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F I SCA L Y E A R 2019 EFFICIENT, EFFECTIVE, ACCOUNTABLE AN AMERICAN BUDGET ANALYTICAL PERSPECTIVES BUDGET OF THE U.S. GOVERNMENT OFFICE OF MANAGEMENT AND BUDGET | OMB.GOV THE BUDGET DOCUMENTS Budget of the United States Government, Fiscal Year 2019 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 2019 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.whitehouse. gov/omb/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 2019 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 applica- ble to the appropriations of entire agencies 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.whitehouse.gov/omb/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 2019 or 2023. 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, none of the full-year appropriations bills for 2018 have been enacted, therefore, the programs and activities normally provided for in the full-year appropriations bills were operating under a continuing resolution (Public Law 115-56, division D, as amended). In addition, the Additional Supplemental Appropriations for Disaster Relief Requirements Act, 2017 (Public Law 115-72, division A) provided additional appropriations for 2018 for certain accounts within the Departments of Agriculture, Homeland Security, and the Interior. The Department of Defense Missile Defeat and Defense Enhancements Appropriations Act, 2018 (Public Law 115-96, division B) also provided additional appropriations for 2018 for certain accounts within the Department of Defense. Accordingly, references to 2018 spending in the text and tables reflect the levels provided by the continuing resolution and, if applicable, Public Laws 115-72 (division A) and 115-96 (division B). 3. The Budget does not incorporate the effects of Public Law 115-120, including the reauthorization of the Children’s Health Insurance Program and amendments to the tax code in that law. 4. Detail in this document may not add to the totals due to rounding. U.S. GOVERNMENT PUBLISHING OFFICE, WASHINGTON 2018 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��������������������������������������������������������������������������������������������������������21 4. Federal Borrowing and Debt�������������������������������������������������������������������������������������������������������29 Performance and Management 5. Social Indicators��������������������������������������������������������������������������������������������������������������������������47 6. Building and Using Evidence to Improve Government Effectiveness��������������������������������������59 7. Strengthening the Federal Workforce����������������������������������������������������������������������������������������65 Budget Concepts and Budget Process 8. Budget Concepts��������������������������������������������������������������������������������������������������������������������������77 9. Coverage of the Budget�������������������������������������������������������������������������������������������������������������101 10. Budget Process���������������������������������������������������������������������������������������������������������������������������107 Federal Receipts 11. Governmental Receipts�������������������������������������������������������������������������������������������������������������127 12. Offsetting Collections and Offsetting Receipts������������������������������������������������������������������������141 13. Tax Expenditures�����������������������������������������������������������������������������������������������������������������������153 Special Topics 14. Aid to State and Local Governments����������������������������������������������������������������������������������������197 15. Strengthening Federal Statistics����������������������������������������������������������������������������������������������215 16. Information Technology�������������������������������������������������������������������������������������������������������������221 17. Federal Investment�������������������������������������������������������������������������������������������������������������������227 18. Research and Development�������������������������������������������������������������������������������������������������������233 19. Credit and Insurance����������������������������������������������������������������������������������������������������������������243 20. Budgetary Effects of the Troubled Asset Relief Program��������������������������������������������������������263 i Page 21. Cybersecurity Funding��������������������������������������������������������������������������������������������������������������273 22. Federal Drug Control Funding�������������������������������������������������������������������������������������������������289 Technical Budget Analyses 23. Current Services Estimates������������������������������������������������������������������������������������������������������293 24. Trust Funds and Federal Funds ����������������������������������������������������������������������������������������������305 25. Comparison of Actual to Estimated Totals�������������������������������������������������������������������������������319 *Available on the Internet at http://www.whitehouse.gov/omb/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 Deficit�����������������������������������������������������������������������������19 3–1. Comparison of Publicly Held Debt����������������������������������������������������������������������������������������������21 3–2. Comparison of Annual Surplus/Deficit���������������������������������������������������������������������������������������23 3–3. Alternative Productivity and Interest Assumptions������������������������������������������������������������������24 3–4. Alternative Health Care Costs����������������������������������������������������������������������������������������������������24 3–5. Alternative Discretionary Assumptions�������������������������������������������������������������������������������������25 3–6. Alternative Revenue Assumptions���������������������������������������������������������������������������������������������25 3–7. Long-Term Uncertainties������������������������������������������������������������������������������������������������������������26 7–1. Masters Degree or Above By Year for Federal and Private Sectors������������������������������������������66 7–2. High School Graduate or Less by Year for Federal and Private Sectors����������������������������������66 7–3. Average Age by Year for Federal and Private Sectors���������������������������������������������������������������70 7–4. Changes from 1975 to 2017 in Employment as a Percent of Population����������������������������������70 7–5. The Human Capital Business Reference Model (HCBRM)�������������������������������������������������������71 7–6. Federal Employee Review Processes for Major Disciplinary Actions���������������������������������������72 8–1. Relationship of Budget Authority to Outlays for 2019��������������������������������������������������������������90 10–1. Illustrative Scoring of $2 Billion Purchase using the Federal Capital Revolving Fund�������120 16–1. Trends in Federal IT Spending Grants Spending Removal Comparison�������������������������������221 16–2. 2019 IT Investment Portfolio Summary�����������������������������������������������������������������������������������222 16–3. Percentage of 2019 IT Spending by Number of Investments��������������������������������������������������223 16–4. CIO Risk Ratings for Investments�������������������������������������������������������������������������������������������223 16–5. IT Spending by DME and O&M�����������������������������������������������������������������������������������������������224 19–1. Face Value of Federal Credit Outstanding�������������������������������������������������������������������������������257 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 2018 and 2019 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 (As a Percent of GDP) ���������������������������������� 11 13 14 15 16 17 Long-Term Budget Outlook 3–1. 25-Year Debt Projections under Alternative Budget Scenarios �������������������������������������� 23 3–2. Intermediate Actuarial Projections for OASDI And HI, 2017 Trustees’ Reports ����������� 27 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 ������������������������������������������������������������������������������������� 30 32 35 37 39 42 43 Performance and Management Social Indicators 5–1. Social Indicators ���������������������������������������������������������������������������������������������������������������� 49 5–2. Sources for Social Indicators ��������������������������������������������������������������������������������������������� 53 Building and Using Evidence to Improve Government Effectiveness Strengthening the Federal Workforce 7–1. Occupations of Federal and Private Sector Workforces ��������������������������������������������������� 7–2. Federal Civilian Employment in the Executive Branch �������������������������������������������������� 7–3. Personnel Pay and Benefits ����������������������������������������������������������������������������������������������� 7–4. Total Federal Employment ������������������������������������������������������������������������������������������������ 67 68 69 71 Budget Concepts and Budget Process Budget Concepts Budget Calendar ������������������������������������������������������������������������������������������������������������������������������� 79 8–1. Totals For the Budget and the Federal Government ������������������������������������������������������� 84 Coverage of the Budget 9–1. Comparison of Total, On-Budget, and Off-Budget Transactions ����������������������������������� 102 Budget Process 10–1. Program Integrity Discretionary Cap Adjustments, Including Mandatory Savings ��� 109 vii Page 10–2. Proposed Program Integrity Cap Adjustment for the Internal Revenue Service (IRS) ����������������������������������������������������������������������������������� 10–3. Mandatory and Receipt Savings from Other Program Integrity Initiatives ���������������� 10–4. Disaster Relief Cap Adjustment - Historical Data and Current Law ��������������������������� 10–5. Proposed Wildfire Suppression Operations Fund United States Departments of Agriculture and the Interior ������������������������������������� 10–6. Discretionary Pell Funding Needs ���������������������������������������������������������������������������������� 110 111 115 116 118 Federal Receipts Governmental Receipts 11–1. Receipts by Source—Summary ��������������������������������������������������������������������������������������� 11–2. Adjustments to the Balanced Budget and Emergency Deficit Control Act (BBEDCA) Baseline Estimates Of Governmental Receipts ��������������������������������������������������������� 11-3. Effect of Budget Proposals ������������������������������������������������������������������������������������������������� 11–4. Receipts by Source ����������������������������������������������������������������������������������������������������������� 127 132 135 137 Offsetting Collections and Offsetting Receipts 12–1. Offsetting Collections and Offsetting Receipts from the Public ����������������������������������� 142 12–2. Summary of Offsetting Receipts by Type ����������������������������������������������������������������������� 143 12–3. Gross Outlays, User Charges, Other Offsetting Collections and Offsetting Receipts from the Public, And Net Outlays ����������������������������������������������� 143 12–4. User Charge Proposals in the FY 2019 Budget �������������������������������������������������������������� 151 12–5. Offsetting Receipts by Type ������������������������������������������������������������������������������������������������ * 12–6. Offsetting Collections and Offsetting Receipts, Detail—FY 2019 Budget ������������������������ * Tax Expenditures 13–1. Estimates of Total Income Tax Expenditures for Fiscal Years 2017-2027 �������������������� 13–2A. Estimates of Total Corporate Income Tax Expenditures for Fiscal Years 2017-2027 ������������������������������������������������������������������������������������������������ 13–2B. Estimates of Total Individual Income Tax Expenditures for Fiscal Years 2017-2027 ������������������������������������������������������������������������������������������������ 13–3. Income Tax Expenditures Ranked by Total Fiscal Year 2018–2027 Projected Revenue Effect ��������������������������������������������������������������������������������������������� 13–4. Present Value of Selected Tax Expenditures for Activity in Calendar Year 2017 �������� 156 161 167 172 176 Special Topics Aid to State and Local Governments 14–1. Federal Grants to State and Local Governments—Budget Authority and Outlays ���� 202 14–2. Trends in Federal Grants to State and Local Governments ����������������������������������������� 213 14–3. Summary of Programs by Agency, Bureau, and Program ������������������������������������������������� * 14–4. Summary of Programs by State ������������������������������������������������������������������������������������������ * 14–5.—14–39. 2019 Budget State-by-State Tables ���������������������������������������������������������������������� * Strengthening Federal Statistics 15–1. 2017–2019 Budget Authority for Principal Statistical Agencies ���������������������������������� 219 Information Technology 16–1. Federal IT Spending �������������������������������������������������������������������������������������������������������� 221 *Available on the Internet at http://www.whitehouse.gov/omb/analytical-perspectives/ and on the Budget CD-ROM viii Page 16–2. Estimated FY 2019 Federal IT Spending and Percentage by Agency �������������������������� 222 Federal Investment 17–1. Composition of Federal Investment Outlays ������������������������������������������������������������������ 228 17–2. Federal Investment Budget Authority and Outlays: Grant and Direct Federal Programs ���������������������������������������������������������������������������������������������� 230 Research and Development 18–1. Total Federal R&D Funding By Agency at the Bureau or Account Level ������������������� 233 18–2. Federal Research and Development Spending ������������������������������������������������������������� 238 Credit and Insurance 19–1. Estimated Future Cost of Outstanding Direct Loans and Loan Guarantees �������������� 258 19–2. Direct Loan Subsidy Rates, Budget Authority, and Loan Levels, 2017–2019 �������������� 259 19–3. Loan Guarantee Subsidy Rates, Budget Authority, and Loan Levels, 2017–2019 ������� 260 19–4. Summary of Federal Direct Loans and Loan Guarantees ��������������������������������������������� 261 19–5. Reestimates of Credit Subsidies on Loans Disbursed Between 1992-2017 ���������������������� * 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 ������������������������������������������������������������������� 263 264 266 266 267 268 269 Cybersecurity Funding 21–1. Agency Cybersecurity Funding Totals ���������������������������������������������������������������������������� 274 21–2. Civilian Agency Cybersecurity Funding by Account ����������������������������������������������������� 276 Federal Drug Control Funding 22–1. Drug Control Funding FY 2017—FY 2019 ��������������������������������������������������������������������� 289 Technical Budget Analyses Current Services Estimates 23–1. Category Totals for the Adjusted Baseline ��������������������������������������������������������������������� 293 23–2. Summary of Economic Assumptions ������������������������������������������������������������������������������ 296 23–3. Baseline Beneficiary Projections for Major Benefit Programs �������������������������������������� 297 23–4. Impact of Regulations, Expiring Authorizations, and Other Assumptions in the Baseline ������������������������������������������������������������������������������������������� * 23–5. Receipts by Source in the Projection of Adjusted Baseline ������������������������������������������� 298 23–6. Effect on Receipts of Changes in the Social Security Taxable Earnings Base ������������� 299 23–7. Change in Outlay Estimates by Category in the Adjusted Baseline ���������������������������� 299 *Available on the Internet at http://www.whitehouse.gov/omb/analytical-perspectives/ and on the Budget CD-ROM ix Page 23–8. Outlays by Function in the Adjusted Baseline �������������������������������������������������������������� 300 23–9. Outlays by Agency in the Adjusted Baseline ����������������������������������������������������������������� 301 23–10. Budget Authority by Function in the Adjusted Baseline ���������������������������������������������� 302 23–11. Budget Authority By Agency in the Adjusted Baseline ������������������������������������������������� 303 23–12. Current Services Budget Authority and Outlays by Function, Category, and Program ���� * Trust Funds and Federal Funds 24–1. Receipts, Outlays and Surplus or Deficit by Fund Group ��������������������������������������������� 24–2. Comparison of Total Federal Fund and Trust Fund Receipts to Unified Budget Receipts, Fiscal Year 2017 ����������������������������������������������������������������� 24–3. Income, Outgo, and Balances of Trust Funds Group ����������������������������������������������������� 24–4. Income, Outgo, and Balance of Major Trust Funds ������������������������������������������������������� 24–5. Income, Outgo, and Balance of Selected Special Funds ������������������������������������������������ Comparison of Actual to Estimated Totals 25–1. Comparison of Actual 2017 Receipts with the Initial Current Services Estimates ����� 25–2. Comparison of Actual 2017 Outlays with the Initial Current Services Estimates ������ 25–3. Comparison of the Actual 2017 Deficit with the Initial Current Services Estimate ��� 25–4. Comparison of Actual and Estimated Outlays for Mandatory and Related Programs Under Current Law ������������������������������������������������������������������������������������������������������ 25–5. Reconciliation of Final Amounts For 2017 ��������������������������������������������������������������������� 306 308 309 311 318 319 320 321 322 323 Detailed Functional Tables 26–1. Budget Authority and Outlays by Function, Category and Program ����������������������������������� * Federal Budget by Agency and Account 27–1. Federal Budget by Agency and Account ��������������������������������������������������������������������������������� * California Bay Delta Federal Budget Crosscut Report ������������������������������������������������������������������� ** *Available on the Internet at http://www.whitehouse.gov/omb/analytical-perspectives/ and on the Budget CD-R **Available on the Internet at http://www.whitehouse.gov/omb/analytical-perspectives/ only x INTRODUCTION 1 1. INTRODUCTION The Analytical Perspectives volume presents analyses that highlight specific subject areas or provide other significant data that place the President’s 2019 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.whitehouse.gov/omb/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 2019 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 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 the last year and describes proposals affecting receipts in the 2019 Budget. Offsetting Collections and Offsetting Receipts. This chapter presents information on collections that offset outlays, including collections from transactions with the 3 4 public and intragovernmental transactions. In addition, this chapter presents information on “user fees,” charges associated with market-oriented activities and regulatory fees. The user fee information includes a description of each of the user fee proposals in the 2019 Budget. A detailed table, “Table 12–5, 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 2019 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 invest in modern, secure technologies and services to drive enhanced efficiency and effectiveness. This will include undertaking complex Government-wide modernization efforts, driving improved delivery of citizen-facing services, and improving the overall management of the Federal IT portfolio. The Administration will also continue its efforts to further build the Federal IT workforce and strategically reduce the Federal Government’s cybersecurity risk. 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, small business and farming, energy and infrastructure, and international) and insurance programs (deposit insurance, pension guarantees, disaster insurance, and ANALYTICAL PERSPECTIVES 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. Cybersecurity Funding. This chapter displays enacted and proposed cybersecurity funding for Federal departments and agencies, and includes analysis of broad cybersecurity trends across government. Federal Drug Control Funding. This chapter displays enacted and proposed drug control funding for Federal departments and agencies. Technical Budget Analyses Current Services Estimates. This chapter discusses the conceptual basis of the Budget’s current services, or “baseline,” estimates, which are generally consistent with the baseline rules in the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA). The chapter presents estimates of receipts, outlays, and the deficit under this baseline. 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 2017 with the estimates for that year published in the 2017 Budget, published in February 2016. The following materials are available at the Internet address cited above and on the Budget CD-ROM: Detailed Functional Table Detailed Functional Table. Table 26–1, “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 27–1, “Federal Budget by Agency and Account,” displays 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: 1. Introduction 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 2. ECONOMIC ASSUMPTIONS AND INTERACTIONS WITH THE BUDGET This chapter presents the economic assumptions that underlie the Administration’s Fiscal Year 2019 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 2007Q4 to 2009Q2, the United States economy has experienced stable but 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 to its previous output peak, much longer than in the other post-World War II recoveries. Over the first three years of recoveries from previous postwar recessions, average output growth averaged 4.5 percent annually. In the first three years following the most recent recession, average annual growth was only about 2.3 percent. The disappointing recovery has motivated this Administration’s aggressive economic strategy, two key elements of which are cutting taxes and reforming the tax code along with reducing the burden of Federal regulations. The Administration’s efforts succeeded on both of these fronts in its first year, with the passage of the Tax Cut and Jobs Act in December 2017 and the elimination of scores of unnecessary regulations under Executive Orders 13771 and 13777. In addition, the Administration is pursuing policies to encourage domestic energy development and investments in infrastructure, reform welfare programs to encourage work, establish paid family leave for new parents, negotiate more attractive trade agreements, and reduce Federal budget deficits. Taken together, these 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 recent performance of the U.S. economy, examining a broad array of economic outcomes. • The second section provides a detailed exposition of the Administration’s economic forecast for the FY 2019 Budget, discussing how a number of macroeconomic variables are expected to evolve over the years 2018 to 2028. • The third section compares the forecast of the Administration with those prepared by the Congressio- 1 Economic performance, unless otherwise specified, is generally discussed in terms of calendar years. Budget figures are discussed in terms of fiscal years. nal 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 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 of private professional forecasters. The sixth section uses information on past accuracy of Administration forecasts to provide a sense of the uncertainty associated with the Administration’s current forecast of the budget balance. Recent Economic Performance3 The U.S. economy continued to exhibit robust growth in the fourth quarter of 2017, growing at 2.6 percent after having grown 3.1 and 3.2 percent in the second and third quarter, respectively. The first quarter had lackluster growth at 1.2 percent. For the four quarters ending December 2017, real Gross Domestic Product (GDP) growth averaged 2.5 percent. In contrast, during the four quarters of 2016, real GDP grew by 1.8 percent. This came on the heels of real GDP growing at 2.0 percent during 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 has accounted for 76 percent of the demand growth in 2017, with consumption of nondurables and services contributing 54 percent and consumption of durable goods contributing the remaining 22 percent. Gross private domestic investment contributed 22 percent to real GDP growth, government consumption and gross investment have been slightly positive and net exports have made a negative contribution of 3 percent to real GDP growth. On the supply side, weak labor productivity growth limited overall growth during 2017, as it has over the past several years. Over the four quarters through 2017Q4, nonfarm productivity increased at 1.1 percent compared to 0.8 percent a year ago. Productivity growth has been relatively sluggish since the end of 2007, increasing by 1.2 percent at an annual rate; over the past two years, through 2017Q4, labor productivity (output per hour) in 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 late January 2018. 9 10 the nonfarm business sector has increased just 1.0 percent at an annual rate. These rates are notably slower than the rate of 2.6 percent annual rate observed over the period from 1994Q4 through 2007Q4 and the long run average of 2.1 percent during the post-World War II period from 1947 to 2016. Labor Markets.—Labor markets continued to improve in 2017 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 4.1 percent in January of 2018, the lowest level since December 2000, and well below the long-term average of 5.8 percent. During the 12 months of 2017, the labor force participation rate averaged 62.8 percent, up from 62.7 percent in 2015 but about the same as in 2016. Although the participation rate has stabilized somewhat following a steep decline since 2000, demographic forces are expected to exert continued downward pressure 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 3.1 percent in December 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 0.9 percent from a peak of nearly 4.4 percent. In spite of these improvements, several metrics suggest that the labor market 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 aging of the baby boom cohorts into retirement does not explain the drop in the labor force participation rates for prime-age men and women (age 25-54). From 2007 to 2017, the participation rate for prime-age men (aged 20-54) fell 2.2 percentage points from 2007 to 2017, while the rate for prime-age women fell 0.4 percentage point. Real average hourly wages for production and nonsupervisory workers have grown only 0.7 percent at an annual rate during the 10 years since 2007. In December 2017, the employment-to-population ratio for Americans aged between 25 and 54 years old was still 0.6 percentage point below where it was at the start of the “Great Recession.” Housing.—The effect of the housing market on the broader economy was mixed in 2017. House prices, as measured by the Federal Housing Finance Agency’s (FHFA) purchase-only index, were 6.5 percent higher in November 2017 than in November 2016. Higher house prices help fortify household balance sheets and support personal consumption expenditures. They also encourage further activity in the housing sector, with sales volumes rising for both new and existing homes. Despite the rising house prices, measures of new construction edged up only slightly or were roughly flat. The number of housing starts decreased from an annual rate of about 1.33 million in October 2016 to 1.29 million in October 2017. Building permits increased 2.4 percent over the same period. And ANALYTICAL PERSPECTIVES residential fixed investment increased 2.3 percent over the four quarters ending in December 2017. Some weaknesses still remain in the housing market, however. As of November 2017, while the FHFA house-price index was about 13.1 percent higher than its pre-crisis peak, the S&P-Case Shiller index was only about 6 percent above its previous apex. Homeownership rates steadily declined since the recession began and after matching the lowest rate on record in the middle of 2016, started edging up in 2017. Consumption.—Consumer spending was a primary driver of demand growth in 2017, growing by 2.8 percent over the four quarters ending December 2017. At close to 70 percent of the economy, consumption is essential to overall growth. Consumption growth was spread over a number of different categories, including motor vehicles and parts (4.5 percent), furnishings and household equipment (9.5 percent), recreational goods and vehicles (9.3 percent), food and beverages (3.0 percent), medical care (2.6 percent), and financial services and insurance (3.4 percent). Investment.—For the four quarters ending in December 2017, growth in nonresidential fixed investment was strong, coming in at 6.3 percent relative to 0.7 percent during the year-earlier period. Equipment spending was up 8.8 percent, spending on structures was up 3.7 percent, and spending on intellectual property products increased 4.8 percent. Growth in overall private fixed investment (residential and nonresidential) was 5.4 percent compared with virtually zero growth over the four quarters ending December 2016, and 2.4 percent the year prior. Government.—Overall demand growth by the government sector has been 0.7 percent over the four quarters ending in December 2017. State and local spending grew 0.5 percent, while Federal purchases were up 1.1 percent. The Federal deficit as a percentage of GDP increased to 3.5 percent in fiscal year 2017 from 3.2 percent in fiscal year 2016. While increasing deficits might be expected to lead to higher interest rates and subsequent crowding out of private investment, the low interest rate environment in recent years has mitigated this potentially negative force. Monetary Policy.—After holding the nominal Federal funds rate 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 the normalization of monetary policy, with a 25 basis point increase in each meeting held in December 2016, March 2017, June 2017, and December 2017. In its December policy statement, the FOMC characterized as “solid” the job gains and the rising rate of economic activity with expectations for continued strengthening of labor markets, as well as rates of inflation around the 2.0 percent target in the medium term. 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 fourth quarter of 2017. 11 2. Economic Assumptions and Interactions with the Budget Oil and Natural Gas Supply.—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 where they have stayed in the latter half of 2017. 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 above $50 per barrel 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 for the year ending September 2017 averaged about 9.0 million barrels per day (mbd), up from 8.9 mbd in calendar year 2016 and 7.5 mbd in calendar year 2013, although down from 9.4 million barrels per day in 2015 (calendar year). The decline from 2015 likely reflects the decline in oil prices. Production of natural gas has averaged about 89.2 billion cubic feet per day in the year ending September 2017, down 0.6 percent from year-earlier production levels, but 13.4 percent higher than in the year ending September 2013. Table 2–1. ECONOMIC ASSUMPTIONS 1 (Calendar Years, Dollar Amounts in Billions) Actual 2016 Projections 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 18,624 16,716 19,372 17,090 20,262 17,601 21,263 18,157 22,345 18,727 23,482 19,296 24,672 19,875 25,923 20,471 27,234 21,085 28,598 21,705 30,001 22,320 31,461 22,945 32,991 23,588 111.4 113.4 115.1 117.1 119.3 121.7 124.1 126.6 129.2 131.8 134.4 137.1 139.9 Percent Change, Fourth Quarter over Fourth Quarter: Current Dollars �������������������������������������������������� Real, Chained (2009) Dollars ���������������������������� Chained Price Index (2009=100) ����������������������� 3.4 1.8 1.5 4.1 2.5 1.6 4.7 3.1 1.6 5.1 3.2 1.8 5.1 3.1 1.9 5.1 3.0 2.0 5.1 3.0 2.0 5.1 3.0 2.0 5.1 3.0 2.0 5.0 2.9 2.0 4.9 2.8 2.0 4.9 2.8 2.0 4.9 2.8 2.0 Percent Change, Year over Year: Current Dollars �������������������������������������������������� Real, Chained (2009) Dollars ���������������������������� Chained Price Index (2009=100) ����������������������� 2.8 1.5 1.3 4.0 2.2 1.7 4.6 3.0 1.6 4.9 3.2 1.7 5.1 3.1 1.9 5.1 3.0 2.0 5.1 3.0 2.0 5.1 3.0 2.0 5.1 3.0 2.0 5.0 2.9 2.0 4.9 2.8 2.0 4.9 2.8 2.0 4.9 2.8 2.0 Incomes, Billions of Current Dollars: Domestic Corporate Profits ������������������������������������� Employee Compensation ���������������������������������������� Wages and Salaries ������������������������������������������������ Other Taxable Income 2 ������������������������������������������� 1,679 9,979 8,085 4,427 1,753 10,320 8,365 4,576 1,893 10,750 8,713 4,793 1,985 11,225 9,094 5,068 2,050 11,774 9,550 5,386 2,060 12,408 10,058 5,704 2,047 13,104 10,620 6,053 2,035 13,843 11,217 6,398 2,043 14,622 11,844 6,738 2,048 15,438 12,506 7,072 2,041 16,291 13,195 7,360 2,049 17,160 13,902 7,683 2,046 18,092 14,642 7,943 240.0 245.1 250.2 255.1 260.7 266.7 272.7 278.9 285.2 291.7 298.3 305.1 312.0 1.8 1.3 2.1 2.1 1.9 2.1 2.0 2.0 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 2.3 2.3 2.3 Unemployment Rate, Civilian, Percent: Fourth Quarter Level ����������������������������������������������� Annual Average ������������������������������������������������������� 4.7 4.9 4.1 4.4 3.8 3.9 3.7 3.7 3.8 3.8 3.9 3.9 4.1 4.0 4.2 4.2 4.4 4.3 4.5 4.5 4.8 4.7 4.8 4.8 4.8 4.8 Federal Pay Raises, January, Percent: Military 4 ������������������������������������������������������������������� Civillian 5 ������������������������������������������������������������������ 1.3 1.3 2.1 2.1 2.4 1.9 2.6 0.0 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 2.9 3.6 2.9 3.6 2.9 3.6 2.9 3.6 Gross Domestic Product (GDP): Levels, Dollar Amounts in Billions: Current Dollars �������������������������������������������������� Real, Chained (2009) Dollars ���������������������������� Chained Price Index (2009=100), Annual Average �������������������������������������������������������� Consumer Price Index (All Urban): 3 Level (1982–1984 = 100), Annual Average ������������� Percent Change, Fourth Quarter over Fourth Quarter ��������������������������������������������������������������� Percent Change, Year over Year ������������������������������ Interest Rates, Percent: 91-Day Treasury Bills 6 �������������������������������������������� 0.3 0.9 1.5 2.3 2.9 3.0 3.0 2.9 2.9 10-Year Treasury Notes ������������������������������������������� 1.8 2.3 2.6 3.1 3.4 3.6 3.7 3.7 3.6 N/A=Not Available 1 Based on information available as of mid-November 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 2019 have not yet been determined. 5 Overall average increase, including locality pay adjustments. Percentages to be proposed for years after 2019 have not yet been determined. 6 Average rate, secondary market (bank discount basis). * 0.05 percent or less. 12 ANALYTICAL PERSPECTIVES External Sector.—Real exports grew 4.9 percent over the last four quarters ending in December 2017, while real imports grew 4.6 percent. Net exports made less of a negative contribution to real GDP growth in 2017 than in 2016. Worldwide, 2017 is projected to have been a better year for economic growth than 2016. According to the International Monetary Fund’s World Economic Outlook, October 2017, the advanced economies were poised to grow by 2.2 percent (year over year) in 2017 versus 1.7 percent in 2016. The emerging and developing economies were expected to collectively grow by 4.6 percent in 2017 versus 4.3 percent in 2016.4 Many large emerging market countries (with the exception of India) have experienced lower growth rates, relative to the past, in recent years, while Brazil and Russia went through recessions in 2015-16. These developments, as well as a strengthening dollar, have contributed to the soft performance of U.S. exports. Looking ahead, the faster global growth expected by the IMF and other forecasters, and better trade agreements will support U.S. export performance. Economic Projections The Administration’s economic forecast is based on information available as of mid-November 2017. The forecast informs the Fiscal Year 2019 Budget and rests on the central assumption that all of the President’s policy proposals will be enacted. The Administration’s projections are reported in Table 2-1 and summarized below. Real GDP.—In mid-November, when the forecast was finalized, the Administration projected that real GDP growth would average 2.5 percent during the four quarters of 2017. It appears that 2017 growth was in line with expectations. The pace of growth is projected to increase to 3.1 percent over the four quarters of 2018. The enactment of tax reform and the Administration’s additional policies for cutting regulation, building infrastructure, reforming health care, and boosting domestic energy production 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.5 Medium and Long-Run Growth.—In the medium term the rate of real GDP growth is expected to remain strong at 3.0 percent as the effects of growth-enhancing 4 Besides the U.S.A. the other advanced economies are: Australia, Austria, Belgium, Canada, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong SAR, Iceland, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Macao SAR, Malta, Netherlands, New Zealand, Norway, Portugal, Puerto Rico, San Marino, Singapore, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Taiwan, Province of China, and the United Kingdom. 5 For estimates on productivity enhancing and economic growth effects of tax and regulation policies, see: The Growth Effects of Corporate Tax Reform and Implications for Wages, The Council of Economic Advisers October 2017, https://www.whitehouse.gov/sites/whitehouse. gov/files/images/Corporate%20Tax%20Reform%20and%20Growth%20 Final.pdf; The Growth Potential of Deregulation, The Council of Economic Advisers October 2, 2017,https://www.whitehouse.gov/sites/ whitehouse.gov/files/documents/The%20Growth%20Potential%20 of%20Deregulation_1.pdf policies play out in terms of an increasing capital stock per employed worker and consequently higher labor productivity growth. As the economy settles into a new steady state with higher capital stock per worker, the annual rate of real GDP growth is expected to edge down to a pace of 2.8 percent by 2026. While expected GDP growth of 2.8 percent per year at the end of the forecast is below the average growth rate seen in the post-World War II period, it is consistent with present-day and expected demographic trends for the U.S. Unemployment.—As of January 2018, the unemployment rate stood at 4.1 percent. The Administration expects the unemployment rate to decrease as a result of increasing business investment and higher real GDP growth, reaching a low of 3.7 percent in 2019. After that, the forecast assumes that it will 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, so that inflation neither creeps up nor down. 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 from 0.9 percent in 2017 to 3.0 percent in 2021 and then taper down to 2.9 percent in the last 6 years of the forecast window. The interest rate on the 10-year Treasury note is expected to rise in a similar fashion, from 2.3 percent in 2017 to 3.6 percent in the long run. Economic theory suggests that real GDP growth rates and interest rates are positively correlated, so interest rates are expected 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 1.9 percent in 2018 (on a fourth quarter-over-fourth quarter basis), before rising to 2.3 percent in the long run. The GDP price index is forecast to rise by 1.6 percent in 2018 (on a fourth-quarter-over-fourth-quarter basis) and, with stronger aggregate demand for goods and labor, rise by 2021 to 2.0 percent where it is expected to stay through the longer term. Changes in Economic Assumptions from Last Year’s Budget.—Table 2-2 compares the Administration’s forecast for the FY 2019 Budget with that from the FY 2018 Budget. Compared with the previous forecast, the Administration expects output growth to rise earlier before edging down to growth of 2.8 percent annually whereas the previous forecast expected growth to rise more gradually and stabilize at a slightly higher growth path of 3.0 percent annually. In 2027, both forecasts predict similar levels of nominal and real GDP. Both forecasts are predicated on the implementation of the Administration’s policies designed to boost productivity 13 2. Economic Assumptions and Interactions with the Budget Table 2–2. COMPARISON OF ECONOMIC ASSUMPTIONS IN THE 2018 AND 2019 BUDGETS (Calendar Years, Dollar Amounts in Billions) 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Nominal GDP: 2018 Budget Assumptions 1 ����������������������������������������������� 2019 Budget Assumptions ������������������������������������������������� 19,419 19,372 20,291 20,262 21,253 21,263 22,313 22,345 23,442 23,482 24,628 24,672 25,874 25,923 27,183 27,234 28,558 28,598 30,003 30,001 31,522 31,461 Real GDP (2009 Dollars): 2018 Budget Assumptions 1 ����������������������������������������������� 2019 Budget Assumptions ������������������������������������������������� 17,093 17,090 17,508 17,601 17,978 18,157 18,504 18,727 19,059 19,296 19,631 19,875 20,220 20,471 20,826 21,085 21,451 21,705 22,095 22,320 22,758 22,945 Real GDP (Percent Change): 2 2018 Budget Assumptions 1 ����������������������������������������������� 2019 Budget Assumptions ������������������������������������������������� 2.3 2.2 2.4 3.0 2.7 3.2 2.9 3.1 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 2.9 3.0 2.8 3.0 2.8 GDP Price Index (Percent Change): 2 2018 Budget Assumptions 1 ����������������������������������������������� 2019 Budget Assumptions ������������������������������������������������� 1.9 1.7 2.0 1.6 2.0 1.7 2.0 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 Consumer Price Index (All-Urban; Percent Change): 2 2018 Budget Assumptions ������������������������������������������������� 2019 Budget Assumptions ������������������������������������������������� 2.6 2.1 2.3 2.1 2.3 2.0 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 2.3 Civilian Unemployment Rate (Percent): 3 2018 Budget Assumptions ������������������������������������������������� 2019 Budget Assumptions ������������������������������������������������� 4.6 4.4 4.4 3.9 4.6 3.7 4.7 3.8 4.8 3.9 4.8 4.0 4.8 4.2 4.8 4.3 4.8 4.5 4.8 4.7 4.8 4.8 91-Day Treasury Bill Rate (Percent): 3 2018 Budget Assumptions ������������������������������������������������� 2019 Budget Assumptions ������������������������������������������������� 0.8 0.9 1.5 1.5 2.1 2.3 2.6 2.9 2.9 3.0 3.0 3.0 3.0 2.9 3.1 2.9 3.1 2.9 3.1 2.9 3.1 2.9 2.7 2.3 3.3 2.6 3.4 3.1 3.8 3.4 3.8 3.6 3.8 3.7 3.8 3.7 3.8 3.6 3.8 3.6 3.8 3.6 3.8 3.6 10-Year Treasury Note Rate (Percent): 3 2018 Budget Assumptions ������������������������������������������������� 2019 Budget Assumptions ������������������������������������������������� 1 Adjusted for July 2017 NIPA Revisions 2 Calendar Year over Calendar Year 3 Calendar Year Average and labor force participation. These include deregulation, tax reform, an improved fiscal outlook, and inducements for infrastructure investment, which should boost investment and bolster the incentives to work and save. The Administration’s expectations for inflation differ little from the previous forecast, except for lower CPI inflation in the near term in light of the fact that price pressures in the economy have been remarkably contained despite falling unemployment and higher economic growth. The forecast for the unemployment rate is also broadly similar, although the 2019 Budget projections have the unemployment rate dropping to a trough of 3.7 percent, lower than was previously expected, but the unemployment rate in both projections gradually edges up to 4.8 percent, the rate at which inflation pressures are broadly balanced in the long term. On the 91-day Treasury bill rate, the 2019 Budget expects it to rise more rapidly in the near term before settling at a steady state rate. The steady-state Treasury bill rate in the latter half of the forecast window is expected to be below that of the 2018 Budget. The yield on the 10-year Treasury note is lower at all points of the forecast horizon relative to the 2018 Budget. This lowering of the yield, relative to the 2018 Budget projection in the near term, is largely driven by lower long-term interest rates observed in the recent data. Over the medium term, the yield rises rap- idly to levels consistent with the steady state annual GDP growth projection of 2.8 percent in contrast to the 3.0 percent growth forecast in the 2018 Budget. Comparison with Other Forecasts For some additional perspective on the Administration’s forecast, this section compares it with forecasts 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 in their respective outlooks. The Blue Chip panel, in particular, compiles a large number of private-sector forecasts, which are marked by considerable heterogeneity across individual forecasters and their policy expectations. 14 ANALYTICAL PERSPECTIVES Table 2–3. COMPARISON OF ECONOMIC ASSUMPTIONS (Calendar Years) 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Nominal GDP: 2019 Budget ��������������������������������������������������������� CBO ���������������������������������������������������������������������� Blue Chip �������������������������������������������������������������� 19,372 19,310 19,351 20,262 20,118 20,105 21,263 20,847 20,950 22,345 21,566 21,830 23,482 22,378 22,725 24,672 23,262 23,657 25,923 24,186 24,626 27,234 25,150 25,661 28,598 26,150 26,739 30,001 27,191 27,862 31,461 28,273 29,032 32,991 N/A 30,251 Real GDP (Year-over-Year): 2019 Budget ��������������������������������������������������������� CBO ���������������������������������������������������������������������� Blue Chip �������������������������������������������������������������� 2.2 2.1 2.2 3.0 2.2 2.4 3.2 1.7 2.1 3.1 1.4 2.1 3.0 1.7 2.0 3.0 1.9 2.0 3.0 1.9 2.1 3.0 1.9 2.1 2.9 1.9 2.1 2.8 1.9 2.1 2.8 1.9 2.1 2.8 N/A 2.1 Real GDP (Fourth Quarter-over-Fourth Quarter): 2019 Budget ��������������������������������������������������������� CBO ���������������������������������������������������������������������� Blue Chip �������������������������������������������������������������� Federal Reserve Median Projection ��������������������� 2.5 2.2 2.3 2.5 3.1 2.0 2.3 2.5 3.2 1.5 2.1 2.1 3.1 1.5 2.1 2 GDP Price Index: 1 2019 Budget ��������������������������������������������������������� CBO ���������������������������������������������������������������������� Blue Chip �������������������������������������������������������������� 1.7 1.8 1.7 1.6 2.0 1.9 1.7 1.9 2.1 1.9 2.0 2.1 2.0 2.0 2.1 2.0 2.0 2.1 2.0 2.0 2.1 2.0 2.0 2.1 2.0 2.1 2.1 2.0 2.1 2.1 2.0 2.1 2.1 2.0 N/A 2.1 Consumer Price Index (CPI-U): 1 2019 Budget ��������������������������������������������������������� CBO ���������������������������������������������������������������������� Blue Chip �������������������������������������������������������������� 2.1 2.3 2.1 2.1 2.2 1.9 2.0 2.3 2.3 2.2 2.4 2.3 2.3 2.4 2.3 2.3 2.4 2.3 2.3 2.4 2.3 2.3 2.4 2.3 2.3 2.4 2.3 2.3 2.4 2.3 2.3 2.4 2.3 2.3 N/A 2.3 Unemployment Rate: 2 2019 Budget ��������������������������������������������������������� CBO ���������������������������������������������������������������������� Blue Chip �������������������������������������������������������������� Federal Reserve Median Projection 3 ������������������� 4.4 4.4 4.4 4.1 3.9 4.2 4.1 3.9 3.7 4.4 4.2 3.9 3.8 4.7 4.3 4 0.9 0.9 0.9 1.5 1.5 1.7 2.3 2.2 2.4 2.9 2.6 2.7 3.0 3.0 3.0 3.0 2.9 2.8 2.8 2.8 1.8 1.9 1.9 1.9 1.9 1.9 1.9 N/A 2.0 2.0 2.1 2.1 2.1 2.1 2.1 2.1 ----------------------------------------------1.8 longer run---------------------------------------------- 3.9 4.0 4.2 4.3 4.5 4.7 4.8 4.8 4.9 5.0 4.9 4.9 4.9 4.9 4.9 N/A 4.4 4.5 4.5 4.6 4.6 4.6 4.6 4.6 ----------------------------------------------4.6 longer run---------------------------------------------- Interest Rates: 2 91-Day Treasury Bills (discount basis): 2019 Budget ��������������������������������������������������� CBO ���������������������������������������������������������������� Blue Chip �������������������������������������������������������� 3.0 2.8 2.8 3.0 2.8 2.8 2.9 2.8 2.8 2.9 2.8 2.8 2.9 2.8 2.9 2.9 2.8 2.9 2.9 2.8 2.9 10-Year Treasury Notes: 2019 Budget ��������������������������������������������������� 2.3 2.6 3.1 3.4 3.6 3.7 3.7 3.6 3.6 3.6 3.6 CBO ���������������������������������������������������������������� 2.4 2.8 3.2 3.5 3.6 3.7 3.7 3.7 3.7 3.7 3.7 Blue Chip �������������������������������������������������������� 2.3 2.8 3.4 3.5 3.5 3.6 3.6 3.7 3.7 3.7 3.7 Sources: Administration; CBO, An Update to the Budget and Economic Outlook: 2017 to 2027, June 2017; October 2017 Blue Chip Economic Indicators, Aspen Publishers, Inc.; Federal Reserve Open Market Committee, December 13, 2017 N/A=Number is not available. 1 Year-over-Year Percent Change 2 Annual Averages, Percent 3 Median of Fourth Quarter Values A second difference is the publication dates of the various forecasts. While the forecast put out by the Administration is based on actual data available in midNovember, the Blue Chip long-term forecast is based on their October Survey, the FOMC projections were released on December 13, and the CBO forecast was published much earlier, in June 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 forecast a rise in inflation, followed by a stable path at its long-run rate. 2.9 N/A 2.9 3.6 N/A 3.7 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. Real GDP.—The Administration forecasts a higher path for real GDP growth compared with the CBO, FOMC, and Blue Chip forecasts throughout the forecast period after 2017. After 2017, the Administration’s forecast diverges from the other forecasts, with a growth rate 0.6 percentage point faster than the next fastest in 2018 and 0.7 percentage point faster than the others at the end of the forecast window. This reflects the Administration’s expectation 15 2. Economic Assumptions and Interactions with the Budget Table 2–4. SENSITIVITY OF THE BUDGET TO ECONOMIC ASSUMPTIONS (Fiscal Years; In Billions Of Dollars) Budget Effect 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Total of Budget Effects: 20182028 Real Growth and Employment: Budgetary effects of 1 percent lower real GDP growth: (1) For calendar year 2018 only, with real GDP recovery in 2018–2019: 1 Receipts �������������������������������������������������������������������������������� Outlays ��������������������������������������������������������������������������������� Increase in deficit (+) ������������������������������������������������������� –16.1 8.4 24.5 –25.5 18.9 44.4 –13.1 9.2 22.3 –2.1 3.0 5.1 0.2 2.8 2.6 0.2 2.8 2.6 0.2 2.7 2.6 0.2 2.8 2.6 0.2 2.8 2.6 0.2 2.9 2.7 0.2 2.9 2.8 –55.7 59.1 114.7 (2) For calendar year 2018 only, with no subsequent recovery: 1 Receipts �������������������������������������������������������������������������������� Outlays ��������������������������������������������������������������������������������� Increase in deficit (+) ������������������������������������������������������� –16.1 8.4 24.5 –33.7 23.0 56.6 –39.4 23.8 63.2 –41.7 25.3 67.0 –43.7 27.2 70.9 –46.0 29.0 75.0 –48.3 31.0 79.3 –50.8 33.2 83.9 –53.6 35.3 88.9 –56.3 37.4 93.7 –58.9 40.5 99.4 –488.3 314.1 802.4 (3) Sustained during 2018–2028, with no change in unemployment: Receipts �������������������������������������������������������������������������������� Outlays ��������������������������������������������������������������������������������� Increase in deficit (+) ������������������������������������������������������� –16.1 0.0 16.1 –50.0 0.5 50.6 –91.3 –137.5 –187.1 –241.6 –300.8 –364.7 –436.3 –511.3 –590.3 2.4 5.5 9.4 14.2 20.0 27.2 35.6 45.2 56.6 93.7 143.0 196.4 255.8 320.9 391.9 471.9 556.6 646.9 –2,927.2 216.6 3,143.7 Budgetary effects of 1 percentage point higher rate of: (4) Inflation and interest rates during calendar year 2018 only: Receipts �������������������������������������������������������������������������������� Outlays ��������������������������������������������������������������������������������� Increase in deficit (+) ������������������������������������������������������� 17.2 25.6 8.4 33.9 50.0 16.1 36.4 45.7 9.4 37.1 45.2 8.1 39.0 45.0 6.0 41.0 44.8 3.8 43.1 43.0 –0.1 45.2 44.1 –1.1 47.7 43.3 –4.4 50.1 45.1 –5.0 52.4 47.0 –5.4 443.0 478.8 35.8 (5) Inflation and interest rates, sustained during 2018–2028: Receipts �������������������������������������������������������������������������������� Outlays ��������������������������������������������������������������������������������� Increase in deficit (+) ������������������������������������������������������� 17.2 23.7 6.5 51.7 73.3 21.6 91.0 120.9 29.9 134.2 170.6 36.4 181.8 225.9 44.1 234.3 279.9 45.6 292.1 332.7 40.6 355.2 395.3 40.1 426.6 456.5 29.9 502.3 522.8 20.5 583.3 601.8 18.5 2,869.7 3,203.4 333.7 1.1 11.5 10.4 2.5 38.1 35.6 3.1 62.0 58.9 3.5 83.9 80.4 3.8 105.2 101.5 4.0 126.1 122.1 4.3 143.9 139.6 4.6 160.4 155.8 4.9 175.0 170.1 5.2 189.7 184.6 5.4 204.1 198.7 42.4 1,299.8 1,257.5 16.0 12.2 –3.9 49.1 35.1 –13.9 87.8 58.8 –29.0 130.7 86.7 –44.0 177.9 120.8 –57.1 230.0 154.0 –76.0 287.5 350.3 421.3 496.7 577.4 189.2 235.5 282.2 334.1 398.9 –98.3 –114.8 –139.1 –162.6 –178.5 2,824.6 1,907.5 –917.1 Inflation and Interest Rates: (6) Interest rates only, sustained during 2018–2028: Receipts �������������������������������������������������������������������������������� Outlays ��������������������������������������������������������������������������������� Increase in deficit (+) ������������������������������������������������������� (7) Inflation only, sustained during 2018–2028: Receipts �������������������������������������������������������������������������������� Outlays ��������������������������������������������������������������������������������� Decrease in deficit (–) ������������������������������������������������������ Interest Cost of Higher Federal Borrowing: (8) Outlay effect of 100 billion increase in borrowing in 2018 �������������������������������������������������������������������������������������� 0.7 2.1 3.0 3.4 3.5 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. of full implementation of its policy proposals, while other forecasters are unlikely to be operating under the same assumption. The CBO in particular is constrained to assume a continuation of current law in its forecast, which in the case of its June 2017 forecast was prepared prior to the enactment of the Tax Cuts and Jobs Act. Unemployment.—On the unemployment rate, the Administration’s expectations are largely aligned with those of the other forecasters. Along with the Administration, all forecasters expect further declines in unemployment in 2018. After 2018 other forecasters expect the unemployment rate to rise gradually while 3.6 3.7 3.8 3.9 4.1 35.3 the Administration believes that because of its policies there is more room for the economy to grow and for the unemployment rate to decrease. After 2019, 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 4.6 percent for the FOMC and the Blue Chip panel). Interest Rates.—There are not significant differences in the outlooks for interest rates. For both short- and long-term rates, all forecasters agree that they will tend to gradually rise, the Treasury bill rate is expected to rise to a steady-state level of around 2.9 percent and the 10- 16 ANALYTICAL PERSPECTIVES Table 2–5. FORECAST ERRORS, JANUARY 1982–PRESENT REAL GDP ERRORS Administration 2-Year Average Annual Real GDP Growth Mean Error ��������������������������������������������������������������������������������������������������������������������� 0.2 Mean Absolute Error ������������������������������������������������������������������������������������������������������ 1.2 Root Mean Square Error ����������������������������������������������������������������������������������������������� 1.5 6-Year Average Annual Real GDP Growth Mean Error ��������������������������������������������������������������������������������������������������������������������� Mean Absolute Error ������������������������������������������������������������������������������������������������������ Root Mean Square Error ����������������������������������������������������������������������������������������������� CBO Blue Chip –0.1 –0.1 1.0 1.1 1.3 1.4 0.4 1.1 1.3 0.1 1.0 1.2 0.1 0.9 1.1 0.3 0.7 0.9 Blue Chip 0.4 0.7 0.8 0.5 0.8 1.0 0.7 0.9 1.0 0.5 0.9 1.3 Blue Chip 0.6 1.0 1.2 1.4 1.5 1.8 1.5 1.6 1.9 INFLATION ERRORS 2-Year Average Annual Change in the GDP Price Index Administration Mean Error ��������������������������������������������������������������������������������������������������������������������� 0.3 Mean Absolute Error ������������������������������������������������������������������������������������������������������ 0.7 Root Mean Square Error ����������������������������������������������������������������������������������������������� 0.9 6-Year Average Annual Change in the GDP Index Mean Error ��������������������������������������������������������������������������������������������������������������������� Mean Absolute Error ������������������������������������������������������������������������������������������������������ Root Mean Square Error ����������������������������������������������������������������������������������������������� CBO 0.4 0.6 0.8 INTEREST RATE ERRORS 2-Year Average 91-Day Treasury Bill Rate Administration Mean Error ��������������������������������������������������������������������������������������������������������������������� 0.3 Mean Absolute Error ������������������������������������������������������������������������������������������������������ 1.0 Root Mean Square Error ����������������������������������������������������������������������������������������������� 1.2 6-Year Average 91-Day Treasury Bill Rate Mean Error ��������������������������������������������������������������������������������������������������������������������� Mean Absolute Error ������������������������������������������������������������������������������������������������������ Root Mean Square Error ����������������������������������������������������������������������������������������������� year Treasury note yield is expected to lie between 3.6 percent and 3.7 percent. Inflation.—Expectations for inflation are similar across the Administration, the CBO, and the Blue Chip. The CBO expects a CPI inflation rate of 2.4 percent in the long run, while the Administration and the Blue Chip expect 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 and CBO. Sensitivity of the Budget to Economic Assumptions Federal spending and tax collections are heavily influenced by developments in the economy. Tax 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 0.9 1.4 1.7 CBO 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 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 tax rates to stimulate the economy, and such behavior would not be accounted for by the historical relationships captured by these rules of thumb. Another caveat is that it is often unrealistic to suppose that one macroeconomic variable might change while 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. 17 2. Economic Assumptions and Interactions with the Budget 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 For real growth and employment: • The first panel in the table illustrates the effect on the deficit resulting from a one percentage point reduction in real GDP growth, relative to the Administration’s forecast, in 2018 that is followed by a subsequent recovery in 2019 and 2020. The unemployment rate is assumed to be half a percentage point higher in 2018 before returning to the baseline level in 2019 and 2020. 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 $114.7 billion over the eleven-year forecast horizon due to lower receipts and higher interest payments resulting from higher short-run deficits. • The next panel in the table reports the effect of a re- duction of one percentage point in real GDP growth in 2018 that is not subsequently made up by faster growth in 2019 and 2020. Consistent with this output path, the 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 one 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 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 one percentage point higher rate of inflation and a 1 percentage point higher nominal interest rate in 2018. Both inflation and interest rates return to their assumed levels in 2019. This would result in a permanently higher price level and nominal GDP over the course of the forecast horizon. The effect on the Budget deficit would be fairly modest, as receipts would increase slightly less than outlays over the eleven years. This is because revenues, interest payments, and nondiscretionary outlays rise with inflation while discretionary outlays are assumed fixed. Over the years from 2018-2028, the budget deficit would increase by about $36 billion. • The fifth panel in the table illustrates the effects on the budget deficit of an inflation rate and an interest rate one percentage point higher than projected in every year of the forecast. The overall effect on the deficit over the forecast is $334 billion accumulated as both receipts, interest payments, and mandatory outlays (on Social Security and Federal pensions rise with inflation while discretionary outlays are presumed to be fixed. It is still important to note, however, that faster inflation implies that the real value of Federal discretionary 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 households would pay higher taxes on interest income. • The seventh panel in the table reports the effect on the budget deficit of an inflation rate one 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 higher inflation results in much higher revenues over the next eleven years, which helps to reduce interest payments on debt. 18 ANALYTICAL PERSPECTIVES 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 2018, while all of the other projections remain constant. Outlays rise over the forecast window by an accumulated $35 billion, due to higher interest payments. These simple approximations that inform the sensitivity analysis are symmetric. This means that the effect of, for example, a one percentage point higher rate of growth over the forecast horizon would be of the same magnitude as a one percentage point reduction in growth, though with the opposite sign. 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. 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 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. This could be due to partial adoption of the various Administrations’ proposed policies in the past. When it comes to inflation, there is more evidence of some systematic bias in all three forecasts. The mean er- rors 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 equal or 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 be larger than the Administration expected. One possible reason for this is that past Administrations’ policy proposals have not all been implemented. 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 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 expected 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 2018 to 2023, 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 2018, there is a 95 percent chance of a budget deficit greater 19 2. Economic Assumptions and Interactions with the Budget than 2.0 percent of GDP. By 2023, there is only a 5 percent chance of a budget deficit greater than 9.9 percent of Percent of GDP GDP. In addition, the chart reports that there is a significant probability of a budget surplus by 2023. Chart 2-1. Range of Uncertainty for the Budget Deficit Percentiles: 6 95th 4 90th 2 0 75th -2 Deficit Forecast -4 -6 25th -8 10th -10 -12 5th 2018 2019 2020 2021 2022 2023 3. LONG-TERM BUDGET OUTLOOK The 2019 President’s Budget improves the Federal Government’s long-term fiscal picture by promoting rapid economic growth, responsibly controlling spending, and increasing efficiencies Government-wide. This chapter demonstrates the positive impact of the Administration’s policies by comparing long-term budget forecasts under current policy (baseline projections) with forecasts based on the 2019 Budget proposals (policy projections). Baseline projections indicate that the deficit will continue at elevated levels beyond the 10-year window and that publicly held debt will continue to rise as a share of the economy. Conversely, policy projections indicate that enacting the Budget’s proposed reforms could dramatically reduce deficits and publicly held debt as a percentage of GDP. Chart 3-1 shows the path of debt as a percent of GDP under continuation of current policy, without the proposed changes 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 78.8 percent in 2018 to 88.3 percent in 2028, an increase of about 9.5 percentage points over that period. In contrast, the debt ratio is projected to be 72.6 percent in 2028 under the proposed policy changes. By the end of the 25-year horizon, the difference in the debt burden—93.7 percent of GDP under current policy compared to 39.2 percent of GDP under Budget policy—is even starker. The savings proposed by the Administration from 2019-2028 are a significant down payment towards reducing debt and reaching a balanced budget by 2039. While the detailed estimates of receipts and outlays in the President’s Budget extend only 10 years, this chapter presents the longer-term budget outlook, both under a continuation of current policies and under the policies proposed in the Budget. The projections in this chapter are highly uncertain. Small changes in economic or other assumptions can cause large differences to the results especially 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 2019 Budget in the second section. • The second section demonstrates how the Adminis- tration’s policies will significantly alter the current trajectory of the Federal budget by reducing deficits and debt, and by balancing the budget by 2039 under a long-term term extension of the Budget’s policies. • The third section discusses alternative assumptions about the evolution of key variables and uncertainties in the resulting 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. Chart 3-1. Comparison of Publicly Held Debt Debt as a percent of GDP 120 100 Continuation of Current Policies 80 60 40 2019 Budget Policy 20 0 21 22 ANALYTICAL PERSPECTIVES Long-Run Projections under Continuation of Current Policies For the 10-year budget window, the Administration produces both baseline projections, which show how deficits 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, a set of economic assumptions based in current law, including the projected effects of the 2017 tax reform and excluding the growthincreasing effects of the Administration’s proposed fiscal policies, underlie the baseline projections in this chapter. Using the same set of economic assumptions for baseline and policy projections would understate the severity of the current-law fiscal problem and fail to illustrate the full impact of the 2019 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) per statutory baseline rules. Thereafter, the baseline long-run projections assume that per-person discretionary funding remains constant, which implies an annual nominal growth rate of about 2.9 percent. Over the next 10 years, debt in the baseline projection rises from 78.8 percent of GDP in 2018 to 88.3 percent of GDP in 2028. Beyond the 10-year horizon, debt continues to increase, reaching 93.7 percent of GDP by 2043, 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 are only partly offset by growth in Federal revenues and a decline in discretionary spending relative to GDP. Without policy changes, the public debt will continue to grow, increasing the burden on future generations. 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 2.3, and it will reach about 2.1 in the mid-2030s, at which point most of the baby boomers will have retired. 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 extension of the individual income tax and estate tax provisions of the Tax Cuts and Jobs Act beyond their expiration in 2025, and also 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. 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 5.6 percent of GDP by 2043, 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, thus requiring both public and private spending on health care to increase as a share of the economy. While in recent years spending per enrollee has grown roughly in line with, or more slowly than, per-capita GDP in both the public and private sectors, this 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 2017 Medicare Trustees Report, the projections here assume that Medicare per-beneficiary spending growth will increase, with the growth rate averaging about 1.0 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 2.5 percentage points as a percent of GDP by 2043. Revenues and Discretionary Spending.—Under the 2017 tax reform law, receipts will grow slightly faster than GDP over the long run. 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.) In addition, under baseline assumptions discretionary spending grows slower than GDP. Both of these factors act to restrain deficits relative to GDP, partially offsetting the pressure from increases in spending for Social Security and health programs. The Impact of 2019 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 2019 Budget proposals reduce deficits while continuing to invest in national security and other critical priorities that promote economic growth 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 rates as under the baseline projection, discretionary spending keeps up with inflation and population, and revenues continue as a fixed percentage of GDP based on their level in 2028. Details about the assumptions are available in the appendix. 23 3. Long-Term Budget Outlook Chart 3-2. Comparison of Annual Surplus/Deficit Surplus (+)/Deficit (-) as a percent of GDP 4 2 2019 Budget Policy 0 -2 -4 Continuation of Current Policies -6 -8 -10 -12 2000 2010 2020 As shown in Chart 3-2, 2019 Budget policies reduce the deficit to 1.4 percent of GDP by 2028 and ultimately lead to a balanced budget by 2039. Over the decade and a half after 2028, the debt-to-GDP ratio continues to decline. At the end of the 25-year horizon, the debt ratio would be the lowest since before 2008, 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 average postwar debt ratio of 45 percent. Policy adjustments of about 0.7 percent of GDP to baseline projections would be needed each year to keep the debt ratio stable at 79 percent. Alternatively, policy adjustments of about 2.2 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 the 10-year window and reduce it by nearly 40 percentage points by 2043, 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 a $200 billion initiative to improve the Nation’s crumbling infrastructure and an increase of $65 billion to defense spending for 2019 above the current discretionary caps. Continuing reductions of regulatory burden will promote job creation, and extending tax reform will allow families to keep more of their earnings. In addition, the Budget proposes streamlining Medicare to make it a better deal for seniors and the Government. Eliminating fraud, 2030 2040 waste, and abuse from Medicare contributes to a lower debt and deficit in the long run. Table 3–1. 25-YEAR DEBT PROJECTIONS UNDER ALTERNATIVE BUDGET SCENARIOS (Percent of GDP) 2019 Budget Policy ���������������������������������������������������������������������������������������������� 39.2 Health: Excess cost growth averages 1.5% ����������������������������������������������������������������� Zero excess cost growth ���������������������������������������������������������������������������������� 51.3 32.1 Discretionary Outlays: Grow with inflation ������������������������������������������������������������������������������������������� Grow with GDP ������������������������������������������������������������������������������������������������ 37.1 45.6 Revenues: Revenues rise as as a share of GDP, with bracket creep �������������������������������� 32.7 Productivity and Interest: 1 Productivity grows by 0.25 percentage point per year faster than the base case ������������������������������������������������������������������������������������������������������������ 24.2 Productivity grows by 0.25 percentage point per year slower than the base case ������������������������������������������������������������������������������������������������������������ 56.1 1 Interest rates adjust commensurately with increases or decreases in productivity. 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 accurate shortrun budget forecasting quite difficult. For example, the Budget’s projection of the deficit in five years is 3.0 percent of GDP, but a distribution of probable outcomes ranges from a deficit of 8.4 percent of GDP to a surplus 24 ANALYTICAL PERSPECTIVES Chart 3-3. Alternative Productivity and Interest Assumptions Debt as a percent of GDP 90 80 70 60 50 2019 Budget Policy 40 Higher Productivity Growth 30 Lower Productivity Growth 20 10 0 of 2.4 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 longrun budget outlook (see Chart 3-3). Higher productivity growth improves the budget outlook, because it adds directly to the growth of the major tax bases while having a smaller effect on outlay growth. 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 productivity 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 3.6 percent. The alternative scenarios il- lustrate 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 24.2 percent of GDP in the high productivity scenario to 56.1 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 major 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 1.0 percentage points faster than per-capita GDP growth over the next 25 years. However, in the past, especially prior to 1990, health care costs grew even more rapidly. Over the last few years, per-enrollee health care costs Chart 3-4. Alternative Health Care Costs Debt as a percent of GDP 90 80 70 60 50 40 30 20 10 0 2019 Budget Policy Zero Excess Growth Rate Higher Average Excess Growth Rate 25 3. Long-Term Budget Outlook Chart 3-5. Alternative Discretionary Assumptions Debt as a percent of GDP 90 80 70 60 50 40 Discretionary Spending Grows with Inflation Only 30 2019 Budget Policy 20 Discretionary Spending Grows with GDP 10 0 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 impacts 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 39.2 percent of GDP under the base case Budget policy to 51.3 percent of GDP. If health care costs grew with GDP per-capita, the debt ratio in 25 years would be 32.1 percent of GDP. Policy Assumptions.—As evident from the discussion of the 2019 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 2028, discretionary spending grows with inflation and population (see Chart 3-5). Alternative assumptions are to grow discretionary spending with GDP or inflation only. At the end of the 25-year horizon, the debt ratio ranges from 37.1 percent of GDP if discretion- ary spending grows with inflation only to 39.2 percent of GDP in the base case and 45.6 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 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 39.2 percent of GDP in the base case to 32.7 percent of GDP in the alternative case where tax brackets are not regularly increased after 2028. 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 39.2 percent of GDP. Alternatively, assuming a combination of slower productivity growth and higher health care cost growth results in less debt reduction, with the debt ratio reaching 69.0 percent by the end of the window. Chart 3-6. Alternative Revenue Assumptions Debt as a percent of GDP 90 80 70 2019 Budget Policy 60 50 40 30 20 10 0 Revenues Rise as a share of GDP, with Bracket Creep 26 ANALYTICAL PERSPECTIVES Chart 3-7. Long-Term Uncertainties Debt as a percent of GDP 90 80 70 60 50 40 30 20 2019 Budget Policy Pessimistic Optimistic 10 0 Meanwhile, assuming a combination of higher productivity growth and slower health care cost growth results in the debt ratio reaching 17.5 percent in 2043. Despite considerable uncertainties, long-term projections are helpful in highlighting some of the budget challenges on the horizon, especially the impact of an aging population. In addition, the wide range of the projections highlight the need for policy awareness of key drivers of future budgetary costs and potential action to address them. 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 revenues. 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 period. The estimates cover periods ranging in length from 25 to 75 years. Under the Medicare Modernization Act (MMA) of 2003, the Medicare Trustees must issue a “warning” when two consecutive Trustees’ reports project that the share of Medicare funded by general revenues will exceed 45 percent in the current year or any of the subsequent six years. The 2017 Trustees’ Report made a determination of excess revenues, but did not issue a warning since no such determination was made in the 2016 Trustees’ Report. The MMA requires that, if there is a Medicare funding warning, the President submit proposed legislation responding to that warning, within 15 days of submitting the Budget. In accordance with the Recommendations Clause of the Constitution and as the Executive Branch has noted in prior years, the Executive Branch considers a requirement to propose specific legislation to be advisory. 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 2017 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 2029. 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 2017 Social Security Trustees’ report projects that the trust fund will not return to cash surplus, but the program will continue to experience an overall surplus for a few 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 the 2017 Trustees’ report, beginning in 2034, 77 percent of projected Social Security scheduled benefits would be funded. This percentage would eventually decline to 73 percent by 2091. 27 3. Long-Term Budget Outlook Table 3–2. INTERMEDIATE ACTUARIAL PROJECTIONS FOR OASDI AND HI, 2017 TRUSTEES’ REPORTS 2015 2020 2030 2040 2080 3.8 4.7 –0.9 50 years –0.6 4.3 5.0 –0.7 75 years –0.6 13.3 17.0 –3.7 50 years –2.4 13.3 17.5 –4.2 75 years –2.8 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 3.4 * 3.6 4.2 –0.5 25 years –0.5 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. 12.8 13.9 –1.1 13.0 13.9 –0.9 13.2 16.3 –3.1 25 years –1.7 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 2018-2028, the assumptions are drawn from the Administration’s economic projections used for the 2019 Budget. The economic assumptions are extended beyond this interval by holding the inflation rate, interest rates, and the unemployment rate constant at the levels assumed in the final year (2028) of the budget forecast. Population growth and labor force growth are extended using the intermediate assumptions from the 2017 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 annual rate of growth in the Budget’s economic assumptions—2.3 percent per year. For the baseline projections, GDP growth is adjusted to remove the growthincreasing effects of the Administration’s fiscal policies. Under Budget policies, the CPI inflation rate is held constant at 2.3 percent per year, the unemployment rate is held constant at 4.8 percent, the yield to maturity on 10-year Treasury notes is constant at 3.6 percent, and the 91-day Treasury bill rate is kept at 2.9 percent. Consistent with the demographic assumptions in the Trustees’ reports, U.S. population growth slows from an average of 0.8 percent per year during the budget window to about three-quarters of 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 in- crease in the population over age 65 reduce labor supply growth. In these projections, real GDP growth averages between 2.7 percent and 2.8 percent per year for the period following the end of the 10-year budget window. The economic and demographic projections described above are set exogenously and do not change in response to changes in the budget outlook. This makes it easier to interpret the comparisons of alternative policies. Budget Projections.—For the period through 2028, receipts and outlays in the baseline and policy projections follow the 2019 Budget’s baseline and policy estimates respectively. Under Budget policies, total tax receipts are constant relative to GDP after 2028. Discretionary spending grows at the rate of growth in inflation and population 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 2017 Medicare Trustees’ report current law baseline. For the policy projections, these assumptions are adjusted based on the Budget proposal to streamline Medicare. Medicaid outlays are based on the economic and demographic projections2 in the model, which assume average excess cost growth of approximately 1.0 percentage point above growth in GDP per capita after 2028. For the policy projections, these assumptions are adjusted based on the Budget proposals to reform Medicaid funding. 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. 2 The Medicaid per capita projections assumed in this chapter contain a higher degree of uncertainty than they have in past years. This is due to ongoing system changes that have resulted in complete Medicaid claims and enrollment data being unavailable for the most recent several years. 4. FEDERAL BORROWING AND DEBT Debt is the largest legally and contractually binding obligation of the Federal Government. At the end of 2017, the Government owed $14,665 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 $310 billion of interest on this debt. At the same time, the Government also held financial assets, net of financial liabilities other than debt, of $1,515 billion. Therefore, debt held by the public net of financial assets was $13,151 billion. In addition, at the end of 2017 the Treasury had issued $5,540 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 $20,206 billion. Interest on the gross Federal debt was $457 billion in 2017. Gross Federal debt is discussed in more detail later in the chapter. The $14,665 billion debt held by the public at the end of 2017 represents an increase of $498 billion over the level at the end of 2016. This increase is the result of the $665 billion deficit in 2017 and other financing transactions that reduced the need to borrow by $168 billion. Debt held by the public fell from 76.7 percent of Gross Domestic Product (GDP) at the end of 2016 to 76.5 percent of GDP at the end of 2017. The deficit is estimated to increase to $833 billion, or 4.2 percent of GDP, in 2018, and to $984 billion, or 4.7 percent of GDP, in 2019. After 2019, the deficit is projected to begin to decrease as a percent of GDP, falling to 1.4 percent of GDP by 2027. Debt held by the public is projected to grow to 78.8 percent of GDP at the end of 2018 and 80.3 percent of GDP at the end of 2019. Debt held by the public as a percent of GDP is projected to begin to decline in 2023, falling to 72.6 percent of GDP in 2028. Debt held by the public net of financial assets is expected to similarly grow to 69.8 percent of GDP at the end of 2018 and to 71.3 at the end of 2019, then to begin to decline in 2023, falling to 64.9 percent of GDP at the end of 2028. 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 2028. (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 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 stimulus bill. Since 2008, debt as a percent of GDP has grown rapidly, increasing from 35.2 percent at the end of 2007 to 76.7 percent at the end of 2016. In 2017, debt as a percent of GDP fell to 76.5 percent. 1 The historical tables are available at https://www.whitehouse.gov/ omb/historical-tables/ and on the Budget CD-ROM. 29 30 ANALYTICAL PERSPECTIVES Under the proposals in the Budget, the deficit is projected to grow to $833 billion in 2018. The deficit is projected to stabilize in nominal terms in 2020 and then begin to decrease in subsequent years, falling to $445 billion, or 1.4 percent of GDP, in 2028. Gross Federal debt is projected to grow to 107.2 percent of GDP in 2018 and then begin to fall after 2020, to 91.8 percent of GDP in 2028. Debt held by the public as a percent of GDP is es- timated to be 78.8 percent at the end of 2018, to continue to grow gradually through 2022, and then to begin to decline, falling to 72.6 percent of GDP by 2028. Debt held by the public net of financial assets as a percent of GDP is estimated to similarly grow to 69.8 percent of GDP at the end of 2018, grow gradually through 2022, and then begin to fall, reaching 64.9 percent of GDP by the end of 2028. 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 2017 dollars 1 Debt held by the public as a Interest on the debt held by the Interest on the debt held by the percent of public 3 public as a percent of 3 Credit market debt 2 GDP Current dollars FY 2017 dollars 1 Total outlays GDP 1946 ������������������������������������������������������������������������������ 241.9 2,492.6 106.1 N/A 4.2 43.1 7.6 1.8 1950 ������������������������������������������������������������������������������ 1955 ������������������������������������������������������������������������������ 219.0 226.6 1,826.1 1,660.5 78.5 55.7 53.3 42.1 4.8 5.2 40.4 38.0 11.4 7.6 1.7 1.3 1960 ������������������������������������������������������������������������������ 1965 ������������������������������������������������������������������������������ 236.8 260.8 1,537.6 1,585.7 44.3 36.7 33.1 26.4 7.8 9.6 50.8 58.2 8.5 8.1 1.5 1.3 1970 ������������������������������������������������������������������������������ 1975 ������������������������������������������������������������������������������ 283.2 394.7 1,434.8 1,473.8 27.0 24.5 20.3 17.9 15.4 25.0 77.9 93.4 7.9 7.5 1.5 1.6 1980 ������������������������������������������������������������������������������ 1985 ������������������������������������������������������������������������������ 711.9 1,507.3 1,850.0 2,989.5 25.5 35.3 18.5 22.2 62.8 152.9 163.1 303.3 10.6 16.2 2.2 3.6 1990 ������������������������������������������������������������������������������ 1995 ������������������������������������������������������������������������������ 2,411.6 3,604.4 4,112.4 5,424.2 40.8 47.5 22.5 26.3 202.4 239.2 345.1 360.0 16.2 15.8 3.4 3.2 2000 ������������������������������������������������������������������������������ 2005 ������������������������������������������������������������������������������ 3,409.8 4,592.2 4,730.3 5,683.6 33.6 35.6 18.8 17.1 232.8 191.4 323.0 236.8 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 10,103.9 11,120.9 12,163.7 12,705.5 13,309.0 60.9 65.9 70.4 72.6 74.1 25.2 27.5 29.4 30.1 30.8 228.2 266.0 232.1 259.0 271.4 255.6 292.0 250.2 274.6 282.7 6.6 7.4 6.6 7.5 7.7 1.5 1.7 1.4 1.6 1.6 2015 ������������������������������������������������������������������������������ 2016 ������������������������������������������������������������������������������ 2017 ������������������������������������������������������������������������������ 2018 estimate ���������������������������������������������������������������� 2019 estimate ���������������������������������������������������������������� 13,116.7 14,167.6 14,665.5 15,789.7 16,871.7 13,497.0 14,411.2 14,665.5 15,546.5 16,338.7 72.9 76.7 76.5 78.8 80.3 30.6 31.4 31.3 N/A N/A 260.6 283.8 309.9 360.4 415.2 268.2 288.7 309.9 354.9 402.1 7.1 7.4 7.8 8.6 9.4 1.4 1.5 1.6 1.8 2.0 2020 estimate ���������������������������������������������������������������� 2021 estimate ���������������������������������������������������������������� 2022 estimate ���������������������������������������������������������������� 2023 estimate ���������������������������������������������������������������� 2024 estimate ���������������������������������������������������������������� 17,946.8 18,950.5 19,946.3 20,808.6 21,495.3 17,063.7 17,669.3 18,232.1 18,644.9 18,882.7 81.3 81.7 81.9 81.3 79.9 N/A N/A N/A N/A N/A 498.6 566.8 627.5 681.5 724.4 474.0 528.5 573.6 610.6 636.4 10.8 11.9 12.6 13.2 13.7 2.3 2.4 2.6 2.7 2.7 2025 estimate ���������������������������������������������������������������� 22,137.0 19,063.5 78.4 N/A 757.2 652.1 13.7 2.7 2026 estimate ���������������������������������������������������������������� 22,703.3 19,165.6 76.6 N/A 784.9 662.6 13.7 2.6 2027 estimate ���������������������������������������������������������������� 23,194.0 19,194.0 74.6 N/A 813.1 672.9 13.7 2.6 2028 estimate ���������������������������������������������������������������� 23,683.6 19,213.3 72.6 N/A 835.8 678.1 13.3 2.6 N/A = Not available. 1 Amounts in current dollars deflated by the GDP chain-type price index with fiscal year 2017 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). 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 Governmentguaranteed 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/analytical-perspectives and on the Budget CD-ROM.) 31 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. 32 ANALYTICAL PERSPECTIVES Table 4–2. FEDERAL GOVERNMENT FINANCING AND DEBT (In billions of dollars) Actual 2017 Financing: Unified budget deficit ��������������������������������������������������������������� 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 ����������� Debt Subject to Statutory Limitation, End of Year: Debt issued by Treasury ���������������������������������������������������������� Less: Treasury debt not subject to limitation (–) 3 �������������������� Agency debt subject to limitation ��������������������������������������������� Adjustment for discount and premium 4 ����������������������������������� Total, debt subject to statutory limitation 5 ������������������������� Estimate 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 665.4 832.6 984.4 986.9 915.9 907.8 778.5 612.1 579.2 517.4 449.7 445.0 –194.0 190.7 ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... 54.7 –13.7 101.0 0.9 93.9 5.1 86.9 2.7 87.0 2.1 89.6 –0.1 87.0 –2.0 79.6 –3.8 69.0 –5.4 59.0 –9.1 49.9 –8.1 45.7 –0.5 –0.3 40.7 –0.1 101.8 –* 99.0 –* 89.6 –* 89.2 –* 89.5 –* 85.0 ......... 75.8 ......... 63.6 ......... 49.9 ......... 41.8 ......... 45.2 1.2 –15.2 –167.3 –0.2 –0.5 ......... 292.0 –0.4 –1.0 ......... 97.9 –0.4 –1.1 ......... 88.5 –0.4 –1.0 ......... 88.2 –0.4 –1.1 ......... 88.4 –0.4 –0.7 ......... 84.3 –0.4 –0.8 ......... 75.0 –0.4 –0.7 ......... 62.9 –0.4 –0.6 ......... 49.3 –0.4 –0.3 ......... 41.5 –0.4 –0.1 ......... 45.1 –0.4 –167.5 291.6 97.6 88.1 87.8 88.0 83.9 74.6 62.5 48.9 41.0 44.6 497.8 1,124.3 1,082.0 1,075.1 1,003.7 995.8 862.4 686.7 641.7 566.3 490.7 489.6 497.8 1,124.3 1,082.0 1,075.1 1,003.7 168.4 148.3 142.6 123.0 115.6 995.8 65.0 862.4 88.8 686.7 119.4 641.7 56.0 566.3 52.6 490.7 –54.8 489.6 –138.4 3.9 1.5 2.2 2.8 2.0 2.0 670.2 1,274.0 1,226.8 1,200.9 1,121.3 1,062.8 2.1 953.2 2.2 808.3 1.4 699.1 1.5 620.3 1.9 437.9 1.8 353.0 20,179.5 21,452.4 22,677.7 23,877.0 24,997.1 26,058.6 27,010.6 27,818.0 28,517.1 29,137.1 29,574.2 29,926.4 –11.9 –10.8 –9.3 –7.7 –6.5 –5.3 –4.1 –3.2 –3.2 –2.8 –2.0 –1.1 * * * * * * * * * * * * 41.1 41.1 41.1 41.1 41.1 41.1 41.1 41.1 41.1 41.1 41.1 41.1 20,208.6 21,482.6 22,709.4 23,910.3 25,031.6 26,094.4 27,047.6 27,855.9 28,555.0 29,175.3 29,613.2 29,966.3 Debt Outstanding, End of Year: Gross Federal debt: 6 Debt issued by Treasury ���������������������������������������������������� Debt issued by other agencies ������������������������������������������ Total, gross Federal debt ����������������������������������������������� As a percent of GDP ������������������������������������������������ 20,179.5 21,452.4 22,677.7 23,877.0 24,997.1 26,058.6 27,010.6 27,818.0 28,517.1 29,137.1 29,574.2 29,926.4 26.2 25.8 25.1 23.9 23.1 22.3 21.5 20.2 18.8 17.7 16.6 15.6 20,205.7 21,478.2 22,702.8 23,900.9 25,020.2 26,081.0 27,032.1 27,838.2 28,535.9 29,154.8 29,590.7 29,942.0 105.4% 107.2% 108.1% 108.3% 107.9% 107.0% 105.6% 103.5% 101.0% 98.3% 95.2% 91.8% Held by: Debt held by Government accounts ���������������������������������� 5,540.3 5,688.5 5,831.1 5,954.2 6,069.7 6,134.7 6,223.5 6,342.9 6,398.9 6,451.5 6,396.8 6,258.4 Debt held by the public 7 ���������������������������������������������������� 14,665.5 15,789.7 16,871.7 17,946.8 18,950.5 19,946.3 20,808.6 21,495.3 22,137.0 22,703.3 23,194.0 23,683.6 As a percent of GDP ������������������������������������������������������ 76.5% 78.8% 80.3% 81.3% 81.7% 81.9% 81.3% 79.9% 78.4% 76.6% 74.6% 72.6% *$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 $20,456 billion, as increased after December 8, 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 2017, the Federal Reserve Banks held $2,465.4 billion of Federal securities and the rest of the public held $12,200.0 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 2017 through 2028.5 In 2017 the Government borrowed $498 billion, increasing the debt held by the public from $14,168 billion at the end of 2016 to $14,665 billion at the end of 2017. The debt held by Government accounts grew by $168 billion, and gross Federal debt increased by $666 billion to $20,206 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 2028, see Chapter 3, “Long-Term 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.’’ 33 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 2017 the deficit was $665 billion while these other factors reduced the need to borrow by $168 billion, or 34 percent of total borrowing from the public. As a result, the Government borrowed $498 billion from the public. The other factors are estimated to increase borrowing by $292 billion (26 percent of total borrowing from the public) in 2018, and $98 billion (9 percent) in 2019. In 2020–2028, these other factors are expected to increase borrowing by annual amounts ranging from $41 billion to $88 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 $155 billion in 2016, to $353 billion, and decreased by $194 billion in 2017, to $159 billion. The large 2017 decrease in the cash balance is primarily due to Treasury drawing down the cash balance as it took measures to continue to finance Federal Government operations while at the debt ceiling. For risk management purposes, Treasury seeks to maintain a cash balance roughly equal to one week of Government outflows, with a minimum balance of about $150 billion. The operating cash balance is projected to increase by $191 billion, to $350 billion at the end of 2018. Changes in the operating cash balance, while occasionally large, are inherently limited over time. 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 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 8 The FCRA (sec. 505(b)) requires that the financing accounts be nonbudgetary. 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.’’ 34 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 $41 billion in 2017. In 2018 credit financing accounts are projected to increase borrowing by $102 billion. After 2018, the credit financing accounts are expected to increase borrowing by amounts ranging from $42 billion to $99 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 2017, net upward reestimates received by the financing accounts reduced financing disbursements by $49.3 billion, due largely to upward reestimates for student loan programs and Federal Housing Administration (FHA) Mutual Mortgage Insurance guarantees. In 2018, upward reestimates for FHA guarantees are more than offset by downward reestimates for student loans, resulting in a net downward reestimate of $0.9 billion. 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 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 ANALYTICAL PERSPECTIVES in the deficit, for no net impact on borrowing from the public. In 2017, net increases, including purchases and gains, were $1.2 billion. A $0.5 billion net decrease is projected for 2018 and net annual decreases ranging from $0.1 billion to $1.1 billion are projected for 2019 and subsequent years.9 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 2017. Net investment may differ from the surplus due to changes in the amount of cash assets not currently invested. In 2017, the total trust fund surplus was $154 billion, while trust fund investment in Federal securities increased by $146 billion. 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. 9 The budget treatment of this fund is further discussed in Chapter 8, “Budget Concepts.’’ 35 4. Federal Borrowing and Debt 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. Due largely to the $194 billion decrease in the Treasury operating cash balance, net financial assets fell by $183 billion, to $1,515 billion, in 2017. This $1,515 billion in net financial assets included a cash balance of $159 billion, net credit financing account balances of $1,295 billion, and other assets and liabilities that aggregated to a net asset of $60 billion. At the end of 2017, debt held by the public was $14,665 billion, or 76.5 percent of GDP. Therefore, debt held by the public net of financial assets was $13,151 billion, or 68.6 percent of GDP. As shown in Table 4–3, the value of the Government’s net financial assets is projected to increase to $1,809 billion in 2018, principally due to projected increases in the Treasury cash balance and the value of the direct loan financing accounts. While debt held by the public is expected to increase from 76.5 percent to 78.8 percent of GDP during 2018, debt held by the public net of financial assets is expected to increase by a smaller amount, from 68.6 percent to 69.8 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 Table 4–3. DEBT HELD BY THE PUBLIC NET OF FINANCIAL ASSETS AND LIABILITIES (Dollar amounts in billions) Actual 2017 Debt Held by the Public: Debt held by the public ������������������������������������������������ As a percent of GDP ���������������������������������������������� Financial Assets Net of Liabilities: Treasury operating cash balance �������������������������������� Credit financing account balances: Direct loan accounts ���������������������������������������������� Guaranteed loan accounts ������������������������������������ Troubled Asset Relief Program equity purchase accounts ����������������������������������������������������������� Subtotal, credit financing account balances ������ Government-sponsored enterprise preferred stock ����� Non-Federal securities held by NRRIT ������������������������ Other assets net of liabilities ���������������������������������������� Total, financial assets net of liabilities �������������������� Debt Held by the Public Net of Financial Assets and Liabilities: Debt held by the public net of financial assets ������������ As a percent of GDP ���������������������������������������������� *$50 million or less. Estimate 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 14,665.5 15,789.7 16,871.7 17,946.8 18,950.5 19,946.3 20,808.6 21,495.3 22,137.0 22,703.3 23,194.0 23,683.6 76.5% 78.8% 80.3% 81.3% 81.7% 81.9% 81.3% 79.9% 78.4% 76.6% 74.6% 72.6% 159.3 350.0 350.0 350.0 350.0 350.0 350.0 350.0 350.0 350.0 350.0 350.0 1,281.3 13.9 1,382.3 14.8 1,476.2 19.9 1,563.1 22.6 1,650.1 24.7 1,739.7 24.7 1,826.7 22.7 1,906.3 18.9 1,975.2 13.5 2,034.3 4.4 2,084.2 –3.7 2,129.9 –4.2 0.1 1,295.3 92.6 25.3 –58.0 1,514.6 * 1,397.1 94.6 24.8 –58.0 1,808.6 * 1,496.1 94.6 23.7 –58.0 1,906.5 * 1,585.7 94.6 22.7 –58.0 1,995.0 * 1,674.8 94.6 21.7 –58.0 2,083.2 * 1,764.4 94.6 20.6 –58.0 2,171.6 –* 1,849.4 94.6 19.9 –58.0 2,255.9 –* 1,925.1 94.6 19.1 –58.0 2,330.9 –* 1,988.7 94.6 18.4 –58.0 2,393.8 –* 2,038.7 94.6 17.8 –58.0 2,443.1 –* 2,080.4 94.6 17.5 –58.0 2,484.6 –* 2,125.7 94.6 17.4 –58.0 2,529.7 13,150.9 13,981.2 14,965.2 15,951.8 16,867.3 17,774.7 18,552.8 19,164.4 19,743.2 20,260.1 20,709.4 21,153.9 68.6% 69.8% 71.3% 72.3% 72.7% 72.9% 72.5% 71.2% 69.9% 68.3% 66.6% 64.9% 36 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).10 Treasury nonmarketable debt cannot be bought or sold on the secondary market. 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—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 71 months at the end of 2017. 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 ANALYTICAL PERSPECTIVES 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.11 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 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. Decreases in outstanding balances of nonmarketable debt, such as occurred in 2017, increase the need for marketable borrowing.12 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 $26.2 billion at the end of 2017. 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 fall to $25.8 billion at the end of 2018 and to $25.1 billion at the end of 2019. The predominant agency borrower is TVA, which had borrowings of $26.0 billion from the public as of the end of 2017, 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, 11 10 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. Noncompetitive bids cannot exceed $5 million per bidder. 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. 12 37 4. Federal Borrowing and Debt 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.13 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 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.14 The budget presentation 13 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. 14 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 and the Public Company Accounting Oversight Board. 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 2017, lease financing obligations were $1.7 billion and obligations for prepayments were $0.1 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. Table 4–4. AGENCY DEBT (In millions of dollars) 2017 Actual 2018 Estimate 2019 Estimate Borrowing/ Debt, End-of- Borrowing/ Debt, End-of- Borrowing/ Debt, End-ofRepayment(–) Year Repayment(–) Year Repayment(–) Year Borrowing from the public: Housing and Urban Development: Federal Housing Administration ������������������������������������������������������������������������������������� Architect of the Capitol ��������������������������������������������������������������������������������������������������������� National Archives ������������������������������������������������������������������������������������������������������������������ ......... –9.0 –23.0 18.5 89.5 52.3 ......... –9.5 –25.0 18.5 80.0 27.2 ......... –11.0 –27.2 18.5 69.0 ......... Tennessee Valley Authority: Bonds and notes �������������������������������������������������������������������������������������������������������������� Lease financing obligations ��������������������������������������������������������������������������������������������� Prepayment obligations ��������������������������������������������������������������������������������������������������� Total, borrowing from the public ����������������������������������������������������������������������������� 36.7 –118.6 –100.0 –213.9 24,207.3 1,704.3 109.6 26,181.5 –97.0 –131.1 –100.0 –362.7 24,110.3 1,573.1 9.6 25,818.9 –514.7 –122.6 –9.6 –685.2 23,595.6 1,450.5 ......... 25,133.7 Borrowing from other funds: Tennessee Valley Authority 1 �������������������������������������������������������������������������������������������������� Total, borrowing from other funds �������������������������������������������������������������������������� Total, agency borrowing ������������������������������������������������������������������������������������ –3.0 –3.0 –211.8 1.2 1.2 26,182.8 ......... ......... –362.7 1.2 1.2 25,820.1 ......... ......... –685.2 1.2 1.2 25,134.9 33.7 24,208.6 –97.0 24,111.5 –514.7 23,596.8 Memorandum: Tennessee Valley Authority bonds and notes, total ��������������������������������������������������������������� 1 Represents open market purchases by the National Railroad Retirement Investment Trust. 38 Debt Held by Government Accounts Trust funds, and some special funds and public enterprise revolving funds, accumulate cash in excess of 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 $168 billion in 2017. Net investment by Government accounts is estimated to be $148 billion in 2018 and $143 billion in 2019, as shown in Table 4–5. The holdings of Federal securities by Government accounts are estimated to increase to $5,831 billion by the end of 2019, or 26 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 (CSRDF), and two special funds, the uniformed services MedicareEligible Retiree Health Care Fund (MERHCF) and the Postal Service Retiree Health Benefits Fund (PSRHBF). At the end of 2019, these Social Security, Medicare, and Federal employee retirement funds are estimated to own 86 percent of the total debt held by Government accounts. During 2017–2019, the Military Retirement Fund has a large surplus and is estimated to invest a total of $218 billion, 48 percent of total net investment by Government accounts. Some Government accounts are projected to have net disinvestment in Federal securities during 2017–2019. 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 have 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). PBGC disinvested its holdings of zero-coupon bonds during 2017. The unamortized discount on zero-coupon bonds held by the Nuclear Waste Disposal Fund was $15.7 billion at the end of 2017. 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 ANALYTICAL PERSPECTIVES 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 $10.3 billion at the end of 2017. 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.15 Federal Reserve holdings were $2,465 billion (17 percent of debt held by the public) at the end of 2017. 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 $11 15 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.” 39 4. Federal Borrowing and Debt Table 4–5. DEBT HELD BY GOVERNMENT ACCOUNTS 1 (In millions of dollars) Investment or Disinvestment (–) Description 2017 Actual 2018 Estimate Holdings, End of 2019 Estimate 2019 Estimate Investment in Treasury debt: Commerce: Public safety trust fund ������������������������������������������������������������������������������������������������������������������������������������������������������������� ......... 5,000 3,650 8,983 Defense—Military: Host nation support fund for relocation ������������������������������������������������������������������������������������������������������������������������������������ 420 –145 158 1,272 Energy: Nuclear waste disposal fund 1 ��������������������������������������������������������������������������������������������������������������������������������������������������� Uranium enrichment decontamination fund ������������������������������������������������������������������������������������������������������������������������������ 1,712 –156 415 –176 421 1,791 38,193 3,955 Health and Human Services: Federal hospital insurance trust fund ��������������������������������������������������������������������������������������������������������������������������������������� Federal supplementary medical insurance trust fund ��������������������������������������������������������������������������������������������������������������� Vaccine injury compensation fund �������������������������������������������������������������������������������������������������������������������������������������������� Child enrollment contingency fund ������������������������������������������������������������������������������������������������������������������������������������������� 5,626 7,253 –10 574 2,614 25,200 94 2,327 9,102 6,701 109 –2,305 209,551 102,490 3,798 1,167 Homeland Security: Aquatic resources trust fund ����������������������������������������������������������������������������������������������������������������������������������������������������� Oil spill liability trust fund ���������������������������������������������������������������������������������������������������������������������������������������������������������� National flood insurance reserve fund �������������������������������������������������������������������������������������������������������������������������������������� 12 722 –1,039 20 355 860 –18 447 40 1,924 6,474 900 Housing and Urban Development: Federal Housing Administration mutual mortgage insurance capital reserve �������������������������������������������������������������������������� Guarantees of mortgage-backed securities ����������������������������������������������������������������������������������������������������������������������������� –5,562 1,322 –4,960 1,058 7,346 983 33,265 19,317 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 ��������������������������������������������������������������������������������������������������������������������������������������������������� –16 139 37 508 –922 –23 65 20 200 –2,773 –18 51 32 100 –1,291 2,719 2,256 1,518 1,600 1,187 Labor: Unemployment trust fund ��������������������������������������������������������������������������������������������������������������������������������������������������������� Pension Benefit Guaranty Corporation 1 ����������������������������������������������������������������������������������������������������������������������������������� State: Foreign service retirement and disability trust fund ���������������������������������������������������������������������������������������������������� 6,934 4,878 447 14,389 4,868 317 14,950 4,949 338 90,050 38,259 19,447 Transportation: Airport and airway trust fund ���������������������������������������������������������������������������������������������������������������������������������������������������� Highway trust fund �������������������������������������������������������������������������������������������������������������������������������������������������������������������� Aviation insurance revolving fund ��������������������������������������������������������������������������������������������������������������������������������������������� 4 –12,297 338 –285 –11,297 37 1,521 –11,297 56 14,640 29,738 2,303 Treasury: Exchange stabilization fund ������������������������������������������������������������������������������������������������������������������������������������������������������ Treasury forfeiture fund ������������������������������������������������������������������������������������������������������������������������������������������������������������� Gulf Coast Restoration trust fund ��������������������������������������������������������������������������������������������������������������������������������������������� Comptroller of the Currency assessment fund ������������������������������������������������������������������������������������������������������������������������� –590 –373 262 134 161 –383 47 –108 282 –591 194 ......... 22,533 1,343 1,431 1,683 Veterans Affairs: National service life insurance trust fund ���������������������������������������������������������������������������������������������������������������������������������� Veterans special life insurance fund ����������������������������������������������������������������������������������������������������������������������������������������� Corps of Engineers: Harbor maintenance trust fund ��������������������������������������������������������������������������������������������������������������� –641 –97 345 –703 –138 373 –560 –137 519 2,341 1,328 9,923 Other Defense-Civil: Military retirement fund ������������������������������������������������������������������������������������������������������������������������������������������������������������� Medicare-eligible retiree health care fund �������������������������������������������������������������������������������������������������������������������������������� Education benefits fund ������������������������������������������������������������������������������������������������������������������������������������������������������������ 69,924 12,365 –156 69,037 12,973 –20 79,417 11,384 –67 809,424 250,204 971 Environmental Protection Agency: Hazardous substance superfund ����������������������������������������������������������������������������������� 2 2 2 4,804 International Assistance Programs: Overseas Private Investment Corporation �������������������������������������������������������������������������������������������������������������������������������� Development Finance Institution ���������������������������������������������������������������������������������������������������������������������������������������������� 72 ......... 61 ......... –5,799 5,823 ......... 5,823 40 ANALYTICAL PERSPECTIVES Table 4–5. DEBT HELD BY GOVERNMENT ACCOUNTS 1—Continued (In millions of dollars) Investment or Disinvestment (–) Description 2017 Actual 2018 Estimate 2019 Estimate Holdings, End of 2019 Estimate 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 ����������������������������������������������������������������������������������������������������������� 17,942 –2,004 512 2,292 17,273 1,376 444 68 13,876 –2,536 763 41 936,252 48,331 46,887 26,130 Social Security Administration: 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 ��������������������������������������������������������������������������������������������������������������������������������� 23,488 23,789 1 428 –923 8,638 785 2,438 155 245 –16 –335 –716 –459 168,432 –24,520 22,367 1 476 –706 12,267 2,358 –2,256 –486 99 34 –59 32 ......... 148,251 –7,048 –1,960 –24 290 –695 10,550 778 2,067 –181 115 –1,640 249 –312 ......... 142,616 2,788,632 90,076 3,730 5,219 5,695 102,978 16,225 10,776 1,707 3,164 ......... 5,170 3,587 –10,252 5,831,120 –3 –3 168,429 ......... ......... 148,251 ......... ......... 142,616 1 1 5,831,122 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) �������������������������������������������������������������������������������������������������������������������������������������� 20,106 30,576 30,341 617,054 Investment by Federal funds (off-budget) ������������������������������������������������������������������������������������������������������������������������������������� 2,438 –2,256 2,067 10,776 Investment by trust funds (on-budget) ������������������������������������������������������������������������������������������������������������������������������������������� 99,066 122,085 119,216 2,334,836 Investment by trust funds (off-budget) ������������������������������������������������������������������������������������������������������������������������������������������� 47,277 –2,153 –9,008 2,878,708 Unrealized discount 1 ��������������������������������������������������������������������������������������������������������������������������������������������������������������������� –459 ......... ......... –10,252 ¹Debt 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 2017 the debt figures would be $15.7 billion higher for the Nuclear Waste Disposal Fund than recorded in this table. PBGC disinvested its holdings of zero-coupon bonds during 2017. 2 Off-budget Federal entity. 3 Amounts on calendar-year basis. billion at the end of 2017 and is projected to be $10 billion at the end of 2018. 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 $481 million at the end of 2017 and is projected to gradually decline over time. The sole agency debt currently subject to the general limit, $209 thousand at the end of 2017, is certain debentures issued by the Federal Housing Administration.16 Some of the other agency debt, however, is subject to its own statutory limit. For example, the Tennessee Valley 16 At the end of 2017, there were also $18 million of FHA debentures not subject to limit. 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 $41 billion at the end of 2017 compared 4. Federal Borrowing and Debt with the total unamortized discount (less premium) of $65 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 83 separate acts to raise the limit, revise the definition, extend the duration of a temporary increase, or temporarily suspend the limit.17 The five 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 Continuing Appropriations Act, 2018 and Supplemental Appropriations for Disaster Relief Requirements Act, 2017, suspended the $19,809 billion debt ceiling from September 8, 2017, through December 8, 2017, and then raised the debt limit on December 9, 2017, by $647 billion to $20,456 billion. At many times in the past several decades, including 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 measures” to meet the Government’s obligation to pay its bills and invest its trust funds while remaining below the statutory limit. On December 6, 2017, near the end of the most recent debt limit suspension period, the Secretary of the Treasury sent a letter to Congress announcing that Treasury would begin to take extraordinary measures on December 9. One such extraordinary measure is the partial or full suspension of the daily reinvestment of the Thrift Savings Plan (TSP) Government Securities Investment Fund (G-Fund).18 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. The TSP G-Fund had an outstanding balance of $223 billion at the end of November and $69 billion at the end of December. 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 17 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/historical-tables/. 18 The TSP is a defined contribution pension plan for Federal employees. The G-Fund is one of several components of the TSP. 19 Both the CSRDF and the PSRHBF are administered by the Office of Personnel Management. 41 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 December 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 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 obligations, 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 $21,483 billion by the end of 2018 and to $22,709 billion by the end of 2019. 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 7 42 ANALYTICAL PERSPECTIVES percent of the estimated total increase in debt subject to limit from 2018 through 2028. 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 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 pub20 For further discussion of the trust funds and Federal funds groups, see Chapter 24, “Trust Funds and Federal Funds.’’ lic 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 2017 the Federal funds deficit was $819 billion, and other factors reduced financing requirements by $169 billion. The change in the Treasury operating cash balance reduced financing requirements by $194 billion, the net financing disbursements of credit financing accounts increased financing requirements by $41 billion, and other Federal fund factors reduced financing requirements by $15 billion. In addition, special funds and revolving funds, which are part of the Federal funds group, invested a net of $23 billion in Treasury securities. A $6 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 non-Federal securities). As a net result of all these factors, $666 billion in financing was required, increasing gross Federal debt by that amount. Since Federal debt not subject to limit fell by $2 billion and the adjustment for discount and premium changed by $2 billion, the debt subject to limit increased by $670 billion, while debt held by the public increased by $498 billion. Debt subject to limit is estimated to increase by $1,274 billion in 2018 and by $1,227 billion in 2019. 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 $9,018 billion from the end of 2017 through 2028, debt subject to limit increases by $9,758 billion. Table 4–6. FEDERAL FUNDS FINANCING AND CHANGE IN DEBT SUBJECT TO STATUTORY LIMIT (In billions of dollars) Description Change in Gross Federal Debt: Federal funds deficit ������������������������������������������������������������ Other transactions affecting borrowing from the public -Federal funds 1 ���������������������������������������������������������������� Increase (+) or decrease (–) in Federal debt held by Federal funds ������������������������������������������������������������������ Adjustments for trust fund surplus/deficit not invested/ disinvested in Federal securities 2 ����������������������������������� Change in unrealized discount on Federal debt held by Government accounts ���������������������������������������������������� Total financing requirements ������������������������������������� Change in Debt Subject to Limit: Change in gross Federal debt ��������������������������������������������� Less: increase (+) or decrease (–) in Federal debt not subject to limit ����������������������������������������������������������������� Less: change in adjustment for discount and premium 3 ����� Total, change in debt subject to limit ������������������������� Actual 2017 819.0 Estimate 2018 2019 2020 976.3 1,087.7 1,067.2 2021 2022 2023 2024 2025 2026 2027 2028 991.6 933.5 827.7 692.5 597.3 534.8 357.2 268.7 –168.7 292.2 98.6 89.2 88.8 89.1 84.6 75.4 63.2 49.5 41.3 44.8 22.5 28.3 32.4 42.8 39.9 39.3 39.5 39.0 38.0 35.1 37.7 37.9 –6.1 –24.3 5.8 –1.1 –1.0 –1.1 –0.7 –0.8 –0.7 –0.6 –0.3 –0.1 –0.5 ......... ......... ......... ......... ......... 666.3 1,272.5 1,224.6 1,198.1 1,119.3 1,060.8 ......... 951.1 ......... 806.1 ......... 697.7 ......... 618.9 ......... 436.0 ......... 351.2 666.3 1,272.5 1,224.6 1,198.1 1,119.3 1,060.8 951.1 806.1 697.7 618.9 436.0 351.2 –1.8 –1.5 –2.2 –2.8 –2.0 –2.0 –2.1 ......... ......... ......... ......... ......... 670.2 1,274.0 1,226.8 1,200.9 1,121.3 1,062.8 –2.1 ......... 953.2 –2.2 ......... 808.3 –1.4 ......... 699.1 –1.5 ......... 620.3 –1.9 ......... 437.9 –1.8 ......... 353.0 Memorandum: Debt subject to statutory limit 4 20,208.6 21,482.6 22,709.4 23,910.3 25,031.6 26,094.4 27,047.6 27,855.9 28,555.0 29,175.3 29,613.2 29,966.3 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 $20,456 billion, as increased after December 8, 2017. 1 Includes 43 4. Federal Borrowing and Debt 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 since 2004 have represented over 40 percent 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. Foreign holdings of Federal debt are presented in Table 4–7. At the end of 2017, foreign holdings of Treasury debt were $6,323 billion, which was 43 percent of the total debt held by the public.21 Foreign central banks and other foreign official institutions owned 64 percent of the foreign holdings of Federal debt; private investors owned nearly all the rest. At the end of 2017, 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 17 percent. All of the foreign holdings of Federal debt are denominated in dollars. 21 The debt calculated by the Bureau of Economic Analysis is different, though similar in size, because of a different method of valuing securities. 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. After 2008, foreign holdings as a percent of total Federal debt remained relatively stable through 2015 and then fell from 47 percent at the end of 2015 to 43 percent at the end of 2016. Foreign holdings remained at 43 percent at the end of 2017. The dollar increase in foreign holdings was about 34 percent of total Federal borrowing from the public in 2017 and 25 percent over the last five years. Foreign holdings of Federal debt are around 20-25 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 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. Table 4–7. FOREIGN HOLDINGS OF FEDERAL DEBT (Dollar amounts in billions) Change in debt held by the public 2 Debt held by the public Fiscal Year Foreign 1 Total 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 ������������������������������������������������������ 14,167.6 6,155.9 43.5 1,050.9 50.0 2017 ������������������������������������������������������ 14,665.5 6,323.0 43.1 497.8 167.1 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. 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. 44 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 ANALYTICAL PERSPECTIVES 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 45 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. The unemployment rate has since recovered, standing at 4.1 percent in December 2017, down from a high of 10 percent in October 2009. Despite the recovery in the unemployment rate, the employment-population ratio remains low relative to its pre-recession levels. From 1985 to 2007, the employment-population ratio ranged from 60.1 to 63.1 percent, and in 2007 it stood at 63.0 percent. After the 2008-2009 recession, it fell to 58.4 percent in 2011 and has recovered only partly to 60.1 percent in 2017. Over the entire period since 1960, 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 $55 trillion in 2016, approximately five 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 2.3 percent of GDP in 2016, down from 10.9 percent in 1960. Meanwhile, the labor force participation rate, also critical for growth, has generally been on the decline since 2000 and fell abruptly during the 2008-2009 recession. Though it increased slightly in the past two years, the labor force participation rate remains far below pre-recession levels. In addition to the size of the economy, the structure of the economy has also changed considerably. From 2000 to 2016, goods-producing industries declined from 24.9 to 21.0 percent of total private goods and services, measured in value added as a percent of GDP, while services-producing industries increased from 75.1 to 79.0 percent. This period coincided with a steep decline in manufacturing employment, potentially due to import competition from China and changes in technology.1 The United States has experienced persistent trade deficits since the early 1980s, reaching $714 billion in 2005 and standing at $505 billion in 2016. Demographic and Civic.—The U.S. population steadily increased from 1970 to 2017, growing from 204 million to 326 million. Since 1970, the foreign born population has rapidly increased, more than quadrupling from about 10 million in 1970 to 44 million 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. From 1970 to 2016, the percent of the population aged 65 and over increased from 9.8 to 15.2, 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 22.6 in 2017. The composition of American households and families has evolved considerably over time. The percent of Americans who have ever married has declined from 78.0 to 68.0 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 2016, the number of births per 1,000 unmarried women aged 15-17 fell from 30 to 9, the lowest level on record. The fraction of single parent households comprised 9.1 percent of all households in 1995, up from only 4.4 percent in 1960, but since 1995 it has stabilized and in recent years has decreased to 8.4 percent in 2017. Charitable giving among Americans, measured by the average charitable contribution per itemized tax return, has generally increased over the past 50 years.2 The effects of the 2008-2009 recession are evident in the sharp drop in charitable giving from 2005 to 2010, but that 1 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). 2 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. 47 48 decline was reversed by 2014 and charitable giving continues to increase. 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 36 years. The percentage of 25- to 34-year olds who have graduated from college continues to rise, from only 11 percent in 1960 to 35 percent in 2016. 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. However, since 2010 this decline has partially reversed, with science and engineering degrees rising from 12 to 16 percent of all graduate degrees in 2016. 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 23 percent since 1970, and nearly all of those gains took place prior to 2000. The median wealth of households aged 55-64 declined dramatically from $321 thousand in 2005 to only $171 thousand in 2014, before increasing to $187 thousand in 2016. 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 (SNAP), increased, with most of this increase taking place during and after the 2008-2009 economic downturn. The poverty rate has recovered to approximately its pre-recession level, while food insecurity and the percentage of the population on SNAP have declined over the past several years but still remain elevated. 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. National health expenditures as a share of GDP have increased from 5 percent in 1960 to nearly 18 percent in 2016. 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 have experienced comparable health improvements.3 3 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. ANALYTICAL PERSPECTIVES Average private health insurance premiums paid by individuals with private health insurance increased by 19 percent from 2010 to 2016, after adjusting for inflation. Some key indicators of national health have improved since 1960. Infant mortality fell from 26 to under 6 per 1,000 live births, with a rapid decline occurring in the 1970s. Life expectancy at birth increased by 8.9 years, from 69.7 in 1960 to 78.6 in 2016. However, between 2014 and 2016, life expectancy declined from its high of 78.9. Improvements in health-related behaviors among Americans have been mixed. Although the percent of adults who smoke cigarettes in 2016 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 2016, 40 percent of adults and 19 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 23 percent in 2016. Security and Safety.—The last three decades have witnessed a remarkable decline in crime. From 1980 to 2016, the property crime rate dropped by 76 percent while the murder rate fell by 48 percent. However, the downward decline in the murder rate ended in 2014, with the rate rising between 2014 and 2016, and the property crime rate rose from 2015 to 2016. 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 2017, and the annual number of highway fatalities fell by 29 percent from 1970 to 2016 despite the increase in the population. In recent years, the number of military personnel on active duty has fallen to its lowest levels 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 20 million in 2017. Environment and Energy.—Substantial progress has been made on air quality in the United States, with the concentration of particulate matter falling 42 percent from 2000 to 2016 and ground level ozone falling by 31 percent from 1980 to 2016. 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 served by community water systems received drinking water in compliance with applicable Federal water quality standards, which has remained relatively constant since 2000. Technological advances and a shift in production patterns mean that Americans 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. 49 5. Social Indicators Table 5–1. SOCIAL INDICATORS Calendar Years 1960 1970 1980 1990 1995 2000 2005 2010 2014 2015 2016 2017 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 50,216 51,286 51,690 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 1.4 1.5 1.4 Consumer Price Index 1 ��������������������������������������������������������������� 12.5 16.4 34.8 55.2 64.4 72.7 82.5 92.1 100.0 100.1 101.4 Private goods producing (%) ������������������������������������������������������� N/A N/A N/A N/A N/A 24.9 23.9 22.3 22.9 21.8 21.0 Private services producing (%) ���������������������������������������������������� N/A N/A N/A N/A N/A 75.1 76.1 77.7 77.1 78.2 79.0 New business starts (thousands) 2 ���������������������������������������������� N/A N/A 452 477 513 482 544 385 404 414 N/A Business failures (thousands) 3 ��������������������������������������������������� N/A N/A 371 371 386 406 416 417 392 396 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 –490.3 –500.4 –504.8 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 ��������������������������������������������������������������������������� N/A N/A 103.5 N/A N/A N/A N/A N/A 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 62.9 146.3 59.0 62.7 148.8 59.3 62.8 151.4 59.7 62.9 153.3 60.1 –0.4 –0.5 0.3 0.0 2.2 2.0 2.5 1.1 3.0 2.7 2.2 2.1 0.7 5.5 2.0 4.9 2.7 7.1 2.8 5.6 1.6 5.6 2.9 4.0 0.4 5.1 –0.7 9.6 1.5 6.2 2.3 5.3 2.5 4.9 2.5 4.4 N/A N/A N/A N/A 10.1 7.0 8.9 16.7 12.0 10.4 9.6 8.5 0.9 2.0 2.8 2.5 3.3 3.7 4.5 5.5 6.0 5.8 5.7 N/A Infrastructure, Innovation, and Capital Investment Nonfarm business output per hour (average 5 year % change) 6 1.8 2.1 1.2 1.6 1.6 2.8 3.2 1.9 1.1 0.6 0.6 Corn for grain production (million bushels) ���������������������������������� 3,907 4,152 6,639 7,934 7,400 9,915 11,112 12,425 14,216 13,601 15,148 Real net stock of fixed assets and consumer durable goods (billions of chained 2009 dollars) �������������������������������������������� 11,383 16,921 23,265 30,870 34,246 40,217 46,305 50,332 52,943 53,814 54,659 Population served by secondary wastewater treatment or better (%) 7 ���������������������������������������������������������������������������������������� N/A 41.6 56.4 63.7 61.1 71.4 74.3 72.0 74.5 N/A N/A Electricity net generation (kWh per capita) ���������������������������������� 4,202 7,486 10,076 12,170 12,594 13,475 13,723 13,335 12,850 12,707 12,624 Patents for invention, U.S. origin (per million population) 8 ���������� N/A 231 164 190 209 301 253 348 453 439 N/A Net national saving rate (% of GDP) ������������������������������������������� 10.9 8.5 7.1 3.9 4.0 5.9 2.7 –0.8 3.5 3.7 2.3 R&D spending (% of GDP) 9 ������������������������������������������������������� 2.52 2.44 2.21 2.54 2.40 2.61 2.48 2.72 2.73 2.73 2.74 N/A 14,578 N/A N/A N/A N/A N/A 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 (2015 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 1.8 318.6 42.4 23.1 14.5 1.9 320.9 43.3 22.9 14.9 2.0 323.1 43.7 22.8 15.2 2.0 325.7 N/A 22.6 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 68.3 3.1 68.2 3.1 67.8 3.1 68.0 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 10.6 8.9 9.6 8.8 8.6 8.7 N/A 8.4 2,242 63.4 N/A 2,224 57.0 N/A 2,566 55.1 N/A 3,226 56.4 20.4 3,430 49.8 N/A 4,552 52.1 N/A 4,569 56.7 28.9 3,966 58.3 26.3 4,795 54.9 25.3 4,978 N/A 24.9 N/A 55.7 N/A N/A N/A N/A N/A N/A 71.7 72.1 N/A 70.1 N/A 63.9 N/A 66.5 N/A N/A N/A N/A 56.4 54.2 N/A 46.6 N/A 50.2 N/A 43.1 N/A N/A 50 ANALYTICAL PERSPECTIVES Table 5–1. SOCIAL INDICATORS—Continued Calendar Years 1960 1970 1980 1990 1995 2000 2005 2010 2014 2015 2016 2017 Socioeconomic 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 Education High school graduates (% of age 25–34) 18 �������������������������������� College graduates (% of age 25–34) 19 ��������������������������������������� Reading achievement score (age 17) 20 �������������������������������������� 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) ��������������������������������������������������������������������� 58.1 11.0 N/A N/A 71.5 15.5 285 304 84.2 23.3 285 298 84.1 22.7 290 305 N/A N/A 288 306 83.9 27.5 288 308 86.4 29.9 283 305 87.2 31.1 286 306 89.1 33.5 N/A N/A 89.7 34.1 N/A N/A 90.1 34.9 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 13.7 15.0 16.3 N/A N/A N/A 10.1 11.4 12.4 13.3 13.7 13.0 13.0 13.2 N/A N/A Income, Savings, and Inequality Real median income: all households (2016 dollars) 22 ���������������� N/A 48,194 49,131 53,350 53,330 58,544 56,935 54,245 54,398 57,230 59,039 Real disposable income per capita (chained 2009 dollars) ��������� 11,877 16,643 20,158 25,555 27,180 31,524 34,424 35,685 37,441 38,720 38,988 Adjusted gross income share of top 1% of all taxpayers ������������� N/A N/A 8.5 14.0 14.6 20.8 21.2 18.9 20.6 20.7 N/A Adjusted gross income share of lower 50% of all taxpayers ������� N/A N/A 17.7 15.0 14.5 13.0 12.9 11.7 11.3 11.3 N/A Personal saving rate (% of disposable personal income) ������������ 10.0 12.6 10.6 7.8 6.4 4.2 2.6 5.6 5.7 6.1 4.9 Foreign remittances (billions of 2016 dollars) 23 �������������������������� N/A N/A N/A N/A N/A 32.6 38.5 40.5 42.4 44.8 46.5 Poverty rate (%) 24 ����������������������������������������������������������������������� 22.2 12.6 13.0 13.5 13.8 11.3 12.6 15.1 14.8 13.5 12.7 Food-insecure households (% of all households) 25 �������������������� N/A N/A N/A N/A 11.9 10.5 11.0 14.5 14.0 12.7 12.3 Supplemental Nutrition Assistance Program (% of population on SNAP) ������������������������������������������������������������������������������������� N/A 3.3 9.5 8.2 9.9 6.1 8.9 13.1 14.7 14.3 13.7 Median wealth of households, age 55–64 (in thousands of 2016 dollars) 26 �������������������������������������������������������������������������������� 80 N/A 158 183 180 251 321 198 171 N/A 187 Housing Homeownership among households with children (%) 27 ������������ Families with children and severe housing cost burden (%) 28 ���� Families with children and inadequate housing (%) 29 ���������������� N/A N/A N/A N/A N/A N/A N/A N/A 13.0 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 61.0 15.4 5.6 59.5 15.1 6.3 N/A N/A N/A N/A N/A N/A Health 58 59 60 61 62 Health Status Life expectancy at birth (years) ��������������������������������������������������� Infant mortality (per 1,000 live births) ������������������������������������������ Low birthweight [<2,500 gms] (% of babies) ������������������������������� Disability (% of age 18 and over) 30 ��������������������������������������������� Disability (% of age 65 and over) 30 ��������������������������������������������� 69.7 26.0 7.7 N/A N/A 70.8 20.0 7.9 N/A N/A 73.7 12.6 6.8 N/A N/A 75.4 9.2 7.0 N/A N/A 75.8 7.6 7.3 N/A N/A 76.8 6.9 7.6 N/A N/A 77.6 6.9 8.2 N/A N/A 78.7 6.1 8.2 8.9 22.6 78.9 5.8 8.0 9.9 21.6 78.7 5.9 8.1 9.5 21.6 78.6 5.9 8.2 8.6 18.2 N/A N/A N/A N/A N/A 63 64 65 66 67 Health Behavior Engaged in regular physical activity (% of age 18 and older) 31 �� Obesity (% of age 20–74 with BMI 30 or greater) 32 ������������������� Obesity (% of age 2–19) 33 ���������������������������������������������������������� Cigarette smokers (% of age 18 and older) ��������������������������������� Heavier drinker (% of age 18 and older) 34 ���������������������������������� 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 21.5 38.2 17.2 17.0 5.2 21.6 N/A N/A 15.3 5.0 22.7 40.0 18.5 15.9 5.3 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 17.4 17.7 17.9 N/A N/A N/A N/A N/A N/A 3,700 4,905 5,437 5,913 6,038 6,101 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 18.9 12.6 N/A 19.3 9.3 3,062 22.3 7.8 3,438 16.3 5.5 3,547 13.0 4.5 3,657 12.2 5.2 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 56.6 71.6 72.2 70.7 N/A N/A N/A 49,610 34,890 31,547 19,043 15,947 12,541 11,806 11,072 11,944 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 2,010 4.4 1,858 4.9 2,112 5.3 N/A N/A 118.8 95.8 145.6 311.9 430.4 508.8 518.2 523.3 491.7 476.7 N/A N/A 68 69 70 71 72 73 Access to Health Care Total national health expenditures (% of GDP) ���������������������������� Average total single premium per enrolled employee at privatesector establishments (2016 dollars) 35 ���������������������������������� Average health insurance premium paid by an individual or family (2016 dollars) 36 ����������������������������������������������������������� Persons without health insurance (% of age 18–64) 37 ��������������� Persons without health insurance (% of age 17 and younger) 37 Children age 19–35 months with recommended vaccinations (%) 38 �������������������������������������������������������������������������������������� Security and Safety 74 75 76 77 Crime Property crimes (per 100,000 households) 39 ����������������������������� Violent crime victimizations (per 100,000 population age 12 or older) 40 ���������������������������������������������������������������������������������� Murder rate (per 100,000 persons) ���������������������������������������������� Prison incarceration rate (state and federal institutions, rate per 100,000 persons) 41 ���������������������������������������������������������������� 51 5. Social Indicators Table 5–1. SOCIAL INDICATORS—Continued Calendar Years 1960 1970 1980 1990 1995 2000 2005 2010 2014 2015 2016 2017 78 79 National Security Military personnel on active duty (thousands) 42 ������������������������� 2,475 3,065 2,051 2,044 1,518 1,384 1,389 1,431 1,338 1,314 1,301 Veterans (thousands) ������������������������������������������������������������������ 22,534 26,976 28,640 27,320 26,198 26,206 24,542 22,668 21,250 20,784 20,392 1,307 19,999 80 81 Transportation Safety Safety belt use (%) ���������������������������������������������������������������������� N/A N/A N/A N/A N/A 70.7 81.7 85.1 86.7 88.5 90.1 Highway fatalities ������������������������������������������������������������������������� 36,399 52,627 51,091 44,599 41,817 41,945 43,510 32,999 32,744 35,485 37,461 89.7 N/A Environment and Energy 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Air Quality and Greenhouse Gases Ground level ozone (ppm) 43 ������������������������������������������������������� Particulate matter 2.5 (ug/m3) 44 ������������������������������������������������� Annual mean atmospheric CO2 concentration (Mauna Loa, Hawaii; ppm) ��������������������������������������������������������������������������� Gross greenhouse gas emissions (teragrams CO2 equivalent) 45 ��������������������������������������������������������������������������������������������� 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 (%) 46 ��������������������������������������������������������������������� Energy Energy consumption per capita (million Btu) ������������������������������� Energy consumption per 2009$ GDP (thousand Btu per 2009$) Electricity net generation from renewable sources, all sectors (% of total) 47 �������������������������������������������������������������������������������� Coal production (million short tons) ��������������������������������������������� Natural gas production (dry) (trillion cubic feet) 48 ����������������������� Petroleum production (million barrels per day) ���������������������������� Renewable energy production (quadrillion Btu) ��������������������������� N/A N/A N/A N/A 0.10 N/A 0.09 N/A 0.09 N/A 0.08 13.4 0.08 12.8 0.07 9.9 0.07 8.8 0.07 8.5 0.07 7.8 N/A N/A 316.9 325.7 338.7 354.4 360.8 369.5 379.8 389.9 398.6 400.8 404.2 406.5 N/A N/A N/A 6,363 6,709 7,214 7,313 6,926 6,740 6,587 N/A N/A N/A N/A N/A 5,544 5,923 6,462 6,582 6,208 5,978 5,828 N/A N/A N/A N/A N/A 25.1 24.8 25.2 24.4 22.1 20.9 20.2 N/A N/A N/A N/A N/A 0.71 0.66 0.57 0.51 0.47 0.42 0.40 N/A N/A N/A N/A N/A N/A 83.8 90.8 88.5 92.2 92.5 91.1 91.2 N/A 250 14.5 331 14.4 344 12.1 338 9.4 342 9.0 350 7.9 339 7.0 315 6.6 309 6.2 303 5.9 302 5.9 N/A N/A 19.7 434 12.2 8.0 2.9 16.4 613 21.0 11.3 4.1 12.4 830 19.4 10.2 5.4 11.8 1,029 17.8 8.9 6.0 11.5 1,033 18.6 8.3 6.6 9.4 1,074 19.2 7.7 6.1 8.8 1,131 18.1 6.9 6.2 10.4 1,084 21.3 7.5 8.1 13.2 1,000 25.9 11.8 9.6 13.3 897 27.1 12.8 9.5 14.9 728 26.7 12.4 10.2 N/A N/A N/A N/A N/A 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 data point for 2016 is estimated and may be revised in the next report of this time series. The R&D to GDP ratio data 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. 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/statistics/2015/ nsf15315/nsf15315.pdf. 10 Data source and values for 2010 to 2016 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, 2015, and 2016 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, 2012 and 2016. 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. 52 ANALYTICAL PERSPECTIVES Table 5–1. SOCIAL INDICATORS—Continued 21 Data correspond to years 1973, 1982, 1990, 1994, 1999, 2004, 2008, and 2012. 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. 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. Adjusted by OMB to 2016 dollars using the CPI-U. 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, 2013, and 2016. 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 Disability is defined by level of difficulty in six domains of functioning: vision, hearing, mobility, communication, cognition, and self-care. Persons indicating “a lot of difficulty,” or “cannot do at all/unable to do” in at least one domain are considered to have a “Disability.” 31 Participation in leisure-time aerobic and muscle-strengthening activities that meet 2008 Federal physical activity guidelines. 32 BMI refers to body mass index. The 1960, 1980, 1990, 2000, 2005, 2010, 2014, 2016 data correspond to survey years 1960-1962, 1976-1980, 1988-1994, 1999-2000, 2005-2006, 2009-2010, 2013-2014, and 2015-2016, respectively. 33 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, 2016 data correspond to survey years 1976-1980, 1988-1994, 1999-2000, 2005-2006, 2009-2010, 2013-2014, and 2015-2016, respectively. 34 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. 35 Includes only employees of private-sector establishments that offer health insurance. Adjusted to 2016 dollars by OMB. 36 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. Adjusted to 2016 dollars by OMB. 37 A person was defined as uninsured if he or she did not have any private health insurance, Medicare, Medicaid, CHIP (1999-2016), state-sponsored, other government-sponsored health plan (1997-2016), 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 2016, 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. 38 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). 39 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. Due to methodological changes in the 2016 NCVS, use caution when comparing 2016 criminal victimization estimates to other years. See Criminal Victimization, 2016 (BJS Web, NCJ 251150, December, 2017) for more information. 40 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. Due to methodological changes in the 2016 NCVS, use caution when comparing 2016 criminal victimization estimates to other years. See Criminal Victimization, 2016 (BJS Web, NCJ 251150, December, 2017) for more information. 41 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. 42 For all years, the actuals reflect Active Component only excluding full-time Reserve Component members and RC mobilized to active duty. End Strength for 2017 is preliminary. 43 Ambient ozone concentrations based on 206 monitoring sites meeting minimum completeness criteria. 44 Ambient PM2.5 concentrations based on 455 monitoring sites meeting minimum completeness criteria. 45 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. 46 Percent of the population served by community water systems that receive drinking water that meets all applicable health - based drinking water standards. 47 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. 48 Dry natural gas is also known as consumer-grade natural gas. 22 Beginning 53 5. Social Indicators Table 5–2. SOURCES FOR SOCIAL INDICATORS Indicator Source 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) �������������������������������������������������������������������������������������� 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 �������������������������������������������������������������������� Bureau of Economic Analysis, International Economics Accounts, https:// www.bea.gov/International/index.htm Jobs and Unemployment Labor force participation rate (%) �������������������������������������������������������������������������������������������������������� Bureau of Labor Statistics, Current Population Survey. https://www.bls.gov/ cps Employment (millions) ������������������������������������������������������������������������������������������������������������������� Bureau of Labor Statistics, Current Population Survey. https://www.bls.gov/ cps Employment-population ratio (%) �������������������������������������������������������������������������������������������������������� Bureau of Labor Statistics, Current Population Survey. https://www.bls.gov/ cps Payroll employment change - December to December, SA (millions) ������������������������������������������������� Bureau of Labor Statistics, Current Employment Statistics program. https:// www.bls.gov/ces/ Payroll employment change - 5-year annual average, NSA (millions) ������������������������������������������������� Bureau of Labor Statistics, Current Employment Statistics program. https:// www.bls.gov/ces/ Civilian unemployment rate (%) ����������������������������������������������������������������������������������������������������������� Bureau of Labor Statistics, Current Population Survey. https://www.bls.gov/ cps Unemployment plus marginally attached and underemployed (%) ����������������������������������������������������� Bureau of Labor Statistics, Current Population Survey. https://www.bls.gov/ cps Receiving Social Security disabled-worker benefits (% of population) ������������������������������������������������ 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 dollars) ���������� Bureau of Economic Analysis, National Economic Accounts Data. http:// www.bea.gov/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 (October 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 Population Total population (millions) �������������������������������������������������������������������������������������������������������������������� U.S. Census Bureau, Population Division, Vintage 2017 Population Estimates (2017), Vintage 2016 Population Estimates (2010-2016), 2000-2010 Intercensal Estimates (2000-2005), 1990-1999 Intercensal Estimates (1990-1995), 1980-1990 Intercensal Estimates (1980), 19701980 Intercensal Estimates (1970). 54 ANALYTICAL PERSPECTIVES TABLE 5–2. SOURCES FOR SOCIAL INDICATORS—Continued Indicator 26 27 28 29 Source 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 2017 Population Estimates (2017), Vintage 2016 Population Estimates (2010-2016), 2000-2010 Intercensal Estimates (2000-2005), 1990-1999 Intercensal Estimates (1990-1995), 1980-1990 Intercensal Estimates (1980), 19701980 Intercensal Estimates (1970). 65 years and older (%) ������������������������������������������������������������������������������������������������������������������������ U.S. Census Bureau, Population Division, Vintage 2017 Population Estimates (2017), Vintage 2016 Population Estimates (2010-2016), 2000-2010 Intercensal Estimates (2000-2005), 1990-1999 Intercensal Estimates (1990-1995), 1980-1990 Intercensal Estimates (1980), 19701980 Intercensal Estimates (1970). 85 years and older (%) ������������������������������������������������������������������������������������������������������������������������ U.S. Census Bureau, Population Division, Vintage 2017 Population Estimates (2017), Vintage 2016 Population Estimates (2010-2016), 2000-2010 Intercensal Estimates (2000-2005), 1990-1999 Intercensal Estimates (1990-1995), 1980-1990 Intercensal Estimates (1980), 19701980 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/ 31 Average family size ������������������������������������������������������������������������������������������������������������������������������ U.S. Census Bureau, Current Population Survey. http://www.census.gov/ hhes/families/ 32 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 2016 forthcomoing. 33 Single parent households (%) ������������������������������������������������������������������������������������������������������������� U.S. Census Bureau, Current Population Survey. http://www.census.gov/ hhes/families/ 30 34 35 36 37 38 Civic and Cultural Engagement Average charitable contribution per itemized tax return (2015 dollars) ����������������������������������������������� U.S. Internal Revenue Service, Statistics of Income - Individual Income Tax Returns (IRS Publication 1304). http://www.irs.gov/uac/SOI-Tax-StatsIndividual-Income-Tax-Returns-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) ���������������������������������������������������������������������������������������� Corporation for National and Community Service, Volunteering and Civic Life in America, https://data.nationalservice.gov/Volunteering-and-CivicEngagement/Volunteering-and-Civic-Life-in-America/spx3-tt2b/data Attendance at visual or performing arts activity, including movie-going (% age 18 and older) ������������ The National Endowment for the Arts, Survey of Public Participation in the Arts & Annual Arts Basic Survey. Reading: Novels or short stories, poetry, or plays (not required for work or school; % age 18 and The National Endowment for the Arts, Survey of Public Participation in the older) ���������������������������������������������������������������������������������������������������������������������������������������������� Arts & Annual Arts Basic Survey. Socioeconomic 39 40 41 42 43 44 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/ 46 Real disposable income per capita (chained 2009 dollars) ����������������������������������������������������������������� Bureau of Economic Analysis, National Economic Accounts Data. http:// www.bea.gov/national/ 47 Adjusted gross income share of top 1% of all taxpayers ��������������������������������������������������������������������� U.S. Internal Revenue Service, Statistics of Income. http://www.irs.gov/uac/ SOI-Tax-Stats-Individual-Statistical-Tables-by-Tax-Rate-and-IncomePercentile 48 Adjusted gross income share of lower 50% of all taxpayers ��������������������������������������������������������������� U.S. Internal Revenue Service, Statistics of Income. http://www.irs.gov/uac/ SOI-Tax-Stats-Individual-Statistical-Tables-by-Tax-Rate-and-IncomePercentile 45 55 5. Social Indicators TABLE 5–2. SOURCES FOR SOCIAL INDICATORS—Continued Indicator 49 50 51 52 53 54 Source Personal saving rate (% of disposable personal income) �������������������������������������������������������������������� Bureau of Economic Analysis, National Economic Accounts Data. http:// www.bea.gov/national/ Foreign remittances (billions of 2016 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-nutritionassistance/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 2016 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 56 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 57 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 55 Health 58 59 60 61 62 63 64 65 66 67 Health Status Life expectancy at birth (years) ����������������������������������������������������������������������������������������������������������� National Center for Health Statistics, National Vital Statistics System: Health, United States 2017 forthcoming, Table 15. Infant mortality (per 1,000 live births) �������������������������������������������������������������������������������������������������� National Center for Health Statistics, National Vital Statistics System: Health, United States, 2017 forthcoming, Table 11. Low birthweight [<2,500 gms] (% of babies) ��������������������������������������������������������������������������������������� National Center for Health Statistics, National Vital Statistics System (natality); Births: Final data for 2016 forthcoming. Disability (% of age 18 and over) ��������������������������������������������������������������������������������������������������������� National Center for Health Statistics, National Health Interview Survey, http://www.cdc.gov/nchs/nhis.htm Disability (% of age 65 and over) ��������������������������������������������������������������������������������������������������������� National Center for Health Statistics, National Health Interview Survey, http://www.cdc.gov/nchs/nhis.htm 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, 2017 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 and unpublished data (2016 data), ageadjusted 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. Hales CM, Carroll MD, Fryar CD, Ogden CL. Prevalence of obesity among adults and youth: United States, 20152016. NCHS data brief, no 288. Hyattsville, MD: National Center for Health Statistics, 2017 (2015 data). 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, 2017 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 (2014-2016 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 69 Average total single premium per enrolled employee at private-sector establishments (2016 dollars) Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey. https://meps.ahrq.gov 70 Average health insurance premium paid by an individual or family (2016 dollars) ������������������������������ Centers for Disease Control and Prevention, National Center for Health Statistics, National Health Interview Survey, 2010-2015, Family Core component. 68 56 ANALYTICAL PERSPECTIVES TABLE 5–2. SOURCES FOR SOCIAL INDICATORS—Continued Indicator 71 72 73 Source 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, 2017 forthcoming, Table 66. Security and Safety 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 75 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 76 Murder rate (per 100,000 persons) ������������������������������������������������������������������������������������������������������ Federal Bureau of Investigation, Uniform Crime Reports, Crime in the United States. https://ucr.fbi.gov/ucr 77 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 74 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. 79 Veterans (thousands) �������������������������������������������������������������������������������������������������������������������������� U.S. Department of Veterans Affairs. 1960-1999 (Annual Report of the Secretary of Veterans Affairs); 2000-2017 (VetPop16), Predictive Analytics and Actuary. http://www.va.gov/vetdata/Veteran_Population. asp 78 Transportation Safety Safety belt use (%) ������������������������������������������������������������������������������������������������������������������������������ National Highway Traffic Safety Administration, National Center for Statistics and Analysis. https://crashstats.nhtsa.dot.gov/Api/Public/ ViewPublication/812465 81 Highway fatalities ��������������������������������������������������������������������������������������������������������������������������������� National Highway Traffic Safety Administration, National Center for Statistics and Analysis. https://crashstats.nhtsa.dot.gov/Api/Public/ ViewPublication/812456 80 Environment and Energy 82 83 84 85 86 87 88 89 Air Quality and Greenhouse Gases Ground level ozone (ppm) ������������������������������������������������������������������������������������������������������������������� U.S. Environmental Protection Agency, AirTrends Website. https://www.epa. gov/air-trends/ozone-trends Particulate matter 2.5 (ug/m3) ������������������������������������������������������������������������������������������������������������� U.S. Environmental Protection Agency, AirTrends Website. https://www.epa. gov/air-trends/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-usgreenhouse-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-usgreenhouse-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-usgreenhouse-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-usgreenhouse-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 (October 2017), Table 1.7 https://www.eia.gov/totalenergy/data/monthly 91 Energy consumption per 2009$ GDP (thousand Btu per 2009$) �������������������������������������������������������� U.S. Energy Information Administration, Monthly Energy Review (October 2017), Table 1.7 https://www.eia.gov/totalenergy/data/monthly 92 Electricity net generation from renewable sources, all sectors (% of total) ����������������������������������������� U.S. Energy Information Administration, Monthly Energy Review (October 2017), Table 7.2a https://www.eia.gov/totalenergy/data/monthly 93 Coal production (million short tons) ����������������������������������������������������������������������������������������������������� U.S. Energy Information Administration, Monthly Energy Review (October 2017), Table 6.1 https://www.eia.gov/totalenergy/data/monthly 90 57 5. Social Indicators TABLE 5–2. SOURCES FOR SOCIAL INDICATORS—Continued Indicator 94 95 96 Source Natural gas production (dry) (trillion cubic feet) ����������������������������������������������������������������������������������� U.S. Energy Information Administration, Monthly Energy Review (October 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 (October 2017), Table 3.1 https://www.eia.gov/totalenergy/data/monthly Renewable energy production (quadrillion Btu) ����������������������������������������������������������������������������������� U.S. Energy Information Administration, Monthly Energy Review (October 2017), Table 10.1 https://www.eia.gov/totalenergy/data/monthly 6. BUILDING AND USING EVIDENCE TO IMPROVE GOVERNMENT EFFECTIVENESS The Administration is committed to a vision for results-driven government that improves mission delivery and directs taxpayer dollars to the most effective and efficient purposes. Achieving this vision means ensuring accountability for results, having the necessary analytical tools, identifying and investing in effective practices, and accessing and using data to transform it into evidence that informs action. With stronger evidence, we can learn from and improve programs to better serve the American people. The bipartisan Ryan/Murray Commission on EvidenceBased Policymaking was charged with determining how the Federal government could improve how it builds and uses evidence to improve policies and programs, and overcome the current obstacles to doing so. The Commission’s September 2017 final report articulates its vision of “a future in which rigorous evidence is created efficiently, as a routine part of government operations, and used to construct effective public policy.” The Commission identified many barriers to the effective use of government data to generate evidence, and recommended strategies to improve data access in a secure and accountable manner and strengthen Federal capacity to build and use evidence. These strategies recognize the power of data and evidence to improve government while reducing burden on the American public. The Commission concluded that achieving this vision requires Executive Branch leadership, including that of the White House Office of Management and Budget (OMB). The Administration supports the Commission’s vision and believes that evidence-based policymaking is a cornerstone of effective and efficient government. As described in this chapter, implementing this vision requires the infrastructure and capacity to credibly build and use evidence and develop a culture of learning and continuous improvement. Building the Infrastructure for Evidence-based Policymaking Effective and efficient government requires understanding how well current policies and programs are working, and identifying alternatives for improvements. A variety of considerations go into decision-making, but incorporating evidence is crucial. Multiple forms of evidence—including evaluations, program monitoring, performance measurement, statistics, and other forms of research and analysis—can inform decision-making. For example, statistical indicators examined over time provide context in which policies are set and programs operate, performance data can be used to measure outcomes, and evaluations can inform understanding of program and policy variations and their impacts. The best forms of evidence to use depend on the questions being asked, the current state of knowledge, the context in which a policy or program operates, and practical and methodological considerations. Routinely creating and using evidence requires a strong infrastructure and commitment. The President’s 2018 Budget outlined widely accepted principles and practices for evaluation, which, along with similar principles and practices for Federal statistics, provide the foundation to build and use evidence. The 2018 Budget encouraged agencies to think about evidence-building broadly, highlighting how a range of analytic activities can contribute to building and using evidence. To be successful however, agencies need a strong evidence infrastructure, including hiring and deploying trained staff; ensuring independence and rigor in statistics and evaluations; using cost-effective, cutting-edge methods; and bringing evidence to bear in policy and program decisions. This infrastructure will also support agencies in making better use of existing administrative data by ensuring that there are processes and tools in place to use and share data in appropriate and secure ways. This Budget reaffirms and builds upon these evidence principles and practices, and further articulates the Administration’s vision for building and using evidence. Current Federal Landscape Building and using evidence: Ensuring that evidence can inform policy or program development and implementation requires coordination, agency leadership, available data, robust information technology and other tools, and relevant expertise, among other factors. Using evidence in decision-making entails ongoing coordination between those implementing and managing the operations of a program, including its data, and those responsible for using analysis to determine program effectiveness, opportunities for program improvement, and future policy options. Evidence-based policymaking requires strong leadership from multiple parts of an agency—agency officials, program administrators, performance managers, strategic planners, policy and budget staff, evaluators, analysts, and statisticians—to ensure that data and evidence are developed, analyzed, understood, and acted upon appropriately. Yet, current capacity in Federal agencies to build and use evidence varies widely. While some agencies have made great progress in integrating evidence into policy development, strategic planning, and day-to-day decisionmaking and operations, in other agencies, the creation and use of evidence is often isolated or limited. Program evaluation: An important form of evidencebuilding is program evaluation. Evaluation involves the systematic application of rigorous scientific methods to assess the design, implementation, outcomes, or impact of a policy or program. Evaluation can answer essential questions regarding program effectiveness and cost- 59 60 efficiency—questions that cannot be answered through performance measurement and monitoring, descriptive statistics, or simple analysis of program data alone. It can answer the questions “did it work and compared to what?” and “would these outcomes have occurred regardless of the program or did the program intervention make the difference?” However, there is tremendous variation across Federal agencies in their capacity to conduct evaluations, as well as the sophistication and rigor of their evaluation capabilities. Unlike complementary government functions like performance measurement and statistics, there is not a formal, comprehensive infrastructure for Federal evaluation to support consistency across agencies, exchange information, allow for the promulgation of principles and practices, and coordinate and collaborate on areas of common interest. As a result, we lack any evaluation findings for many policies and programs, which greatly limits evidence-based policymaking. A strong infrastructure for Federal evaluation would allow formal coordination and support of evaluation activity across agencies in order to improve evaluation within individual agencies, and enhance the quality, utility, and efficiency of evaluation across government. Some agencies have impressive evaluation capacity and activity, with independent, centralized evaluation offices working across the agency to conduct rigorous and relevant evaluations. In other cases, agencies have strong evaluation components, but they are in silos that limit their scope and prevent them from leveraging evaluation resources and expertise throughout the agency. Many agencies do not understand or undertake evaluation, or conduct poor-quality evaluation that is of limited utility and may provide misleading or incorrect information. Agencies need to increase their expertise and evaluation capacity to ensure the necessary evidence and understanding to inform program and policy decisions and improvements. One recent successful strategy for increasing agency capacity is the Office of Evaluation Sciences (OES) at the General Services Administration, which pairs experts with Federal agency partners to conduct evaluations that identify cost-effective ways to improve certain policies and programs. OES has had particular success in using existing administrative data at agencies to conduct low-cost evaluations that test no- or very low-cost changes to programs and agency processes. OES complements the evaluation activities at a number of Federal agencies, including bridging gaps at agencies that have limited or no evaluation capacity. Key Strategies to Strengthen Evidence A Federal commitment to building and using evidence requires effective strategies. A number of evidence-building strategies are being used across Federal agencies and programs, and new strategies are proposed in this Budget. These strategies vary in their focus and mechanisms, but all serve to enhance how we build and use evidence. Evaluation principles and practices: The commitment to strengthen Federal evaluation and adhere to key principles and practices was articulated in the President’s ANALYTICAL PERSPECTIVES Budget for 2018. While the process for developing a set of evaluation standards is ongoing, fundamental principles emerge as common themes in established U.S. and international frameworks, as well as several official Federal agency evaluation policies. 1 These principles include rigor, relevance, independence, transparency, and ethics. Principles and practices for evaluation help to ensure that Federal program evaluations meet scientific standards, are relevant and useful, and are conducted and have results disseminated without bias or inappropriate influence. These principles, along with similar ones in place for statistical agencies, provide a foundation for furthering agencies’ capacity to routinely build and use high-quality evidence to improve program performance and identify policy options. They also help evaluation offices maintain standards across changes in leadership and personnel. The new guidelines for monitoring and evaluation of foreign assistance, issued in January 2018 as required by the Foreign Aid Transparency and Accountability Act of 2016, also include a set of similar principles. Designated evaluation officials and offices: For complementary Federal systems, such as performance and statistics, an essential component is having a designated senior official in each agency responsible for coordinating agency activity in the area, providing necessary direction and guiding relevant resources within the agency, serving as a point of contact for other agencies and OMB, and being accountable for agency performance. Agencies with strong evaluation capacity have an independent evaluation office with the organizational standing, resources, independence, and expertise to inform agency leadership, collaborate with policy and program staff, and coordinate with statistical and performance offices. The most effective approach for strengthening Federal program evaluation includes having centralized, independent evaluation offices at agencies, each with a senior career official possessing evaluation expertise and experience given lead responsibility for evaluation at the agency. To minimize budgetary impacts and agency burden, agencies should develop structures most appropriate to their particular context that allow them to make efficient and flexible use of existing resources. Some agencies already have established centralized evaluation functions, while other agencies are strengthening these functions and are establishing evaluation offices staffed with relevant expertise. For example, the Small Business Administration (SBA) recognized the need to strengthen evidence-based decision-making to support continuous learning and organizational effectiveness and efficiency. The agency recently established a team of evaluation experts in its performance management office, and is building an evidence registry, establishing a community of practice, coordinating an agency-wide learning agenda, and conducting independent evaluations to support their new framework. The SBA will make evaluation results public and incorporate findings into its performance 1 For example, the Chief Evaluation Office at DOL, the Administration for Children and Families at HHS, the Office of Policy Development and Research at HUD, and Statistical Policy Directive No. 1: Fundamental Responsibilities of Federal Statistical Agencies and Recognized Statistical Units. 6. Building and Using Evidence to Improve Government Effectiveness management framework. In September 2017, the US Department of Agriculture (USDA) Rural Development Innovation Center established a Data Analytics and Evidence Team that is quickly establishing processes and protocols to conduct independent, rigorous, and relevant program evaluations across rural development programs to build a more robust portfolio of evidence. The 21st Century Cures Act, enacted in 2016, includes provisions to strengthen leadership and accountability for behavioral health at the Federal level and to ensure that mental health and substance abuse programs keep pace with science and technology. The Act requires the Substance Abuse and Mental Health Services Administration (SAMHSA) to disseminate research findings and evidence-based program models to service providers, ensure that grants are evaluated, strengthen the role of the Chief Medical Officer and a new Office of Evaluation, and create a National Mental Health and Substance Use Disorder Policy Laboratory to promote evidence-based practices and services. Multi-year learning agendas: Learning agendas are a way to allow agencies to plan how to focus evaluation and evidence-building activities over a multi-year period, while enabling them to modify these agendas as needed to reflect changing priorities and new learning. Through collaborative development of such agendas, agencies can identify critical questions and the evidence needed to answer these questions, given agency priorities, available resources, and challenges. Learning agendas should reflect current knowledge and availability of data, identify where new data collection is necessary and how to effectively build evidence, highlight opportunities for cross-agency collaboration and using common tools and resources, and be modified over time to reflect changing priorities and new evidence. The learning that results should be shared with agency leadership, policy and program staff, and key stakeholders in order to facilitate policy and program improvement. For example, the Social Security Administration (SSA) effectively balances comprehensive, long-term research planning in retirement and disability policy with the need to respond to emerging issues and make adjustments given new challenges and information. Through its Retirement Research Consortium and Disability Research Consortium, SSA has cooperative agreements with universities and research organizations. These agreements give SSA access to a pool of independent experts that address priority questions and identify additional issues for consideration, collaborate with SSA researchers to access administrative data and conduct analyses, and quickly respond to unanticipated needs. The resulting portfolio of evidence addresses the priorities of SSA leadership, policy and program staff, Administration officials, Congress, and key stakeholders. Strengthening interagency coordination: The Federal evidence community is increasingly sharing lessons learned, strategies, tools, and insights from building and using evidence through agency-led trainings, an online Federal community of practice, and dissemination of common standards and metrics. Such coordination is 61 critical for sharing new methods throughout the government and enabling agencies with less experience to learn from more experienced peers. Even for agencies sophisticated in evidence-building, interagency coordination is needed to avoid duplication, highlight service delivery differences, and develop comparable performance measurement systems for analysis and evaluation. A notable example of such interagency coordination is the bipartisan Workforce Innovation and Opportunity Act (WIOA, PL 113-128), which reauthorized the workforce system for the first time in 15 years, improving coordination, collaboration, and service delivery across the six major Departments of Labor (DOL) and Education employment and training programs. For the first time, these core programs were required to conduct joint state planning and report on a standardized set of employment-oriented performance metrics (e.g., participants’ placement in a job). In addition to the core WIOA programs, DOL is also aligning performance indicators and data element definitions across most of its other employment and training programs to report on the WIOA performance indicators. States also have the option to fold additional programs or activities into their strategic planning, including the Temporary Assistance for Needy Families (TANF) program, Supplemental Nutrition Assistance Program (SNAP), Community Services Block Grant, and others. In the first round of state planning, 29 states elected to include non-required programs in their plans, indicating states’ desire for broader cross-program coordination. Funding flexibilities and set-asides: Rigorous, independent evaluations and statistical surveys are essential for building evidence. Yet, this inherently complex, dynamic work can span several fiscal years, encompass timing uncertainties, and involve cost variances. For example, the announcement of a new program or policy priority may be delayed, which could postpone procurement of an independent evaluator to study the program’s implementation and effectiveness. Similarly, a study’s design may need to be altered to respond to natural disasters or factors that were not anticipated. Further, although estimates based on prior work can inform timelines necessary to obtain a sufficient number of study or survey participants, the actual time needed can fluctuate. Many other factors can influence timing and schedule changes during implementation of an evaluation, research, or statistical project such as technological advancements for collecting and analyzing data that may yield significant project efficiencies. Additionally, funding parameters and available Federal procurement strategies and processes often lack the flexibility and agility needed to address the dynamic nature of evaluation and statistical projects. Inflexible appropriations and agency processes may also limit agencies’ ability to coordinate on studies of mutual interest and combine funding sources, even though there are important benefits to doing so, including cost efficiencies, burden reduction, and shared learning. In order to improve efficiency of these projects and use of funds, the Budget proposes to leverage existing flexibilities and give agencies the ability to spend funds over longer periods of time. Another proposed flexibility rewards agencies who 62 efficiently and effectively use funds by allowing them to put unused contract funds towards other priority evaluation or statistical activities. Specifically, the Budget includes a previously enacted general provision (PL 115-31 K, Title II, Sec. 232) allowing the Department of Housing and Urban Development (HUD) to deobligate and then reobligate—in the same fiscal year or the subsequent fiscal year—funds that are unexpended at the time of completion of a contract, grant, or cooperative agreement for research, evaluation, or statistical purposes. A general provision in the Budget will provide this flexibility for other agencies and extend the period of fund availability to five years for funds appropriated or transferred for evaluation, research, and statistical activities in the Department of Labor’s Chief Evaluation Office and Bureau of Labor Statistics and Health and Human Services’ (HHS) Assistant Secretary for Planning and Evaluation and Administration for Children and Families’ (ACF) Office for Planning, Research and Evaluation. These flexibilities will allow agencies to better target evaluation and statistical funds to reflect changing circumstances as a study unfolds. The Budget also uses set-asides to ensure that agencies have adequate resources to undertake rigorous evaluations. For example, the 2019 Budget enhances research and evaluation on child care supply, demand, and quality through the utilization of the full statutory research and evaluation set-aside of one-half of one percent of funding for the HHS Child Care and Development Fund. As another example of the importance of set-asides, the 2017 Consolidated Appropriations Act included a 0.33 percent set-aside of the TANF program to be used for research, evaluation, and technical assistance. This enabled ACF to develop a demonstration to rigorously evaluate state and local interventions to help low-income persons achieve employment and economic security, with an emphasis on interventions that address opioid dependency, substance abuse, and mental health. The set-aside also allowed ACF to launch a project to improve state-level TANF programs through enhanced use of TANF and related human services data, as well as to develop (in collaboration with the Department of Labor) a database of proven and promising approaches to move TANF recipients into work. Improving Data Access and Governance for Evidence-Building Data are a central element for building and using evidence to improve government effectiveness. In order for the Federal government to successfully leverage data as strategic assets, we must address the silos across Federal agencies that can stymie collaboration and result in fragmented services and efforts. Greater coordination is needed among and within agencies, including OMB, to improve how we manage and use data. The government needs a coordinated strategy to ensure that high priority data are collected, and that already-collected data are used to their full extent. A comprehensive data strategy will acknowledge both external and internal needs for data access, recognizing that both have a role to play in addressing the big ANALYTICAL PERSPECTIVES questions and challenges of the day, such as solving the opioid epidemic or fueling economic growth. Congress has already provided OMB with many of the tools needed to implement a coordinated data strategy across agencies. These include the authority to designate single collection authorities for shared data needs, set data quality and classification standards, and manage and coordinate across interagency bodies, among others. These tools rest with multiple statutory offices across the institution. In response, OMB is organizing itself to use these tools together in service of building evidence. This will serve as a model for how agencies can maximize their use of data to build evidence across their own organizational silos. When agencies improve their own use of data for evidence-building, the American people will see improved service delivery, more effective programs, and a more responsive and efficient government. Data as strategic assets: In undertaking its mission, the Federal government collects large amounts of data, whether for administering a program, assessing or enforcing a regulation, or monitoring contracts and grants. Federal and state administrative data include rich information on labor market outcomes, health care, criminal justice, housing, and other important topics. These data are strategic assets that can be used to meet a number of needs within and outside of government, including to build evidence as the President’s 2018 Budget and the Commission on Evidence-Based Policymaking noted. On their own, these data can be used to answer important questions about service delivery, the population served, and the outcomes for an individual program. Yet, these data are often underutilized and do not reach their full potential to evaluate program effectiveness, measure day-to-day performance, and inform the public about how society and the economy are faring. Integrating data systems and linking administrative data across programs or to survey data, where appropriate, provides another opportunity to maximize the power of data for evidencebuilding and program improvement. Many notable efforts have demonstrated the potential that government data offer to improve internal government operations and increase efficiency, effectiveness, transparency, and accountability, all while reducing the burden on the public and limiting costs from new data collections. Efforts to better access and use data: Federal agencies are making greater use of their own administrative data for program operations and analytic and statistical activities, including evaluation. Many agencies have data that would be useful to other agencies, other levels of government, and outside researchers, citizens, and businesses. However, systemic legal, policy, and procedural barriers frequently prevent Federal, state, and local agencies from maximizing whether and how they use data. The range of challenges are broad, and include appropriate concerns about confidentiality and privacy, but also restrictive legislative authorities and policies, unclear administrative processes and hurdles, the inability to share data, and, in some cases, lack of sufficient analytic, evaluation, and/or information technology capacity. 6. Building and Using Evidence to Improve Government Effectiveness Federal law rightly protects some of the most valuable data for building evidence about some of the nation’s largest programs, and access must be provided in a secure and confidential manner with appropriate transparency and accountability. Nonetheless, as the Commission’s recommendations recognized, the country’s laws and practices are not currently optimized to support the use of data for evidence-building, or in a manner that best protects the data. To correct these problems, it recommended using secure technology and cutting-edge statistical methods to blend data in a highly protective manner, building on the tradition of data stewardship and tradition of strong confidentiality of the nation’s principal statistical agencies, as discussed in the Strengthening Federal Statistics Chapter of the Budget. The Commission also recommended revising laws, where needed, to enable more consistent, efficient access to data for evidence-building, with appropriate confidentiality and privacy protections in place based on the sensitivity of the data. For example, the access and use of Department of Education (ED) data collected to administer ED student aid programs are governed by a complex, overlapping patchwork of laws that result in inconsistent privacy protections and use restrictions. In addition to inconsistently protecting student privacy, these restrictions make it unnecessarily burdensome for ED to use the data it currently collects to improve the government and public understanding of student loan program costs and improve student aid program effectiveness. A reauthorization of the Higher Education Act should clarify and simplify student aid administrative data use and access restrictions to ensure that student privacy is strongly and consistently protected while allowing the Federal government to efficiently and effectively administer the student aid programs. To begin to address other statutory barriers, the Budget proposes to provide access to valuable employment and earnings data for certain agencies and programs to achieve government efficiencies. The National Directory of New Hires (NDNH)—a Federal database of new hire, employment, and unemployment insurance data used for administering HHS’ Office of Child Support Enforcement programs—is governed by statute that specifies authorized uses of the data and mandates tight controls to protect the data from unauthorized use or disclosure. Entities with the authority to access NDNH are able to use the data to support program administration (e.g., eligibility verification) and evidence-building, subject to the necessary data protections required by law and HHS. In particular, NDNH access allows some programs to eliminate duplicative efforts to collect the same employment and earnings data already in NDNH, improve program integrity, access reliable outcomes data, and create important government efficiencies. The Budget proposal enables access to NDNH for units within Federal agencies that conduct research, statistical activities, evaluation, and/or performance measurement associated with assessing labor market outcomes. Access to NDNH would enable research and performance measurement that would otherwise require costly surveys or state-by-state or other one-off agreements to obtain 63 wage data. For example, the proposal would enable the Departments of Labor and Education to use NDNH data to conduct program evaluations on employment and training programs including for WIOA. The proposal would also enable state agencies (designated by each governor with WIOA responsibilities) with the authority to match their data with NDNH for program administration, including program oversight and evaluation of WIOA and other Departments of Labor and Education employment and training programs. Additionally, the proposal would authorize data exchanges between state child support agencies, state agencies that administer workforce programs, and state agencies that administer Adult Education and Vocational Rehabilitation to improve coordination between the programs. Beyond the evidence-building proposals described, the full proposal on NDNH access includes good government provisions to enable efficiencies for program integrity and eligibility verification. The Budget allows the Department of the Treasury’s Do Not Pay Business Center to serve as a pass-through between NDNH and Federal agency programs that are authorized NDNH access for improper payment purposes. The proposal also permits USDA’s Rural Housing Service to verify eligibility and validate the income source information provided by means-tested, single family housing loan applicants and multifamily housing project-based tenants. Lastly, the Budget proposes the use of NDNH to establish eligibility for processing Railroad Retirement Board disability benefits in a more efficient manner. Integrated data systems: Federal agencies also recognize the potential that integrated data systems, which link individual- or household-level data across different programs and services, offer to support evidence-building activities and improve programs. Integrated data systems allow for richer analyses across programs and outcome areas, and enable the use of data for case management and effective service provision, ensuring that programs allocate funds effectively and efficiently. Integrating data systems and linking administrative data often requires that disparate data systems must communicate with one another. Supporting the development of interoperable data systems, which can communicate and exchange data with one another while maintaining the appropriate privacy and security protections, is critical to realize the full potential of shared administrative data. For example, the National Information Exchange Model is a Federallysupported tool that enables interoperability and data exchange at all levels of government across program areas and does so in partnership with private industry stakeholders and state/local partners. This work is done to ensure that technical solutions for data sharing follow the legal requirements. The Federal government is in a unique position to leverage the data it already collects for a range of evidence-building activities. Using data as strategic assets allows Federal agencies and state, local, and private sector partners to continuously monitor and improve programs, develop evidence on effective approaches and interven- 64 tions, and ensure that programs and services reach their intended targets. Using Evidence to Learn and Improve Evidence should be used as a regular part of decisionmaking processes. Using the full range of evidence for learning and improvement is especially important for addressing the most pressing policy challenges facing our nation. For example, substantial numbers of individuals with disabilities or serious health conditions have dropped out of the labor market, and in many cases receive disability benefits that consume substantial Federal resources. The Administration is pursuing an ambitious set of demonstration projects to build an evidence base for reforming disability programs to promote employment and self-sufficiency among persons with a disability and to reduce future costs. SSA and DOL are partnering to develop the Retaining Employment and Talent After Injury/Illness Network (RETAIN) demonstration, which will test early interventions to help workers maintain employment after experiencing a work-threatening injury, illness, or disability, thus avoiding the need for disability benefits. The Administration is requesting demonstration authority to test time-limited disability benefits for claimants whose conditions are most likely to be temporary and to enable return to employment. Expanded demonstration authority that allows for universal participation would allow SSA to test new interventions and modified program rules in order to identify effective strategies for helping persons with a disability return to employment. Evaluation findings would be considered by an expert panel in developing recommendations for permanent changes to Federal disability programs. Another example of an agency building evidence to learn and make critical decisions and improvements in policy is the Health Resources and Services Administration (HRSA), which is beginning a process for a coordinated impact assessment of HRSA programs. Beginning with its largest programs, HRSA will conduct a systematic review of the available research, evaluation, and performance measures—with a focus on compara- ANALYTICAL PERSPECTIVES tive effectiveness, patient and population outcomes, and costs—to inform policy decisions, undertake program improvements, prioritize future research and data collection, and better integrate planning, performance, program administration, and evaluation. It is also critical for states to learn and improve their operations, as many Federal dollars pass through to states and localities for administration. As an example, WIOA now requires states to use a portion of their state set-aside funds to conduct evaluations of their programs so that they can learn about effective program strategies and service delivery models. WIOA also requires states to cooperate with Federal evaluations, which will facilitate cross-agency and cross-state learnings. Conclusion Policymakers and the American people are rightly concerned with the effectiveness and efficiency of many government programs, yet the evidence base and understanding of these programs are uneven. Some Federal agencies have strong capacity to build and use evidence, while in others that capacity is minimal or the work is siloed. There has been exciting progress in using administrative data for program accountability, learning, and improvement; however, some of the most valuable data sources remain off limits to those who could most benefit from secure access. There is a way forward. A bipartisan consensus has emerged regarding the need to embrace evidence-based policymaking by using available evidence to make decisions and building evidence where it is lacking. Doing so requires leadership and capacity within agencies, adherence to key principles and practices, agency learning agendas, coordination across government, the tools and flexibility necessary for rigorous evidence-building, and strategic use of valuable administrative data. The Administration supports this vision and is prepared to work with Congress to advance evidence-based policymaking. Using evidence to improve government is what taxpayers deserve—carefully and wisely using limited resources to address national priorities and solve pressing problems. 7. STRENGTHENING THE FEDERAL WORKFORCE Federal employees underpin nearly all the operations of the Government, ensuring the smooth functioning of our democracy. While most Americans will never meet the President or even their Member of Congress, they will interact with the Federal employees who work in their community, keep them safe at airports, or welcome them to a National Park. Regional offices of the Department of Agriculture (USDA) and the Department of Interior (DOI) provide services to farmers and ranchers where they live. When emergencies occur, entities like the Federal Emergency Management Agency, the Coast Guard, and the Small Business Administration help to save and rebuild communities. Americans expect the Federal Government to keep their food and medication safe, transportation system working, assets protected, and lives spared from natural disaster. Members of the Armed Forces work side-byside with more than 730,000 civilian counterparts at the Department of Defense (DOD) to help them accomplish their mission. Veterans rely on the more than 350,000 Department of Veterans Affairs (VA) personnel to ensure they receive the medical care and benefits they have earned. More than 20,000 Department of State personnel help safeguard the Nation while serving in posts both foreign and domestic. Federal employees work to cure diseases, explore outer space, and otherwise promote the general welfare. Since Federal workers perform many essential functions, failures can chip away at the citizenry’s collective trust in Government. The cost of employing this workforce is significant. The Federal Government is the single largest direct employer in the Nation. About 1.7 million of the approximately 2.1 million direct Federal employees live outside of the Washington, D.C., metro area. An even larger “indirect” workforce carries out much of the work paid for by Federal funds. These are the Federal contractor personnel, as well as the State, local, and nonprofit employees – many of whose jobs are entirely funded through Federal grants and transfer payments – located all across the Nation, in every state and territory. The size of this broader workforce is unknown, and a subject of dispute. The Administration is committed to redefining the role of the Federal Government by reprioritizing Federal spending toward those activities that advance the safety and security of the American people. This reassessment includes the cost of Government operations. All too often the basic operating expenses of the Federal Government, including personnel-related expenses such as pay, benefits, and office space, are treated as essentially fixed costs. The Federal Government, with annual civilian personnel costs of almost $300 billion, should always be seeking to ensure it has an optimally sized and skilled workforce operating out of locations best suited to accom- plish its various missions. It is important to appropriately compensate personnel based on mission needs and labor market dynamics. Budgeting for Federal personnel has typically proceeded in the same “incremental” fashion as program budgeting, with proposed staffing and compensation levels determined by annually tweaking prior year totals, instead of reassessing underlying cost drivers and installing a better paradigm. Incremental personnel staff budgeting can perpetuate legacy inefficiencies and perennially forestall investment in the sort of workforce innovations that routinely occur in the private sector. While pursuing a series of proposals to overhaul Federal compensation and benefits, the Administration also intends to partner with Congress to cull statutory and regulatory rules that have over time created an increasingly incomprehensible and unmanageable civil service system. The Administration will propose changes in hiring and dismissal procedures to empower Federal managers with greater flexibility. Agency managers will be encouraged to restore management prerogatives that have been ceded to Federal labor unions and create a new partnership with these entities that maintains the primacy of each Agency’s obligation to efficiently and effectively accomplish its public mission. Federal Workforce Demographics The Federal workforce is comprised of approximately 2.1 million non-postal civilian workers and 1.4 million active duty military, in addition to nearly 1 million military reserve personnel, serving throughout the country and the world. As of September 2017, the Federal civilian workforce self-identifies as 62.9 percent White, 18.6 percent Black, 8.9 percent Hispanic of all races, 5.9 percent Asian, 0.5 percent Native Hawaiian/Pacific Islander, 1.6 percent American Indian/Alaska Native, and 1.6 percent more than one race. Men comprise 56.7 percent of all permanent Federal employees and women are 43.3 percent. Veterans are 31.1 percent of the entire Federal workforce, which includes the 13.3 percent of the workforce who are veterans receiving disability compensation. By comparison, veterans comprise approximately 6 percent of the private sector non-agricultural workforce. The Federal workforce continues to age, with more than 600,000 employees older than 55, which is about 40,000 more than in 2013. Roughly 155,000 employees are younger than 30, a decrease of about 20,000 since 2013. Using data from the Bureau of Labor Statistics (BLS) on full-time, full-year workers, Table 7-1 breaks all Federal and private sector jobs into 22 occupation groups to demonstrate the differences in composition between the Federal and private workforces. Charts 7-1 and 7-2 65 66 ANALYTICAL PERSPECTIVES Chart 7-1. Masters Degree or Above By Year for Federal and Private Sectors 30% Federal Private Sector All Firms 25% Private Sector Large Firms 20% 15% 10% 5% 0% 1992 1997 2002 2007 2012 2017 Source: 1992-2017 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. Industry is from the year preceding the year on the horizontal axis. Chart 7-2. 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 1997 2002 2007 2012 2017 Source: 1992-2017 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. Industry is from the year preceding the year on the horizontal axis. 67 7. Strengthening the Federal Workforce present trends in educational levels for the Federal and private sector workforces over the past two decades. Chart 7-3 shows the trends in average age in both the Federal and private sectors. When the Administration prepared its Budget request, it did not set specific full-time equivalent (FTE) levels for each Agency. While many agencies plan to reduce FTEs, in some cases, the Administration seeks to increase the workforce. Table 7-2 shows actual Federal civilian FTE levels in the Executive Branch by Agency for 2016 and 2017, with estimates for 2018 and 2019. At the time the Budget was prepared, funding provided for the 2018 annual appropriations bills were operating under a continuing resolution, and FTE estimates reflect this funding. Actual 2018 FTE levels are likely to be different, to account for final appropriations, administrative decisions within agencies, and other factors. Chart 7-4 broadly shows the trends in personnel as a percent of the population 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. A System Whose Time Has Come - And Gone Today’s Federal personnel system is a relic of an earlier era. The Federal civil service is mired in a job system largely codified in 1949, when the General Schedule (GS) classification system was first created. About two-thirds of Federal civilian employees continue to work under the GS. This antiquated structure hinders the Federal Government’s ability to accomplish its mission. The mission and required skills have changed, but the system has not. The competitive personnel system that Civil Service Commissioner Theodore Roosevelt envisioned to elevate the country has fallen into disrepute, criticized from most quarters as a compliance-oriented regime that ill-serves Federal managers, employees, or the Nation at large. “No Time to Wait,” a clarion call to civil service reform, was issued last year by the National Academy of Public Administration. That report questioned whether a “onesize fits all” Federal personnel system is necessary or even effective. The Government Accountability Office regularly includes human capital management on its semiannual High-Risk list of pressing problems facing the Federal Government. The inadequacies of the civil service are chronicled in scores of books and articles. The consensus is that the status quo is unacceptable, and an underlying cause of an array of Government failures rooted in an inability to recruit and manage people. Back in 2002, the Office of Personnel Management (OPM) issued “A Fresh Start for Federal Pay,” a white paper critiquing the Government’s pay and job evaluation system as a “system whose time has come - and gone.” The paper points out that the workforce “is no longer a government of clerks.” It describes the pay system as insensitive to both market forces and individual performance. Fifteen years later, little has changed systemically. When pressing needs arise, statutory fixes are devised to bypass the existing system. Such laws typically allow specific agen- Table 7–1. OCCUPATIONS OF FEDERAL AND PRIVATE SECTOR WORKFORCES (Grouped by Average Private Sector Salary) Percent Occupational Groups Private Federal Sector Workers 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 �������������������������������������������������������������������������������������� 2.3% 4.4% 5.1% 12.1% 2.2% 7.4% 16.0% 6.4% 1.2% 0.6% 1.9% 0.7% 14.0% 0.5% 6.4% 9.1% 2.7% 0.3% Total Percentage ������������������������������������������������������������������������������� 57.1% 36.2% 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 �������������������������������������������������������������������������������� 1.1% 3.2% 1.6% 8.8% 2.3% 1.6% 0.9% 3.1% 13.2% 2.6% 6.1% 4.5% 3.1% 0.7% 5.7% 0.6% 3.3% 9.7% 10.5% 7.5% Total Percentage ������������������������������������������������������������������������������� 38.2% 51.6% Lowest Paid Occupations Ranked by Private Sector Salary: Other miscellaneous service workers �������������������������������������������� Janitors and housekeepers ����������������������������������������������������������� Cooks, bartenders, bakers, and wait staff ������������������������������������� 2.5% 1.4% 0.8% 5.8% 2.3% 4.0% Total Percentage ������������������������������������������������������������������������������� 4.7% 12.2% Source: 2013-2017 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. cies to work around intractable parts of the outdated civil service structure. Chart 7-5 is an OPM mapping of the 15 functions and 54 sub-functions comprising the Federal human capital management system. Complex and outdated, the laws and regulations governing hiring, performance management, pay, and retirement number in the thousands. The rigidity of the system requires human resources specialists to focus on rule-based compliance instead of achieving the best hires. This is in part due to the reality that the civil service system was conceived at a time when the Nation’s workforce was much more static than it is today, with employees typically staying with the same job for decades. The Civil Service Reform Act of 1978 turns 40 this year. It is time to reconsider where that law has succeeded and 68 ANALYTICAL PERSPECTIVES Table 7–2. FEDERAL CIVILIAN EMPLOYMENT IN THE EXECUTIVE BRANCH (Civilian employment as measured by full-time equivalents (FTE) in thousands, excluding the Postal Service) Actual Agency 2016 Estimate 2017 2018 Change: 2018 to 2019 2019 FTE Percent 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 �������������������������������������������������������������������������������������������������������������������������� 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 87.3 40.9 726.2 4.1 14.7 74.1 182.4 7.9 64.9 118.2 16.2 27.6 54.7 92.5 351.6 88.7 42.6 741.5 3.9 15.4 75.5 182.0 7.7 64.4 117.1 15.7 25.7 55.1 90.0 359.3 80.9 51.7 744.5 3.9 15.1 74.9 195.0 7.5 59.8 116.8 15.8 25.5 54.7 88.3 366.3 –7.8 9.1 3.0 –* –0.2 –0.6 13.0 –0.2 –4.6 –0.3 * –0.2 –0.4 –1.8 7.0 –8.8% 21.3% 0.4% –1.1% –1.4% –0.8% 7.2% –2.6% –7.1% –0.3% 0.3% –0.6% –0.7% –1.9% 1.9% 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 �������������������������������������������������������������������������������������������������������������� 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 1.7 1.7 21.7 14.8 2.1 1.5 6.1 1.1 11.5 5.6 17.2 2.9 1.2 1.5 1.4 3.2 5.5 4.6 3.4 5.0 61.4 10.1 13.5 1.6 1.8 21.6 15.4 2.1 1.4 6.4 1.1 11.7 5.5 17.3 2.8 1.2 1.3 1.4 3.4 5.9 4.5 3.2 5.2 61.5 10.0 13.9 1.6 1.8 21.6 11.6 2.0 1.4 6.4 1.1 11.9 5.1 17.2 2.7 1.2 1.2 1.4 3.3 5.8 4.5 3.3 5.2 60.8 9.9 13.4 * * * –3.8 –* ......... –0.1 ......... 0.2 –0.3 –0.1 –0.1 –* –0.1 ......... –0.1 –0.1 –0.1 * –* –0.8 –0.1 –0.5 0.3% 0.9% * –24.6% –0.8% ......... –1.0% ......... 1.5% –6.3% –0.3% –3.0% –1.2% –7.2% ......... –4.4% –2.3% –1.4% 0.5% –0.1% –1.2% –1.1% –3.7% 2,057.3 2,062.1 2,085.1 2095.2 10.1 0.5% Total, Executive Branch civilian employment ����������������������������������������������������������������������������� * 50 or less. where it has failed. The private sector continually finds new ways to evolve human capital management programs to maximize the return from their most valuable asset: their people. The Federal Government should do no less. Federal Workforce Compensation Reform The civil service salary schedules present an incomplete portrait of Federal pay. Private sector best practice focuses on total compensation, which includes both salary and ben- efits. Total Federal compensation is summarized in Table 7-3. A Congressional Budget Office (CBO) report issued in April 2017 found that, based on observable characteristics, Federal employees on average received a combined 17 percent higher wage and benefits package than the private sector average over the 2011-2015 period. The disparity is overwhelmingly on the benefits side: CBO found that Federal employees receive on average 47 percent higher benefits and 3 percent higher wages than counterparts in the private sector. These gaps result from disproportion- 69 7. Strengthening the Federal Workforce Table 7–3. PERSONNEL PAY AND BENEFITS (In millions of dollars) Change: 2018 to 2019 Description 2017 Actual 2018 Estimate 2019 Estimate Dollars Percent Civilian Personnel Costs: Executive Branch (excluding Postal Service): Pay ������������������������������������������������������������������������������������������������������������������������������������������������������ Benefits ����������������������������������������������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������������������������������������������ 190,243 82,938 273,181 194,656 84,587 279,243 198,507 85,767 284,274 3,851 1,180 5,031 2.0% 1.4% 1.8% Postal Service: Pay ������������������������������������������������������������������������������������������������������������������������������������������������������ Benefits ����������������������������������������������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������������������������������������������ 37,265 13,541 50,806 37,328 18,113 55,441 37,978 13,863 51,841 650 –4,250 –3,600 1.7% –23.5% –6.5% Legislative Branch: Pay ������������������������������������������������������������������������������������������������������������������������������������������������������ Benefits ����������������������������������������������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������������������������������������������ 2,177 690 2,867 2,234 699 2,933 2,354 766 3,120 120 67 187 5.4% 9.6% 6.4% Judicial Branch: Pay ������������������������������������������������������������������������������������������������������������������������������������������������������ Benefits ����������������������������������������������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������������������������������������������ 3,207 1,069 4,276 3,304 1,101 4,405 3,420 1,116 4,536 116 15 131 3.5% 1.4% 3.0% Total, Civilian Personnel Costs ����������������������������������������������������������������������������������������������������������������� 331,130 342,022 343,771 1,749 0.5% Department of Defense—Military Programs: Pay ������������������������������������������������������������������������������������������������������������������������������������������������������ Benefits ����������������������������������������������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������������������������������������������ 97,263 43,775 141,038 101,203 47,038 148,241 105,038 51,595 156,633 3,835 4,557 8,392 3.8% 9.7% 5.7% All other Executive Branch uniform personnel: Pay ������������������������������������������������������������������������������������������������������������������������������������������������������ Benefits ����������������������������������������������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������������������������������������������ 3,381 715 4,096 3,387 741 4,128 3,534 749 4,283 147 8 155 4.3% 1.1% 3.8% Total, Military Personnel Costs ����������������������������������������������������������������������������������������������������������������� 145,134 152,369 160,916 8,547 5.6% Grand total, personnel costs ��������������������������������������������������������������������������������������������������������������������� 476,264 494,391 504,687 10,296 2.1% Former Civilian Personnel: Pensions �������������������������������������������������������������������������������������������������������������������������������������������������� Health benefits ����������������������������������������������������������������������������������������������������������������������������������������� Life insurance ������������������������������������������������������������������������������������������������������������������������������������������ Subtotal ������������������������������������������������������������������������������������������������������������������������������������������ 85,200 12,654 43 97,897 86,443 12,917 44 99,404 89,861 13,642 45 103,548 3,418 725 1 4,144 4.0% 5.6% 2.3% 4.2% Former Military Personnel: Pensions �������������������������������������������������������������������������������������������������������������������������������������������������� Health benefits ����������������������������������������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������������������������������������������ 59,574 10,326 69,900 60,912 10,905 71,817 62,618 11,451 74,069 1,706 546 2,252 2.8% 5.0% 3.1% Total, Former Personnel ����������������������������������������������������������������������������������������������������������������������������� 167,797 171,221 177,617 6,396 3.7% Military Personnel Costs: ADDENDUM ately high Federal compensation paid to individuals with a bachelor’s degree or less; Federal employees with professional degrees are actually undercompensated relative to private sector peers, in CBO’s analysis. The generous benefits package offered by the Federal Government includes a defined benefit annuity plan and retiree health care benefits – both are increasingly rare in the private sector. The Federal defined benefit 70 ANALYTICAL PERSPECTIVES Chart 7-3. Average Age by Year for Federal and Private Sectors 48 46 44 42 40 Federal Private Sector All Firms 38 Private Sector Large Firms 36 1992 1997 2002 2007 2012 2017 Source: 1992-2017 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. Industry is from the year preceding the year on the horizontal axis. plan, according to CBO, is the single greatest factor contributing to the disparity in total compensation between the Federal and private sector workforce. To better align with the private sector, the Budget reduces Federal personnel compensation costs, primarily the annuity portion. The Budget carries forward several FY 2018 Budget proposals, including: increasing employee payments to the Federal Employee Retirement System (FERS) de- Chart 7-4. Changes from 1975 to 2017 in Employment as a Percent of Population 50% Federal - Security Federal - Non-Security Private Sector State & Local 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% 1975 1982 1989 1996 2003 2010 2017 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. 71 7. Strengthening the Federal Workforce Chart 7-5 The Human Capital Business Reference Model (HCBRM) funconal framework defines Federal Human Capital Management. This map represents the 15 Funcons and 54 Sub-funcons in the HC lifecycle. Maintained by: HRLOB@opm.gov Federal Talent Management Government-Wide F1 F2 Federal Federal Human Capital Oversight and Leadership Evaluaon F3 Federal Veng Enabling F4 Federal Benefits F1.1 F2.1 F3.1 F4.1 Benefit F5.1 Federal Human Capital Veng Program PreHuman Capital Strategic and Standards and Administra on Re rement Regula on and Opera onal Oversight and Oversight Ac vi es Policy Oversight A1.1 Workforce Planning F1.2 F5.2 A1.2 Human Capital F2.2 F3.2 F4.2 Benefits Human Capital Suitability and Re rement Human Capital Service Enrollment Delivery Evalua on Fitness Case Planning Strategy Model F2.3 Human Capital F3.3 Agency Creden aling Guidance and Evalua on F4.3 Agency Benefits Counseling Employee Lifecycle A1 Agency Human A10 A2 F5 Federal Capital Agency Talent Rerement Strategy, Human Capital Acquision Policies, and Evaluaon Operaon F5.3 PostRe rement Customer Service F3.4 F4.4 Background Miscellaneous Inves ga on Benefits Opera ons F: OPM-specific Func ons A: Agency-specific Func ons *Federal Talent Management is defined as the employee lifecycle Supporting A4 A6 A3 A5 Employee Separaon Talent Compensaon Performance and Development and Benefits Management Rerement A7 Employee Relaons and Connuous Veng A8 Labor Relaons A9 Workforce Analycs and Employee Records A10.1 A2.1 A3.1 A4.1 A5.1 A6.1 Human Capital Talent Talent Employee Compensa on Separa on Programma c Acquisi on Development Performance Management Counseling Planning Management Evalua on Management A7.1 Employee Accountability for Conduct A8.1 Labor Management Rela ons A9.1 Employee Inquiry Processing A8.2 Nego ated Grievances and ThirdParty Proceedings A9.2 Employee Research A8.3 Collec ve Bargaining A9.3 Workforce and Performance Analy cs A2.2 A3.2 A5.2 A6.2 A7.2 A4.2 Candidate Talent Work Schedule Re rement Employee Recogni on Sourcing and Development and Leave Planning and Accountability Management Recruitment and Training Management Processing for Performance A1.3 Posi on Classifica on and Posi on Management A4.3 Performance A2.3 A3.3 Appraisal A5.3 Candidate Learning System Benefits Assessment Administra on Cer fica on Management and Selec on for SES and SL/ST A7.3 Administra ve Grievances and Third-Party Proceedings A1.4 Diversity and Inclusion A2.4 Applicant Screening, Reciprocity, Inves ga on A5.4 Work-Life Wellness / Employee Assistance Programming A7.4 Reasonable Accommoda on A9.4 Workforce and Performance Repor ng A1.5 Employee Engagement A2.5 Veng Adjudica on A7.5 Con nuous Veng A9.5 Employee Records Recordkeeping A9.6 Employee Records Disclosure A2.6 New Hire InProcessing and Onboarding Table 7–4. TOTAL FEDERAL EMPLOYMENT (As measured by Full-Time Equivalents) Description Executive Branch Civilian: All Agencies, Except Postal Service ����������������������������������������������������������������������������������������������������������������� Postal Service 1 ������������������������������������������������������������������������������������������������������������������������������������������������� Subtotal, Executive Branch Civilian ������������������������������������������������������������������������������������������������������������ 2017 Actual 2,062,068 591,179 2,653,247 2018 Estimate 2,085,101 582,346 2,667,447 2019 Estimate 2,095,203 583,078 2,678,281 Change: 2018 to 2019 FTE 10,102 732 10,834 Executive Branch Uniformed Military: Department of Defense 2 ��������������������������������������������������������������������������������������������������������������������������������� 1,337,669 1,352,081 1,378,630 26,549 Department of Homeland Security (USCG) ����������������������������������������������������������������������������������������������������� 41,137 41,503 41,495 –8 Commissioned Corps (DOC, EPA, HHS) ��������������������������������������������������������������������������������������������������������� 6,792 6,929 7,024 95 Subtotal, Uniformed Military ����������������������������������������������������������������������������������������������������������������������� 1,385,598 1,400,513 1,427,149 26,636 Subtotal, Executive Branch ������������������������������������������������������������������������������������������������������������������������� 4,038,845 4,067,960 4,105,430 37,470 Legislative Branch 3 ���������������������������������������������������������������������������������������������������������������������������������������������� 29,640 32,745 33,408 663 Judicial Branch ����������������������������������������������������������������������������������������������������������������������������������������������������� 32,810 33,214 33,351 137 Grand Total ������������������������������������������������������������������������������������������������������������������������������������������������ 4,101,295 4,133,919 4,172,189 38,270 1 Includes 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% Percent 0.5% 0.1% 0.4% 1.9% –* 1.4% 1.9% 0.9% 2.0% 0.4% 0.9% 72 ANALYTICAL PERSPECTIVES CHART 7-6 FEDERAL EMPLOYEE REVIEW PROCESSES FOR MAJOR DISCIPLINARY ACTIONS [REMOVAL; SUSPENSION > 14 DAYS; REDUCTION IN GRADE OR PAY] * BEGIN HERE * NEGOTIATED PROCESS YES IS EMPLOYEE COVERED BY A UNION CONTRACT? ADMINISTRATIVE PROCESSES NO ELECTION ELECTION UNION GRIEVANCE DISCRIMINATION COMPLAINT APPEAL TO MSPB WHISTLEBLOWER RETALIATION COMPLAINT ARBITRATION HEARING AGENCY INVESTIGATION AJ HEARING & DECISION OSC INVESTIGATION ARBITRATOR DECISION FINAL AGENCY DECISION REVIEW & FINAL MSPB DECISION REVIEW & DECISION FROM EEOC Grievance process EEO process MSPB process OSC process Judicial review FEDERAL DISTRICT COURT U.S COURT OF APPEALS: REGIONAL U.S. COURT OF APPEALS: FED. CIR. [AS OF 12/26/17] Source: Merit Systems Protection Board fined benefit plan, so that employees and their employing agency pay an equal share of the employee’s annuity cost; and reducing or eliminating cost of living adjustments for existing and future retirees. Increased employee annuity contributions would be phased in at a rate of one percent per year. Also carried forward from the 2018 Budget are proposals to base annuity calculations on employees’ “High-5” salary years instead of their “High-3” salary years (a common private sector practice), and the elimination of the FERS Special Retirement Supplement for those employees who retire before their Social Security eligibility age. This Budget further proposes to modify the “G” fund, an investment vehicle available only through the Thrift Savings Plan (TSP), the defined contribution plan for Federal employees. G fund investors benefit from receiving a medium-term Treasury Bond rate of return on what is essentially a short-term security. The Budget would instead base the G-fund yield on a short-term T-bill rate. The TSP, one of the largest defined contribution plans in the world, is popular among Federal employees, who appreciate having a pre-tax investment vehicle with low administrative costs and employer matching contributions. The TSP is also taxpayer-friendly, since the program has no unfunded liabilities. In contrast, the Civil Service Retirement and Disability Fund, the Federal defined benefit programs’ trust fund, operates like Social Security; it has large, unfunded liabilities backed only by Government IOUs. The TSP is a particularly attractive benefit to young, mobile workers not intending to make a career of Federal service. The Budget, therefore, funds a study to explore the potential benefits, including the recruitment benefit, of creating a defined-contribution only annuity benefit for new Federal workers, and those desiring to transfer out of the existing hybrid system. 7. Strengthening the Federal Workforce Federal employee sick and annual leave benefits are also disproportionate to the private sector. All Federal employees receive 10 paid holidays and up to 13 sick days annually, as well as 13 to 26 vacation days, depending on tenure. This Budget proposes to transition the existing civilian leave system to a model that has worked well in the private sector, which is to grant employees maximum flexibility by combining all leave into one paid time off category. This would reduce total leave days, while adding a short term disability insurance policy to protect employees who experience a serious medical situation. Across the board pay increases have long-term fixed costs, yet fail to address existing pay disparities, or target mission critical recruitment and retention goals. The Administration therefore proposes a pay freeze for Federal civilian employees for 2019. This Administration believes in pay for performance. The existing Federal salary structure rewards longevity over performance. This is most evident in the tenure-based “step-increase” promotions that whitecollar workers receive on a fixed, periodic schedule without regard to whether they are performing at an exceptional level or merely passable (they are granted 99.7 percent of the time). The Budget proposes to slow the frequency of these step increases, while increasing performance-based pay for workers in mission-critical areas. Separately, the Budget proposes $50 million for a centrally-managed fund to finance innovative approaches to meeting critical recruitment, retention and reskilling needs across the Government. The President’s Management Council would designate a board of Federal officials to manage the fund, which would review and select from among agency and cross-agency proposals to pilot innovative and cost-effective ways to strengthen the workforce, to meet future workforce challenges, and to evaluate the impacts in a manner that best informs future policies. Fixing Hiring and Employee Relations Federal jobs can take more than a year to fill. The job announcements remain a confusing cipher to applicants. The hiring process – which includes at least 14 steps – is cumbersome and frustrating for Federal hiring managers. As the nature of work changes, the Federal Government requires more term employees. Many individuals are interested in public service but not seeking a career in the civil service. Existing Federal hiring rules make term hiring as difficult as hiring a permanent employee. Another major hindrance to timely hiring is a massive security investigation inventory. The Administration inherited a significant and growing inventory of background investigations for Federal employment and security clearances. The inventory grew from a steady-state of about 190,000 cases in August 2014 to more than 722,000 by August of last year. It currently stands at more than 706,000. The inventory creates dramatic delays in the hiring process across Government, especially those agencies in need of personnel with a security clearance. Beyond the immediate problem, fundamental reform of the background investigation process is necessary, to both increase efficiency and reduce costs. 73 Federal Agencies face challenges in effectively implementing information technology (IT) workforce planning and defining cybersecurity staffing needs. Execution of the National Initiative for Cybersecurity Education coding structure is expected to identify critical cyber needs by the end of 2018. IT and cybersecurity recruitment and retention initiatives will continue to focus on mitigation of critical skill gaps and retaining current IT and cybersecurity talent. The Government will experiment in finding new ways to hire the necessary cyber workforce. As agencies implement new technology and processes, the Administration will invest in reskilling the workforce to meet current needs. Employees who perform transactional work that is phased out can shift to working more directly with customers or on more complex and strategic issues. Current employees can shift from legacy positions into emerging fields in which the Government faces shortages, including data analysis, cybersecurity and other IT disciplines. Another area of focus is the Senior Executive Service (SES), the roughly 7,000 high-ranking Federal managers who hold many of the most responsible career positions in the Government. SES members are disproportionately retirement-eligible. The Administration is continuing efforts to modernize policies and practices governing the SES, including creating a more robust and effective SES succession pipeline, which could include more recruitment outreach into the private sector. Many new Federal employees still have paper copies of onboarding documents printed and stored. Employees who move between agencies need to have personnel data, such as basic identifiers or health benefits elections manually re-entered. Electronic personnel files contain scanned copies of old documents, as opposed to being truly digital and interoperable between agencies. The Administration, however, is creating a single electronic identifier for employees that follows them throughout their career and will enable agencies to advance their use of data-driven human resources decisions. At the end of their careers, a long-standing backlog in Federal retirement claims processing remains an inconvenience to Federal retirees. Paper personnel files on individual employees are maintained in a facility housed in a Pennsylvania mine with 28,000 filing cabinets. Retirement claims may require manual intervention or labor-intensive calculations. Federal employer-employee relations activities currently consume considerable management time and taxpayer resources, and may negatively impact efficiency, effectiveness, cost of operations, and employee accountability and performance. About 60 percent of Federal employees belong to a union. Federal statute defines the parameters of collective bargaining, which are different than those in the private sector and State or local governments. Federal employees are not allowed to strike and unions must represent all eligible employees regardless of paid membership. Fewer items are negotiable than in the private sector. Yet, collective bargaining contracts can have a significant impact on agency performance, workplace productivity, and employee satisfaction. The Administration 74 sees an opportunity for progress on this front and intends to overhaul labor-management relations. On September 29, 2017, Executive Order 13812 rescinded the requirement for labor-management forums. Agencies were further instructed to remove any internal policies, programs, or guidelines related to existing forums. ANALYTICAL PERSPECTIVES Long-term Workforce Planning and Strategies agencies, primarily in security-related agencies (DOD, VA, and particularly DHS), as well as Commerce as it prepares for the 2020 Census, which requires a large influx of short-term staff. Table 7-4 shows actual 2017 total Federal employment and estimated totals for 2018 and 2019, including the Uniformed Military, Postal Service, Judicial and Legislative branches. All agencies are responsible for being good stewards of taxpayer funds. To that end, in M-17-22, “Comprehensive Plan for Reforming the Federal Government and Reducing the Federal Civilian Workforce,” the Office of Management and Budget (OMB) required agencies to create short and long term workforce plans to right-size their workforces in keeping with the agency’s current mission. The agency plans were used to develop long-term workforce strategies, including the staffing levels proposed in the 2019 Budget. Agencies will continue to examine their workforces to determine what jobs they need to accomplish their mission, taking into account the impact of technological investments that automate transactional processes, artificial intelligence that can streamline the byzantine compliance and regulatory processes, online and telephone chat-bots to improve customer service, and other such tools that may reduce agency personnel needs. Currently, many professionals are performing tasks that the private sector dispatches via technology tools such as “bots” and artificial intelligence. A Deloitte study used BLS data to show that Federal agencies spend millions of hours performing tasks like documenting and recording paperwork, evaluating information to determine compliance, monitoring resources, and responding to routine questions. The study estimated that VA spent more than 150 million hours on documenting and recording information. It found that Department of Homeland Security (DHS) could save 800,000 hours annually by increasing automation of compliance with standards. Agencies for too long have devoted too many positions to low-value work. Several agencies are already using shared-service models for mission-support positions, which can also reduce their need for full-time employees. Fewer staff positions may also be needed due to changes in Federal procurement, real estate utilization and administrative processes. Due to the initial hiring freeze and subsequent efforts, non-security agencies (i.e. USDA, DOI, Treasury, Housing & Urban Development, and Environmental Protection Agency) conducted substantial decreases to the size of their workforce. The 2019 Budget details further proposed reductions in specific agencies. Estimated employment levels for 2019 are higher than the 2017 actual FTE levels and an increase from the 2018 estimates, all of which are slightly less than 2.1 million civilian employees. The Federal workforce increased only modestly in 2017, from 2,057,300 to 2,062,100. From 2018 to 2019, increases occur in 7 of the 24 Chief Financial Officers Act One of the Administration’s first priorities was to address poor performers and conduct violators. In lifting the January 23, 2017 hiring freeze, the Administration chose to focus on improving the quality of the current workforce. OMB required all agencies to submit plans to address employee performance. The Administration recognizes that the vast majority of employees uphold their Oath of Office and work diligently. A percentage, however, are simply unable or unwilling to perform at acceptable levels. Their peers in the Federal workforce recognize this issue. Every year, the vast majority of Federal workers surveyed disagree with the statement that, “in my work, steps are taken to deal with a poor performer who cannot or will not improve.” The requirements to successfully remove an employee for misconduct or poor performance are onerous (see Chart 7-6). Employees have a variety of avenues to appeal and challenge actions. Agencies may settle cases to avoid the expense of litigation, regardless of the strength and documentation of a manager’s case. Settling can avoid the prospect of an even more costly decision by an arbitrator unaccountable to taxpayers. Federal managers are reluctant to expend the energy necessary to go through the process of dismissing the worst performers and conduct violators. In some cases, the most immediate victims of employee misconduct are fellow employees, who may file claims themselves that they are being harassed, hazed, or threatened by their colleague. Each year, fewer than one in 200 Federal employees is fired. In contrast, more than 99 percent of employees are rated as fully successful or higher in their evaluations. The failure of Federal performance management systems to adequately differentiate the performance of individuals extends up to the SES cadre, where the modal rating is “exceeds expectations,” and at many agencies it is “outstanding.” This sort of grade inflation does little to help managers reward high performers or otherwise make necessary distinctions to inform decisions concerning the workforce. This is yet another area where the Federal workforce could benefit from adopting some private sector norms. The Federal workforce also contains untold numbers of selfless civil servants who perform their jobs in a manner that honors and uplifts their fellow citizens. They are part of the fabric that makes this Nation great. We need reforms that recognize and reward such individuals, and free them from unnecessary red tape so that they can more efficiently and effectively support the mission of Government. Maximizing Employee Performance BUDGET CONCEPTS AND BUDGET PROCESS 75 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 2019. (Fiscal year 2019 will begin on October 1, 2018, and end on September 30, 2019.) 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 2018, 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 2017, 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 77 78 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 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 year in other laws that affect spending and receipts. Both 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). 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 79 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 draft- ed 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, Congresses have failed to pass a CR or 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 laws is that they provide agencies with the authority or 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 80 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 acts, together with appropriations acts for the year, are ANALYTICAL PERSPECTIVES 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 budget authority not included in the security category. 8. Budget Concepts 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 revise the preview report estimates to reflect the effects of 81 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 of PAYGO legislation as averaged over rolling 5- and 10- 82 year 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. Subsequently, 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 a combination of sequestration of mandatory spending ANALYTICAL PERSPECTIVES 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 2019 Budget proposes to remain within the discretionary total of $1,092 billion under current law after 2 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. 83 8. Budget Concepts accounting for the discretionary cap reductions for 2019, as ordered in the Joint Committee enforcement report issued simultaneously with the 2019 Budget. However, the Budget would set the 2019 cap for defense programs at $627 billion (up from $562 billion) and the non-defense cap at $465 billion (down from $530 billion). The Budget further proposes new caps for the outyears that would fund defense needs while further reducing the non-defense category. In addition, the Budget proposes that the Joint Committee mandatory sequestration be extended to 2028. 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 offbudget 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 84 ANALYTICAL PERSPECTIVES 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 recording 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 (In billions of dollars) 2017 Actual • A function encompasses activities with similar pur- poses, emphasizing what the Federal Government 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). •A function must be of continuing national importance, and the amounts attributable to it must be significant. • Each Estimate 2018 The following criteria are used in establishing functional categories and assigning activities to them: 2019 Budget authority Unified ������������������������������������������������� On-budget �������������������������������������� Off-budget �������������������������������������� 4,154 3,349 805 4,264 3,405 859 4,571 3,651 920 Receipts: Unified ������������������������������������������������� On-budget �������������������������������������� Off-budget �������������������������������������� 3,316 2,466 851 3,340 2,488 852 3,422 2,517 905 Outlays: Unified ������������������������������������������������� On-budget �������������������������������������� Off-budget �������������������������������������� 3,982 3,180 801 4,173 3,316 857 4,407 3,494 913 Deficit (–) / Surplus (+): Unified ������������������������������������������������� On-budget �������������������������������������� Off-budget �������������������������������������� –665 –715 49 –833 –828 –5 –984 –977 –7 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. 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 https://www.whitehouse.gov/omb/ 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: https://www.whitehouse.gov/omb/ 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 85 8. Budget Concepts 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 purposes 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 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 • Offsetting collections or offsetting receipts, which are deducted from gross outlays to calculate net outlay figures. Governmental Receipts 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, regulato- 86 ANALYTICAL PERSPECTIVES ry 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, “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 offsetting. 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 87 8. Budget Concepts 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 budget 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 decisionmakers 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. 88 ANALYTICAL PERSPECTIVES 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 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 avail- able 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 89 8. Budget Concepts 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 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 2017 appropriations act extends the availability of unobligated budget authority that expired at the end of 2016, new budget authority would be recorded for 2017. This scorekeeping is used because a reappropriation has exactly the same effect as allowing the earlier appropriation to expire at the end of 2016 and enacting a new appropriation for 2017. 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. 90 ANALYTICAL PERSPECTIVES 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, 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 ad- count 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). 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 2019 will be obligated or spent in 2019. 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. Chart 8-1. Relationship of Budget Authority to Outlays for 2019 (Billions of dollars) New Authority Recommended for 2019 4,571 Unspent Authority Enacted in Prior Years 2,491 To be spent in 2019 Outlays in 2019 3,494 To b e in fu spent ture year s nt pe e s 19 b 0 To in 2 -4 4,407 913 1,0 77 Authority written off, expired, and adjusted (net) To be spent in Future Years 1,574 justment 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 ac- Unspent Authority for Outlays in Future Years 2,651 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, $3,494 billion of outlays in 2019 (79 percent of the outlay total) will be 91 8. Budget Concepts made from that year’s $4,571 billion total of proposed new budget authority (a first-year outlay rate of 76 percent). Thus, the remaining $913 billion of outlays in 2019 (21 percent of the outlay total) will be made from budget authority enacted in previous years. At the same time, $1,077 billion of the new budget authority proposed for 2019 (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 actual spending is controlled through the annual appropriations process. About 30 percent of total outlays in 2017 ($1,200 billion) were discretionary and the remaining 70 percent ($2,781 billion in 2017) were mandatory spending and net interest. Such a large portion of total spending is mandatory because authorizing rather than appropriations legislation determines net interest ($263 billion in 2017) and the spending for a few programs with large amounts of spending each year, such as Social Security ($939 billion in 2017) and Medicare ($591 billion in 2017). 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 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. 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. 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 92 ANALYTICAL PERSPECTIVES 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 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 2017, the Government borrowed $498 billion from the public, bringing debt held by the public to $14,665 billion. This borrowing financed the $665 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. 93 8. Budget Concepts (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 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 without a change in borrowing 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. Financial transactions with the IMF 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). Other exchanges of monetary assets, such as deposits of cash in Treasury accounts at commercial banks, are not included in the Budget. However, Congress has historically expressed interest in showing some kind of budgetary effect for U.S. transactions with the IMF.4 Most recently, Title IX of the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2016, required the estimated cost of the 2009 and 2016 quota increases and the partial rescission of the new arrangements to borrow (NAB) authorized by the Act to be recorded on a present value basis with a fair value premium added to the Treasury discount rate.5 As a result, 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 4 For a more detailed discussion of the history of the budgetary treatment of U.S. participation in the quota and new arrangements to borrow (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 NAB is similar to the quota. 5 See pages 85-86 of the Analytical Perspectives volume of the 2018 Budget for a more complete discussion of the changes made to the budgetary presentation of quota increases due to Title IX of the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2016. 94 ANALYTICAL PERSPECTIVES 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 (2017) 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). 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. Data for the Outyears The budget presents estimates for each of the nine years beyond the budget year (2020 through 2028) in order to reflect the effect of budget decisions on objectives and plans over a longer period. Allowances The current year column (2018) 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 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 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. Data for the Budget Year Baseline The budget year column (2019) 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 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 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. Data for the Current Year 95 8. Budget Concepts The baseline serves several useful purposes: • It may warn of future problems, either for Govern- ment fiscal policy as a whole or for individual tax and spending programs. • It may provide a starting point for formulating the President’s Budget. • It may provide a “policy-neutral’’ benchmark against which the President’s Budget and alternative pro- posals 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: 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. 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 • 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. 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. 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 96 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 comprehensive 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 achiev- ANALYTICAL PERSPECTIVES ing 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 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. 8. Budget Concepts 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 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 de- 97 termination 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 the Supplemental Nutrition Assistance Program (formerly 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 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. 98 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.) 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 ex- ANALYTICAL PERSPECTIVES penditure 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. 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, 8. Budget Concepts 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. 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. 99 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, 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 because the costs of the underlying Federal activities are already reflected in the deficit.1 This chapter provides details about the budgetary and non-budgetary activities of the Federal Government. 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 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. 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.2 The budget shows outlays and receipts for on-budget and off-budget activities separately to reflect the legal distinction between the two. Although there is a legal distinction between on-budget and off-budget activities, conceptually there is no difference between them. 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.3 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 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 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 2 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). 3 Table 26-1 can be found at: https://www.whitehouse.gov/omb/ analytical-perspectives. 101 102 ANALYTICAL PERSPECTIVES Table 9–1. COMPARISON OF TOTAL, ON-BUDGET, AND OFF-BUDGET TRANSACTIONS 1 (In billions of dollars) Year Receipts Total On-budget Outlays Off-budget Total On-budget Surplus or deficit (–) Off-budget Total On-budget Off-budget 1981 ����������������������������������������������������������������������������� 1982 ����������������������������������������������������������������������������� 1983 ����������������������������������������������������������������������������� 1984 ����������������������������������������������������������������������������� 599.3 617.8 600.6 666.4 469.1 474.3 453.2 500.4 130.2 143.5 147.3 166.1 678.2 745.7 808.4 851.8 543.0 594.9 660.9 685.6 135.3 150.9 147.4 166.2 –79.0 –128.0 –207.8 –185.4 –73.9 –120.6 –207.7 –185.3 –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 3,000.7 402.2 422.1 453.6 474.8 517.0 –318.3 –248.2 –160.7 –458.6 –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 ����������������������������������������������������������������������������� 2,162.7 2,303.5 2,450.0 2,775.1 3,021.5 1,531.0 1,737.7 1,880.5 2,101.8 2,285.9 631.7 565.8 569.5 673.3 735.6 3,457.1 3,603.1 3,536.9 3,454.6 3,506.1 2,902.4 3,104.5 3,029.4 2,820.8 2,800.0 554.7 498.6 507.6 633.8 706.1 –1,294.4 –1,299.6 –1,087.0 –679.5 –484.6 –1,371.4 –1,366.8 –1,148.9 –719.0 –514.1 77.0 67.2 61.9 39.5 29.5 2015 ����������������������������������������������������������������������������� 2016 ����������������������������������������������������������������������������� 2017 ����������������������������������������������������������������������������� 3,249.9 3,268.0 3,316.2 2,479.5 2,457.8 2,465.6 770.4 810.2 850.6 3,688.4 3,852.6 3,981.6 2,945.3 3,077.9 3,180.4 743.1 774.7 801.2 –438.5 –584.7 –665.4 –465.8 –620.2 –714.8 27.3 35.5 49.4 2018 estimate ��������������������������������������������������������������� 3,340.4 2,488.1 852.3 2019 estimate ��������������������������������������������������������������� 3,422.3 2,517.1 905.2 2020 estimate ��������������������������������������������������������������� 3,608.9 2,667.6 941.4 2021 estimate ��������������������������������������������������������������� 3,838.2 2,843.8 994.4 2022 estimate ��������������������������������������������������������������� 4,088.7 3,039.8 1,048.9 2023 estimate ��������������������������������������������������������������� 4,386.1 3,283.6 1,102.6 1 Off-budget transactions consist of the Social Security trust funds and the Postal Service Fund. 4,173.0 4,406.7 4,595.9 4,754.1 4,996.5 5,164.6 3,315.8 3,494.1 3,623.4 3,718.7 3,893.2 3,989.9 857.2 912.6 972.5 1,035.4 1,103.2 1,174.7 –832.6 –984.4 –986.9 –915.9 –907.8 –778.5 –827.7 –977.0 –955.8 –875.0 –853.4 –706.3 –4.9 –7.4 –31.1 –41.0 –54.4 –72.2 funding through a Federally mandated assessment on public companies under the 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 103 9. Coverage of the Budget 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 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 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.4 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. 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 1990.5 Other activities that had been des4 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. 5 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 ignated 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 (PL 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.6 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 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.” 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. 6 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. 104 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.7 For similar reasons, Native Americanowned 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, GSEs are classified as non-budgetary because they are intended to be privately owned and controlled— with any public benefits accruing indirectly from the GSEs’ business transactions. 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)8 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. The Budget continues to treat these two GSEs as non-budgetary private entities in conservatorship rather than as Government agencies. By contrast, CBO treats these GSEs as budgetary Federal agencies. Both treatments include budgetary and nonbudgetary 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 7 The administrative functions of the Federal Retirement Thrift Investment Board are carried out by Government employees and included in the budget totals. 8 FHFA is the regulator of Fannie Mae, Freddie Mac, and the Federal Home Loans Banks. ANALYTICAL PERSPECTIVES budgetary receipts. Under CBO’s approach, the subsidy costs of Fannie Mae’s and Freddie Mac’s past credit activities are treated as having 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.9 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 included as budget lines in various agencies. Examples of FFRDCs include the Center for Naval Analysis and the Jet Propulsion Laboratory.10 Even though FFRDCs are non-budgetary, Federal payments to the FFRDC are bud9 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. 10 The National Science Foundation maintains a list of FFRDCs at www.nsf.gov/statistics/ffrdc. 105 9. Coverage of the Budget get 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, Amtrak, and the Universal Services Administrative Company, among others.11 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.12 OMB has published the estimated costs and benefits of Federal regulation annually since 1997.13 Monetary policy.— As a fiscal policy tool, the budget is used by elected Government officials to promote eco11 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. 12 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. gpo.gov. 13 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. nomic 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.”14 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.15 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 2017, Treasury recorded $81.3 billion in receipts from the Federal Reserve System. In addition to remitting excess income to Treasury, current law requires the Federal Reserve to transfer a portion of its excess earnings to the Consumer Financial Protection Bureau (CFPB).16 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. 14 See 12 U.S.C. 225a. See 15 U.S.C. 3101 et seq. 16 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. 15 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 requests for disaster relief and wildfire suppression; limits on changes in mandatory programs in appropriations Acts; limits on advance appropriations; proposals for the Pell Grant program; changes to capital budgeting for large Federal capital projects; and fast track spending reduction powers. Second, the chapter describes the 2019 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; adjustments in the baseline for Highway Trust Fund spending and the extension of certain expiring tax laws; 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 2019, and forced additional sequestrations of mandatory spending in each of fiscal years 2014 through 2018. A further sequestration of mandatory spending is scheduled to take effect beginning on October 1 based on the order released with the 2019 Budget. To date, various enacted legislation has changed the annual reductions required to the discretionary spending limits set in the BCA through 2017. The 2018 caps remain at the levels set in the sequestration preview report that was transmitted with the President’s 2018 Budget while the sequestration preview report issued with this Budget reduces the 2019 discretionary caps according to current law. Going forward, the reductions to discretionary spending for fiscal years 2020 and 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 non-exempt mandatory budgetary resources in each of fiscal years 2020 through 2025, which is triggered by the transmittal of the President’s Budget for each year and take effect on the first day of the fiscal year. The 2019 Budget proposes to continue mandatory sequestration into 2026, 2027, and 2028 to generate an additional $73 billion in deficit reduction. For discretionary programs, under current law, the 2018 caps remain at $549.1 billion for defense and $515.7 billion for non-defense while, for 2019, the Joint Committee procedures reduce the defense cap from $616 billion to $562.1 billion and the non-defense cap from $566 billion to $530.3 billion. The 2019 Budget continues to illustratively assume its proposed caps for 2018 of $603 billion for defense and $462 billion for non-defense. For 2019, the Budget cancels the Joint Committee reductions made to the defense category and proposes a new defense cap that will support the National Security Strategy goal of preserving peace through strength with a substantial investment that will protect America’s vital national interests. This increase is paid for by reducing the cap for non-defense by roughly the same amount. This results in a proposed defense cap of $627 billion for defense programs and a non-defense cap of $465 billion for non-defense programs. After 2019, the Budget sets aside the existing Joint Committee procedures for discretionary programs by proposing new caps for defense and non-defense programs through 2028. These funding levels will enhance the country’s 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. 107 108 Program Integrity Funding All Federal programs must 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 and enforcement activities in the largest benefit programs such as Social Security, Unemployment Insurance, Medicare and Medicaid, and increasing investments in tax compliance related to Internal Revenue Service tax enforcement. In addition, the Administration supports a number of legislative and administrative reforms in order to reduce improper payments. Many of these proposals will yield savings to the Government and taxpayers, and will support Government-wide efforts to improve the management and oversight of Federal resources. In addition to efforts outlined in the Budget, the Administration will continue to identify areas where it can work with the Congress to further prevent, reduce, and recover improper payments and promote program integrity 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 2019 will yield net Federal program savings over the next 10 years of roughly $9 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 SSA 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 ANALYTICAL PERSPECTIVES 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 (CDI) units, and special attorneys for fraud prosecutions. To continue support to these important anti-fraud activities, the Budget request provides for SSA to transfer up to $10 million to the SSA Inspector General to fund CDI unit team leaders. This anti-fraud activity is an authorized use of the cap adjustment. The 2019 Budget supports full funding of the authorized cap adjustments for these programs through 2021 and proposes to extend the cap adjustments through 2028 at the rate of current services inflation assumed in the Budget. The 2019 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 SSI Eligibility.—For the Social Security Administration, the Budget’s proposed $1,683 million, the amount authorized in BBEDCA for discretionary funding in 2019 ($273 million in base funding and $1,410 million in cap adjustment funding) will allow SSA to conduct 703,000 full medical CDRs and approximately 2.8 million SSI nonmedical 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 2019, as well as the fully funded base and cap adjustment amounts in 2020 through 2028, the OASDI, SSI, Medicare and Medicaid programs would recoup about $44 billion in gross Federal savings with additional savings after the 10-year period, according to estimates from SSA’s Office of the Chief Actuary and the Centers for Medicare and Medicaid Services’ Office of the 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 approximately $30 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 2018 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 2019 through 2028. With access to program 109 10. Budget Process integrity cap adjustments, SSA is on track to remain current with program integrity workloads throughout the budget window. As stated above, current estimates indicate that CDRs conducted in 2019 will yield a return on investment (ROI) of about $9 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 2019 will yield a ROI of about $4 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 to ensure that sufficient resources are available. Additionally, the Budget assumes that SSA will expand how it charges for medical CDRs beginning in 2019 to encompass workloads related to the medical CDR process, as reflected in the annual CDR report to Congress. 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 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 2019 through 2028. 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 in the baseline 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 2019 Budget proposes base and cap adjustment funding levels over the next 10 years and continues the program integrity cap adjustment through 2028. 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 2028. 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 $5 million adjustment for inflation and cap adjustment of $454 million for HCFAC activities in 2019 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. Over 2019 through 2028, as reflected in Table 10-1, this $5.47 billion investment in HCFAC cap adjustment funding will generate approximately $11.6 billion in savings to Medicare and Medicaid, for new net deficit reduction of $6.1 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. Table 10–1. PROGRAM INTEGRITY DISCRETIONARY CAP ADJUSTMENTS, INCLUDING MANDATORY SAVINGS (Budget authority and outlays in millions of dollars) 2019 Social Security Program Integrity: Discretionary Budget Authority (non add)1 �������������������������������� Discretionary Costs1 ������������������������������������������������������������������ Mandatory Savings2 ������������������������������������������������������������������� Net Savings ������������������������������������������������������������������������� 1,410 1,019 –105 914 2020 1,309 1,339 –2,044 –705 2021 1,302 1,303 –3,092 –1,789 2022 1,351 1,335 –4,017 –2,682 2023 1,403 1,389 –4,452 –3,063 2024 1,456 1,441 –4,751 –3,310 2025 1,511 1,496 –5,534 –4,038 2026 1,569 1,553 –6,054 –4,501 2027 1,629 1,612 –6,580 –4,968 2028 10-year total 1,690 14,630 1,672 14,159 –7,422 –44,051 –5,750 –29,892 Health Care Fraud and Abuse Control Program: Discretionary Costs1 ������������������������������������������������������������������ 454 475 496 515 534 555 576 598 620 644 5,467 Mandatory Savings3 ������������������������������������������������������������������� –910 –975 –1,041 –1,106 –1,146 –1,191 –1,236 –1,284 –1,331 –1,382 –11,602 Net Savings ������������������������������������������������������������������������� –456 –500 –545 –591 –612 –636 –660 –686 –711 –738 –6,135 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 2028 are equal to the outlays associated with the budget authority levels inflated from the 2021 level, using the 2019 Budget assumptions. The levels in baseline are equal to the 2019 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 estimates of savings from the Office of the Chief Actuary at SSA and the Office of the Actuary at Centers for Medicare and Medicaid Services. 3 These savings are based on estimates from the HHS Office of the Actuary for ROI from program integrity activities. 110 ANALYTICAL PERSPECTIVES Table 10–2. PROPOSED PROGRAM INTEGRITY CAP ADJUSTMENT FOR THE INTERNAL REVENUE SERVICE (IRS) (Budget authority/outlays/receipts in millions of dollars) 2019 Proposed Adjustment Pursuant to the BBEDCA, as amended: Enforcement Base (budget authority) ���������������������������������������� Cap Adjustment: Budget Authority ������������������������������������������������������������������ Outlays �������������������������������������������������������������������������������� 2020 2021 2022 2023 2024 2025 2026 2027 2028 10-year total 8,784 8,874 8,966 9,058 9,151 9,246 9,341 9,437 9,534 9,632 92,023 362 320 749 693 1,098 1,040 1,450 1,386 1,806 1,737 1,893 1,850 1,895 1,865 1,904 1,875 1,912 1,885 1,921 1,893 14,990 14,544 Receipt Increases from Discretionary Program Integrity Base Funding and Cap Adjustments: 1 Enforcement Base 2 ������������������������������������������������������������������� –57,000 –57,000 –57,000 –57,000 –57,000 –57,000 –57,000 –57,000 –57,000 –57,000 –570,000 Cap Adjustment 3 ����������������������������������������������������������������������� –152 –787 –1,825 –3,033 –4,330 –5,554 –6,416 –6,931 –7,270 –7,505 –43,803 Net Savings from Proposed IRS Cap Adjustment: 1 ����������������� 168 –94 –785 –1,647 –2,593 –3,704 –4,551 –5,056 –5,385 –5,612 –29,259 1 Savings for IRS are revenue increases rather than spending reductions. They are shown as negatives for presentation and netting against outlays. 2 No official estimate for FY 2019 enforcement revenue has been produced, so this figure is an approximation and included only for illustrative purposes. 3 The IRS cap adjustment funds increases for existing enforcement initiatives and activities and new initiatives. The IRS enforcement program helps maintain the more than $3 trillion in taxes paid each year without direct enforcement measures. The cost increases will help maintain the base revenue while generating additional revenue through targeted program investments. The activities and new initiatives funded out of the cap adjustment will yield more than $43.8 billion in savings over ten years. Aside from direct enforcement revenue, the deterrence impact of these activities suggests the potential for even greater savings. Proposed Adjustment Pursuant to BBEDCA, Internal Revenue Service (IRS) Program Integrity.— The Budget proposes to establish and fund a new adjustment to the discretionary caps for program integrity activities related to IRS program integrity operations starting in 2019, as shown in Table 10-2. The IRS base appropriation funds current tax administration activities, including all tax enforcement and compliance program activities, in the Enforcement and Operations Support accounts. The additional $362 million cap adjustment in 2019 funds new and continuing investments in expanding and improving the effectiveness and efficiency of the IRS’s tax enforcement program. The activities are estimated to generate $44 billion in additional revenue over 10 years and cost approximately $15 billion resulting in an estimated net savings of $29 billion. Once the new enforcement staff are trained and become fully operational these initiatives are expected to generate roughly $4 in additional revenue for every $1 in IRS expenses. Notably, the ROI is likely understated because it only includes amounts received; it does not reflect the effect enhanced enforcement has on deterring noncompliance. This indirect deterrence helps to ensure the continued payment of over $3 trillion in taxes paid each year without direct enforcement measures. Mandatory Program Integrity Initiatives.—The mandatory and receipt savings from other program integrity initiatives that are included in the 2019 Budget, beyond the expansion in resources resulting from the increases in administrative funding discussed above are shown in table 10-3. These savings total almost $158.4 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 $49 million in PAYGO savings over 10 years, and would result in more than $1.8 billion in non-PAYGO savings, including an estimated $709 million reduction in State unemployment taxes, which would reduce revenues from State accounts within the Unemployment Insurance Fund. 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), 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 111 10. Budget Process Table 10–3. MANDATORY AND RECEIPT SAVINGS FROM OTHER PROGRAM INTEGRITY INITIATIVES (Deficit increases (+) or decreases (-) in millions of dollars) 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 10-year total Department of Health and Human Services: Cut Waste, Fraud, and Abuse in Medicare, Medicaid, and the Children’s Health Insurance Program ���������������������������������������������������������������������������������������� –42 –62 –79 –79 –99 –89 –100 –110 –120 –135 –915 Department of Labor: Unemployment Insurance Program Integrity Package 1 ������������������������������������� PAYGO effects ������������������������������������������������������������������������������������������������ Non-PAYGO effects ���������������������������������������������������������������������������������������� –83 –11 –72 –188 –14 –174 –211 –6 –205 –211 –6 –205 –174 –3 –171 –195 –3 –192 –181 –2 –179 –229 –3 –226 –194 –4 –190 –216 3 –219 –1,882 –49 –1,833 Reemployment Services and Eligibility Assessments 1 �������������������������������������� PAYGO effects ������������������������������������������������������������������������������������������������ Non-PAYGO effects ���������������������������������������������������������������������������������������� ......... ......... ......... –73 232 –305 –465 241 –706 –440 251 –691 –417 260 –677 –445 270 –715 –413 280 –693 –346 289 –635 –413 299 –712 –277 310 –587 –3,289 2,432 –5,721 Department of the Treasury: Increase oversight of paid tax return preparers 1 ������������������������������������������������ Provide more flexible authority for the IRS to address correctable errors 1 �������� –22 –42 –31 –63 –36 –65 –39 –66 –43 –69 –47 –70 –52 –73 –57 –75 –63 –76 –67 –79 –457 –678 ......... ......... ......... ......... ......... –1 –1 –4 –1 –11 –1 –17 –1 –22 –1 –31 ......... –35 –1 –42 –6 –163 ......... ......... ......... –1 –2 –2 –3 –3 –4 –5 –20 –26 –11 –40 –72 –50 –91 –61 –102 –62 –124 –62 –148 –70 –167 –73 –219 –77 –233 –83 –231 –604 –1,398 –1 ......... –2 –347 –2 –86 –4 –68 –4 –50 –5 –29 –6 –18 –7 –6 –7 6 –7 19 –45 –579 18 28 24 –441 –1,058 –1,505 –1,618 –1,534 –1,442 –1,332 –8,860 ......... –20 –26 6 ......... –433 –387 –46 ......... –206 –137 –69 ......... ......... ......... ......... ......... ......... ......... –682 –1,312 –1,769 –1,905 –1,874 –1,792 –1,682 –133 –123 –108 –110 –110 –106 –106 –549 –1,189 –1,661 –1,795 –1,764 –1,686 –1,576 ......... –11,675 –1,346 –10,329 Exclude SSA debts from discharge in bankruptcy ��������������������������������������������� PAYGO effects ������������������������������������������������������������������������������������������������ Non-PAYGO effects ���������������������������������������������������������������������������������������� –7 ......... –7 –15 –1 –14 –21 –2 –19 Government-wide: Reduce Improper Payments Government-wide (non-PAYGO) ��������������������������� ......... Social Security Administration (SSA): Preventing Improper Payments: 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 Supplemental Security Income (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) ���������������������������������������������������������������������������� Simplify the SSI ���������������������������������������������������������������������������������������������� Improve Collection of Pension Information from States and Localities (nonPAYGO) ����������������������������������������������������������������������������������������������������� Additional Debt Collection Authority for Civil and Monetary Penalties and Assessments ��������������������������������������������������������������������������������������������� Total SSA, Preventing Improper Payment Effects (PAYGO plus non-PAYGO) ������� Subtotal, PAYGO effects ��������������������������������������������������������������������������������� Subtotal, Non-PAYGO effects ������������������������������������������������������������������������� –25 –2 –23 –30 –3 –27 –32 –3 –29 –34 –3 –31 –35 –3 –32 –37 –4 –33 –39 –3 –36 –275 –24 –251 –719 –1,482 –2,383 –4,288 –4,549 –9,652 –20,480 –38,024 –57,633 –139,210 Total, Mandatory and Receipt Savings ����������������������������������������������������������� –216 –1,584 –2,565 –3,925 –6,432 –7,196 –12,410 –23,206 –40,719 –60,128 –158,381 PAYGO Savings ���������������������������������������������������������������������������������������������� –143 –326 –84 –74 –80 –50 –60 –69 –74 –77 –458 Non-PAYGO Savings �������������������������������������������������������������������������������������� –73 –1,258 –2,481 –3,851 –6,352 –7,146 –12,350 –23,137 –40,645 –60,051 –157,344 1 The estimate for this proposal includes effects on receipts in addition to changes in outlays; the net effect shown is a decrease in the deficit. Receipt effects by proposal can be seen in table S-6, Mandatory and Receipt Proposals, in the main 2019 Budget volume. 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 RESEAs. 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 $2.4 billion in PAYGO spending 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-service members (UCX), resulting in net non-PAYGO deficit reduction of $5.7 billion. These savings consist of reductions in UI benefit payments of an estimated $7.3 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 $3.3 billion over 10 years. 112 ANALYTICAL PERSPECTIVES 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 $11.68 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 $1.35 billion 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 $6 million in savings over 10 years. • 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 $183 million in savings over 10 years. • Allow SSA to Use Commercial Databases to Verify 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 $604 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 re-negotiates at the overpaid beneficiary’s request) a partial withholding rate. This proposal would result in savings of almost $1.4 billion 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 limited 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 $45 million in savings over 10 years. • SSI Simplification. The Budget proposes changes to simplify the SSI program by incentivizing support from recipients’ family and friends, reducing SSA’s administrative burden, and streamlining requirements for applicants. SSI benefits are reduced by the amount of food and shelter, or in-kind support and maintenance, a beneficiary receives. The policy is burdensome to administer and is a leading source of SSI improper payments. The Budget proposes to replace the complex calculation of in-kind support and maintenance with a flat rate reduction for adults living with other adults to capture economies of scale. The Budget also proposes to eliminate dedicated accounts for past due benefits and to eliminate the administratively burdensome consideration whether a couple is holding themselves out as married. The proposal saves $579 million over 10 years. • Improve Collection of Pension Information from States and Localities. The Budget proposes a data collection approach designed to provide seed money to the States for them to develop systems that will enable them to report pension payment information to SSA. The proposal would improve reporting for non-covered pensions by including up to $70 million for administrative expenses, $50 million of which would be available to the States, to develop 10. Budget Process a mechanism so that the Social Security Administration can enforce the current law offsets for the Windfall Elimination Provision and Government Pension Offset, which are a major source of improper payments. The proposal will save $8.86 billion over 10 years. • Additional Debt Collection Authority for SSA Civil Monetary Penalties and Assessments. This proposal would assist SSA with ensuring the integrity of its programs and increase SSA recoveries by establishing statutory authority for the SSA to use the same debt collection tools available for recovery of delinquent overpayments toward recovery of delinquent CMP and assessments. Cut Waste, Fraud, and Abuse in Medicare, Medicaid, and the Children’s Health Insurance Program.—The Budget includes a robust package of Medicare and Medicaid program integrity proposals to help prevent fraud and abuse before they occur; detect fraud and abuse as early as possible; provide greater flexibility to the Secretary of Health and Human Services to implement program integrity activities that allow for efficient use of resources and achieve high return-on-investment; and promote integrity in Federal-State financing. For example, the Budget proposes to strengthen tools available to States and Territories that ensure providers who intend to engage in fraudulent or abusive activities do not enroll in Medicare, Medicaid, or the Children’s Health Insurance Program. The Budget also includes several proposals aimed at strengthening the authorities and tools that CMS has to ensure that the Medicare program only pays those providers and suppliers who are eligible and who furnish items and services that are medically necessary to the care of beneficiaries. The package of program integrity proposals will help prevent inappropriate payments, eliminate wasteful Federal and State spending, protect beneficiaries, and reduce time-consuming and expensive “pay and chase” activities. Together, the CMS program integrity authority would net approximately $915 million in savings over 10 years. Additional information on the Medicare and Medicaid program integrity proposals are found in the Major Savings and Reforms volume. Improving the Prevention of Improper Payments.— The Budget prioritizes focusing on improper payments that result in a monetary loss to the government. Specifically, by 2028 the Budget proposes to increase the prevention of improper payments through a series of actions to improve payment accuracy and financial performance over the budget horizon. Overall, savings are estimated to be approximately $139 billion over 10 years. 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 provides agencies a single-point of entry to access data and matching services 113 to help detect, prevent, and recover improper payments during the award or payment lifecycle. 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. The Treasury Do Not Pay Business Center has 56 agencies performing matches against several databases (e.g., Death Master File, System for Award Management, Treasury Debt Check). In 2017, agencies screened over $1.3 trillion payments through the Do Not Pay Business Center using their payment integration function. While the vast majority of these payments were determined to be proper, the Office of Personnel Management alone, for example, stopped over $25 million in improper payments using the system. In addition to the Treasury Do Not Pay Business Center, the agency-specific integrity centers have demonstrated solid returns. Currently, SSA has 23 computer matching agreements that generate over $7 billion in annual savings. During 2016, the Department of Health and Human Services took administrative action against 1,044 providers and suppliers as a result of the CMS FPS, resulting in an estimated $527 million in identified savings. In 2017, DOD’s BAM tool prevented $1.4 billion in improper payments in the Department commercial payment systems. 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. Amend the Computer Matching Privacy Protection Act for the Department of the Treasury.—Agencies can experience significant bureaucratic challenges when working to implement certain components of the Computer Matching Act. For example, the process of signing an interagency computer matching agreement can take as long as 14 months as multiple levels of leadership sign the agreement. These issues are costly both in terms of improper payments that go undetected as well as the staff time that is needed to resolve them. The Budget proposes legislative changes to exempt the Do Not Pay Business Center at the Department of Treasury from components of the Computer Matching Act for activities designed to help agencies identify, prevent, and reduce improper payments. This proposal will protect citizen privacy while also saving administrative costs and help 114 agencies to more readily leverage data-centric internal controls. 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 $275 million over the 2019 through 2028 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. This proposal saves $457 million over the 2019 through 2028 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 taxpayerprovided information was incorrect. This proposal would save $678 million over the 2019 through 2028 window. Develop Accurate Cost Estimates.—OMB works with Federal agencies and the Congressional Budget Office (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.” ANALYTICAL PERSPECTIVES 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 2018 a preview estimate of the 2018 adjustment for disaster relief. The ceiling for the disaster relief adjustment in 2018 was calculated to be $7,366 million. At the time the Budget was prepared, the Government was operating under a continuing resolution set in the Continuing Appropriations Act, 2018 (division D of Public Law 115-56, as amended by division A of Public Laws 115-90 and 115-96) (the “CR”). The CR had provided for 2018 a continuing appropriation of $6,713 million for the Federal Emergency Management Agency’s Disaster Relief Fund (DRF). If final 2018 appropriations affirm this allocation with a final appropriation of $6,713 million for the DRF, this would fall $653 million below the ceiling available in 2018. Table 10-4 shows the statutory cap and the actual appropriations provided from 2012 through the current budget year, 2018. OMB must include in its Sequestration Update Report for 2019 a preview estimate of the ceiling on the adjustment for disaster relief funding for 2019. This estimate will contain an average funding calculation that incorporates three years (2009 through 2011) using the definition of disaster relief from OMB’s September 1, 2011 report and seven years using the funding the Congress designated in 2012 through 2018 for disaster relief pursuant to BBEDCA excluding the highest and lowest years. As noted above, the 2018 appropriation may be $653 million below the ceiling for 2018; therefore, this amount would be carried forward from 2018 into the 2019 preview estimate that will be included in OMB’s August 2018 Sequestration Update Report for Fiscal Year 2019. Currently, based on continuing appropriations, OMB estimates the total adjustment available for disaster funding for 2019 at $7,386 million. Any revisions necessary to account for final 2018 appropriations will be included in the 2019 Sequestration Update Report. At this time, the Administration is requesting $6,652 million in funding for FEMA’s DRF in 2019 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 an- 115 10. Budget Process Table 10–4. DISASTER RELIEF CAP ADJUSTMENT - HISTORICAL DATA AND CURRENT LAW (Budget authority in millions of dollars) 2012 2013 2014 2015 2016 2017 2018 Total Possible Cap Adjustment (statutory cap) ���������������������������������������� 11,252 11,779 12,143 18,430 14,125 8,129 7,366 Annual Appropriations* ������������������������������������������������������������������������������ 10,453 11,779 5,626 6,529 7,643 8,129 6,713 Difference ����������������������������������������������������������������������������������������������������� *2018 amount under a Continuing Resolution 799 .......... 6,517 11,901 6,482 ......... 653 nual cost of non-catastrophic events expected to obligate in 2019. 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 2019 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 2018 supplemental appropriations (designated as either disaster relief or emergency requirements pursuant to BBEDCA), or amendments to the Budget, may be transmitted. Under the principles outlined above, the Administration does not have adequate information about known or future requirements necessary to estimate the total amount that will be requested in future years as disaster relief. Accordingly, 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 outyears that is equal to the current 2019 request. This funding level does not reflect a specific request but a placeholder amount that, along with other outyear appropriations levels, will be decided on an annual basis as part of the normal budget development process. However, as is discussed below, notwithstanding this placeholder, the Administration does propose to address the declining cap under which disaster relief funds are requested. Declining Disaster Relief Cap Adjustment As is discussed under the Disaster Relief Funding section above, the Budget Control Act of 2011 established the formula for calculating an annual allowance up to which the discretionary spending limits could be adjusted for disaster-related appropriations, commonly discussed as the disaster cap adjustment. Since then, each Budget has requested Congress provide resources adequate to fund the budget year’s: (1) anticipated Federal obligations for previously declared major disasters, (2) estimated obligations for non-catastrophic disasters, and (3) a limited contingency amount in recognition of the risk of an aboveaverage year of disaster activity. During the same period, the allowable adjustment for disaster relief appropriations has declined to levels that approximate the Federal disaster assistance budget request. The annual disaster cap adjustment will soon be insufficient to cover the pro- jected costs of future major disasters. The decline in the cap adjustment results from relatively modest annual disaster appropriations since 2011 coupled with high-cost response and recovery efforts such as Hurricane Katrina aging out of the rolling 10-year look-back window used in the cap adjustment formula. The extraordinary levels of funding provided for the catastrophic Atlantic hurricanes in 2017 for example, do not contribute to an increase in the cap adjustment under the formula. Inflation, urbanization, and other factors are expected to contribute to increasing future response and recovery costs. The Administration recommends amending the disaster cap adjustment formula to improve the annual allowance by pegging disaster spending at levels that better reflect the unpredictable nature of disaster response and recovery costs. These steps will ensure that the Federal Government can mount a quick and sustained response to catastrophic disasters while more extensive deliberations over long-term recovery needs take place, an effort that would be frustrated if the allowance falls below projected costs as expected. Two changes will improve the allowance formula in future years: (1) adding all unspent “carryover” balances currently excluded by the formula to future annual cap adjustments until expended, and (2) adding to future annual cap adjustments five percent of emergency appropriations provided for Stafford Act-declared disasters since the creation of the disaster cap formula. Maintaining unused “carryover” balances would ensure that the annual allowance accurately reflects the unpredictable nature of disasters. Since the pattern of disaster activity is erratic, several years of disaster relief appropriations that were below the calculated allowance have resulted in a drop in future years’ projected cap adjustments, even without a reduction in the average magnitude of expected disaster costs. As a result, the funding that will likely be required for future catastrophic disasters will exceed the amounts permitted as a cap adjustment under the current law calculation. Incorporating five percent of the total spending from emergency supplemental appropriations provided above the disaster cap would further improve the accuracy of the formula by providing a countercyclical stabilizer for the annual disaster cap adjustment. Emergency supplemental appropriations are provided for Stafford Act-declared disasters when the disaster cap adjustment is not sufficient to address the response and recovery needs of a catastrophic disaster. Even though these emergency supplemental appropriations are necessary to address disaster response and recovery needs, under cur- 116 ANALYTICAL PERSPECTIVES rent law they are excluded from the current disaster cap adjustment formula. By adjusting the disaster cap formula to include five percent of emergency supplemental appropriations, the result would better reflect the likely requirements for future disaster response and recovery. proposed cap adjustments, will be decided on an annual basis as part of the normal budget process. Limits on Changes in Mandatory Spending in Appropriations Acts (CHIMPs) Proposed Adjustments to the Discretionary Spending Limits for Wildfire Suppression Operations at the Departments of Agriculture and the Interior The discretionary spending caps in place since the enactment of the BCA in 2011 have been circumvented annually in appropriations bills through the use of changes in mandatory programs, or CHIMPs, that have no net outlay savings to offset increases in discretionary spending. There can be programmatic reasons to make changes to mandatory programs on annual basis in the annual appropriations bills. However, many enacted CHIMPs do not result in actual spending reductions. In some cases, the budget authority reduced in one year may become available again the following year, allowing the same reduction to be taken year after year. In other cases, the reduction comes from a program that never would have spent its funding anyway. In both of these cases, under current scoring rules, reductions in budget authority from such CHIMPs can be used to offset appropriations in other programs, which results in an overall increase in Federal spending. In such cases, CHIMPs are used as a tool to work around the constraints imposed by the discretionary budget enforcement caps. The Administration supports limiting and ultimately phasing out the use of CHIMPs with no outlay savings. Congress has started to reduce the reliance on such CHIMPs by setting decreasing limits in the budget resolution of $17.0 billion in 2018, $15.0 billion in 2019, and $15.0 billion in 2020. The Budget supports these efforts and limits the use of CHIMPs with no outlay savings to $13.3 billion in 2019. Wildfires naturally occur on public lands throughout the country. The cost of fighting wildfires has increased due to landscape conditions resulting from drought, pest and disease damage, overgrown forests, expanding residential and commercial development near the borders of public lands, and program management decisions. When these costs exceed the funds appropriated, the Federal Government covers the shortfall through transfers from other land management programs. For example, in 2017, Forest Service wildfire suppression spending reached a record $2.4 billion, necessitating transfers of $527 million from other non-fire programs. Historically, these transfers have been repaid in subsequent appropriations; however, “fire borrowing” impedes the missions of land management agencies to reduce the risk of catastrophic fire and restore and maintain healthy functioning ecosystems. To resolve concerns about the sufficiency of funding wildfire suppression, the Budget provides funding of $1,553 million under the 2019 discretionary cap to responsibly fund 100 percent of the rolling 10-year average cost for these wildfire suppression activities in the Departments of Agriculture and the Interior within the discretionary budget caps. Similar to how unanticipated funding needs for other natural disasters are addressed, the Budget also proposes to amend BBEDCA and to establish a separate annual cap adjustment for wildfire suppression operations. The Budget requests $1,519 million in additional appropriations from this cap adjustment in 2019 - the full amount that would be authorized under the Administration’s proposal - to ensure that adequate resources are available to fight wildland fires, protect communities, and safeguard human life during the most severe wildland fire season. Table 10-5 shows the Administrations proposed statutory cap adjustment of $2,068 million, phased in over nine years. For the years after 2019, the Administration does not have sufficient information about future wildfire suppression needs and, therefore, includes a placeholder for wildfire suppression in each of the outyears that is equal to the current 2019 request. Actual funding levels, up to but not exceeding the 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. 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 for- Table 10–5. PROPOSED WILDFIRE SUPPRESSION OPERATIONS FUND UNITED STATES DEPARTMENTS OF AGRICULTURE AND THE INTERIOR (Budget authority in millions of dollars) 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 10-year total Proposed Adjustment Pursuant to the BBEDCA, as amended: Authorized level, proposed ��������������������������������������������������������������������������� 1,519 1,603 1,683 1,759 1,831 1,898 1,960 2,017 2,068 2,068 18,406 117 10. Budget Process ward 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 2020 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 2020, below the limits included in sections 4101 and 5104 for the Senate and the House, respectively, of the Concurrent Resolution on the Budget for Fiscal Year 2018 (H. Con. Res. 71). Those limits apply only to the accounts explicitly specified in the joint explanatory statement of managers accompanying H. Con. Res. 71. 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 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 2020 veterans medical care funding request. For a detailed table of accounts that have received discretionary and mandatory advance appropriations since 2017 or for which the Budget requests advance appropriations for 2020 and beyond, please refer to the Advance Appropriations chapter in the Appendix. 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 $1,060 in mandatory funding is provided automatically by the College Cost Reduction and Access Act (CCRAA), as amended. The maximum award for 2018-2019 will be finalized when Congress enacts full year appropriations for 2018. • 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 Education funds the extra costs with the subsequent year’s appropriation.1 • To prevent deliberate underfunding of Pell costs, in 2006 the congressional and Executive Branch score- 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 118 ANALYTICAL PERSPECTIVES keepers 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 student and family resources. In general, the demand for and costs of the program 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 most recent recession, reaching a peak of 9.4 million students in 2011. 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 2019 appropriation, for instance, will support the 2019-2020 academic year beginning in July 2019 but will become available in October 2018 and can therefore help cover any shortages that may arise in funding for the 2018-2019 academic year. 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. In 2018, the Budget proposed and Congress enacted YearRound Pell, which provides a third semester of Pell Grant support to recipients who have exhausted their eligibility for the award year and wish to enroll in additional coursework. The 2018 Budget projected that this provision would increase program costs by $1.5 billion in 2018. Assuming no changes in current policy, the 2019 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, until 2025 (see Table 10-6). 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 2019 Budget reflects the Administration’s commitment to ensuring students receive the maximum Pell Grant for which they are eligible, and to expanding options available to pursuing postsecondary education and training. First, the Budget provides sufficient resources to fully fund Pell Grants in the award years covered by the budget year, and subsequent years, including the funds needed to continue support of year-round Pell grants. The Budget provides $22.5 billion in discretionary budget authority in 2019, the same as the 2017 enacted appropriation. Level-funding Pell in 2019, combined with available budget authority from the previous year and mandatory funding provided in previous legislation, provides $8.1 billion more than is needed to fully fund the program in the 2019-20 award year. Table 10–6. DISCRETIONARY PELL FUNDING NEEDS (Dollars in billions) Discretionary Pell Funding Needs (Baseline) 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Estimated Program Cost for $4,860 Maximum Award ��� Cumulative Incoming Surplus 1 �������������������������������������� Mandatory Budget Authority Available ��������������������������� Total Additional Budget Authority Needed ��������������������� 24.0 8.2 1.4 14.4 24.3 ......... 1.4 22.8 24.6 ......... 1.1 23.4 25.0 ......... 1.1 23.8 25.4 ......... 1.1 24.2 25.7 ......... 1.1 24.6 26.2 ......... 1.1 25.0 26.6 ......... 1.1 25.5 27.0 ......... 1.1 25.9 27.4 ......... 1.1 26.3 Fund Pell at 2017 Enacted Level ����������������������������������� Surplus/(Funding Gap) from Prior Year ������������������������� Cumulative Surplus/Discretionary Funding Gap (–) ������ 22.5 22.5 8.1 7.8 22.5 7.8 6.8 22.5 6.8 5.5 22.5 5.5 3.7 22.5 3.7 1.6 22.5 1.6 –0.9 22.5 –0.9 –3.9 22.5 –3.9 –7.3 22.5 –7.3 –11.2 8.1 Effect of 2019 Budget Policies Expand Pell to Short-Term Programs ���������������������������� –0.1 –0.1 –0.1 –0.2 –0.2 –0.2 –0.2 –0.2 –0.2 –0.2 Fund Iraq and Afghanistan Service Grants through Pell ���� ......... ......... –* –* –* –* –* –* –* –* Cancellation of Unobligated Balances ��������������������������� –1.6 ......... ......... ......... ......... ......... ......... ......... ......... ......... Mandatory Funding Shift 2 ��������������������������������������������� –* –* –* –* –* –* –* –0.1 –0.1 –0.1 Surplus/Funding Gap from Prior Year ���������������������������� 6.4 5.9 4.7 3.2 1.2 –1.2 –3.9 –7.2 –10.8 Cumulative Surplus/(Discretionary Funding Gap) ��������� 6.4 5.9 4.7 3.2 1.2 –1.2 –3.9 –7.2 –10.8 –14.9 * Less than $50 million. 1 The 2019 incoming surplus assumes an annualized 2018 appropriation of $22.3 billion, as provided under the Continuing Appropriations Act of 2018. 2 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. 10. Budget Process In light of these additional resources, the Budget proposes a cancellation of $1.6 billion from the unobligated carryover from 2018. Then, with significant budget authority still available in the program, the Budget also proposes legislative changes to provide more postsecondary pathways by expanding Pell Grant eligibility to high-quality short-term training programs. This will help low-income or out-of-work individuals access training programs that can equip them with skills to secure well-paying jobs in high-demand fields more quickly than traditional 2-year or 4-year degree programs. The Budget also proposes moving Iraq and Afghanistan Service Grants (IASG) into the Pell program, which will exempt those awards from cuts due to sequestration and also streamline the administration of the programs. The expansion of Pell Grants to short-term programs and the costs of incorporating IASG increases future discretionary Pell program costs by $1.7 billion over 10 years (see Table 10–6). With the proposed cancellation and this increase, the Pell program still is expected to have sufficient discretionary funds until 2024; a cancellation of unobligated balances such as that proposed in the 2018 Budget could bring this date forward by one to two years. Federal Capital Revolving Fund The structure of the Federal budget and budget enforcement requirements can create hurdles to funding large-dollar capital investments that are handled differently at the States and local government levels. Expenditures for capital investment are combined with operating expenses in the Federal unified budget. Both kinds of expenditures must compete for limited funding within the discretionary caps. Large-dollar Federal capital investments can be squeezed out in this competition, forcing agency managers to turn to operating leases to meet long-term Federal requirements. These alternatives are more expensive than ownership over the long-term because: (1) Treasury can always borrow at lower interest rates; and (2) to avoid triggering scorekeeping and recording requirements for capital leases, agencies sign shorter-term consecutive leases of the same space. For example, the cost of two consecutive 15-year leases for a building can exceed its fair market value by close to 180 percent. Alternative financing proposals typically run up against scorekeeping and recording rules that appropriately measure cost on the basis of the full amount of the Government’s obligations under the contract, which further constrains the ability of agency managers to meet capital needs. In contrast, State and local governments separate capital investment from operating expenses. They are able to evaluate, rank, and finance proposed capital investments in separate capital budgets, which avoids direct competition between proposed capital acquisitions and operating expenses. If capital purchases are financed by borrowing, the associated debt service is an item in the operating budget. This separation of capital spending from operating expenses works well at the State and local government levels because of conditions that do not exist at the Federal level. State and local governments 119 are required to balance their operating budgets, and their ability to borrow to finance capital spending is subject to the discipline of private credit markets that impose higher interest rates for riskier investments. In addition, State and local governments tend to own capital that they finance. In contrast, the Federal Government does not face a balanced budget requirement, and Treasury debt has historically been considered the safest investment regardless of the condition of the Federal balance sheet. Also, the bulk of Federal funding for capital is in the form of grants to lower levels of Government or to private entities, and it is difficult to see how non-Federally-owned investment can be included in a capital budget. To deal with the drawbacks of the current Federal approach, the Budget proposes: (1) to create a Federal Capital Revolving Fund (FCRF) to fund large-dollar, Federally-owned, civilian real property capital projects; and (2) provide specific budget enforcement rules for the FCRF that would allow it to function, in effect, like State and local government capital budgets. This proposal incorporates principles that are central to the success of capital budgeting at the State and local level -- a limit on total funding for capital investment, annual decisions on the allocation of funding for capital projects, and spreading the acquisition cost over 15 years in the discretionary operating budgets of agencies that purchase the assets. As part of the overall 2019 Budget infrastructure initiative, the FCRF would be capitalized initially by a $10 billion mandatory appropriation, and scored with anticipated outlays over the 10-year window for the purposes of pay-as-you-go budget enforcement rules. Balances in the FCRF would be available for transfer to purchasing agencies to fund large-dollar capital acquisitions to the extent projects are designated in advance in appropriations Acts and the agency receives a discretionary appropriation for the first of a maximum of 15 required annual repayments. If these two conditions are met, the FCRF would transfer funds to the purchasing agency to cover the full cost to acquire the capital asset. Annual discretionary repayments by purchasing agencies would replenish the FCRF and would become available to fund additional capital projects. Total annual capital purchases would be limited to the lower of $2 billion or the balance in the FCRF. The flow of funds for the purchase of an office building costing $2.0 billion and the proposed scoring are illustrated in Chart 10–1. Current budget enforcement rules would require the entire $2.0 billion to be scored as discretionary BA in the first year, which would negate the benefit of the FCRF and leave agencies and policy makers facing the same trade-off constraints. As shown in Chart 10–1, under this proposal, transfers from the FCRF to agencies to fund purchases and the actual purchases by agencies would be scored as direct spending (shown as mandatory in Chart 10–1), while agencies would use discretionary appropriations to fund the annual repayments to the FCRF. This proposed allocation of cost between direct spending and discretionary spending would mean that the up-front cost of capital investment would already be reflected in the Budget as direct spending, and would not have to compete with operating expenses in the an- 120 ANALYTICAL PERSPECTIVES Chart 10-1. Illustrative Scoring of $2 Billion Purchase using the Federal Capital Revolving Fund Federal Capital Revolving Fund Year 1 Mandatory: Transfer to purchasing agency to buy building…………...……. Purchasing agency repayments.... 2,000 -133 Purchasing Agency Years 2-15 -1,867 Year 1 Mandatory: Collection of transfer from Federal Capital Revolving Fund……..…… Payment to buy building……….…. -2,000 2,000 Discretionary: Repayments to Federal Capital Revolving Fund…….……. 133 Total Government-Wide Deficit Impact Year 1 Mandatory: Purchase building……………………..……… Collections from purchasing agency…….….. Discretionary: Purchasing agency repayments…….….……. Total Government-wide…………..…..…………. nual appropriations process. Instead, the trade off on the discretionary side of the budget would be the incremental annual cost of repaying the FCRF over 15-years. Knowing that future discretionary appropriations will have to be used to repay the FCRF would provide an incentive for agencies, OMB, and the Congress to select projects with the highest mission criticality and returns. OMB would review agencies’ proposed projects for inclusion in the President’s Budget, and the Appropriations Committees would make final allocations by authorizing projects in annual appropriations Acts and providing the first year of repayment. This approach would allow for a more effective capital planning process, for the Government’s largest projects, that is similar to capital budgets used by private companies and State and local governments. Fast Track Spending Reductions The Executive Branch has a responsibility to review Federal spending and make recommendations when it is not in the best interest of taxpayers. The President’s Budget proposes redirecting funding away from programs Years 2-15 Years 2-15 1,867 Total 2,000 -133 -1,867 2,000 -2,000 133 1,867 2,000 2,000 --- 2,000 where the goals have been met, or where funds are not being used efficiently to target higher priority needs. In the Budget, the President proposes cancellations, or reductions in budgetary resources. Such cancellations are not subject to the requirements of title X of the Impoundment Control Act of 1974 (“ICA”; 2 U.S.C. 601-88). Amounts proposed for cancellation may not be withheld from obligation pending enactment into law. Alternatively, the President may propose permanent rescissions of budgetary resources pursuant to the ICA. In such cases, the ICA requires that the President transmit a special message to the Congress. Congress is not required to act on rescissions proposed under the ICA, however. The Administration is interested in working with Congress to enhance the shared goal of reducing Government spending where it no longer serves the interest of taxpayers. For example, the Administration would consider legislative proposals that ease the President’s ability to reduce unnecessary spending through expedited rescission procedures. II. BUDGET ENFORCEMENT AND BUDGET PRESENTATION Statutory PAYGO The Statutory Pay-As-You-Go Act of 2010 (the “PAYGO 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. 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 121 10. Budget Process web site. The Act also established special scorekeeping rules that affect whether all estimated budgetary effects of PAYGO bills are entered on the scorecards. Changes to off-budget programs (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, three pieces of legislation were enacted with such a provision. The requirement of budget neutrality is enforced by an accompanying requirement of automatic across-theboard cuts in selected mandatory programs if enacted legislation, taken as a whole, does not meet that standard. If the annual report filed by OMB after the end of a Congressional session shows net costs—that is, more costs than savings—in the budget-year 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. As was the case during an earlier PAYGO enforcement regime in the 1990s, the PAYGO sequestration has not been required since the PAYGO Act reinstated the statutory PAYGO requirement. Since PAYGO was reinstated, OMB’s annual PAYGO reports showed net savings in the budget year column of both the 5- and 10-year scorecards. For the first session of the 115th Congress, the most recent session, enacted legislation placed costs of $1,089 million in each year of the 5-year scorecard and $653 million in each year of the 10-year scorecard. The new costs lowered the balances of savings from prior sessions of the Congress in the budget year column, and resulted in total net savings of $2,490 million in the 2018 column on the 5-year scorecard, and $13,815 million in the 2018 column on the 10-year scorecard, so no sequestration was required.2 There are limitations to Statutory PAYGO’s usefulness as a budget enforcement tool. The scorecards have carried large surpluses from year to year, giving Congress little incentive to limit costly spending. Some costs, such as changes to the Postal Service or increases to debt service, are ignored. The frequent exemption of budgetary effects from the PAYGO scorecards by Congress also suggests the PAYGO regime has been ineffective at controlling deficits. In the coming year the Administration looks forward to working with Congress to rein in the deficit by exploring budget enforcement tools, including reforms to PAYGO. 2 OMB’s annual PAYGO reports and other explanatory material about the PAYGO Act are available on OMB’s website at https://www.whitehouse.gov/omb/paygo/. Estimating the Impacts of Debt Service New legislation that affects direct spending and revenue will also indirectly affect interest payments on the Federal 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 PAYGO Act, 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 In addition to enforcing budget discipline on enacted legislation, the Administration continues to review potential administrative actions by Executive Branch agencies affecting entitlement programs, so that agencies administering these programs have a requirement to keep costs low. This requirement was codified in a memorandum issued on May 23, 2005, by the Director of the Office of Management and Budget, “Budget Discipline for Agency Administrative Actions.” This memo effectively established a PAYGO requirement for administrative actions involving mandatory spending programs. Exceptions to this requirement are only provided in extraordinary or compelling circumstances. Adjustments to BBEDCA Baseline: Extension of Revenue Provisions and Transportation Spending In order to provide a more realistic outlook for the deficit under current policies, the Budget presents the Administration’s budget proposals relative to a baseline that makes certain adjustments to the statutory baseline defined in BBEDCA. Section 257 of BBEDCA provides the rules for constructing the baseline used by the Executive and Legislative Branches for scoring and other legal purposes. The adjustments made by the Administration are not intended to replace the BBEDCA baseline for these purposes, but rather are intended to make the baseline a more useful benchmark for assessing the deficit outlook and the impact of budget proposals. Revenue Provisions Extended in Adjusted Baseline.—The Tax Cuts and Jobs Act provided comprehensive tax reform for individuals and corporations. The Administration’s adjusted baseline assumes permanent extension of the individual income tax and estate and gift tax provisions enacted in that Act that are currently set to expire at the end of 2025. These expirations were included in the tax bill not because these provisions were intended to be temporary, but in order to comply with reconciliation rules in the Senate. Assuming extension of these provisions in the adjusted baseline presentation results in reductions in governmental receipts and increases in outlays for refundable tax credits of $568.9 billion over the 2026-2028 period relative to the BBEDCA baseline. This yields a more realistic depiction of the outlook for re- 122 ceipts and the deficit than a strictly current law baseline in which these significant tax cuts expire. Highway Trust Fund (HTF) Spending in the Adjusted Baseline.—Under BBEDCA baseline rules, the Budget shows outlays supported by HTF receipts inflating at the current services level. However, that presentation masks the reality that the HTF has a structural insolvency, one that all stakeholders are aware of, and the source of which is described below. The BBEDCA baseline results in a presentation that overestimates the amount of HTF spending the Government could support. Therefore, beginning in 2022, the Budget presents an adjusted baseline to account for the mismatch between baseline rules that require assuming that spending continues at current levels and the law limiting the spending from the HTF to the level of available balances in the HTF. Under current law, DOT is unable to reimburse States and grantees when the balances in the HTF, largely reflecting the level of incoming receipts, are insufficient to meet their requests. Relative to the BBEDCA baseline levels, reducing outlays from the HTF to the level of receipts in the adjusted baseline presentation results in a reduction in HTF outlays of $122.4 billion over the 2022-2028 window. This adjustment makes the level of spending that could be supported in the HTF absent reforms more apparent. Surface Transportation Hybrid Budgetary Treatment.— The Highway Revenue Act of 1956 (Public Law 84-627) introduced the HTF to accelerate the development 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. Highway Trust Fund (HTF) programs are treated as hybrids for budget enforcement purposes: contract authority is classified as mandatory, while outlays are controlled by obligation limitations in appropriations acts and are therefore 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. 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 have 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. Fixing America’s Surface Transportation Act (FAST Act).—The passage of the FAST Act (Public Law 114-94), ANALYTICAL PERSPECTIVES 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. For 2019, in policy, the Administration is requesting obligation limitation levels for HTF programs equal to the contract authority levels provided in the FAST Act. For the outyears, those levels are frozen at the 2019 level through 2028. The Budget also reflects the FAST Act contract authority levels for the remainder of the Act, through 2020. Beyond 2020 contract authority is frozen at the 2020 level. Outlays in policy are equal to the adjusted baseline levels, reflecting the need for a longterm solution. Long-Term Solution Needed.—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. The adjusted baseline presentation shows the level of spending expected under current law, without assuming General Fund transfers. 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. 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 2019, the Budget supports maintaining the topline for base discretionary programs at the Joint Committee-enforced level but proposes rebalancing Federal responsibilities by increasing the defense cap under current law by $65 billion while reducing the non-defense cap by about the same amount. After 2019, the Budget proposes new caps that shift resources from non-defense programs by further reducing the non-defense cap over the 2020–2028 window by two percent per year (the “two-penny” plan) while increasing the defense category by an average of three percent per year through 2023 to resource the National Security and National Defense Strategies followed in 2024 through 2028 with inflationary growth of about 2.1 percent per year. The discretionary cap policy levels are reflected in Table S–7 of the main Budget volume. 123 10. Budget Process Further adjustments to the proposed discretionary caps The discretionary non-defense caps proposed in the 2019 Budget are reduced further to account for proposals 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 nondefense programs. Reforms to the retirement plans of Federal civilian employees would also yield savings in the defense category, but the defense caps are not reduced accordingly, in order to allow for those savings to be redirected to critical national security investments within the category. Air Traffic Control Reform.—The Administration proposes to shift the Federal Aviation Administration’s (FAA) air traffic control function into a non-governmental entity beginning in 2022. 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 $10.2 billion in budget authority from 2022 to 2028; this level was determined by measuring the amount allocated as a placeholder 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 nondefense cap levels starting in 2020. This proposal starts at a reduction of discretionary budget authority of $6.5 billion in 2019 and totals $72.2 billion in reduced discretionary spending over the 2019 to 2028 period. Gross versus net reductions in Joint Committee sequestration The net realized savings from Joint Committee mandatory sequestration are less than the intended savings amounts as a result of peculiarities in the BBEDCA sequestration procedures. The 2019 Budget shows the net effect of Joint Committee sequestration reductions by accounting for reductions in 2019 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 budget authority and outlays from these “pop-up” resources are included in the baseline and policy estimates and amount to a cost of $2.3 billion in 2019. Additionally, the 2019 Budget accounts for $752 million in lost savings that results from the sequestration of certain interfund payments, which produces 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, Treasury equity investments in the GSEs are 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. 111-289) to be remitted to several Federal affordable housing programs; the Budget proposes to eliminate the 4.2 basis point setaside 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 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 those goals 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 Service’s 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. 124 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 Treasury interest rates. 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 ANALYTICAL PERSPECTIVES Federal credit programs and would align with private sector standard practices for measuring the value of loans and loan guarantees. The 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 2018 (H. Con. Res. 71) also included language requiring CBO to produce fair value scores alongside FCRA scores upon request. 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. FEDERAL RECEIPTS 125 11. GOVERNMENTAL RECEIPTS A simpler, fairer, and more efficient tax system is critical to growing the economy and creating jobs. The enactment of the Tax Cuts and Jobs Act (Public Law 115–97) in 2017 reformed the Nation’s outdated, overly complex, and burdensome tax system to unleash America’s economy, and create millions of new, better-paying jobs that enable American workers to meet their families’ needs. This Act, which is the first comprehensive tax reform in a generation, streamlines the tax system and ends special interest tax breaks and loopholes, ensuring that all Americans will be treated fairly by the tax system, not just the wealthy. This chapter presents the Budget’s estimates of taxes and governmental receipts including the effects of the Act and other tax legislation enacted in 2017, discusses the provisions of those enacted laws, and explains the Administration’s additional receipt proposals. Table 11–1. RECEIPTS BY SOURCE—SUMMARY (In billions of dollars) 2017 Actual Estimate 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Individual income taxes ������������������������������� 1,587.1 1,660.1 1,687.7 1,790.6 1,918.7 2,052.9 2,201.7 2,353.1 2,510.6 2,707.0 2,890.2 3,069.7 Corporation income taxes ���������������������������� 297.0 217.6 225.3 264.8 272.7 314.2 373.8 416.6 434.7 417.4 406.0 413.5 Social insurance and retirement receipts ���� 1,161.9 1,169.7 1,237.6 1,288.5 1,362.8 1,439.0 1,513.7 1,596.3 1,680.7 1,774.1 1,863.4 1,974.7 (On-budget) ��������������������������������������������� (311.3) (317.4) (332.4) (347.1) (368.4) (390.1) (411.2) (432.2) (454.7) (478.3) (502.5) (533.0) (Off-budget) ��������������������������������������������� (850.6) (852.3) (905.2) (941.4) (994.4) (1,048.9) (1,102.6) (1,164.1) (1,226.1) (1,295.8) (1,360.9) (1,441.7) Excise taxes ������������������������������������������������ 83.8 108.2 108.4 112.4 118.9 106.3 108.7 111.3 114.2 117.4 121.2 125.5 Estate and gift taxes ������������������������������������ 22.8 24.7 16.8 18.0 19.4 20.7 22.8 24.4 26.1 27.6 29.1 30.9 Customs duties �������������������������������������������� 34.6 40.4 43.9 46.7 47.8 49.6 50.6 51.5 52.7 54.2 56.0 58.0 Miscellaneous receipts �������������������������������� 129.0 119.7 106.0 96.4 100.3 108.8 117.7 125.2 130.5 136.8 143.4 149.3 Allowance for repeal and replacement of Obamacare ��������������������������������������������� ......... ......... –3.5 –8.6 –2.5 –2.8 –2.9 –3.0 –3.2 –3.5 –3.7 –4.1 Total, receipts ����������������������������������������� 3,316.2 3,340.4 3,422.3 3,608.9 3,838.2 4,088.7 4,386.1 4,675.5 4,946.3 5,231.1 5,505.6 5,817.5 (On-budget) ���������������������������������������� (2,465.6) (2,488.1) (2,517.1) (2,667.6) (2,843.8) (3,039.8) (3,283.6) (3,511.4) (3,720.2) (3,935.3) (4,144.7) (4,375.8) (Off-budget) ���������������������������������������� (850.6) (852.3) (905.2) (941.4) (994.4) (1,048.9) (1,102.6) (1,164.1) (1,226.1) (1,295.8) (1,360.9) (1,441.7) Total receipts as a percentage of GDP ���� 17.3 16.7 16.3 16.4 16.5 16.8 17.1 17.4 17.5 17.6 17.7 17.8 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 are subtracted from gross outlays, rather than added to taxes and other governmental receipts, and 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 $3,340.4 billion in 2018, an increase of $24.2 billion or 0.7 percent from 2017. The estimated increase in 2018 is largely due to increases in individual income taxes and excise taxes, partially offset by decreases in taxes on corporate income. Receipts in 2018 are estimated to be 16.7 percent of Gross Domestic Product (GDP), which is lower than in 2017, when receipts were 17.3 percent of GDP. Receipts are estimated to rise to $3,422.3 billion in 2019, an increase of $81.9 billion or 2.5 percent relative to 2018. Receipts are projected to grow at an average annual rate of 6.4 percent between 2019 and 2023, rising to $4,386.1 billion. Receipts are projected to rise to $5,817.5 billion in 2028, growing at an average annual rate of 5.8 percent between 2023 and 2028. 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 decrease from 16.7 percent in 2018 to 16.3 percent in 2019, and to steadily increase to 17.8 percent of GDP by 2028. 127 128 ANALYTICAL PERSPECTIVES LEGISLATION ENACTED IN 2017 THAT AFFECTS GOVERNMENTAL RECEIPTS In addition to the Tax Cuts and Jobs Act, two other laws were enacted during 2017 that affect receipts. The major provisions of these laws that have a significant impact on receipts are described below.1 DISASTER TAX RELIEF AND AIRPORT AND AIRWAY EXTENSION ACT OF 2017 (Public Law 115–63) This Act, which was signed into law on September 29, 2017, extended through March 31, 2018, various expiring authorities, programs, and activities of the Federal Aviation Administration in the Department of Transportation, including aviation-related taxes. The Act also modified certain tax provisions for individuals living in areas impacted by Hurricanes Harvey, Irma, and Maria, and tax provisions regarding charitable giving to those areas. Extend aviation taxes.—The Internal Revenue Code imposes certain aviation-related taxes, including taxes on aviation fuels and ticket taxes on transportation by air of persons and property; and transfers to the Airport and Airway Trust Fund amounts equivalent to the aviation fuel taxes and air transportation ticket taxes received in the Treasury. The Act extended these taxes at their current rates, and extended the exemption under current law on commercial aviation taxes for certain fractional aircraft program flights, both through March 31, 2018. Impose special disaster-related rules for use of retirement funds.—The Act permits penalty-free withdrawals from eligible retirement plans for individuals whose principal place of abode was located in the Hurricane Harvey, Irma, or Maria disaster areas on the date of disaster and who sustained an economic loss by reason of the hurricane. Individuals can make withdrawals from eligible retirement plans limited to $100,000 over the aggregate amounts treated as qualified hurricane distributions for that individual in all prior taxable years. In addition, individuals who make withdrawals for qualified hurricane relief can, within a three-year period starting on the date of the withdrawal, make contributions back to an eligible retirement plan, not to exceed the amount withdrawn. To qualify, these distributions must be made on or after August 23, 2017, for Hurricane Harvey individuals (September 1, 2017, and September 16, 2017, for Hurricanes Irma and Maria individuals respectively) and before January 1, 2019. Provide tax credit for disaster-related employment.—The Act allows certain employers who were in business in a Hurricane Harvey, Irma, or Maria disaster zone on the date of the disaster, and before January 1, 2018, whose business is inoperable, to take a tax credit for 40 percent (up to $6,000 per employee) of wages paid during that period to each employee whose principal place of employment with the employer was in a disaster zone. 1 In the discussions of enacted legislation, years referred to are calendar years, unless otherwise noted. Temporarily suspend limitations on charitable contributions.—Under current law, individuals and corporations can take itemized deductions for charitable contributions, subject to certain limitations. Individuals may deduct charitable contributions up to 50 percent of adjusted gross income (AGI), further limited by the phase-out of itemized deductions. For corporations, the total deductions for charitable contributions for any taxable year may not exceed 10 percent of a corporation’s taxable income. Under the Act, these limitations do not apply to corporate contributions for relief efforts related to Hurricane Harvey, Irma, or Maria, or to any charitable contributions paid by individuals during the period beginning on the date of disaster, and ending on December 31, 2017. Implement special rules for qualified disaster-related personal casualty losses.—Currently, individual taxpayers are generally allowed to deduct from income any loss sustained during the taxable year and not compensated for by insurance or otherwise. Losses of non-business property may be deducted if they arise from casualty (e.g., fire or storm) or theft. However, these losses are allowed only to the extent that the loss from each casualty or theft exceeds $100. In addition, aggregate net losses from casualties or theft are deductible only to the extent that they exceed 10 percent of an individual taxpayer’s AGI. This Act eliminated the 10 percent limitation for losses arising in the Hurricane Harvey, Irma, or Maria disaster areas and attributable to the hurricane; raised the $100 personal loss threshold to $500; and eliminated the requirement that individuals must itemize deductions in order to access the personal casualty loss deduction. Special rule for determining earned income.— Under current law, eligible taxpayers may receive an earned income tax credit (EITC) and child credits. The EITC is a refundable credit for low-income workers. Taxpayers may claim a refundable child credit of $1,000 for each qualifying child if their AGI is below $75,000 for single filers and $110,000 if married and filing jointly. The Act allows these credits to be determined, at the election of the taxpayer, by substituting the earned income for 2016 for the earned income for 2017. This provision only applies to individuals whose principal place of abode was located, on the date of the disaster, in a Hurricane Harvey, Irma, or Maria disaster zone; or Hurricane Harvey, Irma, or Maria disaster area (but outside the disaster zone) and was displaced due to the hurricane. TSP MODERNIZATION ACT OF 2017 (Public Law 115–84) This Act, which was signed into law on November 17, 2017, modifies the rules relating to withdrawals from the Thrift Saving Plan (TSP) accounts of former Federal employees and Members of Congress. Previously, such employees and Members could make only one partial withdrawal upon reaching age 59–1/2 while employed or 11. Governmental Receipts one such withdrawal after retirement. The Act permits an unlimited number of withdrawals. The Act also eliminates the withdrawal election deadline and the limitation on age-based in-service withdrawals. AN ACT TO PROVIDE FOR RECONCILIATION PURSUANT TO TITLES II AND V OF THE CONCURRENT RESOLUTION ON THE BUDGET FOR FISCAL YEAR 2018 (Public Law 115–97) This Act, also referred to as the Tax Cuts and Jobs Act, which was signed into law on December 22, 2017, provided comprehensive tax reform for individuals and corporations, and repealed the individual mandate under the Affordable Care Act. Significant provisions of this Act are described in greater detail below. Individual tax reform Consolidate, simplify, and temporarily reduce income tax rates for individuals.—This Act temporarily reduced the individual income tax rates and altered the threshold at which each of the tax rates apply, effective for taxable years beginning after December 31, 2017, and before January 1, 2026. The individual tax rates were reduced to 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent, with the highest rate applying to taxable income over $600,000 for married individuals filing jointly and over $500,000 for single individuals. Index tax brackets by the chained Consumer Price Index (CPI).—Under prior law, the individual income tax brackets and many other thresholds within the tax code were indexed for inflation using the CPI for all urban consumers, as produced by the Bureau of Labor Statistics (BLS) within the Department of Commerce. This Act revised these indexation provisions to use the chained CPI, an alternative measure of inflation produced by BLS that more accurately measures inflation by better capturing the effects of changes in purchasing patterns on consumer price inflation. Consolidate and temporarily reduce income tax rates for estates and trusts.—The Act modified the income tax rates for estates and trusts to 10 percent on taxable income below $2,550; 24 percent on taxable income over $2,550 but below $9,150; 35 percent on taxable income over $9,150 but below $12,500; and 37 percent on taxable income over $12,500. The reduced rates apply to taxable years beginning after December 31, 2017, and before January 1, 2026. Increase the standard deduction.—Individuals who do not elect to itemize deductions may reduce their AGI by the amount of the applicable standard deduction in arriving at their taxable income. The basic standard deduction varies depending upon a taxpayer’s filing status. This Act increased the basic standard deduction for individuals in 2018 to be $12,000 for single individuals (from $6,350 in 2017) and $24,000 for married individuals filing a joint return (from $12,700 in 2017). These amounts are indexed for inflation. The increase applies 129 to taxable years beginning after December 31, 2017, and before January 1, 2026. Repeal the deduction for personal exemptions.— In determining taxable income, individuals reduce AGI by any personal exemption deductions and either the applicable standard deduction or his or her itemized deductions. Personal exemptions generally are allowed for taxpayers, their spouses, and any dependents. The deduction for the personal exemption is phased out for taxpayers with AGI in excess of $313,800 for married individuals filing jointly and $261,500 for single individuals. The Act repealed the deduction for personal exemptions for tax years beginning after December 31, 2017, through December 31, 2025. Double the exemption amount for the estate and gift tax.—The Act unified the estate and gift taxes such that a single graduated rate schedule applies to cumulative taxable transfers made by a taxpayer during his or her lifetime and at death. Additionally, in determining one’s taxable estate, certain credits are subtracted to determine estate tax liability; the Act doubled the exclusions for estate and gift taxes by increasing the basic exclusion amount from $5 million to $10 million, indexed for inflation occurring after 2011, for tax years beginning after December 31, 2017, through December 31, 2025. Increase the child tax credit and require valid Social Security number (SSN).—The Act increased the child tax credit from $1,000 to $2,000 per qualifying child, provided $500 for each dependent who does not qualify for the child tax credit, and increased the maximum refundable child tax credit to $1,400 per qualifying child. The Act also increased the threshold for phase-out of the credit to $400,000 for married individuals filing a joint return ($200,000 for all other taxpayers). In addition, the Act required that a taxpayer claiming the child tax credit must include a SSN for each qualifying child for whom the credit is claimed. This additional requirement does not apply to a non-child dependent for whom the $500 non-refundable credit is claimed. These modifications apply to taxable years beginning after December 31, 2017, and before January 1, 2026. Increase the alternative minimum tax exemption amount and phase-out thresholds.—An alternative minimum tax (AMT) is imposed on an individual, estate, or trust in an amount by which the tentative minimum tax exceeds the regular income tax for the taxable year. If a taxpayer owes more under the AMT calculation than under the regular income tax calculation, the taxpayer must pay the higher amount. A certain amount of income is exempt from the AMT – the so-called “exemption amount.” The Act increased the AMT exemption amounts in 2018 to $109,400 for married taxpayers filling a joint return and $70,300 for single filers for taxable years beginning after December 31, 2017, and before January 1, 2026. It also increased the threshold at which this exemption amount is phased out to $1 million for married joint filers and $500,000 for single filers for taxable years beginning after December 31, 2017, and before January 1, 2026. Those amounts are indexed for inflation. Reduce the threshold for medical expense deduction.—Current law allows for an itemized deduction for 130 unreimbursed medical expenses in excess of 10 percent of a taxpayer’s AGI. The Act reduced this floor to 7.5 percent for taxable years beginning after December 31, 2016, and ending before January 1, 2019. The Act made a similar change in calculating the deduction for these expenses under the AMT. Decrease the mortgage interest deduction limitations.—Prior law allowed for a deduction for interest on certain home mortgages, limited to interest on the first million dollars of debt used for acquiring, constructing, or substantially improving the residence. Prior law also allowed the deduction of interest on up to $100,000 of home equity indebtedness. The Act reduced the limitation to interest on up to $750,000 of acquisition indebtedness and eliminating the deduction for interest on home equity indebtedness for taxable years beginning after December 31, 2017, and before January 1, 2026. In the case of acquisition indebtedness incurred before December 15, 2017, this limitation remains $1,000,000. Limit State and local tax deduction.—Current law allows for an itemized deduction for State and local income taxes (or, at the taxpayer’s election, State and local sales taxes) and property taxes. The Act limited the itemized deduction for State and local taxes to $10,000 for taxable years beginning after December 31, 2017, and before January 1, 2026. Repeal of deductions and exclusions for moving expenses.—Prior law allowed above-the-line deductions for moving expenses paid by an employee and an exclusion from income for moving expenses reimbursed by an employer. The Act repealed the moving expense deduction and the exclusion of employer-reimbursed moving expense for taxpayers other than members of the Armed Forces, effective for taxable years beginning after December 31, 2017, and before January 1, 2026. Repeal of deductions for alimony payments.— Prior law allowed above-the-line deductions for payments of alimony and provided that receipt of alimony payments be included as income. Child support payments were not treated as alimony. The Act repealed the alimony deduction and the corresponding inclusion of alimony as income, effective for any divorce or separation instrument executed after December 31, 2018. Repeal of deduction for personal casualty and theft losses.—Prior law allowed a deduction for any uncompensated loss sustained during the taxable year, provided that the loss was incurred in a business or other profit-seeking activity or arose from theft and certain other casualties. Losses were deductible only above a $100 threshold, and only to the extent that aggregate losses exceeded 10 percent of the taxpayer’s AGI. The Act limited the deduction to losses attributable to a Presidentiallydeclared disaster declared under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, effective for losses incurred after December 31, 2017, and before January 1, 2026. Repeal itemized deductions subject to two percent floor.—Prior law allowed itemized deductions for a number of miscellaneous expenses, as long as the total of those expenses exceeded two percent of the taxpayer’s ANALYTICAL PERSPECTIVES AGI. Allowable expenses included certain expenses in the production or collection of income, tax preparation expenses, and unreimbursed employee expenses. The Act suspended those itemized deductions subject to the two percent floor for taxable years beginning after December 31, 2017, and before January 1, 2026. Increase percentage limit for cash contributions to public charities.—Current law limits the deduction of cash contributions to public charities and certain other organizations to 50 percent of the taxpayer’s contribution base, generally AGI. The Act increases the limit to 60 percent for taxable years beginning after December 31, 2017, and before January 1, 2026. Repeal limitation on itemized deductions.—Prior law limited the total amount of most otherwise allowable itemized deductions (other than the deductions for medical expenses, investment interest and casualty, theft or gambling losses) for taxpayers with incomes above certain thresholds. For 2017, the threshold amounts are $261,500 for single taxpayers; $287,650 for heads of household; $313,800 for married couples filing jointly; and $156,900 for married taxpayers filing separately. The Act repealed the limitation on itemized deductions for taxable years beginning after December 31, 2017, and before January 1, 2026. Allow deduction for certain pass-through income.—Under current law, businesses such as sole proprietorships, partnerships, limited liability companies, and S corporations, are considered to be “pass-through” entities. Pass-through businesses are generally not treated as taxable entities for income tax purposes, but rather income and expenses are passed through to their owners. Income earned by a pass-through entity (whether distributed or not) is taxed to the owners at their own tax rates along with income they may receive from other sources. The Act allows an individual taxpayer to deduct 20 percent of domestic qualified business income from a partnership, S corporation, or sole proprietorship, subject to certain limitations. This provision is effective for tax years beginning after December 31, 2018, through December 31, 2025. Disallow active pass-through losses in excess of threshold.—Under prior law, active owners of passthrough businesses may use business losses to offset other ordinary income (e.g., wage income) without limit. The Act prohibits taxpayers’ use of pass-through losses in excess of certain threshold amounts. Any excess losses that are disallowed are carried forward and can be used to offset future income, subject to limitations. For 2018, the thresholds are $500,000 for married couples filing jointly and $250,000 for all other individuals. This provision is effective for tax years beginning after December 31, 2017, through December 31, 2025. Business tax reform Eliminate the corporate income tax graduated rate structure and decrease the corporate tax rate.—Previously, corporate taxable income was subject to tax under a four-step graduated rate structure. The top corporate tax rate was 35 percent on taxable income 131 11. Governmental Receipts in excess of $10 million. An additional five-percent tax was imposed on a corporation’s taxable income in excess of $100,000, with the maximum additional tax at $11,750. A second additional three-percent tax was imposed on a corporation’s taxable income in excess of $15 million. The maximum second additional tax was $100,000. The Act permanently applies a single rate of 21 percent to corporation taxable income, effective for tax years beginning after December 31, 2017. Repeal the corporate AMT.—Previously, an AMT was imposed on a corporation to the extent the corporation’s tentative minimum tax exceeded its regular tax. This tentative minimum tax was computed at the rate of 20 percent on the income covered by the AMT in excess of a $40,000 exemption amount subject to a phase-out. The income taxed under the AMT was the corporation’s regular taxable income increased by certain preference items and adjustments. If a corporation was subject to AMT in any year, the amount of AMT is allowed as an AMT credit in any subsequent taxable year to the extent the corporation’s regular tax liability exceeded its tentative minimum tax in the subsequent year. The Act repealed the corporate AMT and allowed AMT credits to offset regular tax liability, effective for tax years beginning after December 31, 2017. Extend, expand, and phase down bonus depreciation.—Businesses can generally recover the cost of certain property over a predetermined period of years. Businesses are allowed to take a first-year bonus depreciation deduction of an additional 50 percent of the cost of assets acquired and placed into service before January 1, 2020, but may elect not to take this additional deduction with respect to certain property. The 50-percent allowance is phased down for property placed in service after December 31, 2017. This Act extends the additional firstyear depreciation deduction through December 31, 2026. The 50-percent allowance is increased to 100 percent for property placed in service after September 27, 2017, and before January 1, 2023. The allowance then decreases by 20 percentage points each year before phasing out completely for property placed in service after December 31, 2026. Limit net interest deduction to 30 percent of adjusted taxable income.—Previously, interest paid or accrued by a business generally was deductible in the computation of taxable income subject to a number of limitations. The Act generally limits the deduction to 30 percent of the adjusted taxable income of the business, but with an exception for certain small businesses. Adjusted taxable income is not reduced for depreciation, amortization, or depletion deductions for taxable years beginning after December 31, 2017, and before January 1, 2022. The excess amount of interest may be carried forward indefinitely to future tax years. Modify net operating loss deduction.—A net operating loss (NOL) generally means the amount by which the deductions of a business exceed its gross income. Previously, a NOL could be carried back two years and carried forward over 20 years to offset taxable income in such years. The Act limits NOL deductions to 80 percent of taxable income and repeals the ability to carry back NOLs two years, with exceptions for certain businesses. This limitation applies to corporations as well as individuals with pass-through businesses. Amortize research and experimentation expenditures.—Under current law, businesses may choose to deduct certain research or experimentation expenditures from current income, or to capitalize these expenditures and deduct them over a longer period. The Act requires that these expenditures paid or incurred in taxable years beginning after December 31, 2021, be capitalized and amortized ratably over a five-year period. Certain expenditures which are attributable to research that is conducted outside of the United States are required to be capitalized and amortized ratably over a period of 15 years. Repeal or limit business-related deductions.—The Act permanently repeals or limits a number of deductions from business income, including eliminating the deduction for income attributable to domestic production activities and limiting the deduction for employee meal, entertainment, and transportation expenses. International tax reform Allow deduction of dividends received by domestic corporations from certain foreign corporations.— The Act provides that in the case of any dividend received from a specified 10-percent owned foreign corporation by a domestic corporation which is a United States shareholder with respect to such foreign corporation, a deduction is allowed in an amount equal to the foreign-source portion of such dividend. Treat deferred foreign income at two-tier rate.— The Act requires that, for the last taxable year of a foreign corporation beginning before January 1, 2018, all U.S. shareholders of any controlled foreign corporation or other foreign corporation (CFC) that is at least 10-percent U.S.-owned but not controlled, include in income their pro rata shares of the accumulated post–1986 deferred foreign income that was not previously taxed. A portion of that pro rata share of deferred foreign income is deductible resulting in a reduced rate of tax of 15.5 percent for the included deferred foreign income held in liquid form and 8 percent for the remaining deferred foreign income. Include current year global intangible low-taxed income.—The Act requires that U.S. shareholders of any CFC include in gross income its global intangible lowtaxed income (GILTI) in a manner generally similar to inclusions of subpart F income. GILTI means, with respect to any U.S. shareholder for the shareholder’s taxable year, the excess (if any) of the shareholder’s net CFC tested income over the shareholder’s net deemed tangible income return. The shareholder’s net deemed tangible income return is an amount equal to 10 percent of the aggregate of the shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder. Domestic C corporations that are U.S. shareholders of CFCs are given a deduction equal to 50 percent (decreasing to 37.5 percent in 2026) of the GILTI. This results in a pre-credit U.S. effective tax rate on GILTI 132 ANALYTICAL PERSPECTIVES income of 10.5 percent for 2018 through 2025, and 13.125 percent from 2026 onward. Foreign taxes paid that are attributable to the excess return are creditable against the U.S. tax on GILTI, subject to a 20 percent reduction. Establish deduction for foreign-derived intangible income.—The Act provides a deduction for domestic corporations based on their foreign-derived intangible income (FDII). FDII is the portion of a domestic corporation’s “intangible” income, determined on a formulaic basis, attributable to serving foreign markets. For taxable years beginning after December 31, 2017, and before January 1, 2026, the provision generally allows a deduction equal to 37.5 percent of the corporation’s FDII. This deduction reduces the effective tax rate on FDII below the statutory corporate tax rate of 21 percent; for example, the deduction implies a 13.125 percent effective tax rate for FDII in these years. For taxable years beginning after December 31, 2025, the deduction for FDII is reduced to 21.875 percent. Impose a base erosion and anti-abuse tax.—The Act requires that certain taxpayers compute an alternative minimum tax called the base erosion anti-abuse tax (BEAT). The BEAT is imposed on both domestic and foreign companies with more than $500 million in average annual gross receipts and “base erosion payments” greater than 3 percent of total deductions (2 percent in the case of banks). Base erosion payments are non-cost of goods sold deductible payments made to foreign related parties. The BEAT is computed as the amount by which a company’s taxable income computed without regard to base erosion payments exceeds the company’s regular corporate tax liability minus certain tax credits. The BEAT rate is 5 percent in 2018, rising to 10 percent in 2019 through 2025, and then to 12.5 percent starting in 2026. Banks are subject to a BEAT rate that is 1 percent higher that applies if the base erosion payments exceed 2 percent of total deductions, but certain payments made with respect to derivatives are excluded from the BEAT. Other Permanently repeal the individual mandate tax penalty.—Under the Patient Protection and Affordable Care Act (Public Law 111–148), individuals are required to be covered by a health plan that provides at least minimum essential coverage or be subject to a tax penalty for failure to maintain the coverage (commonly referred to as the “individual mandate”). The tax is imposed for any month that the individual does not have the minimum essential coverage and is equal to the greater of a flat dollar amount or a percentage of income in excess of the filing threshold. This Act permanently repeals the individual mandate tax penalty by decreasing both the individual annual dollar amount and the percentage of income to zero for health coverage in months beginning after December 31, 2018. Table 11–2. ADJUSTMENTS TO THE BALANCED BUDGET AND EMERGENCY DEFICIT CONTROL ACT (BBEDCA) BASELINE ESTIMATES OF GOVERNMENTAL RECEIPTS (In billions of dollars) 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 BBEDCA baseline receipts ����������������������������� 3,340.5 3,424.3 3,613.3 3,832.9 4,094.7 4,388.9 4,677.8 4,947.7 5,346.1 5,716.9 6,040.3 Adjustments to BBEDCA baseline: Extend individual income tax provisions 1 ������ Extend estate and gift tax provisions ������������� Total, adjustments to BBEDCA baseline ��������������������������������������������� 2019–2023 2019–2028 19,354.1 46,082.9 ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... –112.7 ......... –194.9 –14.2 –204.7 –15.1 ......... ......... –512.4 –29.2 ......... ......... ......... ......... ......... ......... ......... ......... –112.7 –209.1 –219.8 ......... –541.6 Adjusted baseline receipts ����������������������������� 3,340.5 3,424.3 3,613.3 3,832.9 4,094.7 4,388.9 4,677.8 4,947.7 5,233.5 5,507.8 5,820.5 1 This provision affects both receipts and outlays. Only the receipt effect is shown here. The outlay effects are listed below: 19,354.1 45,541.4 2018 Extend individual income tax provisions �������� Total, outlay effects of adjustments to BBEDCA baseline ������������������������������ 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2019–23 2019–28 ......... ......... ......... ......... ......... ......... ......... ......... –3.9 15.3 15.9 ......... 27.3 ......... ......... ......... ......... ......... ......... ......... ......... –3.9 15.3 15.9 ......... 27.3 ADJUSTMENTS TO THE BALANCED BUDGET AND EMERGENCY DEFICIT CONTROL ACT (BBEDCA) BASELINE An important step in addressing the Nation’s fiscal problems is to be upfront about them and to establish a baseline that provides a realistic measure of the deficit outlook before new policies are enacted. This Budget does so by adjusting the BBEDCA baseline to reflect the true cost of extending major tax policies that are scheduled to expire but that are likely to be extended. The BBEDCA baseline, which is commonly used in budgeting and is defined in statute, reflects, with some exceptions, the projected receipts level under current law. However, current law includes a number of scheduled tax changes that the Administration believes are unlikely to occur and that prevent it from serving as a realistic benchmark for judging the effect of new legislation. These 133 11. Governmental Receipts tax changes include expiration in 2025 of the individual income and estate and gift tax provisions enacted in the Tax Cuts and Jobs Act. This Budget uses an adjusted baseline that is intended to be more realistic by extending those expiring provisions. This baseline does not reflect the President’s policy proposals, but is rather a realistic and fair benchmark from which to measure the effects of those policies. Extend individual income tax provisions.—The Administration’s adjusted baseline projection permanently extends all expiring individual income tax provisions in the Tax Cuts and Jobs Act that are currently set to expire on December 31, 2025. Extend estate and gift tax provisions.—The Administration’s adjusted baseline projection reflects permanent extension of the estate and gift tax parameters and provisions in effect for calendar year 2025. BUDGET PROPOSALS The 2019 Budget supports the extension of the individual and estate tax provisions of the Tax Cuts and Jobs Act beyond their expiration in 2025, as described above, to provide certainty for taxpayers and support continued economic growth. The Budget’s additional proposals affecting governmental receipts are as follows: Allow Medicare beneficiaries to contribute to Health Savings Accounts (HSAs) and Medical Savings Accounts (MSAs).—Under current law, workers who are entitled to Medicare are not allowed to contribute to an HSA, even if they are working and are enrolled in a qualifying health plan through their employer. The Administration proposes to allow workers aged 65 or older who have a high-deductible health plan through their employer to contribute to an HSA, even if they are entitled to Medicare. In addition, the Administration proposes to allow beneficiaries enrolled in Medicare MSA Plans to contribute to their MSAs, beginning in 2021, subject to the annual HSA contribution limits as determined by the Internal Revenue Service. Beneficiaries would also be allowed a one-time opportunity to roll over the funds from their private HSAs to their Medicare MSAs. Beneficiaries who elect this plan option would not be allowed to purchase Medigap or other supplemental insurance. Extend Children’s Health Insurance Program (CHIP) funding through 2019.—The Administration proposes to extend CHIP funding 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. Reform medical liability.—The Administration proposes to reform medical liability beginning in 2019. This proposal has the potential to lower health insurance premiums, increasing taxable income and payroll tax receipts. Reduce the grace period for Exchange premiums.—The Administration proposes to reduce the 90-day grace period for individuals on Exchange plans to repay any missed premium payments to 30 days. The proposal would decrease premium tax credit outlays and increase governmental receipts. Provide tax exemption for Indian Health Service (IHS) Health Professions scholarship and loan repayment programs in return for obligatory service requirement.—The Administration proposes to allow scholarship funds for qualified tuition and related expens- es received under the IHS Health Professions scholarship to be excluded from income. The Administration also proposes to allow students to exclude from gross income student loan amounts forgiven by the IHS Loan Repayment Program. Under current law, National Health Service Corps programs and Armed Forces Health Professions Scholarships are provided an exception to the general rule that scholarship amounts representing payment for work are considered ordinary income and therefore taxable. Furthermore, certain loans forgiven as part of certain State and profession-based loan programs are provided an exception from the general rule that loan amounts paid on another’s behalf are taxable income. Extending the exceptions to IHS programs would provide the IHS programs with comparable treatment to similar programs administered by the National Health Service Corps, the Armed Forces, and certain State programs. Eliminating the current tax burden on scholarship recipients would allow IHS to leverage another tool to bolster its ongoing efforts to recruit and retain qualified healthcare providers. 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. The user fee would 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). The Budget extents the authorization for the Electronic System for Travel Authorization (ESTA) surcharge currently deposited in the Travel Promotion Fund and redirects the surcharge to the ESTA account at Customs and Border Protection with a portion to be transferred to the International Trade Administration to administer the Survey of International Air Travelers. Establish an immigration services surcharge.— The Administration proposes to add a 10 percent surcharge on all requests received by U.S. Citizenship and Immigration Services, including applications for citizenship, adjustment of status, and petitions for temporary workers. Increase worksite enforcement penalties.—The Administration proposes to increase by 35 percent all penalty amounts against employers who violate Immigration 134 and Nationality Act provisions on the unlawful employment of aliens. Reinstate the Oil Spill Liability Trust Fund excise tax.—The Administration proposes to reinstate the Oil Spill Liability Trust Fund excise tax, which expired on December 31, 2017. The Trust Fund provides resources for the Federal Government to respond and clean up incidents of oil spills. 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 responsible for adjusting 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 UI 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 for Reemployment Services and Eligibility Assessments (RESEAs).—The Administration proposes mandatory funding to provide RESEAs to the one-half of 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. Reform the Essential Air Service (EAS).—The Administration proposes to reform the EAS by reducing 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. 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 2022. 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. Provide authority to purchase and construct a new Bureau of Engraving and Printing facility.— The Administration proposes to provide authority to the Bureau of Engraving and Printing to construct a more ANALYTICAL PERSPECTIVES 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. Subject Financial Research Fund (FRF) to appropriations with reforms to the Financial Stability Oversight Council (FSOC) and Office of Financial Research (OFR).—Expenses of the FSOC and OFR are paid through the FRF, which is funded by assessments on certain bank holding companies with total consolidated assets of $50 billion or greater and nonbank financial companies supervised by the Federal Reserve Board of Governors. The FRF was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111–203) and is managed by the Department of the Treasury. To improve their effectiveness and ensure greater accountability, the Budget proposes to subject activities of the FSOC and OFR to the annual appropriations process. In so doing, currently authorized assessments would, beginning in fiscal year 2020, be reauthorized as discretionary offsetting collections and set at a level determined by the Congress. The Budget also reflects continued reductions in OFR spending commensurate with the renewed fiscal discipline being applied across the Federal Government. Provide discretionary funding for Internal Revenue Service (IRS) program integrity cap adjustment.—The Administration proposes to establish and fund a new adjustment to the discretionary caps for IRS program integrity activities starting in 2019. The IRS base funding within the discretionary caps funds current tax administration activities, including all tax enforcement and compliance program activities, in the Enforcement and Operations Support accounts at IRS. The additional $362 million cap adjustment in 2019 will fund new and continuing investments in expanding and improving the effectiveness and efficiency of the IRS’s tax enforcement program. The activities are estimated to generate $44 billion in additional revenue over 10 years and cost approximately $15 billion, resulting in an estimated net savings of $29 billion. Once the new staff are trained and become fully operational these initiatives are expected to generate roughly $4 in additional revenue for every $1 in IRS expenses. Notably, the return on investment is likely understated because it only includes amounts received; it does not reflect the effect enhanced enforcement has on deterring noncompliance. This indirect deterrence helps to ensure the continued payment of over $3 trillion in taxes paid each year without direct enforcement measures. 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 135 11. Governmental Receipts that the Secretary of the Treasury has the authority to regulate all paid tax return preparers. Provide the 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. 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 the users’ share of future capital investments as well as 10 percent of the cost of operation and maintenance activities in these wa- Table 11-3. EFFECT OF BUDGET PROPOSALS (In millions of dollars) 2018 Allow Medicare beneficiaries to contribute to Health Savings Accounts (HSAs) and Medical Savings Accounts (MSAs) �������� Extend Children’s Health Insurance Program (CHIP) funding through 2019 ����������������������������������������������������������������������������� Reform medical liability ������������������������������������������������������������������� Reduce the grace period for Exchange premiums ������������������������� Provide tax exemption for Indian Health Service (IHS) Health Professions scholarship and loan repayment programs in return for obligatory service requirement ����������������������������������� Establish Electronic Visa Update System (EVUS) user fee ������������ Eliminate Corporation for Travel Promotion ������������������������������������ Establish an immigration services surcharge ��������������������������������� Increase worksite enforcement penalties ��������������������������������������� Reauthorize the Oil Spill Liability Trust Fund excise tax 1 ��������������� Provide paid parental leave benefits 1 �������������������������������������������� Establish an Unemployment Insurance (UI) solvency standard 1 ��� Improve UI program integrity 1 �������������������������������������������������������� Provide for Reemployment Services and Eligibility Assessments (RESEAs) 1 �������������������������������������������������������������������������������� Reform the Essential Air Service (EAS) ����������������������������������������� Enact Federal Aviation Administration (FAA) air traffic control reform ���������������������������������������������������������������������������������������� Provide authority to purchase and construct a new Bureau of Engraving and Printing facility ��������������������������������������������������� Subject Financial Research Fund (FRF) to appropriations with reforms to the Financial Stability Oversight Council (FSOC) and Office of Financial Research (OFR) 1 ��������������������������������� Provide discretionary funding for Internal Revenue Service (IRS) program integrity cap adjustment ���������������������������������������������� Increase oversight of paid tax return preparers ������������������������������ Provide the IRS with greater flexibility to address correctable errors ����������������������������������������������������������������������������������������� Reform inland waterways financing ������������������������������������������������ Reduce the Harbor Maintenance Tax 1 ������������������������������������������� Increase employee contributions to Federal Employee Retirement System (FERS) �������������������������������������������������������������������������� Eliminate allocations to the Housing Trust Fund and Capital Magnet Fund ����������������������������������������������������������������������������� Improve clarity in worker classification and information reporting requirements ������������������������������������������������������������������������������ Repeal and replace Obamacare ����������������������������������������������������� Offset overlapping unemployment and disability payments 1 ��������� Expand flexibility and broaden eligibility for Private Activity Bonds (PABs) ���������������������������������������������������������������������������������������� Total, effect of budget proposals ������������������������������������������������� 1 Net of income offsets. 2019 2020 2021 2022 2023 2024 2025 2026 2027 20192023 2028 20192028 ......... ......... ......... –610 –1,071 –1,285 –1,493 –1,599 –1,674 –1,746 –1,807 –2,966 –11,285 ......... ......... ......... 388 24 164 58 222 55 ......... 548 ......... ......... 987 ......... ......... 1,476 ......... ......... 2,067 ......... ......... 2,687 ......... ......... 3,079 ......... ......... 3,290 ......... ......... 3,475 ......... 446 3,257 219 446 17,855 219 ......... ......... ......... ......... ......... ......... ......... ......... ......... –5 25 ......... 453 13 354 ......... ......... ......... –12 28 ......... 465 14 466 ......... ......... –1 –13 31 171 479 15 473 ......... 633 –9 –14 34 177 493 15 480 962 1,615 –21 –14 38 183 507 15 489 971 2,230 –72 –14 42 189 522 15 494 1,001 919 –66 –14 46 196 538 15 500 1,194 1,613 –98 –15 52 202 553 15 507 1,300 927 –69 –17 57 209 569 15 511 1,401 1,267 –127 –19 64 216 587 15 511 1,495 1,907 –105 –58 156 531 2,397 72 2,262 1,933 4,478 –103 –137 417 1,543 5,166 147 4,785 8,324 11,111 –568 ......... ......... ......... ......... –3 ......... –14 ......... –69 –152 –125 156 –128 –160 –199 –164 –307 –168 –287 –172 –469 –177 –211 –308 –1,601 –1,149 ......... ......... ......... ......... –15,495 –16,241 –17,027 –17,870 –18,674 –19,497 –20,536 –31,736 –125,340 ......... 12 32 3 –89 360 53 –20 3 222 3 318 579 ......... 1 –50 –50 –50 –50 –50 –50 –50 –50 –50 –199 –449 ......... ......... 152 17 787 18 1,825 21 3,033 23 4,330 25 5,554 28 6,416 31 6,931 34 7,270 38 7,505 10,127 41 104 43,803 276 ......... ......... ......... 7 178 –265 11 178 –281 12 178 –292 12 178 –299 13 178 –307 13 178 –314 14 178 –323 15 178 –333 15 178 –345 16 55 178 890 –359 –1,444 128 1,780 –3,118 ......... ......... 2,267 4,602 6,442 8,068 9,441 9,456 9,470 9,480 9,479 21,379 68,705 ......... 62 74 73 78 82 84 85 87 89 90 369 804 –100 –100 100 ......... ......... ......... ......... ......... ......... 100 105 ......... 205 ......... –3,452 –8,617 –2,503 –2,829 –2,883 –2,959 –3,192 –3,473 –3,676 –4,092 –20,284 –37,676 ......... ......... ......... –3 –6 –7 –14 –18 –25 –29 –31 –16 –133 ......... –31 –138 –100 –2,003 –4,327 –296 –457 –616 –753 –839 –893 –945 –992 –1,538 –5,960 5,274 –6,023 –2,791 –2,378 –1,417 –2,328 –2,180 –2,950 –9,870 –21,123 136 terways 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. Reduce the Harbor Maintenance Tax.— The Administration proposes to reduce the Harbor Maintenance Tax rate to better align estimated annual receipts from this tax with recent appropriation levels for eligible expenditures from the Harbor Maintenance Trust Fund. Reducing this tax would provide greater flexibility for individual ports to establish appropriate fee structures for services they provide, in order to help finance their capital and operating expenses on their own. 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 brings 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, increasing employee contributions by one percentage point per year until equalized. 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. Improve clarity in worker classification and information reporting requirements.—The Administration proposes to: (1) establish a new safe harbor that allows ANALYTICAL PERSPECTIVES a service recipient to classify a service provider as an independent contractor and requires withholding of individual income taxes to this independent contractor at a rate of five percent on the first $20,000 of payments; and (2) raises the reporting threshold for payments to all independent contractors from $600 to $1,000, and reduces the reporting threshold for third-party settlement organizations from $20,000 and 200 transactions per payee to $1,000 without regard to the number of transactions. The proposal increases clarity in the tax code, reduces costly litigation, and raises revenue. Repeal and replace Obamacare.—The Administration is committed to rescuing Americans from the failures of Obamacare. Repealing and replacing Obamacare would affect governmental receipts by repealing the Premium Tax Credit, the medical device tax, and the HSA tax, and making various other reforms to HSAs. 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. 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. Expand flexibility and broaden eligibility for private activity bonds (PABs).—As part of the Administration’s infrastructure initiative, the Budget proposes to expand flexibility and broaden eligibility for private activity bonds. PABs eligible to finance this broadened definition of “core public infrastructure projects” would not be subject to State volume caps. However, the projects must be either Government-owned or privately-owned but subject to Government regulatory or contractual control and approval such that the facilities are available to the public. 137 11. Governmental Receipts Table 11–4. RECEIPTS BY SOURCE (In millions of dollars) Source 2017 Actual Estimate 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Individual income taxes: Federal funds ����������������������������������������� 1,587,120 1,660,063 1,687,042 1,789,704 1,917,184 2,050,498 2,197,899 2,347,934 2,504,331 2,700,016 2,882,828 3,062,139 Legislative proposal, not subject to PAYGO ������������������������������������������ ......... ......... –14 –29 –65 –175 –206 –129 –175 –134 –156 –188 Legislative proposal, subject to PAYGO ������������������������������������������ ......... ......... 718 947 1,592 2,626 3,968 5,316 6,428 7,120 7,516 7,797 Total, Individual income taxes ������������������ 1,587,120 1,660,063 1,687,746 1,790,622 1,918,711 2,052,949 2,201,661 2,353,121 2,510,584 2,707,002 2,890,188 3,069,748 Corporation income taxes: Federal funds ����������������������������������������� Legislative proposal, not subject to PAYGO ������������������������������������������ Legislative proposal, subject to PAYGO ������������������������������������������ Total, Corporation income taxes �������������� Social insurance and retirement receipts (trust funds): Employment and general retirement: Old-age survivors insurance (offbudget) ����������������������������������������� Legislative proposal, not subject to PAYGO �������������������������������� Legislative proposal, subject to PAYGO ������������������������������������ Disability insurance (off-budget) �������� Legislative proposal, not subject to PAYGO �������������������������������� Legislative proposal, subject to PAYGO ������������������������������������ Hospital Insurance ����������������������������� Legislative proposal, not subject to PAYGO �������������������������������� Legislative proposal, subject to PAYGO ������������������������������������ Railroad retirement: Social security equivalent account ���� Rail pension & supplemental annuity Total, Employment and general retirement ����������������������������������������� On-budget ������������������������������������������ Off-budget ������������������������������������������ Unemployment insurance: Deposits by States 1 ��������������������������� Legislative proposal, not subject to PAYGO �������������������������������� Legislative proposal, subject to PAYGO ������������������������������������ Federal unemployment receipts 1 ������ Legislative proposal, subject to PAYGO ������������������������������������ Railroad unemployment receipts 1 ����� Total, Unemployment insurance ������������ Other retirement: Federal employees retirementemployee share ���������������������������� Legislative proposal, subject to PAYGO ������������������������������������ Non-Federal employees retirement 2 ��� Total, Other retirement ��������������������������� Total, Social insurance and retirement receipts (trust funds) ���������������������������� On-budget ���������������������������������������������� 297,048 217,648 225,295 264,710 272,706 314,208 373,856 416,627 434,764 417,498 406,137 413,564 ......... ......... –3 10 10 11 11 10 11 11 11 12 ......... 297,048 ......... 217,648 52 225,344 40 264,760 7 272,723 –21 314,198 –48 373,819 –71 416,566 –85 434,690 –94 417,415 –102 406,046 –110 413,466 688,048 689,294 762,821 804,675 850,279 897,037 942,951 995,275 1,048,234 1,107,760 1,163,400 1,232,525 ......... ......... –8 –15 –95 –343 –411 –240 –344 –256 –307 –382 ......... 162,570 –43 163,035 –80 142,464 58 136,643 –113 144,388 –97 152,328 –30 160,123 68 169,009 194 178,003 174 188,111 290 197,558 311 209,296 ......... ......... –1 –2 –16 –58 –70 –41 –58 –43 –52 –65 ......... 255,930 –7 259,138 –14 275,214 10 286,994 –19 304,251 –17 321,942 –5 339,409 12 358,896 33 378,617 30 400,703 49 421,734 53 447,540 ......... ......... –2 –4 –26 –94 –113 –66 –93 –70 –84 –104 ......... –50 2 120 93 100 126 161 211 334 341 363 2,213 3,136 2,365 3,187 2,472 3,253 2,536 3,349 2,627 3,464 2,728 3,596 2,835 3,734 2,943 3,876 3,053 4,021 3,167 4,171 3,276 4,512 3,382 4,708 1,111,897 1,116,919 1,186,121 1,234,364 1,304,833 1,377,122 1,448,549 1,529,893 1,611,871 1,704,081 1,790,717 1,897,627 (261,279) (264,640) (280,939) (292,995) (310,409) (328,272) (345,991) (365,810) (385,809) (408,305) (429,779) (455,889) (850,618) (852,279) (905,182) (941,369) (994,424) (1,048,850) (1,102,558) (1,164,083) (1,226,062) (1,295,776) (1,360,938) (1,441,738) 37,551 39,118 39,993 39,936 40,218 39,367 39,907 40,719 41,611 42,983 44,549 47,582 ......... ......... ......... –4 –27 –110 –238 –235 –361 –460 –504 –699 ......... 8,131 ......... 8,811 ......... 6,383 ......... 6,503 –4 6,629 1,591 6,760 2,172 6,892 1,741 7,037 2,374 7,187 1,950 7,339 1,979 7,499 2,116 7,669 ......... 126 45,808 ......... 135 48,064 ......... 140 46,516 ......... 146 46,581 791 141 47,748 1,621 119 49,348 1,814 116 50,663 633 138 50,033 1,100 145 52,056 791 138 52,741 1,305 138 54,966 2,078 151 58,897 4,158 4,681 4,952 5,258 5,623 6,011 6,421 6,850 7,294 7,754 8,233 8,701 ......... 34 4,192 ......... 37 4,718 ......... 39 4,991 2,267 39 7,564 4,602 38 10,263 6,442 38 12,491 8,068 38 14,527 9,441 38 16,329 9,456 38 16,788 9,470 37 17,261 9,480 37 17,750 9,479 37 18,217 1,161,897 1,169,701 1,237,628 1,288,509 1,362,844 1,438,961 1,513,739 1,596,255 1,680,715 1,774,083 1,863,433 1,974,741 (311,279) (317,422) (332,446) (347,140) (368,420) (390,111) (411,181) (432,172) (454,653) (478,307) (502,495) (533,003) 138 ANALYTICAL PERSPECTIVES Table 11–4. RECEIPTS BY SOURCE—Continued (In millions of dollars) Source 2017 Actual Estimate 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Off-budget ���������������������������������������������� (850,618) (852,279) (905,182) (941,369) (994,424) (1,048,850) (1,102,558) (1,164,083) (1,226,062) (1,295,776) (1,360,938) (1,441,738) Excise taxes: Federal funds: Alcohol ����������������������������������������������� Tobacco ��������������������������������������������� Transportation fuels ��������������������������� Telephone and teletype services ������� High-cost health insurance coverage ��� Health insurance providers ���������������� Indoor tanning services ��������������������� Medical devices ��������������������������������� Other Federal fund excise taxes �������� Legislative proposal, subject to PAYGO ������������������������������������ Total, Federal funds ������������������������������� Trust funds: Transportation ������������������������������������ Airport and airway ����������������������������� Legislative proposal, subject to PAYGO ������������������������������������ Sport fish restoration and boating safety �������������������������������������������� Tobacco assessments ����������������������� Black lung disability insurance ����������� Inland waterway ��������������������������������� Oil spill liability ����������������������������������� Legislative proposal, subject to PAYGO ������������������������������������ Vaccine injury compensation ������������� Leaking underground storage tank ���� Supplementary medical insurance ���� Patient-centered outcomes research � Total, Trust funds ����������������������������������� Total, Excise taxes ������������������������������������� Estate and gift taxes: Federal funds ����������������������������������������� Total, Estate and gift taxes ����������������������� Customs duties and fees: Federal funds ����������������������������������������� Trust funds: Trust funds ����������������������������������������� Legislative proposal, subject to PAYGO ������������������������������������ Total, Trust funds ����������������������������������� Total, Customs duties and fees ���������������� Miscellaneous receipts: Federal funds: Miscellaneous taxes �������������������������� Deposit of earnings, Federal Reserve System ������������������������������������������ Legislative proposal, subject to PAYGO ������������������������������������ Transfers from the Federal Reserve �� Legislative proposal, subject to PAYGO ������������������������������������ Fees for permits and regulatory and judicial services ���������������������������� 9,924 13,804 –3,400 558 ......... 68 70 –202 369 10,208 13,669 –947 510 ......... 14,281 68 1,572 3,159 10,377 13,534 –998 463 ......... 15,026 67 2,309 3,283 10,466 13,398 –1,010 413 1,714 15,684 65 2,489 3,494 10,576 13,263 –1,013 361 5,981 16,480 63 2,640 3,635 10,683 13,128 –1,014 308 6,919 17,374 61 2,823 3,756 10,726 12,993 –1,014 254 8,000 18,225 59 2,992 3,872 10,833 12,857 –1,016 199 9,249 19,161 57 3,178 3,995 10,893 12,722 –1,015 143 10,671 20,149 55 3,360 4,133 10,978 12,587 –1,014 86 12,238 21,170 53 3,556 4,270 11,183 12,451 –1,015 44 14,044 22,253 51 3,761 4,418 11,515 12,316 –1,014 23 16,105 23,391 49 3,975 4,574 ......... 21,191 ......... 42,520 ......... 44,061 ......... 46,713 ......... 51,986 –152 53,886 –156 55,951 –160 58,353 –164 60,947 –168 63,756 –172 67,018 –177 70,757 41,020 15,055 41,812 15,736 42,591 16,538 43,244 17,281 43,619 18,060 43,812 18,845 43,934 19,725 44,030 20,668 44,095 21,678 44,254 22,692 44,568 23,691 44,921 24,915 ......... ......... ......... ......... ......... –15,495 –16,241 –17,027 –17,870 –18,674 –19,497 –20,536 559 3 429 114 516 562 ......... 473 105 137 565 ......... 290 104 ......... 569 ......... 235 102 ......... 573 ......... 234 101 ......... 577 ......... 229 98 ......... 583 ......... 225 97 ......... 587 ......... 221 95 ......... 592 ......... 217 94 ......... 597 ......... 212 92 ......... 602 ......... 207 91 ......... 611 ......... 201 92 ......... ......... 270 225 4,147 294 62,632 83,823 ......... 296 215 5,997 329 65,662 108,182 465 303 218 2,826 434 64,334 108,395 612 308 218 2,800 366 65,735 112,448 621 305 219 2,800 382 66,914 118,900 630 308 217 2,800 400 52,421 106,307 641 312 214 2,800 418 52,708 108,659 649 317 212 2,800 437 52,989 111,342 657 316 212 2,800 455 53,246 114,193 666 319 210 2,800 475 53,643 117,399 670 324 208 2,800 495 54,159 121,177 670 329 208 2,800 518 54,729 125,486 22,768 22,768 24,650 24,650 16,824 16,824 18,042 18,042 19,429 19,429 20,651 20,651 22,848 22,848 24,364 24,364 26,091 26,091 27,635 27,635 29,092 29,092 30,891 30,891 33,097 38,749 42,368 45,150 46,206 47,932 48,852 49,783 50,933 52,360 54,120 56,147 1,477 1,688 1,831 1,943 2,018 2,067 2,118 2,165 2,223 2,292 2,292 2,292 ......... 1,477 34,574 ......... 1,688 40,437 –347 1,484 43,852 –369 1,574 46,724 –383 1,635 47,841 –393 1,674 49,606 –403 1,715 50,567 –412 1,753 51,536 –424 1,799 52,732 –437 1,855 54,215 –453 1,839 55,959 –471 1,821 57,968 593 543 544 598 598 599 599 599 599 600 600 600 81,287 72,097 55,102 48,588 52,228 59,130 66,905 72,662 77,280 81,780 86,336 90,854 ......... 602 ......... 575 159 632 679 647 665 662 588 677 1,054 694 763 710 707 727 747 744 983 761 782 779 ......... ......... –147 –647 –662 –677 –694 –710 –727 –744 –761 –779 23,911 22,694 22,053 23,258 24,013 25,392 25,955 27,713 27,978 29,372 30,799 31,952 139 11. Governmental Receipts Table 11–4. RECEIPTS BY SOURCE—Continued (In millions of dollars) Source 2017 Actual Estimate 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Legislative proposal, subject to PAYGO ������������������������������������ ......... ......... 478 425 613 636 660 685 712 739 767 799 Fines, penalties, and forfeitures ��������� 20,984 22,266 25,236 20,785 20,193 20,462 20,760 21,084 21,435 21,785 22,035 22,417 Legislative proposal, subject to PAYGO ������������������������������������ ......... ......... 13 14 15 15 15 15 15 15 15 15 Refunds and recoveries ��������������������� –50 –50 –50 –50 –50 –50 –50 –50 –50 –50 –50 –50 Total, Federal funds ������������������������������� 127,327 118,125 104,020 94,297 98,275 106,772 115,898 123,471 128,676 134,988 141,485 147,369 Trust funds: United Mine Workers of America, combined benefit fund ������������������ 81 17 16 14 13 12 11 10 9 8 7 7 Defense cooperation ������������������������� 375 360 531 697 486 535 232 161 164 167 170 174 Inland waterways (Legislative proposal, subject to PAYGO) �������� ......... ......... 178 178 178 178 178 178 178 178 178 178 Fines, penalties, and forfeitures ��������� 1,169 1,177 1,219 1,259 1,300 1,342 1,383 1,424 1,464 1,505 1,545 1,587 Total, Trust funds ����������������������������������� 1,625 1,554 1,944 2,148 1,977 2,067 1,804 1,773 1,815 1,858 1,900 1,946 Total, Miscellaneous receipts ������������������� 128,952 119,679 105,964 96,445 100,252 108,839 117,702 125,244 130,491 136,846 143,385 149,315 Allowance for repeal and replacement of Obamacare �������������������������������������������� ......... ......... –3,452 –8,617 –2,503 –2,829 –2,883 –2,959 –3,192 –3,473 –3,676 –4,092 Total, budget receipts �������������������������������� 3,316,182 3,340,360 3,422,301 3,608,933 3,838,197 4,088,682 4,386,112 4,675,469 4,946,304 5,231,122 5,505,604 5,817,523 On-budget .......................................... (2,465,564) (2,488,081) (2,517,119) (2,667,564) (2,843,773) (3,039,832) (3,283,554) (3,511,386) (3,720,242) (3,935,346) (4,144,666) (4,375,785) Off-budget ������������������������������������������ (850,618) (852,279) (905,182) (941,369) (994,424) (1,048,850) (1,102,558) (1,164,083) (1,226,062) (1,295,776) (1,360,938) (1,441,738) 1 Deposits by States cover the benefit part of the program. Federal unemployment receipts cover administrative costs at both the Federal and State levels. Railroad unemployment receipts cover both the benefits and administrative costs of the program for the railroads. 2 Represents employer and employee contributions to the civil service retirement and disability fund for covered employees of Government-sponsored, privately owned enterprises and the District of Columbia municipal government. 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. The third section describes the user charge proposals in the 2019 Budget. Offsetting collections and offsetting receipts are recorded as offsets to spending so that the budget totals for receipts and (net) outlays reflect the amount of resources allocated by the Government through collective political choice, rather than through the marketplace.1 This practice ensures that the budget totals measure the transactions of the Government with the public, and avoids the double counting that would otherwise result when one account makes a payment to another account and the receiving account then spends the proceeds. Offsetting receipts and collections are recorded in the budget 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 to be credited to expenditure accounts. Otherwise, they are deposited in receipt accounts and called offsetting receipts. There are two sources of offsetting receipts and offsetting collections: from the public and from other budget accounts. Like governmental receipts, offsetting receipts and offsetting collections from the public reduce the deficit or increase the surplus. In contrast, offsetting receipts and offsetting collections resulting from transactions with other budget accounts, called intragovernmental transactions, exactly offset the payments made by these accounts, with no net impact on the deficit or surplus.2 In 2017, offsetting receipts and offsetting collections from the public were $546 billion, while receipts and collections from intragovernmental transactions were $1,098 billion, for a total of $1,645 billion government-wide. 1 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.’’ 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.” As described above, intragovernmental transactions are responsible for the majority of offsetting collections and offsetting receipts, when measured by the magnitude of the dollars collected. Examples of intragovernmental transactions 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 funds, and agency payments to funds for employee health insurance and retirement benefits. Although receipts and collections from 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. Offsetting receipts and collections from the public comprise approximately 33 percent of total offsetting collections and offsetting receipts, when measured by the magnitude of the dollars collected. Most of the funds collected through offsetting collections and offsetting receipts 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. 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). As described above, treating offsetting collections and offsetting receipts as offsets to outlays ensures the budgetary totals represent governmental rather than market activity. A relatively small portion ($19.5 billion in 2017) 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 classi- 141 142 ANALYTICAL PERSPECTIVES fied 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.3 3 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 The final source of offsetting collections and offsetting receipts from the public is gifts. Gifts are voluntary contributions to the Government to support particular purposes or reduce the amount of Government debt held by the public. 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. Table 12–1. OFFSETTING COLLECTIONS AND OFFSETTING RECEIPTS FROM THE PUBLIC (In billions of dollars) Estimate Actual 2017 2018 2019 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 ����������������������������������������������������������������������������������������������������������������������������������������������� Pension Benefit Guaranty Corporation fund ����������������������������������������������������������������������������������������������������������������������������������� Deposit Insurance ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������� All other user charges ��������������������������������������������������������������������������������������������������������������������������������������������������������������������� Subtotal, user charges �������������������������������������������������������������������������������������������������������������������������������������������������������������� 68.7 4.9 15.7 69.4 5.0 16.7 72.7 5.2 17.7 47.0 3.4 10.8 12.4 47.1 210.1 46.4 3.9 11.4 13.7 49.1 215.5 46.7 3.9 12.1 16.0 44.8 219.0 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 �������������������������������������������������������������������������������������������������������������������������������������������������������� 7.5 2.6 36.9 47.0 257.2 9.0 2.8 7.8 19.5 235.1 8.8 2.8 7.7 19.3 238.3 User charges: Medicare premiums ������������������������������������������������������������������������������������������������������������������������������������������������������������������������ Spectrum auction, relocation, and licenses ������������������������������������������������������������������������������������������������������������������������������������ Outer Continental Shelf rents, bonuses, and royalties ������������������������������������������������������������������������������������������������������������������� Immigration fees ����������������������������������������������������������������������������������������������������������������������������������������������������������������������������� All other user charges ��������������������������������������������������������������������������������������������������������������������������������������������������������������������� Subtotal, user charges deposited in receipt accounts �������������������������������������������������������������������������������������������������������������� 89.0 ......... 1.8 4.7 25.2 120.7 100.3 5.0 2.7 5.1 24.3 137.4 107.4 3.8 2.7 5.8 25.5 145.2 Other collections deposited in receipt accounts: Military assistance program sales �������������������������������������������������������������������������������������������������������������������������������������������������� Interest received from credit financing accounts ���������������������������������������������������������������������������������������������������������������������������� Proceeds, GSE equity related transactions ������������������������������������������������������������������������������������������������������������������������������������ Student loan receipt of negative subsidy and downward reestimates �������������������������������������������������������������������������������������������� All other collections deposited in receipt accounts ������������������������������������������������������������������������������������������������������������������������� Subtotal, other collections deposited in receipt accounts ���������������������������������������������������������������������������������������������������������� Subtotal, offsetting receipts ����������������������������������������������������������������������������������������������������������������������������������������������������������������� 31.9 41.6 25.3 19.2 50.5 168.6 289.2 42.0 49.0 6.1 27.1 45.5 169.7 307.1 44.0 51.1 18.7 13.0 42.2 169.1 314.3 Total, offsetting collections and offsetting receipts from the public ������������������������������������������������������������������������������������������������ Total, offsetting collections and offsetting receipts excluding off-budget ������������������������������������������������������������������������������������������������� 546.4 477.5 542.2 472.7 552.6 479.9 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. 330.8 215.6 353.0 189.2 364.2 188.4 Offsetting receipts (deposited in receipt accounts): 143 12. Offsetting Collections and Offsetting Receipts Table 12–2. SUMMARY OF OFFSETTING RECEIPTS BY TYPE (In millions of dollars) Estimate Actual 2017 Receipt Type 2018 2019 2020 2021 2022 2023 Intragovernmental ����������������������������������������������������������������������������� 761,183 774,974 800,348 827,085 869,982 915,124 964,416 Receipts from non-Federal sources: Proprietary ������������������������������������������������������������������������������������ Offsetting governmental ��������������������������������������������������������������� Total, receipts from non-Federal sources ������������������������������� Total Offsetting receipts ���������������������������������������������������������������� 275,509 13,736 289,245 1,050,428 289,350 17,788 307,138 1,082,112 296,491 17,832 314,323 1,114,671 304,332 16,692 321,024 1,148,109 322,676 15,688 338,364 1,208,346 336,562 16,023 352,585 1,267,709 350,249 16,651 366,900 1,331,316 The spending associated with the activities that generate offsetting collections and offsetting receipts from the public is included in total or “gross outlays.” Offsetting collections and offsetting receipts from the public are subtracted from gross outlays to yield “net outlays,” which is the most common measure of outlays cited and generally referred to as simply “outlays.” For 2017, gross outlays were $5,626 billion, or 29.3 percent of GDP and offsetting collections and offsetting receipts were $1,645 billion, or 8.6 percent of GDP, resulting in net outlays of $3,982 billion or 20.8 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 2017, governmental receipts were $3,316 billion, or 17.3 percent of GDP, and the deficit was $665 billion, or 3.5 percent of GDP. 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 receipts is recorded in separate expenditure accounts. As a Table 12–3. GROSS OUTLAYS, USER CHARGES, OTHER OFFSETTING COLLECTIONS AND OFFSETTING RECEIPTS FROM THE PUBLIC, AND NET OUTLAYS (In billions of dollars) Actual 2017 Gross outlays to the public ������������������������������������������������ Estimate 2018 4,528.0 4,715.2 2019 4,959.3 Offsetting collections and offsetting receipts from the public: User charges 1 �������������������������������������������������������������� 330.8 353.0 364.2 Other ������������������������������������������������������������������������������ 215.6 189.2 188.4 Subtotal, offsetting collections and offsetting receipts from the public ���������������������������������������������������������������������� 546.4 542.2 552.6 Net outlays ������������������������������������������������������������������������� 3,981.6 4,173.0 4,406.7 1 $5.2 billion of the total user charges for 2017 were classified as governmental receipts, and the remainder were classified as offsetting collections and offsetting receipts. $5.5 billion and $5.7 billion of the total user charges for 2018 and 2019 are classified as governmental receipts, respectively. 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. 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 2019, the table shows that total offsetting collections and offsetting receipts from the public are estimated to be $552.6 billion or 2.6 percent of GDP. Of these, an estimated $238.3 billion are offsetting collections and an estimated $314.3 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 12–3 provide further detail about offsetting receipts, including both offsetting receipts from the public (as summarized in Table 12–1) and intragovernmental transactions. Table 12–5, formerly printed in this chapter, and Table 12–6. Offsetting Collections and 144 ANALYTICAL PERSPECTIVES Offsetting Receipts, Detail—FY 2019 Budget, which is a complete listing by account, are available on the Internet at https://www.whitehouse.gov/omb/analytical-perspectives/ and on the Budget CD-ROM. In total, offsetting receipts are estimated to be $1,114.6 billion in 2019; $800.3 billion are from intragovernmental transactions and $314.3 billion are from the public. The offsetting receipts from the public consist of proprietary receipts ($296.5 billion), which are those resulting from businesslike transactions such as the sale of goods or services, and offsetting governmental receipts, which, as discussed above, are derived from the exercise of the Government’s sovereign power and, absent a specification in law or a long-standing practice, would be classified on the receipts side of the budget ($17.8 billion). II. USER CHARGES User charges or user fees4 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 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 2019, only an estimated 1.4 percent of user charges are classified as governmental receipts. As summarized in Table 12–3, total user charges for 2019 are estimated to be $369.9 billion with $364.2 billion being offsetting collections or offsetting receipts, and accounting for more than half of all offsetting collections and offsetting receipts from the public. 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.5 What is the purpose of user charges? User charges are intended to improve the efficiency and equity of financing certain Government activities. Charging users for activities that benefit a relatively limited number of people reduces the burden on the general taxpayer, as does charging regulated parties for regulatory activities in a particular sector. User charges that are set to cover the costs of production of goods and services can result in more efficient resource allocation within the economy. When buyers are charged the cost of providing goods and services, they make better cost-benefit calculations regarding the size of their purchase, which in turn signals to the Government how much of the goods or services it should provide. Prices in private, competitive markets serve the same purposes. User charges for goods and services that do not have special social or distributional benefits may also improve equity or fairness by requiring those who benefit from an activity to pay for it and by not requiring those who do not benefit from an activity to pay for it. When should the Government impose a charge? Discussions of whether to finance spending with a tax or a fee often focus on whether the benefits of the activity accrue to the public in general or to a limited group of people. In general, if the benefits of spending accrue broadly to the public or include special social or distributional benefits, then the program should be financed by taxes paid by the public. In contrast, if the benefits accrue to a limited number of private individuals or organizations 4 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. 5 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. 145 12. Offsetting Collections and Offsetting Receipts and do not include special social or distributional benefits, then the program should be financed by charges paid by the private beneficiaries. For Federal programs where the benefits are entirely public or entirely private, applying this principle can be relatively easy. For example, the benefits from national defense accrue to the public in general, and according to this principle should be (and are) financed by taxes. In contrast, the benefits of electricity sold by the Tennessee Valley Authority accrue primarily to those using the electricity, and should be (and predominantly are) financed by user charges. In many cases, however, an activity has benefits that accrue to both public and private groups, and it may be difficult to identify how much of the benefits accrue to each. Because of this, it can be difficult to know how much of the program should be financed by taxes and how much by fees. For example, the benefits from recreation areas are mixed. Fees for visitors to these areas are appropriate because the visitors benefit directly from their visit, but the public in general also benefits because these areas protect the Nation’s natural and historic heritage now and for posterity. For this reason, visitor recreation fees generally cover only part of the cost to the Government of maintaining the recreation property. Where a fee may be appropriate to finance all or part of an activity, the extent to which a fee can be easily administered must be considered. For example, if fees are charged for entering or using Government-owned land then there must be clear points of entry onto the land and attendants patrolling and monitoring the land’s use. What amount should be charged? When the Government is acting in its capacity as sovereign and where user charges are appropriate, such as for some regulatory activities, current policy supports setting fees equal to the full cost to the Government, including both direct and indirect costs. When the Government is not acting in its capacity as sovereign and engages in a purely business-type transaction (such as leasing or selling goods, services, or resources), market price is generally the basis for establishing the fee.6 If the Government is engaged in a purely business-type transaction and economic resources are allocated efficiently, then this market price should be equal to or greater than the Government’s full cost of production. 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 $5.2 billion in 2019 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 $359.0 billion in 2019, 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 Policies for setting user charges are promulgated in OMB Circular No. A–25: “User Charges’’ (July 8, 1993). III. USER CHARGE PROPOSALS As shown in Table 12–1, an estimated $219.0 billion of user charges for 2019 will be credited directly to expenditure accounts and will generally be available for expenditure when they are collected, without further action by the Congress. An estimated $145.2 billion of user charges for 2019 will be deposited in offsetting receipt accounts and will be available to be spent only according to the legislation that established the charges. As shown in Table 12–4, the Administration is proposing new or increased user charges that would, in the aggregate, increase collections by an estimated $2.4 billion in 2019 and an average of $11.8 billion per year from 2020 through 2028. These estimates reflect only the amounts to be collected; they do not include related spending. Each proposal is classified as either discretionary or mandatory, as those terms are defined in the Balanced Budget and Emergency Deficit Control Act of 1985, as amended. “Discretionary’’ refers to user charges controlled through annual appropriations acts and generally under the jurisdiction of the appropriations committees in the Congress. “Mandatory’’ refers to user charges controlled by permanent laws and under the jurisdiction of the authorizing committees. These and other terms are discussed further in this volume in Chapter 8, “Budget Concepts.’’ A. Discretionary User Charge Proposals 1. Offsetting collections Department of Agriculture Establish Federal Grain Inspection Service fee. The Administration proposes establishing a new discretionary user fee to recover the full costs for programs under the Federal Grain Inspection Service (FGIS). Entities that receive marketing benefits from FGIS services should pay for the costs of these programs. For example, grain standards benefit and are used almost solely for the grain industry, and because they facilitate the orderly marketing of grain products, it is industry that should bear the cost. Establish Agricultural Quarantine Inspection fee. The Administration proposes establishing a new discretionary user fee for the Animal and Plant Health Inspection Service (APHIS) Agricultural Quarantine Inspection 146 (AQI) pre-departure program. The fees would recover the full costs of APHIS’ inspections of passengers and cargo traveling to the continental United States from Hawaii and Puerto Rico to prevent the introduction of non-native agricultural pests and diseases into the mainland. Department of Health and Human Services Food and Drug Administration (FDA): Reauthorize Animal Drug User Fee Act. The Budget proposes to reauthorize the Animal Drug User Fee Act (ADUFA), which expires on September 30, 2018. ADUFA fees support FDA’s premarket review of new animal drugs. FDA: Reauthorize Animal Generic Drug User Fee Act. The Budget reauthorizes the Animal Generic Drug User Fee Act (AGDUFA), which expires on September 30, 2018. AGDUFA fees support FDA’s premarket review of generic animal drugs. FDA: Increase export certification user fee cap. Firms exporting products from the United States are often asked by foreign customers or foreign governments to supply a “certificate” for products regulated by the FDA to document the product’s regulatory or marketing status. The proposal increases the maximum user fee cap from $175 per export certification to $600 to meet FDA’s true cost of issuing export certificates and to ensure better and faster service for American companies that request the service. FDA: Establish over-the-counter monograph user fee. FDA currently regulates over-the-counter (OTC) products through a three-phase public rulemaking process to establish standards or drug monographs for an OTC therapeutic drug class. The proposal would provide additional resources and authorities to FDA to bring new OTC products into the market faster so that Americans will have greater access to a wider range of safe and effective OTC products. Centers for Medicare and Medicaid Services (CMS): Establish survey and certification revisit fee. The Budget proposes a revisit user fee to provide CMS with a greater ability to revisit poorly performing health care facilities and build greater accountability by creating an incentive for facilities to correct deficiencies and ensure quality of care. Health Resources and Services Administration: 340B Program user fee: To improve the administration and oversight of the 340B Drug Discount Program, the Budget includes a new user charge to those covered entities participating in the program. Department of Homeland Security Transportation Security Administration (TSA): Increase aviation passenger security fee. Pursuant to the Bipartisan Budget Act (BBA) of 2013, the passenger security fee is $5.60 per one-way trip. The BBA also allocated a portion of the fee revenue to deficit reduction. The 2019 Budget proposes to increase the passenger security fee from $5.60 to $6.60 in FY 2019, and from $6.60 to $8.25 starting in FY 2020 in order to recover the full cost of aviation security from the traveling public. This proposal will increase offsetting collections by an estimated $20.14 billion between 2019 and 2028. ANALYTICAL PERSPECTIVES Department of Housing and Urban Development Federal Housing Administration (FHA): Establish Information technology (IT) fee. The Budget requests authority to charge lenders using FHA mortgage insurance an IT fee, which would generate, through 2022, an estimated $20 million annually in offsetting collections. These additional collections will offset the cost of modernizing FHA’s aging IT systems. Department of State Establish Diplomacy Center rental fee. This new user fee will enable the Department of State to provide support, on a cost-recovery basis, to outside organizations for programs and conference activities held at the U.S. Diplomacy Center. Department of Transportation Federal Railroad Administration (FRA): Establish Railroad Safety Inspection fee. The FRA establishes and enforces safety standards for U.S. railroads. FRA’s rail safety inspectors work in the field and oversee railroads’ operating and management practices. The Administration is proposing that, starting in 2019, the railroads contribute to partially cover the cost of FRA’s field inspections because railroads benefit directly from Government efforts to maintain high safety standards. The proposed fee would be similar to existing charges collected from other industries regulated by Federal safety programs. Department of the Treasury Subject Financial Research Fund (FRF) fee to annual appropriations action. Expenses of the Financial Stability Oversight Council (FSOC) and the Office of Financial Research (OFR) are paid through the FRF, which is funded by assessments on certain bank holding companies with total consolidated assets of $50 billion or greater and nonbank financial companies supervised by the Federal Reserve Board of Governors. The FRF was established by the Dodd-Frank Act and is managed by the Department of the Treasury. To improve their effectiveness and ensure greater accountability, the Budget proposes to subject activities of the FSOC and OFR to the appropriations process. In so doing, currently authorized assessments would, beginning in 2020, be reclassified as discretionary offsetting collections and set at a level determined by the Congress. The Budget also reflects continued reductions in OFR spending commensurate with the renewed fiscal discipline being applied across the Federal Government. Environmental Protection Agency (EPA) Establish ENERGY STAR fee. The Administration proposes to collect fees to fund EPA’s administration of the ENERGY STAR program. Product manufacturers who seek to label their products under the program would pay a modest fee that would recover the full costs of EPA’s work to set voluntary energy efficiency standards and to process applications. Fee collections will begin after EPA undertakes a rulemaking process to determine which products would be covered by fees and the level of fees, 147 12. Offsetting Collections and Offsetting Receipts and to ensure that a fee system would not discourage manufacturers from participating in the program or result in a loss of environmental benefits. Establish oil and chemical facility compliance assistance fees. The Administration proposes to provide an optional service to oil and chemical facilities to help these facilities identify actions to comply with certain environmental laws and regulations. Upon payment of a fee, EPA would conduct an on-site walk-through of a facility and provide recommendations and best practices regarding how to comply with certain regulations under the Clean Air Act and the Federal Water Pollution Control Act. This service would initially be available to facilities that are responsible for preparing and implementing a Risk Management Plan, Spill Prevention Control and Countermeasure Plan, and/or Facility Response Plan. Facilities choosing to utilize this service would pay a modest fee that would recover the full costs of EPA’s work in providing this compliance assistance service to that facility. Fee collections and program implementation will begin after EPA issues procedures for applying for the service and the collection and use of such fees. B. Mandatory User Charge Proposals 1. Offsetting collections Department of Labor Establish CFTC user fee. The Budget proposes an amendment to the Commodity Exchange Act authorizing the CFTC to collect user fees to fund the Commission’s activities, like other Federal financial and banking regulators. Fee funding would shift the costs of services provided by the CFTC from the general taxpayer to the primary beneficiaries of CFTC oversight. Contingent upon enactment of legislation authorizing the CFTC to collect fees, the Administration proposes that collections begin in 2019 to offset a portion of the CFTC’s annual appropriation. Improve Pension Benefit Guaranty Corporation (PBGC) solvency. PBGC acts as a backstop to protect pension payments for workers whose companies have failed. Currently, PBGC’s pension insurance programs are underfunded, and its liabilities far exceed its assets. PBGC receives no taxpayer funds and its premiums are currently much lower than what a private financial institution would charge for insuring the same risk. PBGC’s multiemployer program, which insures the pension benefits of 10 million workers, is at risk of insolvency by 2025. As an important step to protect the pensions of these hardworking Americans, the Budget proposes to create a variable-rate premium (VRP) and exit premium in the multiemployer program. A multiemployer VRP would require plans to pay additional premiums based on their level of underfunding, up to a cap, as is done in the single-employer program. An exit premium, equal to ten times the VRP cap, would be assessed on employers that withdraw from the system. PBGC would have limited authority to design waivers for some or all of the newly assessed premiums if there is a substantial risk that the payment of premiums will accelerate plan insolvency, resulting in earlier financial assistance to the plan. This proposal would raise approximately $16 billion in premiums over the ten-year window. At this level of receipts, the program is more likely than not to remain solvent over the next 20 years, helping to ensure that there is a safety net available to workers whose multiemployer plans fail. 2. Offsetting receipts 2. Offsetting receipts Department of State Department of Agriculture Western Hemisphere Travel Initiative surcharge extension. The Administration proposes to permanently extend the authority for the Department of State to collect the Western Hemisphere Travel Initiative surcharge. The surcharge was initially enacted by the Passport Services Enhancement Act of 2005 (P.L. 109–167) to cover the Department’s costs of meeting increased demand for passports, which resulted from the implementation of the Western Hemisphere Travel Initiative. Border Crossing Card (BCC) fee increase. The Budget includes a proposal to allow the fee charged for BCC minor applicants to be set administratively, rather than statutorily, at one-half the fee charged for processing an adult border crossing card. Administrative fee setting will allow the fee to better reflect the associated cost of service, consistent with other fees charged for consular services. As a result of this change, annual BCC fee collections beginning in 2019 are projected to increase by $13 million (from $3 million to $16 million). Establish Food Safety and Inspection Service (FSIS) user fee. The Administration proposes establishing a Food Safety and Inspection Service (FSIS) user fee to cover the costs of all domestic inspection activity and import re-inspection and most of the central operations costs for Federal, State, and international inspection programs for meat, poultry, and eggs. FSIS inspections benefit the meat, poultry, and egg industries. FSIS personnel are continuously present for all egg processing and domestic slaughter operations, inspect each livestock and poultry carcass, and inspect operations at meat and poultry processing establishments at least once per shift. The inspections cover microbiological and chemical testing as well as cleanliness and cosmetic product defects. The “inspected by USDA” stamp on meat and poultry labels increases consumer confidence in the product which may increase sales. The user fee would not cover Federal functions such as investigation, enforcement, risk analysis, and emergency response. The Administration estimates this fee would increase the cost of meat, poultry, and eggs for consumers by less than one cent per pound. Commodity Futures Trading Commission (CFTC) 148 Establish Packers and Stockyards Program user fee. The Administration proposes establishing a Packers and Stockyards user fee. This would recover the costs of the Packers and Stockyards Program (P&SP) through a licensing fee. The P&SP benefits the livestock, meat, and poultry industries by promoting fair business practices and competitive market environments. Establish Animal and Plant Health Inspection Service (APHIS) user fee. The Administration proposes establishing three new Animal and Plant Health Inspection Service (APHIS) mandatory user fees to offset costs related to 1) enforcement of the Animal Welfare Act, 2) regulation of biotechnology derived products, and 3) regulation of veterinary biologics products. Establish Agricultural Marketing Service (AMS) user fee. The Administration proposes establishing an Agricultural Marketing Service (AMS) user fee to cover the full costs of the agency’s oversight of Marketing Orders and Agreements. Marketing Orders and Agreements are initiated by industry to help provide stable markets, and are tailored to the specific industry’s needs. The industries that substantially benefit from Marketing Orders and Agreements should pay for the oversight of these programs. Department of Commerce Lease Shared Secondary Licenses. To promote efficient use of the electromagnetic spectrum, the Administration proposes to require the leasing of Federal spectrum through secondary licenses. Under this proposal, the National Telecommunications and Information Administration (NTIA) would be granted authority to lease access to Federal spectrum for commercial use on a non-interference basis with Federal primary users. Working with other Federal agencies, NTIA would negotiate sharing arrangements on behalf of the Federal Government and would seek to increase the efficiency of spectrum when possible without causing harmful interference to Federal users authorized to operate in the negotiated bands. In addition to Federal spectrum auctions, leases will provide another option for maximizing the economic value of this scarce spectrum resource. Significant resources will be required by NTIA and other Federal agencies to negotiate and manage these spectrum leases. The cost of administering the program will be offset by a portion of the lease revenue. Therefore the proposal is conservatively estimated to generate approximately $700 million in net deficit reduction for taxpayers. Department of Energy Reform Power Marketing Administration (PMA) power rates. The PMAs sell wholesale electricity generated at dams owned and operated by the Army Corps of Engineers or the Bureau of Reclamation. The Flood Control Act of 1944 requires the PMAs to generate revenues to recover all costs, including annual operating and maintenance costs and the taxpayers’ investment in the power portions of dams and in transmission lines. The PMAs recover these costs by establishing rates, charged to utility customers, based on the cost of providing this electricity. These rates are limited to recovering costs and there is limited regu- ANALYTICAL PERSPECTIVES latory or state regulatory oversight to ensure these rates are efficient and justified. Current law permits the PMAs to defer repayment of prior capital investment by the taxpayers and creates economic inefficiencies. The vast majority of the Nation’s electricity needs are met through for-profit Investor Owned Utilities, which are subject to state and/or Federal regulatory oversight in the establishment of rates. This proposal would change the statutory requirement that the PMA rates be based on recovering costs to a rate structure that could allow for faster recoupment of taxpayer investment and consideration of rates charged by comparable utilities. Department of Health and Human Services Require clearinghouses and billing agents acting on behalf of Medicare providers and suppliers to enroll in the program. The Budget proposes to establish an enrollment and registration process for clearinghouses and billing agents who act on behalf of Medicare providers and suppliers, introducing an application fee to be consistent with program integrity safeguards in place for institutional and individual providers. Department of Homeland Security Extend expiring Customs and Border Protection (CBP) fees. The Budget proposes to extend the Merchandise Processing Fee beyond its current expiration date of January 14, 2026 to January 14, 2031. It also proposes to extend COBRA fees (statutorily set under the Consolidated Omnibus Budget Reconciliation Act of 1985) and the Express Consignment Courier Facilities (ECCF) fee created under the Trade Act of 2002 beyond their current expiration date of September 30, 2025 to September 30, 2030. Increase customs user fees. The Budget proposes to increase COBRA and ECCF fees created under the Trade Act of 2002. COBRA created a series of user fees for air and sea passengers, commercial trucks, railroad cars, private aircraft and vessels, commercial vessels, dutiable mail packages, broker permits, barges and bulk carriers from Canada and Mexico, cruise vessel passengers, and ferry vessel passengers. This proposal would increase the customs inspection fee by $2.10 for certain air and sea passengers and increase other COBRA fees by proportional amounts. The additional revenue raised from increasing the user fees will allow CBP to recover more costs associated with customs related inspections, and reduce waiting times by helping to support the hiring of 840 new CBP Officers. This fee was last adjusted in April 2007, yet international travel volumes have grown since that time and CBP costs for customs inspections continue to increase. As a result, CBP relies on its annually appropriated funds to support the difference between fee collections and the costs of providing customs inspectional services. The Government Accountability Office’s most recent review of these COBRA user fees (July 2016) identified that CBP collected $686 million in COBRA/ECCF fees compared to $870 million in operating costs, exhibiting a recovery rate of 78 percent.7 With the fee increase, 7 GAO–16–443, Enhanced Oversight Could Better Ensure Programs 149 12. Offsetting Collections and Offsetting Receipts CBP would potentially collect the same amount it incurs in COBRA/ECCF eligible costs in FY 2019. The proposed legislation will close the gap between costs and collections, enabling CBP to provide improved inspectional services to those who pay this user fee. Increase immigration user fees. This proposal will increase the Immigration Inspection User Fee (IUF) by $2 and eliminate a partial fee exemption for sea passengers arriving from the United States, Canada, Mexico, or adjacent islands. These two adjustments will result in a total fee of $9 for all passengers, regardless of mode of transportation or point of departure. This fee is paid by passengers and is used to recover some of the costs related to determining the admissibility of passengers entering the U.S. Specifically, the fees collected support immigration inspections, the maintenance and updating of systems to track criminal and illegal aliens in areas with high apprehensions, asylum hearings, and the repair and maintenance of equipment. This fee was last adjusted in November 2001, yet international travel volumes have grown significantly since that time and CBP costs for immigration inspections continue to increase. As a result, CBP relies on annually appropriated funds to support the difference between fee collections and the costs of providing immigration inspection services. The Government Accountability Office’s most recent review of IUF (July 2016) identified that CBP collected $728 million in IUF fees compared to $1,003 million in operating costs, exhibiting a recovery rate of 73 percent.8 To prevent this gap from widening again in the future, the proposal will authorize CBP to adjust the fee without further statutory changes. CBP estimates raising the fee and lifting the exemption could offset the cost of an estimated 1,230 CBP Officers. Department of the Interior Reauthorize the Federal Land Transaction Facilitation Act (FLTFA). The Budget proposes to reauthorize the FLTFA, which expired in July 2011, and allow lands identified as suitable for disposal in recent land use plans to be sold using the FLTFA authority. The FLTFA sales revenues would continue to be used to fund the acquisition of environmentally sensitive lands and to cover BLM’s administrative costs associated with conducting sales. Department of Labor Expand Foreign Labor Certification fees. The Budget proposes authorizing legislation to establish and retain fees to cover the costs of operating the foreign labor certification programs, which ensure that employers proposing to bring in immigrant workers have checked to ensure that American workers cannot meet their needs and that immigrant workers are being compensated appropriately and not disadvantaging American workers. The ability to charge fees for these programs would give the Department Receiving Fees and Other Collections Use Funds Efficiently, http:// www.gao.gov/products/GAO–16–443 8 GAO–16–443, Enhanced Oversight Could Better Ensure Programs Receiving Fees and Other Collections Use Funds Efficiently, http:// www.gao.gov/products/GAO–16–443 of Labor (DOL) a more reliable, workload-based source of funding for this function (as the Department of Homeland Security has), and would ultimately eliminate the need for discretionary appropriations. The proposal includes the following: 1) charge employer fees for its prevailing wage determinations; 2) charge employer fees for its permanent labor certification program; 3) charge employer fees for H–2B non-agricultural workers; and 4) retain and adjust the H–2A agricultural worker application fees currently deposited into the General Fund. The fee levels would be set via regulation to ensure that the amounts are subject to review. Given the DOL Inspector General’s important role in investigating fraud and abuse, the proposal also includes a mechanism to provide funding for the Inspector General’s work to oversee foreign labor certification programs. Department of the Treasury Increase and extend guarantee fee charged by GSEs. The Temporary Payroll Tax Cut Continuation Act of 2011 (Public Law 112–78) required that Fannie Mae and Freddie Mac increase their credit guarantee fees on single-family mortgage acquisitions between 2012 and 2021 by an average of at least 0.10 percentage points. Revenues generated by this fee increase are remitted directly to the Treasury for deficit reduction. The Budget proposes to increase this fee by 0.10 percentage points for single-family mortgage acquisitions from 2019 through 2021, and then extend the 0.20 percentage point fee for acquisitions through 2023. Allow District of Columbia Courts to retain bar exam and application fees. Under the 1997 National Capital Revitalization and Self-Government Improvement Act of 1997, all fees collected by the DC courts are deposited into the DC Crime Victims Compensation Fund. Among the various fees collected by the DC courts are bar examination and application fees. Since adopting the Uniform Bar Examination in 2016, DC has seen the number of bar examinees increase by 214%. However, because the associated fees are deposited into the DC Crime Victims Compensation Fund, there has been no correlated increase in the resources available to process the increased number of applications. The proposal would allow the DC courts to retain the bar examination and application fees as offsetting receipts to pay for the processing of exams and applications. Federal Communications Commission (FCC) Enact Spectrum License User Fee. To promote efficient use of the electromagnetic spectrum, the Administration proposes to provide the FCC with new authority to use other economic mechanisms, such as fees, as a spectrum management tool. The FCC would be authorized to set charges for unauctioned spectrum licenses based on spectrum-management principles. Fees would be phased in over time as part of an ongoing rulemaking process to determine the appropriate application and level for fees. 150 ANALYTICAL PERSPECTIVES C. User Charge Proposals that are Governmental Receipts Department of Homeland Security CBP: Establish user fee for Electronic Visa Update System. The Budget proposes to establish a user fee for the Electronic Visa Update System (EVUS), a new 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 the existing visa application process 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 BrandUSA; make revenue available to CBP. 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 redirects 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. Make full Electronic System for Travel Authorization (ESTA) receipts available to CBP. The Budget proposes to permanently extend the ESTA receipts and eliminate the $100 million limitation on ESTA receipt transfers from the General Fund, and provide all collections made to CBP’s ESTA account. CBP intends to use these resources to support traveler processing, including entry and exit process re-engineering and modernization, staffing and overtime processing of arrivals and departures from the United States, and any other CBP activities related to the processing of passengers including, but not limited to, activities of CBP’s National Targeting Center. Department of the Treasury Subject Financial Research Fund (FRF) fee to annual appropriations action. As explained above in the section of discretionary use charge proposals, the Budget proposes to subject activities of the Financial Stability Oversight Council (FSOC) and the Office of Financial Research (OFR) to the appropriations process in order to improve their effectiveness and ensure greater accountability. As part of the proposal, currently authorized assessments would be reclassified as discretionary offsetting collections, resulting in a reduction in governmental receipts and an increase in discretionary offsetting collections. Corps of Engineers—Civil Works Reform inland waterways funding. The Administration proposes to reform the laws governing the Inland Waterways Trust Fund, including establishing an annual fee to increase the amount paid by commercial navigation users of the inland waterways. In 1986, 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, as well as 10 percent of the operation and maintenance cost, in these waterways to support economic growth. The current excise tax on diesel fuel used in inland waterways commerce will not produce the revenue needed to cover these costs. Reduce harbor maintenance tax. The Administration proposes to reduce the Harbor Maintenance Tax rate to better align estimated annual receipts from this tax with recent appropriation levels for eligible expenditures from the Harbor Maintenance Trust Fund. Reducing this tax would provide greater flexibility for individual ports to establish appropriate fee structures for services they provide, in order to help finance their capital and operating expenses on their own. 151 12. Offsetting Collections and Offsetting Receipts Table 12–4. USER CHARGE PROPOSALS IN THE FY 2019 BUDGET 1 (Estimated collections in millions of dollars) 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2019– 2023 2028 2019– 2028 OFFSETTING COLLECTIONS AND OFFSETTING RECEIPTS DISCRETIONARY: Offsetting collections Department of Agriculture Establish Federal Grain Inspection Service fee ������������������������������������� ......... Establish Agricultural Quarantine Inspection fee ����������������������������������� ......... 20 29 20 30 20 31 20 31 20 32 20 33 20 34 20 35 20 35 20 36 100 153 200 326 ......... ......... ......... ......... 25 13 4 22 26 14 4 22 28 14 4 25 29 15 4 31 31 16 5 34 32 17 5 36 34 18 5 37 35 18 5 39 37 19 5 41 39 20 5 43 139 72 21 134 316 164 46 330 ......... 14 17 28 29 29 30 31 31 32 32 117 273 ......... 16 16 16 16 16 16 16 16 16 16 80 160 Department of Homeland Security Transportation Security Administration: Increase aviation passenger security fee ��������������������������������������������������������������������������������������� ......... 557 2,008 2,048 2,088 2,130 2,173 2,216 2,261 2,306 2,353 8,831 20,140 Department of Housing and Urban Development Federal Housing Administration: Establish Information Technology (IT) fee ����������������������������������������������������������������������������������������������������� ......... 20 20 20 20 ......... ......... ......... ......... ......... ......... 80 80 Department of State Establish Diplomacy Center Rental Fee ������������������������������������������������ ......... * * * * * * * * * * * * Department of Transportation Federal Railroad Administration: Establish Railroad Safety Inspection fee ����������������������������������������������������������������������������������������������������� ......... 50 50 50 50 50 50 50 50 50 50 250 500 Department of the Treasury Subject Financial Research Fund fee to annual appropriations action�� ......... ......... 68 68 68 68 68 68 68 68 68 272 612 Environmental Protection Agency Establish ENERGY STAR fee ���������������������������������������������������������������� ......... Establish chemical facility compliance assistance fee ��������������������������� ......... Establish oil facility compliance assistance fee ������������������������������������� ......... 46 20 10 46 20 10 46 20 10 46 20 10 46 20 10 46 20 10 46 20 10 46 20 10 46 20 10 46 20 10 230 100 50 460 200 100 Commodity Futures Trading Commission (CFTC) Establish CFTC user fee ����������������������������������������������������������������������� ......... 32 32 32 32 32 32 32 32 32 32 160 320 Department of State Extend Western Hemisphere Travel Initiative surcharge ����������������������� ......... 465 Increase Border Crossing Card Fee ������������������������������������������������������ ......... 13 Subtotal, discretionary user charge proposals ���������������������������� ......... 1,356 465 13 2,881 465 13 2,938 465 13 2,987 465 13 3,017 465 13 3,066 465 13 3,115 465 13 3,164 465 13 3,215 465 13 3,268 2,325 65 13,179 4,650 130 29,007 Department of Labor Improve Pension Benefit Guaranty Corporation solvency���������������������� ......... ......... 1,583 1,670 1,729 1,788 1,821 1,057 2,635 1,875 1,894 6,769 16,051 Department of Health and Human Services Food and Drug Administration (FDA): Reauthorize Animal Drug User Fee Act ��������������������������������������������������������������������������������������������� FDA: Reauthorize Animal Generic Drug User Fee Act �������������������������� FDA: Increase export certification user fee cap ������������������������������������� FDA: Establish over-the-counter monograph user fee �������������������������� Centers for Medicare and Medicaid Services: Establish survey and certification revisit fee ����������������������������������������������������������������������� Health Resources and Services Administration: Establish 340B Program user fee ������������������������������������������������������������������������������ Offsetting receipts MANDATORY: Offsetting collections 152 ANALYTICAL PERSPECTIVES Table 12–4. USER CHARGE PROPOSALS IN THE FY 2019 BUDGET 1 —Continued (Estimated collections in millions of dollars) 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2019– 2023 2028 2019– 2028 Offsetting receipts Department of Agriculture Establish Food Safety and Inspection Service user fee������������������������� Establish Packers and Stockyards Program user fee ���������������������������� Establish Animal and Plant Health Inspection Service user fee ������������ Establish Agricultural Marketing Service (AMS) user fee ��������������������� ......... ......... ......... 23 ......... 23 ......... 20 660 23 23 20 660 23 23 20 660 23 23 20 660 23 23 20 660 23 23 20 660 23 23 20 660 23 23 20 660 23 23 20 660 23 23 20 2,640 115 115 100 5,940 230 230 200 Department of Commerce Lease Shared Secondary Licenses ������������������������������������������������������� ......... 50 55 55 60 65 70 70 80 80 85 285 670 Department of Energy Reform Power Marketing Administration power rates ���������������������������� ......... 162 169 173 182 188 192 199 206 211 217 874 1,899 Department of Health and Human Services Require clearinghouses and billing agents acting on behalf of Medicare providers and suppliers to enroll in the program ��������������� ......... 15 15 16 16 16 17 17 17 18 18 78 165 Department of Homeland Security Extend expiring Customs and Border Protection (CBP) fees ���������������� ......... ......... Increase customs user fees ������������������������������������������������������������������� ......... 312 Increase immigration user fees ������������������������������������������������������������� ......... 316 ......... 350 328 ......... 368 375 ......... 388 387 ......... 410 478 ......... 432 494 ......... 4,159 456 480 593 614 5,334 506 679 5,601 507 702 ......... 1,829 1,884 15,095 4,210 4,966 Department of the Interior Reauthorize the Federal Land Transaction Facilitation Act �������������������� ......... 5 10 19 29 29 29 29 29 29 29 92 237 Department of Labor Expand Foreign Labor Certification fees ����������������������������������������������� ......... 1 37 76 79 83 88 92 97 102 108 276 763 212 967 1699 2350 3475 4258 4034 3398 2858 2401 8,703 25,652 * * * * * * * * * * 2 4 Federal Communications Commission Enact Spectrum License User Fee ������������������������������������������������������ ......... 50 Subtotal, mandatory user charge proposals �������������������������������� ......... 1,189 Subtotal, user charge proposals that are offsetting collections and offsetting receipts ����������������������������������������������������������������������� ......... 2,545 150 4,390 300 5,477 450 6,396 500 7,758 500 8,627 500 500 500 500 7,773 12,941 12,918 12,788 1,450 25,210 3,950 80,257 7,271 8,415 9,383 10,775 11,693 10,888 16,105 16,133 16,056 28 ......... 31 ......... 34 ......... 38 ......... 42 ......... 46 ......... 52 ......... 57 ......... 64 ......... 156 ......... 417 ......... ......... 171 177 183 189 196 202 209 216 531 1,543 Department of the Treasury Subject Financial Research Fund fee to annual appropriations action����� ......... ......... –68 –68 –68 –68 –68 –68 –68 –68 –68 –272 –612 Corps of Engineers - Civil Works Reform inland waterways funding ���������������������������������������������������������� ......... 178 Reduce harbor maintenance fee ����������������������������������������������������������� ......... –347 Subtotal, governmental receipts user charge proposals ����������������� ......... –144 178 –369 –231 178 –383 –71 178 –393 –72 178 –403 –72 178 –412 –71 178 –424 –72 178 –437 –73 178 –453 –77 178 –471 –81 890 –1,895 –590 1,780 –4,092 –964 7,040 8,344 9,311 10,703 11,622 10,816 16,032 16,056 15,975 Department of the Treasury Increase and extend guarantee fee charged by GSEs �������������������������� ......... Allow District of Columbia Courts to retain bar exam and application fees ��������������������������������������������������������������������������������������������������� ......... 38,389 109,264 GOVERNMENTAL RECEIPTS Department of Homeland Security CBP: Establish user fee for Electronic Visa Update System ������������������ ......... 25 Eliminate BrandUSA; make revenue available to CBP �������������������������� ......... ......... Make full Electronic System for Travel Authorization receipts available to CBP ���������������������������������������������������������������������������������������������� ......... ......... Total, user charge proposals ������������������������������������������������������������������ ......... 2,401 1 A positive sign indicates an increase in collections. * $500,000 or less 37,799 108,300 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 2017–2027 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. 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, 2017 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 2017 or later. The total revenue effects for tax expenditures for fiscal years 2017–2027 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 2018–2027 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 provision can increase or decrease the tax revenues associated with other provisions. For example, even if behavior 153 154 ANALYTICAL PERSPECTIVES 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 2017 which cause the deferrals or other long-term revenue effects. For instance, a pension contribution in 2017 would cause a deferral of tax payments on wages in 2017 and on pension fund earnings on this contribution (e.g., interest) in later years. In some future year, however, the 2017 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 155 13. Tax Expenditures 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: 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 treat2 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. ing 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. As illustrated in the Fiscal year 2004 Tax expenditure Budget, provisions defined as tax expenditures in this Budget would be different if a pure comprehensive income tax were employed as the baseline. Similarly, they would also look quite different if a consumption tax were employed; the current income tax can be considered as a hybrid tax with income and consumption tax features. Comprehensive income, also called Haig-Simons income, is the real, inflation adjusted, accretions to wealth, accrued or realized. Using a comprehensive income tax baseline, the tax base can be larger than that considered here. A broad-based consumption tax is a combination of an income tax plus a deduction for net saving, or just consumption plus the change in net worth. Under this baseline, some of the current tax provisions would no longer be considered as tax expenditures (e.g. retirement savings). Because of the dramatic changes in the tax system introduced by the Tax Cuts and Jobs Act of 2017, the Fiscal Year 2020 Budget will update the earlier analysis of 2004 using the new law with its modified tax base and new tax rate structure. 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, 2017. The estimates provided below do not reflect the effect of changes introduced by the Tax Cuts and Jobs Act (TCJA), signed into law on December 22, 2017. Given its late date of enactment, these effects will be reflected in the estimates reported in the FY 2020 Budget. Under the Act, a number of provisions were scaled back, expanded, and repealed, or newly introduced. Provisions otherwise untouched directly by the Act were also affected by the modification of the individual tax rate schedule and reduction of corporate tax rates. Below is a brief summary of how TCJA affected tax expenditure provisions, with the Receipts Chapter providing an expanded listing and description. For individuals, the Act expanded the child tax credit, the deduction for charitable contributions and certain tax preferences for education. It scaled back the deduction for state and local taxes, the mortgage interest deduction, and certain fringe benefits. It also repealed the moving expense deduction and exclusion for non-military taxpayers. For businesses, the Act expanded depreciation allowances and scaled back on the benefit of deferral of gains in like-kind exchanges. It also altered the tax treatment of foreign earnings of US multinational corporations by switching from a global to a territorial tax system. The Act also scaled back the benefit extended to municipal bonds by disallowing advanced refunding, as well as repealing tax credit bonds. 156 ANALYTICAL PERSPECTIVES Table 13–1. ESTIMATES OF TOTAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2017-2027 (In millions of dollars) Total from corporations and individuals National Defense: 1 Exclusion of benefits and allowances to armed forces personnel �������������������������������������������������������������������� 2018– 2027 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 12,400 12,830 11,640 11,680 12,040 12,520 13,040 13,590 14,190 14,820 15,490 International affairs: 2 Exclusion of income earned abroad by U.S. citizens ������� 6,600 6,930 7,280 7,640 8,020 8,420 8,840 9,290 9,750 10,240 10,750 3 Exclusion of certain allowances for Federal employees abroad ������������������������������������������������������������������������ 1,370 1,430 1,510 1,580 1,660 1,740 1,830 1,920 2,020 2,120 2,230 4 Inventory property sales source rules exception ������������� 3,320 3,570 3,840 4,170 4,480 4,760 5,070 5,410 5,780 6,180 6,640 5 Deferral of income from controlled foreign corporations (normal tax method) ��������������������������������������������������� 107,200 112,560 118,190 124,100 130,310 136,820 143,660 150,850 158,390 166,310 174,620 6 Deferred taxes for financial firms on certain income earned overseas ��������������������������������������������������������� 16,080 16,880 17,730 18,620 19,550 20,520 21,550 22,630 23,760 24,950 26,190 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 Enhanced oil recovery credit ������������������������������������������� 15 Energy production credit 1 ����������������������������������������������� 16 Marginal wells credit �������������������������������������������������������� 17 Energy investment credit 1 ����������������������������������������������� 18 Alcohol fuel credits 2 �������������������������������������������������������� 19 Bio-Diesel and small agri-biodiesel producer tax credits 3 ������ 20 Tax credits for clean-fuel burning vehicles and refueling property ���������������������������������������������������������������������� 21 Exclusion of utility conservation subsidies ����������������������� 22 Credit for holding clean renewable energy bonds 4 ��������� 23 Deferral of gain from dispositions of transmission property to implement FERC restructuring policy ������� 24 Credit for investment in clean coal facilities ��������������������� 25 Temporary 50% expensing for equipment used in the refining of liquid fuels �������������������������������������������������� 26 Natural gas distribution pipelines treated as 15-year property ���������������������������������������������������������������������� 27 Amortize all geological and geophysical expenditures over 2 years ���������������������������������������������������������������� 28 Allowance of deduction for certain energy efficient commercial building property �������������������������������������� 29 Credit for construction of new energy efficient homes ����� 30 Credit for energy efficiency improvements to existing homes ������������������������������������������������������������������������� 31 Credit for residential energy efficient property ����������������� 32 Qualified energy conservation bonds 5 ���������������������������� 33 Advanced Energy Property Credit ����������������������������������� 34 Advanced nuclear power production credit ���������������������� 35 Reduced tax rate for nuclear decommissioning funds ����� Natural resources and environment: 36 Expensing of exploration and development costs, nonfuel minerals ��������������������������������������������������������� 37 Excess of percentage over cost depletion, nonfuel minerals ���������������������������������������������������������������������� 38 Exclusion of interest on bonds for water, sewage, and hazardous waste facilities ������������������������������������������� 131,840 87,160 18,040 49,900 1,415,810 212,380 8,330 11,500 8,340 12,250 9,140 13,010 10,100 13,820 10,910 14,680 11,640 15,600 12,310 16,580 13,040 17,630 13,820 18,730 14,660 19,900 15,540 21,140 119,500 163,340 –650 440 –290 550 –30 600 120 640 200 700 260 830 290 990 290 1,110 300 1,210 350 1,360 370 1,510 1,860 9,500 20 140 10 270 1,590 70 1,850 20 40 20 160 10 350 2,230 110 3,410 0 0 20 150 10 400 2,870 70 3,470 0 0 20 140 10 450 3,430 30 3,330 0 0 20 150 10 440 3,880 30 3,330 0 0 30 150 10 460 4,280 40 2,710 0 0 30 160 10 500 4,600 100 1,630 0 0 30 160 30 530 4,790 140 670 0 0 30 170 30 510 4,850 180 80 0 0 30 180 30 490 4,750 210 –120 0 0 30 190 30 440 4,440 230 –150 0 0 260 1,610 180 4,570 40,120 1,140 18,360 0 0 590 470 70 680 490 70 670 520 70 490 540 70 360 570 70 330 590 70 280 620 70 240 650 70 180 680 70 130 710 70 100 750 70 3,460 6,120 700 –190 140 –270 110 –210 100 –190 250 –150 320 –120 190 –70 20 –20 –20 0 –10 0 –10 0 –10 –1,030 940 –1,380 –1,140 –930 –740 –560 –370 –180 –40 0 0 0 –3,960 140 150 150 150 120 60 –20 –100 –190 –270 –320 –270 70 60 70 70 70 80 70 60 40 40 50 610 30 170 –10 70 –30 10 –30 0 –30 0 –30 0 –30 0 –30 0 –30 0 –30 0 –30 0 –280 80 290 1,430 30 50 0 210 0 1,380 30 0 0 230 0 1,360 30 –20 170 240 0 1,250 30 –20 440 260 0 1,060 30 –10 550 270 0 530 30 –10 550 280 0 120 30 0 550 290 0 20 30 0 550 310 0 0 30 0 550 320 0 0 30 0 550 340 0 0 30 0 550 350 0 5,720 300 –60 4,460 2,890 40 50 50 50 50 50 50 50 50 50 50 500 140 140 150 150 150 150 150 150 140 140 140 1,460 420 410 420 420 450 500 540 580 610 650 680 5,260 157 13. Tax Expenditures Table 13–1. ESTIMATES OF TOTAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2017–2027—Continued (In millions of dollars) Total from corporations and individuals 2017 39 40 41 42 43 Capital gains treatment of certain timber income ������������ Expensing of multiperiod timber growing costs ��������������� Tax incentives for preservation of historic structures ������� Industrial CO2 capture and sequestration tax credit �������� Deduction for endangered species recovery expenditures ��������������������������������������������������������������� Agriculture: 44 Expensing of certain capital outlays �������������������������������� 45 Expensing of certain multiperiod production costs ���������� 46 Treatment of loans forgiven for solvent farmers ��������������� 47 Capital gains treatment of certain income ����������������������� 48 Income averaging for farmers ������������������������������������������ 49 Deferral of gain on sale of farm refiners �������������������������� 50 Expensing of reforestation expenditures ������������������������� 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2018– 2027 140 340 500 190 160 350 510 200 150 350 520 200 140 360 530 0 150 370 540 0 150 400 550 0 160 400 560 0 160 410 570 0 170 410 590 0 180 420 600 0 190 420 610 0 1,610 3,890 5,580 400 30 30 30 40 50 50 50 50 70 70 80 520 190 310 40 1,360 140 20 60 200 320 50 1,550 150 20 50 210 330 50 1,470 160 20 60 220 340 50 1,450 170 20 60 240 350 50 1,480 180 20 60 250 370 50 1,520 180 20 70 260 390 60 1,580 190 20 70 270 410 60 1,640 200 20 80 280 420 60 1,720 210 20 80 290 440 60 1,800 220 30 80 300 450 70 1,890 230 30 80 2,520 3,820 560 16,100 1,890 220 690 2,918 14,750 2,901 15,450 3,053 16,290 3,113 17,210 3,246 18,500 3,450 19,810 3,648 20,970 3,839 22,070 3,967 23,220 4,170 24,420 4,372 25,560 35,759 203,500 50 50 60 60 60 60 70 70 80 80 80 670 720 30 160 750 30 240 790 30 280 840 30 290 890 40 300 920 40 310 950 40 320 980 40 330 1,000 40 340 1,030 40 350 1,060 50 360 9,210 380 3,120 Commerce and housing: Financial institutions and insurance: 51 Exemption of credit union income ����������������������������������� 52 Exclusion of life insurance death benefits ����������������������� 53 Exemption or special alternative tax for small property and casualty insurance companies ���������������������������� 54 Tax exemption of insurance income earned by taxexempt organizations �������������������������������������������������� 55 Small life insurance company deduction ������������������������� 56 Exclusion of interest spread of financial institutions �������� Housing: 57 Exclusion of interest on owner-occupied mortgage subsidy bonds ������������������������������������������������������������� 1,150 1,120 1,150 1,160 1,230 1,360 1,490 1,620 1,710 1,790 1,860 58 Exclusion of interest on rental housing bonds ����������������� 1,060 1,040 1,070 1,080 1,140 1,260 1,370 1,490 1,580 1,650 1,710 59 Deductibility of mortgage interest on owner-occupied homes ������������������������������������������������������������������������� 65,600 69,130 74,510 81,330 89,030 96,840 104,490 111,810 118,900 125,560 131,630 60 Deductibility of State and local property tax on owneroccupied homes ��������������������������������������������������������� 33,710 35,790 38,190 40,920 43,750 46,600 49,550 52,700 55,940 59,230 62,680 61 Deferral of income from installment sales ����������������������� 1,590 1,760 1,700 1,690 1,730 1,770 1,830 1,900 1,970 2,050 2,140 62 Capital gains exclusion on home sales ��������������������������� 43,220 43,870 44,550 45,380 46,160 46,870 47,710 48,630 49,500 50,370 51,280 63 Exclusion of net imputed rental income ��������������������������� 121,350 126,000 131,110 136,680 142,590 148,830 155,330 162,180 169,480 177,100 185,370 64 Exception from passive loss rules for $25,000 of rental loss ����������������������������������������������������������������������������� 7,410 7,710 8,060 8,390 8,730 9,080 9,440 9,750 10,100 10,490 10,860 65 Credit for low-income housing investments ��������������������� 8,310 8,410 8,960 9,090 9,270 9,480 9,720 9,990 10,270 10,600 10,920 66 Accelerated depreciation on rental housing (normal tax method) ���������������������������������������������������������������������� 2,090 2,680 3,510 4,370 5,050 5,860 6,660 7,410 8,130 8,810 9,470 67 Discharge of mortgage indebtedness ������������������������������ 310 0 0 0 0 0 0 0 0 0 0 68 69 70 71 72 73 74 75 76 77 78 79 Commerce: Discharge of business indebtedness ������������������������������� –70 0 10 0 10 30 40 40 40 40 50 Exceptions from imputed interest rules ��������������������������� 60 60 60 70 70 80 80 80 90 90 100 Treatment of qualified dividends �������������������������������������� 27,550 29,130 30,700 32,460 34,420 36,580 38,940 41,500 44,310 47,290 50,440 Capital gains (except agriculture, timber, iron ore, and coal) ���������������������������������������������������������������������������� 101,510 115,910 109,880 107,970 110,230 113,500 117,650 122,620 128,280 134,450 141,100 Capital gains exclusion of small corporation stock ���������� 790 1,020 1,240 1,400 1,520 1,630 1,730 1,830 1,900 1,980 2,050 Step-up basis of capital gains at death ���������������������������� 37,910 38,710 39,560 40,160 40,560 41,240 41,860 42,620 43,230 43,820 44,540 Carryover basis of capital gains on gifts �������������������������� 5,190 4,840 4,670 4,560 4,530 4,530 4,560 4,640 4,700 4,730 4,780 Ordinary income treatment of loss from small business corporation stock sale ������������������������������������������������� 70 80 80 80 80 80 90 90 90 100 100 Deferral of gains from like-kind exchanges ���������������������� 7,690 8,080 8,500 8,920 9,360 9,830 10,320 10,840 11,380 11,940 12,490 Depreciation of buildings other than rental housing (normal tax method) ��������������������������������������������������� –8,800 –8,970 –9,570 –10,250 –10,770 –11,360 –11,990 –12,690 –13,130 –13,510 –13,980 Accelerated depreciation of machinery and equipment (normal tax method) ��������������������������������������������������� 44,300 36,740 26,380 –9,310 –9,550 5,100 14,730 23,590 31,120 37,050 42,050 Expensing of certain small investments (normal tax method) ���������������������������������������������������������������������� 3,410 3,400 3,710 7,540 7,910 6,970 6,740 6,700 6,770 7,020 7,230 14,490 13,390 1,003,230 485,350 18,540 474,320 1,534,670 92,610 96,710 61,950 0 260 780 385,770 1,201,590 16,300 416,300 46,540 870 101,660 –116,220 197,900 63,990 158 ANALYTICAL PERSPECTIVES Table 13–1. ESTIMATES OF TOTAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2017–2027—Continued (In millions of dollars) Total from corporations and individuals 80 Graduated corporation income tax rate (normal tax method) ���������������������������������������������������������������������� 81 Exclusion of interest on small issue bonds ���������������������� 82 Deduction for US production activities ����������������������������� 83 Special rules for certain film and TV production �������������� Transportation: 84 Tonnage tax ��������������������������������������������������������������������� 85 Deferral of tax on shipping companies ���������������������������� 86 Exclusion of reimbursed employee parking expenses ����� 87 Exclusion for employer-provided transit passes �������������� 88 Tax credit for certain expenditures for maintaining railroad tracks ������������������������������������������������������������� 89 Exclusion of interest on bonds for Highway Projects and rail-truck transfer facilities ������������������������������������������� Community and regional development: 90 Investment credit for rehabilitation of structures (other than historic) ��������������������������������������������������������������� 91 Exclusion of interest for airport, dock, and similar bonds 92 Exemption of certain mutuals’ and cooperatives’ income 93 Empowerment zones ������������������������������������������������������� 94 New markets tax credit ���������������������������������������������������� 95 Credit to holders of Gulf Tax Credit Bonds. ���������������������� 96 Recovery Zone Bonds 6 ��������������������������������������������������� 97 Tribal Economic Development Bonds ������������������������������ 2018– 2027 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 1,550 140 13,520 200 1,510 150 14,150 110 1,440 140 14,790 60 1,430 140 15,500 30 1,350 160 16,280 0 1,330 180 17,090 0 1,280 190 17,950 0 1,250 200 18,850 0 1,180 220 19,790 0 1,180 220 20,790 0 1,150 240 21,830 0 13,100 1,840 177,020 200 80 20 3,202 1,123 80 20 3,319 1,192 90 20 3,452 1,270 90 20 3,582 1,355 90 20 3,731 1,446 100 20 3,862 1,532 100 20 3,971 1,613 110 20 4,117 1,719 110 20 4,257 1,819 120 20 4,404 1,934 130 20 4,571 2,054 1,020 200 39,266 15,934 60 0 0 0 0 0 0 0 0 0 0 0 200 190 170 170 160 160 140 140 130 130 120 1,510 20 660 150 110 1,460 240 130 40 20 650 150 50 1,410 250 140 40 20 660 150 30 1,320 270 150 40 20 680 160 30 1,280 300 160 50 20 720 160 10 1,210 320 180 50 20 790 160 10 1,090 350 190 60 20 860 170 10 880 380 210 60 20 930 170 0 570 400 220 70 20 990 180 0 290 420 230 70 20 1,040 180 0 80 430 240 70 20 1,080 190 0 –120 440 250 80 200 8,400 1,670 140 8,010 3,560 1,970 590 3,410 3,490 3,650 3,800 3,970 4,140 4,310 4,500 4,690 4,890 40,850 16,360 30 2,360 2,140 370 16,320 40 2,390 2,330 370 16,310 40 2,500 2,530 380 16,290 40 2,510 2,730 400 16,190 40 2,520 2,940 440 16,180 40 2,610 3,150 480 16,170 40 2,610 3,380 520 16,120 30 2,630 3,600 550 16,020 30 2,650 3,830 580 15,980 30 2,670 4,070 600 161,940 360 25,450 30,700 4,690 2,200 180 2,260 170 2,280 150 2,410 130 2,660 110 2,900 90 3,160 80 3,330 60 3,510 50 3,640 50 28,350 1,070 30 9,500 5,890 940 210 100 650 30 9,490 6,330 990 200 100 650 30 9,500 6,730 1,040 210 110 650 40 9,540 7,100 1,100 250 110 650 40 9,590 7,490 1,150 250 110 650 40 9,630 7,860 1,210 250 110 650 40 9,670 8,250 1,270 260 120 650 50 9,700 8,630 1,340 260 120 650 50 9,770 9,000 1,400 260 120 650 50 9,940 9,370 1,480 270 120 650 400 96,330 76,650 11,920 2,420 1,120 6,500 1,320 900 10 590 620 1,340 900 10 620 620 1,370 940 10 660 650 990 970 10 690 620 490 1,000 10 730 640 310 1,030 10 780 690 230 1,060 10 820 690 180 1,100 10 860 710 130 1,140 10 910 690 100 1,180 10 950 710 70 1,220 10 1,000 720 5,210 10,540 100 8,020 6,740 4,830 4,600 10 4,990 4,690 10 5,150 4,790 10 5,290 4,890 10 5,440 4,960 10 5,590 5,060 10 5,750 5,140 10 5,910 5,220 10 6,060 5,300 10 6,220 5,370 10 6,380 5,440 10 56,780 50,860 100 47,760 490 51,720 510 55,030 530 58,590 550 61,930 570 65,250 590 68,510 610 71,820 620 75,090 640 78,270 660 81,870 680 668,080 5,960 Education, training, employment, and social services: Education: 98 Exclusion of scholarship and fellowship income (normal tax method) ����������������������������������������������������������������� 3,300 99 Tax credits and deductions for postsecondary education expenses 7 ������������������������������������������������������������������ 16,460 100 Education Individual Retirement Accounts ���������������������� 30 101 Deductibility of student-loan interest �������������������������������� 2,340 102 Qualified tuition programs ������������������������������������������������ 1,950 103 Exclusion of interest on student-loan bonds �������������������� 370 104 Exclusion of interest on bonds for private nonprofit educational facilities ��������������������������������������������������� 2,250 105 Credit for holders of zone academy bonds 8 �������������������� 170 106 Exclusion of interest on savings bonds redeemed to finance educational expenses ������������������������������������ 30 107 Parental personal exemption for students age 19 or over 9,600 108 Deductibility of charitable contributions (education) �������� 5,480 109 Exclusion of employer-provided educational assistance ���� 900 110 Special deduction for teacher expenses �������������������������� 200 111 Discharge of student loan indebtedness ������������������������� 100 112 Qualified school construction bonds 9 ������������������������������ 650 113 114 115 116 117 118 119 120 121 122 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 ����������������������� 159 13. Tax Expenditures Table 13–1. ESTIMATES OF TOTAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2017–2027—Continued (In millions of dollars) Total from corporations and individuals 2017 123 Exclusion of parsonage allowances �������������������������������� 124 Indian employment credit ������������������������������������������������ 125 Credit for employer differential wage payments ��������������� 920 40 0 2018 970 20 0 2019 1,021 20 10 2020 1,075 20 10 2021 1,132 20 10 2022 1,192 10 20 2023 1,255 10 20 2024 1,322 10 20 2025 1,392 10 20 2026 1,465 10 20 2027 1,543 10 20 Health: 126 Exclusion of employer contributions for medical insurance premiums and medical care 10 ������������������� 214,280 227,880 242,880 257,390 273,180 291,180 309,500 328,620 349,300 370,360 393,430 127 Self-employed medical insurance premiums ������������������� 8,140 8,170 7,750 8,010 8,460 8,830 9,220 9,640 10,110 10,610 11,170 128 Medical Savings Accounts / Health Savings Accounts ���� 8,240 9,400 10,650 11,730 12,750 13,820 14,830 15,770 16,720 17,700 18,730 129 Deductibility of medical expenses ����������������������������������� 9,720 10,030 10,870 11,850 12,840 13,790 14,790 15,830 16,910 18,090 19,400 130 Exclusion of interest on hospital construction bonds ������� 3,380 3,310 3,400 3,430 3,630 4,000 4,370 4,740 5,010 5,260 5,470 131 Refundable Premium Assistance Tax Credit 11 ���������������� 5,630 6,310 7,100 7,740 8,380 8,910 9,370 10,040 10,590 11,390 12,140 132 Credit for employee health insurance expenses of small business 12 ������������������������������������������������������������������ 90 80 70 50 30 20 10 10 10 10 10 133 Deductibility of charitable contributions (health) �������������� 5,120 5,530 5,960 6,350 6,710 7,080 7,430 7,790 8,150 8,500 8,860 134 Tax credit for orphan drug research �������������������������������� 2,280 2,760 3,340 4,030 4,880 5,900 7,140 8,630 10,450 12,630 15,290 135 Special Blue Cross/Blue Shield tax benefits �������������������� 590 610 630 670 700 740 780 820 870 910 960 136 Tax credit for health insurance purchased by certain displaced and retired individuals 13 ����������������������������� 30 20 10 0 0 0 0 0 0 0 0 137 Distributions from retirement plans for premiums for health and long-term care insurance �������������������������� 460 480 500 520 540 560 580 600 620 650 670 Income security: 138 Child credit 14 ������������������������������������������������������������������� 139 Exclusion of railroad retirement (Social Security equivalent) benefits ���������������������������������������������������� 140 Exclusion of workers’ compensation benefits ������������������ 141 Exclusion of public assistance benefits (normal tax method) ���������������������������������������������������������������������� 142 Exclusion of special benefits for disabled coal miners ����� 143 Exclusion of military disability pensions �������������������������� 144 145 146 147 148 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: 149 Premiums on group term life insurance ��������������������������� 150 Premiums on accident and disability insurance ��������������� 151 Income of trusts to finance supplementary unemployment benefits ���������������������������������������������� 152 Income of trusts to finance voluntary employee benefits associations ���������������������������������������������������������������� 153 Special ESOP rules ��������������������������������������������������������� 154 Additional deduction for the blind ������������������������������������ 155 Additional deduction for the elderly ��������������������������������� 156 Tax credit for the elderly and disabled ����������������������������� 157 Deductibility of casualty losses ���������������������������������������� 158 Earned income tax credit 15 ��������������������������������������������� 2018– 2027 12,367 140 150 3,043,720 91,970 142,100 144,400 42,620 91,970 300 72,360 75,050 7,690 30 5,720 24,340 24,270 23,960 23,580 23,140 22,690 22,270 21,860 21,410 20,980 20,610 224,770 290 9,970 280 10,040 280 10,110 270 10,180 260 10,250 250 10,320 240 10,390 220 10,470 210 10,540 190 10,610 170 10,690 2,370 103,600 590 20 170 600 20 180 620 20 180 640 20 190 670 20 190 680 10 200 700 10 200 730 10 210 740 10 210 750 10 220 660 10 220 6,790 140 2,000 76,091 69,440 17,320 1,440 28,460 76,998 71,270 19,110 1,470 26,980 77,341 80,480 20,630 1,470 30,010 78,453 87,010 22,180 1,460 33,390 77,081 89,310 23,790 1,440 36,930 75,678 73,516 71,376 68,657 65,592 61,673 95,400 112,200 122,030 126,140 130,240 137,820 25,460 27,100 28,150 29,080 29,880 30,640 1,440 1,440 1,440 1,420 1,450 1,430 40,280 44,000 48,070 52,400 57,060 62,170 726,365 1,051,900 256,020 14,460 431,290 3,350 330 3,140 330 3,250 330 3,370 330 3,500 340 3,630 340 3,770 340 3,910 350 4,070 350 4,230 350 4,390 350 37,260 3,410 20 30 40 40 50 50 50 50 60 60 60 490 1,180 2,080 30 3,470 10 330 1,760 1,240 2,140 30 3,770 10 350 1,810 1,290 2,210 30 4,050 10 380 3,960 1,350 2,280 30 4,380 0 400 4,100 1,420 2,360 40 4,780 0 430 2,060 1,480 2,430 40 5,090 0 460 2,150 1,550 2,510 40 5,470 0 500 2,250 1,630 2,580 50 5,850 0 530 2,370 1,710 2,660 50 6,290 0 560 2,500 1,780 2,740 60 6,810 0 590 2,570 1,860 2,820 60 7,380 0 630 2,700 15,310 24,730 430 53,870 20 4,830 26,470 34,500 36,110 37,660 39,430 41,430 43,840 46,830 48,780 50,130 53,690 57,850 455,750 1,040 1,080 1,130 1,190 1,250 1,310 1,380 1,440 1,520 1,590 1,680 13,570 7,920 480 8,620 510 9,190 540 9,560 560 9,910 580 10,290 610 10,680 630 11,090 660 11,520 690 11,960 720 12,440 750 105,260 6,250 Social Security: Exclusion of social security benefits: 159 Social Security benefits for retired and disabled workers and spouses, dependents and survivors �������������������� 160 Credit for certain employer contributions to social security ����������������������������������������������������������������������� Veterans benefits and services: 161 Exclusion of veterans death benefits and disability compensation ������������������������������������������������������������� 162 Exclusion of veterans pensions ��������������������������������������� 160 ANALYTICAL PERSPECTIVES Table 13–1. ESTIMATES OF TOTAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2017–2027—Continued (In millions of dollars) Total from corporations and individuals 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2018– 2027 163 Exclusion of GI bill benefits ��������������������������������������������� 164 Exclusion of interest on veterans housing bonds ������������ 1,740 10 1,830 10 1,910 10 2,010 10 2,110 10 2,220 10 2,330 10 2,440 30 2,570 30 2,700 30 2,840 30 22,960 180 General purpose fiscal assistance: 165 Exclusion of interest on public purpose State and local bonds �������������������������������������������������������������������������� 166 Build America Bonds 16 ��������������������������������������������������� 167 Deductibility of nonbusiness State and local taxes other than on owner-occupied homes ��������������������������������� 28,560 0 27,920 0 28,650 0 28,950 0 30,680 0 33,830 0 36,880 0 40,060 0 42,290 0 44,470 0 46,160 0 359,890 0 70,420 74,980 80,190 86,220 91,900 97,460 103,350 109,610 116,020 122,310 128,980 1,011,020 960 950 940 930 930 920 910 900 890 880 890 9,140 33,710 35,790 38,190 40,920 43,750 46,600 49,550 52,700 55,940 59,230 62,680 485,350 70,420 74,980 80,190 86,220 91,900 97,460 103,350 109,610 116,020 122,310 128,980 1,011,020 Interest: 168 Deferral of interest on U.S. savings bonds ����������������������� 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 ��������������������������������������������������������������� 28,560 27,920 28,650 28,950 30,680 33,830 36,880 40,060 42,290 44,470 46,160 359,890 Energy facilities ��������������������������������������������������������������� 10 10 10 10 10 10 10 30 30 30 30 180 Water, sewage, and hazardous waste disposal facilities � 420 410 420 420 450 500 540 580 610 650 680 5,260 Small-issues �������������������������������������������������������������������� 140 150 140 140 160 180 190 200 220 220 240 1,840 Owner-occupied mortgage subsidies ������������������������������ 1,150 1,120 1,150 1,160 1,230 1,360 1,490 1,620 1,710 1,790 1,860 14,490 Rental housing ����������������������������������������������������������������� 1,060 1,040 1,070 1,080 1,140 1,260 1,370 1,490 1,580 1,650 1,710 13,390 Airports, docks, and similar facilities �������������������������������� 660 650 660 680 720 790 860 930 990 1,040 1,080 8,400 Student loans ������������������������������������������������������������������� 370 370 370 380 400 440 480 520 550 580 600 4,690 Private nonprofit educational facilities ����������������������������� 2,250 2,200 2,260 2,280 2,410 2,660 2,900 3,160 3,330 3,510 3,640 28,350 Hospital construction ������������������������������������������������������� 3,380 3,310 3,400 3,430 3,630 4,000 4,370 4,740 5,010 5,260 5,470 42,620 Veterans’ housing ������������������������������������������������������������ 10 10 10 10 10 10 10 30 30 30 30 180 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: 2017 $1,100; 2018 $50; and $0 thereafter. 2 The alternative fuel mixture credit results in a reduction in excise tax receipts (in millions of dollars) as follows: 2017 $420 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: 2017 $2,090 and $0 thereafter. 4 In addition, the credit for holding clean renewable energy bonds has outlay effects of (in millions of dollars) : 2017 $40; 2018 $40; 2019 $40; 2020 $40; 2021 $40; 2022 $40; 2023 $40; 2024 $40; 2025, $40; 2026 $40; and 2027 $40. 5 In addition, the qualified energy conservation bonds have outlay effects of (in millions of dollars): 2017 $40; 2018 $40; 2019 $40; 2020 $40; 2021 $40; 2022 $40; 2023 $40; 2024 $40; 2025, $40; 2026 $40; and 2027 $40. 6 In addition, recovery zone bonds have outlay effects (in millions of dollars) as follows: 2017 $290; 2018 $290; 2019 $290; 2020 $290; 2021 $290; 2022 $290; 2023 $290; 2024 $290; 2025, $290; 2026 $290; and 202 $290. 7 In addition, the tax credits and deductions for postsecondary education expenses have outlay effects of (in millions of dollars): 2017 $5,770; 2018 $5,690; 2019 $5,570; 2020 $5,520; 2021 $5,460; 2022 $5,410; 2023 $5,360; 2024 $5,310; 2025 $5,240; 2026 $5,170; and 2027 $5,100. 8 In addition, the credit for holders of zone academy bonds has outlay effects of (in millions of dollars) : 2017 $60; 2018 $60; 2019 $60; 2020 $60; 2021 $60; 2022 $60; 2023 $60; 2024 $60; 2025 $60; 2026 $60; and 2027 $60. 9 In addition, the provision for school construction bonds has outlay effects of (in millions of dollars) : 2017 $740; 2018 $795; 2019 $795; 2020 $795; 2021 $795; 2022 $795; 2023 $795; 2024 $795; 2025 $795; 2026 $795; and 2027 $795. 10 In addition, the employer contributions for health have effects on payroll tax receipts (in millions of dollars) as follows: 2017 $127,140; 2018 $133,530; 2019 $140,060; 2020 $146,970; 2021 $155,010; 2022 $164,100; 2023 $173,140; 2024 $182,640; 2025 $192,960; 2026 $203,240; and 2027 $214,700. 11 In addition, the premium assistance credit provision has outlay effects (in millions of dollars) as follows : 2017 $29,730; 2018 $31,890; 2019 $33,840; 2020 $35,720; 2021 $37,770; 2022 $40,010; 2023 $42,110; 2024 $44,400; 2025 $46,790; 2026 $49,340; and 2027 $51,980. 12 In addition, the small business credit provision has outlay effects (in millions of dollars) as follows : 2017 $20; 2018 $20; 2019 $10; 2020 $10; 2021 $10; 2022 $10; and $0 thereafter. 13 In addition, the effect of the health coverage tax credit on receipts has outlay effects of (in millions of dollars) 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) : 2017 $29,980; 2018 $30,000; 2019 $30,010; 2020 $30,010; 2021 $30,270; 2022 $30,390; 2023 $30,540; 2024 $30,680; 2025 $30,840; 2026 $31,040; and 2027 $31,150. 15 In addition, the earned income tax credit on receipts has outlay effects of (in millions of dollars) : 2017 $62,070; 2018 $67,870; 2019 $ 67,120; 2020 $68,500; 2021 $72,630; 2022 $74,420; 2023 $76,390; 2024 $78,260; 2025 $80,240; 2026 $82,240; and 2027 $84,150. 16 In addition, the Build America Bonds have outlay effects of (in millions of dollars) : 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; 2026 $3,610; and 2027 $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. 161 13. Tax Expenditures Table 13–2A. ESTIMATES OF TOTAL CORPORATE INCOME TAX EXPENDITURES FOR FISCAL YEARS 2017-2027 (In millions of dollars) Total from corporations 2017 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 Enhanced oil recovery credit ������������������� 15 Energy production credit 1 ����������������������� 16 Marginal wells credit �������������������������������� 17 Energy investment credit 1 ����������������������� 18 Alcohol fuel credits 2 �������������������������������� 19 Bio-Diesel and small agri-biodiesel producer tax credits 3 �������������������������� 20 Tax credits for clean-fuel burning vehicles and refueling property ������������������������ 21 Exclusion of utility conservation subsidies ������������������������������������������������������������� 22 Credit for holding clean renewable energy bonds 4 ������������������������������������������������ 23 Deferral of gain from dispositions of transmission property to implement FERC restructuring policy ������������������ 24 Credit for investment in clean coal facilities ����������������������������������������������� 25 Temporary 50% expensing for equipment used in the refining of liquid fuels ������� 26 Natural gas distribution pipelines treated as 15-year property ���������������������������� 27 Amortize all geological and geophysical expenditures over 2 years ������������������ 28 Allowance of deduction for certain energy efficient commercial building property ���� 29 Credit for construction of new energy efficient homes ����������������������������������� 30 Credit for energy efficiency improvements to existing homes �������������������������������� 2018 2019 2020 2021 2022 2023 2024 2025 2026 2018– 2027 2027 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3,320 3,570 3,840 4,170 4,480 4,760 5,070 5,410 5,780 6,180 6,640 49,900 107,200 112,560 118,190 124,100 130,310 136,820 143,660 150,850 158,390 166,310 174,620 1,415,810 16,080 16,880 17,730 18,620 19,550 20,520 21,550 22,630 23,760 24,950 26,190 212,380 7,620 10,520 7,640 11,160 8,420 11,840 9,290 12,560 10,040 13,330 10,700 14,140 11,320 15,010 11,990 15,940 12,710 16,910 13,480 17,940 14,290 19,020 109,880 147,850 –470 –210 –20 90 150 190 210 210 220 260 270 1,370 350 440 480 510 560 660 790 890 970 1,090 1,210 7,600 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 220 1,190 20 1,390 0 0 280 1,670 30 2,560 0 0 320 2,150 20 2,600 0 0 360 2,570 10 2,500 0 0 350 2,910 10 2,500 0 0 370 3,210 10 2,030 0 0 400 3,450 30 1,220 0 10 420 3,590 40 500 0 10 410 3,640 50 60 0 10 390 3,560 60 –90 0 10 350 3,330 70 –110 0 40 3,650 30,080 330 13,770 0 10 0 0 0 0 0 0 0 0 0 0 0 190 210 180 120 90 80 60 40 30 10 10 830 30 30 30 30 30 30 30 30 30 30 30 300 20 20 20 20 20 20 20 20 20 20 20 200 –190 –270 –210 –190 –150 –120 –70 –20 0 0 0 –1,030 130 100 90 230 290 170 20 –20 –10 –10 –10 850 –1,380 –1,140 –930 –740 –560 –370 –180 –40 0 0 0 –3,960 140 150 150 150 120 60 –20 –100 –190 –270 –320 –270 50 40 50 50 50 60 50 40 30 30 40 440 10 0 –10 –10 –10 –10 –10 –10 –10 –10 –10 –90 50 20 0 0 0 0 0 0 0 0 0 20 0 0 0 0 0 0 0 0 0 0 0 0 162 ANALYTICAL PERSPECTIVES Table 13–2A. ESTIMATES OF TOTAL CORPORATE INCOME TAX EXPENDITURES FOR FISCAL YEARS 2017-2027—Continued (In millions of dollars) Total from corporations 2017 31 Credit for residential energy efficient property ���������������������������������������������� 32 Qualified energy conservation bonds 5 ���� 33 Advanced Energy Property Credit ����������� 34 Advanced nuclear power production credit ��������������������������������������������������� 35 Reduced tax rate for nuclear decommissioning funds ���������������������� Natural resources and environment: 36 Expensing of exploration and development costs, nonfuel minerals ������������������������ 37 Excess of percentage over cost depletion, nonfuel minerals ����������������� 38 Exclusion of interest on bonds for water, sewage, and hazardous waste facilities ����������������������������������������������� 39 Capital gains treatment of certain timber income ������������������������������������������������ 40 Expensing of multiperiod timber growing costs ��������������������������������������������������� 41 Tax incentives for preservation of historic structures �������������������������������������������� 42 Industrial CO2 capture and sequestration tax credit ��������������������������������������������� 43 Deduction for endangered species recovery expenditures ������������������������ Agriculture: 44 Expensing of certain capital outlays �������� 45 Expensing of certain multiperiod production costs ��������������������������������� 46 Treatment of loans forgiven for solvent farmers ����������������������������������������������� 47 Capital gains treatment of certain income ������������������������������������������������������������� 48 Income averaging for farmers ������������������ 49 Deferral of gain on sale of farm refiners ���� 50 Expensing of reforestation expenditures ��� 2018 2019 2020 2021 2022 2023 2024 2025 2026 2018– 2027 2027 0 10 40 0 10 0 0 10 –20 0 10 –20 0 10 –10 0 10 –10 0 10 0 0 10 0 0 10 0 0 10 0 0 10 0 0 100 –60 0 0 170 440 550 550 550 550 550 550 550 4,460 210 230 240 260 270 280 290 310 320 340 350 2,890 40 50 50 50 50 50 50 50 50 50 50 500 120 120 130 130 130 130 130 130 120 120 120 1,260 130 130 130 120 130 140 140 140 140 150 170 1,390 0 0 0 0 0 0 0 0 0 0 0 0 210 220 220 230 230 240 240 250 250 260 260 2,400 430 440 450 460 470 480 490 500 510 520 530 4,850 190 200 200 0 0 0 0 0 0 0 0 400 10 10 10 20 20 20 20 20 30 30 30 210 10 10 10 10 20 20 20 20 20 20 20 170 20 20 20 20 20 20 30 30 30 30 30 250 0 0 0 0 0 0 0 0 0 0 0 0 0 0 20 20 0 0 20 20 0 0 20 20 0 0 20 20 0 0 20 20 0 0 20 30 0 0 20 30 0 0 20 30 0 0 20 30 0 0 30 30 0 0 30 30 0 0 220 260 2,918 2,870 2,901 2,990 3,053 3,130 3,113 3,280 3,246 3,450 3,450 3,620 3,648 3,810 3,839 4,000 3,967 4,200 4,170 4,420 4,372 4,640 35,759 37,540 50 50 60 60 60 60 70 70 80 80 80 670 720 30 750 30 790 30 840 30 890 40 920 40 950 40 980 40 1,000 40 1,030 40 1,060 50 9,210 380 0 0 0 0 0 0 0 0 0 0 0 0 350 360 350 340 350 380 380 400 400 420 460 3,840 320 340 330 320 330 350 350 370 370 390 420 3,570 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 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Commerce and housing: Financial institutions and insurance: 51 Exemption of credit union income ����������� 52 Exclusion of life insurance death benefits 53 Exemption or special alternative tax for small property and casualty insurance companies ������������������������������������������ 54 Tax exemption of insurance income earned by tax-exempt organizations ��� 55 Small life insurance company deduction ��� 56 Exclusion of interest spread of financial institutions ������������������������������������������� 57 58 59 60 61 62 63 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 owner-occupied homes ������������ Deferral of income from installment sales Capital gains exclusion on home sales ��� Exclusion of net imputed rental income ��� 163 13. Tax Expenditures Table 13–2A. ESTIMATES OF TOTAL CORPORATE INCOME TAX EXPENDITURES FOR FISCAL YEARS 2017-2027—Continued (In millions of dollars) Total from corporations 2017 64 Exception from passive loss rules for $25,000 of rental loss ������������������������� 65 Credit for low-income housing investments ����������������������������������������� 66 Accelerated depreciation on rental housing (normal tax method) �������������� 67 Discharge of mortgage indebtedness ������ 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 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) ��������������������������� 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: 84 Tonnage tax ��������������������������������������������� 85 Deferral of tax on shipping companies ���� 86 Exclusion of reimbursed employee parking expenses ������������������������������� 87 Exclusion for employer-provided transit passes ������������������������������������������������ 88 Tax credit for certain expenditures for maintaining railroad tracks ������������������ 89 Exclusion of interest on bonds for Highway Projects and rail-truck transfer facilities ���������������������������������� Community and regional development: 90 Investment credit for rehabilitation of structures (other than historic) ������������ 91 Exclusion of interest for airport, dock, and similar bonds �������������������������������������� 92 Exemption of certain mutuals’ and cooperatives’income ��������������������������� 93 Empowerment zones ������������������������������� 94 New markets tax credit ���������������������������� 95 Credit to holders of Gulf Tax Credit Bonds. ������������������������������������������������� 96 Recovery Zone Bonds 6 ��������������������������� 97 Tribal Economic Development Bonds ������ Education, training, employment, and social services: 2018 2019 2020 2021 2022 2023 2024 2025 2026 2018– 2027 2027 0 0 0 0 0 0 0 0 0 0 0 0 7,890 7,990 8,510 8,640 8,810 9,010 9,230 9,490 9,760 10,070 10,370 91,880 360 470 580 700 840 990 1,120 1,230 1,350 1,460 1,570 10,310 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 6,000 6,310 6,630 6,960 7,300 7,670 8,050 8,460 8,880 9,320 9,750 79,330 –3,860 –3,960 –4,150 –4,400 –4,660 –4,920 –5,190 –5,480 –5,670 –5,820 –6,020 –50,270 28,810 24,120 17,490 –3,510 –3,390 5,540 11,460 16,960 21,650 25,380 28,500 144,200 290 280 290 1,040 1,120 890 790 730 700 710 710 7,260 1,550 1,510 1,440 1,430 1,350 1,330 1,280 1,250 1,180 1,180 1,150 13,100 40 9,930 50 10,400 40 10,870 40 11,390 50 11,960 50 12,550 50 13,180 50 13,840 50 14,530 50 15,260 60 16,020 490 130,000 160 90 50 20 0 0 0 0 0 0 0 160 80 20 80 20 90 20 90 20 90 20 100 20 100 20 110 20 110 20 120 20 130 20 1,020 200 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 50 0 0 0 0 0 0 0 0 0 0 0 50 50 40 40 40 40 30 30 30 30 30 360 10 10 10 10 10 10 10 10 10 10 10 100 200 210 200 200 210 220 220 230 230 250 270 2,240 150 50 1,430 150 20 1,380 150 10 1,290 160 10 1,250 160 0 1,180 160 0 1,070 170 0 860 170 0 550 180 0 280 180 0 70 190 0 –120 1,670 40 7,810 70 40 10 70 40 10 70 40 10 70 40 10 70 40 10 70 40 10 70 40 10 70 40 10 70 40 10 70 40 10 70 40 10 700 400 100 164 ANALYTICAL PERSPECTIVES Table 13–2A. ESTIMATES OF TOTAL CORPORATE INCOME TAX EXPENDITURES FOR FISCAL YEARS 2017-2027—Continued (In millions of dollars) Total from corporations 2017 Education: 98 Exclusion of scholarship and fellowship income (normal tax method) ��������������� 99 Tax credits and deductions for postsecondary education expenses 7 ���� 100 Education Individual Retirement Accounts ��������������������������������������������� 101 Deductibility of student-loan interest �������� 102 Qualified tuition programs ������������������������ 103 Exclusion of interest on student-loan bonds �������������������������������������������������� 104 Exclusion of interest on bonds for private nonprofit educational facilities ������������ 105 Credit for holders of zone academy bonds 8 ������������������������������������������������ 106 Exclusion of interest on savings bonds redeemed to finance educational expenses �������������������������������������������� 107 Parental personal exemption for students age 19 or over ������������������������������������� 108 Deductibility of charitable contributions (education) ������������������������������������������ 109 Exclusion of employer-provided educational assistance ����������������������� 110 Special deduction for teacher expenses ��� 111 Discharge of student loan indebtedness ��� 112 Qualified school construction bonds 9 ������ 113 114 115 116 117 118 119 120 121 122 123 124 125 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 ������������������������ Credit for employer differential wage payments �������������������������������������������� Health: 126 Exclusion of employer contributions for medical insurance premiums and medical care 10 ������������������������������������ 127 Self-employed medical insurance premiums �������������������������������������������� 128 Medical Savings Accounts / Health Savings Accounts ������������������������������� 129 Deductibility of medical expenses ����������� 130 Exclusion of interest on hospital construction bonds ����������������������������� 131 Refundable Premium Assistance Tax Credit 11 ���������������������������������������������� 132 Credit for employee health insurance expenses of small business 12 ������������ 2018 2019 2020 2021 2022 2023 2024 2025 2026 2018– 2027 2027 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 110 120 110 110 110 120 120 130 130 140 150 1,240 690 710 690 670 690 740 740 780 780 830 900 7,530 170 180 170 150 130 110 90 80 60 50 50 1,070 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 860 900 950 1,000 1,040 1,100 1,150 1,210 1,270 1,330 1,390 11,340 0 0 0 160 0 0 0 160 0 0 0 160 0 0 0 160 0 0 0 160 0 0 0 160 0 0 0 160 0 0 0 160 0 0 0 160 0 0 0 160 0 0 0 160 0 0 0 1,600 1,000 0 10 0 0 1,020 0 10 0 0 1,050 0 10 0 0 730 0 10 0 0 380 0 10 0 0 250 0 10 0 0 190 0 10 0 0 150 0 10 0 0 110 0 10 0 0 80 0 10 0 0 60 0 10 0 0 4,020 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 1,800 1,900 1,930 2,010 2,090 2,170 2,250 2,340 2,430 2,530 2,630 22,280 0 0 20 0 0 10 0 0 10 0 0 10 0 0 10 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 40 0 0 10 10 10 10 10 10 10 10 10 90 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,030 1,070 1,040 1,010 1,040 1,110 1,120 1,170 1,170 1,240 1,350 11,320 0 0 0 0 0 0 0 0 0 0 0 0 10 10 10 10 0 0 0 0 0 0 0 30 165 13. Tax Expenditures Table 13–2A. ESTIMATES OF TOTAL CORPORATE INCOME TAX EXPENDITURES FOR FISCAL YEARS 2017-2027—Continued (In millions of dollars) Total from corporations 2017 133 Deductibility of charitable contributions (health) ����������������������������������������������� 134 Tax credit for orphan drug research �������� 135 Special Blue Cross/Blue Shield tax benefits ����������������������������������������������� 136 Tax credit for health insurance purchased by certain displaced and retired individuals 13 ��������������������������������������� 137 Distributions from retirement plans for premiums for health and long-term care insurance ������������������������������������ Income security: 138 Child credit 14 ������������������������������������������� 139 Exclusion of railroad retirement (Social Security equivalent) benefits �������������� 140 Exclusion of workers’ compensation benefits ����������������������������������������������� 141 Exclusion of public assistance benefits (normal tax method) ��������������������������� 142 Exclusion of special benefits for disabled coal miners ����������������������������������������� 143 Exclusion of military disability pensions ���� 144 145 146 147 148 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: 149 Premiums on group term life insurance ��� 150 Premiums on accident and disability insurance �������������������������������������������� 151 Income of trusts to finance supplementary unemployment benefits ����������������������������������������������� 152 Income of trusts to finance voluntary employee benefits associations ���������� 153 Special ESOP rules ��������������������������������� 154 Additional deduction for the blind ������������ 155 Additional deduction for the elderly ��������� 156 Tax credit for the elderly and disabled ����� 157 Deductibility of casualty losses ���������������� 158 Earned income tax credit 15 ��������������������� 2018 2019 2020 2021 2022 2023 2024 2025 2026 2018– 2027 2027 0 2,240 0 2,710 0 3,280 0 3,960 0 4,790 0 5,800 0 7,020 0 8,490 0 10,280 0 12,440 0 15,060 0 73,830 590 610 630 670 700 740 780 820 870 910 960 7,690 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,960 0 0 0 0 0 0 2,020 0 0 0 0 0 0 2,080 0 0 0 0 0 0 2,150 0 0 0 0 0 0 2,220 0 0 0 0 0 0 2,290 0 0 0 0 0 0 2,360 0 0 0 0 0 0 2,430 0 0 0 0 0 0 2,510 0 0 0 0 0 0 2,580 0 0 0 0 0 0 2,660 0 0 0 0 0 0 23,300 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 490 510 530 560 590 620 650 680 720 750 790 6,400 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 10 10 10 10 40 8,710 9,020 8,740 8,530 8,800 9,410 9,450 9,900 9,900 10,510 11,370 95,630 Social Security: Exclusion of social security benefits: 159 Social Security benefits for retired and disabled workers and spouses, dependents and survivors ������������������ 160 Credit for certain employer contributions to social security ��������������������������������� Veterans benefits and services: 161 Exclusion of veterans death benefits and disability compensation ���������������������� 162 Exclusion of veterans pensions ��������������� 163 Exclusion of GI bill benefits ��������������������� 164 Exclusion of interest on veterans housing bonds �������������������������������������������������� General purpose fiscal assistance: 165 Exclusion of interest on public purpose State and local bonds ������������������������� 166 ANALYTICAL PERSPECTIVES Table 13–2A. ESTIMATES OF TOTAL CORPORATE INCOME TAX EXPENDITURES FOR FISCAL YEARS 2017-2027—Continued (In millions of dollars) Total from corporations 2017 166 Build America Bonds 16 ��������������������������� 167 Deductibility of nonbusiness State and local taxes other than on owneroccupied homes ��������������������������������� Interest: 168 Deferral of interest on U.S. savings bonds ������������������������������������������������������������� 2018 2019 2020 2021 2022 2023 2024 2025 2026 2018– 2027 2027 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 9,020 0 8,740 0 8,530 0 8,800 0 9,410 0 9,450 0 9,900 10 9,900 10 10,510 10 11,370 10 95,630 40 130 50 360 340 210 120 710 1,070 0 130 40 350 330 200 110 690 1,040 0 120 40 340 320 200 110 670 1,010 0 130 50 350 330 210 110 690 1,040 0 140 50 380 350 220 120 740 1,110 0 140 50 380 350 220 120 740 1,120 0 140 50 400 370 230 130 780 1,170 10 140 50 400 370 230 130 780 1,170 10 150 50 420 390 250 140 830 1,240 10 170 60 460 420 270 150 900 1,350 10 1,390 490 3,840 3,570 2,240 1,240 7,530 11,320 40 Addendum: Aid to State and local governments: Deductibility of: Property taxes on owner-occupied homes ������������������������������������������������������������� Nonbusiness State and local taxes other than on owner-occupied homes ��������� Exclusion of interest on State and local bonds for: Public purposes ��������������������������������������� 8,710 Energy facilities ��������������������������������������� 0 Water, sewage, and hazardous waste disposal facilities ��������������������������������� 130 Small-issues �������������������������������������������� 40 Owner-occupied mortgage subsidies ������ 350 Rental housing ����������������������������������������� 320 Airports, docks, and similar facilities �������� 200 Student loans ������������������������������������������� 110 Private nonprofit educational facilities ����� 690 Hospital construction ������������������������������� 1,030 Veterans’ housing ������������������������������������ 0 See Table 1 footnotes for specific table information 167 13. Tax Expenditures Table 13–2B. ESTIMATES OF TOTAL INDIVIDUAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2017-2027 (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 Enhanced oil recovery credit ��������������������������������������� 15 Energy production credit 1 ������������������������������������������� 16 Marginal wells credit ���������������������������������������������������� 17 Energy investment credit 1 ������������������������������������������� 18 Alcohol fuel credits 2 ���������������������������������������������������� 19 Bio-Diesel and small agri-biodiesel producer tax credits 3 ������������������������������������������������������������������� 20 Tax credits for clean-fuel burning vehicles and refueling property ��������������������������������������������������� 21 Exclusion of utility conservation subsidies ������������������� 22 Credit for holding clean renewable energy bonds 4 ����� 23 Deferral of gain from dispositions of transmission property to implement FERC restructuring policy ��� 24 Credit for investment in clean coal facilities ����������������� 25 Temporary 50% expensing for equipment used in the refining of liquid fuels ���������������������������������������������� 26 Natural gas distribution pipelines treated as 15-year property ������������������������������������������������������������������ 27 Amortize all geological and geophysical expenditures over 2 years ������������������������������������������������������������ 28 Allowance of deduction for certain energy efficient commercial building property ���������������������������������� 29 Credit for construction of new energy efficient homes ��� 30 Credit for energy efficiency improvements to existing homes ��������������������������������������������������������������������� 31 Credit for residential energy efficient property ������������� 32 Qualified energy conservation bonds 5 ������������������������ 33 Advanced Energy Property Credit ������������������������������� 34 Advanced nuclear power production credit ������������������ 35 Reduced tax rate for nuclear decommissioning funds ��� Natural resources and environment: 36 Expensing of exploration and development costs, nonfuel minerals ����������������������������������������������������� 37 Excess of percentage over cost depletion, nonfuel minerals ������������������������������������������������������������������ 2018– 2027 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 12,400 12,830 11,640 11,680 12,040 12,520 13,040 13,590 14,190 14,820 15,490 131,840 6,600 6,930 7,280 7,640 8,020 8,420 8,840 9,290 9,750 10,240 10,750 87,160 1,370 0 1,430 0 1,510 0 1,580 0 1,660 0 1,740 0 1,830 0 1,920 0 2,020 0 2,120 0 2,230 0 18,040 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 710 980 700 1,090 720 1,170 810 1,260 870 1,350 940 1,460 990 1,570 1,050 1,690 1,110 1,820 1,180 1,960 1,250 2,120 9,620 15,490 –180 90 –80 110 –10 120 30 130 50 140 70 170 80 200 80 220 80 240 90 270 100 300 490 1,900 20 140 10 50 400 50 460 20 20 160 10 70 560 80 850 0 20 150 10 80 720 50 870 0 20 140 10 90 860 20 830 0 20 150 10 90 970 20 830 0 30 150 10 90 1,070 30 680 0 30 160 10 100 1,150 70 410 0 30 160 20 110 1,200 100 170 0 30 170 20 100 1,210 130 20 0 30 180 20 100 1,190 150 –30 0 30 190 20 90 1,110 160 –40 0 260 1,610 140 920 10,040 810 4,590 0 30 0 0 0 0 0 0 0 0 0 0 0 400 440 50 470 460 50 490 490 50 370 510 50 270 540 50 250 560 50 220 590 50 200 620 50 150 650 50 120 680 50 90 720 50 2,630 5,820 500 0 10 0 10 0 10 0 20 0 30 0 20 0 0 0 0 0 0 0 0 0 0 0 90 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 20 20 10 10 10 170 20 120 –10 50 –20 10 –20 0 –20 0 –20 0 –20 0 –20 0 –20 0 –20 0 –20 0 –190 60 290 1,430 20 10 0 0 0 1,380 20 0 0 0 0 1,360 20 0 0 0 0 1,250 20 0 0 0 0 1,060 20 0 0 0 0 530 20 0 0 0 0 120 20 0 0 0 0 20 20 0 0 0 0 0 20 0 0 0 0 0 20 0 0 0 0 0 20 0 0 0 0 5,720 200 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 20 20 20 20 20 20 20 20 20 20 20 200 168 ANALYTICAL PERSPECTIVES Table 13–2B. ESTIMATES OF TOTAL INDIVIDUAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2017-2027—Continued (In millions of dollars) Total from individuals 2017 38 Exclusion of interest on bonds for water, sewage, and hazardous waste facilities ��������������������������������������� 39 Capital gains treatment of certain timber income �������� 40 Expensing of multiperiod timber growing costs ����������� 41 Tax incentives for preservation of historic structures ��� 42 Industrial CO2 capture and sequestration tax credit ���� 43 Deduction for endangered species recovery expenditures ����������������������������������������������������������� Agriculture: 44 Expensing of certain capital outlays ���������������������������� 45 Expensing of certain multiperiod production costs ������ 46 Treatment of loans forgiven for solvent farmers ����������� 47 Capital gains treatment of certain income ������������������� 48 Income averaging for farmers �������������������������������������� 49 Deferral of gain on sale of farm refiners ���������������������� 50 Expensing of reforestation expenditures ��������������������� 2018 2019 2020 2021 2022 2023 2024 2025 2026 2018– 2027 2027 290 140 130 70 0 280 160 130 70 0 290 150 130 70 0 300 140 130 70 0 320 150 140 70 0 360 150 160 70 0 400 160 160 70 0 440 160 160 70 0 470 170 160 80 0 500 180 160 80 0 510 190 160 80 0 3,870 1,610 1,490 730 0 20 20 20 20 30 30 30 30 40 40 50 310 180 290 40 1,360 140 0 40 190 300 50 1,550 150 0 30 200 310 50 1,470 160 0 40 210 320 50 1,450 170 0 40 220 330 50 1,480 180 0 40 230 350 50 1,520 180 0 40 240 360 60 1,580 190 0 40 250 380 60 1,640 200 0 50 260 390 60 1,720 210 0 50 270 410 60 1,800 220 0 50 280 420 70 1,890 230 0 50 2,350 3,570 560 16,100 1,890 0 430 0 11,880 0 12,460 0 13,160 0 13,930 0 15,050 0 16,190 0 17,160 0 18,070 0 19,020 0 20,000 0 20,920 0 165,960 0 0 0 0 0 0 0 0 0 0 0 0 0 0 160 0 0 240 0 0 280 0 0 290 0 0 300 0 0 310 0 0 320 0 0 330 0 0 340 0 0 350 0 0 360 0 0 3,120 Commerce and housing: Financial institutions and insurance: 51 Exemption of credit union income ������������������������������� 52 Exclusion of life insurance death benefits ������������������� 53 Exemption or special alternative tax for small property and casualty insurance companies ������������������������ 54 Tax exemption of insurance income earned by taxexempt organizations ���������������������������������������������� 55 Small life insurance company deduction ��������������������� 56 Exclusion of interest spread of financial institutions ���� Housing: 57 Exclusion of interest on owner-occupied mortgage subsidy bonds ��������������������������������������������������������� 800 760 800 820 880 980 1,110 1,220 1,310 1,370 1,400 58 Exclusion of interest on rental housing bonds ������������� 740 700 740 760 810 910 1,020 1,120 1,210 1,260 1,290 59 Deductibility of mortgage interest on owner-occupied homes ��������������������������������������������������������������������� 65,600 69,130 74,510 81,330 89,030 96,840 104,490 111,810 118,900 125,560 131,630 60 Deductibility of State and local property tax on owneroccupied homes ����������������������������������������������������� 33,710 35,790 38,190 40,920 43,750 46,600 49,550 52,700 55,940 59,230 62,680 61 Deferral of income from installment sales ������������������� 1,590 1,760 1,700 1,690 1,730 1,770 1,830 1,900 1,970 2,050 2,140 62 Capital gains exclusion on home sales ����������������������� 43,220 43,870 44,550 45,380 46,160 46,870 47,710 48,630 49,500 50,370 51,280 63 Exclusion of net imputed rental income ����������������������� 121,350 126,000 131,110 136,680 142,590 148,830 155,330 162,180 169,480 177,100 185,370 64 Exception from passive loss rules for $25,000 of rental loss ��������������������������������������������������������������� 7,410 7,710 8,060 8,390 8,730 9,080 9,440 9,750 10,100 10,490 10,860 65 Credit for low-income housing investments ����������������� 420 420 450 450 460 470 490 500 510 530 550 66 Accelerated depreciation on rental housing (normal tax method) ������������������������������������������������������������� 1,730 2,210 2,930 3,670 4,210 4,870 5,540 6,180 6,780 7,350 7,900 67 Discharge of mortgage indebtedness �������������������������� 310 0 0 0 0 0 0 0 0 0 0 68