
NAB authorized by the Act are recorded on a present value basis with a fair value premium added to the Treasury
discount rate, and the FCRA accounts associated with the
2009 increases have been closed. This statutory direction to measure cost on a present value basis provides an
opportunity to rationalize the budgetary presentation of
IMF quota and NAB increases enacted before 2009. From
both the perspective of Treasury and the IMF, it is not
practical to seek to distinguish and execute each enacted
quota increase in different ways. The funds are commingled and executed as a single source and use of funding.
Therefore, the budget presents all increases consistent
with the present value scores for the 2009 and 2016
legislation. Specifically, the Budget records budget authority and outlays equal to the estimated present value,
including the fair value adjustment to the discount rate,

in the year that the quota increase is enacted, i.e., 2016.
All concurrent and subsequent transactions between the
Treasury and the IMF are treated as a non-budgetary
means of financing, which do not directly affect receipts,
outlays, or deficits. The only exception is that interest
earnings on U.S. deposits in its IMF account are recorded
as offsetting receipts. For transparency and to support future decisions concerning the U.S. level of participation in
the IMF quota and the NAB, the Budget Appendix shows
supplementary “below-the-lines” information about dollar value of the IMF quota, divided between the portion
that is held in a Treasury letter of credit and the amount
deposited in the U.S. reserve tranche at the IMF, and the
NAB. The actual amounts are updated in the Budget to
reflect changes in the dollar value of Special Drawing
Rights that serve as the unit of measure for countries’
level of participation.

FEDERAL EMPLOYMENT
The budget includes information on civilian and military employment. It also includes information on related
personnel compensation and benefits and on staffing requirements at overseas missions. Chapter 7 of this volume,
“Strengthening the Federal Workforce,’’ provides employ-

ment levels measured in full-time equivalents (FTE).
Agency FTEs are the measure of total hours worked by an
agency’s Federal employees divided by the total number
of one person’s compensable work hours in a fiscal year.

BASIS FOR BUDGET FIGURES
Data for the Past Year
The past year column (2016) generally presents the
actual transactions and balances as recorded in agency
accounts and as summarized in the central financial reports prepared by the Treasury Department for the most
recently completed fiscal year. Occasionally, the budget reports corrections to data reported erroneously to Treasury
but not discovered in time to be reflected in Treasury’s
published data. In addition, in certain cases the Budget
has a broader scope and includes financial transactions
that are not reported to Treasury (see Chapter 24 of this
volume, “Comparison of Actual to Estimated Totals,” for a
summary of these differences).
Data for the Current Year

authorizing legislation, and amounts estimated to result
from changes in authorizing legislation and tax laws.
The budget Appendix generally includes the appropriations language for the amounts proposed to be
appropriated under current authorizing legislation. In
a few cases, this language is transmitted later because
the exact requirements are unknown when the budget
is transmitted. The Appendix generally does not include
appropriations language for the amounts that will be
requested under proposed legislation; that language is
usually transmitted later, after the legislation is enacted. Some tables in the budget identify the items for later
transmittal and the related outlays separately. Estimates
of the total requirements for the budget year include both
the amounts requested with the transmittal of the budget
and the amounts planned for later transmittal.

The current year column (2017) includes estimates of
transactions and balances based on the amounts of budgetary resources that were available when the budget
was prepared. In cases where the budget proposes policy
changes effective in the current year, the data will also
reflect the budgetary effect of those proposed changes.

The budget presents estimates for each of the nine
years beyond the budget year (2019 through 2027) in order to reflect the effect of budget decisions on objectives
and plans over a longer period.

Data for the Budget Year

Allowances

The budget year column (2018) includes estimates
of transactions and balances based on the amounts of
budgetary resources that are estimated to be available,
including new budget authority requested under current

The budget may include lump-sum allowances to cover
certain transactions that are expected to increase or decrease budget authority, outlays, or receipts but are not,
for various reasons, reflected in the program details. For

Data for the Outyears

87

8. Budget Concepts

example, the budget might include an allowance to show
the effect on the budget totals of a proposal that would affect many accounts by relatively small amounts, in order
to avoid unnecessary detail in the presentations for the
individual accounts.

The baseline serves several useful purposes:
• It may warn of future problems, either for Government fiscal policy as a whole or for individual tax
and spending programs.

• It may provide a starting point for formulating the
President’s Budget.

Baseline
The budget baseline is an estimate of the receipts,
outlays, and deficits or surpluses that would occur if no
changes were made to current laws and policies during
the period covered by the budget. The baseline assumes
that receipts and mandatory spending, which generally
are authorized on a permanent basis, will continue in
the future consistent with current law and policy. The
baseline assumes that the future funding for most discretionary programs, which generally are funded annually,
will equal the most recently enacted appropriation, adjusted for inflation.
Baseline outlays represent the amount of resources
that would be used by the Government over the period
covered by the budget on the basis of laws currently
enacted.

• It may provide a “policy-neutral’’ benchmark against

which the President’s Budget and alternative proposals can be compared to assess the magnitude of
proposed changes.

The baseline rules in BBEDCA provide that funding
for discretionary programs is inflated from the most recent enacted appropriations using specified inflation
rates. Because the resulting funding would exceed the
discretionary caps, the Administration’s baseline includes
adjustments that reduce overall discretionary funding to
levels consistent with the caps. (Chapter 22 of this volume,
“Current Services Estimates,” provides more information
on the baseline.)

PRINCIPAL BUDGET LAWS
The Budget and Accounting Act of 1921 created the core
of the current Federal budget process. Before enactment
of this law, there was no annual centralized budgeting in
the Executive Branch. Federal Government agencies usually sent budget requests independently to congressional
committees with no coordination of the various requests
in formulating the Federal Government’s budget. The
Budget and Accounting Act required the President to coordinate the budget requests for all Government agencies
and to send a comprehensive budget to the Congress. The
Congress has amended the requirements many times and
portions of the Act are codified in Title 31, United States
Code. The major laws that govern the budget process are
as follows:

Congressional Budget and Impoundment Control
Act of 1974 (Public Law 93–344), as amended. This Act
comprises the:
• Congressional Budget Act of 1974, as amended,
which prescribes the congressional budget process;
and

Article 1, section 8, clause 1 of the Constitution,
which empowers the Congress to collect taxes.
Article 1, section 9, clause 7 of the Constitution,
which requires appropriations in law before money may
be spent from the Treasury and the publication of a regular statement of the receipts and expenditures of all
public money.
Antideficiency Act (codified in Chapters 13 and 15
of Title 31, United States Code), which prescribes rules
and procedures for budget execution.
Balanced Budget and Emergency Deficit Control
Act of 1985, as amended, which establishes limits on
discretionary spending and provides mechanisms for enforcing discretionary spending limits.
Chapter 11 of Title 31, United States Code, which
prescribes procedures for submission of the President’s
budget and information to be contained in it.

Chapter 31 of Title 31, United States Code, which
provides the authority for the Secretary of the Treasury
to issue debt to finance the deficit and establishes a statutory limit on the level of the debt.
Chapter 33 of Title 31, United States Code, which
establishes the Department of the Treasury as the authority for making disbursements of public funds, with the
authority to delegate that authority to executive agencies
in the interests of economy and efficiency.
Government Performance and Results Act of 1993
(Public Law 103–62, as amended) which emphasizes
managing for results. It requires agencies to prepare
strategic plans, annual performance plans, and annual
performance reports.
Statutory Pay-As-You-Go Act of 2010, which establishes a budget enforcement mechanism generally
requiring that direct spending and revenue legislation
enacted into law not increase the deficit.

• Impoundment

Control Act of 1974, which controls certain aspects of budget execution.

• Federal Credit Reform Act of 1990, as amended

(2 USC 661–661f), which the Budget Enforcement
Act of 1990 included as an amendment to the Congressional Budget Act to prescribe the budget treatment for Federal credit programs.

88

ANALYTICAL PERSPECTIVES

GLOSSARY OF BUDGET TERMS
Account refers to a separate financial reporting unit
used by the Federal Government to record budget authority, outlays and income for budgeting or management
information purposes as well as for accounting purposes.
All budget (and off-budget) accounts are classified as being either expenditure or receipt accounts and by fund
group. Budget (and off-budget) transactions fall within
either of two fund group: (1) Federal funds and (2) trust
funds. (Cf. Federal funds group and trust funds group.)
Accrual method of measuring cost means an accounting method that records cost when the liability is
incurred. As applied to Federal employee retirement benefits, accrual costs are recorded when the benefits are
earned rather than when they are paid at some time in
the future. The accrual method is used in part to provide
data that assists in agency policymaking, but not used
in presenting the overall budget of the United States
Government.
Advance appropriation means appropriations of
new budget authority that become available one or more
fiscal years beyond the fiscal year for which the appropriation act was passed.
Advance funding means appropriations of budget authority provided in an appropriations act to be used, if
necessary, to cover obligations incurred late in the fiscal
year for benefit payments in excess of the amount specifically appropriated in the act for that year, where the
budget authority is charged to the appropriation for the
program for the fiscal year following the fiscal year for
which the appropriations act is passed.
Agency means a department or other establishment of
the Government.
Allowance means a lump-sum included in the budget
to represent certain transactions that are expected to increase or decrease budget authority, outlays, or receipts
but that are not, for various reasons, reflected in the program details.
Balanced Budget and Emergency Deficit Control
Act of 1985 (BBEDCA) refers to legislation that altered
the budget process, primarily by replacing the earlier fixed
targets for annual deficits with a Pay-As-You-Go requirement for new tax or mandatory spending legislation and
with caps on annual discretionary funding. The Statutory
Pay-As-You-Go Act of 2010, which is a standalone piece of
legislation that did not directly amend the BBEDCA, reinstated a statutory pay-as-you-go rule for revenues and
mandatory spending legislation, and the Budget Control
Act of 2011, which did amend BBEDCA, reinstated discretionary caps on budget authority.
Balances of budget authority means the amounts of
budget authority provided in previous years that have not
been outlayed.
Baseline means a projection of the estimated receipts,
outlays, and deficit or surplus that would result from continuing current law or current policies through the period
covered by the budget.
Budget means the Budget of the United States
Government, which sets forth the President’s comprehen-

sive financial plan for allocating resources and indicates
the President’s priorities for the Federal Government.
Budget authority (BA) means the authority provided
by law to incur financial obligations that will result in
outlays. (For a description of the several forms of budget
authority, see “Budget Authority and Other Budgetary
Resources’’ earlier in this chapter.)
Budget Control Act of 2011 refers to legislation that,
among other things, amended BBEDCA to reinstate discretionary spending limits on budget authority through
2021 and restored the process for enforcing those spending limits. The legislation also increased the statutory
debt ceiling; created a Joint Select Committee on Deficit
Reduction that was instructed to develop a bill to reduce
the Federal deficit by at least $1.5 trillion over a 10-year
period; and provided a process to implement alternative
spending reductions in the event that legislation achieving at least $1.2 trillion of deficit reduction was not
enacted.
Budget resolution—see concurrent resolution on the
budget.
Budget totals mean the totals included in the budget for budget authority, outlays, receipts, and the surplus
or deficit. Some presentations in the budget distinguish
on-budget totals from off-budget totals. On-budget totals
reflect the transactions of all Federal Government entities except those excluded from the budget totals by law.
Off-budget totals reflect the transactions of Government
entities that are excluded from the on-budget totals by
law. Under current law, the off-budget totals include
the Social Security trust funds (Federal Old-Age and
Survivors Insurance and Federal Disability Insurance
Trust Funds) and the Postal Service Fund. The budget
combines the on- and off-budget totals to derive unified
(i.e. consolidated) totals for Federal activity.
Budget year refers to the fiscal year for which the budget is being considered, that is, with respect to a session
of Congress, the fiscal year of the government that starts
on October 1 of the calendar year in which that session of
Congress begins.
Budgetary resources mean amounts available to incur obligations in a given year. The term comprises new
budget authority and unobligated balances of budget authority provided in previous years.
Cap means the legal limits for each fiscal year under
BBEDCA on the budget authority and outlays (only if applicable) provided by discretionary appropriations.
Cap adjustment means either an increase or a decrease that is permitted to the statutory cap limits for
each fiscal year under BBEDCA on the budget authority
and outlays (only if applicable) provided by discretionary appropriations only if certain conditions are met.
These conditions may include providing for a base level
of funding, a designation of the increase or decrease by
the Congress, (and in some circumstances, the President)
pursuant to a section of the BBEDCA, or a change in concepts and definitions of funding under the cap. Changes

8. Budget Concepts

in concepts and definitions require consultation with the
Congressional Appropriations and Budget Committees.
Cash equivalent transaction means a transaction
in which the Government makes outlays or receives collections in a form other than cash or the cash does not
accurately measure the cost of the transaction. (For examples, see the section on “Outlays’’ earlier in this chapter.)
Collections mean money collected by the Government
that the budget records as a governmental receipt, an offsetting collection, or an offsetting receipt.
Concurrent resolution on the budget refers to the
concurrent resolution adopted by the Congress to set budgetary targets for appropriations, mandatory spending
legislation, and tax legislation. These concurrent resolutions are required by the Congressional Budget Act of
1974, and are generally adopted annually.
Continuing resolution means an appropriations act
that provides for the ongoing operation of the Government
in the absence of enacted appropriations.
Cost refers to legislation or administrative actions that
increase outlays or decrease receipts. (Cf. savings.)
Credit program account means a budget account
that receives and obligates appropriations to cover the
subsidy cost of a direct loan or loan guarantee and disburses the subsidy cost to a financing account.
Current services estimate—see Baseline.
Debt held by the public means the cumulative
amount of money the Federal Government has borrowed
from the public and not repaid.
Debt held by the public net of financial assets
means the cumulative amount of money the Federal
Government has borrowed from the public and not repaid,
minus the current value of financial assets such as loan
assets, bank deposits, or private-sector securities or equities held by the Government and plus the current value of
financial liabilities other than debt.
Debt held by Government accounts means the debt
the Treasury Department owes to accounts within the
Federal Government. Most of it results from the surpluses of the Social Security and other trust funds, which are
required by law to be invested in Federal securities.
Debt limit means the maximum amount of Federal
debt that may legally be outstanding at any time. It includes both the debt held by the public and the debt held
by Government accounts, but without accounting for offsetting financial assets. When the debt limit is reached,
the Government cannot borrow more money until the
Congress has enacted a law to increase the limit.
Deficit means the amount by which outlays exceed
receipts in a fiscal year. It may refer to the on-budget, offbudget, or unified budget deficit.
Direct loan means a disbursement of funds by the
Government to a non-Federal borrower under a contract that requires the repayment of such funds with or
without interest. The term includes the purchase of, or
participation in, a loan made by another lender. The term
also includes the sale of a Government asset on credit
terms of more than 90 days duration as well as financing
arrangements for other transactions that defer payment
for more than 90 days. It also includes loans financed by

89
the Federal Financing Bank (FFB) pursuant to agency
loan guarantee authority. The term does not include the
acquisition of a federally guaranteed loan in satisfaction
of default or other guarantee claims or the price support
“loans” of the Commodity Credit Corporation. (Cf. loan
guarantee.)
Direct spending—see mandatory spending.
Disaster funding means a discretionary appropriation that is enacted that the Congress designates as being
for disaster relief. Such amounts are a cap adjustment to
the limits on discretionary spending under BBEDCA. The
total adjustment for this purpose cannot exceed a ceiling
for a particular year that is defined as the total of the
average funding provided for disaster relief over the previous 10 years (excluding the highest and lowest years)
and the unused amount of the prior year’s ceiling (excluding the portion of the prior year’s ceiling that was itself
due to any unused amount from the year before). Disaster
relief is defined as activities carried out pursuant to a determination under section 102(2) of the Robert T. Stafford
Disaster Relief and Emergency Assistance Act.
Discretionary spending means budgetary resources
(except those provided to fund mandatory spending programs) provided in appropriations acts. (Cf. mandatory
spending.)
Emergency requirement means an amount that the
Congress has designated as an emergency requirement.
Such amounts are not included in the estimated budgetary effects of PAYGO legislation under the requirements
of the Statutory Pay-As-You-Go Act of 2010, if they are
mandatory or receipts. Such a discretionary appropriation that is subsequently designated by the President as
an emergency requirement results in a cap adjustment to
the limits on discretionary spending under BBEDCA.
Entitlement refers to a program in which the Federal
Government is legally obligated to make payments or provide aid to any person who, or State or local government
that, meets the legal criteria for eligibility. Examples
include Social Security, Medicare, Medicaid, and Food
Stamps.
Federal funds group refers to the moneys collected and spent by the Government through accounts
other than those designated as trust funds. Federal funds
include general, special, public enterprise, and intragovernmental funds. (Cf. trust funds group.)
Financing account means a non-budgetary account
(an account whose transactions are excluded from the
budget totals) that records all of the cash flows resulting
from post-1991 direct loan obligations or loan guarantee
commitments. At least one financing account is associated with each credit program account. For programs
that make both direct loans and loan guarantees, separate financing accounts are required for direct loan cash
flows and for loan guarantee cash flows. (Cf. liquidating
account.)
Fiscal year means the Government’s accounting period. It begins on October 1st and ends on September 30th,
and is designated by the calendar year in which it ends.
Forward funding means appropriations of budget
authority that are made for obligation starting in the

90
last quarter of the fiscal year for the financing of ongoing
grant programs during the next fiscal year.
General fund means the accounts in which are recorded governmental receipts not earmarked by law for
a specific purpose, the proceeds of general borrowing, and
the expenditure of these moneys.
Government sponsored enterprises mean private
enterprises that were established and chartered by the
Federal Government for public policy purposes. They
are classified as non-budgetary and not included in the
Federal budget because they are private companies, and
their securities are not backed by the full faith and credit
of the Federal Government. However, the budget presents
statements of financial condition for certain Government
sponsored enterprises such as the Federal National
Mortgage Association. (Cf. off-budget.)
Intragovernmental fund—see Revolving fund.
Liquidating account means a budget account that records all cash flows to and from the Government resulting
from pre-1992 direct loan obligations or loan guarantee
commitments. (Cf. financing account.)
Loan guarantee means any guarantee, insurance,
or other pledge with respect to the payment of all or a
part of the principal or interest on any debt obligation
of a non-Federal borrower to a non-Federal lender. The
term does not include the insurance of deposits, shares,
or other withdrawable accounts in financial institutions.
(Cf. direct loan.)
Mandatory spending means spending controlled by
laws other than appropriations acts (including spending for entitlement programs) and spending for the
Supplemental Nutrition Assistance Program, formerly
food stamps. Although the Statutory Pay-As-You-Go
Act of 2010 uses the term direct spending to mean this,
mandatory spending is commonly used instead. (Cf. discretionary spending.)
Means of financing refers to borrowing, the change
in cash balances, and certain other transactions involved
in financing a deficit. The term is also used to refer to the
debt repayment, the change in cash balances, and certain
other transactions involved in using a surplus. By definition, the means of financing are not treated as receipts or
outlays and so are non-budgetary.
Obligated balance means the cumulative amount of
budget authority that has been obligated but not yet outlayed. (Cf. unobligated balance.)
Obligation means a binding agreement that will result in outlays, immediately or in the future. Budgetary
resources must be available before obligations can be incurred legally.
Off-budget refers to transactions of the Federal
Government that would be treated as budgetary had the
Congress not designated them by statute as “off-budget.”
Currently, transactions of the Social Security trust funds
and the Postal Service are the only sets of transactions
that are so designated. The term is sometimes used more
broadly to refer to the transactions of private enterprises
that were established and sponsored by the Government,
most especially “Government sponsored enterprises” such
as the Federal Home Loan Banks. (Cf. budget totals.)

ANALYTICAL PERSPECTIVES

Offsetting collections mean collections that, by law,
are credited directly to expenditure accounts and deducted
from gross budget authority and outlays of the expenditure account, rather than added to receipts. Usually, they
are authorized to be spent for the purposes of the account
without further action by the Congress. They result from
business-like transactions with the public, including payments from the public in exchange for goods and services,
reimbursements for damages, and gifts or donations of
money to the Government and from intragovernmental
transactions with other Government accounts. The authority to spend offsetting collections is a form of budget
authority. (Cf. receipts and offsetting receipts.)
Offsetting receipts mean collections that are credited to offsetting receipt accounts and deducted from
gross budget authority and outlays, rather than added
to receipts. They are not authorized to be credited to expenditure accounts. The legislation that authorizes the
offsetting receipts may earmark them for a specific purpose and either appropriate them for expenditure for that
purpose or require them to be appropriated in annual appropriation acts before they can be spent. Like offsetting
collections, they result from business-like transactions or
market-oriented activities with the public, including payments from the public in exchange for goods and services,
reimbursements for damages, and gifts or donations of
money to the Government and from intragovernmental
transactions with other Government accounts. (Cf. receipts, undistributed offsetting receipts, and offsetting
collections.)
On-budget refers to all budgetary transactions other
than those designated by statute as off-budget (Cf. budget totals.)
Outlay means a payment to liquidate an obligation
(other than the repayment of debt principal or other disbursements that are “means of financing” transactions).
Outlays generally are equal to cash disbursements, but
also are recorded for cash-equivalent transactions, such
as the issuance of debentures to pay insurance claims,
and in a few cases are recorded on an accrual basis such
as interest on public issues of the public debt. Outlays are
the measure of Government spending.
Outyear estimates mean estimates presented in the
budget for the years beyond the budget year of budget authority, outlays, receipts, and other items (such as debt).
Overseas Contingency Operations/Global War
on Terrorism (OCO/GWOT) means a discretionary
appropriation that is enacted that the Congress and, subsequently, the President have so designated on an account
by account basis. Such a discretionary appropriation that
is designated as OCO/GWOT results in a cap adjustment
to the limits on discretionary spending under BBEDCA.
Funding for these purposes has most recently been associated with the wars in Iraq and Afghanistan.
Pay-as-you-go (PAYGO) refers to requirements of
the Statutory Pay-As-You-Go Act of 2010 that result in
a sequestration if the estimated combined result of new
legislation affecting direct spending or revenue increases
the on-budget deficit relative to the baseline, as of the end
of a congressional session.

8. Budget Concepts

Public enterprise fund—see Revolving fund.
Reappropriation means a provision of law that extends into a new fiscal year the availability of unobligated
amounts that have expired or would otherwise expire.
Receipts mean collections that result from the
Government’s exercise of its sovereign power to tax or
otherwise compel payment. They are compared to outlays
in calculating a surplus or deficit. (Cf. offsetting collections and offsetting receipts.)
Revolving fund means a fund that conducts continuing cycles of business-like activity, in which the fund
charges for the sale of products or services and uses the
proceeds to finance its spending, usually without requirement for annual appropriations. There are two types of
revolving funds: Public enterprise funds, which conduct business-like operations mainly with the public,
and intragovernmental revolving funds, which conduct
business-like operations mainly within and between
Government agencies. (Cf. special fund and trust fund.)
Savings refers to legislation or administrative actions
that decrease outlays or increase receipts. (Cf. cost.)
Scorekeeping means measuring the budget effects
of legislation, generally in terms of budget authority,
receipts, and outlays, for purposes of measuring adherence to the Budget or to budget targets established by the
Congress, as through agreement to a Budget Resolution.
Sequestration means the cancellation of budgetary
resources. The Statutory Pay-As-You-Go Act of 2010 requires such cancellations if revenue or direct spending
legislation is enacted that, in total, increases projected
deficits or reduces projected surpluses relative to the
baseline. The Balanced Budget and Emergency Deficit
Control Act of 1985, as amended, requires such cancellations if discretionary appropriations exceed the statutory
limits on discretionary spending.
Special fund means a Federal fund account for
receipts or offsetting receipts earmarked for specific purposes and the expenditure of these receipts. (Cf. revolving
fund and trust fund.)
Statutory Pay-As-You-Go Act of 2010 refers to
legislation that reinstated a statutory pay-as-you-go requirement for new tax or mandatory spending legislation.
The law is a standalone piece of legislation that crossreferences BBEDCA but does not directly amend that
legislation. This is a permanent law and does not expire.

91
Subsidy means the estimated long-term cost to the
Government of a direct loan or loan guarantee, calculated
on a net present value basis, excluding administrative
costs and any incidental effects on governmental receipts
or outlays.
Surplus means the amount by which receipts exceed
outlays in a fiscal year. It may refer to the on-budget, offbudget, or unified budget surplus.
Supplemental appropriation means an appropriation enacted subsequent to a regular annual
appropriations act, when the need for additional funds is
too urgent to be postponed until the next regular annual
appropriations act.
Trust fund refers to a type of account, designated by
law as a trust fund, for receipts or offsetting receipts dedicated to specific purposes and the expenditure of these
receipts. Some revolving funds are designated as trust
funds, and these are called trust revolving funds. (Cf. special fund and revolving fund.)
Trust funds group refers to the moneys collected and
spent by the Government through trust fund accounts.
(Cf. Federal funds group.)
Undistributed offsetting receipts mean offsetting
receipts that are deducted from the Government-wide
totals for budget authority and outlays instead of being
offset against a specific agency and function. (Cf. offsetting receipts.)
Unified budget includes receipts from all sources and
outlays for all programs of the Federal Government, including both on- and off-budget programs. It is the most
comprehensive measure of the Government’s annual
finances.
Unobligated balance means the cumulative amount
of budget authority that remains available for obligation
under law in unexpired accounts. The term “expired balances available for adjustment only” refers to unobligated
amounts in expired accounts.
User charges are charges assessed for the provision of
Government services and for the sale or use of Government
goods or resources. The payers of the user charge must
be limited in the authorizing legislation to those receiving special benefits from, or subject to regulation by, the
program or activity beyond the benefits received by the
general public or broad segments of the public (such as
those who pay income taxes or custom duties).

9. COVERAGE OF THE BUDGET

The Federal budget is the central instrument of national policy making. It is the Government’s financial plan
for proposing and deciding the allocation of resources to
serve national objectives. The budget provides information on the cost and scope of Federal activities to inform
decisions and to serve as a means to control the allocation
of resources. When enacted, it establishes the level of public goods and services provided by the Government.
Federal Government activities can be either “budgetary” or “non-budgetary.” Those activities that involve
direct and measurable allocation of Federal resources are
budgetary. The payments to and from the public resulting
from budgetary activities are included in the budget’s accounting of outlays and receipts. Federal activities that
do not involve direct and measurable allocation of Federal
resources are non-budgetary and are not included in the
budget’s accounting of outlays and receipts. More detailed
information about outlays and receipts may be found in
Chapter 8, “Budget Concepts,” of this volume.
The budget documents include information on some
non-budgetary activities because they can be important
instruments of Federal policy and provide insight into
the scope and nature of Federal activities. For example,
as discussed in more detail later, the budget documents
show the transactions of the Thrift Savings Program
(TSP), a collection of investment funds managed by the
Federal Retirement Thrift Investment Board (FRTIB).
Despite the fact that the FRTIB is budgetary and one
of the TSP funds is invested entirely in Federal securities, the transactions of these funds are non-budgetary
because current and retired Federal employees own the
funds. The Government manages these funds only in a
fiduciary capacity.
The budget also includes information on cash flows
that are a means of financing Federal activity, such as
for credit financing accounts. However, to avoid doublecounting, means of financing amounts are not included in
the estimates of outlays or receipts double counting because the costs of the underlying Federal activities are
already reflected in the deficit.1 Similarly, while budget
totals of outlays and receipts do not include non-Federal costs resulting from Federal regulation, the Office of
Management and Budget (OMB) annually reports on the
costs and benefits of Federal regulation to non-Federal entities.2 This chapter provides details about the budgetary
and non-budgetary activities of the Federal Government.
1 For more information on means of financing, see the “Budget Deficit
or Surplus and Means of Financing” section of Chapter 8, “Budget Concepts,” in this volume.
2 For the 2016 draft of the “Report to Congress on the Benefits and
Costs of Federal Regulation and Unfunded Mandates on State, Local
and Tribal Entities,” see https://obamawhitehouse.archives.gov/sites/
default/files/omb/assets/legislative_reports/draft_2016_cost_benefit_
report_12_14_2016_2.pdf.

Budgetary Activities
The Federal Government has used the unified budget concept—which consolidates outlays and receipts
from Federal funds and trust funds, including the Social
Security trust funds—since 1968, starting with the 1969
Budget. The 1967 President’s Commission on Budget
Concepts (the Commission) recommended the change to
include the financial transactions of all of the Federal
Government’s programs and agencies. Thus, the budget
includes information on the financial transactions of all
15 Executive departments, all independent agencies (from
all three branches of Government), and all Government
corporations.3
The budget reflects the legal distinction, described in
more detail below, between on-budget activities and offbudget activities by showing outlays and receipts for
both types of activities separately. Although there is a
legal distinction between on-budget and off-budget activities, conceptually there is no difference between the
two. Off-budget Federal activities reflect the same kinds
of governmental roles as on-budget activities and result
in outlays and receipts. Like on-budget activities, the
Government funds and controls off-budget activities.
The “unified budget” reflects the conceptual similarity
between on-budget and off-budget activities by showing
combined totals of outlays and receipts for both.
Many Government corporations are entities with business-type operations that charge the public for services
at prices intended to allow the entity to be self-sustaining; although, some operate at a loss in order to provide
subsidies to specific recipients. Often these entities are
more independent than other agencies and have limited
exemptions from certain Federal personnel requirements
to allow for flexibility.
All accounts in Table 26-1, “Federal Budget by Agency
and Account,” in the supplemental materials to this
volume are budgetary.4 The majority of budgetary accounts are associated with the departments or other
entities that are clearly Federal agencies. Some budgetary accounts reflect Government payments to entities
that the Government created or chartered as private
or non-Federal entities. Some of these entities receive
3 Government corporations are Government entities that are defined
as corporations pursuant to the Government Corporation Control Act,
as amended (31 U.S.C. 9101), or elsewhere in law. Examples include the
Commodity Credit Corporation, the Export-Import Bank of the United
States, the Federal Crop Insurance Corporation, the Federal Deposit
Insurance Corporation, the Millennium Challenge Corporation, the
Overseas Private Investment Corporation, the Pension Benefit Guaranty Corporation, the Tennessee Valley Authority, the African Development Foundation (22 U.S.C. 290h-6), the Inter-American Foundation (22
U.S.C. 290f), the Presidio Trust (16 U.S.C. 460bb note), and the Valles
Caldera Trust (16 U.S.C. 698v-4).
4 Table 26-1 can be found at: http://www.budget.gov/budget/analytical_perspectives.

93

94

ANALYTICAL PERSPECTIVES

Table 9–1. COMPARISON OF TOTAL, ON-BUDGET, AND OFF-BUDGET TRANSACTIONS 1
(In billions of dollars)
Year

Receipts
Total

Outlays

On-budget Off-budget

Total

Surplus or deficit (–)

On-budget Off-budget

Total

On-budget Off-budget

1980 �����������������������������������������������������������������������������������������������������
1981 �����������������������������������������������������������������������������������������������������
1982 �����������������������������������������������������������������������������������������������������
1983 �����������������������������������������������������������������������������������������������������
1984 �����������������������������������������������������������������������������������������������������

517.1
599.3
617.8
600.6
666.4

403.9
469.1
474.3
453.2
500.4

113.2
130.2
143.5
147.3
166.1

590.9
678.2
745.7
808.4
851.8

477.0
543.0
594.9
660.9
685.6

113.9
135.3
150.9
147.4
166.2

–73.8
–79.0
–128.0
–207.8
–185.4

–73.1
–73.9
–120.6
–207.7
–185.3

-0.7
-5.1
-7.4
-0.1
-0.1

1985 �����������������������������������������������������������������������������������������������������
1986 �����������������������������������������������������������������������������������������������������
1987 �����������������������������������������������������������������������������������������������������
1988 �����������������������������������������������������������������������������������������������������
1989 �����������������������������������������������������������������������������������������������������

734.0
769.2
854.3
909.2
991.1

547.9
568.9
640.9
667.7
727.4

186.2
200.2
213.4
241.5
263.7

946.3
990.4
1,004.0
1,064.4
1,143.7

769.4
806.8
809.2
860.0
932.8

176.9
183.5
194.8
204.4
210.9

–212.3
–221.2
–149.7
–155.2
–152.6

–221.5
–237.9
–168.4
–192.3
–205.4

9.2
16.7
18.6
37.1
52.8

1990 �����������������������������������������������������������������������������������������������������
1991 �����������������������������������������������������������������������������������������������������
1992 �����������������������������������������������������������������������������������������������������
1993 �����������������������������������������������������������������������������������������������������
1994 �����������������������������������������������������������������������������������������������������

1,032.0
1,055.0
1,091.2
1,154.3
1,258.6

750.3
761.1
788.8
842.4
923.5

281.7
293.9
302.4
311.9
335.0

1,253.0
1,324.2
1,381.5
1,409.4
1,461.8

1,027.9
1,082.5
1,129.2
1,142.8
1,182.4

225.1
241.7
252.3
266.6
279.4

–221.0
–269.2
–290.3
–255.1
–203.2

–277.6
–321.4
–340.4
–300.4
–258.8

56.6
52.2
50.1
45.3
55.7

1995 �����������������������������������������������������������������������������������������������������
1996 �����������������������������������������������������������������������������������������������������
1997 �����������������������������������������������������������������������������������������������������
1998 �����������������������������������������������������������������������������������������������������
1999 �����������������������������������������������������������������������������������������������������

1,351.8
1,453.1
1,579.2
1,721.7
1,827.5

1,000.7
1,085.6
1,187.2
1,305.9
1,383.0

351.1
367.5
392.0
415.8
444.5

1,515.7
1,560.5
1,601.1
1,652.5
1,701.8

1,227.1
1,259.6
1,290.5
1,335.9
1,381.1

288.7
300.9
310.6
316.6
320.8

–164.0
–107.4
–21.9
69.3
125.6

–226.4
–174.0
–103.2
–29.9
1.9

62.4
66.6
81.4
99.2
123.7

2000 �����������������������������������������������������������������������������������������������������
2001 �����������������������������������������������������������������������������������������������������
2002 �����������������������������������������������������������������������������������������������������
2003 �����������������������������������������������������������������������������������������������������
2004 �����������������������������������������������������������������������������������������������������

2,025.2
1,991.1
1,853.1
1,782.3
1,880.1

1,544.6
1,483.6
1,337.8
1,258.5
1,345.4

480.6
507.5
515.3
523.8
534.7

1,789.0
1,862.8
2,010.9
2,159.9
2,292.8

1,458.2
1,516.0
1,655.2
1,796.9
1,913.3

330.8
346.8
355.7
363.0
379.5

236.2
128.2
–157.8
–377.6
–412.7

86.4
–32.4
–317.4
–538.4
–568.0

149.8
160.7
159.7
160.8
155.2

2005 �����������������������������������������������������������������������������������������������������
2006 �����������������������������������������������������������������������������������������������������
2007 �����������������������������������������������������������������������������������������������������
2008 �����������������������������������������������������������������������������������������������������
2009 �����������������������������������������������������������������������������������������������������

2,153.6
2,406.9
2,568.0
2,524.0
2,105.0

1,576.1
1,798.5
1,932.9
1,865.9
1,451.0

577.5
608.4
635.1
658.0
654.0

2,472.0
2,655.1
2,728.7
2,982.5
3,517.7

2,069.7
2,233.0
2,275.0
2,507.8
3,000.7

402.2
–318.3
422.1
–248.2
453.6
–160.7
474.8
–458.6
517.0 –1,412.7

–493.6
–434.5
–342.2
–641.8
–1,549.7

175.3
186.3
181.5
183.3
137.0

2010 �����������������������������������������������������������������������������������������������������
2011 �����������������������������������������������������������������������������������������������������
2012 �����������������������������������������������������������������������������������������������������
2013 �����������������������������������������������������������������������������������������������������
2014 �����������������������������������������������������������������������������������������������������
2015 �����������������������������������������������������������������������������������������������������
2016 �����������������������������������������������������������������������������������������������������

2,162.7
2,303.5
2,450.0
2,775.1
3,021.5
3,249.9
3,268.0

1,531.0
1,737.7
1,880.5
2,101.8
2,285.9
2,479.5
2,457.8

631.7
565.8
569.5
673.3
735.6
770.4
810.2

3,457.1
3,603.1
3,536.9
3,454.6
3,506.1
3,688.4
3,852.6

2,902.4
3,104.5
3,029.4
2,820.8
2,800.0
2,945.3
3,077.9

554.7 –1,294.4
498.6 –1,299.6
507.6 –1,087.0
633.8
–679.5
706.1
–484.6
743.1
–438.5
774.7
–584.7

–1,371.4
–1,366.8
–1,148.9
–719.0
–514.1
–465.8
–620.2

77.0
67.2
61.9
39.5
29.5
27.3
35.5

857.4
892.2
931.3
971.8
1,026.8
1,081.3

4,062.2
4,094.5
4,339.6
4,470.1
4,616.7
4,831.7

3,246.7
3,227.8
3,416.0
3,482.3
3,564.7
3,708.1

–644.4
–465.7
–533.6
–472.0
–430.6
–399.3

41.9
25.5
7.7
-15.9
-25.2
-42.4

2017 estimate ���������������������������������������������������������������������������������������
3,459.7
2,602.3
2018 estimate ���������������������������������������������������������������������������������������
3,654.3
2,762.1
2019 estimate ���������������������������������������������������������������������������������������
3,813.7
2,882.4
2020 estimate ���������������������������������������������������������������������������������������
3,982.1
3,010.3
2021 estimate ���������������������������������������������������������������������������������������
4,160.9
3,134.1
2022 estimate ���������������������������������������������������������������������������������������
4,390.1
3,308.8
1 Off-budget transactions consist of the Social Security trust funds and the Postal Service fund.

all or a majority of their funding from the Government.
These include the Corporation for Public Broadcasting,
Gallaudet University, Howard University, the Legal
Services Corporation, the National Railroad Passenger
Corporation (Amtrak), the Smithsonian Institution, the

815.5
866.7
923.6
987.8
1,052.0
1,123.6

–602.5
–440.2
–525.9
–488.0
–455.8
–441.7

State Justice Institute, and the United States Institute of
Peace. A related example is the Standard Setting Board,
which is not a Federally created entity but since 2003
has received a majority of funding through a federally
mandated assessment on public companies under the

95

9. Coverage of the Budget

Sarbanes-Oxley Act. Although the Federal payments to
these entities are budgetary, the entities themselves are
non-budgetary.
Whether the Government created or chartered an entity does not alone determine its budgetary status. The
Commission recommended that the budget be comprehensive but it also recognized that proper budgetary
classification required weighing all relevant factors regarding establishment, ownership, and control of an
entity while erring on the side of inclusiveness. Generally,
entities that are primarily Government owned or controlled are classified as budgetary. OMB determines the
budgetary classification of entities in consultation with
the Congressional Budget Office (CBO) and the Budget
Committees of the Congress.
One recent example of a budgetary classification issue
was for the Puerto Rico financial oversight board, created
in June 2016 by the Puerto Rico Oversight, Management,
and Economic Stability Act (PL 114-187). By statute, this
oversight board is not a department, agency, establishment, or instrumentality of the Federal Government, but
is an entity within the territorial government financed
entirely by the territorial government. Because the flow
of funds from the territory to the oversight board is mandated by Federal law, the budget reflects the allocation of
resources by the territorial government to the new territorial entity as a receipt from the territorial government
and an equal outlay to the oversight board, with net zero
deficit impact. Because the oversight board itself is not
a Federal entity, its operations are not included in the
budget.
Another example involved the National Association of
Registered Agents and Brokers (NARAB). NARAB allows
for the adoption and application of insurance licensing,
continuing education, and other nonresident producer
qualification requirements on a multi-state basis. In other words, NARAB streamlines the ability of a nonresident
insurer to become a licensed agent in another State. In
exchange for providing enhanced market access, NARAB
collects fees from its members. The Terrorism Risk
Insurance Reauthorization Act of 2015 established the
association. In addition to being statutorily established,
which in itself is an indication that the entity is governmental, NARAB has a board of directors appointed by the
President and confirmed by the Senate. It must also submit bylaws and an annual report to the Department of the
Treasury and its primary function involves exercising a
regulatory function.
Off-budget Federal activities.—Despite the
Commission’s recommendation that the budget be comprehensive, every year since 1971 at least one Federal
program or agency has been presented as off-budget because of a legal requirement.5 The Government funds
such off-budget Federal activities and administers them
according to Federal legal requirements. However, their
net costs are excluded, by law, from the rest of the budget
totals, also known as the “on-budget” totals.
5 While the term “off-budget” is sometimes used colloquially to mean
non-budgetary, the term has a meaning distinct from non-budgetary.
Off-budget activities would be considered budgetary, absent legal requirement to exclude these activities from the budget totals.

Off-budget Federal activities currently consist of the
U.S. Postal Service and the two Social Security trust
funds: Old-Age and Survivors Insurance and Disability
Insurance. Social Security has been classified as off-budget since 1986 and the Postal Service has been classified as
off-budget since 1990.6 Other activities that had been designated in law as off-budget at various times before 1986
have been classified as on-budget by law since at least
1985 as a result of the Balanced Budget and Emergency
Deficit Control Act of 1985 (Public Law 99–177). Activities
that were off-budget at one time but that are now on-budget are classified as on-budget for all years in historical
budget data.
Social Security is the largest single program in the unified budget and it is classified by law as off-budget; as
a result, the off-budget accounts constitute a significant
part of total Federal spending and receipts. Table 9–1
divides total Federal Government outlays, receipts, and
the surplus or deficit between on-budget and off-budget
amounts. Within this table, the Social Security and Postal
Service transactions are classified as off-budget for all
years to provide a consistent comparison over time.
Non-Budgetary Activities
The Government characterizes some important
Government activities as non-budgetary because they do
not involve the direct allocation of resources.7 These activities can affect budget outlays or receipts even though
they have non-budgetary components.
Federal credit programs: budgetary and non-budgetary transactions.—Federal credit programs make
direct loans or guarantee private loans to non-Federal borrowers. The Federal Credit Reform Act of 1990 (FCRA), as
amended by the Balanced Budget Act of 1997, established
the current budgetary treatment for credit programs.
Under FCRA, the budgetary cost of a credit program,
known as the “subsidy cost,” is the estimated lifetime cost
to the Government of a loan or a loan guarantee on a net
present value basis, excluding administrative costs.
Outlays equal to the subsidy cost are recorded in the
budget up front, as they are incurred—for example, when
a loan is made or guaranteed. Credit program cash flows
6 See 42 U.S.C. 911, and 39 U.S.C. 2009a, respectively. The off-budget
Postal Service accounts consist of the Postal Service Fund, which is classified as a mandatory account, and the Office of the Inspector General
and the Postal Regulatory Commission, both of which are classified as
discretionary accounts. The Postal Service Retiree Health Benefits Fund
is an on-budget mandatory account with the Office of Personnel Management. The off-budget Social Security accounts consist of the Federal
Old-Age and Survivors Insurance trust fund and the Federal Disability
Insurance trust fund, both of which have mandatory and discretionary
funding.
7 Tax expenditures, which are discussed in Chapter 13 of this volume,
are an example of Government activities that could be characterized as
either budgetary or non-budgetary. Tax expenditures refer to the reduction in tax receipts resulting from the special tax treatment accorded
certain private activities. Because tax expenditures reduce tax receipts
and receipts are budgetary, tax expenditures clearly have budgetary
effects. However, the size and composition of tax expenditures are not
explicitly recorded in the budget as outlays or as negative receipts and,
for this reason, tax expenditures might be considered a special case of
non-budgetary transactions.

96
to and from the public are recorded in non-budgetary
financing accounts and the information is included in
budget documents to provide insight into the program
size and costs. For more information about the mechanisms of credit programs, see Chapter 8 of this volume,
“Budget Concepts.” More detail on credit programs is in
Chapter 19 of this volume, “Credit and Insurance.”
Deposit funds.—Deposit funds are non-budgetary
accounts that record amounts held by the Government
temporarily until ownership is determined (such as earnest money paid by bidders for mineral leases) or held
by the Government as an agent for others (such as State
income taxes withheld from Federal employees’ salaries
and not yet paid to the States). The largest deposit fund is
the Government Securities Investment Fund, also known
as the G-Fund, which is part of the TSP, the Government’s
defined contribution retirement plan. The Federal
Retirement Thrift Investment Board manages the fund’s
investment for Federal employees who participate in the
TSP (which is similar to private-sector 401(k) plans). The
Department of the Treasury holds the G-Fund assets,
which are the property of Federal employees, only in a
fiduciary capacity; the transactions of the Fund are not
resource allocations by the Government and are therefore
non-budgetary.8 For similar reasons, Native American
-owned funds that are held and managed in a fiduciary
capacity are also excluded from the budget.
Government-Sponsored Enterprises (GSEs).—
Government-Sponsored Enterprises are privately owned
and therefore distinct from government corporations. The
Federal Government has chartered GSEs such as the
Federal National Mortgage Association (Fannie Mae), the
Federal Home Loan Mortgage Corporation (Freddie Mac),
the Federal Home Loan Banks, the Farm Credit System,
and the Federal Agricultural Mortgage Corporation to
provide financial intermediation for specified public purposes. Although federally chartered to serve public-policy
purposes, because GSEs are intended to be privately
owned and controlled, with any public benefits accruing
indirectly from the GSEs’ business transactions, they are
classified as non-budgetary. Estimates of the GSEs’ activities can be found in a separate chapter of the Budget
Appendix, and their activities are discussed in Chapter 19
of this volume, “Credit and Insurance.”
In September 2008, in response to the financial market
crisis, the director of the Federal Housing Finance Agency
(FHFA)9 placed Fannie Mae and Freddie Mac into conservatorship for the purpose of preserving the assets and restoring
the solvency of these two GSEs. As conservator, FHFA has
broad authority to direct the operations of these GSEs.
However, these GSEs remain private companies with board
of directors and management responsible for their day-to-day
operations. This Budget continues to treat these two GSEs
as non-budgetary private entities in conservatorship rather
than as Government agencies. By contrast, CBO treats these
8 The administrative functions of the Federal Retirement Thrift Investment Board are carried out by Government employees and included
in the budget totals.
9 FHFA is the regulator of Fannie Mae, Freddie Mac, and the Federal
Home Loans Banks.

ANALYTICAL PERSPECTIVES

GSEs as budgetary Federal agencies. Both treatments include budgetary and non-budgetary amounts.
While OMB reflects all of the GSEs’ transactions with
the public as non-budgetary, the payments from the
Treasury to the GSEs are recorded as budgetary outlays
and dividends received by the Treasury are recorded as
budgetary receipts. Under CBO’s approach, the subsidy
costs of Fannie Mae’s and Freddie Mac’s past credit activities have already been recorded in the budget estimates;
the subsidy costs of future credit activities will be recorded when the activities occur. Lending and borrowing
activities between the GSEs and the public apart from the
subsidy costs are treated as non-budgetary by CBO, and
Treasury payments to the GSEs are intragovernmental
transfers (from Treasury to the GSEs) that net to zero in
CBO’s budget estimates.
Overall, both the Budget’s accounting and CBO’s accounting present Fannie Mae’s and Freddie Mac’s gains
and losses as Government receipts and outlays—which
reduce or increase Government deficits. The two approaches, however, reflect the effect of the gains and losses
in the budget at different times.
Other federally-created non-budgetary entities.—
In addition to the GSEs, the Federal Government has
created a number of other entities that are classified as
non-budgetary. These include federally funded research
and development centers (FFRDCs), non-appropriated
fund instrumentalities (NAFIs), and other entities; some
of these are non-profit entities and some are for-profit
entities.10
FFRDCs are entities that conduct agency-specific research under contract or cooperative agreement.
Some FFRDCs were created to conduct research for the
Department of Defense but are administered by colleges, universities, or other non-profit entities. Despite this
non-budgetary classification, many FFRDCs receive direct resource allocation from the Government and are
10 Although most entities created by the Federal Government are budgetary, as discussed in this section, the GSEs and the Federal Reserve
System were created by the Federal Government, but are classified as
non-budgetary. In addition, Congress and the President have chartered,
but not necessarily created, approximately 100 non-profit entities that
are non-budgetary. These include patriotic, charitable, and educational
organizations under Title 36 of the U.S. Code and foundations and trusts
chartered under other titles of the Code. Title 36 corporations include
the American Legion, the American National Red Cross, Big Brothers—Big Sisters of America, Boy Scouts of America, Future Farmers
of America, Girl Scouts of the United States of America, the National
Academy of Public Administration, the National Academy of Sciences,
and Veterans of Foreign Wars of the United States. Virtually all of the
non-profit entities chartered by the Government existed under State law
prior to the granting of a Government charter, making the Government
charter an honorary rather than governing charter. A major exception
to this is the American National Red Cross. Its Government charter requires it to provide disaster relief and to ensure compliance with treaty
obligations under the Geneva Convention. Although any Government
payments (whether made as direct appropriations or through agency
appropriations) to these chartered non-profits, including the Red Cross,
would be budgetary, the non-profits themselves are classified as nonbudgetary. On April 29, 2015, the Subcommittee on Immigration and
Border Security of the Committee on the Judiciary in the U.S. House of
Representatives adopted a policy prohibiting Congress from granting
new Federal charters to private, non-profit organizations. This policy
has been adopted by every subcommittee with jurisdiction over charters
since the 101st Congress.

97

9. Coverage of the Budget

included as budget lines in various agencies. Examples
of FFRDCs include the Center for Naval Analysis and the
Jet Propulsion Laboratory.11 Even though FFRDCs are
non-budgetary, Federal payments to the FFRDC are budget outlays. In addition to Federal funding, FFRDCs may
receive funding from non-Federal sources.
Non-appropriated fund instrumentalities (NAFIs)
are entities that support an agency’s current and retired personnel. Nearly all NAFIs are associated with
the Departments of Defense, Homeland Security (Coast
Guard), and Veterans Affairs. Most NAFIs are located
on military bases and include the armed forces exchanges (which sell goods to military personnel and
their families), recreational facilities, and childcare
centers. NAFIs are financed by proceeds from the sale
of goods or services and do not receive direct appropriations; thus, they are characterized as non-budgetary
but any agency payments to the NAFIs are recorded as
budget outlays.
A number of entities created by the Government
receive a significant amount of non-Federal funding.
Non-Federal individuals or organizations significantly
control some of these entities. These entities include
Gallaudet University, Howard University, and the
Universal Services Administrative Company, among others.12 Most of these entities receive direct appropriations
or other recurring payments from the Government. The
appropriations or other payments are budgetary and
included in Table 26-1. However, many of these entities
are themselves non-budgetary. Generally, entities that
receive a significant portion of funding from non-Federal
sources but are not controlled by the Government are
non-budgetary.
Regulation.—Federal Government regulations often
require the private sector or other levels of government
to make expenditures for specified purposes that are intended to have public benefits, such as workplace safety
and pollution control. Although the budget reflects the
Government’s cost of conducting regulatory activities, the
costs imposed on the private sector as a result of regulation are treated as non-budgetary and not included in the
budget. The annual Regulatory Plan and the semi-annual
Unified Agenda of Federal Regulatory and Deregulatory
Actions describe the Government’s regulatory priorities
and plans.13 OMB has published the estimated costs and
benefits of Federal regulation annually since 1997.14
11 The National Science Foundation maintains a list of FFRDCs at
www.nsf.gov/statistics/ffrdc.
12 Under section 415(b) of the Amtrak Reform and Accountability Act
of 1997, (49 U.S.C. 24304 and note), Amtrak was required to redeem all
of its outstanding common stock. Once all outstanding common stock is
redeemed, Amtrak will be wholly-owned by the Government and, at that
point, its non-budgetary status may need to be reassessed.
13 The most recent Regulatory Plan and introduction to the Unified
Agenda issued by the General Services Administration’s Regulatory Information Service Center are available at www.reginfo.gov and at www.
gpoaccess.gov.
14 In the most recent draft report, OMB indicates that the estimated
annual benefits of Federal regulations it reviewed from October 1, 2005,
to September 30, 2015, range from $208 billion to $672 billion, while the
estimated annual costs range from $57 billion to $85 billion.

Monetary policy.— As a fiscal policy tool, the budget
is used by elected Government officials to promote economic growth and achieve other public policy objectives.
Monetary policy is another tool that governments use to
promote economic policy objectives. In the United States,
the Federal Reserve System, which is composed of a Board
of Governors and 12 regional Federal Reserve Banks,
conducts monetary policy,. The Federal Reserve Act provides that the goal of monetary policy is to “maintain
long-run growth of the monetary and credit aggregates
commensurate with the economy’s long run potential
to increase production, so as to promote effectively the
goals of maximum employment, stable prices, and moderate long-term interest rates.”15 The Full Employment
and Balanced Growth Act of 1978, also known as the
Humphrey-Hawkins Act, reaffirmed the dual goals of full
employment and price stability.16
By law, the Federal Reserve System is a self-financing
entity that is independent of the Executive Branch and
subject only to broad oversight by the Congress. Consistent
with the recommendations of the Commission, the effects of monetary policy and the actions of the Federal
Reserve System are non-budgetary, with exceptions for
the transfer to the Treasury of excess income generated through its operations. The Federal Reserve System
earns income from a variety of sources including interest
on Government securities, foreign currency investments
and loans to depository institutions, and fees for services
(e.g., check clearing services) provided to depository institutions. The Federal Reserve System remits to Treasury
any excess income over expenses annually. For the fiscal
year ending September 2016, Treasury recorded $115.7
billion in receipts from the Federal Reserve System. In
addition to remitting excess income to Treasury, law requires the Federal Reserve to transfer a portion of its
excess earnings to the Consumer Financial Protection
Bureau (CFPB).17
The Board of Governors of the Federal Reserve is a
Federal Government agency, but because of its independent status, its budget is not subject to Executive Branch
review and is included in the Budget Appendix for informational purposes only. The Federal Reserve Banks
are subject to Board oversight and managed by boards
of directors chosen by the Board of Governors and member banks, which include all national banks and State
banks that choose to become members. The budgets of the
regional Banks are subject to approval by the Board of
Governors and are not included in the Budget Appendix.
15 See

12 U.S.C. 225a.
15 U.S.C. 3101 et seq.
17 See section 1011 of Public Law 111-203 (12 U.S.C. 5491), (2010).
The CFPB is an executive agency, led by a director appointed by the
President and reliant on Federal funding, that serves the governmental
function of regulating Federal consumer financial laws. Accordingly, it is
included in the Budget.
16 See

10. BUDGET PROCESS

This chapter addresses two broad categories of budget
reform. First, the chapter discusses proposals to improve
budgeting and fiscal sustainability with respect to individual programs as well as across Government. These
proposals include: an extension of the spending reductions required by the Joint Select Committee on Deficit
Reduction; various initiatives to reduce improper payments; funding requested for disaster relief; limits on
changes in mandatory programs in appropriations Acts;
limits on advance appropriations; reforms in transportation and infrastructure spending; and proposals for
the Pell Grant program. Second, the chapter describes
the 2018 Budget proposals for budget enforcement and
budget presentation. The budget enforcement proposals
include a discussion of the system under the Statutory

Pay-As-You-Go Act of 2010 (PAYGO) of scoring legislation
affecting receipts and mandatory spending; reforms to
account for debt service in cost estimates; administrative
PAYGO actions affecting mandatory spending; discretionary spending caps; improvements to how Joint Committee
sequestration is shown in the Budget; the budgetary
treatment of the housing Government-sponsored enterprises and the United States Postal Service; and using
fair value as a method of scoring credit programs.
These reforms combine fiscal responsibility with
measures to provide citizens a more transparent, comprehensive, and accurate measure of the reach of the Federal
budget. Together, the reforms and presentations discussed create a budget more focused on core Government
functions and more accountable to the taxpayer.

I. BUDGET REFORM PROPOSALS
Joint Committee Enforcement
In August 2011, as part of the Budget Control Act of
2011 (BCA; Public Law 112-25), bipartisan majorities in
both the House and Senate voted to establish the Joint
Select Committee on Deficit Reduction to recommend legislation to achieve at least $1.5 trillion of deficit reduction
over the period of fiscal years 2012 through 2021. The
failure of the Congress to enact such comprehensive deficit reduction legislation to achieve the $1.5 trillion goal
triggered a sequestration of discretionary and mandatory
spending in 2013, led to reductions in the discretionary
caps for 2014 through 2018, and forced additional sequestrations of mandatory spending in each of fiscal years
2014 through 2017. A further sequestration of mandatory
spending is scheduled to take effect beginning on October
1 based on the order released with the 2018 Budget.
To date, various enacted legislation has changed the
annual reductions required to the discretionary spending limits set in the BCA through 2017. The sequestration
preview report issued with this budget reduced the 2018
discretionary caps according to current law. Going forward, the reductions to discretionary spending for fiscal
years 2019 through 2021 are to be implemented in the
sequestration preview report for each year by reducing
the discretionary caps. Future reductions to mandatory
programs are to be implemented by a sequestration of nonexempt mandatory budgetary resources in each of fiscal
years 2019 through 2025, which is triggered by the transmittal of the President’s Budget for each year and takes
effect on the first day of the fiscal year.
The 2018 Budget proposes to continue mandatory
sequestration into 2026 and 2027 to generate an additional $39 billion in deficit reduction. For discretionary
programs, under current law, 2018 Joint Committee pro-

cedures reduce the defense cap from $603 billion to $549.1
billion and the non-defense cap from $553 billion to $515.7
billion. The 2018 Budget restores the Joint Committee reductions made to the defense category and pays for this
increase by reducing the cap for non-defense by roughly
the same amount. This results in a proposed defense cap
of $603 billion for defense programs and a non-defense
cap of $462 billion for non-defense programs. After 2018,
the Budget sets aside the existing Joint Committee procedures for discretionary programs by proposing new
caps for defense and non-defense programs through 2027.
These funding levels will enhance our national security
while maintaining fiscal responsibility by rebalancing the
non-defense mission to focus on core Government responsibilities. See Table S–7 in the main Budget volume for
the proposed annual discretionary caps.
Program Integrity Funding
Critical programs such as Social Security,
Unemployment Insurance, Medicare, and Medicaid
should be run efficiently and effectively. Therefore, the
Administration proposes to make significant investments in activities to ensure that taxpayer dollars are
spent correctly, by expanding oversight activities in the
largest benefit programs and increasing investments in
tax compliance and enforcement activities. In addition,
the Administration supports a number of legislative and
administrative reforms in order to reduce improper payments. Many of these proposals will provide savings
for the Government and taxpayers, and will support
Government-wide efforts to improve the management
and oversight of Federal resources.
The Administration supports efforts to provide Federal
agencies with the necessary resources and incentives to

99

100
improve payment integrity, and to prevent, reduce, or
recover improper payments. The Administration will continue to identify areas, in addition to those outlined in the
Budget, where it can work with the Congress to further
improve agency efforts.
Administrative Funding for Program Integrity.—
There is compelling evidence that investments in
administrative resources can significantly decrease the
rate of improper payments and recoup many times their
initial investment. The Social Security Administration
(SSA) estimates that continuing disability reviews conducted in 2018 will yield net Federal program savings
over the next 10 years of roughly $8 on average per $1
budgeted for dedicated program integrity funding, including the Old Age, Survivors, and Disability Insurance
Program (OASDI), Supplemental Security Income (SSI),
Medicare and Medicaid program effects. Similarly, for
Health Care Fraud and Abuse Control (HCFAC) program
integrity efforts, CMS actuaries conservatively estimate
approximately $2 is saved or averted for every additional
$1 spent.
Enacted Adjustments Pursuant to BBEDCA.—The
Balanced Budget and Emergency Deficit Control Act of
1985, as amended (BBEDCA), recognized that a multiyear strategy to reduce the rate of improper payments,
commensurate with the large and growing costs of the programs administered by the Social Security Administration
and the Department of Health and Human Services, is
a laudable goal. To support the overall goal, BBEDCA
provided for adjustments to the discretionary spending
limits through 2021 to allow for additional funding for
specific program integrity activities to reduce improper
payments in the Social Security programs and in the
Medicare and Medicaid programs. Because the additional funding is classified as discretionary and the savings as
mandatory, the savings cannot be offset against the funding for budget enforcement purposes. These adjustments
to the discretionary caps are made only if appropriations
bills increase funding for the specified program integrity
purposes above specified minimum, or base levels. This
method ensures that the additional funding provided in
BBEDCA does not supplant other Federal spending on
these activities and that such spending is not diverted to
other purposes. The Bipartisan Budget Act of 2015 (BBA)
increased the level of such adjustments for Social Security
programs by a net $484 million over the 2017-2021 period, and it expanded the uses of cap adjustment funds
to include cooperative disability investigation units, and
special attorneys for fraud prosecutions.
The 2018 Budget supports full funding of the authorized cap adjustments for these programs through 2021
and proposes to extend the cap adjustments through 2027
at the rate of current services inflation assumed in the
Budget. The 2018 Budget shows the baseline and policy
levels at equivalent amounts. Accordingly, savings generated from such funding levels in the baseline for program
integrity activities are reflected in the baselines for Social
Security programs, Medicare, and Medicaid.
Social Security Administration Medical Continuing
Disability Reviews and Non-Medical Redeterminations of

ANALYTICAL PERSPECTIVES

SSI Eligibility.—For the Social Security Administration,
the Budget’s proposed $1,735 million in discretionary
funding in 2018 ($273 million in base funding and $1,462
million in cap adjustment funding) will allow SSA to conduct 890,000 full medical CDRs and approximately 2.8
million SSI non-medical redeterminations of eligibility.
Medical CDRs are periodic reevaluations to determine
whether disabled OASDI or SSI beneficiaries continue to
meet SSA’s standards for disability. As a result of the discretionary funding requested in 2018, as well as the fully
funded base and cap adjustment amounts in 2019 through
2027, the OASDI, SSI, Medicare and Medicaid programs
would recoup almost $43 billion in gross Federal savings
with additional savings after the 10-year period, according to estimates from SSA’s Office of the Chief Actuary.
Access to increased cap adjustment amounts and SSA’s
commitment to fund the fully loaded costs of performing
the requested CDR and redetermination volumes would
produce net deficit savings of $28 billion in the 10-year
window, and additional savings in the outyears. These
costs and savings are reflected in Table 10-1.
SSA is required by law to conduct medical CDRs for
all beneficiaries who are receiving disability benefits under the OASDI program, as well as all children under
age 18 who are receiving SSI. SSI redeterminations are
also required by law. However, the frequency of CDRs
and redeterminations is constrained by the availability
of funds to support these activities. The mandatory savings from the base funding in every year and the enacted
discretionary cap adjustment funding assumed for 2017
are included in the BBEDCA baseline, consistent with the
levels amended by the BBA of 2015, because the baseline
assumes the continued funding of program integrity activities. The Budget shows the savings that would result
from the increase in CDRs and redeterminations made
possible by the discretionary cap adjustment funding requested in 2018 through 2027. With access to program
integrity cap adjustments, SSA is on track to eliminate
the backlog of CDRs by the end of 2018 and remain current with program integrity workloads throughout the
budget window.
As stated above, current estimates indicate that CDRs
conducted in 2018 will yield a return on investment (ROI)
of about $8 on average in net Federal program savings
over 10 years per $1 budgeted for dedicated program
integrity funding, including OASDI, SSI, Medicare and
Medicaid program effects. Similarly, SSA estimates indicate that non-medical redeterminations conducted
in 2018 will yield a ROI of about $3 on average of net
Federal program savings over 10 years per $1 budgeted
for dedicated program integrity funding, including SSI
and Medicaid program effects. The Budget assumes the
full cost of performing CDRs in 2017 and beyond to ensure that sufficient resources are available. The savings
from one year of program integrity activities are realized
over multiple years because some results find that beneficiaries are no longer eligible to receive OASDI or SSI
benefits.
Redeterminations are periodic reviews of non-medical
eligibility factors, such as income and resources, for the

101

10. Budget Process

means-tested SSI program and can result in a revision
of the individual’s benefit level. However, the schedule of
savings resulting from redeterminations will be different
for the base funding and the cap adjustment funding in
2018 through 2027. This is because redeterminations of
eligibility can uncover underpayment errors as well as
overpayment errors. SSI recipients are more likely to initiate a redetermination of eligibility if they believe there
are underpayments, and these recipient-initiated redeterminations are included in the base. The estimated
savings per dollar spent on CDRs and non-medical redeterminations reflects an interaction with the state option
to expand Medicaid coverage for individuals under age 65
with income less than 133 percent of poverty. As a result of
this option, some SSI beneficiaries, who would otherwise
lose Medicaid coverage due to a medical CDR or non-medical redetermination, would continue to be covered. In
addition, some of the coverage costs for these individuals
will be eligible for the enhanced Federal matching rate,
resulting in higher Federal Medicaid costs in those states.
Health Care Fraud and Abuse Program.—The 2018
Budget proposes base and cap adjustment funding levels over the next 10 years and continues the program
integrity cap adjustment through 2027. In order to maintain level of effort, the base amount increases annually
over the 10-year period. The cap adjustment is set at the
levels specified under BBEDCA through 2021 and then
increases annually based on inflation from 2022 through
2027. The mandatory savings from both the base and cap
adjustment are included in the Medicare and Medicaid
baselines.
The discretionary base funding of $311 million plus
an additional $6 million adjustment for inflation and
cap adjustment of $434 million for HCFAC activities in
2018 are designed to reduce the Medicare improper payment rate, support the Health Care Fraud Prevention &
Enforcement Action Team (HEAT) initiative and reduce
Medicaid improper payment rates. The investment will
also allow CMS to deploy innovative efforts that focus on
improving the analysis and application of data, including
state-of-the-art predictive modeling capabilities, in order
to prevent potentially wasteful, abusive, or fraudulent

payments before they occur. The funding is to be allocated
among CMS, the Health and Human Services Office of
Inspector General, and the Department of Justice (DOJ).
Over 2018 through 2027, as reflected in Table 10-1, this
$5.25 billion investment in HCFAC cap adjustment funding will generate approximately $11.7 billion in savings
to Medicare and Medicaid, for new net deficit reduction of
$6.4 billion over the 10-year period, reflecting prevention
and recoupment of improper payments made to providers, as well as recoveries related to civil and criminal
penalties.
Mandatory Program Integrity Initiatives.—The
mandatory and receipt savings from other program integrity initiatives that are included in the 2018 Budget,
beyond the expansion in resources resulting from the
increases in administrative funding discussed above are
shown in table 10-2. These savings total almost $149 billion over 10 years. These mandatory proposals to reduce
improper payments reflect the importance of these issues
to the Administration. Through these and other initiatives
outlined in the Budget, the Administration can improve
management efforts across the Federal Government.
Unemployment Insurance Program Integrity Package.—
The Budget includes proposals aimed at improving
integrity in the Unemployment Insurance (UI) program.
The proposals would result in $67 million in PAYGO savings over 10 years, and would result in more than $2.2
billion in non-PAYGO savings. These proposals include
savings that would allow States to reduce their unemployment taxes by $670 million. Included in this package
are proposals to: allow for data disclosure to contractors
for the Treasury Offset Program; expand State use of the
Separation Information Data Exchange System (SIDES),
which already improves program integrity by allowing
States and employers to exchange information on reasons
for a claimant’s separation from employment and thereby
helping States to determine UI eligibility; mandate the
use of the National Directory of New Hires to conduct
cross-matches for program integrity purposes; allow the
Secretary to set corrective action measures for poor State
performance; require States to cross-match claimants
against the Prisoner Update Processing System (PUPS),

Table 10–1. PROGRAM INTEGRITY DISCRETIONARY CAP ADJUSTMENTS, INCLUDING MANDATORY SAVINGS
(Outlays in millions of dollars)
2018
Social Security Program Integrity:
Discretionary Costs1 ����������������������������������������������������������������������������������
Mandatory Savings 2 ����������������������������������������������������������������������������������
Net Savings ������������������������������������������������������������������

1,462
–93
1,369

2019
1,410
–2,084
–674

2020
1,309
–3,117
–1,808

2021
1,302
–3,792
–2,490

2022
1,350
–4,647
–3,297

2023
1,400
–4,942
–3,542

2024
1,452
–5,152
–3,700

2025
1,506
–5,869
–4,363

2026
1,561
–6,330
–4,769

2027
1,619
–6,772
–5,153

2018 2027 Total
14,371
–42,798
–28,427

Health Care Fraud and Abuse Control Program:
Discretionary Costs1 ����������������������������������������������������������������������������������
434
454
475
496
514
533
553
574
595
617
5,245
Mandatory Savings 3 ����������������������������������������������������������������������������������
–923
–980 –1,040 –1,102
–1,158 –1,202 –1,246 –1,294 –1,341
–1,391 –11,677
Net Savings ������������������������������������������������������������������
–489
–526
–565
–606
–644
–669
–693
–720
–746
–774
–6,432
1 The discretionary costs are equal to the outlays associated with the budget authority levels authorized in BBEDCA through 2021; the costs for each of 2022 through 2027 are equal to
the outlays associated with the budget authority levels inflated from the 2021 level, using the 2018 Budget assumptions. The levels in baseline are equal to the 2018 Budget policy. The
mandatory savings from the cap adjustment funding are included in the baselines for Social Security, Medicare, and Medicaid programs.
2 This is based on SSA’s Office of the Chief Actuary’s estimates of savings.
3 These savings are based on estimates from the HHS Office of the Actuary for return on investment (ROI) from program integrity activities.

102
which is currently used by some States; and allow States
to retain five percent of overpayment and tax investigation recoveries to fund program integrity activities.
Reemployment Services and Eligibility Assessments
(RESEA).— The Budget also includes a mandatory proposal to fund RESEA for one-half of all UI claimants
profiled as most likely to exhaust benefits. The related
Reemployment and Eligibility Assessment initiative was
begun in 2005 to finance in-person interviews at American
Job Centers (also known as “One-Stop Career Centers”),
to assess UI beneficiaries’ need for job finding services
and their continued eligibility for benefits. Research,
including a random-assignment evaluation, shows that
a combination of eligibility reviews and reemployment
services reduces the time on UI, increases earnings, and
reduces improper payments to claimants who are not
eligible for benefits. Based on this research, the Budget
proposes to expand funding for the RESEA initiative to
allow States to conduct robust reemployment services
along with REAs. These reemployment services may include the development of reemployment and work search
plans, provision of skills assessments, career counseling,
job matching and referrals, and referrals to training as
appropriate.
The Budget proposal includes $2.7 billion in PAYGO
outlays for States to provide RESEA services to focus on
UI claimants identified as most likely to exhaust their UI
benefits and on newly separated veterans claiming unemployment compensation for ex-servicemembers (UCX),
resulting in net non-PAYGO deficit reduction of $6.7 billion. These savings consist of reductions in UI benefit
payments of an estimated $8.1 billion, as well as a net
reduction in business taxes of $1.4 billion. In total, this
proposal is estimated to reduce the deficit by $4 billion
over 10 years.
Because most unemployment claims are now filed by
telephone or online, in-person assessments conducted in
the Centers can help determine the continued eligibility
for benefits and the adequacy of work search, verify the
identity of beneficiaries where there is suspicion of possible identity theft, and provide a referral to reemployment
assistance for those who need additional help. The benefit savings from this initiative are short-term because the
maximum UI benefit period is limited, typically 26 weeks
for regular State UI programs.
Preventing Improper Payments in Social Security.—
Overall, the Budget proposes legislation that would
avert close to $1.6 billion in improper payments in Social
Security over 10 years. While much of this savings is considered off-budget and would be non-PAYGO, about $718
million from various proposals would be PAYGO savings.
• Hold Fraud Facilitators Liable for Overpayments.—The Budget proposes to hold fraud facilitators liable for overpayments by allowing SSA to
recover the overpayment from a third party if the
third party was responsible for making fraudulent
statements or providing false evidence that allowed
the beneficiary to receive payments that should not
have been paid. This proposal would result in an estimated $8 million in savings over 10 years.

ANALYTICAL PERSPECTIVES

• Government-wide

Use of Custom and Border
Protection (CBP) Entry/Exit Data to Prevent Improper Payments.—The Budget proposes the use
of CBP Entry/Exit data to prevent improper OASDI
and Supplemental Security Insurance (SSI) payments. Generally, U.S. citizens can receive benefits
regardless of residence. Non-citizens may be subject
to additional residence requirements depending on
the country of residence and benefit type. However,
an SSI beneficiary who is outside the United States
for 30 consecutive days is not eligible for benefits for
that month. These data have the potential to be useful across the Government to prevent improper payments. This proposal would result in an estimated
$177 million in savings over 10 years.

• Allow SSA to Use Commercial Databases to Ver-

ify Real Property Data in the SSI Program.—
The Budget proposes to reduce improper payments
and lessen recipients’ reporting burden by authorizing SSA to use private commercial databases to
check for ownership of real property (i.e. land and
buildings), which could affect SSI eligibility. Consent to allow SSA to access these databases would
be a condition of benefit receipt for new beneficiaries
and current beneficiaries who complete a determination. All other current due process and appeal rights
would be preserved. This proposal would result in
savings of $559 million over 10 years.

• Increase

the Overpayment Collection Threshold for OASDI.—The Budget would change the
minimum monthly withholding amount for recovery
of Social Security benefit overpayments to reflect
the increase in the average monthly benefit since
the Agency established the current minimum of
$10 in 1960. By changing this amount from $10 to
10% of the monthly benefit payable, SSA would recover overpayments more quickly and better fulfill
its stewardship obligations to the combined Social
Security Trust Funds. The SSI program already
utilizes the 10% rule. Debtors could still pay less if
the negotiated amount would allow for repayment of
the debt in 36 months. If the beneficiary cannot afford to have his or her full benefit payment withheld
because he or she cannot meet ordinary and necessary living expenses, the beneficiary may request
partial withholding. To determine a proper partial
withholding amount, SSA negotiates (as well as renegotiates at the overpaid beneficiary’s request) a
partial withholding rate. This proposal would result
in savings of $848 million over 10 years.

• Authorize SSA to Use All Collection Tools to Re-

cover Funds in Certain Scenarios.—The Budget
also proposes to allow SSA a broader range of collection tools when someone improperly receives a
benefit after the beneficiary has died. Currently, if a
spouse cashes a benefit payment (or does not return
a directly deposited benefit) for an individual who
has died and the spouse is also not receiving benefits on that individual’s record, SSA has more lim-

103

10. Budget Process

Table 10–2. MANDATORY AND RECEIPT SAVINGS FROM OTHER PROGRAM INTEGRITY INITIATIVES
(Deficit increases (+) or decreases (–) in millions of dollars)

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

10-year
total

Mandatory Program Integrity Initiatives:
Department of Labor:
Unemployment Insurance Program Integrity Package 1 ������������������������������
PAYGO effects ����������������������������������������������������������������������������������������
Non-PAYGO effects ��������������������������������������������������������������������������������
Reemployment Services and Eligibility Assessments 1 �������������������������������
PAYGO effects ����������������������������������������������������������������������������������������
Non-PAYGO effects ��������������������������������������������������������������������������������

–94
–12
–82
.........
.........
.........

–215
–17
–198
–88
260
–348

–251
–10
–241
–541
272
–813

–249
–8
–241
–562
281
–843

–243
–7
–236
–522
291
–813

–211
–4
–207
–411
301
–712

–253
–2
–251
–413
309
–722

–249
–4
–245
–493
317
–810

–241
–1
–240
–499
325
–824

–228
–2
–226
–519
333
–852

–2,234
–67
–2,167
–4,048
2,689
–6,737

.........

.........

–1

–1

–1

–1

–1

–1

–1

–1

–8

.........

.........

–1

–4

–9

–18

–24

–28

–36

–39

–159

.........

.........

.........

–1

–2

–2

–2

–3

–4

–4

–18

–12
–8

–28
–26

–44
–43

–53
–59

–60
–77

–69
–93

–70
–107

–68
–135

–76
–144

–79
–156

–559
–848

.........
–20

–2
–56

–2
–91

–3
–121

–4
–153

–4
–187

–5
–209

–5
–240

–5
–266

–11
–290

–41
–1,622

.........

–719

–1,482

–2,383

–4,288

–4,549

Exclude SSA debts from discharge in bankruptcy (non-PAYGO) ����������������

–9

–18

–23

–29

–34

–36

–38

–40

–43

–45

–315

Department of the Treasury:
Increase oversight of paid tax return preparers 1 �����������������������������������������
Provide more flexible authority for the IRS to address correctable errors 1 �

–14
–30

–31
–61

–35
–64

–38
–65

–42
–67

–47
–70

–50
–71

–55
–74

–61
–76

–66
–77

–439
–655

Social Security Administration:
Hold Fraud Facilitators Liable for Overpayments (non-PAYGO) ������������������
Government Wide Use of CBP Entry/Exit Data to Prevent Improper
Payment ��������������������������������������������������������������������������������������������������
Government Wide Use of CBP Entry/Exit Data to Prevent Improper
Payment (non-PAYGO). ��������������������������������������������������������������������������
Allow SSA to Use Commercial Databases to Verify Real Property Data in
the SSI Program. ������������������������������������������������������������������������������������
Increase the Overpayment Collection Threshold for OASDI (non-PAYGO) ����
Authorize SSA to Use All Collection Tools to Recover Funds in Certain
Scenarios (non-PAYGO) �������������������������������������������������������������������������
Total, Preventing Improper Payments in Social Security�������������������������
Government-wide:
Reduce Improper Payments Government-wide (non-PAYGO) ��������������������

–9,652 –20,480 –38,024 –57,633 –139,210

Other Program Integrity Initiatives:

Total, Mandatory and Receipt Savings ����������������������������������������������������
–167 –1,188 –2,487 –3,447 –5,349 –5,511 –10,686 –21,631 –39,210 –58,858 –148,534
PAYGO Savings ��������������������������������������������������������������������������������������
–68
123
118
113
106
93
92
88
75
70
810
Non-PAYGO Savings ������������������������������������������������������������������������������
–99 –1,311 –2,605 –3,560 –5,455 –5,604 –10,778 –21,719 –39,285 –58,928 –149,344
1 The estimate for this proposal includes effects on receipts in addition to changes in outlays. Receipt effects by proposal can be seen in table S–6, Mandatory and Receipt Proposals,
in the main Budget volume.

ited collection tools available than would be the case
if the spouse also receives benefits on the deceased
individual’s earning record. The Budget proposal
would end this disparate treatment of similar types
of improper payments and results in an estimated
$41 million in savings over 10 years.
Reducing Improper Payments Government-Wide.—
Even though the majority of government payments are
made properly, any waste of taxpayer money is unacceptable. The Budget prioritizes shrinking the amount
of improper cash out the door. Specifically, by 2027 the
Budget proposes to curtail government-wide improper
payments by half through actions to improve payment accuracy and tighten administrative controls. This proposal
includes improvements in paperwork errors that contribute to the improper payment rate. Overall, the proposal
will save approximately $139 billion over 10 years that
would reduce the deficit, but is not included as a PAYGO
savings.

Other Program Integrity Initiatives.—
Data Analytics to Improve Payment Accuracy.—At
the core of Government-wide data analytics to improve
payment accuracy is the Treasury Do Not Pay Business
Center which includes a system that enables agencies to
identify, prevent, capture, and recover payments at different phases of the payment life cycle using available
databases. Do Not Pay analytics specialists are also available to work one-on-one with agencies to review payment
data to identify and address internal control weaknesses
that could result in improper payments. Furthermore,
Treasury’s team provides business process review services to support this work. The Do Not Pay initiative also
incorporates other agency best practices and activities
that further promote program integrity and benefits to
the taxpayer. For example, the Bipartisan Budget Act of
2013 (BBA of 2013; Public Law 113-67) expanded the Do
Not Pay initiative to include additional data collected by
the Social Security Administration to prevent the improper payment of Federal funds to incarcerated individuals,

104
and in 2015, the Do Not Pay Business Center began facilitating the Internal Revenue Service use of these data to
prevent fraud committed by prisoners. Additional examples of agencies using data to improve payment accuracy
include the Centers for Medicare & Medicaid Services’
(CMS) Fraud Prevention System (FPS), a state-of-theart predictive analytics technology used to identify and
prevent fraud in the program; the Department of Defense
Business Activity Monitoring tool; and the Department of
Labor’s Unemployment Insurance (UI) Integrity Center
for Excellence, a Federal-State partnership which facilitates the development and implementation of integrity
tools that help detect and reduce improper payments in
state run programs.
The effective use of data analytics has provided insight
into methods of reducing costs and improving performance and decision-making capabilities. As a result of the
Initiative, agencies cumulatively identified and stopped
over $5.9 billion of improper payments through the Do
Not Pay Initiative as of the end of FY 2016. Agencies need
available data to be timely, accurate, and relevant to their
programs to improve their payment accuracy, and additional authorities will enhance data sharing on death,
prisoners, and employment for payment accuracy, while
maintaining privacy.
Use of the Death Master File to Prevent Federal
Improper Payments.—The Administration is continuing
to pursue opportunities to improve information sharing
by developing or enhancing policy guidance, ensuring
privacy protection, and developing legislative proposals
to leverage available information and technology in determining benefit eligibility and other opportunities to
prevent improper payments.
The Budget proposes to improve payment accuracy further by sharing available death data across Government
agencies to prevent improper payments. This proposal
would amend the Social Security Act to provide the Do
Not Pay system at Treasury and agencies that use the
system access to the full death data at SSA to prevent,
identify, or recover improper payments. This proposal
would include information received from a State, or any
other source, about the deceased.
Exclude SSA Debts from Discharge in Bankruptcy.—
Debts due to an overpayment of Social Security benefits
are generally dischargeable in bankruptcy. The Budget
includes a proposal to exclude such debts from discharge
in bankruptcy, except when it would result in an undue
hardship. This proposal would help ensure program integrity by increasing the amount of overpayments SSA
recovers and would save $315 million over the 2018
through 2027 window.
Increase Oversight of Paid Tax Preparers.—This
proposal would give the IRS the statutory authority to increase its oversight of paid tax return preparers. As more
taxpayers use paid preparers, the quality of the preparers has a dramatic impact on whether taxpayers follow
tax laws. Increasing the quality of paid preparers lessens
the need for after-the-fact enforcement of tax laws and
increases the amount of revenue that the IRS can collect.

ANALYTICAL PERSPECTIVES

This proposal saves $439 million over the 2018 through
2027 period.
Provide the IRS with Greater Flexibility to Address
Correctable Errors.—The Budget proposes to give the IRS
expanded authority to correct errors on taxpayer returns.
Current law only allows the IRS to correct errors on returns in certain limited instances, such as basic math
errors or the failure to include the appropriate Social
Security Number or Taxpayer Identification Number.
This proposal would expand the instances in which the
IRS could correct a taxpayer’s return. For example, with
this new authority, the IRS could deny a tax credit that a
taxpayer had claimed on a tax return if the taxpayer did
not include the required paperwork, or where government
databases showed that the taxpayer-provided information was incorrect. This proposal would save $655 million
over the 2018 through 2027 window.
Develop Accurate Cost Estimates.—OMB works with
Federal agencies and CBO to develop PAYGO estimates
for mandatory programs. OMB has issued guidance
to agencies for scoring legislation under the statutory
PAYGO Act of 2010. This guidance states that agencies
must score the effects of program legislation on other
programs if the programs are linked by statute. (For
example, effects on Medicaid spending that are due to
statutory linkages in eligibility for Supplemental Security
Income benefits must be scored.) In addition, even when
programs are not linked by statute, agencies may score
effects on other programs if those effects are significant
and well documented. Specifically, the guidance states:
“Under certain circumstances, estimates may also include
effects in programs not linked by statute where such effects are significant and well documented. For example,
such effects may be estimated where rigorous experimental research or past program experience has established
a high probability that changes in eligibility or terms of
one program will have significant effects on participation
in another program.”
Disaster Relief Funding
Section 251(b)(2)(D) of BBEDCA includes a provision
to adjust the discretionary caps for appropriations that
the Congress designates in statute as provided for disaster relief. The law allows for a fiscal year’s discretionary
cap to be increased by no more than the average funding
provided for disaster relief over the previous 10 years, excluding the highest and lowest years. The ceiling for each
year’s adjustment (as determined by the 10-year average) is then increased by the unused amount of the prior
year’s ceiling (excluding the portion of the prior year’s
ceiling that was itself due to any unused amount from the
year before). Disaster relief is defined as activities carried out pursuant to a determination under section 102(2)
of the Robert T. Stafford Disaster Relief and Emergency
Assistance Act (42 U.S.C. 5122(2)) for major disasters
declared by the President. As required by law, OMB included in its Sequestration Update Report for FY 2017
a preview estimate of the 2017 adjustment for disaster
relief. The ceiling for the disaster relief adjustment in
2017 was calculated to be $8,566 million. However, the

105

10. Budget Process

Continuing Appropriations and Military Construction,
Veterans Affairs, and Related Agencies Appropriations
Act, 2017, and Zika Response and Preparedness Act
(Public Law 114-223) provided supplemental funding of
$500 million for the Department of Housing and Urban
Development’s Community Development Fund (CDF) in
2016. OMB’s seven-day-after report for Public Law 114223 stated that this supplemental funding decreased the
disaster ceiling for 2017 to $8,129 million. At the time
the Budget was prepared, the Government was operating under a continuing resolution set in the Continuing
Appropriations Act, 2017 (division C of Public Law 114223, as amended by division A of Public Law 114-254) (the
“CR”). The CR had provided for 2017 a continuing appropriation of $6,713 million for the Federal Emergency
Management Agency’s Disaster Relief Fund (DRF) and a
full-year appropriation for HUD’s CDF of $1,416 million.
If final 2017 appropriations affirm this allocation with a
final appropriation of $6,713 million for the DRF, such
amounts would use the entire ceiling available in 2017.
OMB must include in its Sequestration Update Report
for 2018 a preview estimate of the ceiling on the adjustment for disaster relief funding for 2018. This estimate
will contain an average funding calculation that incorporates four years (2008 through 2011) using the definition
of disaster relief from OMB’s September 1, 2011 report
and six years using the funding the Congress designated in 2012 through 2017 for disaster relief pursuant to
BBEDCA excluding the highest and lowest years. As
noted above, the entire ceiling may be used for 2017; therefore, no amount would be carried forward from 2017 into
the 2018 preview estimate that will be included in OMB’s
August 2017 Sequestration Update Report for Fiscal Year
2018. Currently, based on enacted and continuing appropriations, OMB estimates the total adjustment available
for disaster funding for 2018 at $7,366 million. Any revisions necessary to account for final 2017 appropriations
will be includedin the 2018 Sequestration Update Report.
At this time, the Administration is requesting $6,793
million in funding for FEMA’s DRF in 2018 to cover the
costs of Presidentially declared major disasters, including identified costs for previously declared catastrophic
events (defined by FEMA as events with expected costs
that total more than $500 million) and the predictable annual cost of non-catastrophic events expected to obligate
in 2018. For this program, the Budget requests funding
for both known needs based on expected costs of prior declared disasters and the typical average expenditures in
these programs. This is consistent with past practice of
requesting and funding these as part of regular appropriations bills. Also consistent with past practice, the 2018
request level does not seek to pre-fund anticipated needs
in other programs arising out of disasters that have yet
to occur, nor does the Budget seek funding for potential
catastrophic needs. As additional information about the
need to fund prior or future disasters becomes available,
additional requests, in the form of either 2017 supplemental appropriations (designated as either disaster relief or
emergency requirements pursuant to BBEDCA) or budget amendments to the Budget, may be transmitted.

Under the principles outlined above, since the
Administration does not have the adequate information
about known or estimated needs that is necessary to state
the total amount that will be requested in future years
to be designated by the Congress for disaster relief, the
Budget does not explicitly request to use the BBEDCA
disaster designation in any year after the budget year.
Instead, a placeholder for disaster relief is included in
each of the out years that is equal to the current 2018
request. This funding level does not reflect a specific request but a placeholder amount that, along with other out
year appropriations levels, will be decided on an annual
basis as part of the normal budget development process.
Declining Disaster Relief Cap Adjustment
The allowable adjustment for disaster relief funding
is declining to levels that approximate average annual
Federal disaster assistance budget requests (which supports previously declared catastrophic disasters, future
non-catastrophic disasters, and a limited amount of
above-average future disaster activity). This amount will
soon likely be insufficient to support the costs of future
Presidentially declared disasters. Inflation, urbanization,
and other factors may contribute to increasing future
response and recovery costs. The decline of the cap adjustment results from the recent trend of relatively modest
annual disaster appropriations over the past five fiscal
years coupled with high-cost response and recovery efforts for Hurricanes Katrina and Sandy aging out of the
rolling 10-year window used in the cap adjustment formula. The Administration will continue to review potential
options for addressing the declining cap adjustment and
looks forward to working with the Congress on disaster
funding needs.
Limits on Changes in Mandatory Spending in
Appropriations Acts (CHIMPs)
The discretionary spending caps in place since the
enactment of the BCA in 2011 have been circumvented
annually by the enactment of higher discretionary spending offset by reductions in mandatory budget authority
with no net outlay savings. These spending offsets come
from changes in mandatory programs, or CHIMPs, in
the form of Congressionally-enacted rescissions or oneyear delays of spending with net zero outlay reductions
over time. Congress has started to reduce the reliance
on CHIMPs with no net outlay reductions by setting decreasing limits in the budget resolution of $19.1 billion in
2016, $17.0 billion in 2018, and $15.0 billion in 2019. The
Administration supports these efforts and limits the use
of CHIMPs with no outlay savings to $13.9 billion in the
2018 Budget.
Limit on Discretionary Advance Appropriations
An advance appropriation first becomes available for
obligation one or more fiscal years beyond the year for
which the appropriations act is passed. Budget authority is recorded in the year the funds become available for
obligation, not in the year the appropriation is enacted.

106
There are legitimate policy reasons to use advance
appropriations to fund programs. However, advance appropriations can also be used in situations that lack a
programmatic justification, as a gimmick to make room
for expanded funding within the discretionary spending limits on budget authority for a given year under
BBEDCA. For example, some education grants are forward funded (available beginning July 1 of the fiscal year)
to provide certainty of funding for an entire school year,
since school years straddle Federal fiscal years. This funding is recorded in the budget year because the funding is
first legally available in that fiscal year. However, $22.6
billion of this funding is advance appropriated (available
beginning three months later, on October 1) rather than
forward funded. Prior Congresses increased advance
appropriations and decreased the amounts of forward
funding as a gimmick to free up room in the budget year
without affecting the total amount available for a coming
school year. This gimmick works because the advance appropriation is not recorded in the budget year but rather
the following fiscal year. However, it works only in the
year in which funds switch from forward funding to advance appropriations; that is, it works only in years in
which the amounts of advance appropriations for such
“straddle” programs are increased.
To curtail this gimmick, which allows over-budget funding
in the budget year and exerts pressure for increased funding in future years by committing upfront a portion of the
total budget authority limits under the discretionary caps
in BBEDCA in those years, congressional budget resolutions since 2001 have set limits on the amount of advance
appropriations. When the congressional limit equals the
amount that had been advance appropriated in the most recent appropriations bill, there is no additional room to switch
forward funding to advance appropriations, and so no room
for this particular gimmick to operate in that year’s budget.
The Budget includes $27,870 million in advance appropriations for 2019 and freezes them at this level in
subsequent years. In this way, the Budget does not employ
this potential gimmick. Moreover, the Administration
supports limiting advance appropriations to the proposed
level for 2019, below the limits included in sections 3202
and 3304 for the Senate and the House, respectively, of the
Concurrent Resolution on the Budget for Fiscal Year 2016
(S. Con. Res. 11). Those limits apply only to the accounts
explicitly specified in the joint explanatory statement of
managers accompanying S. Con. Res. 11.
In addition, the Administration would allow discretionary advance appropriations for veterans medical
care, as is required by the Veterans Health Care Budget
Reform and Transparency Act (P.L. 111-81). The veterans medical care accounts in the Department of
Veterans Affairs (VA) currently comprise Medical
Services, Medical Support and Compliance, Medical
Facilities, and Medical Community Care. The level of
advance appropriations funding for veterans medical
care is largely determined by the VA’s Enrollee Health
Care Projection Model. This actuarial model projects the
funding requirement for over 90 types of health care services, including primary care, specialty care, and mental

ANALYTICAL PERSPECTIVES

health. The remaining funding requirement is estimated
based on other models and assumptions for services such
as readjustment counseling and special activities. VA
has included detailed information in its Congressional
Budget Justifications about the overall 2019 veterans
medical care funding request.
For a detailed table of accounts that have received discretionary and mandatory advance appropriations since
2016 or for which the Budget requests advance appropriations for 2019 and beyond, please refer to the Advance
Appropriations chapter in the Appendix.
Wildland Fire Suppression Funding
The Administration continues to review potential administrative actions and legislative options to address
longstanding concerns regarding how budgeting occurs
for wildland fire suppression. The Administration will
work with the Congress during the 2018 budget cycle to
develop a responsible approach that addresses risk management, performance accountability, cost containment,
and the role of State and local government partners in
ensuring adequate funds are available for wildfire suppression without undue disruption to land management
operations.
Budgetary Treatment of Surface
Transportation Infrastructure Funding
Currently, surface transportation programs financed
from the Highway Trust Fund (HTF) are treated as hybrids: contract authority is classified as mandatory, while
outlays are classified as discretionary. Broadly speaking,
this framework evolved as a mechanism to ensure that
collections into the HTF (e.g., motor fuel taxes) were used
to pay only for programs that benefit surface transportation users, and that funding for those programs would
generally be commensurate with collections.
Contract authority is a unique form of mandatory
budget authority (BA) that permits authorized programs
to obligate Federal funds for expenditure in advance of
appropriations. Obligations of contract authority authorized for surface transportation programs are then
satisfied by outlays from the HTF. Unlike discretionary
budget authority provided through annual appropriations
bills (which is controlled through 302(b) allocations), most
Federal funding for surface transportation programs is
provided by the authorizing committees within the authorization bills in the form of contract authority.
The appropriations committees limit the annual obligations that HTF programs can incur in a given year.
It is the annual obligation limitation that represents the
actual spending level. Although authorization language
prescribes obligation limitation levels for each year, the
appropriators may adjust these amounts. Hence, both
authorizers and appropriators have a hand in setting
transportation spending. For scoring purposes, Congress
and the Administration score budget authority from contract authority to the authorizers but score outlays from
obligation limitations to the appropriators.
Highway Trust Fund Solvency.—The Highway Revenue
Act of 1956 introduced the HTF to accelerate the devel-

107

10. Budget Process

opment of the Interstate Highway System. In the 1970s
the HTF’s scope was expanded to include expenditures on
mass transit. In 1982, a permanent Mass Transit Account
with the HTF was created. Deposits to the HTF through
the 1990s were historically more than sufficient to meet
the surface transportation funding needs.
However, by the 2000s, deposits into the HTF began to
level off as vehicle fuel efficiency continued to improve.
At the same time, the investment needs continued to
rise as the infrastructure, much of which was built in the
1960s and 1970s, deteriorated and required recapitalization. The cost of construction also generally increased.
The Federal motor fuel tax rates had stayed constant
since 1993. By 2008, balances that had been building in
the HTF were spent down. The 2008-2009 recession and
rising gasoline prices had led to a reduction in the consumption of fuel resulting in the HTF reaching the point
of insolvency for the first time. Congress responded by
providing the first in a series of General Fund transfers
to the HTF to maintain solvency.
Recent passage of the Fixing America’s Surface
Transportation Act, or the FAST Act (Public Law 11494), shored up the Highway Trust Fund and maintained
the hybrid budgetary treatment through 2020. The FAST
Act did not significantly amend transportation-related
taxes or HTF authorization provisions beyond extending
the authority to collect and spend revenue. Congress retained the Federal fuel tax rate at 18.4 cents per gallon
for gasoline and 24.4 cents for diesel. To maintain HTF
solvency, the FAST Act transferred $70 billion from the
General Fund into the HTF. Since 2008, HTF tax revenues have been supplemented by $140 billion in General
Fund transfers.
Highway Trust Fund in the 2018 Budget.—For 2018,
the Administration is requesting obligation limitation
levels for HTF programs equal to the Contract Authority
levels provided in the FAST Act, and those levels are
frozen at the 2018 level through 2027. The Budget also
reflects the FAST Act contract authority levels for the remainder of the Act, through 2020. After 2020 contract
authority is frozen at the 2020 level.
Beginning in 2021, the Budget assumes HTF outlays
at levels supported with existing HTF tax receipts. DOT
is unable to make reimbursements to States and grantees
in excess of the receipts into the HTF. Relative to baseline
levels, this presentation shows a reduction in total HTF
outlays by $95 billion over the 2021-2027 window.
The fact that the HTF has required $140 billion in
General Fund transfers to stay solvent points to the
need for a comprehensive reevaluation of the surface
transportation funding regime. While Congress and past
Administrations have been unable to find a long-term
funding solution to the HTF, many States and localities
have raised new revenue sources to finance transportation expenditures. The Administration believes that the
Federal government should incentivize more States and
localities to finance their own transportation needs, as
they are best equipped to know the right level and mix of
infrastructure investments.

Infrastructure Initiative
The overriding goal of the Administration’s infrastructure initiative is to bring about up to $1 trillion in
new investment in the Nation’s physical infrastructure
through long-term reforms to how infrastructure projects are regulated, funded, delivered, and maintained.
This proposal will include a combination of policy, regulatory, and legislative proposals, ranging from changes
to existing programs, to the creation of new programs
and initiatives to reshape how the Federal government
invests, permits, and collaborates on infrastructure. The
2018 Budget includes $200 billion in mandatory outlays
to support this effort, which the Administration will use
to make targeted investments to incentivize State, local,
private, and other partners to significantly expand their
infrastructure investments.
Pell Grants
The Pell Grant program includes features that make
it unlike other discretionary programs including that
Pell Grants are awarded to all applicants who meet income and other eligibility criteria. This section provides
some background on the unique nature of the Pell Grant
program and explains how the Budget accommodates
changes in discretionary costs.
Under current law, the Pell program has several notable features:
• The Pell Grant program acts like an entitlement
program, such as the Supplemental Nutrition Assistance Program or Supplemental Security Income,
in which everyone who meets specific eligibility requirements and applies for the program receives a
benefit. Specifically, Pell Grant costs in a given year
are determined by the maximum award set in statute, the number of eligible applicants, and the award
for which those applicants are eligible based on their
needs and costs of attendance. The maximum Pell
award for the academic year 2017-2018 is $5,920, of
which $4,860 was established in discretionary appropriations and the remaining $1060 is provided
automatically by the College Cost Reduction and Access Act (CCRAA), as amended.

• The cost of each Pell Grant is funded by discretion-

ary budget authority provided in annual appropriations acts, along with mandatory budget authority
provided not only by the CCRAA, as amended, and
the BCA, but also by amendments to the Higher Education Act of 1965 contained in the 2011 and 2012
appropriations acts. There is no programmatic difference between the mandatory and discretionary
funding.

• If valid applicants are more numerous than expected,
or if these applicants are eligible for higher awards
than anticipated, the Pell Grant program will cost
more than the appropriations provided. If the costs
during one academic year are higher than provided
for in that year’s appropriation, the Department of

108

ANALYTICAL PERSPECTIVES

Education funds the extra costs with the subsequent
year’s appropriation.1

are countercyclical to the economy; more people go to school
during periods of higher unemployment, but return to the
workforce as the economy improves. In fact, the program experienced a spike in enrollment and costs during the recent
recession, reaching a peak of 9.4 million students in 2011.
This spike required temporary mandatory or emergency appropriations to fund the program well above the level that
could have been provided as a practical matter by the regular discretionary appropriation. Since 2011, enrollment and
costs have continued to decline, and the funding provided has
lasted longer than anticipated. The 2018 Budget baseline expects program costs to stay within available resources, which
include the discretionary appropriation, budget authority
carried forward from the previous year, and extra mandatory
funds, throughout the 10-year budget window (see Table 103). These estimates have changed significantly from year to
year, which illustrates continuing uncertainty about Pell program costs, and the year in which a shortfall will reemerge.
The 2018 Budget reflects the Administration’s commitment to ensuring students receive the maximum Pell
Grant for which they are eligible, and enhances the program by supporting year-round Pell eligibility. First, the
Budget provides sufficient resources to fully fund Pell
Grants in the award years covered by the budget year,
and subsequent years. The Budget provides $22.4 billion in discretionary budget authority in 2018, the same
level of discretionary budget authority provided in the
Furthering Continuing Appropriations Act, 2017 (P.L.
114-254). Level-funding Pell in 2018, combined with
available budget authority from the previous year and
mandatory funding provided in previous legislation, provides $13.6 billion more than is needed to fully fund the
program in the 2018-19 award year.
In light of these additional resources, the Budget proposes a cancellation of $3.9 billion from the unobligated
carryover from 2017. Then, with significant budget authority still available in the program, the Budget also
proposes to provide more flexibility to students by sup-

• To prevent deliberate underfunding of Pell costs, in

2006 the congressional and Executive Branch scorekeepers agreed to a special scorekeeping rule for
Pell. Under this rule, the annual appropriations bill
is charged with the full Congressional Budget Office estimated cost of the Pell Grant program for the
budget year, plus or minus any cumulative shortfalls
or surpluses from prior years. This scorekeeping
rule was adopted by the Congress as §406(b) of the
Concurrent Resolution on the Budget for Fiscal Year
2006 (H. Con. Res. 95, 109th Congress).

Given the nature of the program, it is reasonable to consider Pell Grants an individual entitlement for purposes of
budget analysis and enforcement. The discretionary portion
of the award funded in annual appropriations Acts counts
against the discretionary spending caps pursuant to section
251 of BBEDCA and appropriations allocations established
annually under §302 of the Congressional Budget Act.
The total cost of Pell Grants can fluctuate from year to
year, even with no change in the maximum Pell Grant award,
because of changes in enrollment, college costs, and family resources. In general, the demand for and costs of the program
1    This ability to “borrow” from a subsequent appropriation is unique
to the Pell program. It comes about for two reasons. First, like many
education programs, Pell is “forward-funded”—the budget authority
enacted in the fall of one year is intended for the subsequent academic year, which begins in the following July. Second, even though the
amount of funding is predicated on the expected cost of Pell during one
academic year, the money is made legally available for the full 24-month
period covering the current fiscal year and the subsequent fiscal year.
This means that, if the funding for an academic year proves inadequate,
the following year’s appropriation will legally be available to cover the
funding shortage for the first academic year. The 2018 appropriation,
for instance, will support the 2018-2019 academic year beginning in July
2018 but will become available in October 2017 and can therefore help
cover any shortages that may arise in funding for the 2017-2018 academic year.

Table 10–3. DISCRETIONARY PELL FUNDING NEEDS
(Dollars in Billions)
2018

2019

2020

2021

Discretionary Pell Funding Needs (Baseline)
Estimated Program Cost for $4,860 Maximum Award ��������������������������������
21.7
22.2
22.5
22.9
Cumulative Incoming Surplus ���������������������������������������������������������������������
11.4
.........
.........
.........
Mandatory Budget Authority Available ��������������������������������������������������������
1.4
1.4
1.4
1.1
Total Additional Budget Authority Needed ��������������������������������������������������
8.9
20.8
21.1
21.7
Fund Pell at 2017 Level ������������������������������������������������������������������������������
Surplus/Funding Gap from Prior Year ���������������������������������������������������������
Cumulative Surplus/(Discretionary Funding Gap) ��������������������������������������

22.4
13.6

22.4
13.6
15.2

22.4
15.2
16.6

22.4
16.6
17.3

2022

2023

2024

2025

2026

2027

23.2
.........
1.1
22.0

23.6
.........
1.1
22.5

24.1
.........
1.1
22.9

24.5
.........
1.1
23.3

24.8
.........
1.1
23.6

25.1
.........
1.1
24.0

22.4
17.3
17.7

22.4
17.7
17.6

22.4
17.6
17.2

22.4
17.2
16.3

22.4
16.3
15.1

22.4
15.1
13.5

Effect of 2018 Budget Policies
Year-Round Pell ������������������������������������������������������������������������������������������
–1.2
–1.2
–1.2
–1.3
–1.3
–1.3
–1.3
–1.3
–1.4
–1.4
Cancellation of Unobligated Balances ��������������������������������������������������������
–3.9
.........
.........
.........
.........
.........
.........
.........
.........
.........
Mandatory Funding Shift* ���������������������������������������������������������������������������
–0.3
–0.3
–0.3
–0.3
–0.3
–0.3
–0.3
–0.4
–0.4
–0.4
Surplus/Funding Gap from Prior Year ���������������������������������������������������������
8.2
8.2
8.1
7.2
6.0
4.3
2.2
–0.5
–3.4
Cumulative Surplus/(Discretionary Funding Gap) ��������������������������������������
8.2
8.2
8.1
7.2
6.0
4.3
2.2
–0.5
–3.4
–6.7
* Some budget authority, provided in previous legislation and classified as mandatory, but used to meet discretionary Pell grant program funding needs, will be shifted to instead fund
new costs associated with the mandatory add-on.

109

10. Budget Process

porting year-round Pell. This policy allows students the
opportunity to earn a third semester of Pell Grant support
during an award year, boosting Pell Grant aid disbursed
by $1.5 billion in award year 2018 to approximately
900,000 students. Year-round Pell would also help incentivize students to complete their degrees faster, which can

help them reduce their loan debt and enter the workforce
sooner. Year-round Pell increases future discretionary
Pell program costs by $13 billion over 10 years (see Table
10–3). With the proposed cancellation and the increase for
year-round Pell, the Pell program still is expected to have
sufficient discretionary funds until 2025.

II. BUDGET ENFORCEMENT AND BUDGET PRESENTATION
Statutory PAYGO
The Statutory Pay-As-You-Go Act of 2010 (PAYGO, or
“the Act”; Public Law 111-139) was enacted on February
12, 2010. Drawing upon the PAYGO provisions enacted
as part of the Budget Enforcement Act, the Act requires
that, subject to specific exceptions, all legislation enacted during each session of the Congress changing taxes
or mandatory expenditures and collections not increase
projected deficits. Mandatory spending encompasses any
spending except that controlled by the annual appropriations process.2
The Act established 5- and 10-year scorecards to record the budgetary effects of legislation; these scorecards
are maintained by OMB and are published on the OMB
web site. The Act also established special scorekeeping
rules that affect whether all estimated budgetary effects
of PAYGO bills are entered on the scorecards. Off-budget
programs (primarily Social Security and the Postal
Service) do not have budgetary effects for the purposes
of PAYGO and are not counted. Provisions designated by
the Congress in law as emergencies appear on the scorecards, but the effects are subtracted before computing the
scorecard totals.
In addition to the exemptions in the PAYGO Act itself,
the Congress has enacted laws affecting revenues or direct
spending with a provision directing that the budgetary
effects of all or part of the law be held off of the PAYGO
scorecards. In the most recently completed Congressional
session, one piece of legislation was enacted with such a
provision.
The requirement of budget neutrality is enforced by an
accompanying requirement of automatic across-the-board
cuts in selected mandatory programs if enacted legislation, taken as a whole, does not meet that standard. If
the Congress adjourns at the end of a session with net
costs—that is, more costs than savings—in the budgetyear column of either the 5- or 10-year scorecard, OMB is
required to prepare, and the President is required to issue, a sequestration order implementing across-the-board
cuts to non-exempt mandatory programs in an amount
sufficient to offset the net costs on the PAYGO scorecards.
The list of exempt programs and special sequestration
rules for certain programs are contained in sections 255
and 256 of BBEDCA.
2      Mandatory spending is termed direct spending in the PAYGO Act.
The term mandatory encompasses entitlement programs, e.g., Medicare
and Medicaid, and any funding not controlled by annual appropriations
bills, such as the automatic availability of immigration examination fees
to the Department of Homeland Security.

As was the case during the 1990s, the PAYGO sequestration has not been required during the seven
Congressional sessions since the PAYGO Act reinstated
the statutory PAYGO requirement. For each of those
sessions, OMB’s annual PAYGO reports showed net savings in the budget year column of both the 5- and 10-year
scorecards. For the second session of the 114th Congress,
the most recent session, enacted legislation placed costs
of $478 million in each year of the 5-year scorecard and
$980 million in each year of the 10-year scorecard. The
new costs in 2017 lowered the balances of savings from
prior sessions of the Congress in 2017, the budget year
column, and resulted in total net savings of $4,418 million
on the 5-year scorecard, and $14,468 million on the 10year scorecard, so no sequestration was required.3
There are limitations to Statutory PAYGO’s usefulness
as a budget enforcement tool. Although the scorecard
consistently shows net savings from legislation subject
to the PAYGO rules, a number of laws that significantly
increased deficits were enacted with provisions directing
that these deficit effects be ignored for PAYGO purposes.
PAYGO also suffers from the technical flaws of excluding off-budget programs, ignoring effects outside of the
11-year window, and excluding the debt service costs associated with direct changes in the deficit.
Estimating the Impacts of Debt Service
New legislation that affects direct spending and revenue will also indirectly affect interest payments on the
national debt. These effects on interest payments can
cause a significant budgetary impact; however, they are
not captured in cost estimates that are required under
the Statutory PAYGO Act of 2010, nor are they typically
included in estimates of new legislation that are produced
by the Congressional Budget Office. The Administration
believes that cost estimates of new legislation could be
improved by incorporating information on the effects of
interest payments and looks forward to working with the
Congress in making reforms in this area.
Administrative PAYGO
The Administration continues to review potential
administrative actions by Executive Branch agencies
affecting entitlement programs, as stated in a memorandum issued on May 23, 2005, by the Director of the Office
of Management and Budget. This memo effectively established a PAYGO requirement for administrative actions
involving mandatory spending programs, so that agen3    OMB’s annual PAYGO reports and other explanatory material
about the PAYGO Act are available on OMB’s website.

110
cies administering these programs have a requirement to
keep costs low. Exceptions to this requirement are only
provided in extraordinary or compelling circumstances.4
Discretionary spending limits
The BBEDCA baseline extends enacted or continuing
appropriations at the account level assuming current services inflation but allowances are included to bring total
base discretionary funding in line with the BBEDCA caps
through 2021. Current law requires reductions to those
discretionary caps in accordance with Joint Committee enforcement procedures put in place by the BCA. For 2018,
the Budget supports maintaining the topline for base
discretionary programs at the Joint Committee-enforced
level but proposes rebalancing Federal responsibilities by
restoring the reductions made to the defense cap by reducing the non-defense cap by about the same amount.
After 2018, the Budget proposes new caps that shift resources from non-defense programs by further reducing
the non-defense cap over the 2019–2027 window by 2 percent per year (the “2-penny” plan) while increasing the
defense category spending by 2.1 percent per year. The
Defense base cap estimates for 2019–2027 reflect inflated
2018 levels, not a policy judgment. The Administration
will determine 2019–2027 defense funding levels in the
2019 Budget, in accordance with the National Security
Strategy, National Defense Strategy, and Nuclear Posture
Review that are currently under development. The discretionary cap policy levels are reflected in Table S–7 of the
main Budget volume.
Further adjustments to the proposed
discretionary caps
The discretionary non-defense caps proposed in the
2018 Budget are reduced further to account for policy
decisions to remove the air traffic control programs from
discretionary spending because of privatization and to
reduce the contributions of Federal agencies to the retirement plans of civilian employees. These cap reductions
would prevent the savings achieved by these reforms
from being redirected to augment existing non-defense
programs. Reforms to the retirement plans of Federal civilian employees would also yield savings in the defense
category, but no reduction is included to allow for those
savings to be redirected to critical national security investments within the category.
Air Traffic Control Privatization.—The Administration
proposes to shift the Federal Aviation Administration’s
(FAA) air traffic control function into a non-governmental entity beginning in 2021. This proposal reduces the
need for discretionary spending in the following FAA accounts: Facilities and Equipment; Research, Engineering,
and Development; and Trust Fund Share accounts. The
Budget reflects an annual reduction of $10.4 billion in
budget authority from 2021 to 2027; this level was determined by measuring the amount allocated as a placeholder
4   For a review of the application of Administrative PAYGO, see USDA’s Application of Administrative PAYGO to Its Mandatory Spending
Programs, GAO, October 31, 2011, GAO-11-921R.

ANALYTICAL PERSPECTIVES

in the policy outyears to air traffic control activities under
the proposed non-defense category.
Employer-Employee Share of Federal Employee
Retirement.—The Budget proposes to reallocate the costs
of Federal employee retirement by charging equal shares
of employees’ accruing retirement costs to employees and
employers. The Budget takes the estimated reductions in
the share of employee retirement paid by Federal agencies out of the cap levels starting in 2019. This proposal
starts at a reduction of discretionary budget authority of
$6.6 billion in 2019 and totals $70 billion in reduced discretionary spending over the 2019 to 2027 period.
Gross versus net reductions in Joint
Committee sequestration
The net realized savings from Joint Committee mandatory sequestration are less than the amounts required by
the sequestration calculation as a result of requirements
in BBEDCA. The 2018 Budget shows the net effect of
Joint Committee sequestration reductions by accounting for reductions in 2018 that remain in the sequestered
account and become newly available for obligation in
the year after sequestration, in accordance with section
256(k)(6) of BBEDCA. The BA and outlays from these
“pop-up” resources are included in the baseline and policy
estimates and amount to a cost of $2.5 billion in 2018.
Additionally, the 2018 Budget accounts for $669 million
in lost savings that results from the sequestration of certain interfund payments. Such payments produce no net
deficit reduction.
Fannie Mae and Freddie Mac
The Budget continues to present Fannie Mae and
Freddie Mac, the housing Government-sponsored enterprises (GSEs) currently in Federal conservatorship,
as non-Federal entities. However, any Treasury equity
investments in the GSEs would be recorded as budgetary outlays, and the dividends on those investments are
recorded as offsetting receipts. In addition, the budget
estimates reflect collections from the 10 basis point increase in GSE guarantee fees that was enacted under the
Temporary Payroll Tax Cut Continuation Act of 2011 (P.L.
112-78). The baseline also reflects collections from a 4.2
basis point set-aside on each dollar of unpaid principal
balance of new business purchases authorized under the
Housing and Economic Recovery Act of 2008 (P.L. 111289) to be remitted to several Federal affordable housing
programs; the 2018 Budget proposes to eliminate the 4.2
basis point set-aside and discontinue funding for these
programs. The GSEs are discussed in more detail in
Chapter 20, “Credit and Insurance.”
Postal Service Reforms
The Administration proposes reform of the Postal
Service, necessitated by the serious financial condition of
the Postal Service Fund. The proposals are discussed in
the Postal Service and Office of Personnel Management
sections of the Appendix.
The Postal Service is designated in statute as an offbudget independent establishment of the Executive

111

10. Budget Process

Branch. This designation and budgetary treatment was
most recently mandated in 1989, in part to reflect the
policy agreement that the Postal Service should pay for
its own costs through its own revenues and should operate more like an independent business entity. Statutory
requirements on Postal Service expenses and restrictions
that impede the Postal Service’s ability to adapt to the
ongoing evolution to paperless written communications
have made this goal increasingly difficult to achieve. To
address its current financial and structural challenges,
the Administration proposes reform measures to ensure
that the Postal Service funds existing commitments to
current and former employees from business revenues,
not taxpayer funds. To reflect the Postal Services’ practice since 2012 of using defaults to on-budget accounts to
continue operations, despite losses, the Administration’s
baseline now reflects probable defaults to on-budget accounts at the Office of Personnel Management (OPM). This
treatment allows for a clearer presentation of the Postal
Service’s likely actions in the absence of reform and more
realistic scoring of reform proposals, with improvements
in the Postal Service’s finances reflected through lower
defaults, and added costs for the Postal Service reflected
as higher defaults. Under current scoring rules, savings
from reform for the Postal Service affect the unified deficit
but do not affect the PAYGO scorecard. Savings to OPM
through lower projected defaults affect both the PAYGO
scorecard and the unified deficit.
Fair Value for Credit Programs
Fair value is an approach to measuring the cost of
Federal direct loan and loan guarantee programs that
would align budget estimates with the market value of
Federal assistance, typically by including risk premiums
observed in the market. Under current budget rules, the
cost of Federal credit programs is measured as the net

present value of the estimated future cash flows resulting
from a loan or loan guarantee discounted at the Treasury
rate. These rules are defined in law by the Federal Credit
Reform Act of 1990 (FCRA). In recent years, some analysts have argued that fair value estimates would better
capture the true costs imposed on taxpayers from Federal
credit programs and would align with private sector standard practices for measuring the value of loans and loan
guarantees. The Congressional Budget Office (CBO), for
instance, has stated that fair value would be a more comprehensive measure of the cost of Federal credit programs.
The Concurrent Resolution on the Budget for Fiscal Year
2016 (S. Con. Res. 11) also included language supporting
the use of fair value. The Administration supports proposals to improve the accuracy of cost estimates and is
open to working with Congress to address any conceptual
and implementation challenges necessary to implement
fair value estimates for Federal credit programs.
Budget Presentation of Immigration
Policy and Reforms
The Administration is exploring a future change to
budget presentation that would make transparent the
net budgetary effects of immigration programs and policy. The goal of such changes would be to better capture
the impact of immigration policy decisions on the federal
Government’s fiscal path. Once the net effect of immigration on the Federal budget is more clearly illustrated, the
American public can be better informed about options for
improving policy outcomes and savings taxpayer resource.
To that end, the Budget supports reforming the U.S. immigration system to encourage a merit-based system of
entry for legal immigrants, ending the entry of illegal immigrants, and a substantial reduction in refugees slotted
for domestic resettlement.

FEDERAL RECEIPTS

113

11. GOVERNMENTAL RECEIPTS

A simpler, fairer, and more efficient tax system is critical
to growing the economy and creating jobs. Our outdated,
overly complex, and burdensome tax system must be reformed to unleash America’s economy, and create millions
of new, better-paying jobs that enable American workers
to meet their families’ needs.
The Budget assumes deficit neutral tax reform, which
the Administration will work closely with the Congress
to enact.
The Administration has articulated several core
principles that will guide its discussions with taxpayers, businesses, Members of Congress, and
other stakeholders. Overall, the Administration believes that tax reform, both for individuals and
businesses, should grow the economy and make
America a more attractive business environment.
Tax relief for American families, especially middle-income families, should:
• Lower individual income tax rates;

• Expand

the standard deduction, and help families
struggling with child and dependent care expenses;

• Protect

homeownership, charitable giving, and retirement saving;

• End

the burdensome alternative minimum tax,
which requires many taxpayers to calculate their
taxes twice;

• Repeal

the 3.8 percent Obamacare surcharge on
capital gains and dividends, which further hinders
capital formation; and

• Abolish the death tax, which penalizes farmers and

small business owners who want to pass their family
enterprises on to their children.

The Administration believes that business tax reform
should:
• Reduce the tax rate on American businesses in order
to fuel job creation and economic growth;

• Eliminate most special interest tax breaks to make

the tax code more equitable, more efficient, and to
help pay for lower business tax rates; and

• End the penalty on American businesses by transi-

tioning to a territorial system of taxation, enabling
these businesses to repatriate their newly earned
overseas profits without incurring additional taxes.
This transition would include a one-time repatriation tax on already accumulated overseas income.

Going forward, the President is committed to continue working with the Congress and other stakeholders to
carefully and deliberatively build on these principles to
create a tax system that is fair, simple, and efficient—one
that puts Americans back to work and puts America first.

ESTIMATES OF GOVERNMENTAL RECEIPTS
Governmental receipts are taxes and other collections from the public that result from the exercise of
the Federal Government’s sovereign or governmental
powers. The difference between governmental receipts
and outlays is the surplus or deficit.
The Federal Government also collects income from
the public from market-oriented activities. Collections
from these activities, which are subtracted from
gross outlays, rather than added to taxes and other
governmental receipts, are discussed in Chapter 12,
“Offsetting Collections and Offsetting Receipts,” in this
volume.
Total governmental receipts (hereafter referred to
as “receipts”) are estimated to be $3,459.7 billion in
2017, an increase of $191.7 billion or 5.9 percent from
2016. The estimated increase in 2017 is largely due to
increases in payroll taxes, individual income taxes, and
taxes on corporate income. Receipts in 2017 are esti-

mated to be 18.1 percent of Gross Domestic Product
(GDP), which is higher than in 2016, when receipts
were 17.8 percent of GDP.
Receipts are estimated to rise to $3,654.3 billion
in 2018, an increase of $194.6 billion or 5.6 percent
relative to 2017. Receipts are projected to grow at an
average annual rate of 4.7 percent between 2018 and
2022, rising to $4,390.1 billion. Receipts are projected
to rise to $5,724.2 billion in 2027, growing at an average annual rate of 5.5 percent between 2022 and 2027.
This growth is largely due to assumed increases in incomes resulting from both real economic growth and
inflation.
As a share of GDP, receipts are projected to increase
from 18.1 percent in 2017 to 18.3 percent in 2018, and
to remain between 18.0 percent and 18.4 percent of
GDP through 2027.

115

116

ANALYTICAL PERSPECTIVES

Table 11–1. RECEIPTS BY SOURCE—SUMMARY
(In billions of dollars)

Individual income taxes ������������������������������������������������������������������
Corporation income taxes ���������������������������������������������������������������
Social insurance and retirement receipts ���������������������������������������
(On-budget) ��������������������������������������������������������������������������������
(Off-budget) ��������������������������������������������������������������������������������
Excise taxes �����������������������������������������������������������������������������������
Estate and gift taxes �����������������������������������������������������������������������
Customs duties �������������������������������������������������������������������������������
Miscellaneous receipts �������������������������������������������������������������������
Allowance to repeal and replace Obamacare ���������������������������������
Total, receipts ����������������������������������������������������������������������������
(On-budget) ��������������������������������������������������������������������������
(Off-budget) ��������������������������������������������������������������������������
Total receipts as a percentage of GDP ���������������������������������������

Estimate

2016
Actual

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

1,546.1
299.6
1,115.1
304.9
810.2
95.0
21.4
34.8
156.0
.........
3,268.0
2,457.8
810.2
17.8

1,659.9
323.6
1,174.7
317.3
857.4
87.0
23.1
33.9
157.4
.........
3,459.7
2,602.3
857.4
18.1

1,836.1
354.9
1,224.3
332.1
892.2
106.2
24.3
39.7
123.8
–55.0
3,654.3
2,762.1
892.2
18.3

1,935.3
374.8
1,277.0
345.7
931.3
107.3
26.1
41.6
111.6
–60.0
3,813.7
2,882.4
931.3
18.2

2,044.2
401.2
1,334.6
362.8
971.8
109.8
27.8
43.0
106.6
–85.0
3,982.1
3,010.3
971.8
18.1

2,166.7
400.5
1,412.6
385.8
1,026.8
99.3
29.3
43.5
109.0
–100.0
4,160.9
3,134.1
1,026.8
18.0

2,292.9
414.4
1,488.3
407.1
1,081.3
101.3
31.2
46.0
120.9
–105.0
4,390.1
3,308.8
1,081.3
18.1

2,428.5
425.0
1,557.2
424.4
1,132.9
103.6
33.0
50.4
131.8
–115.0
4,614.6
3,481.7
1,132.9
18.1

2,571.7
438.9
1,637.4
445.9
1,191.4
106.1
35.6
52.8
141.5
–120.0
4,864.1
3,672.7
1,191.4
18.2

2,723.3
454.8
1,716.9
466.3
1,250.6
109.2
38.0
56.4
151.5
–120.0
5,130.1
3,879.5
1,250.6
18.2

2,884.0
475.1
1,805.9
490.1
1,315.8
112.7
40.4
60.3
158.5
–120.0
5,416.9
4,101.1
1,315.8
18.3

3,062.0
496.6
1,892.9
514.4
1,378.5
116.9
42.7
65.5
167.6
–120.0
5,724.2
4,345.7
1,378.5
18.4

LEGISLATION ENACTED IN 2016 THAT AFFECTS GOVERNMENTAL RECEIPTS
Several laws were enacted during 2016 that affect receipts. The major provisions of those laws that have a
significant impact on receipts are described below.1
COAST GUARD AUTHORIZATION ACT
OF 2015 (PUBLIC LAW 114-120)

Airport and Airway Trust Fund through July 15, 2016.
The prior law exemption from domestic and international
air passenger ticket taxes provided for aircraft in fractional ownership aircraft programs was also extended
through that date. These taxes had been scheduled to expire after March 31, 2016, under prior law.

This Act, which was signed into law on February 8,
2016, reauthorized the Coast Guard through September
30, 2017, and enacted various reforms. One of these reforms altered the criteria when the Secretary of Homeland
Security may remit or cancel any part of a person’s indebtedness to the United States or any U.S instrumentality.
Cancellation of debt is typically a taxable event affecting
governmental receipts.

This Act, which was signed into law on May 11, 2016,
increased the maximum penalty for trade secret theft
from $5,000,000 to the greater of $5,000,000 or three
times the value of the stolen trade secret. These penalties
are classified as governmental receipts.

TRADE FACILITATION AND
TRADE ENFORCEMENT ACT OF
2015 (PUBLIC LAW 114-125)

PUERTO RICO OVERSIGHT,
MANAGEMENT, AND ECONOMIC
STABILITY ACT (PUBLIC LAW 114-187)

This Act, which was signed into law on February 24,
2016, modified various requirements under the Tariff Act
of 1930 and the Harmonized Tariff Schedule of the United
States, provided certain trade preferences for Nepal, and
increased the maximum penalty for failure to file a tax
return within 60 days of the deadline, except for reasonable cause.

This Act, also known as PROMESA, which was signed
into law on June 30, 2016, addressed Puerto Rico’s debt by
establishing an oversight board, and a process for restructuring debt including an automatic stay upon enactment.
PROMESA creates an oversight board that is not a department, agency, establishment, or instrumentality of
the Federal Government but is an entity within the territorial government, which is not subject to the supervision
or control of any Federal agency. Although the Board’s
financing is derived entirely from the territorial government, the flow of funds from the territory to the Board is
mandated by Federal law. Because Federal law prescribes
the flow of funds to the Board, the budget reflects the allocation of resources by the territorial government to the
new territorial entity as governmental receipts and a simultaneous payment to the oversight board in the same

AIRPORT AND AIRWAY EXTENSION
ACT OF 2016 (PUBLIC LAW 114-141)
This Act, which was signed into law on March 30, 2016,
extended the authority to collect taxes that fund the
1    In the discussions of enacted legislation, years referred to are calendar years, unless otherwise noted.

DEFEND TRADE SECRETS ACT OF
2016 (PUBLIC LAW 114-153)

117

11. Governmental Receipts

amount, with a net zero Federal deficit impact, consistent
with long-standing budgetary concepts.

unless the taxpayer’s adjusted gross income exceeded
$1,000,000 or $500,000 if married but filing separately.

FAA EXTENSION, SAFETY, AND SECURITY
ACT OF 2016 (PUBLIC LAW 114-190)

21ST CENTURY CURES ACT
(PUBLIC LAW 114-255)

This Act, which was signed into law on July 15, 2016,
enacted aviation safety and security reforms, and extended the authority to collect taxes that fund the Airport
and Airway Trust Fund through September 30, 2017. The
prior law exemption from domestic and international air
passenger ticket taxes provided for aircraft in fractional
ownership aircraft programs was also extended through
that date. These taxes had been scheduled to expire after
July 15, 2016, under prior law.

This Act, which was signed into law on December
13, 2016, created an exception to the group health plan
requirements for qualified small employer health reimbursement arrangements. The amount of such
arrangements was limited to $4,950 ($10,000 for arrangements which also covered employee’s family members)
and indexed to inflation.

UNITED STATES APPRECIATION FOR
OLYMPIANS AND PARALYMPIANS ACT
OF 2016 (PUBLIC LAW 114-239)
This Act, which was signed into law on October 7, 2016,
excluded the value of any medal awarded or prize money
received from the U.S. Olympic Committee on account of
competition in the Olympic Games or Paralympic Games

NATIONAL DEFENSE AUTHORIZATION ACT
FOR FISCAL YEAR 2017 (PUBLIC LAW 114-328)
This Act, which was signed into law on December 23,
2016, reauthorized the Department of Defense, and enacted various reforms. One of these reforms expanded
when the Secretaries of the Army, the Navy, the Air Force,
and Homeland Security may remit or cancel any part of a
person’s indebtedness to the United States or any U.S instrumentality. Cancellation of debt is typically a taxable
event affecting governmental receipts.

BUDGET PROPOSALS
While the details of the Administration’s reforms to
individual and business taxes will be released at a later
date, the budget does include several proposals which affect governmental receipts:
Extend CHIP funding through 2019.—The
Authorization for the Children’s Health Insurance
Program (CHIP) currently expires at the end of 2017. The
Administration proposes to extend CHIP funding for two
years, through fiscal year 2019. As a result, on net, more
children will be enrolled in CHIP and fewer children will
be enrolled in Marketplace qualified health plans and
employment-based health insurance. This will increase
tax revenues and reduce outlays associated with the premium tax credit.
Establish Electronic Visa Update System (EVUS)
user fee.—The Administration proposes to establish
a user fee for EVUS, a new U.S. Customs and Border
Protection (CBP) program to collect biographic and travel-related information from certain non-immigrant visa
holders prior to traveling to the United States. This process will complement existing visa application processes
and enhance CBP’s ability to make pre-travel admissibility and risk determinations. CBP proposes to establish a
user fee to fund the costs of establishing, providing, and
administering the system.
Eliminate Corporation for Travel Promotion.—
The Administration proposes to eliminate funding for the
Corporation for Travel Promotion (also known as Brand
USA) as part of the Administration’s plans to move the
nation towards fiscal responsibility and to redefine the
proper role of the Federal Government. The Budget re-

directs the Electronic System for Travel Authorization
(ESTA) surcharge currently deposited in the Travel
Promotion Fund to the ESTA account at Customs and
Border Protection with a portion to be transferred to the
International Trade Administration.
Provide paid parental leave benefits.—The
Administration proposes establishing a new benefit
within the Unemployment Insurance (UI) program to
provide up to six weeks paid leave to mothers, fathers,
and adoptive parents. States are expected to adjust their
UI tax structures to maintain sufficient balances in their
Unemployment Trust Fund accounts.
Establish Unemployment Insurance (UI) solvency
standard.—The Administration proposes to set a minimum solvency standard to encourage States to maintain
sufficient balances in their UI trust funds. States that are
currently below this minimum standard are expected to
increase their State UI taxes to build up their trust fund
balances. States that do not build up sufficient reserves
will be subject to Federal Unemployment Tax Act credit
reductions, increasing Federal UI receipts.
Improve Unemployment Insurance program integrity.—The Administration proposes a package of
reforms to the UI program aimed at improving program
integrity. These reforms are expected to reduce outlays in
the UI program by reducing improper payments. In general, reduced outlays allow States to keep UI taxes lower,
reducing overall receipts to the UI trust funds.
Provide mandatory Reemployment Services and
Eligibility Assessments.—The Administration proposes
mandatory funding to provide Reemployment Services
and Eligibility Assessments (RESEAs) to the one-half of

118
UI claimants identified as most likely to exhaust benefits.
RESEAs have been shown to reduce improper payments
and to get claimants back to work more quickly, thereby
reducing UI benefit outlays. In general, reduced outlays
allow States to keep UI taxes lower, reducing overall receipts to the UI trust funds.
Offset overlapping unemployment and disability payments.—The Administration proposes to close a
loophole that allows individuals to receive both UI and
Disability Insurance (DI) benefits for the same period of
joblessness. The proposal would offset the DI benefit to account for concurrent receipt of UI benefits. Under current
law, concurrent receipt of DI benefits and unemployment
compensation is allowable. Offsetting the overlapping
benefits would discourage some individuals from applying
for UI, reducing benefit outlays. The reduction in benefit
outlays is accompanied by a reduction in States' UI tax receipts, which are held in the Unemployment Trust Fund.
Enact Federal Aviation Administration (FAA) air
traffic control reform.—The Administration proposes
to shift the FAA’s air traffic control function into a nongovernmental entity beginning in 2021. This proposal
would reduce the collection of aviation excise taxes. The
estimates in the Budget are illustrative of the aviation
taxes that would be in place to fund the FAA’s Airport
Improvement Program. The reform proposal in the
Budget assumes the ticket tax will end, but has not yet
developed the precise tax rates for the remaining aviation
excise taxes.
Reform
the
Essential
Air
Service.—The
Administration proposes to reform the Essential Air
Service (EAS) by eliminating discretionary funding and
focusing on the remote airports that are most in need of
subsidized commercial air service. The proposal will include a mix of reforms, including limits on per-passenger
subsidies and higher average daily enplanements. These
reforms would affect governmental receipts by reducing
aviation overflight fees.
Require a social security number that is valid for
work in order to claim child tax credit and earned
income tax credit.—The Administration proposes requiring a social security number that is valid for work to
claim the earned income tax credit or the child tax credit
for the taxable year. For both credits, this requirement
would apply to taxpayers (including the primary and secondary filer on a joint return) and all qualifying children.
Increase oversight of paid tax return preparers.—
Paid tax return preparers have an important role in tax
administration because they assist taxpayers in complying with their obligations under the tax laws. Incompetent
and dishonest tax return preparers increase collection
costs, reduce revenues, disadvantage taxpayers by potentially subjecting them to penalties and interest as a result
of incorrect returns, and undermine confidence in the tax
system. To promote high quality services from paid tax return preparers, the proposal would explicitly provide that
the Secretary of the Treasury has the authority to regulate all paid tax return preparers. This proposal would be
effective as of the date of enactment.

ANALYTICAL PERSPECTIVES

Provide the Internal Revenue Service (IRS) with
greater flexibility to address correctable errors.—
The Administration proposes to expand IRS authority to
correct errors on taxpayer returns. Current statute only
allows the IRS to correct errors on returns in certain limited instances, such as basic math errors or the failure to
include the appropriate social security number or taxpayer identification number. This proposal would expand the
instances in which the IRS could correct a taxpayer’s return including cases where: (1) the information provided
by the taxpayer does not match the information contained
in government databases; (2) the taxpayer has exceeded
the lifetime limit for claiming a deduction or credit; or (3)
the taxpayer has failed to include with his or her return,
certain documentation that is required by statute. The
proposal would be effective on the date of enactment.
Provide authority to purchase and construct a
new Bureau of Engraving and Printing (BEP) facility.—The Administration proposes to provide authority
to the Bureau of Engraving and Printing to construct a
more efficient production facility. This will reduce the cost
incurred by the Federal Reserve for printing currency and
therefore increase governmental receipts via increased
deposits from the Federal Reserve to Treasury.
Reform
inland
waterways
financing.—The
Administration proposes to reform the laws governing
the Inland Waterways Trust Fund, including establishing a fee to increase the amount paid by commercial
navigation users of the inland waterways. In 1986, the
Congress provided that commercial traffic on the inland
waterways would be responsible for 50 percent of the
capital costs of the locks, dams, and other features that
make barge transportation possible on the inland waterways. The additional revenue would help finance future
capital investments in these waterways to support economic growth. The current excise tax on diesel fuel used
in inland waterways commerce will not produce sufficient
revenue to cover these costs.
Increase employee contributions to Federal
Employee
Retirement
System
(FERS).—The
Administration proposes to increase Federal employee
contributions to FERS, equalizing employee and employer contributions to FERS so that half of the normal
cost would be paid by each. For some specific occupations, such as law enforcement officers and firefighters,
the cost of their retirement package necessitates a higher
normal cost percentage. For those specific occupations,
this proposal would increase, but not equalize employee
contributions. This proposal is consistent with the goal of
reining in Federal Government spending in many areas,
and bringing Federal retirement benefits more in line
with the private sector. This adjustment will reduce the
long term cost to the Federal Government, by reducing
the Government’s contribution rate. To lessen the impact on employees, this proposal will be phased in over
an estimated 6-year period. This reform would affect governmental receipts because Federal employee retirement
contributions are classified as governmental receipts.
Repeal and replace Obamacare.—The Administration is committed to rescuing Americans from the

119

11. Governmental Receipts

failures of Obamacare and to expand choice, increase
access, and lower premiums. Repealing and replacing
Obamacare would affect governmental receipts.
Reform
medical
liability
system.—The
Administration proposes to reform medical liability beginning in 2018. This proposal has the potential to lower
health insurance premiums, increasing taxable income
and payroll tax receipts and reducing outlays associated
with the premium tax credit.

Eliminate allocations to the Housing Trust Fund
and Capital Magnet Fund.—The Administration proposes to eliminate an assessment on Fannie Mae and
Freddie Mac that is used to fund the Housing Trust Fund
and Capital Magnet Fund, two Federal programs that
support affordable low-income housing. The resulting increase in taxable income at Fannie Mae and Freddie Mac
would impact governmental receipts.

Table 11–2. EFFECT OF BUDGET PROPOSALS
(In millions of dollars)
2017
Extend CHIP funding through 2019 ������������
Establish Electronic Visa Update System
user fee ��������������������������������������������������
Eliminate Brand USA; make revenue
available to CBP �����������������������������������
Transfer Electronic System for Travel
Authorization receipts to International
Trade Administration ������������������������������
Provide paid parental leave benefits ����������
Establish an Unemployment Insurance (UI)
solvency standard ����������������������������������
Improve UI program integrity ���������������������
Provide for Reemployment Services and
Eligibility Assessments ��������������������������
Offset overlapping unemployment and
disability payments �������������������������������
Reform Air Traffic Control ��������������������������
Reform Essential Air Service ���������������������
Require social security number for Child Tax
Credit & Earned Income Tax Credit �������
Increase oversight of paid tax return
preparers ����������������������������������������������
Provide more flexible authority for the IRS
to address correctable errors ����������������
Provide authority for Bureau of Engraving
and printing to construct new facility ������
Reform inland waterways financing ������������
Increase employee contributions to 50% of
cost with 6-year phase-in (1% per year) 
Repeal and replace Obamacare ����������������
Reform the medical liability system �����������
Eliminate allocations to the Housing Trust
Fund and Capital Magnet Fund ������������
Total receipt effects of mandatory
proposals ������������������������������������������

2018

2019

2020

2021

2022

2023

2024

2025

2026

20182022

2027

2017-2027

.........

–49

219

367

67

.........

.........

.........

.........

.........

.........

604

604

.........

27

27

31

28

29

28

31

28

29

28

142

286

.........

–162

–170

–178

.........

.........

.........

.........

.........

.........

.........

–510

–510

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

162
.........

171
.........

178
.........

185
916

193
962

200
971

208
1,158

215
1,264

223
1,365

230
1,459

889
1,878

1,965
8,095

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

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

.........
–4

758
–8

1,894
–23

2,568
–42

1,045
–86

1,833
–57

1,072
–81

1,488
–102

2,254
–132

5,220
–77

12,912
–535

.........

.........

1

.........

–18

–89

–238

–269

–229

–264

–284

–106

–1,390

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

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

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

–1
–3
–7
–13
–18
–23
–46
–36
–11
–147
......... –14,391 –14,976 –15,627 –16,382 –17,302 –18,073 –18,881 –29,367 –115,632
.........
–129
–130
–132
–133
–134
–136
–137
–259
–931

.........

298

1,176

1,194

1,228

1,261

1,313

1,381

1,455

1,526

1,618

5,157

12,450

.........

12

18

20

22

24

27

29

32

36

39

96

259

.........

5

10

11

11

12

13

13

14

15

15

49

119

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

15
108

74
107

3
106

–5
105

314
104

–5
103

–14
103

–3
101

–165
100

494
100

401
530

708
1,037

.........
1,719
3,227
4,810
6,372
7,959
9,537
9,568
9,599
9,624
9,640 24,087
72,055
......... –55,000 –60,000 –85,000 –100,000 –105,000 –115,000 –120,000 –120,000 –120,000 –120,000 –405,000 –1,000,000
.........
24
222
545
982
1,468
2,054
2,666
3,053
3,261
3,444
3,241
17,719
.........

75

79

96

110

117

122

126

129

131

134

477

1,120

......... –52,766 –54,843 –77,068 –102,649 –105,233 –115,688 –119,757 –120,810 –120,987 –120,015 –392,559 –989,815

12. OFFSETTING COLLECTIONS AND OFFSETTING RECEIPTS
I. INTRODUCTION AND BACKGROUND
The Government records money collected in one of
two ways. It is either recorded as a governmental receipt
and included in the amount reported on the receipts
side of the budget or it is recorded as an offsetting collection or offsetting receipt, which reduces (or “offsets”)
the amount reported on the outlay side of the budget.
Governmental receipts are discussed in the previous
chapter, “Governmental Receipts.” The first section of
this chapter broadly discusses offsetting collections and
offsetting receipts. The second section discusses user
charges, which consist of a subset of offsetting collections
and offsetting receipts and a small share of governmental
receipts.
As discussed below, offsetting collections and offsetting receipts are cash inflows to a budget account that are
usually used to finance Government activities. The spending associated with these activities is included in total or
“gross outlays.” For 2016, gross outlays to the public were
$4,352 billion,1 or 23.6 percent of gross domestic product (GDP). Offsetting collections and offsetting receipts
from the public are subtracted from gross outlays to the
public to yield “net outlays,” which is the most common
measure of outlays cited and generally referred to as simply “outlays.” For 2016, net outlays were $3,853 billion or
20.9 percent of GDP. Government-wide net outlays reflect
the Government’s net disbursements to the public and
are subtracted from governmental receipts to derive the
Government’s deficit or surplus. For 2016, governmental
receipts were $3,268 billion, or 17.8 percent of GDP, and
the deficit was $585 billion, or 3.2 percent of GDP.
There are two sources of offsetting receipts and offsetting collections: from the public and from other budget
accounts. In 2016, offsetting receipts and offsetting
collections from the public were $499 billion, while intragovernmental offsetting receipts and offsetting collections
were $1,141 billion. Regardless of how it is recorded (as
governmental receipts, offsetting receipts, or offsetting
collections), money collected from the public reduces the
deficit or increases the surplus. In contrast, intragovernmental collections from other budget accounts exactly
offset the payments made by these accounts, with no net
impact on the deficit or surplus.2
When measured by the magnitude of the dollars collected, most offsetting collections and offsetting receipts
1      Gross outlays to the public are derived by subtracting intragovernmental outlays from gross outlays. For 2016, gross outlays were $5,493
billion. Intragovernmental outlays are payments from one Government
account to another Government account. For 2016, intragovernmental
outlays totaled $1,141 billion.
2     For the purposes of this discussion, “collections from the public”
include collections from non-budgetary Government accounts, such as
credit financing accounts and deposit funds. For more information on
these non-budgetary accounts, see Chapter 9, “Coverage of the Budget.”

from the public arise from business-like transactions
with the public. Unlike governmental receipts, which are
derived from the Government’s exercise of its sovereign
power, these offsetting collections and offsetting receipts
arise primarily from voluntary payments from the public
for goods or services provided by the Government. They
are classified as offsets to outlays for the cost of producing
the goods or services for sale, rather than as governmental receipts on the receipts side of the budget. Treating
offsetting collections and offsetting receipts as offsets
to outlays produces budget totals for receipts and (net)
outlays that reflect the amount of resources allocated by
the Government through collective political choice, rather
than through the marketplace.3 These activities include
the sale of postage stamps, land, timber, and electricity;
charging fees for services provided to the public (e.g., admission to national parks); and collecting premiums for
health care benefits (e.g., Medicare Parts B and D).
A relatively small portion ($25.1 billion in 2016) of offsetting collections and offsetting receipts from the public
is derived from the Government’s exercise of its sovereign power. From a conceptual standpoint, these should
be classified as governmental receipts. However, they are
classified as offsetting rather than governmental receipts
either because this classification has been specified in law
or because these collections have traditionally been classified as offsets to outlays. Most of the offsetting collections
and offsetting receipts in this category derive from fees
from Government regulatory services or Government licenses, and include, for example, charges for regulating
the nuclear energy industry, bankruptcy filing fees, immigration fees, food inspection fees, passport fees, and
patent and trademark fees.4
A third source of offsetting collections and offsetting
receipts is intragovernmental transfers. Examples of intragovernmental transfers include interest payments to
funds that hold Government securities (such as the Social
Security trust funds), general fund transfers to civilian
and military retirement pension and health benefits
3      Showing collections from business-type transactions as offsets on
the spending side of the budget follows the concept recommended by the
Report of the President’s Commission on Budget Concepts in 1967 and
is discussed in Chapter 8 of this volume, “Budget Concepts.’’
4      This category of receipts is known as “offsetting governmental receipts.” Some argue that regulatory or licensing fees should be viewed
as payments for a particular service or for the right to engage in a particular type of business. However, these fees are conceptually much more
similar to taxes because they are compulsory, and they fund activities
that are intended to provide broadly dispersed benefits, such as protecting the health of the public. Reclassifying these fees as governmental
receipts could require a change in law, and because of conventions for
scoring appropriations bills, would make it impossible for fees that are
controlled through annual appropriations acts to be scored as offsets to
discretionary spending.

121

122

ANALYTICAL PERSPECTIVES

funds, and agency payments to funds for employee health
insurance and retirement benefits. Although these intragovernmental collections exactly offset the payments
themselves, with no effect on the deficit or surplus, it is important to record these transactions in the budget to show
how much the Government is allocating to fund various
programs. For example, in the case of civilian retirement
pensions, Government agencies make accrual payments
to the Civil Service Retirement and Disability Fund on
behalf of current employees to fund their future retirement benefits; the receipt of these payments to the Fund
is shown in a single receipt account. Recording the receipt
of these payments is important because it demonstrates
the total cost to the Government today of providing this
future benefit.

The final source of offsetting collections and offsetting
receipts is gifts. Gifts are voluntary contributions to the
Government to support particular purposes or reduce the
amount of Government debt held by the public.
Although both offsetting collections and offsetting receipts are subtracted from gross outlays to derive net
outlays, they are treated differently when it comes to accounting for specific programs and agencies. Offsetting
collections are usually authorized to be spent for the
purposes of an expenditure account and are generally
available for use when collected, without further action by
the Congress. Therefore, offsetting collections are recorded as offsets to spending within expenditure accounts, so
that the account total highlights the net flow of funds.
Like governmental receipts, offsetting receipts are
credited to receipt accounts, and any spending of the re-

Table 12–1. OFFSETTING COLLECTIONS AND OFFSETTING RECEIPTS FROM THE PUBLIC
(In billions of dollars)
Actual
2016

Estimate
2017

2018

Offsetting collections (credited to expenditure accounts):
User charges:
Postal Service stamps and other USPS fees (off-budget) ��������������������������������������������������������������������������������������������������������������������������������
Defense Commissary Agency ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Employee contributions for employees and retired employees health benefits funds ��������������������������������������������������������������������������������������
Sale of energy:
Tennessee Valley Authority ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Bonneville Power Administration ������������������������������������������������������������������������������������������������������������������������������������������������������������������
All other user charges ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Subtotal, user charges ����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������

69.8
5.3
14.8

69.7
5.5
15.9

73.2
5.0
17.0

44.2
3.4
70.8
208.3

43.2
4.0
67.0
205.3

43.7
4.0
73.4
216.3

Other collections credited to expenditure accounts:
Commodity Credit Corporation fund �����������������������������������������������������������������������������������������������������������������������������������������������������������������
Supplemental Security Income (collections from the States) ���������������������������������������������������������������������������������������������������������������������������
Other collections �����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Subtotal, other collections ����������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Subtotal, offsetting collections ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������

6.8
2.6
20.9
30.2
238.5

7.7
2.7
19.9
30.2
224.3

7.4
2.7
20.1
30.2
234.8

User charges:
Medicare premiums ������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Spectrum auction, relocation, and licenses ������������������������������������������������������������������������������������������������������������������������������������������������������
Outer Continental Shelf rents, bonuses, and royalties �������������������������������������������������������������������������������������������������������������������������������������
All other user charges ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Subtotal, user charges deposited in receipt accounts ����������������������������������������������������������������������������������������������������������������������������������

72.5
8.4
2.8
37.5
121.2

79.2
0.0
4.0
37.5
120.8

91.4
8.8
4.5
38.7
143.4

Other collections deposited in receipt accounts:
Military assistance program sales ��������������������������������������������������������������������������������������������������������������������������������������������������������������������
Interest received from credit financing accounts ����������������������������������������������������������������������������������������������������������������������������������������������
Proceeds, GSE equity related transactions ������������������������������������������������������������������������������������������������������������������������������������������������������
All other collections deposited in receipt accounts �������������������������������������������������������������������������������������������������������������������������������������������
Subtotal, other collections deposited in receipt accounts �����������������������������������������������������������������������������������������������������������������������������
Subtotal, offsetting receipts ������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������

32.1
41.5
11.5
54.2
139.3
260.5

37.4
45.0
23.4
62.0
167.8
288.6

36.0
46.7
17.3
50.0
149.9
293.3

Total, offsetting collections and offsetting receipts from the public �������������������������������������������������������������������������������������������������������������������
Total, offsetting collections and offsetting receipts excluding off-budget ��������������������������������������������������������������������������������������������������������������������

499.0
429.0

512.9
443.2

528.1
454.9

ADDENDUM:
User charges that are offsetting collections and offsetting receipts 1 ���������������������������������������������������������������������������������������������������������������������
Other offsetting collections and offsetting receipts from the public ������������������������������������������������������������������������������������������������������������������������
1 Excludes user charges that are classified on the receipts side of the budget. For total user charges, see Table 12-3.

329.5
169.5

326.1
186.8

359.6
168.5

Offsetting receipts (deposited in receipt accounts):

123

12. Offsetting Collections and Offsetting Receipts

Table 12–2. SUMMARY OF OFFSETTING RECEIPTS BY TYPE
(In millions of dollars)
Receipt Type

Estimate
Actual 2016

2017

2018

2019

2020

2021

2022

Intragovernmental ��������������������������������������������������������������������������������

798,075

767,842

784,834

811,307

852,320

897,448

944,185

Receipts from non-Federal sources:
Proprietary ��������������������������������������������������������������������������������������
Offsetting governmental . �����������������������������������������������������������������
Total, receipts from non-Federal sources ����������������������������������
Total, offsetting receipts ������������������������������������������������������������������

240,616
19,868
260,484
1,058,559

275,225
13,391
288,616
1,056,458

271,135
22,140
293,275
1,078,109

276,618
15,530
292,148
1,103,455

287,823
16,054
303,877
1,156,197

297,906
14,948
312,854
1,210,302

310,955
15,389
326,344
1,270,529

ceipts is recorded in separate expenditure accounts. As a
result, the budget separately displays the flow of funds
into and out of the Government. Offsetting receipts may
or may not be designated for a specific purpose, depending
on the legislation that authorizes their collection. If designated for a particular purpose, the offsetting receipts
may, in some cases, be spent without further action by the
Congress. When not designated for a particular purpose,
offsetting receipts are credited to the general fund, which
contains all funds not otherwise allocated and which is
used to finance Government spending that is not financed
out of dedicated funds. In some cases where the receipts
are designated for a particular purpose, offsetting receipts are reported in a particular agency and reduce or
offset the outlays reported for that agency. In other cases,
the offsetting receipts are “undistributed,” which means
they reduce total Government outlays, but not the outlays
of any particular agency.
Table 12–1 summarizes offsetting collections and offsetting receipts from the public. Note that this table does
not include intragovernmental transactions. The amounts
shown in the table are not evident in the commonly cited
budget measure of outlays, which is already net of these
collections and receipts. For 2018, the table shows that
total offsetting collections and offsetting receipts from the
public are estimated to be $528.1 billion or 2.6 percent of
GDP. Of these, an estimated $234.8 billion are offsetting
collections and an estimated $293.3 billion are offsetting
receipts. Table 12–1 also identifies those offsetting collections and offsetting receipts that are considered user
charges, as defined and discussed below.
As shown in the table, major offsetting collections from
the public include proceeds from Postal Service sales,

electrical power sales, loan repayments to the Commodity
Credit Corporation for loans made prior to enactment of
the Federal Credit Reform Act, and Federal employee payments for health insurance. As also shown in the table,
major offsetting receipts from the public include premiums for Medicare Parts B and D, proceeds from military
assistance program sales, rents and royalties from Outer
Continental Shelf oil extraction, proceeds from auctions
of the electromagnetic spectrum, dividends on holdings of
preferred stock of the Government-sponsored enterprises,
and interest income.
Tables 12–2 and 12–4 provide further detail about offsetting receipts, including both offsetting receipts from
the public (as summarized in Table 12–1) and intragovernmental transactions. Table 12–4, formerly printed in
this chapter, is available on the Internet at www.budget.
gov/budget/Analytical_Perspectives and on the Budget
CD-ROM. In total, offsetting receipts are estimated to be
$1,078.1 billion in 2018; $784.8 billion are from intragovernmental transactions and $293.3 billion are from the
public. The offsetting receipts from the public consist of
proprietary receipts ($271.1 billion) and those classified
as offsetting receipts by law or long-standing practice
($22.1 billion) and shown as offsetting governmental receipts in the table. Proprietary receipts from the public
result from business-like transactions such as the sale
of goods or services, or the rental or use of Government
land. Offsetting governmental receipts are composed of
fees from Government regulatory services or Government
licenses that, absent a specification in law or a longstanding practice, would be classified on the receipts side
of the budget.

II. USER CHARGES
User charges or user fees5 refer generally to those
monies that the Government receives from the public for
market-oriented activities and regulatory activities. In
combination with budget concepts, laws that authorize
5      In this chapter, the term “user charge” is generally used and has
the same meaning as the term “user fee.” The term “user charge” is
the one used in OMB Circular No. A–11, “Preparation, Submission, and
Execution of the Budget”; OMB Circular No. A–25, “User Charges”; and
Chapter 8 of this volume, “Budget Concepts.” In common usage, the
terms “user charge” and “user fee” are often used interchangeably, and in
A Glossary of Terms Used in the Federal Budget Process, GAO provides
the same definition for both terms.

user charges determine whether a user charge is classified as an offsetting collection, an offsetting receipt, or a
governmental receipt. Almost all user charges, as defined
below, are classified as offsetting collections or offsetting
receipts; for 2018, only an estimated 1.5 percent of user
charges are classified as governmental receipts. As summarized in Table 12–3, total user charges for 2018 are
estimated to be $365.0 billion with $359.6 billion being
offsetting collections or offsetting receipts, and accounting for more than half of all offsetting collections and
offsetting receipts from the public.

124

ANALYTICAL PERSPECTIVES

Table 12–3. GROSS OUTLAYS, USER CHARGES,
OTHER OFFSETTING COLLECTIONS AND OFFSETTING
RECEIPTS FROM THE PUBLIC, AND NET OUTLAYS
(In billions of dollars)
Actual
2016
Gross outlays to the public �������������������������������������������

4,351.6

Estimate
2017
4,578.0

2018
4,620.8

Offsetting collections and offsetting receipts from the
public:
User charges 1 �����������������������������������������������������
329.5
326.1
359.6
Other ���������������������������������������������������������������������
169.5
186.8
168.5
Subtotal, offsetting collections and offsetting receipts
from the public ���������������������������������������������������������
499.0
512.9
528.1
Net outlays �������������������������������������������������������������������� 3,852.6 4,064.0
4,105.6
1 $4.4 billion of the total user charges for 2016 were classified as governmental receipts,
and the remainder were classified as offsetting collections and offsetting receipts.  $4.9
billion and $5.4 billion of the total user charges for 2017 and 2018 are classified as
governmental receipts, respectively.

Definition. In this chapter, user charges refer to fees,
charges, and assessments levied on individuals or organizations directly benefiting from or subject to regulation
by a Government program or activity, where the payers do
not represent a broad segment of the public such as those
who pay income taxes.
Examples of business-type or market-oriented user
charges and regulatory and licensing user charges include
those charges listed in Table 12–1 for offsetting collections
and offsetting receipts. User charges exclude certain offsetting collections and offsetting receipts from the public,
such as payments received from credit programs, interest,
and dividends, and also exclude payments from one part
of the Federal Government to another. In addition, user
charges do not include dedicated taxes (such as taxes paid
to social insurance programs or excise taxes on gasoline)
or customs duties, fines, penalties, or forfeitures.
Alternative definitions. The definition for user
charges used in this chapter follows the definition used in
OMB Circular No. A–25, “User Charges,’’ which provides
policy guidance to Executive Branch agencies on setting
the amount for user charges. Alternative definitions may
be used for other purposes. Much of the discussion of user
charges below—their purpose, when they should be levied, and how the amount should be set—applies to these
alternative definitions as well.

A narrower definition of user charges could be limited
to proceeds from the sale of goods and services, excluding
the proceeds from the sale of assets, and to proceeds that
are dedicated to financing the goods and services being
provided. This definition is similar to one the House of
Representatives uses as a guide for purposes of committee jurisdiction. (See the Congressional Record, January 3,
1991, p. H31, item 8.) The definition of user charges could
be even narrower by excluding regulatory fees and focusing solely on business-type transactions. Alternatively,
the user charge definition could be broader than the one
used in this chapter by including beneficiary- or liabilitybased excise taxes.6
Classification of user charges in the budget. As
shown in the note to Table 12–3, most user charges are
classified as offsets to outlays on the spending side of the
budget, but a few are classified on the receipts side of the
budget. An estimated $5.4 billion in 2018 of user charges
are classified on the receipts side and are included in the
governmental receipts totals described in the previous
chapter, “Governmental Receipts.’’ They are classified as
receipts because they are regulatory charges collected by
the Federal Government by the exercise of its sovereign
powers. Examples include filing fees in the United States
courts and agricultural quarantine inspection fees.
The remaining user charges, an estimated $359.6 billion in 2018, are classified as offsetting collections and
offsetting receipts on the spending side of the budget. As
discussed above in the context of all offsetting collections
and offsetting receipts, some of these user charges are collected by the Federal Government by the exercise of its
sovereign powers and conceptually should appear on the
receipts side of the budget, but they are required by law
or a long-standing practice to be classified on the spending side.
6      Beneficiary- and liability-based taxes are terms taken from the
Congressional Budget Office, The Growth of Federal User Charges, August 1993, and updated in October 1995. Gasoline taxes are an example
of beneficiary-based taxes. An example of a liability-based tax is the excise tax that formerly helped fund the hazardous substance superfund
in the Environmental Protection Agency. This tax was paid by industry
groups to finance environmental cleanup activities related to the industry activity but not necessarily caused by the payer of the fee.

FEDERAL RECEIPTS

125

13. TAX EXPENDITURES

The Congressional Budget Act of 1974 (Public Law 93–
344) requires that a list of “tax expenditures’’ be included
in the budget. Tax expenditures are defined in the law as
“revenue losses attributable to provisions of the Federal
tax laws which allow a special exclusion, exemption, or
deduction from gross income or which provide a special
credit, a preferential rate of tax, or a deferral of tax liability.’’ These exceptions may be viewed as alternatives to
other policy instruments, such as spending or regulatory
programs.
Identification and measurement of tax expenditures depends crucially on the baseline tax system against which
the actual tax system is compared. The tax expenditure
estimates presented in this document are patterned on a
comprehensive income tax, which defines income as the
sum of consumption and the change in net wealth in a
given period of time.
An important assumption underlying each tax expenditure estimate reported below is that other parts of the

Tax Code remain unchanged. The estimates would be different if tax expenditures were changed simultaneously
because of potential interactions among provisions. For
that reason, this document does not present a grand total
for the estimated tax expenditures.
Tax expenditures relating to the individual and corporate income taxes are estimated for fiscal years 2016–2026
using two methods of accounting: current revenue effects
and present value effects. The present value approach
provides estimates of the revenue effects for tax expenditures that generally involve deferrals of tax payments
into the future.
A discussion of performance measures and economic
effects related to the assessment of the effect of tax expenditures on the achievement of program performance goals
is presented in Appendix A. This section is a complement
to the Government-wide performance plan required by
the Government Performance and Results Act of 1992.

TAX EXPENDITURES IN THE INCOME TAX
Tax Expenditure Estimates
All tax expenditure estimates and descriptions presented here are based upon current tax law enacted as of July
1, 2016 and reflect the economic assumptions from the
Mid-Session Review of the 2017 Budget. In some cases,
expired or repealed provisions are listed if their revenue
effects occur in fiscal year 2016 or later.
The total revenue effects for tax expenditures for fiscal
years 2016–2026 are displayed according to the Budget’s
functional categories in Table 1. Descriptions of the specific tax expenditure provisions follow the discussion of
general features of the tax expenditure concept.
Two baseline concepts—the normal tax baseline and
the reference tax law baseline—are used to identify and
estimate tax expenditures.1 For the most part, the two
concepts coincide. However, items treated as tax expenditures under the normal tax baseline, but not the reference
tax law baseline, are indicated by the designation “normal
tax method’’ in the tables. The revenue effects for these
items are zero using the reference tax rules. The alternative baseline concepts are discussed in detail below.
Tables 2A and 2B report separately the respective
portions of the total revenue effects that arise under the
individual and corporate income taxes. The location of
the estimates under the individual and corporate headings does not imply that these categories of filers benefit
1 These baseline concepts are thoroughly discussed in Special Analysis G of the 1985 Budget, where the former is referred to as the pre-1983
method and the latter the post-1982 method.

from the special tax provisions in proportion to the respective tax expenditure amounts shown. Rather, these
breakdowns show the form of tax liability that the various
provisions affect. The ultimate beneficiaries of corporate tax expenditures could be shareholders, employees,
customers, or other providers of capital, depending on economic forces.
Table 3 ranks the major tax expenditures by the size of
their 2017–2026 revenue effect. The first column provides
the number of the provision in order to cross reference
this table to Tables 1, 2A, and 2B, as well as to the descriptions below.
Interpreting Tax Expenditure Estimates
The estimates shown for individual tax expenditures in
Tables 1 through 3 do not necessarily equal the increase
in Federal revenues (or the change in the budget balance)
that would result from repealing these special provisions,
for the following reasons.
First, eliminating a tax expenditure may have incentive effects that alter economic behavior. These incentives
can affect the resulting magnitudes of the activity or of
other tax provisions or Government programs. For example, if capital gains were taxed at ordinary rates, capital
gain realizations would be expected to decline, resulting
in lower tax receipts. Such behavioral effects are not reflected in the estimates.
Second, tax expenditures are interdependent even
without incentive effects. Repeal of a tax expenditure

127

128

ANALYTICAL PERSPECTIVES

provision can increase or decrease the tax revenues
associated with other provisions. For example, even
if behavior does not change, repeal of an itemized deduction could increase the revenue costs from other
deductions because some taxpayers would be moved
into higher tax brackets. Alternatively, repeal of an
itemized deduction could lower the revenue cost from
other deductions if taxpayers are led to claim the standard deduction instead of itemizing. Similarly, if two
provisions were repealed simultaneously, the increase
in tax liability could be greater or less than the sum
of the two separate tax expenditures, because each is
estimated assuming that the other remains in force.
In addition, the estimates reported in Table 1 are the
totals of individual and corporate income tax revenue
effects reported in Tables 2A and 2B, and do not reflect any possible interactions between individual and
corporate income tax receipts. For this reason, the estimates in Table 1 should be regarded as approximations.
Present-Value Estimates
The annual value of tax expenditures for tax deferrals
is reported on a cash basis in all tables except Table 4.
Cash-based estimates reflect the difference between taxes
deferred in the current year and incoming revenues that
are received due to deferrals of taxes from prior years.
Although such estimates are useful as a measure of cash
flows into the Government, they do not accurately reflect
the true economic cost of these provisions. For example,
for a provision where activity levels have changed over
time, so that incoming tax receipts from past deferrals are
greater than deferred receipts from new activity, the cashbasis tax expenditure estimate can be negative, despite
the fact that in present-value terms current deferrals
have a real cost to the Government. Alternatively, in the
case of a newly enacted deferral provision, a cash-based
estimate can overstate the real effect on receipts to the
Government because the newly deferred taxes will ultimately be received.
Discounted present-value estimates of revenue effects
are presented in Table 4 for certain provisions that involve tax deferrals or other long-term revenue effects.
These estimates complement the cash-based tax expenditure estimates presented in the other tables.
The present-value estimates represent the revenue effects, net of future tax payments that follow from activities
undertaken during calendar year 2015 which cause the
deferrals or other long-term revenue effects. For instance,
a pension contribution in 2016 would cause a deferral of
tax payments on wages in 2016 and on pension fund earnings on this contribution (e.g., interest) in later years. In
some future year, however, the 2016 pension contribution
and accrued earnings will be paid out and taxes will be
due; these receipts are included in the present-value estimate. In general, this conceptual approach is similar to
the one used for reporting the budgetary effects of credit
programs, where direct loans and guarantees in a given
year affect future cash flows.

Tax Expenditure Baselines
A tax expenditure is an exception to baseline provisions
of the tax structure that usually results in a reduction in the
amount of tax owed. The 1974 Congressional Budget Act,
which mandated the tax expenditure budget, did not specify
the baseline provisions of the tax law. As noted previously,
deciding whether provisions are exceptions, therefore, is a
matter of judgment. As in prior years, most of this year’s tax
expenditure estimates are presented using two baselines:
the normal tax baseline and the reference tax law baseline.
Tax expenditures may take the form of credits, deductions,
special exceptions and allowances.
The normal tax baseline is patterned on a practical
variant of a comprehensive income tax, which defines income as the sum of consumption and the change in net
wealth in a given period of time. The normal tax baseline
allows personal exemptions, a standard deduction, and
deduction of expenses incurred in earning income. It is
not limited to a particular structure of tax rates, or by a
specific definition of the taxpaying unit.
The reference tax law baseline is also patterned on
a comprehensive income tax, but it is closer to existing
law. Reference law tax expenditures are limited to special
exceptions from a generally provided tax rule that serve
programmatic functions in a way that is analogous to
spending programs. Provisions under the reference law
baseline are generally tax expenditures under the normal
tax baseline, but the reverse is not always true.
Both the normal and reference tax baselines allow several major departures from a pure comprehensive income
tax. For example, under the normal and reference tax
baselines:
• Income is taxable only when it is realized in exchange. Thus, the deferral of tax on unrealized capital gains is not regarded as a tax expenditure. Accrued income would be taxed under a comprehensive
income tax.

• There is a separate corporate income tax.
• Tax rates on noncorporate business income vary by
level of income.

• Individual

tax rates, including brackets, standard
deduction, and personal exemptions, are allowed to
vary with marital status.

• Values of assets and debt are not generally adjust-

ed for inflation. A comprehensive income tax would
adjust the cost basis of capital assets and debt for
changes in the general price level. Thus, under a
comprehensive income tax baseline, the failure to
take account of inflation in measuring depreciation,
capital gains, and interest income would be regarded
as a negative tax expenditure (i.e., a tax penalty),
and failure to take account of inflation in measuring
interest costs would be regarded as a positive tax
expenditure (i.e., a tax subsidy).

Although the reference law and normal tax baselines
are generally similar, areas of difference include:

129

13. Tax Expenditures

Tax rates. The separate schedules applying to the various taxpaying units are included in the reference law
baseline. Thus, corporate tax rates below the maximum
statutory rate do not give rise to a tax expenditure. The
normal tax baseline is similar, except that, by convention,
it specifies the current maximum rate as the baseline for
the corporate income tax. The lower tax rates applied to
the first $10 million of corporate income are thus regarded
as a tax expenditure under the normal tax. By convention, the Alternative Minimum Tax is treated as part of
the baseline rate structure under both the reference and
normal tax methods.
Income subject to the tax. Income subject to tax is
defined as gross income less the costs of earning that income. Under the reference tax rules, gross income does
not include gifts defined as receipts of money or property that are not consideration in an exchange nor does
gross income include most transfer payments from the
Government.2 The normal tax baseline also excludes gifts
between individuals from gross income. Under the normal tax baseline, however, all cash transfer payments
from the Government to private individuals are counted
in gross income, and exemptions of such transfers from
tax are identified as tax expenditures. The costs of earning income are generally deductible in determining
taxable income under both the reference and normal tax
baselines.3
Capital recovery. Under the reference tax law baseline
no tax expenditures arise from accelerated depreciation.
Under the normal tax baseline, the depreciation allowance for property is computed using estimates of economic
depreciation.
Treatment of foreign income. Both the normal and reference tax baselines allow a tax credit for foreign income
taxes paid (up to the amount of U.S. income taxes that
would otherwise be due), which prevents double taxation
of income earned abroad. Under the normal tax method,
however, controlled foreign corporations (CFCs) are not
regarded as entities separate from their controlling U.S.
shareholders. Thus, the deferral of tax on income received by CFCs is regarded as a tax expenditure under
this method. In contrast, except for tax haven activities,
the reference law baseline follows current law in treating CFCs as separate taxable entities whose income is
not subject to U.S. tax until distributed to U.S. taxpayers.
Under this baseline, deferral of tax on CFC income is not
a tax expenditure because U.S. taxpayers generally are
not taxed on accrued, but unrealized, income.

2 Gross income does, however, include transfer payments associated
with past employment, such as Social Security benefits.
3 In the case of individuals who hold “passive’’ equity interests in
businesses, the pro-rata shares of sales and expense deductions reportable in a year are limited. A passive business activity is defined generally to be one in which the holder of the interest, usually a partnership
interest, does not actively perform managerial or other participatory
functions. The taxpayer may generally report no larger deductions for a
year than will reduce taxable income from such activities to zero. Deductions in excess of the limitation may be taken in subsequent years, or
when the interest is liquidated. In addition, costs of earning income may
be limited under the Alternative Minimum Tax.

Descriptions of Income Tax Provisions
Descriptions of the individual and corporate income tax
expenditures reported on in this document follow. These
descriptions relate to current law as of July 1, 2016.
National Defense
1. Exclusion of benefits and allowances to armed
forces personnel.—Under the baseline tax system, all
compensation, including dedicated payments and in-kind
benefits, should be included in taxable income because
they represent accretions to wealth that do not materially
differ from cash wages. As an example, a rental voucher
of $100 is (approximately) equal in value to $100 of cash
income. In contrast to this treatment, certain housing
and meals, in addition to other benefits provided military
personnel, either in cash or in kind, as well as certain
amounts of pay related to combat service, are excluded
from income subject to tax.
International Affairs
2. Exclusion of income earned abroad by U.S.
citizens.—Under the baseline tax system, all compensation received by U.S. citizens and residents is properly
included in their taxable income. It makes no difference
whether the compensation is a result of working abroad
or whether it is labeled as a housing allowance. In contrast to this treatment, U.S. tax law allows U.S. citizens
and residents who live abroad, work in the private sector, and satisfy a foreign residency requirement to exclude
up to $80,000, plus adjustments for inflation since 2004,
in foreign earned income from U.S. taxes. In addition, if
these taxpayers are provided housing by their employers,
then they may also exclude the cost of such housing from
their income to the extent that it exceeds 16 percent of the
earned income exclusion limit. This housing exclusion is
capped at 30 percent of the earned income exclusion limit,
with geographical adjustments. If taxpayers do not receive a specific allowance for housing expenses, they may
deduct housing expenses up to the amount by which foreign earned income exceeds their foreign earned income
exclusion.
3. Exclusion of certain allowances for Federal
employees abroad.—In general, all compensation received by U.S. citizens and residents is properly included
in their taxable income. It makes no difference whether
the compensation is a result of working abroad or whether it is labeled as an allowance for the high cost of living
abroad. In contrast to this treatment, U.S. Federal civilian
employees and Peace Corps members who work outside
the continental United States are allowed to exclude
from U.S. taxable income certain special allowances they
receive to compensate them for the relatively high costs
associated with living overseas. The allowances supplement wage income and cover expenses such as rent,
education, and the cost of travel to and from the United
States.

130

ANALYTICAL PERSPECTIVES

Table 13–1. ESTIMATES OF TOTAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2016-2026
(In millions of dollars)
Total from corporations and individuals

National Defense
1
Exclusion of benefits and allowances to armed forces
personnel ��������������������������������������������������������������������������

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

20172026

12,280

12,650

11,460

11,500

11,860

12,320

12,820

13,370

13,940

14,560

15,210

129,690

International affairs:
2
Exclusion of income earned abroad by U.S. citizens �������������
6,280 6,600 6,930 7,280 7,640 8,020 8,420 8,840 9,290 9,750 10,240
83,010
3
Exclusion of certain allowances for Federal employees
abroad �������������������������������������������������������������������������������
1,300 1,370 1,430 1,500 1,580 1,660 1,740 1,830 1,920 2,020 2,120
17,170
4
Inventory property sales source rules exception ��������������������
4,270 4,630 5,020 5,440 5,900 6,400 6,940 7,530 8,170 8,860 9,610
68,500
5
Deferral of income from controlled foreign corporations
(normal tax method) ��������������������������������������������������������� 102,100 107,200 112,560 118,190 124,100 130,310 136,820 143,660 150,850 158,390 166,310 1,348,390
6
Deferred taxes for financial firms on certain income earned
overseas ���������������������������������������������������������������������������� 15,320 16,080 16,880 17,730 18,620 19,550 20,520 21,550 22,630 23,760 24,950 202,270
General science, space, and technology:
7
Expensing of research and experimentation expenditures
(normal tax method) ���������������������������������������������������������
8
Credit for increasing research activities ���������������������������������

7,190
10,350

7,110
11,150

7,660
11,850

8,680
12,580

9,640
13,350

10,430
14,170

11,130
15,040

11,770
15,990

12,470
16,980

13,220
18,040

14,020
19,160

106,130
148,310

–650
400

–290
510

–30
560

120
610

200
690

260
810

290
960

290
1,100

300
1,200

350
1,350

840
8,190

40
150
20
1,770
70
2,440
10
20

40
150
20
2,320
70
3,450
0
0

40
140
10
2,970
30
3,830
0
0

40
140
20
3,570
0
3,920
0
0

30
150
30
4,110
0
3,720
0
0

30
150
30
4,470
0
2,950
0
0

30
150
30
4,650
0
2,000
0
0

30
160
30
4,710
0
1,150
0
0

30
170
30
4,610
0
550
0
0

20
170
30
4,400
0
290
0
0

330
1,530
250
37,580
170
24,300
10
20

550
450
70

660
470
70

650
490
70

480
520
70

410
540
70

360
570
70

270
590
70

200
620
70

190
650
70

210
680
70

3,980
5,580
700

–190
400

–270
440

–210
230

–190
30

–150
–20

–120
–20

–70
–20

–20
–10

0
–10

0
0

–1,220
1,020

–1,380
140

–1,140
150

–930
150

–740
150

–560
120

–370
60

–180
–20

–40
–100

0
–190

0
–270

–5,340
190

60

60

60

70

80

90

70

60

40

40

630

10
170
290
1,460
30
–30
0
190

–30
70
0
1,500
30
–30
0
220

–30
30
0
1,550
30
–30
170
240

–30
10
0
1,470
30
–10
440
250

–30
0
0
1,270
30
0
550
270

–30
0
0
640
30
0
550
280

–30
0
0
150
30
0
550
290

–30
0
0
20
30
0
550
300

–30
0
0
0
30
0
550
320

–30
0
0
0
30
0
550
330

–260
280
290
8,060
300
–100
3,910
2,690

20
430

40
420

40
430

50
440

50
440

50
440

50
430

50
430

50
420

50
410

50
390

480
4,250

420
150
330
460

450
150
340
470

470
150
360
470

500
140
380
480

540
140
390
490

610
150
420
510

670
150
420
520

700
150
430
530

740
160
430
540

780
170
440
540

800
170
440
550

6,260
1,530
4,050
5,100

Energy:
9
Expensing of exploration and development costs, fuels ��������
–450
10 Excess of percentage over cost depletion, fuels �������������������
410
11 Exception from passive loss limitation for working interests in
oil and gas properties �������������������������������������������������������
60
12 Capital gains treatment of royalties on coal ���������������������������
150
13 Exclusion of interest on energy facility bonds ������������������������
10
14 Energy production credit 1 �����������������������������������������������������
1,400
15 Marginal wells credit ���������������������������������������������������������������
0
16 Energy investment credit 1 �����������������������������������������������������
1,190
17 Alcohol fuel credits 2 ������������������������������������������������������������
10
18 Bio-Diesel and small agri-biodiesel producer tax credits 3 ���
30
19 Tax credits for clean-fuel burning vehicles and refueling
property �����������������������������������������������������������������������������
480
20 Exclusion of utility conservation subsidies ������������������������������
430
21 Credit for holding clean renewable energy bonds 4 ���������������
70
22 Deferral of gain from dispositions of transmission property to
implement FERC restructuring policy ��������������������������������
60
23 Credit for investment in clean coal facilities ����������������������������
160
24 Temporary 50% expensing for equipment used in the refining
of liquid fuels ���������������������������������������������������������������������� –1,760
25 Natural gas distribution pipelines treated as 15-year property 
140
26 Amortize all geological and geophysical expenditures over 2
years ����������������������������������������������������������������������������������
70
27 Allowance of deduction for certain energy efficient
commercial building property ���������������������������������������������
80
28 Credit for construction of new energy efficient homes ������������
210
29 Credit for energy efficiency improvements to existing homes 
530
30 Credit for residential energy efficient property �����������������������
1,450
31 Qualified energy conservation bonds 5 ����������������������������������
30
32 Advanced Energy Property Credit ������������������������������������������
10
33 Advanced nuclear power production credit �����������������������������
0
34 Reduced tax rate for nuclear decommissioning funds ������������
160
Natural resources and environment:
35 Expensing of exploration and development costs, nonfuel
minerals ����������������������������������������������������������������������������
36 Excess of percentage over cost depletion, nonfuel minerals 
37 Exclusion of interest on bonds for water, sewage, and
hazardous waste facilities ��������������������������������������������������
38 Capital gains treatment of certain timber income ������������������
39 Expensing of multiperiod timber growing costs ���������������������
40 Tax incentives for preservation of historic structures �������������

131

13. Tax Expenditures

Table 13–1. ESTIMATES OF TOTAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2016-2026—Continued
(In millions of dollars)
Total from corporations and individuals
2016
41
42

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

20172026

Industrial CO2 capture and sequestration tax credit ��������������
Deduction for endangered species recovery expenditures �����

110
30

150
30

180
30

80
30

0
40

0
50

0
50

0
50

0
50

0
70

0
70

410
470

Agriculture:
43 Expensing of certain capital outlays ��������������������������������������
44 Expensing of certain multiperiod production costs ����������������
45 Treatment of loans forgiven for solvent farmers ����������������������
46 Capital gains treatment of certain income �����������������������������
47 Income averaging for farmers �������������������������������������������������
48 Deferral of gain on sale of farm refiners ���������������������������������
49 Expensing of reforestation expenditures ��������������������������������

210
370
40
1,470
140
20
60

230
390
50
1,480
150
20
60

240
410
50
1,450
160
20
60

250
440
50
1,440
170
20
60

270
460
50
1,440
180
20
70

280
490
50
1,460
180
20
80

290
520
60
1,500
190
30
80

310
550
60
1,540
200
30
80

330
590
60
1,600
210
30
80

350
630
60
1,670
220
30
90

360
660
70
1,740
230
30
90

2,910
5,140
560
15,320
1,890
250
750

2,310

2,710

3,080

3,260

3,350

3,600

3,770

3,530

3,850

4,100

4,060

35,310

13,980

17,920

24,360

29,110

32,410

34,770

36,520

37,920

39,130

40,290

41,280

333,710

50

50

50

60

60

60

60

70

70

70

80

630

690
40
470

720
40
500

740
40
510

780
40
530

830
40
550

870
40
570

890
50
580

910
50
590

930
50
600

950
50
610

970
50
620

8,590
450
5,660

Commerce and housing:
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80

Financial institutions and insurance:
Exemption of credit union income �������������������������������������
Exclusion and deferral of policyholder income earned on
life insurance and annuity contracts �����������������������������
Exclusion or special alternative tax for small property and
casualty insurance companies �������������������������������������
Tax exemption of insurance income earned by tax-exempt
organizations �����������������������������������������������������������������
Small life insurance company deduction ���������������������������
Exclusion of interest spread of financial institutions �����������

Housing:
Exclusion of interest on owner-occupied mortgage subsidy
bonds ����������������������������������������������������������������������������
1,200 1,270 1,330 1,390 1,530 1,730 1,860 1,990 2,090 2,170 2,250
17,610
Exclusion of interest on rental housing bonds ��������������������
1,030 1,100 1,150 1,200 1,320 1,490 1,600 1,710 1,800 1,870 1,940
15,180
Deductibility of mortgage interest on owner-occupied
homes ��������������������������������������������������������������������������� 61,190 64,110 68,090 73,590 79,990 86,570 93,030 99,300 105,110 110,480 115,650 895,920
Deductibility of State and local property tax on owneroccupied homes ����������������������������������������������������������� 34,470 36,540 38,940 41,590 44,410 47,170 49,930 52,770 55,670 58,560 61,280 486,860
Deferral of income from installment sales �������������������������
1,620 1,630 1,620 1,620 1,630 1,660 1,700 1,750 1,820 1,890 1,970
17,290
Capital gains exclusion on home sales ������������������������������ 43,310 46,130 48,470 50,920 53,500 56,200 59,050 62,040 65,180 68,470 71,940 581,900
Exclusion of net imputed rental income ������������������������������ 105,610 109,620 112,670 114,740 116,270 119,520 122,870 126,310 129,850 133,480 137,220 1,222,550
Exception from passive loss rules for $25,000 of rental
loss �������������������������������������������������������������������������������
7,120 7,480 7,800 8,080 8,290 8,490 8,670 8,820 8,980 9,250 9,370
85,230
Credit for low-income housing investments ������������������������
8,630 8,740 8,850 8,950 9,090 9,280 9,490 9,730 10,010 10,290 10,200
94,630
Accelerated depreciation on rental housing (normal tax
method) ������������������������������������������������������������������������
1,610 2,200 2,920 3,660 4,440 5,290 6,170 6,930 7,660 8,360 9,060
56,690
Discharge of mortgage indebtedness ���������������������������������
3,340 1,090
0
0
0
0
0
0
0
0
0
1,090
Commerce:
Discharge of business indebtedness ����������������������������������
–150
–50
10
10
10
20
30
40
50
50
50
220
Exceptions from imputed interest rules �����������������������������
50
50
60
60
60
70
70
80
80
80
90
700
Treatment of qualified dividends ����������������������������������������� 27,980 28,810 29,850 30,940 32,100 33,370 34,720 36,160 37,690 39,290 40,990 343,920
Capital gains (except agriculture, timber, iron ore, and
coal) ������������������������������������������������������������������������������� 109,530 110,270 108,560 107,620 107,780 109,210 111,760 115,240 119,500 124,450 129,800 1,144,190
Capital gains exclusion of small corporation stock �������������
540
700
850 1,050 1,210 1,320 1,420 1,520 1,600 1,660 1,710
13,040
Step-up basis of capital gains at death ������������������������������ 49,990 51,990 54,070 56,230 58,480 60,820 63,250 65,780 68,420 71,150 74,000 624,190
Carryover basis of capital gains on gifts ����������������������������
7,790 7,520 7,180 6,960 6,890 6,960 7,020 7,060 7,140 7,260 7,410
71,400
Ordinary income treatment of loss from small business
corporation stock sale ���������������������������������������������������
50
50
50
50
50
50
50
50
50
50
50
500
Deferral of gains from like-kind exchanges �������������������������
7,330 7,690 8,080 8,500 8,920 9,360 9,830 10,320 10,840 11,380 11,940
96,860
Depreciation of buildings other than rental housing (normal
tax method) ������������������������������������������������������������������� –8,830 –9,000 –9,390 –10,010 –10,750 –11,420 –12,090 –12,750 –13,490 –13,950 –14,360 –117,210
Accelerated depreciation of machinery and equipment
(normal tax method) ����������������������������������������������������� 44,630 47,080 50,320 52,420 –11,620 –20,710
–830 11,810 23,160 32,860 40,480 224,970
Expensing of certain small investments (normal tax
method) ������������������������������������������������������������������������
3,920 3,580 3,660 3,840 7,730 8,350 7,470 7,210 7,140 7,250 7,570
63,800
Graduated corporation income tax rate (normal tax
method) ������������������������������������������������������������������������
3,300 3,000 2,650 2,460 2,370 2,360 2,380 2,380 2,380 2,410 2,250
24,640
Exclusion of interest on small issue bonds ������������������������
150
160
170
170
190
220
240
260
270
280
280
2,240

132

ANALYTICAL PERSPECTIVES

Table 13–1. ESTIMATES OF TOTAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2016-2026—Continued
(In millions of dollars)
Total from corporations and individuals

81
82

Deduction for US production activities ��������������������������������
Special rules for certain film and TV production �����������������

Transportation:
83 Tonnage tax ����������������������������������������������������������������������������
84 Deferral of tax on shipping companies �����������������������������������
85 Exclusion of reimbursed employee parking expenses �����������
86 Exclusion for employer-provided transit passes ��������������������
87 Tax credit for certain expenditures for maintaining railroad
tracks ���������������������������������������������������������������������������������
88 Exclusion of interest on bonds for Highway Projects and railtruck transfer facilities ��������������������������������������������������������
Community and regional development:
89 Investment credit for rehabilitation of structures (other than
historic) �����������������������������������������������������������������������������
90 Exclusion of interest for airport, dock, and similar bonds �������
91 Exemption of certain mutuals’ and cooperatives’ income ������
92 Empowerment zones ��������������������������������������������������������������
93 New markets tax credit �����������������������������������������������������������
94 Credit to holders of Gulf Tax Credit Bonds. �����������������������������
95 Recovery Zone Bonds 6 ���������������������������������������������������������
96 Tribal Economic Development Bonds �������������������������������������

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

20172026

15,860
280

16,420
200

17,160
110

17,900
60

18,650
30

19,440
0

20,250
0

21,110
0

21,990
0

22,910
0

23,880
0

199,710
400

70
20
2,940
1,010

80
20
3,060
1,080

80
20
3,170
1,140

90
20
3,280
1,210

90
20
3,410
1,290

90
20
3,520
1,370

100
20
3,610
1,440

100
20
3,750
1,520

110
20
3,850
1,600

110
20
4,020
1,630

120
20
4,160
1,690

970
200
35,830
13,970

140

60

0

0

0

0

0

0

0

0

0

60

210

200

190

170

170

160

160

140

140

130

130

1,590

20
680
140
140
1,290
230
130
40

20
720
150
110
1,300
240
130
40

20
750
150
50
1,200
250
140
40

20
790
150
30
1,050
260
140
40

20
870
150
30
980
300
160
50

20
980
160
10
890
320
180
50

20
1,060
160
10
760
350
190
60

20
1,120
160
10
610
380
210
60

20
1,190
170
0
440
400
220
70

20
1,230
170
0
280
420
230
70

20
1,280
180
0
90
430
240
70

200
9,990
1,600
250
7,600
3,350
1,840
550

3,290

3,410

3,500

3,560

3,690

3,820

3,960

4,100

4,240

4,400

4,550

39,230

15,530
30
1,950
1,740
440

15,620
40
1,970
1,920
460

15,450
40
2,010
2,110
480

15,590
40
2,050
2,300
500

15,720
40
2,130
2,490
560

15,730
40
2,150
2,700
620

15,720
40
2,200
2,910
680

15,720
50
2,270
3,140
730

15,690
50
2,290
3,390
760

15,630
50
2,330
3,650
790

15,520
50
2,410
3,930
820

156,390
440
21,810
28,540
6,400

2,260
160

2,380
170

2,490
180

2,600
170

2,870
150

3,230
130

3,490
110

3,730
90

3,920
80

4,080
60

4,220
50

33,010
1,190

30
4,220
5,110
850
210
90
650

30
4,210
5,480
900
210
100
650

30
4,310
5,890
950
210
100
650

30
4,470
6,330
990
210
100
650

30
4,600
6,730
1,040
220
110
650

40
4,720
7,100
1,090
220
110
650

40
4,830
7,490
1,140
260
110
650

40
4,940
7,860
1,200
270
110
650

40
5,030
8,250
1,260
270
120
650

50
5,100
8,630
1,320
270
120
650

50
5,180
9,000
1,380
270
120
650

380
47,390
72,760
11,270
2,410
1,100
6,500

1,160
950
10
560
300

1,310
1,000
10
580
310

1,350
1,060
10
610
320

1,390
1,140
10
650
340

1,010
1,200
10
680
360

480
1,280
10
720
350

300
1,350
10
760
370

230
1,440
10
800
360

170
1,530
10
840
370

130
1,620
10
890
370

100
1,710
10
930
380

6,470
13,330
100
7,460
3,530

4,540
4,570
10

4,650
4,600
10

4,770
4,710
10

4,910
4,860
10

5,040
4,990
10

5,170
5,090
10

5,300
5,200
10

5,430
5,300
10

5,560
5,420
10

5,700
5,530
10

5,830
5,650
10

52,360
51,350
100

44,070
450
940
50

47,450
480
990
40

51,180
500
1,040
20

55,030
520
1,090
20

58,590
540
1,150
20

61,930
560
1,210
20

65,250
580
1,280
10

68,510
600
1,340
10

71,820
610
1,410
10

75,090
630
1,490
10

78,270
650
1,570
10

633,120
5,670
12,570
170

Education, training, employment, and social services:
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123

Education:
Exclusion of scholarship and fellowship income (normal
tax method) �������������������������������������������������������������������
Tax credits and deductions for postsecondary education
expenses 7 ��������������������������������������������������������������������
Education Individual Retirement Accounts �������������������������
Deductibility of student-loan interest �����������������������������������
Qualified tuition programs ���������������������������������������������������
Exclusion of interest on student-loan bonds ����������������������
Exclusion of interest on bonds for private nonprofit
educational facilities �����������������������������������������������������
Credit for holders of zone academy bonds 8 ����������������������
Exclusion of interest on savings bonds redeemed to
finance educational expenses ���������������������������������������
Parental personal exemption for students age 19 or over �
Deductibility of charitable contributions (education) �����������
Exclusion of employer-provided educational assistance ���
Special deduction for teacher expenses �����������������������������
Discharge of student loan indebtedness ����������������������������
Qualified school construction bonds 9 ��������������������������������
Training, employment, and social services:
Work opportunity tax credit �������������������������������������������������
Employer provided child care exclusion �����������������������������
Employer-provided child care credit �����������������������������������
Assistance for adopted foster children ��������������������������������
Adoption credit and exclusion ���������������������������������������������
Exclusion of employee meals and lodging (other than
military) �������������������������������������������������������������������������
Credit for child and dependent care expenses ������������������
Credit for disabled access expenditures ����������������������������
Deductibility of charitable contributions, other than
education and health �����������������������������������������������������
Exclusion of certain foster care payments �������������������������
Exclusion of parsonage allowances ����������������������������������
Indian employment credit ���������������������������������������������������

133

13. Tax Expenditures

Table 13–1. ESTIMATES OF TOTAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2016-2026—Continued
(In millions of dollars)
Total from corporations and individuals
2016
124

Credit for employer differential wage payments ������������������

2017
0

2018
0

2019
0

10

2020
10

2021
10

2022
20

2023
20

2024
20

2025
20

2026
20

20172026
130

Health:
125 Exclusion of employer contributions for medical insurance
premiums and medical care 10 ����������������������������������������� 210,190 222,030 235,830 250,760 265,170 280,990 297,880 315,770 334,890 355,060 376,330 2,934,710
126 Self-employed medical insurance premiums ��������������������������
7,170 7,590 7,960 8,320 8,870 9,410 9,880 10,350 10,830 11,350 11,920
96,480
127 Medical Savings Accounts / Health Savings Accounts �����������
5,730 6,850 8,160 9,720 11,570 13,770 16,410 19,530 23,230 27,650 32,920 169,810
128 Deductibility of medical expenses �����������������������������������������
7,970 8,680 9,920 11,550 13,450 15,610 17,970 20,850 24,250 27,790 32,090 182,160
129 Exclusion of interest on hospital construction bonds ��������������
3,480 3,670 3,840 4,010 4,430 4,990 5,370 5,740 6,040 6,290 6,510
50,890
130 Refundable Premium Assistance Tax Credit 11 ����������������������
2,070 2,410 3,170 3,810 4,620 5,700 6,010 6,170 6,500 6,710 6,900
52,000
131 Credit for employee health insurance expenses of small
business 12 ������������������������������������������������������������������������
160
160
170
150
140
100
120
90
60
30
20
1,040
132 Deductibility of charitable contributions (health) ���������������������
4,980 5,360 5,780 6,220 6,620 7,000 7,380 7,740 8,110 8,490 8,850
71,550
133 Tax credit for orphan drug research ��������������������������������������
1,720 2,060 2,480 2,970 3,570 4,280 5,130 6,160 7,390 8,880 10,650
53,570
134 Special Blue Cross/Blue Shield tax benefits ��������������������������
630
610
610
610
600
590
570
540
510
460
400
5,500
135 Tax credit for health insurance purchased by certain
displaced and retired individuals 13 ����������������������������������
30
30
20
10
0
0
0
0
0
0
0
60
136 Distributions from retirement plans for premiums for health
and long-term care insurance ��������������������������������������������
440
460
480
500
520
540
560
580
600
620
650
5,510
Income security:
137 Child credit 14 �������������������������������������������������������������������������
138 Exclusion of railroad retirement (Social Security equivalent)
benefits �����������������������������������������������������������������������������
139 Exclusion of workers’ compensation benefits �������������������������
140 Exclusion of public assistance benefits (normal tax method) 
141 Exclusion of special benefits for disabled coal miners �����������
142 Exclusion of military disability pensions ��������������������������������

24,180

24,460

24,710

24,710

24,520

24,140

23,750

23,300

22,820

22,330

21,840

236,580

300
10,030
570
30
230

310
10,100
590
20
240

310
10,170
600
20
250

300
10,240
620
20
260

290
10,320
640
20
270

270
10,390
670
10
290

260
10,460
680
10
300

240
10,530
700
10
310

220
10,610
730
10
330

200
10,680
740
10
340

180
10,760
690
10
360

2,580
104,260
6,660
140
2,950

70,400
61,770
16,410
1,270
28,050

70,690
64,610
17,900
1,240
30,820

70,980
69,420
19,170
1,260
33,780

70,970
76,450
20,680
1,270
37,050

69,880
81,250
22,310
1,290
40,500

68,360
89,270
23,970
1,320
44,040

66,180 63,730 61,360 58,340 54,710
95,350 112,370 117,620 122,660 129,460
25,200 26,560 26,550 26,720 26,800
1,330 1,350 1,350 1,360 1,380
47,890 52,080 56,640 61,590 66,980

655,200
958,460
235,860
13,150
471,370

2,460
320

2,580
320

2,680
330

2,780
330

2,880
330

2,980
340

3,080
340

3,190
340

3,310
350

3,430
350

3,550
350

30,460
3,380

20

20

30

40

40

40

50

50

50

50

50

420

1,110
2,030
40
2,940
10
370
1,550

1,170
2,090
40
3,110
10
390
1,760

1,220
2,150
40
3,350
10
400
1,820

1,280
2,210
40
3,560
10
410
3,780

1,340
2,290
50
3,800
10
420
3,890

1,400
2,350
50
4,000
10
440
2,080

1,470
2,430
50
4,260
10
450
2,200

1,540
2,510
60
4,600
0
460
2,330

1,610
2,580
60
4,900
0
470
2,430

1,690
2,670
70
5,250
0
480
2,560

1,770
2,750
80
5,620
0
490
2,660

14,490
24,030
540
42,450
60
4,410
25,510

Exclusion of social security benefits:
Social Security benefits for retired and disabled workers
and spouses, dependents and survivors �����������������������
159
Credit for certain employer contributions to social security 

36,140
1,000

38,440
1,030

40,580
1,080

42,920
1,120

44,850
1,170

46,530
1,220

48,140
1,270

49,700
1,330

51,380
1,380

53,260
1,440

55,330
1,500

471,130
12,540

Veterans benefits and services:
160 Exclusion of veterans death benefits and disability
compensation �������������������������������������������������������������������
161 Exclusion of veterans pensions ���������������������������������������������
162 Exclusion of GI bill benefits ���������������������������������������������������
163 Exclusion of interest on veterans housing bonds �������������������

6,770
440
1,550
10

7,290
470
1,690
10

7,720
500
1,790
10

7,980
520
1,880
10

8,250
540
1,960
10

8,520
560
2,050
10

8,780
590
2,140
10

9,060
610
2,240
10

9,340
630
2,340
20

9,630
650
2,440
20

9,930
680
2,550
20

86,500
5,750
21,080
130

143
144
145
146
147

Net exclusion of pension contributions and earnings:
Defined benefit employer plans ������������������������������������������
Defined contribution employer plans ����������������������������������
Individual Retirement Accounts �����������������������������������������
Low and moderate income savers credit ����������������������������
Self-Employed plans ����������������������������������������������������������

Exclusion of other employee benefits:
148
Premiums on group term life insurance �����������������������������
149
Premiums on accident and disability insurance �����������������
150 Income of trusts to finance supplementary unemployment
benefits �����������������������������������������������������������������������������
151 Income of trusts to finance voluntary employee benefits
associations ����������������������������������������������������������������������
152 Special ESOP rules ����������������������������������������������������������������
153 Additional deduction for the blind ������������������������������������������
154 Additional deduction for the elderly ���������������������������������������
155 Tax credit for the elderly and disabled �����������������������������������
156 Deductibility of casualty losses ����������������������������������������������
157 Earned income tax credit 15 ��������������������������������������������������
Social Security:
158

134

ANALYTICAL PERSPECTIVES

Table 13–1. ESTIMATES OF TOTAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2016-2026—Continued
(In millions of dollars)
Total from corporations and individuals

General purpose fiscal assistance:
164 Exclusion of interest on public purpose State and local bonds
��������������������������������������������������������������������������������������������
165 Build America Bonds 16 ���������������������������������������������������������
166 Deductibility of nonbusiness State and local taxes other than
on owner-occupied homes �����������������������������������������������
Interest:
167 Deferral of interest on U.S. savings bonds �����������������������������

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

20172026

28,890
0

30,500
0

31,910
0

33,350
0

36,780
0

41,420
0

44,640
0

47,700
0

50,180
0

52,250
0

54,050
0

422,780
0

56,230

59,750

63,340

67,230

71,710

75,950

80,170

84,600

89,100

93,590

97,830

783,270

980

970

960

950

940

940

930

920

910

900

890

9,310

34,470

36,540

38,940

41,590

44,410

47,170

49,930

52,770

55,670

58,560

61,280

486,860

56,230

59,750

63,340

67,230

71,710

75,950

80,170

84,600

89,100

93,590

97,830

783,270

Addendum: Aid to State and local governments:
Deductibility of:
Property taxes on owner-occupied homes ������������������������
Nonbusiness State and local taxes other than on owneroccupied homes �����������������������������������������������������������

Exclusion of interest on State and local bonds for:
Public purposes ������������������������������������������������������������������ 28,890 30,500 31,910 33,350 36,780 41,420 44,640 47,700 50,180 52,250 54,050 422,780
Energy facilities ������������������������������������������������������������������
10
20
20
10
20
30
30
30
30
30
30
250
Water, sewage, and hazardous waste disposal facilities ���
420
450
470
500
540
610
670
700
740
780
800
6,260
Small-issues �����������������������������������������������������������������������
150
160
170
170
190
220
240
260
270
280
280
2,240
Owner-occupied mortgage subsidies ���������������������������������
1,200 1,270 1,330 1,390 1,530 1,730 1,860 1,990 2,090 2,170 2,250
17,610
Rental housing �������������������������������������������������������������������
1,030 1,100 1,150 1,200 1,320 1,490 1,600 1,710 1,800 1,870 1,940
15,180
Airports, docks, and similar facilities ����������������������������������
680
720
750
790
870
980 1,060 1,120 1,190 1,230 1,280
9,990
Student loans ���������������������������������������������������������������������
440
460
480
500
560
620
680
730
760
790
820
6,400
Private nonprofit educational facilities �������������������������������
2,260 2,380 2,490 2,600 2,870 3,230 3,490 3,730 3,920 4,080 4,220
33,010
Hospital construction ����������������������������������������������������������
3,480 3,670 3,840 4,010 4,430 4,990 5,370 5,740 6,040 6,290 6,510
50,890
Veterans’ housing ��������������������������������������������������������������
10
10
10
10
10
10
10
10
20
20
20
130
1 Firms can take an energy grant in lieu of the energy production credit or the energy investment credit for facilities whose construction began in 2009, 2010, or 2011. The effect of the
grant on outlays (in millions of dollars) is as follows: 2016 $750; 2017 $500; and $0 thereafter.
2 The alternative fuel mixture credit results in a reduction in excise tax receipts (in millions of dollars) as follows: 2016 $590; 2017 $290 and $0 thereafter.
3 In addition, the biodiesel producer tax credit results in a reduction in excise tax receipts (in millions of dollars) as follows: 2016 $2,650; 2017 $2,810 and $0 thereafter.
4 In addition, the credit for holding clean renewable energy bonds has outlay effects of (in millions of dollars): 2016 $30; 2017 $30; 2018 $30; 2019 $30; 2020 $30; 2021 $30; 2022
$30; 2023 $30; 2024 $30; 2025, $30; and 2026 $30.
5 In addition, the qualified energy conservation bonds have outlay effects of (in millions of dollars): 2016 $40; 2017 $40; 2018 $40; 2019 $40; 2020 $40; 2021 $40; 2022 $40; 2023 $40;
2024 $40; 2025, $40; and 2026 $40.
6 In addition, recovery zone bonds have outlay effects (in millions of dollars) as follows: 2016 $220; 2017 $220; 2018 $220; 2019 $220; 2020 $220; 2021 $220; 2022 $220; 2023 $220;
2024 $220; 2025, $220; and 2026 $220.
7 In addition, the tax credits and deductions for postsecondary education expenses have outlay effects of (in millions of dollars): 016 $4,630; 2017 $4,530; 2018 $4,570; 2019 $4,630;
2020 $4,660; 2021 $4,710; 2022 $4,760; 2023 $4,800; 2024 $4,840; 2025 $4,860; and 2026 $4,870
8 In addition, the credit for holders of zone academy bonds has outlay effects of (in millions of dollars): 2016 $60; 2017 $60; 2018 $60; 2019 $60; 2020 $60; 2021 $60; 2022 $60; 2023
$60; 2024 $60; 2025 $60; and 2026 $60.
9 In addition, the provision for school construction bonds has outlay effects of (in millions of dollars): 2016 $680; 2017 $730; 2018 $730; 2019 $730; 2020 $730; 2021 $730; 2022 $730;
2023 $730; 2024 $730; 2025 $730; and 2026 $730.
10 In addition, the employer contributions for health have effects on payroll tax receipts (in millions of dollars) as follows: 2016 $130,380; 2017 $136,600; 2018 $144,110; 2019
$151,860; 2020 $158,700; 2021 $166,540; 2022 $175,190; 2023 $184,390; 2024 $194,210; 2025 $204,590; and 2026 $215,340.
11 In addition, the premium assistance credit provision has outlay effects (in millions of dollars) as follows: 2016 $24,230; 2017 $32,240; 2018 $40,620; 2019 $51,220; 2020 $64,670;
2021 $70,140; 2022 $74,150; 2023 $77,420; 2024 $81,060; 2025 $84,670; and 2026 $88,980.
12 In addition, the small business credit provision has outlay effects (in millions of dollars) as follows: 2016 $30; 2017 $30; 2018 $30; 2019 $30; 2020 $30; 2021 $20; 2022 $20; 2023
$20; 2024 $10; 2025 $10; and 2026 $0.
13 In addition, the effect of the health coverage tax credit on receipts has outlay effects of (in millions of dollars) 2016 $10; 2017 $20; 2018 $30; 2019 $30; 2020 $10; and $0 thereafter.
14 In addition, the effect of the child tax credit on receipts has outlay effects of (in millions of dollars): 2016 $29,990; 2017 $29,980; 2018 $29,620; 2019 $ 29,300; 2020 $29,100; 2021
$29,270; 2022 $29,360; 2023 $29,560 2024 $29,630; 2025 $29,720; and 2026 $29,800.
15 In addition, the earned income tax credit on receipts has outlay effects of (in millions of dollars): 2016 $62,150; 2017 $62,070; 2018 $61,770; 2019 $ 60,130; 2020 $60,540; 2021
$63,880; 2022 $65,310; 2023 $67,020; 2024 $68,560; 2025 $70,080; and 2026 $71,560.
16 In addition, the Build America Bonds have outlay effects of (in millions of dollars): 2016 $3,350; 2017 $3,610; 2018 $3,610, 2019 $3,610; 2020 $3,610; 2021 $3,610; 2022 $3,610;
2023 $3,610; 2024 $3,610; 2025, $3,610; and 2026 $3,610.
Note: Provisions with estimates denoted normal tax method have no revenue loss under the reference tax law method.
All estimates have been rounded to the nearest $10 million. Provisions with estimates that rounded to zero in each year are not included in the table.

135

13. Tax Expenditures

Table 13–2A. ESTIMATES OF TOTAL CORPORATE INCOME TAX EXPENDITURES FOR FISCAL YEARS 2016-2026
(In millions of dollars)
Total from corporations
2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2017-26

National Defense
1
Exclusion of benefits and allowances to armed forces
personnel

0

0

0

0

0

0

0

0

0

0

0

0

International affairs:
2
Exclusion of income earned abroad by U.S. citizens

0

0

0

0

0

0

0

0

0

0

0

0

3
4
5
6

Exclusion of certain allowances for Federal employees
abroad
0
0
0
0
0
0
0
0
0
0
0
0
Inventory property sales source rules exception ��������������������
4,270 4,630 5,020 5,440 5,900 6,400 6,940 7,530 8,170 8,860 9,610
68,500
Deferral of income from controlled foreign corporations
(normal tax method) ��������������������������������������������������������� 102,100 107,200 112,560 118,190 124,100 130,310 136,820 143,660 150,850 158,390 166,310 1,348,390
Deferred taxes for financial firms on certain income earned
overseas ���������������������������������������������������������������������������� 15,320 16,080 16,880 17,730 18,620 19,550 20,520 21,550 22,630 23,760 24,950 202,270

General science, space, and technology:
7
Expensing of research and experimentation expenditures
(normal tax method) ���������������������������������������������������������
8
Credit for increasing research activities ���������������������������������
Energy:
9
Expensing of exploration and development costs, fuels ��������
10 Excess of percentage over cost depletion, fuels �������������������
11 Exception from passive loss limitation for working interests in
oil and gas properties �������������������������������������������������������
12 Capital gains treatment of royalties on coal ���������������������������
13 Exclusion of interest on energy facility bonds ������������������������
14 Energy production credit 1/ �����������������������������������������������������
15 Marginal wells credit ���������������������������������������������������������������
16 Energy investment credit 1/ ����������������������������������������������������
17 Alcohol fuel credits 2/ �����������������������������������������������������������
18 Bio-Diesel and small agri-biodiesel producer tax credits 3/ ��
19 Tax credits for clean-fuel burning vehicles and refueling
property �����������������������������������������������������������������������������
20 Exclusion of utility conservation subsidies ������������������������������
21 Credit for holding clean renewable energy bonds 4/ ��������������
22 Deferral of gain from dispositions of transmission property to
implement FERC restructuring policy ��������������������������������
23 Credit for investment in clean coal facilities ����������������������������
24 Temporary 50% expensing for equipment used in the refining
of liquid fuels ����������������������������������������������������������������������
25 Natural gas distribution pipelines treated as 15-year property 
26 Amortize all geological and geophysical expenditures over 2
years ����������������������������������������������������������������������������������
27 Allowance of deduction for certain energy efficient
commercial building property ���������������������������������������������
28 Credit for construction of new energy efficient homes ������������
29 Credit for energy efficiency improvements to existing homes 
30 Credit for residential energy efficient property �����������������������
31 Qualified energy conservation bonds 5/ ���������������������������������
32 Advanced Energy Property Credit ������������������������������������������
33 Advanced nuclear power production credit �����������������������������
34 Reduced tax rate for nuclear decommissioning funds ������������
Natural resources and environment:
35 Expensing of exploration and development costs, nonfuel
minerals ����������������������������������������������������������������������������
36 Excess of percentage over cost depletion, nonfuel minerals 
37 Exclusion of interest on bonds for water, sewage, and
hazardous waste facilities ��������������������������������������������������
38 Capital gains treatment of certain timber income ������������������
39 Expensing of multiperiod timber growing costs ���������������������

6,350
9,580

6,300
10,230

6,910
10,840

7,930
11,500

8,800
12,190

9,520
12,920

10,150
13,700

10,740
14,540

11,370
15,420

12,060
16,360

12,790
17,350

96,570
135,050

-320
330

-470
320

-210
410

-20
450

90
490

150
550

190
650

210
770

210
880

220
960

260
1,080

630
6,560

0
0
0
1,050
0
890
0
20

0
0
10
1,330
20
1,830
0
10

0
0
10
1,740
20
2,590
0
0

0
0
0
2,230
10
2,870
0
0

0
0
0
2,680
0
2,940
0
0

0
0
10
3,080
0
2,790
0
0

0
0
10
3,350
0
2,210
0
0

0
0
10
3,490
0
1,500
0
0

0
0
10
3,530
0
860
0
0

0
0
0
3,460
0
410
0
0

0
0
0
3,300
0
220
0
0

0
0
60
28,190

130
30
20

150
30
20

170
30
20

130
30
20

90
30
20

80
30
20

60
30
20

40
30
20

30
30
20

40
30
20

50
30
20

840
300
200

60
140

-190
360

-270
400

-210
210

-190
30

-150
-20

-120
-20

-70
-20

-20
-10

0
-10

0
0

-1,220
920

-1,760
140

-1,380
140

-1,140
150

-930
150

-740
150

-560
120

-370
60

-180
-20

-40
-100

0
-190

0
-270

-5,340
190

50

40

40

40

50

60

60

50

40

30

30

440

20
50
0
0
10
10
0
160

0
50
0
0
10
-20
0
190

-10
20
0
0
10
-20
0
220

-10
10
0
0
10
-20
170
240

-10
0
0
0
10
-10
440
250

-10
0
0
0
10
0
550
270

-10
0
0
0
10
0
550
280

-10
0
0
0
10
0
550
290

-10
0
0
0
10
0
550
300

-10
0
0
0
10
0
550
320

-10
0
0
0
10
0
550
330

-90
80
0
0
100
-70
3,910
2,690

20
410

40
400

40
410

50
420

50
420

50
420

50
410

50
410

50
400

50
390

50
370

480
4,050

120
0
200

130
0
210

130
0
230

120
0
240

120
0
250

140
0
260

140
0
260

130
0
270

130
0
270

130
0
280

120
0
280

1,290
0
2,550

18,220
0
10

136

ANALYTICAL PERSPECTIVES

Table 13–2A. ESTIMATES OF TOTAL CORPORATE INCOME TAX EXPENDITURES FOR FISCAL YEARS 2016-2026—Continued
(In millions of dollars)
Total from corporations
2016
40
41
42

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2017-26

Tax incentives for preservation of historic structures �������������
Industrial CO2 capture and sequestration tax credit ��������������
Deduction for endangered species recovery expenditures �����

390
110
10

400
150
10

400
180
10

410
80
10

420
0
20

430
0
20

440
0
20

450
0
20

460
0
20

460
0
30

470
0
30

4,340
410
190

Agriculture:
43 Expensing of certain capital outlays ��������������������������������������
44 Expensing of certain multiperiod production costs ����������������
45 Treatment of loans forgiven for solvent farmers ����������������������
46 Capital gains treatment of certain income �����������������������������
47 Income averaging for farmers �������������������������������������������������
48 Deferral of gain on sale of farm refiners ���������������������������������
49 Expensing of reforestation expenditures ��������������������������������

10
20
0
0
0
20
20

20
30
0
0
0
20
20

20
30
0
0
0
20
20

20
30
0
0
0
20
20

20
30
0
0
0
20
30

20
40
0
0
0
20
30

20
40
0
0
0
30
30

20
40
0
0
0
30
30

30
50
0
0
0
30
30

30
50
0
0
0
30
30

30
50
0
0
0
30
30

230
390
0
0
0
250
270

2,310

2,710

3,080

3,260

3,350

3,600

3,770

3,530

3,850

4,100

4,060

35,310

1,470

1,740

2,140

2,470

2,730

2,960

3,160

3,360

3,550

3,740

3,930

29,780

50

50

50

60

60

60

60

70

70

70

80

630

690
40
0

720
40
0

740
40
0

780
40
0

830
40
0

870
40
0

890
50
0

910
50
0

930
50
0

950
50
0

970
50
0

8,590
450
0

350
300

380
330

370
320

330
290

350
300

390
340

380
330

380
320

360
310

350
300

350
300

3,640
3,140

0

0

0

0

0

0

0

0

0

0

0

0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
8,200

0
8,300

0
8,410

0
8,500

0
8,640

0
8,820

0
9,020

0
9,240

0
9,510

0
9,780

0
9,690

0
89,910

260

370

500

630

770

920

1,070

1,200

1,320

1,430

1,540

9,750
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
5,720

0
6,000

0
6,310

0
6,630

0
6,960

0
7,300

0
7,670

0
8,050

0
8,460

0
8,880

0
9,320

0
75,580

-3,760

-3,920

-4,170

-4,490

-4,860

-5,170

-5,460

-5,750

-6,080

-6,280

-6,450

-52,630

28,570

30,490

33,010

34,750

-5,150 -10,650

1,960

10,000

17,260

23,490

28,430

163,590

340

290

300

310

990

880

810

780

790

7,550

Commerce and housing:
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78

Financial institutions and insurance:
Exemption of credit union income �������������������������������������
Exclusion and deferral of policyholder income earned on
life insurance and annuity contracts �����������������������������
Exclusion or special alternative tax for small property and
casualty insurance companies �������������������������������������
Tax exemption of insurance income earned by tax-exempt
organizations �����������������������������������������������������������������
Small life insurance company deduction ���������������������������
Exclusion of interest spread of financial institutions �����������
Housing:
Exclusion of interest on owner-occupied mortgage subsidy
bonds ����������������������������������������������������������������������������
Exclusion of interest on rental housing bonds ��������������������
Deductibility of mortgage interest on owner-occupied
homes ���������������������������������������������������������������������������
Deductibility of State and local property tax on owneroccupied homes �����������������������������������������������������������
Deferral of income from installment sales �������������������������
Capital gains exclusion on home sales ������������������������������
Exclusion of net imputed rental income ������������������������������
Exception from passive loss rules for $25,000 of rental
loss �������������������������������������������������������������������������������
Credit for low-income housing investments ������������������������
Accelerated depreciation on rental housing (normal tax
method) ������������������������������������������������������������������������
Discharge of mortgage indebtedness ���������������������������������
Commerce:
Discharge of business indebtedness ����������������������������������
Exceptions from imputed interest rules �����������������������������
Treatment of qualified dividends �����������������������������������������
Capital gains (except agriculture, timber, iron ore, and
coal) �������������������������������������������������������������������������������
Capital gains exclusion of small corporation stock �������������
Step-up basis of capital gains at death ������������������������������
Carryover basis of capital gains on gifts ����������������������������
Ordinary income treatment of loss from small business
corporation stock sale ���������������������������������������������������
Deferral of gains from like-kind exchanges �������������������������
Depreciation of buildings other than rental housing (normal
tax method) �������������������������������������������������������������������
Accelerated depreciation of machinery and equipment
(normal tax method) �����������������������������������������������������
Expensing of certain small investments (normal tax
method) ������������������������������������������������������������������������

1,150

1,250

137

13. Tax Expenditures

Table 13–2A. ESTIMATES OF TOTAL CORPORATE INCOME TAX EXPENDITURES FOR FISCAL YEARS 2016-2026—Continued
(In millions of dollars)
Total from corporations
79
80
81
82

Graduated corporation income tax rate (normal tax
method) ������������������������������������������������������������������������
Exclusion of interest on small issue bonds ������������������������
Deduction for US production activities ��������������������������������
Special rules for certain film and TV production �����������������

Transportation:
83 Tonnage tax ����������������������������������������������������������������������������
84 Deferral of tax on shipping companies �����������������������������������
85 Exclusion of reimbursed employee parking expenses �����������
86 Exclusion for employer-provided transit passes ��������������������
87 Tax credit for certain expenditures for maintaining railroad
tracks ���������������������������������������������������������������������������������
88 Exclusion of interest on bonds for Highway Projects and railtruck transfer facilities ��������������������������������������������������������
Community and regional development:
89 Investment credit for rehabilitation of structures (other than
historic) �����������������������������������������������������������������������������
90 Exclusion of interest for airport, dock, and similar bonds �������
91 Exemption of certain mutuals’ and cooperatives’ income ������
92 Empowerment zones ��������������������������������������������������������������
93 New markets tax credit �����������������������������������������������������������
94 Credit to holders of Gulf Tax Credit Bonds. �����������������������������
95 Recovery Zone Bonds 6/ ��������������������������������������������������������
96 Tribal Economic Development Bonds �������������������������������������

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2017-26

3,300
40
12,080
220

3,000
50
12,510
160

2,650
50
13,080
90

2,460
40
13,640
50

2,370
40
14,210
20

2,360
50
14,810
0

2,380
50
15,430
0

2,380
50
16,080
0

2,380
50
16,750
0

2,410
50
17,450
0

2,250
40
18,190
0

24,640
470
152,150
320

70
20
0
0

80
20
0
0

80
20
0
0

90
20
0
0

90
20
0
0

90
20
0
0

100
20
0
0

100
20
0
0

110
20
0
0

110
20
0
0

120
20
0
0

970
200
0
0

110

50

0

0

0

0

0

0

0

0

0

50

50

50

50

40

40

40

40

30

30

30

30

380

10
200
140
70
1,260
70
40
10

10
210
150
50
1,270
70
40
10

10
210
150
20
1,170
70
40
10

10
190
150
10
1,030
60
30
10

10
200
150
10
960
70
40
10

10
220
160
0
870
70
40
10

10
220
160
0
740
70
40
10

10
210
160
0
590
70
40
10

10
210
170
0
430
70
40
10

10
200
170
0
270
70
40
10

10
200
180
0
80
70
40
10

100
2,070
1,600
90
7,410
690
390
100

0

0

0

0

0

0

0

0

0

0

0

0

0
0
0
0
130

0
0
0
0
140

0
0
0
0
130

0
0
0
0
120

0
0
0
0
130

0
0
0
0
140

0
0
0
0
140

0
0
0
0
140

0
0
0
0
130

0
0
0
0
130

0
0
0
0
130

0
0
0
0
1,330

660
160

710
170

690
180

620
170

650
150

730
130

720
110

710
90

680
80

660
60

660
50

6,830
1,190

0
0
820
0
0
0
160

0
0
860
0
0
0
160

0
0
900
0
0
0
160

0
0
950
0
0
0
160

0
0
1,000
0
0
0
160

0
0
1,040
0
0
0
160

0
0
1,100
0
0
0
160

0
0
1,150
0
0
0
160

0
0
1,210
0
0
0
160

0
0
1,270
0
0
0
160

0
0
1,330
0
0
0
160

0
0
10,810
0
0
0
1,600

830
0
10
0
0

920
0
10
0
0

950
0
10
0
0

980
0
10
0
0

680
0
10
0
0

350
0
10
0
0

230
0
10
0
0

180
0
10
0
0

130
0
10
0
0

100
0
10
0
0

80
0
10
0
0

4,600
0
100
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

1,720

1,790

1,860

1,930

2,010

2,090

2,170

2,250

2,340

2,430

2,530

21,400

Education, training, employment, and social services:
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111

Education:
Exclusion of scholarship and fellowship income (normal
tax method) �������������������������������������������������������������������
Tax credits and deductions for postsecondary education
expenses 7/ �������������������������������������������������������������������
Education Individual Retirement Accounts �������������������������
Deductibility of student-loan interest �����������������������������������
Qualified tuition programs ���������������������������������������������������
Exclusion of interest on student-loan bonds ����������������������
Exclusion of interest on bonds for private nonprofit
educational facilities �����������������������������������������������������
Credit for holders of zone academy bonds 8/ ���������������������
Exclusion of interest on savings bonds redeemed to
finance educational expenses ���������������������������������������
Parental personal exemption for students age 19 or over �
Deductibility of charitable contributions (education) �����������
Exclusion of employer-provided educational assistance ���
Special deduction for teacher expenses �����������������������������
Discharge of student loan indebtedness ����������������������������
Qualified school construction bonds 9/ �������������������������������

Training, employment, and social services:
Work opportunity tax credit �������������������������������������������������
Employer provided child care exclusion �����������������������������
Employer-provided child care credit �����������������������������������
Assistance for adopted foster children ��������������������������������
Adoption credit and exclusion ���������������������������������������������
Exclusion of employee meals and lodging (other than
military) �������������������������������������������������������������������������
118
Credit for child and dependent care expenses ������������������
119
Credit for disabled access expenditures ����������������������������
120
Deductibility of charitable contributions, other than
education and health �����������������������������������������������������
112
113
114
115
116
117

138

ANALYTICAL PERSPECTIVES

Table 13–2A. ESTIMATES OF TOTAL CORPORATE INCOME TAX EXPENDITURES FOR FISCAL YEARS 2016-2026—Continued
(In millions of dollars)
Total from corporations
2016
121
122
123
124

Exclusion of certain foster care payments �������������������������
Exclusion of parsonage allowances ����������������������������������
Indian employment credit ���������������������������������������������������
Credit for employer differential wage payments ������������������

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2017-26

0
0
30
0

0
0
20
0

0
0
10
0

0
0
10
10

0
0
10
10

0
0
10
10

0
0
0
10

0
0
0
10

0
0
0
10

0
0
0
10

0
0
0
10

0
0
60
80

0
0
0
0
1,010
0

0
0
0
0
1,090
0

0
0
0
0
1,070
0

0
0
0
0
960
0

0
0
0
0
1,010
0

0
0
0
0
1,130
0

0
0
0
0
1,100
0

0
0
0
0
1,090
0

0
0
0
0
1,050
0

0
0
0
0
1,020
0

0
0
0
0
1,020
0

0
0
0
0
10,540
0

60
230
1,700
630

60
240
2,040
610

70
250
2,450
610

60
260
2,940
610

60
270
3,530
600

50
290
4,230
590

50
300
5,080
570

40
310
6,100
540

20
320
7,320
510

10
340
8,790
460

10
350
10,550
400

430
2,930
53,030
5,500

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0

0
0

0
0

0
0

0
0

0
0

0
0

0
0

0
0

0
0

0
0

0
0

0

0

0

0

0

0

0

0

0

0

0

0

0
1,910
0
0
0
0
0

0
1,970
0
0
0
0
0

0
2,030
0
0
0
0
0

0
2,090
0
0
0
0
0

0
2,160
0
0
0
0
0

0
2,220
0
0
0
0
0

0
2,290
0
0
0
0
0

0
2,370
0
0
0
0
0

0
2,440
0
0
0
0
0

0
2,520
0
0
0
0
0

0
2,600
0
0
0
0
0

0
22,690
0
0
0
0
0

Exclusion of social security benefits:
Social Security benefits for retired and disabled workers
and spouses, dependents and survivors �����������������������
159
Credit for certain employer contributions to social security 

0
470

0
490

0
510

0
530

0
550

0
580

0
600

0
630

0
650

0
680

0
710

0
5,930

Veterans benefits and services:
160 Exclusion of veterans death benefits and disability
compensation �������������������������������������������������������������������

0

0

0

0

0

0

0

0

0

0

0

0

Health:
125 Exclusion of employer contributions for medical insurance
premiums and medical care 10/ ���������������������������������������
126 Self-employed medical insurance premiums ��������������������������
127 Medical Savings Accounts / Health Savings Accounts �����������
128 Deductibility of medical expenses �����������������������������������������
129 Exclusion of interest on hospital construction bonds ��������������
130 Refundable Premium Assistance Tax Credit 11/ ��������������������
131 Credit for employee health insurance expenses of small
business 12/ ����������������������������������������������������������������������
132 Deductibility of charitable contributions (health) ���������������������
133 Tax credit for orphan drug research ��������������������������������������
134 Special Blue Cross/Blue Shield tax benefits ��������������������������
135 Tax credit for health insurance purchased by certain
displaced and retired individuals 13/ ��������������������������������
136 Distributions from retirement plans for premiums for health
and long-term care insurance ��������������������������������������������
Income security:
137 Child credit 14/ ������������������������������������������������������������������������
138 Exclusion of railroad retirement (Social Security equivalent)
benefits �����������������������������������������������������������������������������
139 Exclusion of workers’ compensation benefits �������������������������
140 Exclusion of public assistance benefits (normal tax method) 
141 Exclusion of special benefits for disabled coal miners �����������
142 Exclusion of military disability pensions ��������������������������������
143
144
145
146
147

Net exclusion of pension contributions and earnings:
Defined benefit employer plans ������������������������������������������
Defined contribution employer plans ����������������������������������
Individual Retirement Accounts �����������������������������������������
Low and moderate income savers credit ����������������������������
Self-Employed plans ����������������������������������������������������������

Exclusion of other employee benefits:
148
Premiums on group term life insurance �����������������������������
149
Premiums on accident and disability insurance �����������������
150 Income of trusts to finance supplementary unemployment
benefits �����������������������������������������������������������������������������
151 Income of trusts to finance voluntary employee benefits
associations ����������������������������������������������������������������������
152 Special ESOP rules ����������������������������������������������������������������
153 Additional deduction for the blind ������������������������������������������
154 Additional deduction for the elderly ���������������������������������������
155 Tax credit for the elderly and disabled �����������������������������������
156 Deductibility of casualty losses ����������������������������������������������
157 Earned income tax credit 15/ �������������������������������������������������
Social Security:
158

139

13. Tax Expenditures

Table 13–2A. ESTIMATES OF TOTAL CORPORATE INCOME TAX EXPENDITURES FOR FISCAL YEARS 2016-2026—Continued
(In millions of dollars)
Total from corporations
2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2017-26

161 Exclusion of veterans pensions ���������������������������������������������
162 Exclusion of GI bill benefits ���������������������������������������������������
163 Exclusion of interest on veterans housing bonds �������������������

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

General purpose fiscal assistance:
164 Exclusion of interest on public purpose State and local bonds
��������������������������������������������������������������������������������������������
165 Build America Bonds 16/ ��������������������������������������������������������
166 Deductibility of nonbusiness State and local taxes other than
on owner-occupied homes �����������������������������������������������

8,400
0

9,080
0

8,860
0

8,000
0

8,360
0

9,390
0

9,170
0

9,040
0

8,740
0

8,490
0

8,440
0

87,570
0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

Deductibility of:
Property taxes on owner-occupied homes ������������������������
Nonbusiness State and local taxes other than on owneroccupied homes �����������������������������������������������������������

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

Exclusion of interest on State and local bonds for:
Public purposes ������������������������������������������������������������������
Energy facilities ������������������������������������������������������������������
Water, sewage, and hazardous waste disposal facilities ���
Small-issues �����������������������������������������������������������������������
Owner-occupied mortgage subsidies ���������������������������������
Rental housing �������������������������������������������������������������������
Airports, docks, and similar facilities ����������������������������������
Student loans ���������������������������������������������������������������������
Private nonprofit educational facilities �������������������������������
Hospital construction ����������������������������������������������������������
Veterans’ housing ��������������������������������������������������������������
See Table 1 footnotes for specific table information

8,400
0
120
40
350
300
200
130
660
1,010
0

9,080
10
130
50
380
330
210
140
710
1,090
0

8,860
10
130
50
370
320
210
130
690
1,070
0

8,000
0
120
40
330
290
190
120
620
960
0

8,360
0
120
40
350
300
200
130
650
1,010
0

9,390
10
140
50
390
340
220
140
730
1,130
0

9,170
10
140
50
380
330
220
140
720
1,100
0

9,040
10
130
50
380
320
210
140
710
1,090
0

8,740
10
130
50
360
310
210
130
680
1,050
0

8,490
0
130
50
350
300
200
130
660
1,020
0

8,440
0
120
40
350
300
200
130
660
1,020
0

87,570
60
1,290
470
3,640
3,140
2,070
1,330
6,830
10,540
0

Interest:
167 Deferral of interest on U.S. savings bonds �����������������������������
Addendum: Aid to State and local governments:

140

ANALYTICAL PERSPECTIVES

Table 13–2B. ESTIMATES OF TOTAL INDIVIDUAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2016–2026
(In millions of dollars)
Total from individuals

National Defense
1
Exclusion of benefits and allowances to armed forces
personnel ��������������������������������������������������������������������������
International affairs:
2
Exclusion of income earned abroad by U.S. citizens �������������
3
Exclusion of certain allowances for Federal employees
abroad �������������������������������������������������������������������������������
4
Inventory property sales source rules exception ��������������������
5
Deferral of income from controlled foreign corporations
(normal tax method) ���������������������������������������������������������
6
Deferred taxes for financial firms on certain income earned
overseas ����������������������������������������������������������������������������
General science, space, and technology:
7
Expensing of research and experimentation expenditures
(normal tax method) ���������������������������������������������������������
8
Credit for increasing research activities ���������������������������������
Energy:
9
Expensing of exploration and development costs, fuels ��������
10 Excess of percentage over cost depletion, fuels �������������������
11 Exception from passive loss limitation for working interests in
oil and gas properties �������������������������������������������������������
12 Capital gains treatment of royalties on coal ���������������������������
13 Exclusion of interest on energy facility bonds ������������������������
14 Energy production credit 1 �����������������������������������������������������
15 Marginal wells credit ���������������������������������������������������������������
16 Energy investment credit 1 �����������������������������������������������������
17 Alcohol fuel credits 2 ������������������������������������������������������������
18 Bio-Diesel and small agri-biodiesel producer tax credits 3 ���
19 Tax credits for clean-fuel burning vehicles and refueling
property �����������������������������������������������������������������������������
20 Exclusion of utility conservation subsidies ������������������������������
21 Credit for holding clean renewable energy bonds 4 ���������������
22 Deferral of gain from dispositions of transmission property to
implement FERC restructuring policy ��������������������������������
23 Credit for investment in clean coal facilities ����������������������������
24 Temporary 50% expensing for equipment used in the refining
of liquid fuels ����������������������������������������������������������������������
25 Natural gas distribution pipelines treated as 15-year property 
26 Amortize all geological and geophysical expenditures over 2
years ����������������������������������������������������������������������������������
27 Allowance of deduction for certain energy efficient
commercial building property ���������������������������������������������
28 Credit for construction of new energy efficient homes ������������
29 Credit for energy efficiency improvements to existing homes 
30 Credit for residential energy efficient property �����������������������
31 Qualified energy conservation bonds 5 ����������������������������������
32 Advanced Energy Property Credit ������������������������������������������
33 Advanced nuclear power production credit �����������������������������
34 Reduced tax rate for nuclear decommissioning funds ������������
Natural resources and environment:
35 Expensing of exploration and development costs, nonfuel
minerals ����������������������������������������������������������������������������
36 Excess of percentage over cost depletion, nonfuel minerals 
37 Exclusion of interest on bonds for water, sewage, and
hazardous waste facilities ��������������������������������������������������
38 Capital gains treatment of certain timber income ������������������
39 Expensing of multiperiod timber growing costs ���������������������

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2017–
2026

12,280

12,650

11,460

11,500

11,860

12,320

12,820

13,370

13,940

14,560

15,210

129,690

6,280

6,600

6,930

7,280

7,640

8,020

8,420

8,840

9,290

9,750

10,240

83,010

1,300
0

1,370
0

1,430
0

1,500
0

1,580
0

1,660
0

1,740
0

1,830
0

1,920
0

2,020
0

2,120
0

17,170
0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

840
770

810
920

750
1,010

750
1,080

840
1,160

910
1,250

980
1,340

1,030
1,450

1,100
1,560

1,160
1,680

1,230
1,810

9,560
13,260

–130
80

–180
80

–80
100

–10
110

30
120

50
140

70
160

80
190

80
220

80
240

90
270

210
1,630

60
150
10
350
0
300
10
10

40
150
10
440
50
610
10
10

40
150
10
580
50
860
0
0

40
140
10
740
20
960
0
0

40
140
20
890
0
980
0
0

30
150
20
1,030
0
930
0
0

30
150
20
1,120
0
740
0
0

30
150
20
1,160
0
500
0
0

30
160
20
1,180
0
290
0
0

30
170
30
1,150
0
140
0
0

20
170
30
1,100
0
70
0
0

330
1,530
190
9,390

350
400
50

400
420
50

490
440
50

520
460
50

390
490
50

330
510
50

300
540
50

230
560
50

170
590
50

150
620
50

160
650
50

3,140
5,280
500

0
20

0
40

0
40

0
20

0
0

0
0

0
0

0
0

0
0

0
0

0
0

0
100

0
0

0
0

0
0

0
0

0
0

0
0

0
0

0
0

0
0

0
0

0
0

0
0

20

20

20

20

20

20

30

20

20

10

10

190

60
160
530
1,450
20
0
0
0

10
120
290
1,460
20
–10
0
0

–20
50
0
1,500
20
–10
0
0

–20
20
0
1,550
20
–10
0
0

–20
10
0
1,470
20
0
0
0

–20
0
0
1,270
20
0
0
0

–20
0
0
640
20
0
0
0

–20
0
0
150
20
0
0
0

–20
0
0
20
20
0
0
0

–20
0
0
0
20
0
0
0

–20
0
0
0
20
0
0
0

–170
200
290
8,060
200
–30
0
0

0
20

0
20

0
20

0
20

0
20

0
20

0
20

0
20

0
20

0
20

0
20

0
200

300
150
130

320
150
130

340
150
130

380
140
140

420
140
140

470
150
160

530
150
160

570
150
160

610
160
160

650
170
160

680
170
160

4,970
1,530
1,500

6,080
10
10

141

13. Tax Expenditures

Table 13–2B. ESTIMATES OF TOTAL INDIVIDUAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2016–2026—Continued
(In millions of dollars)
Total from individuals
2016
40
41
42

2017

2018

2019

2020

2021

2022

2023

2024

2025

2017–
2026

2026

Tax incentives for preservation of historic structures �������������
Industrial CO2 capture and sequestration tax credit ��������������
Deduction for endangered species recovery expenditures �����

70
0
20

70
0
20

70
0
20

70
0
20

70
0
20

80
0
30

80
0
30

80
0
30

80
0
30

80
0
40

80
0
40

760
0
280

Agriculture:
43 Expensing of certain capital outlays ��������������������������������������
44 Expensing of certain multiperiod production costs ����������������
45 Treatment of loans forgiven for solvent farmers ����������������������
46 Capital gains treatment of certain income �����������������������������
47 Income averaging for farmers �������������������������������������������������
48 Deferral of gain on sale of farm refiners ���������������������������������
49 Expensing of reforestation expenditures ��������������������������������

200
350
40
1,470
140
0
40

210
360
50
1,480
150
0
40

220
380
50
1,450
160
0
40

230
410
50
1,440
170
0
40

250
430
50
1,440
180
0
40

260
450
50
1,460
180
0
50

270
480
60
1,500
190
0
50

290
510
60
1,540
200
0
50

300
540
60
1,600
210
0
50

320
580
60
1,670
220
0
60

330
610
70
1,740
230
0
60

2,680
4,750
560
15,320
1,890
0
480

0

0

0

0

0

0

0

0

0

0

0

0

12,510

16,180

22,220

26,640

29,680

31,810

33,360

34,560

35,580

36,550

37,350

303,930

0

0

0

0

0

0

0

0

0

0

0

0

0
0
470

0
0
500

0
0
510

0
0
530

0
0
550

0
0
570

0
0
580

0
0
590

0
0
600

0
0
610

0
0
620

0
0
5,660

Commerce and housing:
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78

Financial institutions and insurance:
Exemption of credit union income �������������������������������������
Exclusion and deferral of policyholder income earned on
life insurance and annuity contracts �����������������������������
Exclusion or special alternative tax for small property and
casualty insurance companies �������������������������������������
Tax exemption of insurance income earned by tax-exempt
organizations �����������������������������������������������������������������
Small life insurance company deduction ���������������������������
Exclusion of interest spread of financial institutions �����������

Housing:
Exclusion of interest on owner-occupied mortgage subsidy
bonds ����������������������������������������������������������������������������
850
890
960 1,060 1,180 1,340 1,480 1,610 1,730 1,820 1,900
13,970
Exclusion of interest on rental housing bonds ��������������������
730
770
830
910 1,020 1,150 1,270 1,390 1,490 1,570 1,640
12,040
Deductibility of mortgage interest on owner-occupied
homes ��������������������������������������������������������������������������� 61,190 64,110 68,090 73,590 79,990 86,570 93,030 99,300 105,110 110,480 115,650 895,920
Deductibility of State and local property tax on owneroccupied homes ����������������������������������������������������������� 34,470 36,540 38,940 41,590 44,410 47,170 49,930 52,770 55,670 58,560 61,280 486,860
Deferral of income from installment sales �������������������������
1,620 1,630 1,620 1,620 1,630 1,660 1,700 1,750 1,820 1,890 1,970
17,290
Capital gains exclusion on home sales ������������������������������ 43,310 46,130 48,470 50,920 53,500 56,200 59,050 62,040 65,180 68,470 71,940 581,900
Exclusion of net imputed rental income ������������������������������ 105,610 109,620 112,670 114,740 116,270 119,520 122,870 126,310 129,850 133,480 137,220 1,222,550
Exception from passive loss rules for $25,000 of rental
loss �������������������������������������������������������������������������������
7,120 7,480 7,800 8,080 8,290 8,490 8,670 8,820 8,980 9,250 9,370
85,230
Credit for low-income housing investments ������������������������
430
440
440
450
450
460
470
490
500
510
510
4,720
Accelerated depreciation on rental housing (normal tax
method) ������������������������������������������������������������������������
1,350 1,830 2,420 3,030 3,670 4,370 5,100 5,730 6,340 6,930 7,520
46,940
Discharge of mortgage indebtedness ���������������������������������
3,340 1,090
0
0
0
0
0
0
0
0
0
1,090
Commerce:
Discharge of business indebtedness ����������������������������������
–150
–50
10
10
10
20
30
40
50
50
50
220
Exceptions from imputed interest rules �����������������������������
50
50
60
60
60
70
70
80
80
80
90
700
Treatment of qualified dividends ����������������������������������������� 27,980 28,810 29,850 30,940 32,100 33,370 34,720 36,160 37,690 39,290 40,990 343,920
Capital gains (except agriculture, timber, iron ore, and
coal) ������������������������������������������������������������������������������� 109,530 110,270 108,560 107,620 107,780 109,210 111,760 115,240 119,500 124,450 129,800 1,144,190
Capital gains exclusion of small corporation stock �������������
540
700
850 1,050 1,210 1,320 1,420 1,520 1,600 1,660 1,710
13,040
Step-up basis of capital gains at death ������������������������������ 49,990 51,990 54,070 56,230 58,480 60,820 63,250 65,780 68,420 71,150 74,000 624,190
Carryover basis of capital gains on gifts ����������������������������
7,790 7,520 7,180 6,960 6,890 6,960 7,020 7,060 7,140 7,260 7,410
71,400
Ordinary income treatment of loss from small business
corporation stock sale ���������������������������������������������������
50
50
50
50
50
50
50
50
50
50
50
500
Deferral of gains from like-kind exchanges �������������������������
1,610 1,690 1,770 1,870 1,960 2,060 2,160 2,270 2,380 2,500 2,620
21,280
Depreciation of buildings other than rental housing (normal
tax method) ������������������������������������������������������������������� –5,070 –5,080 –5,220 –5,520 –5,890 –6,250 –6,630 –7,000 –7,410 –7,670 –7,910 –64,580
Accelerated depreciation of machinery and equipment
(normal tax method) ����������������������������������������������������� 16,060 16,590 17,310 17,670 –6,470 –10,060 –2,790 1,810 5,900 9,370 12,050
61,380
Expensing of certain small investments (normal tax
method) ������������������������������������������������������������������������
3,580 3,290 3,360 3,530 6,580 7,100 6,480 6,330 6,330 6,470 6,780
56,250

142

ANALYTICAL PERSPECTIVES

Table 13–2B. ESTIMATES OF TOTAL INDIVIDUAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2016–2026—Continued
(In millions of dollars)
Total from individuals
2016
79
80
81
82

Graduated corporation income tax rate (normal tax
method) ������������������������������������������������������������������������
Exclusion of interest on small issue bonds ������������������������
Deduction for US production activities ��������������������������������
Special rules for certain film and TV production �����������������

Transportation:
83 Tonnage tax ����������������������������������������������������������������������������
84 Deferral of tax on shipping companies �����������������������������������
85 Exclusion of reimbursed employee parking expenses �����������
86 Exclusion for employer-provided transit passes ��������������������
87 Tax credit for certain expenditures for maintaining railroad
tracks ���������������������������������������������������������������������������������
88 Exclusion of interest on bonds for Highway Projects and railtruck transfer facilities ��������������������������������������������������������
Community and regional development:
89 Investment credit for rehabilitation of structures (other than
historic) �����������������������������������������������������������������������������
90 Exclusion of interest for airport, dock, and similar bonds �������
91 Exemption of certain mutuals’ and cooperatives’ income ������
92 Empowerment zones ��������������������������������������������������������������
93 New markets tax credit �����������������������������������������������������������
94 Credit to holders of Gulf Tax Credit Bonds. �����������������������������
95 Recovery Zone Bonds 6 ���������������������������������������������������������
96 Tribal Economic Development Bonds �������������������������������������

2017

2018

2019

2020

2021

2022

2023

2024

2025

2017–
2026

2026

0
110
3,780
60

0
110
3,910
40

0
120
4,080
20

0
130
4,260
10

0
150
4,440
10

0
170
4,630
0

0
190
4,820
0

0
210
5,030
0

0
220
5,240
0

0
230
5,460
0

0
240
5,690
0

0
1,770
47,560
80

0
0
2,940
1,010

0
0
3,060
1,080

0
0
3,170
1,140

0
0
3,280
1,210

0
0
3,410
1,290

0
0
3,520
1,370

0
0
3,610
1,440

0
0
3,750
1,520

0
0
3,850
1,600

0
0
4,020
1,630

0
0
4,160
1,690

0
0
35,830
13,970

30

10

0

0

0

0

0

0

0

0

0

10

160

150

140

130

130

120

120

110

110

100

100

1,210

10
480
0
70
30
160
90
30

10
510
0
60
30
170
90
30

10
540
0
30
30
180
100
30

10
600
0
20
20
200
110
30

10
670
0
20
20
230
120
40

10
760
0
10
20
250
140
40

10
840
0
10
20
280
150
50

10
910
0
10
20
310
170
50

10
980
0
0
10
330
180
60

10
1,030
0
0
10
350
190
60

10
1,080
0
0
10
360
200
60

100
7,920
0
160
190
2,660
1,450
450

3,290

3,410

3,500

3,560

3,690

3,820

3,960

4,100

4,240

4,400

4,550

39,230

15,530
30
1,950
1,740
310

15,620
40
1,970
1,920
320

15,450
40
2,010
2,110
350

15,590
40
2,050
2,300
380

15,720
40
2,130
2,490
430

15,730
40
2,150
2,700
480

15,720
40
2,200
2,910
540

15,720
50
2,270
3,140
590

15,690
50
2,290
3,390
630

15,630
50
2,330
3,650
660

15,520
50
2,410
3,930
690

156,390
440
21,810
28,540
5,070

1,600
0

1,670
0

1,800
0

1,980
0

2,220
0

2,500
0

2,770
0

3,020
0

3,240
0

3,420
0

3,560
0

26,180
0

30
4,220
4,290
850
210
90
490

30
4,210
4,620
900
210
100
490

30
4,310
4,990
950
210
100
490

30
4,470
5,380
990
210
100
490

30
4,600
5,730
1,040
220
110
490

40
4,720
6,060
1,090
220
110
490

40
4,830
6,390
1,140
260
110
490

40
4,940
6,710
1,200
270
110
490

40
5,030
7,040
1,260
270
120
490

50
5,100
7,360
1,320
270
120
490

50
5,180
7,670
1,380
270
120
490

380
47,390
61,950
11,270
2,410
1,100
4,900

330
950
0
560
300

390
1,000
0
580
310

400
1,060
0
610
320

410
1,140
0
650
340

330
1,200
0
680
360

130
1,280
0
720
350

70
1,350
0
760
370

50
1,440
0
800
360

40
1,530
0
840
370

30
1,620
0
890
370

20
1,710
0
930
380

1,870
13,330
0
7,460
3,530

4,540
4,570
10

4,650
4,600
10

4,770
4,710
10

4,910
4,860
10

5,040
4,990
10

5,170
5,090
10

5,300
5,200
10

5,430
5,300
10

5,560
5,420
10

5,700
5,530
10

5,830
5,650
10

52,360
51,350
100

Education, training, employment, and social services:
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111

Education:
Exclusion of scholarship and fellowship income (normal
tax method) �������������������������������������������������������������������
Tax credits and deductions for postsecondary education
expenses 7 ��������������������������������������������������������������������
Education Individual Retirement Accounts �������������������������
Deductibility of student-loan interest �����������������������������������
Qualified tuition programs ���������������������������������������������������
Exclusion of interest on student-loan bonds ����������������������
Exclusion of interest on bonds for private nonprofit
educational facilities �����������������������������������������������������
Credit for holders of zone academy bonds 8 ����������������������
Exclusion of interest on savings bonds redeemed to
finance educational expenses ���������������������������������������
Parental personal exemption for students age 19 or over �
Deductibility of charitable contributions (education) �����������
Exclusion of employer-provided educational assistance ���
Special deduction for teacher expenses �����������������������������
Discharge of student loan indebtedness ����������������������������
Qualified school construction bonds 9 ��������������������������������

Training, employment, and social services:
Work opportunity tax credit �������������������������������������������������
Employer provided child care exclusion �����������������������������
Employer-provided child care credit �����������������������������������
Assistance for adopted foster children ��������������������������������
Adoption credit and exclusion ���������������������������������������������
Exclusion of employee meals and lodging (other than
military) �������������������������������������������������������������������������
118
Credit for child and dependent care expenses ������������������
119
Credit for disabled access expenditures ����������������������������
112
113
114
115
116
117

143

13. Tax Expenditures

Table 13–2B. ESTIMATES OF TOTAL INDIVIDUAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2016–2026—Continued
(In millions of dollars)
Total from individuals

120
121
122
123
124

Deductibility of charitable contributions, other than
education and health �����������������������������������������������������
Exclusion of certain foster care payments �������������������������
Exclusion of parsonage allowances ����������������������������������
Indian employment credit ���������������������������������������������������
Credit for employer differential wage payments ������������������

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2017–
2026

42,350
450
940
20
0

45,660
480
990
20
0

49,320
500
1,040
10
0

53,100
520
1,090
10
0

56,580
540
1,150
10
0

59,840
560
1,210
10
0

63,080
580
1,280
10
10

66,260
600
1,340
10
10

69,480
610
1,410
10
10

72,660
630
1,490
10
10

75,740
650
1,570
10
10

611,720
5,670
12,570
110
50

Health:
125 Exclusion of employer contributions for medical insurance
premiums and medical care 10 ����������������������������������������� 210,190 222,030 235,830 250,760 265,170 280,990 297,880 315,770 334,890 355,060 376,330 2,934,710
126 Self-employed medical insurance premiums ��������������������������
7,170 7,590 7,960 8,320 8,870 9,410 9,880 10,350 10,830 11,350 11,920
96,480
127 Medical Savings Accounts / Health Savings Accounts �����������
5,730 6,850 8,160 9,720 11,570 13,770 16,410 19,530 23,230 27,650 32,920 169,810
128 Deductibility of medical expenses �����������������������������������������
7,970 8,680 9,920 11,550 13,450 15,610 17,970 20,850 24,250 27,790 32,090 182,160
129 Exclusion of interest on hospital construction bonds ��������������
2,470 2,580 2,770 3,050 3,420 3,860 4,270 4,650 4,990 5,270 5,490
40,350
130 Refundable Premium Assistance Tax Credit 11 ����������������������
2,070 2,410 3,170 3,810 4,620 5,700 6,010 6,170 6,500 6,710 6,900
52,000
131 Credit for employee health insurance expenses of small
business 12 ������������������������������������������������������������������������
100
100
100
90
80
50
70
50
40
20
10
610
132 Deductibility of charitable contributions (health) ���������������������
4,750 5,120 5,530 5,960 6,350 6,710 7,080 7,430 7,790 8,150 8,500
68,620
133 Tax credit for orphan drug research ��������������������������������������
20
20
30
30
40
50
50
60
70
90
100
540
134 Special Blue Cross/Blue Shield tax benefits ��������������������������
0
0
0
0
0
0
0
0
0
0
0
0
135 Tax credit for health insurance purchased by certain
displaced and retired individuals 13 ����������������������������������
30
30
20
10
0
0
0
0
0
0
0
60
136 Distributions from retirement plans for premiums for health
and long-term care insurance ��������������������������������������������
440
460
480
500
520
540
560
580
600
620
650
5,510
Income security:
137 Child credit 14 �������������������������������������������������������������������������
138 Exclusion of railroad retirement (Social Security equivalent)
benefits �����������������������������������������������������������������������������
139 Exclusion of workers’ compensation benefits �������������������������
140 Exclusion of public assistance benefits (normal tax method) 
141 Exclusion of special benefits for disabled coal miners �����������
142 Exclusion of military disability pensions ��������������������������������
Net exclusion of pension contributions and earnings: �����������
143
Defined benefit employer plans ������������������������������������������
144
Defined contribution employer plans ����������������������������������
145
Individual Retirement Accounts �����������������������������������������
146
Low and moderate income savers credit ����������������������������
147
Self-Employed plans ����������������������������������������������������������
Exclusion of other employee benefits: �����������������������������������
148
Premiums on group term life insurance �����������������������������
149
Premiums on accident and disability insurance �����������������
150 Income of trusts to finance supplementary unemployment
benefits �����������������������������������������������������������������������������
151 Income of trusts to finance voluntary employee benefits
associations ����������������������������������������������������������������������
152 Special ESOP rules ����������������������������������������������������������������
153 Additional deduction for the blind ������������������������������������������
154 Additional deduction for the elderly ���������������������������������������
155 Tax credit for the elderly and disabled �����������������������������������
156 Deductibility of casualty losses ����������������������������������������������
157 Earned income tax credit 15 ��������������������������������������������������

24,180

24,460

24,710

24,710

24,520

24,140

23,750

23,300

22,820

22,330

21,840

236,580

300
10,030
570
30
230
0
70,400
61,770
16,410
1,270
28,050
0
2,460
320

310
10,100
590
20
240
0
70,690
64,610
17,900
1,240
30,820
0
2,580
320

310
10,170
600
20
250
0
70,980
69,420
19,170
1,260
33,780
0
2,680
330

300
10,240
620
20
260
0
70,970
76,450
20,680
1,270
37,050
0
2,780
330

290
10,320
640
20
270
0
69,880
81,250
22,310
1,290
40,500
0
2,880
330

270
10,390
670
10
290
0
68,360
89,270
23,970
1,320
44,040
0
2,980
340

260
240
220
200
180
10,460 10,530 10,610 10,680 10,760
680
700
730
740
690
10
10
10
10
10
300
310
330
340
360
0
0
0
0
0
66,180 63,730 61,360 58,340 54,710
95,350 112,370 117,620 122,660 129,460
25,200 26,560 26,550 26,720 26,800
1,330 1,350 1,350 1,360 1,380
47,890 52,080 56,640 61,590 66,980
0
0
0
0
0
3,080 3,190 3,310 3,430 3,550
340
340
350
350
350

2,580
104,260
6,660
140
2,950
0
655,200
958,460
235,860
13,150
471,370
0
30,460
3,380

20

20

30

40

40

40

50

50

50

50

50

420

1,110
120
40
2,940
10
370
1,550

1,170
120
40
3,110
10
390
1,760

1,220
120
40
3,350
10
400
1,820

1,280
120
40
3,560
10
410
3,780

1,340
130
50
3,800
10
420
3,890

1,400
130
50
4,000
10
440
2,080

1,470
140
50
4,260
10
450
2,200

1,540
140
60
4,600
0
460
2,330

1,610
140
60
4,900
0
470
2,430

1,690
150
70
5,250
0
480
2,560

1,770
150
80
5,620
0
490
2,660

14,490
1,340
540
42,450
60
4,410
25,510

36,140
530

38,440
540

40,580
570

42,920
590

44,850
620

46,530
640

48,140
670

49,700
700

51,380
730

53,260
760

55,330
790

471,130
6,610

Social Security:
Exclusion of social security benefits:
Social Security benefits for retired and disabled workers
and spouses, dependents and survivors �����������������������
159
Credit for certain employer contributions to social security 
158

Veterans benefits and services:

144

ANALYTICAL PERSPECTIVES

Table 13–2B. ESTIMATES OF TOTAL INDIVIDUAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2016–2026—Continued
(In millions of dollars)
Total from individuals
2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2017–
2026

160 Exclusion of veterans death benefits and disability
compensation �������������������������������������������������������������������
161 Exclusion of veterans pensions ���������������������������������������������
162 Exclusion of GI bill benefits ���������������������������������������������������
163 Exclusion of interest on veterans housing bonds �������������������

6,770
440
1,550
10

7,290
470
1,690
10

7,720
500
1,790
10

7,980
520
1,880
10

8,250
540
1,960
10

8,520
560
2,050
10

8,780
590
2,140
10

9,060
610
2,240
10

9,340
630
2,340
20

9,630
650
2,440
20

9,930
680
2,550
20

86,500
5,750
21,080
130

General purpose fiscal assistance:
164 Exclusion of interest on public purpose State and local bonds
��������������������������������������������������������������������������������������������
165 Build America Bonds 16 ���������������������������������������������������������
166 Deductibility of nonbusiness State and local taxes other than
on owner-occupied homes �����������������������������������������������

20,490
0

21,420
0

23,050
0

25,350
0

28,420
0

32,030
0

35,470
0

38,660
0

41,440
0

43,760
0

45,610
0

335,210
0

56,230

59,750

63,340

67,230

71,710

75,950

80,170

84,600

89,100

93,590

97,830

783,270

980

970

960

950

940

940

930

920

910

900

890

9,310

Deductibility of:
Property taxes on owner-occupied homes ������������������������
Nonbusiness State and local taxes other than on owneroccupied homes �����������������������������������������������������������

34,470

36,540

38,940

41,590

44,410

47,170

49,930

52,770

55,670

58,560

61,280

486,860

56,230

59,750

63,340

67,230

71,710

75,950

80,170

84,600

89,100

93,590

97,830

783,270

Exclusion of interest on State and local bonds for:
Public purposes ������������������������������������������������������������������
Energy facilities ������������������������������������������������������������������
Water, sewage, and hazardous waste disposal facilities ���
Small-issues �����������������������������������������������������������������������
Owner-occupied mortgage subsidies ���������������������������������
Rental housing �������������������������������������������������������������������
Airports, docks, and similar facilities ����������������������������������
Student loans ���������������������������������������������������������������������
Private nonprofit educational facilities �������������������������������
Hospital construction ����������������������������������������������������������
Veterans’ housing ��������������������������������������������������������������
See Table 1 footnotes for specific table information

20,490
10
300
110
850
730
480
310
1,600
2,470
10

21,420
10
320
110
890
770
510
320
1,670
2,580
10

23,050
10
340
120
960
830
540
350
1,800
2,770
10

25,350
10
380
130
1,060
910
600
380
1,980
3,050
10

28,420
20
420
150
1,180
1,020
670
430
2,220
3,420
10

32,030
20
470
170
1,340
1,150
760
480
2,500
3,860
10

35,470
20
530
190
1,480
1,270
840
540
2,770
4,270
10

38,660
20
570
210
1,610
1,390
910
590
3,020
4,650
10

41,440
20
610
220
1,730
1,490
980
630
3,240
4,990
20

43,760
30
650
230
1,820
1,570
1,030
660
3,420
5,270
20

45,610
30
680
240
1,900
1,640
1,080
690
3,560
5,490
20

335,210
190
4,970
1,770
13,970
12,040
7,920
5,070
26,180
40,350
130

Interest:
167 Deferral of interest on U.S. savings bonds �����������������������������
Addendum: Aid to State and local governments:

145

13. Tax Expenditures

Table 13-3. INCOME TAX EXPENDITURES RANKED BY TOTAL FISCAL YEAR 2017-2026 PROJECTED REVENUE EFFECT
(In millions of dollars)

Provision
125
5
62
70
144
58
166
143
120
72
61
59
147
158
164
69
51
137
145
77
6
81
128
127
98
8
1
7
139
75
126
64
160
63
2
107
132
73
4
78
65
133
117
130
118
129
106
154
97
14
85
50
103
148
101
157
79
16
152

Exclusion of employer contributions for medical insurance premiums and medical care 10 ���������������������������������������������������������������������������������������
Deferral of income from controlled foreign corporations (normal tax method) ������������������������������������������������������������������������������������������������������������
Exclusion of net imputed rental income ������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Capital gains (except agriculture, timber, iron ore, and coal) ���������������������������������������������������������������������������������������������������������������������������������������
Defined contribution employer plans ����������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Deductibility of mortgage interest on owner-occupied homes �������������������������������������������������������������������������������������������������������������������������������������
Deductibility of nonbusiness State and local taxes other than on owner-occupied homes �����������������������������������������������������������������������������������������
Defined benefit employer plans ������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Deductibility of charitable contributions, other than education and health ��������������������������������������������������������������������������������������������������������������������
Step-up basis of capital gains at death ������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Capital gains exclusion on home sales ������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Deductibility of State and local property tax on owner-occupied homes ���������������������������������������������������������������������������������������������������������������������
Self-Employed plans ����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Social Security benefits for retired and disabled workers and spouses, dependents and survivors ����������������������������������������������������������������������������
Exclusion of interest on public purpose State and local bonds ������������������������������������������������������������������������������������������������������������������������������������
Treatment of qualified dividends �����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Exclusion and deferral of policyholder income earned on life insurance and annuity contracts ����������������������������������������������������������������������������������
Child credit 14 ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Individual Retirement Accounts �����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Accelerated depreciation of machinery and equipment (normal tax method) �������������������������������������������������������������������������������������������������������������
Deferred taxes for financial firms on certain income earned overseas �������������������������������������������������������������������������������������������������������������������������
Deduction for US production activities ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Deductibility of medical expenses �������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Medical Savings Accounts / Health Savings Accounts �������������������������������������������������������������������������������������������������������������������������������������������������
Tax credits and deductions for postsecondary education expenses 7 �������������������������������������������������������������������������������������������������������������������������
Credit for increasing research activities �����������������������������������������������������������������������������������������������������������������������������������������������������������������������
Exclusion of benefits and allowances to armed forces personnel �������������������������������������������������������������������������������������������������������������������������������
Expensing of research and experimentation expenditures (normal tax method) ��������������������������������������������������������������������������������������������������������
Exclusion of workers’ compensation benefits ���������������������������������������������������������������������������������������������������������������������������������������������������������������
Deferral of gains from like-kind exchanges �������������������������������������������������������������������������������������������������������������������������������������������������������������������
Self-employed medical insurance premiums ����������������������������������������������������������������������������������������������������������������������������������������������������������������
Credit for low-income housing investments ������������������������������������������������������������������������������������������������������������������������������������������������������������������
Exclusion of veterans death benefits and disability compensation ������������������������������������������������������������������������������������������������������������������������������
Exception from passive loss rules for $25,000 of rental loss ���������������������������������������������������������������������������������������������������������������������������������������
Exclusion of income earned abroad by U.S. citizens ���������������������������������������������������������������������������������������������������������������������������������������������������
Deductibility of charitable contributions (education) �����������������������������������������������������������������������������������������������������������������������������������������������������
Deductibility of charitable contributions (health) �����������������������������������������������������������������������������������������������������������������������������������������������������������
Carryover basis of capital gains on gifts ����������������������������������������������������������������������������������������������������������������������������������������������������������������������
Inventory property sales source rules exception ����������������������������������������������������������������������������������������������������������������������������������������������������������
Expensing of certain small investments (normal tax method) �������������������������������������������������������������������������������������������������������������������������������������
Accelerated depreciation on rental housing (normal tax method) �������������������������������������������������������������������������������������������������������������������������������
Tax credit for orphan drug research ����������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Exclusion of employee meals and lodging (other than military) ����������������������������������������������������������������������������������������������������������������������������������
Refundable Premium Assistance Tax Credit 11 ������������������������������������������������������������������������������������������������������������������������������������������������������������
Credit for child and dependent care expenses ������������������������������������������������������������������������������������������������������������������������������������������������������������
Exclusion of interest on hospital construction bonds ����������������������������������������������������������������������������������������������������������������������������������������������������
Parental personal exemption for students age 19 or over �������������������������������������������������������������������������������������������������������������������������������������������
Additional deduction for the elderly �����������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Exclusion of scholarship and fellowship income (normal tax method) ������������������������������������������������������������������������������������������������������������������������
Energy production credit 1 �������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Exclusion of reimbursed employee parking expenses �������������������������������������������������������������������������������������������������������������������������������������������������
Exemption of credit union income �������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Exclusion of interest on bonds for private nonprofit educational facilities ��������������������������������������������������������������������������������������������������������������������
Premiums on group term life insurance �����������������������������������������������������������������������������������������������������������������������������������������������������������������������
Qualified tuition programs ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Earned income tax credit 15 ����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Graduated corporation income tax rate (normal tax method) ��������������������������������������������������������������������������������������������������������������������������������������
Energy investment credit 1 �������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Special ESOP rules ������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������

2017

2018

222,030
107,200
109,620
110,270
64,610
64,110
59,750
70,690
47,450
51,990
46,130
36,540
30,820
38,440
30,500
28,810
17,920
24,460
17,900
47,080
16,080
16,420
8,680
6,850
15,620
11,150
12,650
7,110
10,100
7,690
7,590
8,740
7,290
7,480
6,600
5,480
5,360
7,520
4,630
3,580
2,200
2,060
4,650
2,410
4,600
3,670
4,210
3,110
3,410
1,770
3,060
2,710
2,380
2,580
1,920
1,760
3,000
2,440
2,090

235,830
112,560
112,670
108,560
69,420
68,090
63,340
70,980
51,180
54,070
48,470
38,940
33,780
40,580
31,910
29,850
24,360
24,710
19,170
50,320
16,880
17,160
9,920
8,160
15,450
11,850
11,460
7,660
10,170
8,080
7,960
8,850
7,720
7,800
6,930
5,890
5,780
7,180
5,020
3,660
2,920
2,480
4,770
3,170
4,710
3,840
4,310
3,350
3,500
2,320
3,170
3,080
2,490
2,680
2,110
1,820
2,650
3,450
2,150

20172026
2,934,710
1,348,390
1,222,550
1,144,190
958,460
895,920
783,270
655,200
633,120
624,190
581,900
486,860
471,370
471,130
422,780
343,920
333,710
236,580
235,860
224,970
202,270
199,710
182,160
169,810
156,390
148,310
129,690
106,130
104,260
96,860
96,480
94,630
86,500
85,230
83,010
72,760
71,550
71,400
68,500
63,800
56,690
53,570
52,360
52,000
51,350
50,890
47,390
42,450
39,230
37,580
35,830
35,310
33,010
30,460
28,540
25,510
24,640
24,300
24,030

146

ANALYTICAL PERSPECTIVES

Table 13-3. INCOME TAX EXPENDITURES RANKED BY TOTAL FISCAL YEAR 2017-2026 PROJECTED REVENUE EFFECT—Continued
(In millions of dollars)

Provision
100
162
56
60
3
46
57
151
86
113
146
71
122
159
108
90
167
53
10
30
93
115
140
111
112
102
37
161
121
55
20
136
134
44
40
156
36
39
19
33
116
149
94
142
43
34
138
109
80
47
95
91
88
12
38
104
110
66
131

Deductibility of student-loan interest �����������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Exclusion of GI bill benefits �����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Exclusion of interest on owner-occupied mortgage subsidy bonds �����������������������������������������������������������������������������������������������������������������������������
Deferral of income from installment sales �������������������������������������������������������������������������������������������������������������������������������������������������������������������
Exclusion of certain allowances for Federal employees abroad �����������������������������������������������������������������������������������������������������������������������������������
Capital gains treatment of certain income �������������������������������������������������������������������������������������������������������������������������������������������������������������������
Exclusion of interest on rental housing bonds ��������������������������������������������������������������������������������������������������������������������������������������������������������������
Income of trusts to finance voluntary employee benefits associations ������������������������������������������������������������������������������������������������������������������������
Exclusion for employer-provided transit passes ����������������������������������������������������������������������������������������������������������������������������������������������������������
Employer provided child care exclusion �����������������������������������������������������������������������������������������������������������������������������������������������������������������������
Low and moderate income savers credit ����������������������������������������������������������������������������������������������������������������������������������������������������������������������
Capital gains exclusion of small corporation stock �������������������������������������������������������������������������������������������������������������������������������������������������������
Exclusion of parsonage allowances ����������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Credit for certain employer contributions to social security ������������������������������������������������������������������������������������������������������������������������������������������
Exclusion of employer-provided educational assistance ���������������������������������������������������������������������������������������������������������������������������������������������
Exclusion of interest for airport, dock, and similar bonds ���������������������������������������������������������������������������������������������������������������������������������������������
Deferral of interest on U.S. savings bonds �������������������������������������������������������������������������������������������������������������������������������������������������������������������
Tax exemption of insurance income earned by tax-exempt organizations �������������������������������������������������������������������������������������������������������������������
Excess of percentage over cost depletion, fuels ���������������������������������������������������������������������������������������������������������������������������������������������������������
Credit for residential energy efficient property �������������������������������������������������������������������������������������������������������������������������������������������������������������
New markets tax credit �������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Assistance for adopted foster children ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Exclusion of public assistance benefits (normal tax method) ��������������������������������������������������������������������������������������������������������������������������������������
Qualified school construction bonds 9 ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Work opportunity tax credit �������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Exclusion of interest on student-loan bonds ����������������������������������������������������������������������������������������������������������������������������������������������������������������
Exclusion of interest on bonds for water, sewage, and hazardous waste facilities �������������������������������������������������������������������������������������������������������
Exclusion of veterans pensions �����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Exclusion of certain foster care payments �������������������������������������������������������������������������������������������������������������������������������������������������������������������
Exclusion of interest spread of financial institutions �����������������������������������������������������������������������������������������������������������������������������������������������������
Exclusion of utility conservation subsidies ��������������������������������������������������������������������������������������������������������������������������������������������������������������������
Distributions from retirement plans for premiums for health and long-term care insurance �����������������������������������������������������������������������������������������
Special Blue Cross/Blue Shield tax benefits ����������������������������������������������������������������������������������������������������������������������������������������������������������������
Expensing of certain multiperiod production costs ������������������������������������������������������������������������������������������������������������������������������������������������������
Tax incentives for preservation of historic structures ���������������������������������������������������������������������������������������������������������������������������������������������������
Deductibility of casualty losses ������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Excess of percentage over cost depletion, nonfuel minerals ��������������������������������������������������������������������������������������������������������������������������������������
Expensing of multiperiod timber growing costs �����������������������������������������������������������������������������������������������������������������������������������������������������������
Tax credits for clean-fuel burning vehicles and refueling property ��������������������������������������������������������������������������������������������������������������������������������
Advanced nuclear power production credit �������������������������������������������������������������������������������������������������������������������������������������������������������������������
Adoption credit and exclusion ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Premiums on accident and disability insurance �����������������������������������������������������������������������������������������������������������������������������������������������������������
Credit to holders of Gulf Tax Credit Bonds. �������������������������������������������������������������������������������������������������������������������������������������������������������������������
Exclusion of military disability pensions ����������������������������������������������������������������������������������������������������������������������������������������������������������������������
Expensing of certain capital outlays ����������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Reduced tax rate for nuclear decommissioning funds ��������������������������������������������������������������������������������������������������������������������������������������������������
Exclusion of railroad retirement (Social Security equivalent) benefits �������������������������������������������������������������������������������������������������������������������������
Special deduction for teacher expenses �����������������������������������������������������������������������������������������������������������������������������������������������������������������������
Exclusion of interest on small issue bonds ������������������������������������������������������������������������������������������������������������������������������������������������������������������
Income averaging for farmers ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Recovery Zone Bonds 6 �����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Exemption of certain mutuals’ and cooperatives’ income ��������������������������������������������������������������������������������������������������������������������������������������������
Exclusion of interest on bonds for Highway Projects and rail-truck transfer facilities ���������������������������������������������������������������������������������������������������
Capital gains treatment of royalties on coal �����������������������������������������������������������������������������������������������������������������������������������������������������������������
Capital gains treatment of certain timber income ��������������������������������������������������������������������������������������������������������������������������������������������������������
Credit for holders of zone academy bonds 8 ����������������������������������������������������������������������������������������������������������������������������������������������������������������
Discharge of student loan indebtedness ����������������������������������������������������������������������������������������������������������������������������������������������������������������������
Discharge of mortgage indebtedness ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������
Credit for employee health insurance expenses of small business 12 ��������������������������������������������������������������������������������������������������������������������������

2017
1,970
1,690
1,270
1,630
1,370
1,480
1,100
1,170
1,080
1,000
1,240
700
990
1,030
900
720
970
720
400
1,460
1,300
580
590
650
1,310
460
450
470
480
500
450
460
610
390
470
390
420
340
550
0
310
320
240
240
230
190
310
210
160
150
130
150
200
150
150
170
100
1,090
160

2018
2,010
1,790
1,330
1,620
1,430
1,450
1,150
1,220
1,140
1,060
1,260
850
1,040
1,080
950
750
960
740
510
1,500
1,200
610
600
650
1,350
480
470
500
500
510
470
480
610
410
470
400
430
360
660
0
320
330
250
250
240
220
310
210
170
160
140
150
190
150
150
180
100
0
170

20172026
21,810
21,080
17,610
17,290
17,170
15,320
15,180
14,490
13,970
13,330
13,150
13,040
12,570
12,540
11,270
9,990
9,310
8,590
8,190
8,060
7,600
7,460
6,660
6,500
6,470
6,400
6,260
5,750
5,670
5,660
5,580
5,510
5,500
5,140
5,100
4,410
4,250
4,050
3,980
3,910
3,530
3,380
3,350
2,950
2,910
2,690
2,580
2,410
2,240
1,890
1,840
1,600
1,590
1,530
1,530
1,190
1,100
1,090
1,040

147

13. Tax Expenditures

Table 13-3. INCOME TAX EXPENDITURES RANKED BY TOTAL FISCAL YEAR 2017-2026 PROJECTED REVENUE EFFECT—Continued
(In millions of dollars)

Provision
23 Credit for investment in clean coal facilities ������������������������������������������������������������������������������������������������������������������������������������������������������������������
83 Tonnage tax ������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
9
Expensing of exploration and development costs, fuels ����������������������������������������������������������������������������������������������������������������������������������������������
49 Expensing of reforestation expenditures ����������������������������������������������������������������������������������������������������������������������������������������������������������������������
21 Credit for holding clean renewable energy bonds 4 �����������������������������������������������������������������������������������������������������������������������������������������������������
68 Exceptions from imputed interest rules �����������������������������������������������������������������������������������������������������������������������������������������������������������������������
26 Amortize all geological and geophysical expenditures over 2 years ����������������������������������������������������������������������������������������������������������������������������
52 Exclusion or special alternative tax for small property and casualty insurance companies ����������������������������������������������������������������������������������������
45 Treatment of loans forgiven for solvent farmers ������������������������������������������������������������������������������������������������������������������������������������������������������������
96 Tribal Economic Development Bonds ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������
153 Additional deduction for the blind ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
74 Ordinary income treatment of loss from small business corporation stock sale ����������������������������������������������������������������������������������������������������������
35 Expensing of exploration and development costs, nonfuel minerals ���������������������������������������������������������������������������������������������������������������������������
42 Deduction for endangered species recovery expenditures �������������������������������������������������������������������������������������������������������������������������������������������
54 Small life insurance company deduction ���������������������������������������������������������������������������������������������������������������������������������������������������������������������
99 Education Individual Retirement Accounts �������������������������������������������������������������������������������������������������������������������������������������������������������������������
150 Income of trusts to finance supplementary unemployment benefits ���������������������������������������������������������������������������������������������������������������������������
41 Industrial CO2 capture and sequestration tax credit ����������������������������������������������������������������������������������������������������������������������������������������������������
82 Special rules for certain film and TV production �����������������������������������������������������������������������������������������������������������������������������������������������������������
105 Exclusion of interest on savings bonds redeemed to finance educational expenses ���������������������������������������������������������������������������������������������������
11 Exception from passive loss limitation for working interests in oil and gas properties ������������������������������������������������������������������������������������������������
31 Qualified energy conservation bonds 5 ������������������������������������������������������������������������������������������������������������������������������������������������������������������������
29 Credit for energy efficiency improvements to existing homes ��������������������������������������������������������������������������������������������������������������������������������������
28 Credit for construction of new energy efficient homes ��������������������������������������������������������������������������������������������������������������������������������������������������
13 Exclusion of interest on energy facility bonds ��������������������������������������������������������������������������������������������������������������������������������������������������������������
48 Deferral of gain on sale of farm refiners �����������������������������������������������������������������������������������������������������������������������������������������������������������������������
92 Empowerment zones ����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
67 Discharge of business indebtedness ����������������������������������������������������������������������������������������������������������������������������������������������������������������������������
84 Deferral of tax on shipping companies �������������������������������������������������������������������������������������������������������������������������������������������������������������������������
89 Investment credit for rehabilitation of structures (other than historic) ��������������������������������������������������������������������������������������������������������������������������
25 Natural gas distribution pipelines treated as 15-year property �������������������������������������������������������������������������������������������������������������������������������������
15 Marginal wells credit �����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
123 Indian employment credit ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
141 Exclusion of special benefits for disabled coal miners �������������������������������������������������������������������������������������������������������������������������������������������������
124 Credit for employer differential wage payments ������������������������������������������������������������������������������������������������������������������������������������������������������������
163 Exclusion of interest on veterans housing bonds ���������������������������������������������������������������������������������������������������������������������������������������������������������
114 Employer-provided child care credit �����������������������������������������������������������������������������������������������������������������������������������������������������������������������������
119 Credit for disabled access expenditures ����������������������������������������������������������������������������������������������������������������������������������������������������������������������
87 Tax credit for certain expenditures for maintaining railroad tracks ��������������������������������������������������������������������������������������������������������������������������������
135 Tax credit for health insurance purchased by certain displaced and retired individuals 13 �����������������������������������������������������������������������������������������
155 Tax credit for the elderly and disabled �������������������������������������������������������������������������������������������������������������������������������������������������������������������������
18 Bio-Diesel and small agri-biodiesel producer tax credits 3 �����������������������������������������������������������������������������������������������������������������������������������������
17 Alcohol fuel credits 2 ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
165 Build America Bonds 16 �����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
32 Advanced Energy Property Credit ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������
27 Allowance of deduction for certain energy efficient commercial building property �������������������������������������������������������������������������������������������������������
22 Deferral of gain from dispositions of transmission property to implement FERC restructuring policy ��������������������������������������������������������������������������
24 Temporary 50% expensing for equipment used in the refining of liquid fuels ���������������������������������������������������������������������������������������������������������������
76 Depreciation of buildings other than rental housing (normal tax method) �������������������������������������������������������������������������������������������������������������������
See Table 1 footnotes for specific table information

2017
400
80
–650
60
70
50
60
50
50
40
40
50
40
30
40
40
20
150
200
30
40
30
290
170
20
20
110
–50
20
20
140
70
40
20
0
10
10
10
60
30
10
20
10
0
–30
10
–190
–1,380
–9,000

2018

20172026

440
1,020
80
970
–290
840
60
750
70
700
60
700
60
630
50
630
50
560
40
550
40
540
50
500
40
480
30
470
40
450
40
440
30
420
180
410
110
400
30
380
40
330
30
300
0
290
70
280
20
250
20
250
50
250
10
220
20
200
20
200
150
190
70
170
20
170
20
140
0
130
10
130
10
100
10
100
0
60
20
60
10
60
0
20
0
10
0
0
–30
–100
–30
–260
–270
–1,220
–1,140
–5,340
–9,390 –117,210

148

ANALYTICAL PERSPECTIVES

4. Inventory property sales source rules exception.—The United States generally taxes the worldwide
income of U.S. persons and business entities. Under the
baseline tax system, taxpayers receive a credit for foreign
taxes paid which is limited to the pre-credit U.S. tax on
the foreign source income. In contrast, the sales source
rules for inventory property under current law allow U.S.
exporters to use more foreign tax credits by allowing the
exporters to attribute a larger portion of their earnings to
foreign sources than would be the case if the allocation of
earnings was based on actual economic activity.
5. Deferral of income from controlled foreign
corporations (normal tax method).—Under the baseline tax system, the United States generally taxes the
worldwide income of U.S. persons and business entities.
In contrast, certain active income of foreign corporations
controlled by U.S. shareholders is not subject to U.S. taxation when it is earned. The income becomes taxable only
when the controlling U.S. shareholders receive dividends
or other distributions from their foreign stockholding.
The reference law tax baseline reflects this tax treatment
where only realized income is taxed. Under the normal
tax method, however, the currently attributable foreign
source pre-tax income from such a controlling interest is
considered to be subject to U.S. taxation, whether or not
distributed. Thus, the normal tax method considers the
amount of controlled foreign corporation income not yet
distributed to a U.S. shareholder as tax-deferred income.
6. Deferred taxes for financial firms on certain
income earned overseas.—The United States generally
taxes the worldwide income of U.S. persons and business
entities. The baseline tax system would not allow the
deferral of tax or other relief targeted at particular industries or activities. In contrast, the Tax Code allows
financial firms to defer taxes on income earned overseas
in an active business.
General Science, Space, and Technology
7. Expensing of research and experimentation
expenditures (normal tax method).—The baseline tax
system allows a deduction for the cost of producing income.
It requires taxpayers to capitalize the costs associated
with investments over time to better match the streams
of income and associated costs. Research and experimentation (R&E) projects can be viewed as investments
because, if successful, their benefits accrue for several
years. It is often difficult, however, to identify whether a
specific R&E project is successful and, if successful, what
its expected life will be. Because of this ambiguity, the
reference law baseline tax system would allow expensing
of R&E expenditures. In contrast, under the normal tax
method, the expensing of R&E expenditures is viewed as
a tax expenditure. The baseline assumed for the normal
tax method is that all R&E expenditures are successful
and have an expected life of five years.
8. Credit for increasing research activities.—
The baseline tax system would uniformly tax all returns
to investments and not allow credits for particular activities, investments, or industries. In contrast, the Tax Code

allows an R&E credit of up to 20 percent of qualified research expenditures in excess of a base amount. The base
amount of the credit is generally determined by multiplying a “fixed-base percentage” by the average amount of
the company’s gross receipts for the prior four years. The
taxpayer’s fixed base percentage generally is the ratio of
its research expenses to gross receipts for 1984 through
1988. Taxpayers can elect the alternative simplified credit regime, which equals 14 percent of qualified research
expenses that exceed 50 percent of the average qualified
research expenses for the three preceding taxable years.
Energy
9. Expensing of exploration and development
costs.—Under the baseline tax system, the costs of exploring and developing oil and gas wells would be capitalized
and then amortized (or depreciated) over an estimate of
the economic life of the well. This insures that the net income from the well is measured appropriately each year.
In contrast to this treatment, current law allows intangible drilling costs for successful investments in domestic
oil and gas wells (such as wages, the cost of using machinery for grading and drilling, and the cost of unsalvageable
materials used in constructing wells) to be deducted immediately, i.e., expensed. Because it allows recovery of
costs sooner, expensing is more generous for the taxpayer
than amortization. Integrated oil companies may deduct
only 70 percent of such costs and must amortize the remaining 30 percent over five years. Non-integrated oil
companies may expense all such costs. The same rule applies to the exploration and development costs of surface
stripping and the construction of shafts and tunnels for
other fuel minerals.
10. Excess of percentage over cost depletion.—
The baseline tax system would allow recovery of the costs
of developing certain oil and mineral properties using cost
depletion. Cost depletion is similar in concept to depreciation, in that the costs of developing or acquiring the
asset are capitalized and then gradually reduced over an
estimate of the asset’s economic life, as is appropriate for
measuring net income.
In contrast, the Tax Code generally allows independent
fuel and mineral producers and royalty owners to take
percentage depletion deductions rather than cost depletion on limited quantities of output. Under percentage
depletion, taxpayers deduct a percentage of gross income
from fossil fuel production. In certain cases the deduction
is limited to a fraction of the asset’s net income. Over the
life of an investment, percentage depletion deductions can
exceed the cost of the investment. Consequently, percentage depletion offers more generous tax treatment than
would cost depletion, which would limit deductions to an
investment’s cost.
11. Exception from passive loss limitation for
working interests in oil and gas properties.—The
baseline tax system accepts current law’s general rule
limiting taxpayers’ ability to deduct losses from passive
activities against nonpassive income (e.g., wages, interest,
and dividends). Passive activities generally are defined as

149

13. Tax Expenditures

Table 13–4. PRESENT VALUE OF SELECTED TAX EXPENDITURES
FOR ACTIVITY IN CALENDAR YEAR 2016
(In millions of dollars)
2016
Present
Value of
Revenue
Loss

Provision
5
7
21
9
35
39
44
43
49
51
65
76
77
78
104
64
101
143
144
145
145
145
147
164

Deferral of income from controlled foreign corporations (normal tax method) ��������������������������������������������
Expensing of research and experimentation expenditures (normal tax method) ����������������������������������������
Credit for holding clean renewable energy bonds ���������������������������������������������������������������������������������������
Expensing of exploration and development costs - fuels �����������������������������������������������������������������������������
Expensing of exploration and development costs - nonfuels �����������������������������������������������������������������������
Expensing of multiperiod timber growing costs �������������������������������������������������������������������������������������������
Expensing of certain multiperiod production costs - agriculture ������������������������������������������������������������������
Expensing of certain capital outlays - agriculture ����������������������������������������������������������������������������������������
Expensing of reforestation expenditures �����������������������������������������������������������������������������������������������������
Exclusion and deferral of policyholder income earned on life insurance and annuity contracts 1 ���������������
Accelerated depreciation on rental housing ������������������������������������������������������������������������������������������������
Depreciation of buildings other than rental ������������������������������������������������������������������������������������������������
Accelerated depreciation of machinery and equipment ������������������������������������������������������������������������������
Expensing of certain small investments (normal tax method) ���������������������������������������������������������������������
Credit for holders of zone academy bonds ��������������������������������������������������������������������������������������������������
Credit for low-income housing investments �������������������������������������������������������������������������������������������������
Qualified tuition programs ����������������������������������������������������������������������������������������������������������������������������
Defined benefit employer plans �������������������������������������������������������������������������������������������������������������������
Defined contribution employer plans �����������������������������������������������������������������������������������������������������������
Exclusion of IRA contributions and earnings �����������������������������������������������������������������������������������������������
Exclusion of Roth earnings and distributions ����������������������������������������������������������������������������������������������
Exclusion of non-deductible IRA earnings ���������������������������������������������������������������������������������������������������
Exclusion of contributions and earnings for Self-Employed plans ���������������������������������������������������������������
Exclusion of interest on public-purpose bonds ��������������������������������������������������������������������������������������������
Exclusion of interest on non-public purpose bonds �������������������������������������������������������������������������������������
170 Deferral of interest on U.S. savings bonds ���������������������������������������������������������������������������������������������������
1 Estimate is for annuities only. Life insurance earnings are mostly excluded from taxable income.

those in which the taxpayer does not materially participate, and there are numerous additional considerations
brought to bear on the determination of which activities
are passive for a given taxpayer. Losses are limited in an
attempt to limit tax sheltering activities. Passive losses
that are unused may be carried forward and applied
against future passive income.
An exception from the passive loss limitation is provided for a working interest in an oil or gas property that the
taxpayer holds directly or through an entity that does not
limit the liability of the taxpayer with respect to the interest. Thus, taxpayers can deduct losses from such working
interests against nonpassive income without regard to
whether they materially participate in the activity.
12. Capital gains treatment of royalties on
coal.—The baseline tax system generally would tax all
income under the regular tax rate schedule. It would not
allow preferentially low tax rates to apply to certain types
or sources of income. For individuals, tax rates on regular income vary from 10 percent to 39.6 percent (plus a
3.8-percent surtax on high income taxpayers), depending
on the taxpayer’s income. In contrast, current law allows
capital gains realized by individuals to be taxed at a preferentially low rate that is no higher than 20 percent (plus

60,600
3,090
0
150
10
120
–140
–100
30
12,720
17,470
–3,430
20,250
940
160
6,190
3,790
30,510
72,100
1,390
4,540
450
5,120
14,900
3,880
260

the 3.8-percent surtax). Certain sales of coal under royalty contracts qualify for taxation as capital gains rather
than ordinary income, and so benefit from the preferentially low 20 percent maximum tax rate on capital gains.
13. Exclusion of interest on energy facility
bonds.—The baseline tax system generally would tax all
income under the regular tax rate schedule. It would not
allow preferentially low (or zero) tax rates to apply to certain types or sources of income. In contrast, the Tax Code
allows interest earned on State and local bonds used to
finance construction of certain energy facilities to be exempt from tax. These bonds are generally subject to the
State private-activity-bond annual volume cap.
14. Energy production credit.—The baseline tax
system would not allow credits for particular activities,
investments, or industries. Instead, it generally would
seek to tax uniformly all returns from investment-like
activities. In contrast, the Tax Code provides a credit for
certain electricity produced from wind energy, biomass,
geothermal energy, solar energy, small irrigation power,
municipal solid waste, or qualified hydropower and sold
to an unrelated party. Wind facilities must have begun
construction before January 1, 2020. Facilities that begin construction in 2017 receive 80 percent of the credit,

150
facilities that begin construction in 2018 receive 60 percent of the credit, and facilities that begin construction in
2019 receive 40 percent of the credit. Qualified facilities
producing electricity from sources other than wind must
begin construction before January 1, 2017. In addition
to the electricity production credit, an income tax credit
is allowed for the production of refined coal for facilities
placed in service before January 1, 2012. The Tax Code
also provided an income tax credit for Indian coal facilities. . The Indian coal facilities credit expires on December
31, 2016.
15. Marginal wells credit.—A credit is provided for
crude oil and natural gas produced from a qualified marginal well. A marginal well is one that does not produce
more than 1,095 barrel-of-oil equivalents per year, with
this limit adjusted proportionately for the number of days
the well is in production. The credit is no more than $3.00
per barrel of qualified crude oil production and $0.50 per
thousand cubic feet of qualified natural gas production.
The credit for natural gas is reduced in proportion to the
amount by which the reference price of natural gas at the
wellhead exceeds $1.67 per thousand cubic feet and is
zero for a reference price that exceeds $2.00. The credit
for crude oil is reduced in proportion to the amount by
which the reference price of oil exceeds $15.00 per barrel
and is zero for a reference price that exceeds $18.00. All
dollar amounts are adjusted for inflation from 2004.
16. Energy investment credit.—The baseline tax
system would not allow credits for particular activities,
investments, or industries. Instead, it generally would
seek to tax uniformly all returns from investment-like
activities. However, the Tax Code provides credits for
investments in solar and geothermal energy property,
qualified fuel cell power plants, stationary microturbine
power plants, geothermal heat pumps, small wind property and combined heat and power property. A temporary
credit of up to 30 percent is available for certain qualified property placed in service before January 1, 2017. For
solar energy, a temporary credit is available for property
for which construction begins before January 1, 2022, and
which is placed in service before January 1, 2024. The
credit is 30 percent for property that begins construction
before 2020, 26 percent for property that begins construction in 2020, and 22 percent for property that begins
construction in 2021. A permanent 10 percent credit is
available for geothermal property placed in service after December 31, 2017 and for qualified solar property
for which construction begins after December 31, 2021
or that is placed in service after December 31, 2023. .
Owners of renewable power facilities that qualify for the
energy production credit may instead elect to take an energy investment credit at a rate specified by law.
17. Alcohol fuel credits.—The baseline tax system
would not allow credits for particular activities, investments, or industries. Instead, it generally would seek to
tax uniformly all returns from investment-like activities.
In contrast, the Tax Code provided an income tax credit
for qualified cellulosic biofuel production which was renamed the Second generation biofuel producer credit.
This provision expires on December 31, 2016.

ANALYTICAL PERSPECTIVES

18. Bio-diesel and small agri-biodiesel producer
tax credits.—The baseline tax system would not allow
credits for particular activities, investments, or industries. Instead, it generally would seek to tax uniformly all
returns from investment-like activities. However, the Tax
Code allowed an income tax credit for Bio-diesel and for
Bio-diesel derived from virgin sources. In lieu of the Biodiesel credit, the taxpayer could claim a refundable excise
tax credit. In addition, small agri-biodiesel producers
were eligible for a separate income tax credit for biodiesel
production and a separate credit was available for qualified renewable diesel fuel mixtures. This provision expires
on December 31, 2016.
19. Tax credits for clean-fuel burning vehicles
and refueling property.—The baseline tax system
would not allow credits for particular activities, investments, or industries. Instead, it generally would seek to
tax uniformly all returns from investment-like activities. In contrast, the Tax Code allows credits for plug-in
electric-drive motor vehicles, alternative fuel vehicle refueling property, two-wheeled plug-in electric vehicles, and
fuel cell motor vehicles. These provisions, except for the
plug-in electric-drive motor vehicle credit, expire after
December 31, 2016.
20. Exclusion of utility conservation subsidies.—
The baseline tax system generally takes a comprehensive
view of taxable income that includes a wide variety of
(measurable) accretions to wealth. In certain circumstances, public utilities offer rate subsidies to non-business
customers who invest in energy conservation measures.
These rate subsidies are equivalent to payments from
the utility to its customer, and so represent accretions
to wealth, income that would be taxable to the customer
under the baseline tax system. In contrast, the Tax Code
exempts these subsidies from the non-business customer’s gross income.
21. Credit for holding clean renewable energy
bonds.—The baseline tax system would uniformly tax all
returns to investments and not allow credits for particular activities, investments, or industries. In contrast, the
Tax Code provides for the issuance of Clean Renewable
Energy Bonds which entitles the bond holder to a Federal
income tax credit in lieu of interest. As of March 2010, issuers of the unused authorization of such bonds could opt
to receive direct payment with the yield becoming fully
taxable.
22. Deferral of gain from dispositions of transmission property to implement FERC restructuring
policy.—The baseline tax system generally would tax
gains from sale of property when realized. It would not
allow an exception for particular activities or individuals. However, the Tax Code allowed electric utilities to
defer gains from the sale of their transmission assets to a
FERC-approved independent transmission company. The
sale of property must have been made prior to January 1,
2017.
23. Credit for investment in clean coal facilities.—The baseline tax system would uniformly tax all
returns to investments and not allow credits for particular activities, investments, or industries. In contrast, the

151

13. Tax Expenditures

Tax Code provides investment tax credits for clean coal
facilities producing electricity and for industrial gasification combined cycle projects.
24. Temporary 50 percent expensing for equipment used in the refining of liquid fuels.—The
baseline tax system allows the taxpayer to deduct the
decline in the economic value of an investment over its
economic life. However, the Tax Code provided for an accelerated recovery of the cost of certain investments in
refineries by allowing partial expensing of the cost, thereby giving such investments a tax advantage. Qualified
refinery property must have been placed in service before
January 1, 2014.
25. Natural gas distribution pipelines treated
as 15-year property.—The baseline tax system allows
taxpayers to deduct the decline in the economic value of
an investment over its economic life. However, the Tax
Code allows depreciation of natural gas distribution pipelines (placed in service between 2005 and 2011) over a 15
year period. These deductions are accelerated relative to
deductions based on economic depreciation.
26. Amortize all geological and geophysical expenditures over two years.—The baseline tax system
allows taxpayers to deduct the decline in the economic
value of an investment over its economic life. However,
the Tax Code allows geological and geophysical expenditures incurred in connection with oil and gas exploration
in the United States to be amortized over two years for
non-integrated oil companies, a span of time that is generally shorter than the economic life of the assets.
27. Allowance of deduction for certain energy efficient commercial building property.—The baseline
tax system would not allow deductions in lieu of normal
depreciation allowances for particular investments in
particular industries. Instead, it generally would seek to
tax uniformly all returns from investment-like activities.
In contrast, the Tax Code allows a deduction for certain
energy efficient commercial building property. The basis
of such property is reduced by the amount of the deduction. This provision expires on December 31, 2016.
28. Credit for construction of new energy efficient homes.—The baseline tax system would not allow
credits for particular activities, investments, or industries. Instead, it generally would seek to tax uniformly
all returns from investment-like activities. However,
the Tax Code allowed contractors a tax credit of $2,000
for the construction of a qualified new energy-efficient
home that had an annual level of heating and cooling
energy consumption at least 50 percent below the annual consumption under the 2006 International Energy
Conservation Code. The credit equaled $1,000 in the case
of a new manufactured home that met a 30 percent standard or requirements for EPA’s Energy Star homes. This
provision expires on December 31, 2016.
29. Credit for energy efficiency improvements
to existing homes.—The baseline tax system would not
allow credits for particular activities, investments, or industries. However, the Tax Code provided an investment
tax credit for expenditures made on insulation, exterior
windows, and doors that improved the energy efficiency

of homes and met certain standards. The Tax Code also
provided a credit for purchases of advanced main air circulating fans, natural gas, propane, or oil furnaces or hot
water boilers, and other qualified energy efficient property. This provision expires on December 31, 2016.
30. Credit for residential energy efficient property.—The baseline tax system would uniformly tax all
returns to investments and not allow credits for particular activities, investments, or industries. However, the
Tax Code provides a credit for the purchase of a qualified
photovoltaic property and solar water heating property,
as well as for fuel cell power plants, geothermal heat
pumps and small wind property used in or placed on a
residence. The credit for qualified solar electric and solar
water heating property is 30 percent for property placed
in service before January 1, 2020, 26 percent for property placed in service in 2020, and 22 percent for property
placed in service in 2021. The credit for fuel cell, small
wind, and geothermal heat pump property is 30 percent
for property placed in service before January 1, 2017.
31. Credit for qualified energy conservation
bonds.—The baseline tax system would uniformly tax
all returns to investments and not allow credits for particular activities, investments, or industries. However,
the Tax Code provides for the issuance of energy conservation bonds which entitle the bond holder to a Federal
income tax credit in lieu of interest. As of March 2010, issuers of the unused authorization of such bonds could opt
to receive direct payment with the yield becoming fully
taxable.
32. Advanced energy property credit.—The baseline tax system would not allow credits for particular
activities, investments, or industries. However, the Tax
Code provides a 30 percent investment credit for property used in a qualified advanced energy manufacturing
project. The Treasury Department may award up to $2.3
billion in tax credits for qualified investments.
33. Advanced nuclear power facilities production credit.—The baseline tax system would not allow
credits or deductions for particular activities, investments, or industries. Instead, it generally would seek to
tax uniformly all returns from investment-like activities.
In contrast, the Tax Code allows a tax credit equal to 1.8
cents times the number of kilowatt hours of electricity produced at a qualifying advanced nuclear power facility. A
taxpayer may claim no more than $125 million per 1,000
megawatts of capacity. The Treasury Department may allocate up to 6,000 megawatts of credit-eligible capacity.
34. Reduced tax rate for nuclear decommissioning funds.—The baseline tax system would uniformly
tax all returns to investments and not allow special rates
for particular activities, investments, or industries. In
contrast, the Tax Code provides a special 20% tax rate for
investments made by Nuclear Decommissioning Reserve
Funds.
Natural Resources and Environment
35. Expensing of exploration and development
costs.—The baseline tax system allows the taxpayer to

152
deduct the depreciation of an asset according to the decline in its economic value over time. However, certain
capital outlays associated with exploration and development of nonfuel minerals may be expensed rather than
depreciated over the life of the asset.
36. Excess of percentage over cost depletion.—
The baseline tax system allows the taxpayer to deduct the
decline in the economic value of an investment over time.
Under current law, however, most nonfuel mineral extractors may use percentage depletion (whereby the deduction
is fixed as a percentage of revenue) rather than cost depletion, with percentage depletion rates ranging from 22
percent for sulfur to 5 percent for sand and gravel. Over
the life of an investment, percentage depletion deductions can exceed the cost of the investment. Consequently,
percentage depletion offers more generous tax treatment
than would cost depletion, which would limit deductions
to an investment’s cost.
37. Exclusion of interest on bonds for water, sewage, and hazardous waste facilities.—The baseline
tax system generally would tax all income under the regular tax rate schedule. It would not allow preferentially low
(or zero) tax rates to apply to certain types or sources of
income. In contrast, the Tax Code allows interest earned
on State and local bonds used to finance construction of
sewage, water, or hazardous waste facilities to be exempt
from tax. These bonds are generally subject to the State
private-activity-bond annual volume cap.
38. Capital gains treatment of certain timber.—
The baseline tax system generally would tax all income
under the regular tax rate schedule. It would not allow
preferentially low tax rates to apply to certain types
or sources of income. However, under current law certain timber sales can be treated as a capital gain rather
than ordinary income and therefore subject to the lower
capital-gains tax rate. For individuals, tax rates on regular income vary from 10 percent to 39.6 percent (plus a
3.8-percent surtax on high income taxpayers), depending
on the taxpayer’s income. In contrast, current law allows
capital gains to be taxed at a preferentially low rate that
is no higher than 20 percent (plus the 3.8-percent surtax).
39. Expensing of multi-period timber growing
costs.—The baseline tax system requires the taxpayer
to capitalize costs associated with investment property.
However, most of the production costs of growing timber
may be expensed under current law rather than capitalized and deducted when the timber is sold, thereby
accelerating cost recovery.
40. Tax incentives for preservation of historic
structures.—The baseline tax system would not allow
credits for particular activities, investments, or industries.
However, expenditures to preserve and restore certified
historic structures qualify for an investment tax credit
of 20 percent under current law for certified rehabilitation activities. The taxpayer’s recoverable basis must be
reduced by the amount of the credit.
41. Industrial CO2 capture and sequestration
tax credit.—The baseline tax system would uniformly
tax all returns to investments and not allow credits for
particular activities, investments, or industries. In con-

ANALYTICAL PERSPECTIVES

trast, the Tax Code allows a credit for qualified carbon
dioxide captured at a qualified facility and disposed of in
secure geological storage. In addition, the provision allows a credit for qualified carbon dioxide that is captured
at a qualified facility and used as a tertiary injectant in
a qualified enhanced oil or natural gas recovery project.
The credit is not allowed after the end of the calendar
year in which 75 million metric tons of qualified carbon
dioxide are certified as having been taken into account.
42. Deduction for endangered species recovery
expenditures.—The baseline tax system would not allow
deductions in addition to normal depreciation allowances for particular investments in particular industries.
Instead, it generally would seek to tax uniformly all returns from investment-like activities. In contrast, under
current law farmers can deduct up to 25 percent of their
gross income for expenses incurred as a result of site and
habitat improvement activities that will benefit endangered species on their farm land, in accordance with site
specific management actions included in species recovery
plans approved pursuant to the Endangered Species Act
of 1973.
Agriculture
43. Expensing of certain capital outlays.—The
baseline tax system requires the taxpayer to capitalize costs associated with investment property. However,
farmers may expense certain expenditures for feed and
fertilizer, for soil and water conservation measures and
certain other capital improvements under current law.
44. Expensing of certain multiperiod production
costs.—The baseline tax system requires the taxpayer to
capitalize costs associated with an investment over time.
However, the production of livestock and crops with a
production period greater than two years is exempt from
the uniform cost capitalization rules (e.g., for costs for establishing orchards or structure im