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A BUDGET FOR A Better America PROMISES KEPT. TAXPAYERS FIRST. Analytical Perspectives FISCAL YEAR 2020 BUDGET OF THE U.S. GOVERNMENT THE BUDGET DOCUMENTS Budget of the United States Government, Fiscal Year 2020 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 2020 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. Supplemental tables and other materials that are part of the Analytical Perspectives volume are available at https://www.whitehouse.gov/omb/ analytical-perspectives/. Appendix, Budget of the United States Government, Fiscal Year 2020 contains detailed information on the various appropriations and funds that constitute the budget and is designed primarily for the use of the Appropriations Committees. The Appendix contains more detailed financial information on individual programs and appropriation accounts than any of the other budget documents. It includes for each agency: the proposed text of appropriations language; budget schedules for each account; legislative proposals; narrative explanations of each budget account; and proposed general provisions applicable to the appropriations of entire agencies or group of agencies. Information is also 6-095073-5 provided on certain activities whose transactions are not part of the budget totals. Major Savings and Reforms, Fiscal Year 2020, which accompanies the President’s Budget, contains detailed information on major savings and reform proposals. The volume describes both major discretionary program eliminations and reductions and mandatory savings proposals. BUDGET INFORMATION AVAILABLE ONLINE The President’s Budget and supporting materials are available online at https://www.whitehouse. gov/omb/budget/. This link includes electronic versions of all the budget volumes, supplemental materials that are part of the Analytical Perspectives volume, spreadsheets of many of the budget tables, and a public use budget database. This link 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 2020 or 2024. Also available are links to documents and materials from budgets of prior years. The budget documents and other supplemental materials included at this link were previously included on the Budget CD-ROM, which is no longer made available. For more information on access to electronic versions of the budget documents, call (202) 512-1530 in the D.C. area or toll-free (888) 293-6498. To purchase the 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 the Budget was prepared, five of the annual appropriations bills for 2019 had been enacted (the Energy and Water Development and Related Agencies Appropriations Act, 2019; the Legislative Branch Appropriations Act, 2019; the Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2019; the Department of Defense Appropriations Act, 2019; and the Departments of Labor, Health and Human Services, and Education, and Related Agencies Appropriations Act, 2019). The programs and activities provided for in the seven remaining 2019 annual appropriations bills were operating under a continuing resolution (Public Law 115-245, as amended). For these programs, references to 2019 spending in the text and tables reflect the levels provided by the continuing resolution (except for the Major Savings and Reforms (MSV) volume which was written following enactment of all appropriations and reflects 2019 enacted for all programs). 3. Detail in this document may not add to the totals due to rounding. U.S. GOVERNMENT PUBLISHING OFFICE, WASHINGTON 2019 90000 For sale by the Superintendent of Documents, U.S. Government Publishing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001 I S B N 978-0-16-095073-5 TABLE OF CONTENTS Page List of Charts and Tables ����������������������������������������������������������������������������������������������������������������������� v Introduction 1. Introduction ����������������������������������������������������������������������������������������������������������������������������������3 Economic Assumptions and Overview 2. Economic Assumptions and Overview������������������������������������������������������������������������������������������9 3. Long-Term Budget Outlook��������������������������������������������������������������������������������������������������������19 4. Federal Borrowing and Debt�������������������������������������������������������������������������������������������������������27 Performance and Management 5. Social Indicators��������������������������������������������������������������������������������������������������������������������������45 6. Building and Using Evidence to Improve Government Effectiveness��������������������������������������59 7. Strengthening the Federal Workforce����������������������������������������������������������������������������������������67 8. Reorganization ����������������������������������������������������������������������������������������������������������������������������79 9. Payment Integrity�����������������������������������������������������������������������������������������������������������������������83 10. Federal Real Property�����������������������������������������������������������������������������������������������������������������95 Budget Concepts and Budget Process 11. Budget Concepts������������������������������������������������������������������������������������������������������������������������101 12. Coverage of the Budget�������������������������������������������������������������������������������������������������������������125 13. Budget Process���������������������������������������������������������������������������������������������������������������������������131 14. Governmental Receipts�������������������������������������������������������������������������������������������������������������147 15. Offsetting Collections and Offsetting Receipts������������������������������������������������������������������������157 16. Tax Expenditures�����������������������������������������������������������������������������������������������������������������������171 Special Topics 17. Aid to State and Local Governments����������������������������������������������������������������������������������������231 18. Strengthening Federal Statistics����������������������������������������������������������������������������������������������249 19. Information Technology�������������������������������������������������������������������������������������������������������������255 20. Federal Investment�������������������������������������������������������������������������������������������������������������������261 21. Research and Development�������������������������������������������������������������������������������������������������������267 iii Page 22. Credit and Insurance����������������������������������������������������������������������������������������������������������������275 23. Budgetary Effects of the Troubled Asset Relief Program��������������������������������������������������������295 24. Cybersecurity Funding��������������������������������������������������������������������������������������������������������������305 25. Federal Drug Control Funding�������������������������������������������������������������������������������������������������311 Technical Budget Analyses 26. Current Services Estimates������������������������������������������������������������������������������������������������������315 27. Trust Funds and Federal Funds�����������������������������������������������������������������������������������������������327 28. Comparison of Actual to Estimated Totals�������������������������������������������������������������������������������341 *Available on the Internet at http://www.whitehouse.gov/omb/analytical-perspectives/ iv LIST OF CHARTS AND TABLES v LIST OF CHARTS AND TABLES LIST OF CHARTS Page 2–1. Range of Uncertainty for the Budget Deficit�����������������������������������������������������������������������������17 3–1. Comparison of Publicly Held Debt����������������������������������������������������������������������������������������������19 3–2. Comparison of Annual Surplus/Deficit���������������������������������������������������������������������������������������21 3–3. Alternative Productivity and Interest Assumptions������������������������������������������������������������������22 3–3. Alternative Health Care Costs����������������������������������������������������������������������������������������������������22 3–5. Alternative Discretionary Assumptions�������������������������������������������������������������������������������������23 3–6. Alternative Revenue Assumptions���������������������������������������������������������������������������������������������23 3–7. Long Term Uncertainties������������������������������������������������������������������������������������������������������������24 7–1. Masters Degree or Above by Year for Federal and Private Sectors������������������������������������������68 7–2. High School Graduate or Less by Year for Federal and Private Sectors����������������������������������68 7–3. Average Age by Year for Federal and Private Sectors���������������������������������������������������������������69 7–4. Government-Wide On-Board U.S. Distribution 10-1-1978��������������������������������������������������������69 7–5. Government-Wide On-Board U.S. Distribution 06-30-2018������������������������������������������������������70 7–6. The Human Capital Business Reference Model (HCBRM)�������������������������������������������������������71 7–7. Average Compensation of Federal and Private-Sector Workers by Educational Attainment����������������������������������������������������������������������������������������������������������73 11–1. Relationship of Budget Authority to Outlays for 2020�����������������������������������������������������������114 13–1. Scoring of $288 Million NIST Renovation Project using the Federal Capital Revolving Fund�������������������������������������������������������������������������������������������139 19–1. Trends in Federal Civilian IT Spending����������������������������������������������������������������������������������256 19–2. 2020 Federal Civilian IT Investment Portfolio Summary������������������������������������������������������256 19–3. Percentage of 2020 Federal Civilian IT Spending by Number of Investments���������������������257 19–4. CIO Risk Ratings for Federal Civilian Major IT Investments�����������������������������������������������257 22–1. Face Value of Federal Credit Outstanding������������������������������������������������������������������������������289 vii LIST OF TABLES Economic Assumptions and Overview Page Economic Assumptions and Overview 2–1. Economic Assumptions ������������������������������������������������������������������������������������������������������ 2–2. Comparison of Economic Assumptions in the 2019 and 2020 Budgets �������������������������� 2–3. Comparison of Economic Assumptions ����������������������������������������������������������������������������� 2–4. Sensitivity of the Budget to Economic Assumptions ������������������������������������������������������ 2–5. Forecast Errors, 1985-Present ������������������������������������������������������������������������������������������ 2–6. Differences Between Estimated and Actual Surpluses or Deficits for Five-Year Budget Estimates Since 1985 ���������������������������������������������������������������������� 10 11 12 13 14 14 Long-Term Budget Outlook 3–1. 25–Year Debt Projections Under Alternative Budget Scenarios ������������������������������������� 21 3–2. Intermediate Actuarial Projections for OASDI and HI, 2018 Trustees’ Reports ����������� 24 Federal Borrowing and Debt 4–1. Trends in Federal Debt Held by the Public and Interest on the Debt Held by the Public ������������������������������������������������������������������������������������������������� 4–2. Federal Government Financing and Debt ������������������������������������������������������������������������ 4–3. Debt Held by the Public Net of Financial Assets and Liabilities ������������������������������������ 4–4. Agency Debt ����������������������������������������������������������������������������������������������������������������������� 4–5. Debt Held by Government Accounts ��������������������������������������������������������������������������������� 4–6. Federal Funds Financing and Change in Debt Subject to Statutory Limit ������������������� 4–7. Foreign Holdings of Federal Debt ������������������������������������������������������������������������������������� 28 30 33 35 37 39 41 Performance and Management Social Indicators 5–1. Social Indicators ���������������������������������������������������������������������������������������������������������������� 48 5–2. Sources For Social Indicators �������������������������������������������������������������������������������������������� 53 Building and Using Evidence to Improve Government Effectiveness 6–1. NDNH Access Proposals ���������������������������������������������������������������������������������������������������� 65 Strengthening the Federal Workforce 7–1. Federal Civilian Employment in the Executive Branch �������������������������������������������������� 7–2. Total Federal Employment ������������������������������������������������������������������������������������������������ 7–3. Occupations of Federal and Private Sector Workforces ��������������������������������������������������� 7–4. Personnel Pay and Benefits ����������������������������������������������������������������������������������������������� 72 73 74 75 Payment Integrity 9–1. Summary of Payment Integrity Initiatives ���������������������������������������������������������������������� 92 Federal Real Property 10–1. FY 2016 Inventory of Federal Assets, Owned and Leased ���������������������������������������������� 95 Budget Concepts and Budget Process Budget Concepts Budget Calendar ����������������������������������������������������������������������������������������������������������������������������� 103 11–1. Totals for the Budget and the Federal Government ������������������������������������������������������ 108 ix Page Coverage of the Budget 12–1. Comparison of Total, On-Budget, and Off-Budget Transactions ����������������������������������� 126 Budget Process 13–1. Program Integrity Discretionary Cap Adjustments, Including Mandatory Savings ��� 132 13–2. Proposed Program Integrity Cap Adjustment for the Internal Revenue Service (IRS) ����������������������������������������������������������������������������������� 134 13–3. Discretionary Pell Funding Needs ���������������������������������������������������������������������������������� 137 Governmental Receipts 14–1. Receipts By Source—Summary �������������������������������������������������������������������������������������� 14–2. Adjustments to the Balanced Budget and Emergency Deficit Control Act (BBEDCA) Baseline Estimates of Governmental Receipts �������������������������������������� 14–3. Effect of Budget Proposals ���������������������������������������������������������������������������������������������� 14–4. Receipts By Source ���������������������������������������������������������������������������������������������������������� 147 148 152 154 Offsetting Collections and Offsetting Receipts 15–1. Offsetting Collections and Offsetting Receipts from the Public ����������������������������������� 158 15–2. Summary of Offsetting Receipts by Type ����������������������������������������������������������������������� 159 15–3. Gross Outlays, User Charges, Other Offsetting Collections and Offsetting Receipts from the Public, and Net Outlays ����������������������������������������������������������������������������������������� 159 15–4. User Charge Proposals in the FY 2020 Budget ������������������������������������������������������������ 168 15–5. Offsetting Receipts by Type ������������������������������������������������������������������������������������������������� * 15–6. Offsetting Collections and Offsetting Receipts, Detail—FY 2020 Budget ������������������������� * Tax Expenditures 16–1. Estimates of Total Income Tax Expenditures for Fiscal Years 2018–2028 ������������������� 16–2A. Estimates of Total Corporate Income Tax Expenditures for Fiscal Years 2018-2028 ������������������������������������������������������������������������������������������������ 16–2B. Estimates of Total Individual Income Tax Expenditures for Fiscal Years 2018–2028 ������������������������������������������������������������������������������������������������ 16–3. Income Tax Expenditures Ranked by Total Fiscal Year 2019-2028 Projected Revenue Effect ��������������������������������������������������������������������������������������������� 16–4. Present Value of Selected Tax Expenditures for Activity in Calendar Year 2018 �������� 16–5. Comparison of Current Tax Expenditures With Those Implied by a Comprehensive Income Tax ����������������������������������������������� 16–6. Comparison of Current Tax Expenditures With Those Implied by a Comprehensive Consumption Tax ���������������������������������������������� 174 181 188 195 199 220 221 Special Topics Aid to State and Local Governments 17–1. Trends in Federal Grants to State and Local Governments ����������������������������������������� 232 17–2. Federal Grants to State and Local Governments—Budget Authority and Outlays ���� 238 17–3. Summary of Programs by Agency, Bureau, and Program �������������������������������������������������� * 17–4. Summary of Programs by State ������������������������������������������������������������������������������������������� * 17–5.—17–39. 2020 Budget State-by-State Tables ����������������������������������������������������������������������� * Strengthening Federal Statistics 18–1. 2018–2020 Budget Appropriations for Principle Statistical Agencies �������������������������� 254 *Available on the Internet at http://www.whitehouse.gov/omb/analytical-perspectives/ x Page Information Technology 19–1. Overview of Federal IT Spending ����������������������������������������������������������������������������������� 255 19–2. Estimated FY 2020 Civilian Federal IT Spending and Percentage by Agency ������������ 255 Federal Investment 20–1. Composition of Federal Investment Outlays ������������������������������������������������������������������ 262 20–2. Federal Investment Budget Authority and Outlays: Grant and Direct Federal Programs ���������������������������������������������������������������������������������������������� 264 Research and Development 21–1. Total Federal R&D Funding By Agency at the Bureau or Account Level ������������������� 267 21–2. Federal Research and Development Spending ������������������������������������������������������������� 271 Credit and Insurance 22–1. Estimated Future Cost of Outstanding Federal Credit Programs ������������������������������� 290 22–2. Direct Loan Subsidy Rates, Budget Authority, and Loan Levels, 2018–2020 �������������� 291 22–3. Loan Guarantee Subsidy Rates, Budget Authority, and Loan Levels, 2018–2020 ������� 292 22–4. Summary of Federal Direct Loans and Loan Guarantees ��������������������������������������������� 293 22–5. Reestimates of Credit Subsidies on Loans Disbursed Between 1992-2018 ����������������������� * 22–6. Face Value of Government-Sponsored Lending ������������������������������������������������������������������ * 22–7. Lending and Borrowing by Government-Sponsored Enterprises (GSEs) ������������������������� * 22–8. Direct Loan Transactions of the Federal Government ������������������������������������������������������� * 22–9. Guaranteed Loan Transactions of the Federal Government ���������������������������������������������� * Budgetary Effects of the Troubled Asset Relief Program 23–1. Change in Programmatic Costs of Troubled Asset Relief Program ����������������������������� 23–2. Troubled Asset Relief Program Current Value �������������������������������������������������������������� 23–3. Troubled Asset Relief Program Effects on the Deficit and Debt ����������������������������������� 23–4. Troubled Asset Relief Program Effects on the Deficit and Debt Calculated on a Cash Basis ����������������������������������������������������������������������������������������� 23–5. Troubled Asset Relief Program Reestimates ������������������������������������������������������������������ 23–6. Detailed TARP Program Levels and Costs ��������������������������������������������������������������������� 23–7. Comparison of CBO and OMB TARP Costs ������������������������������������������������������������������� 295 296 298 298 299 300 301 Cybersecurity Funding 24–1. Agency Cybersecurity Funding Totals ���������������������������������������������������������������������������� 306 24–2. NIST Framework Function Civilian CFO Act Agency Funding Totals ������������������������ 306 24–3. Civilian Agency Cybersecurity Funding By Bureau ������������������������������������������������������ 307 Federal Drug Control Funding 25–1. Drug Control Funding FY 2018–FY 2020 ���������������������������������������������������������������������� 311 Technical Budget Analyses Current Services Estimates 26–1. Category Totals for the Adjusted Baseline ��������������������������������������������������������������������� 315 26–2. Summary of Economic Assumptions ������������������������������������������������������������������������������ 318 26–3. Baseline Beneficiary Projections for Major Benefit Programs �������������������������������������� 319 26–4. Impact of Regulations, Expiring Authorizations, and Other Assumptions in the Baseline �������������������������������������������������������������������������������������������� * *Available on the Internet at http://www.whitehouse.gov/omb/analytical-perspectives/ xi Page 26–5. 26–6. 26–7. 26–8. 26–9. 26–10. 26–11. 26–12. Receipts by Source in the Projection of Adjusted Baseline ������������������������������������������� 320 Effect on Receipts of Changes in the Social Security Taxable Earnings Base ������������� 320 Change in Outlay Estimates by Category in the Adjusted Baseline ���������������������������� 321 Outlays by Function in the Adjusted Baseline �������������������������������������������������������������� 322 Outlays by Agency in the Adjusted Baseline ����������������������������������������������������������������� 323 Budget Authority by Function in the Adjusted Baseline ���������������������������������������������� 324 Budget Authority by Agency in the Adjusted Baseline ������������������������������������������������� 325 Current Services Budget Authority and Outlays by Function, Category, and Program ��� * Trust Funds and Federal Funds 27–1. Receipts, Outlays and Surplus or Deficit by Fund Group ��������������������������������������������� 27–2. Comparison of Total Federal Fund and Trust Fund Receipts to Unified Budget Receipts, Fiscal Year 2018 ����������������������������������������������������������������� 27–3. Income, Outgo, and Balances of Trust Funds Group ����������������������������������������������������� 27–4. Income, Outgo, and Balances of Major Trust Funds ������������������������������������������������������ 27–5. Income, Outgo, and Balances of Selected Special Funds ����������������������������������������������� Comparison of Actual to Estimated Totals 28–1. Comparison of Actual 2018 Receipts with the Initial Current Services Estimates ����� 28–2. Comparison of Actual 2018 Outlays with the Initial Current Services Estimates ������ 28–3. Comparison of the Actual 2018 Deficit with the Initial Current Services Estimate ��� 28–4. Comparison of Actual and Estimated Outlays for Mandatory and Related Programs Under Current Law ����������������������������������������������������������������������� 28–5. Reconciliation of Final Amounts for 2018 ���������������������������������������������������������������������� 328 330 331 333 340 341 342 343 344 345 Detailed Functional Tables 29–1. Budget Authority and Outlays by Function, Category and Program ����������������������������������� * Federal Budget by Agency and Account 30–1. Federal Budget by Agency and Account ��������������������������������������������������������������������������������� * California Bay Delta Federal Budget Crosscut Report �������������������������������������������������������������������� .* Columbia River Basin Federal Budget Crosscut Report ������������������������������������������������������������������� * *Available on the Internet at http://www.whitehouse.gov/omb/analytical-perspectives/ xii INTRODUCTION 1 2 1. INTRODUCTION The Analytical Perspectives volume presents analyses that highlight specific subject areas or provide other significant data that place the President’s 2020 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. In addition to the information included in this volume, supplemental tables and other materials that are part of the Analytical Perspectives volume are available at http://www.whitehouse.gov/omb/analytical-perspectives. All of the supplemental information included at this link was previously included on the Budget CD-ROM, which is no longer made available. Tables included at this link 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 Overview. This chapter reviews recent economic developments; presents the Administration’s assessment of the economic situation and outlook; compares the economic assumptions on which the 2020 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 evidence-building strategies to learn and improve, including learning agendas, program evaluation, harnessing data, and promoting transparency and accountability. 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. Reorganization. This chapter describes activities to modernize the Federal Government for today’s mission needs through reorganization, including where the Administration is focusing to improve the efficiency, effectiveness, and accountability of the Executive Branch. Payment Integrity. This chapter addresses proposals aimed at bolstering payment integrity by taking steps intended to help prevent improper payments, through initiatives such as increasing data access, providing needed authorities to correct known mistakes prior to payment, increasing use of analytics, improving pre-payment reviews, and simplifying program access to reduce complicated eligibility requirements. If adopted, the proposals will help shape a Budget that improves mission support and enhances mission accomplishment while providing better stewardship of taxpayer resources. Federal Real Property. This chapter provides background on the Government-wide real property portfolio, summarizes recent actions taken to improve governance and management of the program, and addresses proposals to optimize the Government’s real property portfolio for mission effectiveness and cost efficiency. 3 4 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, fiscal sustainability, and transparency 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 2020 Budget. Offsetting Collections and Offsetting Receipts. This chapter presents information on collections that offset outlays, including collections from transactions with the public and intragovernmental transactions. In addition, this chapter presents information on “user fees,” charges associated with market-oriented activities and regulatory fees. The user fee information includes a description of each of the user fee proposals in the 2020 Budget. A detailed table, “Table 15–5, Offsetting Receipts by Type” is available at the internet address cited above. 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. 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 2020 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 ANALYTICAL PERSPECTIVES 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 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. Budgetary Effects of the Troubled Asset Relief Program. This 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. 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. 5 1. Introduction Comparison of Actual to Estimated Totals. This chapter compares the actual receipts, outlays, and deficit for 2018 with the estimates for that year published in the 2018 Budget, published in May 2017. The following materials are available at the internet address cited above: Detailed Functional Table Detailed Functional Table. Table 29–1, “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 Federal Budget by Agency and Account. Table 30–1, “Federal Budget by Agency and Account,” displays budget authority and outlays for each account, organized by Agency, bureau, fund type, and account. California Bay-Delta Federal Budget Crosscut California Bay-Delta Federal Budget Crosscut. The California Bay-Delta interagency budget crosscut report 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. Columbia River Basin Federal Budget Crosscut Columbia River Basin Federal Budget Crosscut. The Columbia River interagency budget crosscut report includes an estimate of Federal funding by each of the participating Federal agencies to carry out restoration activities within the Columbia River Basin, fulfilling the reporting requirements of section 123 of the Clean Water Act (Public Law 114–322). ECONOMIC ASSUMPTIONS AND OVERVIEW 7 8 2. ECONOMIC ASSUMPTIONS AND OVERVIEW This chapter presents the economic assumptions that underlie the Administration’s Fiscal Year 2020 Budget.1 It describes the recent performance of the American economy, explains the Administration’s projections for key macroeconomic variables, contrasts them with forecasts prepared by other prominent institutions and discusses the uncertainty inherent in producing an eleven-year forecast. The economy of the United States is thriving. Unemployment has reached its lowest level in half a century. Inflation remains on target. Real wages have seen sustained growth. Investment has increased. Yet there are head winds facing this economy, which must be navigated with care. The fiscal deficit has swollen. Labor force participation has stabilized only after a protracted period of decline. Productivity growth, despite recent improvement, remains below the post-war average. The integration of Artificial Intelligence into the economy provides both opportunities and dangers. The United States approaches the next decade with the ability to solve the major challenges confronting it. Whether we do will define the next American century. This chapter proceeds as follows: • The first section provides an overview of the recent performance of the U.S. economy, examining a broad array of key economic indicators. • The second section provides a detailed exposition of the Administration’s economic assumptions for the FY 2020 Budget, discussing how key macroeconomic variables are expected to evolve over the years 2019 to 2029. • The third section compares the forecast of the Ad- ministration with those prepared by the Congressional Budget Office, the Federal Open Market Committee of the Federal Reserve, and the Blue Chip panel of private sector forecasters. • The fourth section discusses the sensitivity of the Administration’s projections of Federal receipts and outlays to fluctuations in macroeconomic variables. • 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 understand- 1 Economic performance, unless otherwise specified, is generally discussed in terms of calendar years (Jan-Dec). Budget figures are discussed in terms of fiscal years (Oct-Sep). 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. ing and insight into the uncertainty associated with the Administration’s current forecast of the budget balance. Recent Economic Performance3 The U.S. economy continues to exhibit vibrant growth. Real Gross Domestic Product (GDP) experienced 3.1 percent growth during the four quarters of 2018. This compares to an average of 2.1 percent between 2010 and 2016. Among the demand components of increase in real GDP, private consumption contributed 1.8 percent, private investment contributed 1.2 percent, government purchases contributed 0.3 percent, and net exports made a negative contribution of -0.3 percent. On the supply side, nonfarm business sector output per hour increased at an average pace of 1.8 percent over the first three quarters of 2018. This is elevated from an annual average of 0.7 percent growth between 2010 and 2016. While encouraging, the U.S worker’s productivity growth remains lower than it has been historically. The 1947 to 2016 long-run average was 2.3 percent. The Administration aims to raise productivity growth through cutting red tape, lowering barriers to market entry, increased business and labor dynamism, investment in deteriorating public infrastructure and a new tax structure that encourages business investment. Higher productivity growth is a top priority for Administration economic policy. Labor Markets—Labor markets continued to improve in 2018 across a broad array of metrics. The civilian unemployment rate declined, falling from 4.7 percent at the end of 2016 to a nadir of 3.7 percent in 2018, the lowest rate since November 1969 (at that time over three million individuals were serving in the military), and well below the post-war average of 5.8 percent. There were 7.3 million job openings in December 2018, exceeding the number of unemployed. During the 12 months of 2018, the labor force participation rate averaged 62.9 percent, edging up slightly from 62.7 percent in 2015. The participation rate has stabilized somewhat following a steep decline since 2000, but demographic forces are expected to exert continued downward pressure as the baby boom generation continues retiring in large numbers. This must be mitigated by greater opportunities for marginalized individuals to leave the sidelines of the economy. Increasing health improvements and less physically-demanding jobs may increase participation among traditional retirement-age individuals, which could be decisive in allowing the United States to cope with a greying population. 3 The statistics in this section are based on information available in February 2019. 9 10 ANALYTICAL PERSPECTIVES Table 2–1. ECONOMIC ASSUMPTIONS 1 (Calendar Years, Dollar Amounts in Billions) Actual 2017 Projections 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Gross Domestic Product (GDP) Levels, Dollar Amounts in Billions: Current Dollars �������������������������������������������������������� Real, Chained (2012) Dollars ���������������������������������� Chained Price Index (2012=100), Annual Average ��� 19,485 18,051 107.9 20,497 18,575 110.3 21,565 19,167 112.5 22,694 19,767 114.8 23,851 20,368 117.1 25,061 20,979 119.5 26,330 21,608 121.9 27,665 22,256 124.3 29,050 22,910 126.8 30,475 23,560 129.4 31,957 24,219 132.0 33,512 24,897 134.6 35,141 25,594 137.3 Percent Change, Fourth Quarter over Fourth Quarter: Current Dollars �������������������������������������������������������� Real, Chained (2012) Dollars ���������������������������������� Chained Price Index (2012=100) ����������������������������� 4.5 2.5 2.0 5.3 3.1 2.1 5.3 3.2 2.0 5.2 3.1 2.0 5.1 3.0 2.0 5.1 3.0 2.0 5.1 3.0 2.0 5.1 3.0 2.0 5.0 2.9 2.0 4.9 2.8 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 ������������������������������������������������ Nonwage Personal Income �������������������������������������� 1650 10,407 8,454 4,863 1760 10,878 8,850 5,104 1864 11,364 9,242 5,426 1862 11,945 9,717 5,902 1846 12,588 10,248 6,248 1814 13,296 10,832 6,548 1793 14,041 11,446 6,833 1780 14,830 12,068 7,073 1783 15,657 12,732 7,327 1764 16,516 13,424 7,594 1739 17,416 14,160 7,895 1708 18,366 14,929 8,149 1670 19,349 15,753 8,427 245.1 251.2 256.6 262.4 268.3 274.4 280.6 287.0 293.5 300.1 306.9 313.9 321.0 2.1 2.3 2.2 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 4.4 3.9 3.6 3.6 3.7 3.9 4.0 4.1 4.2 4.2 4.2 4.2 4.2 1.9 2.9 2.7 3.4 3.1 3.6 3.2 3.8 3.2 3.8 3.1 3.7 3.0 3.7 3.0 3.7 3.0 3.7 3.0 3.7 3.0 3.7 3.0 3.7 Consumer Price Index (All Urban) 3: Level (1982-1984 = 100), Annual Average �������������� Percent Change, Fourth Quarter over Fourth Quarter ��������������������������������������������������������������� Unemployment Rate, Civilian, Percent Annual Average ������������������������������������������������������� Interest Rates, Percent 91-Day Treasury Bills 2 �������������������������������������������� 0.9 10-Year Treasury Notes ������������������������������������������� 2.3 1 Based on information available as of mid-November 2018 2 Average rate, secondary market (bank discount basis) 3 Seasonally Adjusted The portion of the labor force employed part-time for economic reasons has fallen to 2.9 percent in December 2018, well below a peak of over 6.0 percent during the Great Recession. Furthermore, the share of unemployed that have been job hunting for longer than 27 weeks has fallen to 18.4 percent, from a peak of nearly 50 percent during the Great Recession. This is the most taut labor market in more than a generation. In spite of these encouraging indicators, several metrics suggest that the labor market has further room to improve. Compared with the last business cycle peak in 2007, the portion of the labor force working part-time for economic reasons and the portion unemployed for more than 27 weeks are both 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. Labor force participation has fallen from 67.3 percent in January 2000 to 63.1 percent in December 2018. 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) which fell 2.2 percentage points from 2000 to 2018. This suggests a need for policy alteration, removing impediments and disincentives for individuals to participate. Of special concern are NEET young adults (Not in Education, Employment or Training, age 20-24), which made up 14 percent of their cohort in 2017. Transition into the labor market is crucial to assuring their future as healthy, productive adults. Administration policies encouraging more individuals to join the labor force may cause short term increases in the unemployment rate, but these actions are beneficial to the economy. Consumption—Consumer spending increased by an average of 2.7 percent over the four quarters ending 2018:Q4. This was driven by increased purchases of a variety of goods and services, including, recreational goods and vehicles (0.2 p.p.), food and beverages (0.1 p.p.), health care (0.3 p.p.), clothing and footwear (0.1 p.p.) and financial services and insurance (0.1 p.p.). Spending on gasoline and other energy goods was slightly negative, due to low prices generated by increased supply and the falling costs of renewable energy. The personal savings rate averaged 6.7 percent over the first 10 months of 2018, above its 20-year average of 5.9 percent, and household debt service payments have fallen to 9.8 percent of disposable income in 2018:Q3, from a peak of 13.2 in 2007:Q4. This above-average saving rate suggests that the pace of consumption is sustainable and is a positive development. Investment—Nonresidential fixed investment increased by an average of 7.2 percent the four quarters ending 2018:Q4, 5.4 percentage points higher than in 2016. Private Investment contributed an average of 1.2 11 2. Economic Assumptions and Overview Table 2–2. COMPARISON OF ECONOMIC ASSUMPTIONS IN THE 2019 AND 2020 BUDGETS (Calendar Years, Dollar Amounts in Billions) 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Real GDP (Percent Change)1: 2019 Budget Assumptions ����������������������������� 2020 Budget Assumptions ����������������������������� 2.5 2.5 3.1 3.1 3.2 3.2 3.1 3.1 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 2.9 2.9 2.8 2.8 2.8 2.8 2.8 2.8 GDP Price Index (Percent Change)1: 2019 Budget Assumptions ����������������������������� 2020 Budget Assumptions ����������������������������� 1.6 2.0 1.6 2.1 1.8 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 2.0 2.0 2.0 Consumer Price Index (All-Urban; Percent Change)1: 2019 Budget Assumptions ����������������������������� 2020 Budget Assumptions ����������������������������� 2.1 2.1 1.9 2.3 2.0 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 2.3 2.3 Civilian Unemployment Rate (Percent)2: 2019 Budget Assumptions ����������������������������� 2020 Budget Assumptions ����������������������������� 4.4 4.4 3.9 3.9 3.7 3.6 3.8 3.6 3.9 3.7 4.0 3.9 4.2 4.0 4.3 4.1 4.5 4.2 4.7 4.2 4.8 4.2 4.8 4.2 91-Day Treasury Bill Rate (Percent)2: 2019 Budget Assumptions ����������������������������� 2020 Budget Assumptions ����������������������������� 0.9 0.9 1.5 1.9 2.3 2.7 2.9 3.1 3.0 3.2 3.0 3.2 2.9 3.1 2.9 3.0 2.9 3.0 2.9 3.0 2.9 3.0 2.9 3.0 2.3 2.3 2.6 2.9 3.1 3.4 3.4 3.6 3.6 3.8 3.7 3.8 3.7 3.7 3.7 3.7 3.7 3.7 3.6 3.7 3.6 3.7 3.6 3.7 10-Year Treasury Note Rate (Percent)2: 2019 Budget Assumptions ����������������������������� 2020 Budget Assumptions ����������������������������� 1 % Change 4Q 2 Calendar Year Average p.p. to GDP during the four quarters of 2018. Equipment spending contributed 0.3 p.p., spending on structures 0.3 p.p., and spending on intellectual property products 0.5 p.p. Growth in overall private fixed investment (residential and nonresidential) was 7.6 percent in 2018, compared with 6.4 percent last year and 1.9 percent in 2016. The rapid growth of investment during the past year was encouraged by reductions in the cost of capital from the Tax Cut and Jobs Act, enacted in December 2017 but partially retroactive to 2017:Q4. Continued vigorous investment growth will lower the cost of capital and increase the return to labor, allowing for the American worker to make sustained gains in productivity and real wages. Government—Real government purchases (consumption and gross investment) increased at an average rate of 1.8 percent over the four quarters ending in Q4:2018. State and local governments’ purchases contributed 0.1 percent, while Federal purchases contributed 0.2 p.p., of which all was defense related, nondefense increases being negligible. The Federal deficit as a percentage of GDP increased to 3.9 percent in fiscal year 2018 from 3.5 percent in fiscal year 2017. Increasing deficits are anticipated to lead to higher interest rates and subsequent crowding out of private investment. Higher interest rates would raise the share of the budget devoted to debt servicing, creating a vicious cycle that must be avoided. Trade—Exports of goods and services increased an average rate of 2.4 percent in the four quarters ending 2018:Q4. Imports increased 3.6 percent over the same period. While cheap imports benefit the American consumer, this level of trade imbalance is not sustainable, and the reasons for this state of affairs (foreign protectionism, savings imbalance, high government debt, etc.) are being addressed by Administration policy. Monetary Policy—After holding the nominal federal funds rate near zero percent for seven years, the Federal Open Market Committee of the Federal Reserve began raising the federal funds rate at the end of 2015. The federal funds rate has steadily increased to 2.4 percent by January of 2019. This increase in the interest rate is meant to keep inflation low and avoid bubbles in financial markets. However, it also decreases investment and must be handled carefully to avoid adversely affecting growth. The Federal Reserve will need caution in order to walk the tightrope of its dual mandate to keep prices stable and maximize employment. Energy Supply—Higher energy prices act as a tax on consumers and producers, since nearly all consumption and production processes require energy input. An “all of the above” energy policy that both lowers energy prices and addresses negative externalities, has greased the wheels of economic growth. Smooth economic advancement requires independence from energy commodities produced by hostile actors. After a post-financial crisis agitation, energy prices have relaxed significantly, assisting in economic recovery. Between a 2008 peak and 2018:Q3, the price of natural gas decreased 48 percent, petroleum decreased 16 percent, coal increased by 42 percent, solar decreased by 80 percent and wind decreased by 30 percent.4 Average nuclear generation costs fell 18 percent 4 Renewable price estimates made by the International Renewable Energy Agency. 12 ANALYTICAL PERSPECTIVES Table 2–3. COMPARISON OF ECONOMIC ASSUMPTIONS 1 (Calendar Years, Dollar Amounts in Billions) 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Real GDP (Year-over-Year): 2020 Budget ��������������������������������������������������������� CBO ���������������������������������������������������������������������� Blue Chip 2 ����������������������������������������������������������������������������������� 2.9 2.9 2.9 3.2 2.7 2.6 3.1 1.9 1.8 3.0 1.6 1.8 3.0 1.6 1.9 3.0 1.7 2.1 3.0 1.8 2.1 2.9 1.8 2.0 2.8 1.7 2.0 2.8 1.8 2.0 2.8 1.8 2.0 2.8 1.8 2.0 Real GDP (Fourth-Quarter-over-Fourth-Quarter): 2020 Budget ��������������������������������������������������������� Federal Reserve 3 ������������������������������������������������� 3.1 3.0 3.2 2.3 3.1 2.0 3.0 1.8 3.0 1.9 3.0 1.9 3.0 1.9 2.9 1.9 2.8 1.9 2.8 1.9 2.8 1.9 2.8 1.9 Consumer Price Index (CPI-U): 2020 Budget ��������������������������������������������������������� CBO ���������������������������������������������������������������������� Blue Chip 2 ����������������������������������������������������������� Federal Reserve 3. 4 ���������������������������������������������� 2.5 2.5 2.5 1.9 2.1 2.1 2.3 1.9 2.3 2.6 2.3 2.1 2.3 2.6 2.2 2.1 2.3 2.5 2.2 2.0 2.3 2.5 2.3 2.0 2.3 2.4 2.2 2.0 2.3 2.3 2.2 2.0 2.3 2.3 2.2 2.0 2.3 2.3 2.2 2.0 2.3 2.3 2.2 2.0 2.3 2.4 2.2 2.0 Unemployment Rate: 2020 Budget ��������������������������������������������������������� CBO ���������������������������������������������������������������������� Blue Chip 2 ����������������������������������������������������������� Federal Reserve 3 ������������������������������������������������� 3.9 3.9 3.9 3.7 3.6 3.5 3.6 3.5 3.6 3.7 3.8 3.6 3.7 4.2 4.1 3.8 3.9 4.6 4.2 4.4 4.0 4.8 4.3 4.4 4.1 4.8 4.3 4.4 4.2 4.8 4.4 4.4 4.2 4.8 4.4 4.4 4.2 4.8 4.4 4.4 4.2 4.7 4.4 4.4 4.2 4.7 4.4 4.4 1.9 1.9 2.0 2.7 2.8 2.7 3.1 3.2 3.0 3.2 3.2 2.9 3.2 3.2 2.8 3.1 3.0 2.9 3.0 2.8 3.0 3.0 2.7 3.0 3.0 2.7 3.0 3.0 2.8 3.0 3.0 2.8 3.0 3.0 2.8 3.0 Interest Rates: 91-Day Treasury Bills (discount basis): 2020 Budget ��������������������������������������������������� CBO ���������������������������������������������������������������� Blue Chip 2 ����������������������������������������������������� 10-Year Treasury Notes 2020 Budget ��������������������������������������������������� 2.9 3.4 3.6 3.8 3.8 3.7 3.7 3.7 3.7 3.7 3.7 3.7 CBO ���������������������������������������������������������������� 2.9 3.4 3.6 3.7 3.7 3.8 3.7 3.7 3.7 3.7 3.7 3.8 Blue Chip 2 ����������������������������������������������������� 2.9 3.3 3.6 3.5 3.6 3.7 3.7 3.7 3.7 3.7 3.7 3.7 Sources: Administration; CBO, The Budget and Economic Outlook: 2019 to 2029, January 2019; October 2018 Blue Chip Economic Indicators, Aspen Publishers, Inc.; Federal Reserve Open Market Committee, December 19, 2018 1 Calendar Year 2 2025–2028 are 5 year averages 3 Median Projection 4 PCE Inflation between 2012 and 2017. This plunge in energy prices was prompted by an 87 percent increase in crude oil domestic production, 39 percent increase in natural gas domestic production and a 55 percent increase in renewable energy domestic production. Housing—2018 has been a kaleidoscopic year for the housing market. House prices, as measured by the Federal Housing Finance Agency’s (FHFA) purchase-only index, were 5.8 percent higher in November 2018 than in November 2017, continuing the trend from the previous year. This rate of increase may slow as interest rates rise. The year to date number of housing starts increased from 1.08 million in November 2017 to 1.12 million in November 2018. Building permits decreased 6.0 percent over the same period, and residential investment was zero over the four quarters ending in 2018:Q3. As the largest asset class, a stable and affordable housing market is of paramount importance to economic performance. External Sector—Internationally, economic prospects are less favorable than in the United States. According to the International Monetary Fund’s World Economic Outlook, January 2019, global growth for 2017 is estimated at 3.8 percent, forecast to decrease to 3.5 percent by 2019. The Euro area is projected to grow by 1.6 percent in 2019, down from 2.4 percent in 2017. This is partially propelled by expectations of a poorly organized departure of the United Kingdom from the European Union. In Asia, annual growth is projected to decrease in Japan from 1.7 percent in 2017 to 1.1 percent in 2019 and China from 6.9 to 6.2 percent However, not all of the Indo-Pacific has a stormy outlook. India is forecast to increase annual growth from 6.7 to 7.5 percent between 2017 and 2019. In addition, despite Venezuela’s economic hemorrhaging, there are bright spots throughout the American hemisphere. Latin America and the Caribbean is forecast to increase growth from 1.3 percent to 2.0 percent. Overall, any growth reversal among trading partners will depress U.S. growth and create difficulties for U.S exporters, while foreign growth will have the opposite effect. 13 2. Economic Assumptions and Overview Table 2–4. SENSITIVITY OF THE BUDGET TO ECONOMIC ASSUMPTIONS (Fiscal Years; In Billions Of Dollars) Budget Effect 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Total of Budget Effects: 2019– 2029 Real Growth and Employment: Budgetary effects of 1 percent lower real GDP growth: (1) For calendar year 2019 only, with real GDP recovery in 2019–2029: 1 Receipts ��������������������������������������������������������������������������������� Outlays ���������������������������������������������������������������������������������� Increase in deficit (+) �������������������������������������������������������� (2) For calendar year 2019 only, with no subsequent recovery: 1 Receipts ��������������������������������������������������������������������������������� Outlays ���������������������������������������������������������������������������������� Increase in deficit (+) �������������������������������������������������������� (3) Sustained during 2019–2029, with no change in unemployment: Receipts ��������������������������������������������������������������������������������� Outlays ���������������������������������������������������������������������������������� Increase in deficit (+) �������������������������������������������������������� –14.9 9.4 24.3 –23.3 19.9 43.2 –11.9 9.4 21.3 –1.8 3.1 4.9 0.2 2.9 2.7 0.2 2.8 2.6 0.2 2.8 2.6 0.2 2.8 2.7 0.2 2.9 2.7 0.2 3.0 2.8 0.2 3.1 2.9 –50.7 62.0 112.8 –14.9 9.4 24.3 –31.0 24.1 55.0 –36.4 24.2 60.6 –38.4 25.3 63.7 –40.4 27.3 67.7 –42.6 28.7 71.3 –44.6 30.9 75.5 –47.1 33.8 80.9 –49.5 36.6 86.1 –51.7 39.5 91.2 –54.2 42.3 96.6 –450.9 322.1 773.0 –14.9 0.1 15.0 –46.3 0.9 47.1 –85.0 –127.7 –174.0 –225.3 –279.3 –340.6 –405.3 –472.6 –547.1 2.7 5.6 9.1 13.2 18.3 24.9 32.9 42.2 52.6 87.7 133.3 183.0 238.5 297.7 365.5 438.3 514.7 599.7 –2,718.2 202.4 2,920.6 16.0 26.0 10.0 31.2 50.9 19.7 32.9 47.2 14.3 33.3 48.0 14.7 35.1 47.0 11.9 36.8 46.9 10.1 38.7 46.5 7.8 40.9 47.6 6.7 42.9 47.4 4.5 44.9 50.3 5.4 47.0 49.6 2.6 399.6 507.3 107.7 16.0 24.4 8.4 48.0 75.1 27.1 84.5 125.4 40.9 123.7 180.2 56.5 166.9 233.9 67.0 214.4 288.5 74.0 266.4 350.9 84.5 325.5 414.4 88.8 388.5 480.2 91.6 456.0 558.8 102.8 529.5 613.4 83.9 2,619.5 3,345.1 725.6 1.3 11.3 10.0 3.0 37.7 34.6 3.8 62.9 59.1 4.1 86.0 81.9 4.4 107.6 103.2 4.7 128.5 123.8 4.9 146.6 141.7 5.2 163.6 158.4 5.5 178.2 172.7 5.7 193.0 187.2 6.0 206.7 200.8 48.6 1,322.1 1,273.4 14.8 13.1 –1.6 45.0 37.5 –7.5 80.6 62.5 –18.1 119.4 94.3 –25.2 162.3 126.5 –35.9 209.5 160.1 –49.4 261.2 204.5 –56.7 319.9 251.0 –69.0 382.6 302.3 –80.3 449.7 522.9 366.2 407.2 –83.5 –115.7 2,567.8 2,025.0 –542.8 3.7 3.8 3.9 4.0 Inflation and Interest Rates: Budgetary effects of 1 percentage point higher rate of: (4) Inflation and interest rates during calendar year 2019 only: Receipts ��������������������������������������������������������������������������������� Outlays ���������������������������������������������������������������������������������� Increase in deficit (+) �������������������������������������������������������� (5) Inflation and interest rates, sustained during 2019–2029: Receipts ��������������������������������������������������������������������������������� Outlays ���������������������������������������������������������������������������������� Increase in deficit (+) �������������������������������������������������������� (6) Interest rates only, sustained during 2019–2029: Receipts ��������������������������������������������������������������������������������� Outlays ���������������������������������������������������������������������������������� Increase in deficit (+) �������������������������������������������������������� (7) Inflation only, sustained during 2019–2029: Receipts ��������������������������������������������������������������������������������� Outlays ���������������������������������������������������������������������������������� Decrease in deficit (–) ������������������������������������������������������� Interest Cost of Higher Federal Borrowing: (8) Outlay effect of 100 billion increase in borrowing in 2019 ��� 1.4 3.3 3.5 3.6 3.7 1 The unemployment rate is assumed to be 0.5 percentage point higher per 1 percent shortfall in the level of real GDP. Risks—There are several risks for the economy that are being watched very closely. Student loan debt has reached almost 1.6 trillion, doubling from 800 billion in 2010. The price of tuition, school fees and childcare has risen 34 percent since 2010, compared with just 16 percent for all items, making the cost of raising children unaffordable for many and potentially contributing to a falling birthrate5. Lending has increased, which is a positive development, but care must be taken that excessive leverage and risk 5 Dettling and Kearney (2014) find that an increase in costs associated with child rearing (such as housing) reduces fertility. 4.2 4.3 39.4 do not reprise the mistakes of the 2000s. The leveraged loan market recently passed $1 trillion, more than double 2010’s nominal level. The cryptocurrency bubble has partially deflated without significant impact, but similar manias always pose a volatile threat to the economy. The fiscal deficit has grown to $779 billion, 3.9 percent of GDP. Bringing the deficit under control while continuing to deliver high quality services is as difficult as it is crucial to the future prosperity of the American people. 14 ANALYTICAL PERSPECTIVES Table 2–5. FORECAST ERRORS, 1985-PRESENT REAL GDP ERRORS 2-Year Average Annual Real GDP Growth �������������������������������������������������������������������������������� Mean Error ������������������������������������������������������������������������������������������������������������������������������� Mean Absolute Error ���������������������������������������������������������������������������������������������������������������� Root Mean Square Error ��������������������������������������������������������������������������������������������������������� Administration 0.1 1.1 1.5 CBO -0.2 1.0 1.3 Blue Chip -0.2 1.0 1.3 6-Year Average Annual Real GDP Growth Mean Error ������������������������������������������������������������������������������������������������������������������������������� Mean Absolute Error ���������������������������������������������������������������������������������������������������������������� Root Mean Square Error ��������������������������������������������������������������������������������������������������������� 0.4 1.0 1.2 0.1 0.9 1.1 0.0 0.9 1.1 2-Year Average Annual Change in the Consumer Price Index Mean Error ������������������������������������������������������������������������������������������������������������������������������� Mean Absolute Error ���������������������������������������������������������������������������������������������������������������� Root Mean Square Error ��������������������������������������������������������������������������������������������������������� Administration 0.1 0.7 0.8 CBO 0.2 0.7 0.8 Blue Chip 1 -0.0 0.6 0.7 6-Year Average Annual Change in the Consumer Price Index Mean Error ������������������������������������������������������������������������������������������������������������������������������� Mean Absolute Error ���������������������������������������������������������������������������������������������������������������� Root Mean Square Error ��������������������������������������������������������������������������������������������������������� 0.1 0.5 0.6 0.3 0.5 0.7 0.1 0.3 0.4 2-Year Average 91-Day Treasury Bill Rate Mean Error ������������������������������������������������������������������������������������������������������������������������������� Mean Absolute Error ���������������������������������������������������������������������������������������������������������������� Root Mean Square Error ��������������������������������������������������������������������������������������������������������� Administration 0.3 1.0 1.2 CBO 0.6 0.9 1.3 Blue Chip 0.6 1.0 1.3 6-Year Average 91-Day Treasury Bill Rate Mean Error ������������������������������������������������������������������������������������������������������������������������������� Mean Absolute Error ���������������������������������������������������������������������������������������������������������������� Root Mean Square Error ��������������������������������������������������������������������������������������������������������� 1 Since 2003 0.9 1.4 1.7 1.4 1.5 1.8 1.5 1.6 1.9 INFLATION ERRORS INTEREST RATE ERRORS Economic Projections The Administration’s economic forecast is based on information available as of mid-November 2018. The forecast informs the Fiscal Year 2020 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. The Administration forecast was finalized on November 16, with data available at that date. Real GDP—In mid-November, when the forecast was finalized, the Administration projected that real GDP growth would achieve a four-quarter percent change of 3.1 in 2018. The pace of growth is projected to increase to 3.2 percent in 2019 before declining slightly to 2.8 at the end of the forecast window. The enactment of tax reform and the Administration’s additional policies for reducing the burden of unnecessarily complex regulation, building useful and efficient infrastructure, improving health care provision, enacting criminal justice reform and increasing labor force participation are expected to improve the supply side of the U.S. economy and achieve these growth rates. Unemployment—As of December 2018, the unemployment rate stood at 3.9 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 3.6 percent in 2019. As technology increases and the population becomes more mobile, the rate of non-cyclical unemployment will decrease. Interest Rates—As growth continues, the Administration expects that interest rates will begin to Table 2–6. DIFFERENCES BETWEEN ESTIMATED AND ACTUAL SURPLUSES OR DEFICITS FOR FIVE-YEAR BUDGET ESTIMATES SINCE 1985 (As a Percent of GDP) Estimate for Budget Year Plus: Current Year Estimate Mean Error ����������������������������������������������������������������������������� Mean Absolute Error ��������������������������������������������������������������� Root Mean Squared Error ������������������������������������������������������ Budget Year Estimate -0.5 1.0 1.4 One Year (BY + 1) 0.6 1.2 1.8 Two Years (BY + 2) 1.4 2.0 2.8 Three Years (BY + 3) 2.0 2.6 3.5 Four Years (BY + 4) 2.4 3.1 3.8 2.7 3.5 4.0 2. Economic Assumptions and Overview rise to values more consistent with historical experience. The rate on the 91-day Treasury bill is expected to rise from 1.9 percent in 2018 to 3.2 percent in 2021. As the economy grows, there is higher demand for money with which to make valuable investments. This means that the higher growth created by administration policy will lead to higher interest rates. Inflation—After years of the inflation rate being lower than targeted, it has finally begun to rise. The Administration expects CPI-U to rise to 2.3 percent in 2018 (on a fourth quarter-over-fourth quarter basis). A small and stable amount of inflation can facilitate economic growth and avoid a deflationary spiral, in which nobody wants to spend money today because their dollar will be worth more tomorrow. Changes in Economic Assumptions from Last Year’s Budget—Table 2-2 compares the Administration’s forecast for the FY 2020 Budget with that from the FY 2019 Budget. Compared with the previous forecast, the Administration expects real output growth to be unchanged. Both forecasts are predicated on the implementation of the Administration’s policies designed to boost productivity and labor force participation. The Administration’s expectations for inflation differ little from the previous forecast, except for slightly higher CPI inflation in the near term. The forecast for the unemployment rate is the first major deviation. The Administration now expects a lower long run rate of unemployment, reflecting technological advances that result in increased mobility and faster matching of job seekers and employers, Administration policy encouraging dynamism through opportunity zones, reduced licensing and worker training, and the rising value of labor caused by increased investment. The FY 2020 Budget predicts higher interest rates in the near term, which drop to broadly similar rates in the medium and long term. Comparison with Other Forecasts For some additional perspective on the Administration’s forecast, this section compares it with forecasts prepared around the same time 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 FOMC participants and Blue Chip panelists 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. 15 A second difference is the publication dates of the various forecasts. While the forecast published by the Administration is based on data available in mid-November, the Blue Chip long-term forecast is based on their October Survey, the FOMC projections were released in June, and the CBO forecast was published in August. 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. 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. See Table 2-3 for a comparison. 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, with a growth rate 0.3 percentage point faster than the next fastest forecast in 2019 and 0.8 percentage point faster than the next fastest forecast at the end of the forecast window. This reflects the Administration’s expectation 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. 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 2019. After 2019, all forecasters project a gradual uptick in the unemployment rate to their respective estimates of the long-term rate (4.2 percent for the Administration, 4.7 percent for the CBO, and 4.5 percent for the FOMC and 4.4 percent for the Blue Chip panel6). Interest Rates—There are not many 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-year Treasury note yield is expected to lie around 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 2.2 to 2.3 percent long-run rate, and the Federal Reserve predicts it will hit its target of 2.0 percent 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 6 As of February 2019 the CBO revised down their long run unemployment rate to 4.7 from 4.8, the F.O.M.C. to 4.4 from 4.5 and Blue Chip to 4.3 from 4.4. 16 ANALYTICAL PERSPECTIVES the economy enters a downturn, while increases in nominal spending on Social Security and other programs are dependent on consumer price inflation. A robust set of projections for macroeconomic variables assists in budget planning, but unexpected developments in the economy have ripple effects for Federal spending and revenues. This section seeks to provide an understanding of the magnitude of the effects that unforeseen changes in the economy can have on the budget. To make these assessments, the Administration relies on a set of heuristics 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 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, tax revenues would decline and 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, leading to secondary and tertiary changes that are difficult to predict. 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. 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 2019 that is followed by a subsequent recovery in 2020 and 2021. The unemployment rate is assumed to be half a percentage point higher in 2019 before returning to the baseline level in 2020 and 2021. • The next panel in the table reports the effect of a re- duction of one percentage point in real GDP growth in 2019 that is not subsequently made up by faster growth in 2020 and 2021. 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. • 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. 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 2020. This would result in a permanently higher price lev- el and level of nominal GDP over the course of the forecast horizon. • 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 next panel reports the effect on the deficit resulting from an increase in interest rates in every year of the forecast, with no accompanying increase in inflation. • 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. • Finally, the table shows the effect on the Budget deficit if the Federal government were to borrow an additional $100 billion in 2019, while all of the other projections remain constant. • These simple approximations that inform the sensi- tivity 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 past administration forecasts for real GDP, inflation, and short-term interest rates from 1985 to present day, 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 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 a harsher penalty to forecasts showing 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. 17 2. Economic Assumptions and Overview For real GDP growth rates, at both the 2-year and 6-year horizons, the mean forecast error suggests that all of the forecasts (the 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 past administration forecasts have tended to make slightly larger errors than the others. This could be due to incomplete adoption of the various administrations’ proposed policies. When it comes to inflation, the mean errors at the 2- and 6-year horizons are close to unbiased. 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. Finally, all of the forecasts have historically projected interest rates that were slightly higher than what later occurred. 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 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.7 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 Budget year to five years into the future. 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 2019 to 2024, 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. 7 Additionally, CBO has on average underestimated the deficit in their forecasts. Chart 2-1. Range of Uncertainty for the Budget Deficit Percent of GDP Deficit Forecast 10th Percenle 75th Percenle 95th Percenle 5 5th Percenle 25th Percenle 90th Percenle 0 -5 -10 2019 2020 2021 2022 2023 2024 3. LONG-TERM BUDGET OUTLOOK The 2020 President’s Budget improves the Federal Government’s long-term fiscal picture by 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 2020 Budget proposals (policy projections). Baseline projections indicate that the deficit and debt held by the public will continue at elevated levels beyond the 10-year window. Conversely, policy projections indicate that enacting the Budget’s proposed reforms could 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 is about the same in 2019 (80.3 percent) as in 2029 (80.4 percent). In contrast, the debt ratio is projected to be 72.1 percent in 2029 under the proposed policy changes. By the end of the 25-year horizon, there is a notable difference in the debt burden—57.6 percent of GDP under current policy compared to 26.5 percent of GDP under Budget policy. The savings proposed by the administration from 2020-2029 are a significant down payment toward reducing the debt and reaching a balanced budget by 2034. 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 2020 Budget in the second section. • The second section demonstrates how the Administration’s policies will alter the current trajectory of the Federal budget by reducing deficits and debt, and balancing the budget by 2034 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. 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. The FY 2018 and FY 2019 Budgets included separate economic assumptions for baseline and policy projections to ensure the policy projections accounted for the anticipated economic feedback resulting from proposed Administration policies. Due to the implementation of some of the major growth-enhancing policies, including the adoption of the Tax Cuts and Jobs Chart 3-1. Comparison of Publicly Held Debt Debt as a percent of GDP 90 80 Con nua on of Current Policies 70 60 50 2020 Budget Policy 40 30 20 10 0 19 20 Act (TCJA), there is less need to incorporate separate economic assumptions for baseline and policy projections. For this reason, we have returned to our previous methodology of using the same economic assumptions to underlie both the policy and baseline projections. 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 80.3 percent of GDP in 2019 to 82.7 percent of GDP in 2024 and then falls back to 80.4 percent of GDP in 2029. Beyond the 10-year horizon, debt continues to decrease slowly, reaching 57.6 percent of GDP by 2044, the end of the 25-year projection window. Key drivers of this decrease include the implementation of the TCJA and a slowing of the growth in the elderly as a share of the population. Implementation of TCJA and other Administration policies.—The baseline reflects the implementation of the TCJA and other Administration policies which improve the economic outlook in the 25-year window. Reductions of regulatory burden and permanent corporate income tax cuts have promoted job creation and will help offset the effects of rapid healthcare cost growth. Aging Population.—In the past several years, an aging population has put significant pressure on the Budget. Consistent with the demographic assumptions in the 2018 Medicare and Social Security Trustees’ reports, U.S. population growth slows during 25-year window while baby boomers retire through the mid-2030s. This slowdown drove baseline projections in past Budgets, as Social Security costs relative to GDP grew. Social Security costs relative to GDP have plateaued in this year’s baseline projections, and no longer contribute significantly to changes in the debt-to-GDP ratio over the 25-year window. Health Costs.—Healthcare costs per capita have risen much faster than per-capita GDP growth for decades, thus requiring both public and private spending on healthcare 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 1 The long-run baseline projections are consistent with the Budget’s baseline concept, which is explained in more detail in Chapter 26, “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. ANALYTICAL PERSPECTIVES public and private sectors, this slower per-enrollee growth is not projected to continue. Based on projections of Medicare enrollment and expenditures included in the 2018 Medicare Trustees Report, the projections here assume that Medicare per-beneficiary spending growth will increase, with the growth rate averaging about 1.0 percentage point 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.) Revenues and Discretionary Spending.—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.) This restrains deficits relative to GDP, partially offsetting the pressure from increases in spending for health programs. The Impact of 2020 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 2020 Budget proposals reduce deficits by decreasing non-defense discretionary and mandatory spending over the next 10 years while protecting or increasing funding for border security, addressing the opioid crisis, law enforcement, childcare, veterans’ healthcare, infrastructure, and workforce development. 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 to rise as the result of a growing economy. Details about the assumptions are available in the appendix. As shown in Chart 3-2, 2020 Budget policies reduce the deficit to 0.6 percent of GDP by 2029 and ultimately lead to a balanced budget by 2034. At the end of the 25-year horizon, the debt ratio would be the lowest since before 1981, 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 one illustrative target is reaching the average postwar debt ratio of 45 percent. Policy adjustments of about 0.5 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 to the postwar average by 2039, more than satisfying the definition of fiscal sustainability. The Budget achieves these fiscal goals through promoting 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 21 3. Long-Term Budget Outlook Chart 3-2. Comparison of Annual Surplus/Deficit Surplus (+)/Deficit (-) as a percent of GDP 4 2020 Budget Policy 2 0 -2 Con nua on of Current Policies -4 -6 -8 -10 -12 2000 2010 2020 increase of $52 billion to defense outlays for 2020, while continuing reductions of regulatory burden to 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, waste, and abuse from Medicare contributes to a lower debt and deficit in the long run. 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 2.6 percent of GDP, but a distribution of probable outcomes ranges from a deficit of 7.8 percent of GDP to a surplus of 2.7 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 2.2 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 2.2 percent per year and assume interest rates on 10-year Treasury securities of 3.7 percent. The alternative scenarios illustrate the effect of raising and lowering the projected productivity growth rate by 0.25 percentage point and changing interest rates commensurately. At the end of the 25-year 2030 2040 horizon, the public debt ranges from 19.6 percent of GDP in the high productivity scenario to 33.9 percent of GDP in the low productivity scenario. This variation highlights the importance of investment and smart tax policy, which can contribute to higher productivity. Health Spending.—Healthcare 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, healthcare costs grew even more rapidly. Over the last few years, per-enrollee healthcare costs have grown roughly in line with or more slowly than GDP per capita, with particularly slow growth in Medicare and Medicaid. Chart 3-4 shows the large impacts that either slower or faster healthcare cost growth would have on the budget. If healthcare cost growth averaged 1.5 percentage points faster than per-capita GDP growth, the debt ratio in 25 years would increase from 25.6 percent of GDP under the Table 3–1. 25–YEAR DEBT PROJECTIONS UNDER ALTERNATIVE BUDGET SCENARIOS (Percent of GDP) 2019 Budget Policy ������������������������������������������������������������������������������������������������ 26.5 Health: Excess cost growth averages 1.5% ������������������������������������������������������������������ Zero excess cost growth ����������������������������������������������������������������������������������� 39.7 22.5 Discretionary Outlays: Grow with inflation �������������������������������������������������������������������������������������������� Grow with GDP ������������������������������������������������������������������������������������������������� 25.1 33.0 Revenues: Revenues steady as a share of GDP, with bracket creep ��������������������������������� 33.6 Productivity and Interest:1 Productivity grows by 0.25 percentage point per year faster than the base case ������������������������������������������������������������������������������������������������������������� 19.6 Productivity grows by 0.25 percentage point per year slower than the base case ������������������������������������������������������������������������������������������������������������� 33.9 1 Interest rates adjust commensurately with increases or decreases in productivity. 22 ANALYTICAL PERSPECTIVES Chart 3-3. Alterna ve Produc vity and Interest Assump ons Debt as a percent of GDP 90 80 70 60 50 2020 Budget Policy 40 30 Higher Produc vity Growth 20 Lower Produc vity Growth 10 0 base case Budget policy to 39.7 percent of GDP. If healthcare costs grew with GDP per capita, the debt ratio in 25 years would be 22.5 percent of GDP. Policy Assumptions.—As evident from the discussion of the 2020 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 2029, 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 25.1 percent of GDP if discretionary spending grows with inflation only to, 26.5 percent of GDP in the base case, and 33.0 percent of GDP if discretionary spending grows with GDP. In the base case policy projection, revenues gradually increase with rising real incomes. Chart 3-6 shows an alternative receipts assumption in which receipts remain a constant percent of GDP after the budget window. At the end of the 25-year horizon, the debt ratio increases from 26.5 percent of GDP in the base case to 33.6 percent of GDP in the alternative case. 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 26.5 percent of GDP in 2044. Alternatively, assuming a combination of slower productivity growth and higher healthcare cost growth results in less debt reduction, with the debt ratio reaching 48.0 percent by the end of the window. Meanwhile, assuming a combination of higher productivity growth and slower healthcare cost growth results in the debt ratio reaching 15.9 percent in 2044. Despite considerable uncertainties, long-term projections are helpful in highlighting some of the budget challenges on the horizon, especially the impact of healthcare costs. 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 Chart 3-4. Alterna ve Health Care Costs Debt as a percent of GDP 90 80 70 60 50 40 30 20 10 0 2020 Budget Policy Zero Excess Growth Rate Higher Average Excess Growth Rate 23 3. Long-Term Budget Outlook Chart 3-5. Alterna ve Discre onary Assump ons Debt as a percent of GDP 90 80 70 60 50 40 30 Discre onary Spending Grows with Infla on Only 20 2020 Budget Policy 10 Discre onary Spending Grows with GDP 0 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. Like the 2017 Trustees’ Report, the 2018 Trustees’ Report made a determination of excess revenues and therefore issued a Medicare funding warning. The MMA requires that, because a Medicare funding warning has been issued, the President submit proposed legislation re- sponding 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 2018 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 2026. 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 2018 Social Security Trustees’ report projects that the trust fund will not return to cash surplus and that the program will start to experience an overall deficit starting in 2018. After that, Social Security will Chart 3-6. Alterna ve Revenue Assump ons Debt as a percent of GDP 90 80 70 60 50 40 30 20 10 0 Revenues Steady as a Percent of GDP 2020 Budget Policy: Revenues Rise as a Share of GDP, with Bracket Creep 24 ANALYTICAL PERSPECTIVES Chart 3-7. Long Term Uncertain es Debt as a percent of GDP 90 80 70 60 50 40 2020 Budget Policy 30 Pessimis c 20 Op mis c 10 0 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 2018 Trustees’ report, beginning in 2034, 79 percent of projected Social Security scheduled benefits would be funded. This percentage would eventually decline to 74 percent by 2092. Table 3–2. INTERMEDIATE ACTUARIAL PROJECTIONS FOR OASDI AND HI, 2018 TRUSTEES’ REPORTS 2017 2020 2030 2040 2090 Percent of Payroll Medicare Hospital Insurance (HI): Income Rate ������������������������������������������������������������������������������������������������ Cost Rate ����������������������������������������������������������������������������������������������������� Annual Balance ������������������������������������������������������������������������������������������� Projection Interval: ������������������������������������������������������������������������������������� Actuarial Balance ������������������������������������������������������������������������������ 3.4 3.5 –0.1 3.4 3.5 –0.1 3.7 4.3 –0.7 25 years –0.7 3.8 4.9 –1.1 50 years –0.8 4.4 5.2 –0.8 75 years –0.8 13.3 16.8 –3.6 50 years –2.5 13.4 17.6 –4.2 75 years –2.8 Percent of Payroll Old Age Survivors and Disability Insurance (OASDI): Income Rate ������������������������������������������������������������������������������������������������ Cost Rate ����������������������������������������������������������������������������������������������������� Annual Balance ������������������������������������������������������������������������������������������� Projection Interval: ������������������������������������������������������������������������������������� Actuarial Balance ������������������������������������������������������������������������������ 13.1 13.7 –0.6 12.9 14.1 –1.2 13.2 16.0 –2.8 25 years –1.8 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 2019-2029, the assumptions are drawn from the Administration’s economic projections used for the 2020 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 (2029) of the budget forecast. Population growth and labor force growth are extended using the intermediate assumptions from the 2018 Social Security Trustees’ report. The projected rate of growth for real GDP is built up from the labor force assumptions 3. Long-Term Budget Outlook 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—2.2 percent per year. Under Budget policies, the CPI inflation rate is held constant at 2.3 percent per year, the unemployment rate is held constant at 4.2 percent, the yield to maturity on 10-year Treasury notes is constant at 3.7 percent, and the 91-day Treasury bill rate is kept at 3.0 percent. Consistent with the demographic assumptions in the Trustees’ reports, U.S. population growth slows from an average of just under 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 below 0.5 percent per year. Real GDP growth is projected to be less than its historical average of around 3.3 percent per year because the slowdown in population growth and the increase in the population over age 65 reduce labor supply growth. In these projections, real GDP growth averages between 2.7 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 25 to changes in the budget outlook. This makes it easier to interpret the comparisons of alternative policies. Budget Projections.—For the period through 2029, receipts and outlays in the baseline and policy projections follow the 2020 Budget’s baseline and policy estimates respectively. 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 longrun economic and demographic assumptions. Medicare benefits are projected based on a projection of beneficiary growth and excess healthcare cost growth from the 2018 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 projections in the model, which assume average excess cost growth of approximately 1.0 percentage point above growth in GDP per capita after 2029. 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. 4. FEDERAL BORROWING AND DEBT Debt is the largest legally and contractually binding obligation of the Federal Government. At the end of 2018, the Government owed $15,750 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 $371 billion of interest on this debt. At the same time, the Government also held financial assets, net of financial liabilities other than debt, of $1,840 billion. Therefore, debt held by the public net of financial assets was $13,910 billion. In addition, at the end of 2018 the Department of the Treasury had issued $5,713 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 $21,462 billion. Interest on the gross Federal debt was $522 billion in 2018. Gross Federal debt is discussed in more detail later in the chapter. The $15,750 billion debt held by the public at the end of 2018 represents an increase of $1,084 billion over the level at the end of 2017. This increase is the result of the $779 billion deficit in 2018 and other financing transactions that increased the need to borrow by $305 billion. Debt held by the public grew from 76.5 percent of Gross Domestic Product (GDP) at the end of 2017 to 77.8 percent of GDP at the end of 2018. The deficit is estimated to increase to $1,092 billion in 2019, and to $1,101 billion in 2020. After 2020, the deficit is projected to begin to decline. Debt held by the public is projected to grow to $16,919 billion at the end of 2019 and $18,087 billion at the end of 2020. Debt held by the public as a percent of GDP is projected to increase to 79.5 percent at the end of 2019 and 80.7 percent at the end of 2020. Debt held by the public as a percent of GDP is projected to begin to decline in 2023, falling to 71.3 percent of GDP in 2029. Debt held by the public net of financial assets is expected to similarly grow to 70.5 percent of GDP at the end of 2019 and to 71.8 at the end of 2020, then to begin to decline in 2023, falling to 64.1 percent of GDP at the end of 2029. 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 2029. (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 1 The Historical Tables are available at https://www.whitehouse. gov/omb/historical-tables/. 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 26.2 percent of total credit market debt to 17.3 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. The attacks of September 11, 2001, a recession, 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 more than doubled, increasing from 35.2 percent at the end of 2007 to 77.8 percent in 2018. Under the proposals in the Budget, the deficit is projected to grow to $1,092 billion in 2019. The deficit is 27 28 ANALYTICAL PERSPECTIVES Table 4–1. TRENDS IN FEDERAL DEBT HELD BY THE PUBLIC AND INTEREST ON THE DEBT HELD BY THE PUBLIC (Dollar amounts in billions) Fiscal Year Debt held by the public as a percent of Interest on the debt held by the public 3 Debt held by the public Current dollars FY 2018 dollars 1 Credit market debt 2 GDP Current dollars FY 2018 dollars1 Interest on the debt held by the public as a percent of 3 Total outlays GDP 1946 ��������������������������� 241.9 2,552.9 106.1 N/A 4.2 44.1 7.6 1.8 1950 ��������������������������� 1955 ��������������������������� 219.0 226.6 1,867.7 1,698.5 78.5 55.7 53.3 42.1 4.8 5.2 41.3 38.9 11.4 7.6 1.7 1.3 1960 ��������������������������� 1965 ��������������������������� 236.8 260.8 1,573.2 1,623.4 44.3 36.7 33.1 26.4 7.8 9.6 51.9 59.6 8.5 8.1 1.5 1.3 1970 ��������������������������� 1975 ��������������������������� 283.2 394.7 1,469.2 1,508.4 27.0 24.5 20.3 17.9 15.4 25.0 79.7 95.5 7.9 7.5 1.5 1.6 1980 ��������������������������� 1985 ��������������������������� 711.9 1,507.3 1,891.6 3,052.4 25.5 35.3 18.4 22.2 62.8 152.9 166.7 309.7 10.6 16.2 2.2 3.6 1990 ��������������������������� 1995 ��������������������������� 2,411.6 3,604.4 4,195.9 5,531.2 40.8 47.5 22.5 26.3 202.4 239.2 352.1 367.1 16.2 15.8 3.4 3.2 2000 ��������������������������� 2005 ��������������������������� 3,409.8 4,592.2 4,821.9 5,811.6 33.6 35.6 18.7 17.0 232.8 191.4 329.3 242.2 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 10,338.6 11,383.5 12,443.6 12,978.8 13,579.2 60.9 65.9 70.4 72.6 74.1 25.1 27.3 29.2 29.9 30.8 228.2 266.0 232.1 259.0 271.4 261.6 298.9 256.0 280.5 288.4 6.6 7.4 6.6 7.5 7.7 1.5 1.7 1.4 1.6 1.6 2015 ��������������������������� 2016 ��������������������������� 2017 ��������������������������� 2018 ��������������������������� 2019 estimate ������������� 13,116.7 14,167.6 14,665.4 15,749.6 16,918.6 13,770.5 14,737.3 14,984.0 15,749.6 16,583.3 72.9 76.7 76.5 77.8 79.5 30.4 31.4 31.3 32.0 N/A 260.6 283.8 309.9 371.4 444.2 273.6 295.3 316.6 371.4 435.4 7.1 7.4 7.8 9.0 9.8 1.4 1.5 1.6 1.8 2.1 2020 estimate ������������� 2021 estimate ������������� 2022 estimate ������������� 2023 estimate ������������� 2024 estimate ������������� 18,086.9 19,222.1 20,334.0 21,303.7 22,064.1 17,374.2 18,102.8 18,771.9 19,280.6 19,575.0 80.7 81.6 82.1 81.9 80.7 N/A N/A N/A N/A N/A 532.3 603.4 669.4 726.4 767.8 511.3 568.3 618.0 657.4 681.2 11.2 12.2 12.9 13.6 14.1 2.4 2.6 2.7 2.8 2.8 2025 estimate ������������� 22,755.8 19,791.6 79.3 N/A 801.9 697.4 14.1 2.8 2026 estimate ������������� 23,389.7 19,941.2 77.7 N/A 831.0 708.5 14.1 2.8 2027 estimate ������������� 23,957.0 20,023.2 75.9 N/A 861.4 719.9 14.1 2.7 2028 estimate ������������� 24,519.4 20,089.5 74.0 N/A 886.5 726.4 13.8 2.7 2029 estimate ������������� 24,770.1 19,895.7 71.3 N/A 901.9 724.5 13.9 2.6 N/A = Not available. 1 Amounts in current dollars deflated by the GDP chain-type price index with fiscal year 2018 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). projected to begin to decrease in 2021, falling to $202 billion, or 0.6 percent of GDP, in 2029. Gross Federal debt is projected to grow to 107.0 percent of GDP in 2019 and then begin to fall after 2021, to 90.7 percent of GDP in 2029. Debt held by the public as a percent of GDP is estimated to be 79.5 percent at the end of 2019, to continue to grow gradually through 2022, and then to begin to decline, falling to 71.3 percent of GDP by 2029. Debt held by the public net of financial assets as a percent of GDP is estimated to similarly grow to 70.5 percent of GDP at the end of 2019, grow gradually through 2022, and then begin to fall, reaching 64.1 percent of GDP by the end of 2029. 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 of their tax receipts, interest receipts, and other collec2 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 22–7 in the supplemental materials to the “Credit and Insurance” chapter. (Table 22–7 is available on the Internet at: https://www.whitehouse.gov/omb/analytical-perspectives/.) 29 tions 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 relative to their dedicated income is very different in con4 Extensive actuarial analyses of the Social Security and Medicare programs are published in the annual reports of the boards of trustees of these funds. The actuarial estimates for Social Security, Medicare, and the major Federal employee retirement programs are summarized in the Financial Report of the United States Government, prepared annually by the Department of the Treasury in coordination with the Office of Management and Budget, and presented in more detail in the financial statements of the agencies administering those programs. 30 ANALYTICAL PERSPECTIVES Table 4–2. FEDERAL GOVERNMENT FINANCING AND DEBT (In billions of dollars) Estimate Actual 2018 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 ������ 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 779.1 1,091.5 1,100.8 1,068.3 1,048.8 908.6 700.5 631.1 576.8 513.2 508.4 202.3 225.4 0.3 ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... 90.6 –8.9 47.7 30.8 66.7 1.7 68.0 0.1 66.0 –1.6 65.5 –3.4 64.6 –3.6 64.9 –3.4 61.2 –3.3 57.9 –3.1 57.7 –3.1 51.9 –3.0 –* 81.6 –* 78.5 –* 68.4 –* 68.1 –* 64.3 –* 62.1 ......... 61.0 ......... 61.5 ......... 58.0 ......... 54.8 ......... 54.7 ......... 48.9 0.3 –1.0 –0.7 –0.9 –1.0 –0.7 –0.7 –0.6 –0.5 –0.4 –0.3 –0.1 –2.0 ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... 305.3 –0.3 77.8 –0.3 67.8 –0.3 67.2 –0.3 63.3 –0.3 61.4 –0.3 60.3 –0.3 60.9 –0.3 57.4 –0.3 54.4 –0.3 54.4 –0.4 48.7 –0.4 305.0 77.5 67.5 66.9 63.0 61.1 60.0 60.6 57.1 54.1 54.0 48.4 1,084.1 1,169.0 1,168.3 1,135.2 1,111.9 969.7 760.4 691.7 633.9 567.3 562.4 250.7 1,084.1 172.4 1,169.0 144.2 1,168.3 113.7 1,135.2 140.3 1,111.9 99.4 969.7 130.6 760.4 176.5 691.7 112.6 633.9 108.1 567.3 –* 562.4 –62.1 250.7 59.9 9.6 2.3 2.8 2.4 2.1 2.3 2.4 1.6 1.7 2.3 2.2 1.8 1,266.2 1,315.6 1,284.7 1,277.9 1,213.4 1,102.7 939.3 805.8 743.7 569.5 502.5 312.5 21,437.9 22,751.9 24,035.1 25,311.8 26,523.9 27,625.4 28,563.8 29,369.6 30,113.0 30,681.7 31,183.4 31,495.2 –10.8 –9.3 –7.7 –6.5 –5.3 –4.1 –3.2 –3.2 –2.8 –2.0 –1.1 –0.5 * * * * * * * * * * * * 47.8 47.8 47.8 47.8 47.8 47.8 47.8 47.8 47.8 47.8 47.8 47.8 21,474.8 22,790.4 24,075.1 25,353.1 26,566.4 27,669.1 28,608.5 29,414.3 30,158.0 30,727.5 31,230.0 31,542.5 Debt Outstanding, End of Year: Gross Federal debt: 6 Debt issued by Treasury ����������������������������������� 21,437.9 22,751.9 24,035.1 25,311.8 26,523.9 27,625.4 28,563.8 29,369.6 30,113.0 30,681.7 31,183.4 31,495.2 Debt issued by other agencies ������������������������� 24.4 23.6 22.4 21.3 20.3 19.2 17.7 16.1 14.8 13.4 12.0 10.8 Total, gross Federal debt ����������������������������� 21,462.3 22,775.5 24,057.5 25,333.0 26,544.3 27,644.6 28,581.5 29,385.8 30,127.7 30,695.0 31,195.3 31,506.0 As a percent of GDP ������������������������������� 106.1% 107.0% 107.4% 107.5% 107.2% 106.3% 104.6% 102.4% 100.0% 97.2% 94.2% 90.7% Held by: Debt held by Government accounts ����������������� 5,712.7 5,856.9 5,970.6 6,110.9 6,210.3 6,340.9 6,517.4 6,630.0 6,738.1 6,738.0 6,675.9 6,735.9 Debt held by the public 7 ����������������������������������� 15,749.6 16,918.6 18,086.9 19,222.1 20,334.0 21,303.7 22,064.1 22,755.8 23,389.7 23,957.0 24,519.4 24,770.1 As a percent of GDP ������������������������������������ 77.8% 79.5% 80.7% 81.6% 82.1% 81.9% 80.7% 79.3% 77.7% 75.9% 74.0% 71.3% *$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 Legislation enacted February 9, 2018 (P.L. 115–123), temporarily suspends the debt limit through March 1, 2019. 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 2018, the Federal Reserve Banks held $2,313.2 billion of Federal securities and the rest of the public held $13,436.4 billion. Debt held by the Federal Reserve Banks is not estimated for future years. 4. Federal Borrowing and Debt cept 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 2018 through 2029.5 In 2018 the Government borrowed $1,084 billion, increasing the debt held by the public from $14,665 billion at the end of 2017 to $15,750 billion at the end of 2018. The debt held by Government accounts grew by $172 billion, and gross Federal debt increased by $1,257 billion to $21,462 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 in size from year to year. The other transactions affect5 For projections of the debt beyond 2029, 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 12, “Coverage of the Budget.’’ 31 ing 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 2018 the deficit was $779 billion while these other factors increased the need to borrow by $305 billion, or 28 percent of total borrowing from the public. As a result, the Government borrowed $1,084 billion from the public. The other factors are estimated to increase borrowing by $77 billion (7 percent of total borrowing from the public) in 2019, and $67 billion (6 percent) in 2020. In 2021–2029, these other factors are expected to increase borrowing by annual amounts ranging from $48 billion to $67 billion. Three specific factors presented in Table 4–2 have historically been especially important. Change in Treasury operating cash balance.—The cash balance decreased by $194 billion in 2017, to $159 billion, and increased by $225 billion in 2018, to $385 billion. The large 2017 decrease in the cash balance was 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. The large 2018 increase in the cash balance largely reflects the restoration of the cash balance after the debt limit was suspended. (The debt limit suspension is discussed in further detail elsewhere in this chapter.) 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 remain level at $385 billion at the end of 2019. 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 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 22, “Credit and Insurance,” and Chapter 11, “Budget Concepts.’’ 32 reestimate of the costs of outstanding direct and guaranteed loans. They also receive interest from Treasury on balances of uninvested funds. The financing accounts pay any negative subsidy collections or downward reestimate of costs to budgetary receipt accounts and pay interest on borrowings from Treasury. The total net collections and gross disbursements of the financing accounts, consisting of transactions with both the public and the budgetary accounts, are called “net financing disbursements.’’ They occur in the same way as the “outlays’’ of a budgetary account, even though they do not represent budgetary costs, and therefore affect the requirement for borrowing from the public in the same way as the deficit. The intragovernmental transactions of the credit program, financing, and downward reestimate receipt accounts do not affect Federal borrowing from the public. Although the deficit changes because of the budgetary account’s outlay to, or receipt from, a financing account, the net financing disbursement changes in an equal amount with the opposite sign, so the effects are cancelled out. On the other hand, financing account disbursements to the public increase the requirement for borrowing from the public in the same way as an increase in budget outlays that are disbursed to the public in cash. Likewise, receipts from the public collected by the financing account can be used to finance the payment of the Government’s obligations, and therefore they reduce the requirement for Federal borrowing from the public in the same way as an increase in budgetary receipts. Borrowing due to credit financing accounts was $82 billion in 2018. In 2019 credit financing accounts are projected to increase borrowing by $79 billion. After 2019, the credit financing accounts are expected to increase borrowing by amounts ranging from $49 billion to $68 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 2019, upward reestimates for student loans are partly offset by downward reestimates for Federal Housing Administration (FHA) guarantees, resulting in a net upward reestimate of $9.6 billion. In 2018, there was 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 2018, net increases, including purchases and gains, were $0.3 billion. A $1.0 billion net decrease is projected for 2019 and net annual decreases ranging from $0.1 billion to $1.0 billion are projected for 2020 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 2018. Net investment may differ from the surplus due to changes in the amount of cash assets not currently invested. In 2018, the total trust fund surplus was $154 billion, while trust fund investment in Federal securities increased by $149 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 11, “Budget Concepts.’’ 33 4. Federal Borrowing and Debt Table 4–3. DEBT HELD BY THE PUBLIC NET OF FINANCIAL ASSETS AND LIABILITIES (Dollar amounts in billions) Actual 2018 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 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 15,749.6 16,918.6 18,086.9 19,222.1 20,334.0 21,303.7 22,064.1 22,755.8 23,389.7 23,957.0 24,519.4 24,770.1 77.8% 79.5% 80.7% 81.6% 82.1% 81.9% 80.7% 79.3% 77.7% 75.9% 74.0% 71.3% 384.7 385.0 385.0 385.0 385.0 385.0 385.0 385.0 385.0 385.0 385.0 385.0 1,371.9 4.8 1,419.7 35.6 1,486.4 37.3 1,554.4 37.4 1,620.4 35.8 1,685.9 32.4 1,750.4 28.8 1,815.3 25.4 1,876.6 22.2 1,934.5 19.1 1,992.2 16.1 2,044.1 13.0 * 1,376.8 113.2 25.6 –60.2 1,840.1 * 1,455.3 113.2 24.6 –60.2 1,917.9 * 1,523.7 113.2 23.9 –60.2 1,985.6 * 1,591.8 113.2 23.0 –60.2 2,052.8 –* 1,656.2 113.2 22.0 –60.2 2,116.2 –* 1,718.2 113.2 21.3 –60.2 2,177.6 –* 1,779.2 113.2 20.7 –60.2 2,237.9 –* 1,840.7 113.2 20.1 –60.2 2,298.8 –* 1,898.7 113.2 19.5 –60.2 2,356.2 –* 1,953.6 113.2 19.1 –60.2 2,410.7 –* 2,008.3 113.2 18.8 –60.2 2,465.1 –* 2,057.1 113.2 18.7 –60.2 2,513.8 13,909.5 15,000.8 16,101.2 17,169.3 18,217.8 19,126.1 19,826.3 20,457.0 21,033.4 21,546.3 22,054.3 22,256.3 68.7% 70.5% 71.8% 72.9% 73.6% 73.5% 72.6% 71.3% 69.8% 68.2% 66.6% 64.1% 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 $225 billion increase in the Treasury operating cash balance, net financial assets grew by $326 billion, to $1,840 billion, in 2018. This $1,840 billion in net financial assets included a cash balance of $385 billion, net credit financing account balances of $1,377 billion, and other assets and liabilities that aggregated to a net asset of $79 billion. At the end of 2018, debt held by the public was $15,750 billion, or 77.8 percent of GDP. Therefore, debt held by the public net of financial assets was $13,910 billion, or 68.7 percent of GDP. As shown in Table 4–3, the value of the Government’s net financial assets is projected to increase to $1,918 billion in 2019, principally due to the value of the credit financing accounts. While debt held by the public is expected to increase from 77.8 percent to 79.5 percent of GDP during 2019, debt held by the public net of financial assets is expected to increase from 68.7 percent to 70.5 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 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 34 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 October 2018, Treasury introduced an 8-week bill, issued on a weekly basis, to complement its existing suite of 4-, 13-, and 26week bills issued each week. 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 69 months at the end of 2018. In addition to quarterly announcements about the overall auction calendar, Treasury publicly announces in advance the auction of each security. Individuals can participate directly in Treasury auctions or can purchase securities through brokers, dealers, and other financial institutions. Treasury accepts two types of auction bids: competitive and noncompetitive. In a competitive bid, the bidder specifies the yield. A significant portion of com- ANALYTICAL PERSPECTIVES petitive 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 2018, 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 $24.4 billion at the end of 2018. 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 $23.6 billion at the end of 2019 and to $22.4 billion at the end of 2020. The predominant agency borrower is TVA, which had borrowings of $24.3 billion from the public as of the end of 2018, or 99 percent of the total debt of all agencies other than Treasury. TVA issues debt primarily to finance capital projects. TVA has traditionally financed its capital construction by selling bonds and notes to the public. Since 2000, it has also employed two types of alternative financing methods, lease financing obligations and prepayment obligations. Under the lease financing obligations method, TVA signs long-term contracts to lease some facilities and equipment. The lease payments under these contracts ultimately secure the repayment of third-party capital used to finance construction of the facility. TVA retains substantially all of the economic benefits and risks related 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 35 4. Federal Borrowing and Debt Table 4–4. AGENCY DEBT (In millions of dollars) 2018 Actual 2019 Estimate 2020 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 ��������������������������������������������������������������������������������������������������������������� ......... –10 –25 19 80 27 ......... –11 –27 19 69 ......... ......... –11 ......... 19 58 ......... Tennessee Valley Authority: Bonds and notes ����������������������������������������������������������������������������������������������������������� Lease financing obligations ������������������������������������������������������������������������������������������ Prepayment obligations ������������������������������������������������������������������������������������������������ Total, borrowing from the public �������������������������������������������������������������������������� –1,511 –129 –100 –1,775 22,696 1,575 10 24,407 –595 –124 –10 –767 22,101 1,451 ......... 23,640 –1,129 –105 ......... –1,245 20,972 1,346 ......... 22,395 Borrowing from other funds: Tennessee Valley Authority 1 ����������������������������������������������������������������������������������������������� Total, borrowing from other funds ����������������������������������������������������������������������� Total, agency borrowing ��������������������������������������������������������������������������������� –1 –1 –1,776 ......... ......... 24,407 ......... ......... –767 ......... ......... 23,640 ......... ......... –1,245 ......... ......... 22,395 –1,512 22,696 –595 22,101 –1,129 20,972 Memorandum: Tennessee Valley Authority bonds and notes, total ������������������������������������������������������������ 1 Represents open market purchases by the National Railroad Retirement Investment Trust. 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 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 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 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. notes to distinguish between the types of borrowing. At the end of 2018, lease financing obligations were $1,575 million and obligations for prepayments were $10 million. 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. 36 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 securities. The total investment holdings of trust funds and other Government accounts increased by $172 billion in 2018. Net investment by Government accounts is estimated to be $144 billion in 2019 and $114 billion in 2020, as shown in Table 4–5. The holdings of Federal securities by Government accounts are estimated to increase to $5,971 billion by the end of 2020, or 25 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 2020, these Social Security, Medicare, and Federal employee retirement funds are estimated to own 89 percent of the total debt held by Government accounts. During 2018–2020, the Military Retirement Fund has a large surplus and is estimated to invest a total of $248 billion, 58 percent of total net investment by Government accounts. Some Government accounts are projected to have net disinvestment in Federal securities during 2018–2020. 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 Government account that holds zero-coupon bonds during the period of this table is the Nuclear Waste Disposal Fund in the Department of Energy. The unamortized discount on zero-coupon bonds held by the Nuclear Waste Disposal Fund was $14.5 billion at the end of 2018. Second, Treasury subtracts the unrealized discount on other Government account series securities in calculating “net Federal securities held as investments of Government accounts.’’ Unlike the discount recorded for zero-coupon bonds and debt held by the public, the unrealized discount is the discount at the time of issue and is ANALYTICAL PERSPECTIVES 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 $13.2 billion at the end of 2018. 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 $2,313 billion (15 percent of debt held by the public) at the end of 2018. 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 $10 billion at the end of 2018 and is projected to be $9 billion at the end of 2019. 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 12, “Coverage of the Budget.” 37 4. Federal Borrowing and Debt Table 4–5. DEBT HELD BY GOVERNMENT ACCOUNTS1 (In millions of dollars) Description Investment or Disinvestment (–) 2018 Actual 2019 Estimate Holdings, End of 2020 Estimate 2020 Estimate Investment in Treasury debt: Commerce: Public safety trust fund ������������������������������������������������������������������������������������������������������������������� 5,909 1,257 1,000 8,500 Defense—Military: Host nation support fund for relocation ������������������������������������������������������������������������������������������ 114 13 14 1,399 Energy: Nuclear waste disposal fund 1 ��������������������������������������������������������������������������������������������������������� Uranium enrichment decontamination fund ������������������������������������������������������������������������������������ 1,562 128 1,238 –786 1,120 1,038 41,275 2,720 Health and Human Services: Federal hospital insurance trust fund ��������������������������������������������������������������������������������������������� Federal supplementary medical insurance trust fund ��������������������������������������������������������������������� Vaccine injury compensation fund �������������������������������������������������������������������������������������������������� Child enrollment contingency fund ������������������������������������������������������������������������������������������������� 4,970 27,609 154 –1,145 –7,210 6,793 155 10,236 –12,886 4,738 170 –9,736 182,709 109,728 4,075 500 Homeland Security: Aquatic resources trust fund ����������������������������������������������������������������������������������������������������������� Oil spill liability trust fund ���������������������������������������������������������������������������������������������������������������� National flood insurance reserve fund �������������������������������������������������������������������������������������������� 24 885 732 7 216 513 10 562 597 1,963 7,335 1,842 Housing and Urban Development: Federal Housing Administration mutual mortgage insurance capital reserve �������������������������������� Guarantees of mortgage-backed securities ����������������������������������������������������������������������������������� –3,904 –983 21,585 –1,080 7,267 1,415 55,827 16,628 Interior: Bureau of Land Management Permanent operating funds�������������������������������������������������������������� Abandoned mine reclamation fund ������������������������������������������������������������������������������������������������� Federal aid in wildlife restoration fund �������������������������������������������������������������������������������������������� Environmental improvement and restoration fund �������������������������������������������������������������������������� Natural resource damage assessment fund ���������������������������������������������������������������������������������� 137 –54 –38 29 206 136 –41 –6 39 494 158 –67 –15 48 400 1,182 2,598 2,081 1,582 2,400 Justice: Assets forfeiture fund ���������������������������������������������������������������������������������������������������������������������� U.S. Victims of State Sponsored Terrorism Fund ��������������������������������������������������������������������������� –319 1,161 –1,832 –1,120 100 33 3,200 74 Labor: Unemployment trust fund ��������������������������������������������������������������������������������������������������������������� Pension Benefit Guaranty Corporation1 ����������������������������������������������������������������������������������������� State: Foreign service retirement and disability trust fund ����������������������������������������������������������� 11,865 3,217 392 13,124 4,302 384 14,300 3,057 39 100,000 39,018 19,607 Transportation: Airport and airway trust fund ���������������������������������������������������������������������������������������������������������� Highway trust fund �������������������������������������������������������������������������������������������������������������������������� Aviation insurance revolving fund ��������������������������������������������������������������������������������������������������� 808 –11,120 40 503 –10,207 17 559 –14,361 154 15,274 16,644 2,421 Treasury: Exchange stabilization fund ������������������������������������������������������������������������������������������������������������ Treasury forfeiture fund ������������������������������������������������������������������������������������������������������������������� Gulf Coast Restoration trust fund ��������������������������������������������������������������������������������������������������� Comptroller of the Currency assessment fund ������������������������������������������������������������������������������� 221 –774 94 47 282 –776 183 110 417 –67 227 –28 23,010 700 1,694 1,919 Veterans Affairs: National service life insurance trust fund ���������������������������������������������������������������������������������������� Veterans special life insurance fund ����������������������������������������������������������������������������������������������� Corps of Engineers: Harbor maintenance trust fund ���������������������������������������������������������������������� –590 –116 113 –639 –130 343 –523 –115 857 1,853 1,242 10,344 Other Defense-Civil: Military retirement fund ������������������������������������������������������������������������������������������������������������������� Medicare-eligible retiree health care fund �������������������������������������������������������������������������������������� Education benefits fund ������������������������������������������������������������������������������������������������������������������ Environmental Protection Agency: Hazardous substance superfund ������������������������������������������ 82,451 14,335 2 118 76,501 10,607 –28 73 89,200 13,591 –58 75 909,122 264,381 974 5,066 38 ANALYTICAL PERSPECTIVES Table 4–5. DEBT HELD BY GOVERNMENT ACCOUNTS 1—Continued (In millions of dollars) Investment or Disinvestment (–) Description 2018 Actual 2019 Estimate 2020 Estimate Holdings, End of 2020 Estimate General Services Administration: Civil service retirement and disability trust fund ����������������������������������������������������������������������������� Postal Service retiree health benefits fund ������������������������������������������������������������������������������������� Employees life insurance fund �������������������������������������������������������������������������������������������������������� Employees and retired employees health benefits fund ����������������������������������������������������������������� ......... ......... ......... ......... ......... ......... ......... ......... 956,066 42,318 49,535 29,105 956,066 42,318 49,535 29,105 International Assistance Programs: Overseas Private Investment Corporation �������������������������������������������������������������������������������������� Development Finance Corporation corporate capital account �������������������������������������������������������� 79 ......... 52 ......... –5,869 5,723 ......... 5,723 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 ����������������������������������������������������������������� 17,890 –2,346 936 1,349 16,059 –2,321 1,656 1,403 –939,053 –44,824 –48,272 –28,773 ......... ......... ......... ......... 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 ���������������������������������������������������������������������������������������� –18,946 23,731 –57 242 –4,213 16,270 1,805 –472 179 215 50 272 124 –2,960 172,428 –5,574 597 24 273 –2,883 7,432 859 928 288 185 45 –8 –27 ......... 144,249 –7,048 –5,869 44 304 ......... 7,706 691 102 –268 60 –1,701 227 161 ......... 113,655 2,788,632 88,129 3,764 5,272 ......... 111,569 16,445 11,523 2,573 3,410 ......... 4,731 4,125 –13,212 5,970,595 –1 –1 172,426 ......... ......... 144,249 ......... ......... 113,655 ......... ......... 5,970,595 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) ��������������������������������������������������������������������������������������������� 26,867 47,468 24,189 654,671 Investment by Federal funds (off-budget) �������������������������������������������������������������������������������������������� –472 928 102 11,523 Investment by trust funds (on-budget) �������������������������������������������������������������������������������������������������� 144,207 100,829 102,281 2,440,852 Investment by trust funds (off-budget) �������������������������������������������������������������������������������������������������� 4,785 –4,976 –12,917 2,876,761 Unrealized discount 1 ���������������������������������������������������������������������������������������������������������������������������� –2,960 ......... ......... –13,212 * $500 thousand or less. ¹ Debt held by Government accounts is measured at face value except for the Treasury zero-coupon bonds held by the Nuclear Waste Disposal Fund, which is 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 2018 the debt figure would be $14.5 billion higher for the Nuclear Waste Disposal Fund than recorded in this table. 2 Off-budget Federal entity. 3 Amounts on calendar-year basis. 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 $480 million at the end of 2018 and is projected to gradually decline over time. The sole agency debt currently subject to the general limit, $209 thousand at the end of 2018, is certain debentures issued by the Federal Housing Administration.16 16 At the end of 2018, there were also $18 million of FHA debentures not subject to limit. 39 4. Federal Borrowing and Debt 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 2018 Estimate 2019 2020 2021 2022 2023 933.3 1,200.9 1,205.5 1,170.0 1,110.2 1,001.6 2024 2025 2026 2027 2028 2029 838.6 705.7 648.9 473.0 404.9 221.6 304.7 78.5 68.1 67.8 64.0 61.8 60.6 61.2 57.6 54.5 54.3 48.5 26.4 48.4 24.3 38.6 38.0 37.7 38.3 38.0 35.9 40.1 41.4 40.6 –4.9 –14.6 –16.0 –0.9 –1.0 –0.7 –0.7 –0.6 –0.5 –0.4 –0.3 –0.1 –3.0 ......... ......... ......... ......... ......... 1,256.6 1,313.3 1,281.9 1,275.6 1,211.2 1,100.4 ......... 936.9 ......... 804.2 ......... 742.0 ......... 567.3 ......... 500.3 ......... 310.6 1,256.6 1,313.3 1,281.9 1,275.6 1,211.2 1,100.4 936.9 804.2 742.0 567.3 500.3 310.6 –2.9 –2.3 –2.8 –2.4 –2.1 –2.3 –6.7 ......... ......... ......... ......... ......... 1,266.2 1,315.6 1,284.7 1,277.9 1,213.4 1,102.7 –2.4 ......... 939.3 –1.6 ......... 805.8 –1.7 ......... 743.7 –2.3 ......... 569.5 –2.2 ......... 502.5 –1.8 ......... 312.5 Memorandum: Debt subject to statutory limit 4 �������������������������������������������� 21,474.8 22,790.4 24,075.1 25,353.1 26,566.4 27,669.1 28,608.5 29,414.3 30,158.0 30,727.5 31,230.0 31,542.5 * $50 million or less. 1 Includes Federal fund transactions that correspond to those presented in Table 4-–2, but that are for Federal funds alone with respect to the public and trust funds. 2 Includes trust fund holdings in other cash assets and changes in the investments of the National Railroad Retirement Investment Trust in non-Federal securities. 3 Consists of unamortized discount (less premium) on public issues of Treasury notes and bonds (other than zero-coupon bonds). 4 Legislation enacted February 9, 2018 (P.L. 115-123), temporarily suspends the debt limit through March 1, 2019. Some of the other agency debt, however, is subject to its own statutory limit. For example, the Tennessee Valley Authority is limited to $30 billion of bonds and notes outstanding. The comparison between Treasury debt and debt subject to limit also includes an adjustment for measurement differences in the treatment of discounts and premiums. As explained earlier in this chapter, debt securities may be sold at a discount or premium, and the measurement of debt may take this into account rather than recording the face value of the securities. However, the measurement differs between gross Federal debt (and its components) and the statutory definition of debt subject to limit. An adjustment is needed to derive debt subject to limit (as defined by law) from Treasury debt. The amount of the adjustment was $48 billion at the end of 2018 compared with the total unamortized discount (less premium) of $78 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 84 separate acts to raise the limit, revise the definition, extend the duration of a temporary increase, or temporarily suspend the limit.17 The six 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 speci17 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/. fied end date. 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. The Bipartisan Budget Act of 2018 suspended the $20,456 billion debt ceiling from February 9, 2018, through March 1, 2019. At many times in the past several decades, including 2015, 2017, and 2018, the Government has reached the statutory debt limit before an increase has been enacted. When this has occurred, it has been necessary for 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. 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 $256 billion at the end of January 2019. The Treasury 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 securi18 The TSP is a defined contribution pension plan for Federal employees. The G-Fund is one of several components of the TSP. 40 ANALYTICAL PERSPECTIVES ties 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 Treasury Secretary is required to make the fund whole after the debt limit has been raised by restoring the forgone interest and investing the fund fully. Another measure for staying below the debt limit is disinvestment of the Exchange Stabilization Fund. The outstanding balance in the Exchange Stabilization Fund was $22 billion at the end of January. As the debt has neared the limit, including in 2018, 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 $22,790 billion by the end of 2019 and to $24,075 billion by the end of 2020. 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 10 percent of the estimated total increase in debt subject to limit from 2019 through 2029. 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 public by an equal amount. Thus, there is no net effect on gross Federal debt. Table 4–6 derives the change in debt subject to limit. In 2018 the Federal funds deficit was $933 billion, and other factors increased financing requirements by $305 billion. The change in the Treasury operating cash balance increased financing requirements by $225 billion, the net financing disbursements of credit financing accounts increased financing requirements by $82 billion, and other Federal fund factors reduced financing requirements by $2 billion. In addition, special funds and revolving funds, which are part of the Federal funds group, invested a net of $26 billion in Treasury securities. A $5 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, $1,257 billion in financ- 19 Both the CSRDF and the PSRHBF are administered by the Office of Personnel Management. 20 For further discussion of the trust funds and Federal funds groups, see Chapter 27, “Trust Funds and Federal Funds.’’ 41 4. Federal Borrowing and Debt Table 4–7. FOREIGN HOLDINGS OF FEDERAL DEBT (Dollar amounts in billions) Fiscal Year Change in debt held by the public 2 Debt held by the public Total Foreign 1 Percentage foreign Total Foreign 1965 ����������������������������������������������������� 260.8 12.2 4.7 3.9 0.3 1970 ����������������������������������������������������� 1975 ����������������������������������������������������� 283.2 394.7 14.0 66.0 4.9 16.7 5.1 51.0 3.7 9.1 1980 ����������������������������������������������������� 1985 ����������������������������������������������������� 711.9 1,507.3 126.4 222.9 17.8 14.8 71.6 200.3 1.3 47.3 1990 ����������������������������������������������������� 1995 ����������������������������������������������������� 2,411.6 3,604.4 463.8 820.4 19.2 22.8 220.8 171.3 72.0 138.4 2000 ����������������������������������������������������� 2005 ����������������������������������������������������� 3,409.8 4,592.2 1,038.8 1,929.6 30.5 42.0 –222.6 296.7 –242.6 135.1 2010 ����������������������������������������������������� 2011 ����������������������������������������������������� 2012 ����������������������������������������������������� 2013 ����������������������������������������������������� 2014 ����������������������������������������������������� 9,018.9 10,128.2 11,281.1 11,982.7 12,779.9 4,316.0 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 1,152.9 701.6 797.2 745.4 596.1 564.0 176.7 416.4 2015 ����������������������������������������������������� 13,116.7 6,104.0 46.5 336.8 34.8 2016 ����������������������������������������������������� 14,167.6 6,155.9 43.5 1,050.9 51.9 2017 ����������������������������������������������������� 14,665.4 6,301.9 43.0 497.8 146.0 2018 ����������������������������������������������������� 15,749.6 6,225.6 39.5 1,084.1 –76.3 1 Estimated by Treasury Department. These estimates exclude agency debt, the holdings of which are believed to be small. The data on foreign holdings are recorded by methods that are not fully comparable with the data on debt held by the public. Projections of foreign holdings are not available. 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. ing was required, increasing gross Federal debt by that amount. Since Federal debt not subject to limit fell by $3 billion and the adjustment for discount and premium changed by $7 billion, the debt subject to limit increased by $1,266 billion, while debt held by the public increased by $1,084 billion. Debt subject to limit is estimated to increase by $1,316 billion in 2019 and by $1,285 billion in 2020. 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 $9,020 billion from the end of 2018 through 2029, debt subject to limit increases by $10,068 billion. Foreign Holdings of Federal Debt During most of American history, the Federal debt was held almost entirely by individuals and institutions within the United States. In the late 1960s, foreign holdings were just over $10 billion, less than 5 percent of the total Federal debt held by the public. Foreign holdings began to grow significantly starting in the 1970s and since 2004 have represented around 40 percent or more 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 2018, foreign holdings of Treasury debt were $6,226 billion, which was 40 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 2018, the nations holding the largest shares of U.S. Federal debt were China, which held 18 percent of all foreign holdings, and Japan, which held 17 percent. All of the foreign holdings of Federal debt are denominated in dollars. Although the amount of foreign holdings of Federal debt has grown greatly over this period, the proportion that foreign entities and individuals own, after increasing abruptly in the very early 1970s, remained about 15–20 percent until the mid-1990s. During 1995–97, however, growth in foreign holdings accelerated, reaching 33 percent by the end of 1997. Foreign holdings of Federal debt resumed growth in the following decade, increasing to 48 percent by the end of 21 The debt calculated by the Bureau of Economic Analysis is different, though similar in size, because of a different method of valuing securities. 42 2008. After 2008, foreign holdings as a percent of total Federal debt remained relatively stable through 2015. After 2015, foreign holdings began to decline as a percent of total Federal debt held by the public, falling from 47 percent at the end of 2015 to 40 percent at the end of 2018. In 2018, foreign holdings fell both in dollar terms and as a percent of total Federal debt, falling from $6,302 billion (43 percent) at the end of 2017 to $6,226 billion (40 percent) at the end of 2018. Over the last five years, the total dollar increase in foreign holdings was about 15 percent of the total increase in Federal debt held by the public. Foreign holdings of Federal debt are around 2025 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. ANALYTICAL PERSPECTIVES Federal, Federally Guaranteed, and Other Federally Assisted Borrowing The Government’s effects on the credit markets arise not only from its own borrowing but also from the direct loans that it makes to the public and the provision of assistance to certain borrowing by the public. The Government guarantees various types of borrowing by individuals, businesses, and other non-Federal entities, thereby providing assistance to private credit markets. The Government is also assisting borrowing by States through the Build America Bonds program, which subsidizes the interest that States pay on such borrowing. In addition, the Government has established private corporations—Government-sponsored enterprises—to provide financial intermediation for specified public purposes; it exempts the interest on most State and local government debt from income tax; it permits mortgage interest to be deducted in calculating taxable income; and it insures the deposits of banks and thrift institutions, which themselves make loans. Federal credit programs and other forms of assistance are discussed in Chapter 22, “Credit and Insurance,’’ in this volume. Detailed data are presented in tables accompanying that chapter. PERFORMANCE AND MANAGEMENT 43 44 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 from its high of 10 percent in October 2009, standing at 3.9 percent in December 2018, which is one of the lowest unemployment rates since 1970. Despite the recovery in the unemployment rate, the employment-population ratio remains low relative to its pre-recession levels. From 1980 to 2005, the employment-population ratio increased from 59.2 to 62.7 percent, and in 2007 it stood at 63.0 percent. After the 2008-2009 recession, it fell to 58.5 percent in 2010 and has recovered only partly to 60.4 percent in 2018. 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 $58 trillion in 2017. However, national saving, a key determinant of future prosperity because it supports capital accumulation, remains low relative to historical standards, standing at 2.9 percent of GDP in 2017, down from 10.9 percent in 1960. Meanwhile, the labor force participation rate, also critical for growth, has generally been decreasing since 2000, with the aging of the population contributing to the decline. During the 2008-2009 recession, the labor force participation rate fell abruptly. It increased slightly from 2015 to 2017 and did not change from 2017 to 2018 despite demographic trends. Nevertheless, 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 2017, goods-producing industries declined from 24.9 to 21.1 percent of total private goods and services, measured in value added as a percentage of GDP, while servicesproducing industries increased from 75.1 to 78.9 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 $552 billion in 2017. Demographic and Civic.—The U.S. population steadily increased from 1970 to 2018, growing from 204 million to 327 million. The foreign born population has rapidly increased, more than quadrupling from 9.6 million in 1970 to 44.5 million in 2017. 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 2017, the share of the population aged 65 and over increased from 9.8 to 15.6 percent, and the percentage of Americans aged 85 and over increased from 0.7 to 2.0. In contrast, the proportion of the population aged 17 and younger declined from 28.0 percent in 1980 to 22.4 percent in 2018. The composition of American households and families has evolved considerably over time. The share of Americans aged 15 and over who have ever married has declined from 78.0 percent in 1960 to 67.7 percent in 2018. Average family size has also fallen during the same period from 3.7 to 3.1 members per family household. Declining average family size is a pattern that is typical among developed countries. Births to unmarried women aged 15 to 17 and the fraction of single parent households both reached turning points in 1995 after increasing for more than three decades. From 1995 to 2017, the number of births per 1,000 unmarried women aged 15 to 17 fell from 30.1 to 7.7, the lowest level on record. Single parent households comprised 9.1 percent of all households in 1995, up from only 4.4 percent in 1960. Since 1995, the percentage stabilized then decreased to 8.3 percent in 2018. Charitable giving among Americans, measured by the average charitable contribution per itemized tax return, has generally increased over the past 50 years.2 The ef1 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. 45 46 fects of the 2008-2009 recession are evident in the sharp drop in charitable giving from 2005 to 2010, but that decline has reversed and charitable giving reached a high in 2016. 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 to 84 percent, a gain of 13 percentage points per decade. The rate of increase has slowed since then with approximately a seven percentage point gain during the past 37 years. The percentage of 25 to 34 year olds who have graduated from college continues to rise, from only 11.0 percent in 1960 to 35.6 percent in 2017. While the share of the population with a graduate degree has risen, 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 to 17 percent of all graduate degrees in 2017. 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, while for the median household, real income increased by only 24 percent since 1970, and nearly all of those gains took place prior to 2000. After a period of decline, real median household income increased by 10.5 percent between 2010 and 2017. The median wealth of households aged 55 to 64 has declined from $321 thousand in 2005 to $187 thousand in 2016. Finally, foreign remittances increased from $32.6 billion in 2000 to $47.3 billion in 2017. 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 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 among households with children fell to a low of 59.5 percent in 2015 following the 2008 housing crisis but have increased to 61.5 in 2017. 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 2016. The percentage of families with children and inadequate housing steadily decreased from a high of 9 percent in 1980 to a low of 5.3 percent in 2010. Although the share increased to 6.3 percent in 2015, it has since fallen to its low of 5.3 percent. Health.—The United States 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 2017. This increase in health care spending coincides with im- ANALYTICAL PERSPECTIVES provements 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 Average private health insurance premiums paid by an individual or family with private health insurance increased by 20 percent from 2010 to 2017, after adjusting for inflation. Some key indicators of national health have improved since 1960. Infant mortality fell from 26 per 1,000 live births in 1960 to under 6 in 2017, with a rapid decline occurring in the 1970s. Life expectancy at birth increased by nine years, from 69.7 in 1960 to 78.7 in 2010. However, life expectancy decreased to 78.6 in 2017, with increased unintentional drug overdoses contributing to this decline.4 Improvements in health-related behaviors among Americans have been mixed. Although the percentage of adults who smoke cigarettes in 2017 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 25 percent in 2017. Security and Safety.—The last three decades have witnessed a remarkable decline in crime. From 1980 to 2017, the property crime rate dropped by 78 percent while the murder rate fell by 48 percent. However, the downward decline in the murder rate ended in 2010, with the rate rising between 2010 and 2016 then falling slightly in 2017. The prison incarceration rate increased more than five-fold from 1970 through 2010, before declining by 11 percent from 2010 through 2016. 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 2017 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 28.6 million in 1980 to 19.6 million in 2018. Environment and Energy.—Substantial progress has been made on air quality in the United States, with the concentration of particulate matter falling 41 percent from 2000 to 2017 and ground level ozone falling by 32 percent from 1980 to 2017. Nevertheless, gross greenhouse gas emissions have remained high, peaking in the mid-2000s before decreasing slightly, and the annual mean atmospheric CO2 concentration has increased, largely at an increasing rate, since 1960. As of 2017, 93 percent of the population served by community water systems received drinking water in compliance with ap3 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. 4 National Center for Health Statistics (2018). Health, United States, 2017: With special feature on mortality. Hyattsville, MD. 5. Social Indicators plicable 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 population and income levels. From 2005 to 2016, coal production fell by 36 percent, with 47 most of that decrease occurring from 2014 to 2016. This decrease in coal production coincided with increases in the production of natural gas, petroleum, and renewable energy as well as new regulatory proposals and requirements. Renewable energy production has been increasing over time, and 17.1 percent of total electricity was generated from renewable sources in 2017. 48 ANALYTICAL PERSPECTIVES Table 5–1. SOCIAL INDICATORS Calendar Years 1960 1970 1980 1990 1995 2000 2005 2010 2015 2016 2017 2018 18,035 24,142 29,681 37,435 39,875 46,498 50,381 50,352 54,110 54,560 55,373 N/A 0.8 12.3 N/A N/A N/A N/A 2.4 16.2 N/A N/A N/A N/A 2.6 34.3 N/A N/A 452 371 2.3 54.5 N/A N/A 477 371 1.3 63.5 N/A N/A 513 386 3.1 71.7 24.9 75.1 482 406 1.6 81.4 23.9 76.1 544 416 0.0 90.9 22.3 77.7 385 417 1.5 98.8 21.8 78.2 414 396 1.5 100.0 21.0 79.0 433 400 1.5 102.1 21.1 78.9 N/A N/A N/A 104.6 N/A N/A N/A N/A 3.5 2.3 –19.4 –80.9 –96.4 –372.5 –714.2 –495.2 –498.5 –502.0 –552.3 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 62.7 148.8 59.3 62.8 151.4 59.7 62.9 153.3 60.1 62.9 155.8 60.4 –0.4 –0.5 0.3 0.0 2.2 1.9 2.5 1.1 2.7 2.3 2.2 2.6 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 2.3 5.3 2.5 4.9 2.5 4.4 2.5 3.9 N/A N/A N/A N/A 10.1 7.0 8.9 16.7 10.4 9.6 8.5 7.7 0.9 2.0 2.8 2.5 3.3 3.7 4.5 5.5 5.8 5.7 5.6 5.5 1.8 3,907 2.1 4,152 1.3 6,639 1.6 7,934 1.6 7,400 2.8 9,915 3.2 11,112 2.2 12,425 0.7 13,601 0.7 15,148 0.8 14,604 N/A 14,626 N/A N/A N/A N/A N/A 41,512 47,828 52,140 55,832 56,718 57,564 N/A N/A 4,202 N/A 10.9 2.52 41.6 7,486 231 8.5 2.44 56.4 10,076 164 7.1 2.21 63.7 12,170 190 3.8 2.55 61.1 12,594 209 4.0 2.40 71.4 13,475 301 6.0 2.61 74.3 13,723 253 3.0 2.50 72.0 13,335 348 –0.5 2.71 N/A 12,800 439 4.1 2.71 N/A 12,605 444 2.6 2.75 N/A 12,326 463 2.9 2.78 N/A N/A N/A N/A N/A 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 1.8 321.0 43.3 22.9 14.9 2.0 323.4 43.7 22.8 15.2 2.0 325.7 44.5 22.6 15.6 2.0 327.2 N/A 22.4 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 68.2 3.1 67.8 3.1 68.0 3.1 67.7 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 9.6 8.8 8.6 8.7 7.7 8.4 N/A 8.3 2,268 63.4 N/A 2,250 57.0 N/A 2,595 55.1 N/A 3,263 56.4 20.4 3,469 49.8 N/A 4,605 52.1 N/A 4,713 56.7 28.9 4,012 58.3 26.3 4,978 N/A 24.9 5,179 55.7 N/A N/A N/A 30.3 N/A N/A N/A N/A N/A 71.7 72.1 N/A 70.1 N/A 63.9 66.5 N/A 66.2 N/A N/A N/A 56.4 54.2 N/A 46.6 N/A 50.2 43.1 N/A 44.2 N/A 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 2012 dollars) ���������������������� Real GDP per person change, 5-year annual average (%) ���������������������������������������������������������������������������� Consumer Price Index 1 ������������������������������������������������������� Private goods producing (%) ���������������������������������������������� Private services producing (%) ������������������������������������������� New business starts (thousands) 2 �������������������������������������� Business failures (thousands) 3 ������������������������������������������� International trade balance (billions of dollars; + surplus / – deficit) 4 ��������������������������������������������������������������������������� Jobs and Unemployment Labor force participation rate (%) ���������������������������������������� Employment (millions) ��������������������������������������������������� Employment-population ratio (%) ���������������������������������������� Payroll employment change - December to December, SA (millions) ������������������������������������������������������������������������� Payroll employment change - 5-year annual average, NSA (millions) ������������������������������������������������������������������������� Civilian unemployment rate (%) ������������������������������������������� Unemployment plus marginally attached and underemployed (%) �������������������������������������������������������� Receiving Social Security disabled-worker benefits (% of population) 5 ������������������������������������������������������������������� Infrastructure, Innovation, and Capital Investment Nonfarm business output per hour (average 5 year % change) 6 ������������������������������������������������������������������������ Corn for grain production (million bushels)��������������������������� Real net stock of fixed assets and consumer durable goods (billions of chained 2012 dollars) ������������������������������������ Population served by secondary wastewater treatment or better (%) 7 ��������������������������������������������������������������������� Electricity net generation (kWh per capita) �������������������������� Patents for invention, U.S. origin (per million population) 8 �� Net national saving rate (% of GDP) ����������������������������������� R&D spending (% of GDP) 9 ����������������������������������������������� 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 (2016 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 movie-going (% age 18 and older) 17 ������������������������������ Reading: Novels or short stories, poetry, or plays (not required for work or school; % age 18 and older) 17 ������� 49 5. Social Indicators Table 5–1. SOCIAL INDICATORS—Continued Calendar Years 1960 1970 1980 1990 1995 2000 2005 2010 2015 2016 2017 2018 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 89.7 34.1 N/A N/A 90.1 34.9 N/A N/A 90.9 35.6 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 15.0 16.3 17.0 N/A N/A N/A 10.1 11.4 12.4 13.3 13.7 13.0 13.2 13.4 13.7 N/A 49,342 17,734 N/A N/A 12.8 N/A 12.6 N/A 50,301 21,542 8.5 17.7 11.1 N/A 13.0 N/A 54,621 27,250 14.0 15.0 8.4 N/A 13.5 N/A 54,600 28,954 14.6 14.5 7.0 N/A 13.8 11.9 59,938 33,568 20.8 13.0 4.8 32.6 11.3 10.5 58,291 36,527 21.2 12.9 3.2 38.5 12.6 11.0 55,520 38,161 18.9 11.7 6.5 40.5 15.1 14.5 58,476 41,598 20.7 11.3 7.6 44.8 13.5 12.7 60,309 42,003 19.7 11.6 6.7 46.5 12.7 12.3 61,372 42,791 N/A N/A 6.7 47.3 12.3 11.8 N/A N/A N/A N/A N/A N/A N/A N/A 3.3 9.5 8.2 9.9 6.1 8.9 13.1 14.3 13.7 13.0 12.4 N/A 158 183 180 251 321 198 N/A 187 N/A N/A N/A N/A N/A 63.6 65.1 67.5 68.4 65.5 59.5 60.5 61.5 N/A N/A N/A N/A N/A 8 9 10 9 12 7 11 7 14.5 5.4 17.9 5.3 15.1 6.3 15.0 5.8 15.0 5.3 N/A N/A Health Status Life expectancy at birth (years) ������������������������������������������� Infant mortality (per 1,000 live births) ���������������������������������� Low birthweight [<2,500 gms] (% of babies) ����������������������� Activity limitation (% of age 5–17) 30 ����������������������������������� Disability (% of age 18 and over) 31 ������������������������������������� Disability (% of age 65 and over) 31 ������������������������������������� 69.7 26.0 7.7 N/A N/A N/A 70.8 20.0 7.9 N/A N/A N/A 73.7 12.6 6.8 N/A N/A N/A 75.4 9.2 7.0 N/A N/A N/A 75.8 7.6 7.3 N/A N/A N/A 76.8 6.9 7.6 7.0 N/A N/A 77.6 6.9 8.2 8.0 N/A N/A 78.7 6.1 8.2 9.2 8.9 22.6 78.7 5.9 8.1 9.8 9.5 21.6 78.7 5.9 8.2 10.6 8.6 18.2 78.6 5.8 8.3 N/A 8.7 19.5 N/A N/A N/A N/A N/A N/A Health Behavior Engaged in regular physical activity (% of age 18 and older) 32 �������������������������������������������������������������������������� Obesity (% of age 20–74 with BMI 30 or greater) 33 ����������� Obesity (% of age 2–19) 34 �������������������������������������������������� Cigarette smokers (% of age 18 and older) ������������������������� Heavier drinker (% of age 18 and older) 35 �������������������������� 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 21.6 N/A N/A 15.3 5.0 22.7 40.0 18.5 15.7 5.3 24.5 N/A N/A 14.1 N/A N/A N/A N/A N/A N/A 5.0 6.9 8.9 12.1 13.4 13.4 15.5 17.3 17.6 18.0 17.9 N/A N/A N/A N/A N/A N/A 3,700 4,905 5,437 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 16.9 N/A 18.9 N/A 19.3 3,062 22.3 3,547 12.8 3,657 12.4 3,680 12.8 N/A N/A N/A N/A N/A N/A 13.0 12.6 9.3 7.8 4.5 5.1 5.0 N/A N/A N/A N/A N/A N/A N/A N/A 56.6 72.2 70.7 70.4 N/A N/A N/A 49,610 34,890 31,547 19,043 15,947 12,541 11,072 11,859 10,838 N/A Income, Savings, and Inequality Real median income: all households (2017 dollars) 22 ������� N/A Real disposable income per capita (chained 2012 dollars) ��� 12,629 Adjusted gross income share of top 1% of all taxpayers ����� N/A Adjusted gross income share of lower 50% of all taxpayers N/A Personal saving rate (% of disposable personal income) ���� 10.1 Foreign remittances (billions of 2016 dollars) 23 ������������������ N/A Poverty rate (%) 24 ��������������������������������������������������������������� 22.2 Food-insecure households (% of all households) 25 ������������ N/A Supplemental Nutrition Assistance Program (% of population on SNAP) ������������������������������������������������������ N/A Median wealth of households, age 55–64 (in thousands of 2016 dollars) 26 ��������������������������������������������������������������� 80 Housing Homeownership among households with children (%) 27 ���� Families with children and severe housing cost burden (%) 28 ������������������������������������������������������������������������������������� Families with children and inadequate housing (%) 29 �������� Health 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 Access to Health Care Total national health expenditures (% of GDP) �������������������� Average total single premium per enrolled employee at private-sector establishments (2016 dollars) 36 �������������� Average health insurance premium paid by an individual or family (2016 dollars) 37 ��������������������������������������������������� Persons without health insurance (% of age 18–64) 38 ������� Persons without health insurance (% of age 17 and younger) 38 ���������������������������������������������������������������������� Children age 19–35 months with recommended vaccinations (%) 39 ��������������������������������������������������������� Security and Safety 75 Crime Property crimes (per 100,000 households) 40 ��������������������� 50 ANALYTICAL PERSPECTIVES Table 5–1. SOCIAL INDICATORS—Continued Calendar Years 76 1960 1970 1980 1990 1995 2000 2005 2010 2015 2016 2017 2018 Violent crime victimizations (per 100,000 population age 12 or older) 41 ���������������������������������������������������������������������� Murder rate (per 100,000 persons) �������������������������������������� Prison incarceration rate (state and federal institutions, rate per 100,000 persons) 42 ������������������������������������������������� 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 1,858 4.9 1,967 5.4 2,060 5.3 N/A N/A 118.8 95.8 144.4 308.7 426.4 491.4 513.4 519.7 473.0 464.2 N/A N/A 79 80 National Security Military personnel on active duty (thousands) 43 ����������������� Veterans (thousands)����������������������������������������������������������� 2,475 22,534 3,065 26,976 2,051 28,640 2,044 27,320 1,518 26,198 1,384 26,206 1,389 24,542 1,431 22,668 1,314 20,784 1,301 20,392 1,307 19,999 1,317 19,602 81 82 Transportation Safety Safety belt use (%) �������������������������������������������������������������� Highway fatalities ����������������������������������������������������������������� N/A 36,399 N/A 52,627 N/A 51,091 N/A 44,599 N/A 41,817 70.7 41,945 81.7 43,510 85.1 32,999 88.5 35,485 90.1 37,806 89.7 37,133 N/A N/A N/A N/A N/A N/A 0.102 N/A 0.090 N/A 0.091 N/A 0.082 13.5 0.080 12.9 0.074 10.0 0.069 8.5 0.070 7.7 0.069 8.0 N/A N/A 316.9 325.7 338.7 354.4 360.8 369.5 379.8 389.9 400.8 404.2 406.6 408.5 N/A N/A N/A 6,363 6,695.6 7,216.6 7,320.3 6,922.9 6,638.1 6,511.3 N/A N/A N/A N/A N/A 5,536.0 5,909.7 6,463.9 6,589.1 6,206.0 5,942.9 5,794.5 N/A N/A N/A N/A N/A 25.1 24.8 25.2 24.4 22.1 20.4 19.9 N/A N/A N/A N/A N/A 0.710 0.658 0.575 0.514 0.468 0.403 0.390 N/A N/A N/A N/A N/A N/A 83.8 90.8 88.5 92.2 91.1 91.2 92.8 N/A 250 331 344 338 342 350 339 315 304 302 300 N/A 14.5 14.4 12.1 9.4 8.9 7.9 7.0 6.6 5.9 5.8 5.7 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 7.6 8.2 13.3 897 27.1 12.8 9.7 14.9 728 26.6 12.3 10.3 17.1 775 27.3 13.1 11.2 N/A N/A N/A N/A N/A 77 78 Environment and Energy 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 Air Quality and Greenhouse Gases Ground level ozone (ppm) 44 ����������������������������������������������� Particulate matter 2.5 (ug/m3) 45 ����������������������������������������� Annual mean atmospheric CO2 concentration (Mauna Loa, Hawaii; ppm) ������������������������������������������������������������������� Gross greenhouse gas emissions (teragrams CO2 equivalent) 46 ������������������������������������������������������������������ 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 kg CO2 equivalent) �������������������������������������������������������������� Population that receives drinking water in compliance with standards (%) 47 ������������������������������������������������������������� 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) 48 ������������������������������������������������������ Coal production (million short tons) ������������������������������������� Natural gas production (dry) (trillion cubic feet) 49 ��������������� Petroleum production (million barrels per day) �������������������� Renewable energy production (quadrillion Btu) ������������������� N/A=Number is not available. 1 Adjusted CPI-U. 2016=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 2017 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 2017 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, 2016, and 2017 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. 51 5. Social Indicators Table 5–1. SOCIAL INDICATORS—Continued 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. 1960, includes those who have completed 4 years of high school or beyond. For 1970 and 1980, includes those who have completed 12 years of school or beyond. For 1990 onward, includes those who have completed a high school diploma or the equivalent. 19 For 1960 to 1980, includes those who have completed 4 or more years of college. From 1990 onward, includes those who have a bachelor’s degree or higher. 20 Data correspond to years 1971, 1980, 1990, 1994, 1999, 2004, 2008, and 2012. 21 Data correspond to years 1973, 1982, 1990, 1994, 1999, 2004, 2008, and 2012. 22 Beginning with 2013, data are based on redesigned income questions. The source of the 2013 data is a portion of the CPS ASEC sample which received the redesigned income questions, approximately 30,000 addresses. For more information, please see the report Income and Poverty in the United States: 2014, U.S. Census Bureau, Current Population Reports, P60–252. 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 Total activity limitation includes receipt of special education services; assistance with personal care needs; limitations related to the child’s ability to walk; difficulty remembering or periods of confusion; limitations in any activities because of physical, mental, or emotional problems. 31 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.” 32 Participation in leisure-time aerobic and muscle-strengthening activities that meet 2008 Federal physical activity guidelines. 33 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. 34 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. 35 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. 36 Includes only employees of private-sector establishments that offer health insurance. Adjusted to 2016 dollars by OMB. 37 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. 38 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. 39 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). 40 Property crimes, including burglary, motor vehicle theft, and property theft, reported by a sample of households. Every 10 years, the National Crime Victimization Survey (NCVS) sample is redesigned to reflect changes in the population. To permit cross-year comparisons that were inhibited by the 2016 sample redesign, BJS created a revised data file. Estimates for 2016 are based on the revised file and replace previously published estimates. For more information, see Criminal Victimization, 2016 (Revised), available at https://www.bjs.gov/ index.cfm?ty=pbdetail&iid=6427. 41 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. Every 10 years, the National Crime Victimization Survey (NCVS) sample is redesigned to reflect changes in the population. To permit cross-year comparisons that were inhibited by the 2016 sample redesign, BJS created a revised data file. Estimates for 2016 are based on the revised file and replace previously published estimates. For more information, see Criminal Victimization, 2016 (Revised), available at https://www.bjs.gov/index.cfm?ty=pbdetail&iid=6427. 18 For 52 ANALYTICAL PERSPECTIVES Table 5–1. SOCIAL INDICATORS—Continued 42 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. These rates are based on persons under the jurisdiction of state and federal correctional authorities, regardless of sentence length. 43 For all years, the actuals reflect Active Component only excluding full-time Reserve Component members and RC mobilized to active duty. End Strength for 2018 is preliminary. 44 Ambient ozone concentrations based on 200 monitoring sites meeting minimum completeness criteria. 45 Ambient PM2.5 concentrations based on 429 monitoring sites meeting minimum completeness criteria. 46 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. 47 Percent of the population served by community water systems that receive drinking water that meets all applicable health - based drinking water standards. 48 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. 49 Dry natural gas is also known as consumer-grade natural gas. 53 5. Social Indicators Table 5–2. SOURCES FOR SOCIAL INDICATORS Indicator Source Economic General Economic Conditions 1 Real GDP per person (chained 2012 dollars)��������������������������������������������������������������������������������������� Bureau of Economic Analysis, National Economic Accounts Data. http:// www.bea.gov/national/ 2 Real GDP per person change, 5-year annual average (%)������������������������������������������������������������ Bureau of Economic Analysis, National Economic Accounts Data. http:// www.bea.gov/national/ 3 Consumer Price Index�������������������������������������������������������������������������������������������������������������������������� Bureau of Labor Statistics, BLS Consumer Price Index Program. https:// www.bls.gov/cpi/ 4 Private goods producing (%)���������������������������������������������������������������������������������������������������������������� Bureau of Economic Analysis, National Economic Accounts Data. http:// www.bea.gov/national/ 5 Private services producing (%)������������������������������������������������������������������������������������������������������������� Bureau of Economic Analysis, National Economic Accounts Data. http:// www.bea.gov/national/ 6 New business starts (thousands)��������������������������������������������������������������������������������������������������������� U.S. Census Bureau, Business Dynamics Statistics. https://www.census. gov/ces/dataproducts/bds/ 7 Business failures (thousands)�������������������������������������������������������������������������������������������������������������� U.S. Census Bureau, Business Dynamics Statistics. https://www.census. gov/ces/dataproducts/bds/ 8 International trade balance (billions of dollars; + surplus/ – deficit) ����������������������������������������������������� Bureau of Economic Analysis, International Economics Accounts, https:// www.bea.gov/International/index.htm Jobs and Unemployment 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 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 2012 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 2018); and Table 7.2a https://www.eia.gov/ totalenergy/data/monthly; and U.S. Census Bureau, Population Division, Vintage 2017 Population Estimates (2010-2017) https://www.census. gov/data/tables/2017/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 2018 Population Estimates (2018), Vintage 2017 Population Estimates (2010-2017), 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 30 31 32 33 34 35 36 37 38 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 2018 Population Estimates (2018), Vintage 2017 Population Estimates (2010-2017), 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 2018 Population Estimates (2018), Vintage 2017 Population Estimates (2010-2017), 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 2018 Population Estimates (2018), Vintage 2017 Population Estimates (2010-2017), 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. https://www.census.gov/ data/tables/2018/demo/families/cps-2018.html Average family size������������������������������������������������������������������������������������������������������������������������������� U.S. Census Bureau, Current Population Survey. https://www.census.gov/ data/tables/2018/demo/families/cps-2018.html 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 2017. Single parent households (%)�������������������������������������������������������������������������������������������������������������� U.S. Census Bureau, Current Population Survey. https://www.census.gov/ data/tables/2018/demo/families/cps-2018.html Civic and Cultural Engagement Average charitable contribution per itemized tax return (2016 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 45 46 47 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 (2017 dollars)����������������������������������������������������������������������������� U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplements. https://www.census.gov/topics/income-poverty/ income/data/tables.html Real disposable income per capita (chained 2012 dollars)������������������������������������������������������������������ Bureau of Economic Analysis, National Economic Accounts Data. http:// www.bea.gov/national/ Adjusted gross income share of top 1% of all taxpayers���������������������������������������������������������������������� U.S. Internal Revenue Service, Statistics of Income. http://www.irs.gov/uac/ SOI-Tax-Stats-Individual-Statistical-Tables-by-Tax-Rate-and-IncomePercentile 55 5. Social Indicators Table 5–2. SOURCES FOR SOCIAL INDICATORS—Continued Indicator 48 49 50 51 52 53 54 Source 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 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 68 Health Status Life expectancy at birth (years)������������������������������������������������������������������������������������������������������������ National Center for Health Statistics, National Vital Statistics System: Mortality in the United States, 2017. Infant mortality (per 1,000 live births)��������������������������������������������������������������������������������������������������� National Center for Health Statistics, National Vital Statistics System: Mortality in the United States, 2017. Low birthweight [<2,500 gms] (% of babies)���������������������������������������������������������������������������������������� National Center for Health Statistics, National Vital Statistics System (natality); Births: Final data for 2017 Activity limitation (% of age 5-17)��������������������������������������������������������������������������������������������������������� National Center for Health Statistics, National Health Interview Survey; America’s Children in Brief: Key National Indicators of Well-Being, 2017, Table HEALTH5, crude percentages; http://www.childstats.gov/ americaschildren/tables/health5.asp?popup=true (2000-2015 data); America’s Children in Brief: Key National Indicators of Well-Being, 2018 forthcoming (2016 data). 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-Stats: 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-Stats: 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 (2016 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. 56 ANALYTICAL PERSPECTIVES Table 5–2. SOURCES FOR SOCIAL INDICATORS—Continued Indicator 69 70 71 72 73 74 Source Access to Health Care Total national health expenditures (% of GDP)������������������������������������������������������������������������������������� Centers for Medicare and Medicaid Services, National Health Expenditures Data. http://www.cms.gov/Research-Statistics-Data-and-Systems/ Statistics-Trends-and-Reports/NationalHealthExpendData/index.html Average 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 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, 2010-2017, Family Core component. Persons without health insurance (% of age 18-64)����������������������������������������������������������������������������� National Center for Health Statistics, National Health Interview Survey. Persons without health insurance (% of age 17 and younger)������������������������������������������������������������� National Center for Health Statistics, National Health Interview Survey. Children age 19-35 months with recommended vaccinations (%)������������������������������������������������������� National Center for Immunization and Respiratory Diseases, National Immunization Survey: http://www.cdc.gov/vaccines/imz-managers/ coverage/nis/child/ 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 76 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 77 Murder rate (per 100,000 persons)������������������������������������������������������������������������������������������������������� Federal Bureau of Investigation, Uniform Crime Reports, Crime in the United States. https://ucr.fbi.gov/ucr 78 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 75 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. 80 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 Transportation Safety 81 Safety belt use (%)������������������������������������������������������������������������������������������������������������������������������� National Highway Traffic Safety Administration, National Center for Statistics and Analysis. https://crashstats.nhtsa.dot.gov/Api/Public/ ViewPublication/812465 82 Highway fatalities���������������������������������������������������������������������������������������������������������������������������������� National Highway Traffic Safety Administration, National Center for Statistics and Analysis. https://crashstats.nhtsa.dot.gov/Api/Public/ ViewPublication/812456 79 Environment and Energy 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 kg 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 57 5. Social Indicators Table 5–2. SOURCES FOR SOCIAL INDICATORS—Continued Indicator 90 91 92 93 94 95 96 97 Source Population that receives drinking water in compliance with standards (%)������������������������������������������ U.S. Environmental Protection Agency, 2018a. 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 2018), Table 1.7 https://www.eia.gov/totalenergy/data/monthly Energy consumption per 2009$ GDP (thousand Btu per 2009$)��������������������������������������������������������� U.S. Energy Information Administration, Monthly Energy Review (October 2018), Table 1.7 https://www.eia.gov/totalenergy/data/monthly Electricity net generation from renewable sources, all sectors (% of total)������������������������������������������ U.S. Energy Information Administration, Monthly Energy Review (October 2018), Table 7.2a https://www.eia.gov/totalenergy/data/monthly Coal production (million short tons)������������������������������������������������������������������������������������������������������ U.S. Energy Information Administration, Monthly Energy Review (October 2018), Table 6.1 https://www.eia.gov/totalenergy/data/monthly Natural gas production (dry) (trillion cubic feet)������������������������������������������������������������������������������������ U.S. Energy Information Administration, Monthly Energy Review (October 2018), 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 2018), Table 3.1 https://www.eia.gov/totalenergy/data/monthly Renewable energy production (quadrillion Btu)������������������������������������������������������������������������������������ U.S. Energy Information Administration, Monthly Energy Review (October 2018), Table 10.1 https://www.eia.gov/totalenergy/data/monthly 6. BUILDING AND USING EVIDENCE TO IMPROVE GOVERNMENT EFFECTIVENESS This Administration is committed to results-driven government that improves mission delivery and directs taxpayer dollars to the most effective and efficient uses. Bringing evidence to bear in decision-making is a critical component of good government. Agencies should integrate quality evidence from rigorous program evaluations, monitoring activities, and other studies and analyses into budget, management, programmatic, regulatory, and policy decisions. Doing so requires the infrastructure and commitment to credibly build and use evidence, and to develop a culture of learning and continuous improvement. The recently enacted Foundations for Evidence-Based Policymaking Act of 2018 (hereafter known as the Evidence Act) reinforces the importance of evidence-based decisionmaking and requires agencies to undertake activities toward this end. Evidence is a critical tool that allows agencies to continually learn and improve. Strong evidence about policies and programs should be acted upon, suggestive evidence should be considered, and where evidence is absent, it should be built to enable better decisions in the future. However, in many policy domains, agencies lack information - or access to information - that could help them learn from and improve policies and programs to better serve the American people. Further, current capacity in Federal agencies to build and use evidence varies widely. Agencies need stronger practices that generate more evidence about what works and what needs improvement in order to inform mission-critical decisions and policies. Several requirements of the Evidence Act will help agencies to strengthen their evidence capacity and practices. Underlying successful efforts to build and use evidence is an agency culture that promotes and values learning. An agency with a robust culture of learning continually asks questions about how the agency’s activities, programs, and processes are functioning and, importantly, how the agency can improve in these areas. In practice, this means that evidence-building and data-driven decision-making are incorporated into agency processes, rather than seen as separate activities. Strategically aligning evidence activities with core agency functions allows agencies to systematically ensure that evidence is available when and where it is needed. It also means that program evaluation and other evidence-building functions are included in program and policy design from the beginning, rather than as an afterthought. Evidence-Building Strategies to Learn and Improve Federal agencies have implemented a number of strategies to build evidence to learn and improve. Recently, there have been efforts to elevate and spread the adop- tion of these strategies, including the Evidence Act and a proposal to strengthen Federal evaluation in OMB’s plan1 to reform and reorganize government. Both include designating an Evaluation Officer and creating a multi-year learning agenda, and with the enactment of the Evidence Act, agencies will now be required to adopt these and other strategies. These strategies will enhance agencies’ ability to conduct program evaluations and other evidence-building activities in service of more effective agency functions and programs. It is important that agencies build a portfolio of evidence in a particular area and not rely on a single study to make high-stakes decisions. A portfolio can and should include many different types of evidence, including results from program evaluations, policy analyses, performance measurements, and statistical analyses.2 The questions of interest should serve as the starting point for building evidence; once questions are identified, then the appropriate methods should be selected to answer those questions (i.e., do not first pick a method of interest then search for a question that can be answered using that method). Once methods are identified, a study should then be designed to answer the questions of interest in the most rigorous manner possible that is both appropriate for those questions and feasible within budget and other constraints. Designating an Evaluation Officer: An Evaluation Officer strengthens an agency’s capacity to build evidence by providing strategic leadership around evaluation and other evidence-building strategies across the agency. Several agencies already have senior evaluation officials— individuals with professional experience and technical expertise in evaluation, who lead evaluation activities across the agency—in place. These senior officials often reside in a centralized evaluation office within the agency and are responsible for playing a leading role in overseeing the agency’s evaluation activities, learning agenda, and information reported to OMB on evidence, as well as contributing to other evidence-building functions. Examples include the Deputy Assistant Secretary for Planning, Research and Evaluation in the Administration for Children and Families (ACF) at the Department of Health and Human Services (HHS) and Deputy Assistant Secretary for Research, Evaluation, and Monitoring in the Office of Policy Development and Research in the Department of Housing and Urban Development (HUD). With the enactment of the Evidence Act, agencies that do not have this position will now need to designate a senior official to coordinate and lead their evaluation efforts. 1 https://www.whitehouse.gov/wp-content/uploads/2018/06/Government-Reform-and-Reorg-Plan.pdf 2 “Evidence” in the Evidence Act is defined as “information produced as a result of statistical activities for a statistical purpose” and thus, includes evaluation, statistics, research, and policy analysis. 59 60 Developing and Using Multi-Year Learning Agendas: Under the Evidence Act, Evaluation Officers play an important role in coordinating the development and implementation of a multi-year learning agenda to strategically plan and prioritize learning. Multi-year learning agendas allow agencies to systematically identify and address short- and long-term policy questions relevant to the programs, policies, and regulations of an agency. They include important questions about the agency’s operations such as human resources, grant-making, and internal processes, as well as strategic questions about how the agency meets its mission, including how programs, policies, and regulations function individually and in combination. The Evidence Act requires agencies to develop an agency evidence-building plan (i.e., learning agenda) that includes the policy-relevant questions the agency seeks to answer, the data needed to do so, and the challenges to developing evidence to support policymaking. Several agencies already have these activities underway. For example, the Small Business Administration (SBA) has a centralized program evaluation function and five-year enterprise learning agenda to strategically incorporate evidence across the agency’s functions. The SBA’s enterprise learning agenda aligns with the agency’s strategic goals and prioritizes those evaluations that could provide insights into program effectiveness or progress towards desired outcomes, or test pilot initiatives or program adjustments. Other agencies are more nascent in developing and implementing learning agendas, and are focusing their learning agendas in key areas as they implement this practice across the agency. For example, the National Science Foundation (NSF), U.S. Agency for International Development (USAID), and the Administration on Community Living (ACL) in HHS are all either expanding their practices to develop a learning agenda for the agency or developing a learning agenda for an agency component. Leveraging Partners: Agencies with a strong culture of learning leverage partnerships both external and internal to the government to further their missions. For example, the Office of the Assistant Secretary for Planning and Evaluation (ASPE) at HHS has a Learning Exchange that exemplifies an effective partnership between a Federal agency and an academic institution, the University of Wisconsin-Madison. As part of the National Poverty Center, this partnership allows HHS to flexibly and quickly address agency and Administration priorities within the context of longer-term research and policy development; benefit from new academic findings; forge cross-sector, policy-researcher collaborations; engage a broader range of outside experts and stakeholders; and disseminate information and tools across Federal agencies. At the Department of Veterans Affairs (VA), the Quality Enhancement Research Initiative (QUERI), an effort to increase the use of evidence-based practices in routine care for veterans, relies on relationships with VA operational partners and a large network of external partners to meet its mission. For example, its National Partnered Evaluations program allows QUERI to partner with other parts of VA to conduct high-quality evaluations of specific initiatives that have the potential for large impacts on national VA policy, including the Center ANALYTICAL PERSPECTIVES for Access Policy, Evaluation and Research, which will rigorously evaluate clinic operations to assess patient access, a top priority for the VA. Finally, the Census Bureau’s Data Linkage Infrastructure enables access to several Federal and Federally-sponsored high-value datasets and linked data for qualified researchers. For example, HUD and Census have partnered to make data from HUD’s Moving to Opportunity Demonstration and the Family Options Study available to qualified researchers and more readily matched with other administrative data through Census’ Data Linkage Infrastructure. This particular partnership enables qualified researchers to build evidence from these two large experiments, while Census’ broader Infrastructure allows this type of evidence-building across several topical areas. Evaluation as a Tool to Learn and Improve Program evaluation is an important piece of the evidencebuilding enterprise and can answer essential questions regarding program effectiveness and efficiency that cannot be answered through performance measurement and monitoring, statistics, or policy analysis. Evaluation is a valuable tool for learning what works in order to focus limited funding on effective programs, discontinue programs that fall short of desired results, and identify ways to improve mandatory programs. Evaluation findings can promote effective and efficient use of taxpayer dollars. For example, a decade of rigorous evaluations of HHS’ Maternal, Infant, and Early Childhood Home Visiting Program (MIECHV) demonstrated positive impacts and future savings that warranted scaling it up. In contrast, Project D.A.R.E., a substance abuse prevention program for adolescents, lost all Federal funding following several high-quality evaluations that determined the program was ineffective and in some cases had negative effects. Investing in Evaluation: Evaluation is an investment that complements resources spent on direct program administration and should be considered an integral part of sound program management. However, building evaluation into program design in order to test outcomes and impacts is currently the exception rather than the rule. We must increase the capacity of Federal agencies to conduct evaluation and fill a critical gap in the Federal Government’s ability to generate evidence about which programs work, how they work, and how we can improve them. While there may be initial discomfort in allocating resources to evaluation, these expenditures are critical investments. For example, the Temporary Assistance for Needy Families (TANF) program sets aside 0.33% of funding for evaluation, and the Every Student Succeeds Act (ESSA) allows the Department of Education (ED) to set aside up to 0.5% of funding from most ESSA programs for evaluation. The Budget includes a new proposal to set aside 0.5% of funding of Higher Education Act programs, aside from Pell Grants and Student Aid Administration, for rigorous evaluations. The Budget carries over prior proposals to designate up to three percent of Office of Justice Programs funding for research, evaluation, or statistical purposes at the Department of Justice (DOJ). To support program evaluation in areas lacking evidence, the Budget proposes 6. Building and Using Evidence to Improve Government Effectiveness the Department of Homeland Security Federal Emergency Management Agency use up to one percent of the appropriations for the State Homeland Security Grant Program (SHSGP) and Urban Area Security Initiative (UASI) Grant Program to support evaluations of these programs. The Budget also includes proposals to capitalize on practices that optimize the use of evaluation funds. For HUD, the Budget includes a prior enacted general provision allowing HUD to deobligate and then reobligate unexpended funds (in the same fiscal year or the subsequent fiscal year) at the completion of a contract, grant, or cooperative agreement for research, evaluation, or statistical purposes. The Budget also proposes this and other flexibilities for certain statistical and evaluation units at the Departments of Labor (DOL) and HHS, to give agencies the ability to make full use of these funds and spend funds over longer periods of time. A more detailed discussion on funding flexibility options is included in the 2019 President’s Budget, Analytical Perspectives Chapter 6 3 on Evidence. While the exact percentage of funds devoted to evaluation should be based on what is appropriate for each agency and funding stream, evaluation activities should be sufficiently resourced and high-quality evaluation considered a worthwhile investment. High-quality and more comprehensive Federal evaluation should lead to improved government effectiveness and efficiency, and to eventual government savings as dollars are redirected to programs that work. Such investment in evaluation should increase the return on Federal spending, as evaluation results are used to inform program improvements and better target future spending. An example of such a shift in approach is the Social Impact Partnerships to Pay for Results Act (SIPPRA), enacted in 2018. SIPPRA requires that partnership projects be informed by evidence and include rigorous and transparent evaluations to determine project impact and the resulting government savings and value, and allows a portion of project funding to be used for evaluation. Requiring high-quality evaluations of SIPPRA projects and integrating evidence and evaluation into project design from the start will enable us to learn what works best and to pay based on results, rather than paying for programs that fall short. Another example of investing in evaluation is ACF’s Healthy Marriage and Responsible Fatherhood Initiative which, in its latest round of grants, required all grantees to conduct local evaluations. To support these local evaluations, ACF has a research contract to train and provide technical assistance related to updated performance measures in order to improve data quality and strengthen grantee-led local evaluation plans. In addition to local evaluations, selected grantees will participate in a cross-site implementation and impact evaluation to understand the effects of healthy marriage and relationship education programs on key program outcomes. Learning from Evaluation: In evaluating programs, we need to determine not only whether what we are currently doing is effective, but also how we can do better. For example, the Federal Government currently invests in a variety of reentry and recidivism reduction programs, but 3 https://www.gpo.gov/fdsys/pkg/BUDGET-2019-PER/pdf/BUDGET-2019-PER.pdf 61 the evidence base for these programs is limited. To help build a body of evidence, the Budget includes funding to develop innovative pilot projects within the Bureau of Prisons at DOJ focused on reentry and recidivism reduction approaches with a preference for projects that include evidence-based approaches, including replication of existing models, as well as rigorous evaluation and performance management. All projects that receive funding will undergo evaluation to assess their impacts in coordination with the National Institute of Justice at DOJ. Another example is the Experimental Sites Initiative at ED, which tests the effectiveness of statutory and regulatory flexibility for participating institutions disbursing Title IV student aid. The Budget includes funding for rigorous evaluation of ongoing and future experiments. For many years, impact evaluations were typically designed to test a treatment condition against a control condition in which program participants received either no services or the status quo service. While these evaluations can provide important information about the impact of the program, they often cannot explain why the intervention did or did not produce the desired results. One way to get inside this “black box” to understand what is working and why, is to pair an impact evaluation with a well-designed and executed implementation (or process) study. One example is the Retaining Employment and Talent after Injury/Illness Network (RETAIN) study, administered by DOL in partnership with the Social Security Administration (SSA). RETAIN is an eight-state pilot study to test the impact of early intervention strategies to support employment among workers with a new disability, injury, or health condition, and will include both an implementation and impact evaluation for each state project. Results should identify effective strategies for supporting employment in diverse program and service environments and provide a basis for scaling up and further testing the most effective strategies. Another means of understanding the effectiveness of program services, specifically variation in which services programs provide and how they provide them, is through multi-arm trials. These evaluations provide an opportunity to test different program strategies against one another or a control group, and enable an agency to go beyond questions of overall program effectiveness and consider the effects of variations in program approaches, including which services are offered and how. These approaches might include current services, current services plus an enhancement, or a completely different package of services. If no services are currently being offered, an evaluation might test two or more different types of interventions to see which is more effective at producing the desired results. For example, earlier evaluations have shown that the Reemployment and Eligibility Assessment (REA) program at DOL, particularly when combined with intensive reemployment services (RESEA), helps unemployed workers find new employment faster and shortens their length of time on unemployment benefits. These studies, however, were not designed to determine which components of the REA/RESEA program drive these positive outcomes. To help understand this, DOL is conducting a multi-arm 62 randomized controlled trial in four states that will inform future state implementation of RESEA. Many of the evaluations that the Office of Evaluation Sciences (OES) at the General Services Administration has undertaken with agency partners utilize this idea of multi-arm trials to test different strategies. For example, SSA identified over four million individuals who were potentially eligible for Supplemental Security Income (SSI), a monthly means-tested cash payment to people who have low income and assets and are disabled, blind, or age 65 or older. OES designed an evaluation to test how different approaches to targeted outreach increased uptake of SSI among eligible individuals, in which individuals were randomly assigned to receive one of four variations of an outreach letter or to a control condition. Nine months after the intervention, the letters increased SSI awards by 340%, and including information in the letter about the maximum SSI benefit boosted applications most significantly. Similarly, OES worked with ED’s Office of Federal Student Aid to develop an email outreach program to contact borrowers nearing their recertification dates who would see an increased monthly payment if they did not recertify their income. Nearly 300,000 eligible borrowers were divided into three cohorts and then randomly assigned to be sent one of three different email approaches that utilized individual or average payment increase comparisons, follow up emails, and inclusion of signatures. Including borrowers’ actual payment increase was most effective at getting borrowers to recertify for income-driven repayment plans, resulting in an 8.4% increase. Both of these examples highlight the ability to embed multi-arm, quicker, low-cost evaluations into existing implementation efforts, and demonstrate the potential to learn from these types of evaluations. Evaluation and Performance Measurement: In addition to evaluation, performance measurement is another tool available to help policymakers and program managers develop systematic evidence, understand how well policies and programs are working, and identify possible improvements. Both evaluation and performance measurement generate information that help build a portfolio of evidence, serve as methods for systematic assessment, and aim to facilitate learning and improve results of government activities. At the same time, there are important differences between the two methods that dictate what each can tell us about programs and policies. Performance measurement is the ongoing collection, monitoring, reviewing, and reporting of data on pre-selected measures related to level and type of activities, products and services delivered, and outcomes of activities. In contrast, evaluation is systematic study to examine how well all or part of a program, intervention, policy, regulation, or other government activity is working. Performance measurement tracks progress toward pre-established goals and targets, helps determine whether an activity is achieving its stated output/outcome objectives, and serves as an early alert system in the case of significant changes in operations. Evaluation is intended to assess the effectiveness of a program, intervention, policy, or regulation, compared with its absence or with one or more alternative approaches; establish a causal relation- ANALYTICAL PERSPECTIVES ship between an activity and the outcomes experienced by those affected by it; and/or address questions about implementation, variations in effectiveness across different settings or populations, and contextual factors. While the two approaches answer different types of questions and are often undertaken separately, collaboration between performance measurement and evaluation teams can lead to stronger evidence-building overall. The two methods can work hand in hand in the following ways: • Performance measurement can help identify priority questions to be addressed by evaluations, informing decisions about allocating evaluation resources; • Evaluation findings can clarify which indicators are predictive of an activity’s success and should be tracked in performance measurement; • Performance measurement can identify outliers in performance (either poor or strong) that warrant evaluation,while evaluation can provide context and potential explanations for variation over time or across sites revealed by performance measurement; • When performance measures suggest that many par- ticipants in a program experience a certain outcome, evaluation can confirm or refute whether that is directly attributable to the program by comparing outcomes seen in a control or comparison group when possible; and • Performance measurement can suggest to evaluators what types of indicators are important to program operators and thus might be useful to include in selecting evaluation measures. Harnessing Data for Learning and Improvement An agency with a strong culture of learning recognizes the value of data as a strategic asset. The President’s Management Agenda4 released in 2018 includes a CrossAgency Priority (CAP) Goal to leverage data as a strategic asset. Part of this CAP Goal includes the creation of a Federal Data Strategy 5, a coordinated and integrated approach to using data to deliver on mission, serve the public, and steward resources while respecting privacy and confidentiality. The Federal Data Strategy will defineprinciples, practices, and an action plan to support a consistenta pproach to Federal data stewardship, use,and access. The Data Strategy will, among other topics, address the use of data for evidence-building. Its Year 1 Action Plan will include agency and government-wide actions that begin to implement some of the requirements in the Evidence Act. Beyond the Federal Data Strategy, agencies are also undertaking a number of other efforts to better leverage existing data for evidence-building, including increasing access to high-value datasets and strengthening other data sources. Through its TANF Data Innovation Project, ACF has launched a nationwide effort to support state and local TANF agencies to more effectively use their administrative 4 https://www.performance.gov/PMA/PMA.html 5 https://strategy.data.gov/ 6. Building and Using Evidence to Improve Government Effectiveness data to support program improvement and build evidence, including improving data quality and building staff capacity to use existing data. The Department of Agriculture (USDA) is also exploring innovative and efficient ways to evaluate the impact of its rural development programs using administrative data. For example, a pilot project to evaluate business and industry loan guarantees documented that more could be done to evaluate the program using administrative data and other pre-existing data sources. The Budget also includes a proposal to leverage data already collected by Federal agencies to administer ED student aid programs more efficiently, improve the government and public understanding of student loan program costs, and reduce student loan delinquency and default by providing ED with access to tax data, while ensuring the privacy of individuals. Efforts to maximize the use of existing data and ongoing data collections also extend to how the Federal Government oversees and awards grants. The CAP Goal of Results-Oriented Accountability for Grants pushes grants administration to go beyond asking questions of whether and how grantees spend grant funds and, instead, consider how well grantees serve their participants and communities and ultimately use that information to inform taxpayers about what has been achieved. The longterm vision is to shift the paradigm in grants management to a balance between compliance and performance, while reducing burden. Addressing Statutory Barriers to Data Access: Efforts described above and others being taken administratively by OMB and Federal agencies aim to better capitalize on the power of data. The Evidence Act includes provisions that begin to address statutory barriers to data use, but further barriers will remain unless Congress takes additional action. For example, the Budget includes a set of proposals [see Addendum] that would require changes to statute to expand access to valuable employment and earnings data—the National Directory of New Hires (NDNH)—for evidence-building and program integrity purposes, while ensuring privacy and security safeguards. NDNH is a national database of wage and employment information reported by each state, authorized in Sec. 453 of Social Security Act of 1996. The system was originally designed to help state and Federal agencies locate noncustodial parents to establish and enforce child support orders, particularly across state jurisdictions. For privacy and security reasons, these authorizations clearly specify the entity that may access the data and/or the purpose for which the data may be used. For example, HHS has used NDNH data to conduct evaluations that inform ACF’s policies, and HUD’s statutory access to NDNH has helped to reduce its improper payment rate on means-tested rental assistance programs. If Congress takes action to grant NDNH access for evidence-building and program integrity, this would eliminate duplicative efforts to collect the same employment and earnings data already in NDNH and improve government efficiencies. NDNH Access for Evidence-Building: The Budget proposal includes statutory access to NDNH for units within Federal agencies that conduct research, statistical activi- 63 ties, evaluation, and/or performance measurement that would otherwise require costly surveys, state-by-state memoranda of understanding, or other agreements to obtain the same data contained in NDNH. For example, the proposal would enable DOL and ED to use NDNH data to conduct program evaluations of employment and training programs. The proposal would also enable data linkages across states and programs, with strict privacy and security safeguards in place. NDNH Access for Program Integrity: The NDNH access proposals also include good government provisions to enable efficiencies for program integrity and eligibility verification, while ensuring data privacy and security. The Budget proposals would enable the Department of the Treasury’s Do Not Pay Business Center to access NDNH and to assist agencies to reduce improper payments. The proposals also allow using NDNH to establish disability benefit eligibility for the Railroad Retirement Board in a more efficient manner, and to enhance integrity of HHS’ Centers for Medicare & Medicaid Services programs. Promoting Transparency and Accountability in Federal Evidence-Building In an agency that uses evidence to learn and improve, transparency and accountability, both within and outside of the agency, are important. Transparency and accountability support sound stewardship of Federal funds as well as scientific integrity and allow the American public to have confidence in agencies’ evidence-building activities. Agencies take a number of approaches to promote transparency and accountability in evidence-building. For example, several agencies, including the Department of State, DOL, ACL, and USAID, have published formal Evaluation Policies, which lay out the principles to which the agency will adhere while conducting evaluations, such as rigor, relevance, independence, ethics, and transparency. Many agencies’ Evaluation Policies discuss requirements to publicly release evaluation results regardless of findings in an accessible format that includes full information about the study. The Evidence Act includes a requirement that agencies’ Evaluation Officers establish and implement an agency evaluation policy. The Act also promotes accountability in Federal statistics by codifying the responsibilities of statistical agencies to conduct credible, accurate, and objective statistical activities while protecting confidentiality. As part of their Evaluation Policies, several agencies state that analysis plans articulating how an evaluation’s data will be analyzed will be released publicly before any analyses are undertaken. Some agencies go beyond publication of evaluation designs and/or analysis plans and require that evaluation studies be pre-registered with an internal or independent registry. Pre-registration allows agencies to state their hypotheses, primary research questions, and analysis plans in advance before data are analyzed, in order to ensure studies are reliable and can be replicated, that methods are sufficiently documented, and that agencies are committed to publishing results. For example, the Office of Planning, Research and Evaluation in ACF includes language in its evaluation contracts that 64 ANALYTICAL PERSPECTIVES requires contractors to pre-register studies on an appropriate public registry before data collection begins. Learning agendas also offer an opportunity for agencies to increase transparency about their evaluation and evidence activities. Agencies that currently use a learning agenda typically have public components of those learning agendas. Publishing learning agendas allows agencies to ensure external stakeholders, including the public, are aware of and can inform the agency’s priority questions and planned approaches to answering them. It also holds the agency accountable to answer those questions. Importantly, publishing learning agendas also allows agencies to identify those priority questions that they may not be able to address and highlight areas where external stakeholders may be able to contribute through data sharing or formal partnerships. For example, both HUD and SBA post their learning agendas in full on their respective agency websites. Included in the Evidence Act is a requirement that agencies leverage learning agendas to create annual evaluation plans, which outline the significant evaluations that the agency intends to undertake in the upcoming year, including the key research questions to be answered and anticipated data collections. These evaluation plans will tie directly to an agency’s learning agenda and document the evaluation activities that agencies have planned to answer the questions laid out in their learning agendas. While some agencies already develop evaluation plans for internal use, these new requirements will allow agencies to publicly identify their evaluation priorities, which supports greater accountability and transparency. Still other agencies promote transparency by ensuring that data are available for further analysis whenever possible. For example, the Millennium Challenge Corporation (MCC) makes decisions on public release of information based on a presumption of disclosure. MCC’s decisions are guided by its Open Government Plan, Policy on Access to Information and Materials, and Disclosure Review Board. MCC’s default position is to share information and materials, including programmatic and survey data, with the public whenever there is no clear reason not to. MCC has employed a purposeful strategy to ensure public access to evaluation results and evaluation data, subject to protection of participants. As part of implementation of the Foreign Aid Transparency and Accountability Act (FATAA), agencies that administer foreign assistance as defined in OMB Bulletin 12-016 should adhere to guidelines for monitoring, evaluation, and reporting on the performance of U.S. foreign assistance. The monitoring and evaluation guidelines7 issued by OMB in January 2018 include transparency as a key principle, and contain the requirement that evaluation findings be shared publicly. The guidance also requires agencies to develop a clearinghouse capacity for the collection, dissemination, and preservation of knowledge and lessons learned, and specifically notes that “agencies should make information on program plans, monitoring data, and evaluation findings available to the public, other foreign assistance agencies, implementing partners, the donor community and aid recipient governments.” Conclusion Although some agencies and bureaus/components have been engaging in evidence-building activities for many years, there are still many policy areas and programs for which we do not have sufficient evidence. Implementing the Foundations for Evidence-Based Policymaking Act offers a unique opportunity to strengthen how agencies build evidence and enhance their capacity to conduct evaluations. Consistent use of evidence—and a commitment to building evidence where it is lacking—requires a culture of learning, leadership support, staff with appropriate technical expertise, data infrastructure and access, and the integration of evidence-building and analysis into program and policy design from the start. We must continue to build comprehensive portfolios of evidence across the Federal Government in order to learn what is working and where to improve. Doing so allows us to more effectively serve the American people. 6 https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/bulletins/2012/b12-01.pdf 7 https://www.whitehouse.gov/wp-content/uploads/2017/11/M-1804-Final.pdf Addendum: 2020 Budget Proposals to Expand NDNH Access The Budget includes the following proposals to expand access to NDNH in statute for program integrity and evidence-building purposes. The proposal also includes penalties for unauthorized access, use, disclosure, or re-disclosure of personally identifiable information; clear specification of each authorized purpose; a requirement that the minimum data necessary be accessed; and satisfies criteria for when authority to access NDNH data should be considered. Finally, the package also requires HHS to review each agency’s security position before they allow that agency to access the data and requires public reporting on the use of NDNH. 65 Table 6–1. NDNH ACCESS PROPOSALS Agency Planned Purpose PROGRAM INTEGRITY PROPOSALS Treasury/DNP Allow Treasury’s Do Not Pay (DNP) Business Center to serve as a pass-through between NDNH and Federal agency programs that are authorized NDNH access for improper payment purposes. Railroad Retirement Board Establish eligibility for processing disability benefits in a more efficient manner. HHS/CMS Allow access to NDNH for HHS’ Centers for Medicare & Medicaid Services (CMS) program integrity purposes. EVIDENCE-BUILDING PROPOSALS Multiple/Statistical and Evaluation Access State Agencies/Workforce Programs Grant access to NDNH for Federal statistical agencies, units, and evaluation offices or their designees for statistical, research, evaluation, and performance measurement purposes. Enable state agencies (designated by each governor with workforce program responsibilities) with the authority to match their data with NDNH for program administration, including program oversight and evaluation. Authorize data exchanges between state agencies that administer child support, workforce, and vocational rehabilitation programs. Would simplify state reporting on Workforce Innovation and Opportunity Act performance and evaluation results. 7. STRENGTHENING THE FEDERAL WORKFORCE The work of the Federal Government is carried out by civilian employees dedicated to mission, service, and stewardship. Federal personnel carry out critical tasks in areas ranging from national security to veterans services to cutting-edge scientific research that leads to life-saving cures. The workforce frequently delivers outstanding results, despite the constraints of an archaic civil service system. The last major reform of the system occurred 40 years ago, and many of its core elements date back to the early 20th Century. In the meantime, the nature of work has evolved markedly, due to technology and other factors, putting great strain on this outdated personnel system. The mission demands of the 21st Century require a Federal personnel system that is flexible and resilient enough to support the changing nature of work. That system must have a performance orientation that enables civil servants to achieve agency missions in an effective and efficient manner while holding them accountable. Although many Federal workers pursue and attain excellence, they do so despite, and not because of, the incentives built into the current system. The workforce also absorbed the recent ordeal of a protracted Government shutdown. During the recent 35-day partial lapse in Government funding, hundreds of thousands of Federal employees worked without pay, including border patrol agents who guarded entry-points; air traffic controllers who kept the skies safe; transportation security officers who protected passengers; Coast Guard officers who patrolled the waterways; and law enforcement officers at the Federal Bureau of Investigation, U.S. Marshals Service, Federal Bureau of Prisons, Bureau of Alcohol, Tobacco, Firearms and Explosives, and U.S. Secret Service who continued to serve and protect the country. The Administration is committed to continuing to recognize the dedication of its workforce. For example, the Presidential Rank Awards honor outstanding Federal employees each year. Past honorees include Federal workers recognized for discovering cures for diseases, saving lives, and protecting American property and American values. Federal Workforce Demographics The Federal civilian workforce represents an annual taxpayer investment of approximately $300 billion, and this Administration is committed to realigning that investment in ways that maximize the ability of the workforce to better support the American people. This commitment requires optimizing workforce skills, capabilities, and compensation based on mission needs and labor market dynamics, while leveraging leading market practices. The Federal Government is the Nation’s largest employer, and its footprint is global. The total workforce comprises approximately 2.1 million non-postal civilian workers and 1.4 million active duty military, as well as approximately one million military reserve personnel serving throughout the country and the world. The postal workforce includes an additional 500,000 employees. Approximately 85 percent of the Federal workforce, or 1.7 million people, live outside of the Washington, D.C., metropolitan area. Notably, an even larger “indirect” workforce carries out much of the work paid for by Federal funds. This includes Federal contractors and State, local, and nonprofit employees whose jobs are funded by Federal contracts, grants and transfer payments. As mission, service, and stewardship needs should drive the optimal size of the Federal workforce, the Office of Management and Budget (OMB) did not set targets for full-time equivalent (FTE) levels for each agency. While some agencies may choose to reduce FTEs, in many areas, the Administration seeks to increase the workforce. Table 7-1 shows actual Federal civilian FTE levels in the Executive Branch by agency for 2017 and 2018, and estimates for 2019 and 2020, including the Uniformed Military, Postal Service, and Judicial and Legislative branches. The size of the Federal civilian workforce decreased slightly from 2017 to 2018, with only the Departments of Defense (DOD), Homeland Security (DHS), and Veterans Affairs seeing increases in civilian FTEs. The 2020 Budget includes a short-term increase at the Department of Commerce, as it conducts the 2020 Census. This table also accounts for the transition of the Office of Personnel Management (OPM) staff to DOD and the General Services Administration. Agencies will continue to examine their workforces to determine what jobs they need to accomplish their missions, in light of technological changes that automate transactional processes, artificial intelligence (AI) that can streamline compliance and regulatory processes, online and telephone chat-bots that can improve customer service, and other tools that may reduce agency personnel needs. Several agencies are already using shared-service models for mission-support positions, which may also reduce their need for full-time employees. Changes in Federal procurement, real-estate utilization, and administrative processes can also reduce personnel needs. According to August 2018 OPM data, the Federal civilian workforce self-identifies as 62.7 percent White, 18.2 percent Black, 9.0 percent Hispanic of all races, 6.6 percent Asian/Pacific Islander, 1.7 percent Native American/ Alaskan Native, and 1.7 percent more than one race. Men make up 56.5 percent of all permanent Federal employees and women are 43.5 percent. Veterans currently constitute 30.9 percent of the Federal workforce, which includes the 14.2 percent of the workforce who are veterans re- 67 68 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% 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Source: 1992-2018 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 ceiving disability compensation. By comparison, veterans represent only 6 percent of the private sector non-agricultural workforce. The Federal workforce continues to become older on average. Almost one-third (606,000) of employees are older than 55, while only 8 percent (173,000) of employees are younger than 30. By comparison, in the private sector, 23 percent of the workforce is younger than 30. Using data from the Bureau of Labor Statistics on fulltime, full-year workers, Table 7-3 breaks out all Federal Chart 7-2. High School Graduate or Less by Year for Federal and Private Sectors 60% Federal Private Sector All Firms 50% Private Sector Large Firms 40% 30% 20% 10% 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Source: 1992-2018 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. 69 7. Strengthening the Federal Workforce 48 Chart 7-3. Average Age by Year for Federal and Private Sectors 46 44 42 40 38 Federal Private Sector All Firms Private Sector Large Firms 36 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Source: 1992-2018 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 7–4. GOVERNMENT-WIDE ON-BOARD U.S. DISTRIBUTION 10-1-1978 Source: Office of Personnel Management. 70 ANALYTICAL PERSPECTIVES Chart 7–5. GOVERNMENT-WIDE ON-BOARD U.S. DISTRIBUTION 06-30-2018 Source: Office of Personnel Management. and private sector jobs into 22 occupational groups to demonstrate the differences in composition between the Federal and private workforces. Charts 7-1 and 7-2 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. Chart 7-4 and Chart 7-5 track how many Federal employees are in each state for 1978 and 2018. Developing a Modern Civil Service System The Administration is committed to developing a civil service framework that enables agencies to accomplish their missions while balancing service and stewardship requirements. The Administration will pursue both structural alterations that require statutory changes, and administrative actions through its President’s Management Agenda (PMA). Streamlining and Eliminating Complex Rules Reports from the National Academy of Public Administration, the Government Accountability Office, and other observers have concluded that the civil service system is increasingly weighed down by burdensome rules that incentivize rigid compliance instead of strategic workforce management. The Administration remains committed to streamlining bureaucratic hu- man resources processes, and it will develop several high-impact projects aimed to empower the Federal workforce. In particular, the Administration proposes to partner with Congress to cull the approximately 5,000 statutory and regulatory rules that, over time, have created an incomprehensible, administratively burdensome, and unmanageable civil service system. Chart 7-6 is an OPM mapping of the current 15 functions and 54 sub-functions that compose the Federal human capital management system, which aim to provide more consistency in how agencies deliver human resources (HR) services to employees. Pay and Compensation Reform A modern civil service system requires flexible pay and compensation that is sensitive to labor market dynamics. 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 difference 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. In CBO’s analysis, these differences reflect higher Federal compensation paid to individuals 71 7. Strengthening the Federal Workforce Chart 7-6 Maintained by: HRLOB@opm.gov The Human Capital Business Reference Model (HCBRM) func onal framework defines Federal Human Capital Management. This map represents the 15 Func ons and 54 Sub-func ons in the HC lifecycle. Federal Talent Management Government-Wide F1 F2 Federal Federal Human Capital Oversight and Leadership Evalua on F3 Federal Ve ng Enabling F4 Federal Benefits F2.1 F1.1 F3.1 F4.1 Benefit F5.1 Human Capital Federal Ve ng Program PreHuman Capital Strategic and Standards and Administra on Re rement Regula on and Opera onal Ac vi es Oversight and Oversight Oversight Policy A1.1 Workforce Planning F1.2 F5.2 A1.2 F3.2 F2.2 Human Capital F4.2 Benefits Re rement Human Capital Human Capital Suitability and Service Enrollment Case Planning Strategy Fitness Evalua on Delivery Model F2.3 Human Capital F3.3 Agency Creden aling Guidance and Evalua on F4.3 Agency Benefits Counseling 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 Employee Lifecycle A1 A10 Agency Human A2 Agency F5 Federal Capital Talent Re rement Strategy, Human Capital Acquisi on Policies, and Evalua on Opera on F5.3 PostRe rement Customer Service Suppor ng A4 A6 A3 A5 Employee Separa on Talent Compensa on Performance and Development and Benefits Management Re rement A7 Employee Rela ons and Con nuous Ve ng A8 Labor Rela ons A9 Workforce Analy cs and Employee Records A4.1 A3.1 A2.1 A10.1 A6.1 A5.1 Employee Talent Talent Human Capital Compensa on Separa on Programma c Acquisi on Development Performance Management Counseling Management Planning 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 A3.2 A6.2 A7.2 A2.2 A5.2 A4.2 Talent Employee Candidate Work Schedule Re rement 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 A5.3 Appraisal A3.3 Candidate Benefits System Learning 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 Ve ng Adjudica on A7.5 Con nuous Ve ng A9.5 Employee Records Recordkeeping A2.6 New Hire InProcessing and Onboarding with a bachelor’s degree or less, with Federal employees with professional degrees undercompensated relative to private sector peers (Chart 7-7). Table 7-4 summarizes total Federal compensation. In the coming year, the President’s Pay Agent (consisting of the Directors of OMB and OPM and the Secretary of Labor) intends to exercise its authority to establish special occupational pay systems for occupations where the General Schedule classification and pay system are not aligned to labor-market realities. After evaluating input from the employing agencies, labor organizations, and other interested parties, the Pay Agent will publish proposed and final plans in the Federal Register; hold one or more public hearings; and notify the Congress. In support of developing a workforce for the 21st Century under the PMA, the President’s Pay Agent will analyze use of this special authority to address challenges and develop new approaches for valuing and compensating work in highrisk, mission critical, and emerging occupations (e.g., economics, mathematics, information technology (IT), and other Science, Technology, Engineering, and Math (STEM) fields). A9.6 Employee Records Disclosure The FY 2020 Budget re-proposes several reforms from the FY 2019 Budget that reflect difficult choices in light of fiscal realities, including: • Increasing employee payments to the Federal Employee Retirement System (FERS) defined benefit plan, so that employees and their employing agency pay an equal share of the employee’s annuity cost (phased in at one-percent increase each year); and reducing or eliminating cost of living adjustments for existing and future retirees. • Basing annuity calculations on employees’ “High-5” salary years instead of “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. • Modifying the “G” fund, an investment vehicle avail- able 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 72 ANALYTICAL PERSPECTIVES Table 7–1. FEDERAL CIVILIAN EMPLOYMENT IN THE EXECUTIVE BRANCH (Civilian employment as measured by full-time equivalents (FTE) in thousands, excluding the Postal Service) Actual Agency 2017 Cabinet agencies Agriculture ��������������������������������������������������������������������������������������������������������������������������������� Commerce ��������������������������������������������������������������������������������������������������������������������������������� Defense--Military Programs ������������������������������������������������������������������������������������������������������� Education ����������������������������������������������������������������������������������������������������������������������������������� Energy ��������������������������������������������������������������������������������������������������������������������������������������� Health and Human Services ������������������������������������������������������������������������������������������������������ Homeland Security �������������������������������������������������������������������������������������������������������������������� Housing and Urban Development ���������������������������������������������������������������������������������������������� Interior ��������������������������������������������������������������������������������������������������������������������������������������� Justice ��������������������������������������������������������������������������������������������������������������������������������������� Labor ����������������������������������������������������������������������������������������������������������������������������������������� State ������������������������������������������������������������������������������������������������������������������������������������������ Transportation ���������������������������������������������������������������������������������������������������������������������������� Treasury ������������������������������������������������������������������������������������������������������������������������������������� Veterans Affairs ������������������������������������������������������������������������������������������������������������������������� Other agencies -- excluding Postal Service Consumer Financial Protection Bureau ������������������������������������������������������������������������������������� 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 �������������������������������������������������������������������������������������������������������� U.S. Agency for Global Media ���������������������������������������������������������������������������������������������������� All other small agencies ������������������������������������������������������������������������������������������������������������� Total, Executive Branch civilian employment ��������������������������������������������������������������������������������� * 50 or less. ** Includes transfer of functions to the General Services Administration and to other agencies. short-term security. The Budget would instead base the G-fund yield on a short-term T-bill rate. The portion of the Federal workforce least well-served by the existing hybrid retirement system are the roughly 70,000 term employees who are hired for an initial period of up to four years. The existing system discourages term hires, because their terms will fall short of the five years necessary to become vested in the defined benefit program. Term hiring is attractive to individuals who may Estimate 2018 2019 Change: 2019 to 2020 2020 FTE Percent 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 84.1 40.2 730.3 3.8 14.2 73.1 186.4 7.6 63.1 113.0 15.3 26.3 53.9 88.5 363.4 85.8 51.7 752.6 4.0 15.4 75.2 188.9 7.6 63.2 118.2 15.4 26.8 55.0 89.4 380.0 83.7 112.0 758.0 4.0 15.5 76.5 201.7 7.8 61.8 119.6 15.6 26.8 55.2 89.5 393.8 –2.1 60.3 5.4 * 0.1 1.3 12.8 0.2 –1.4 1.4 0.1 * 0.3 0.1 13.8 –2.4% 116.6% 0.7% * 0.9% 1.7% 6.8% 2.1% –2.2% 1.2% 0.7% 0.1% 0.5% 0.1% 3.6% 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 1.7 13.5 2,062.1 1.6 22.7 14.2 2.0 1.5 6.1 1.1 11.1 5.3 17.0 2.8 1.1 1.3 1.4 3.1 5.5 4.5 5.6 5.0 60.9 10.0 1.6 13.1 2,061.2 1.5 23.1 14.6 1.9 1.4 6.4 1.1 11.8 5.3 17.2 2.8 1.2 1.3 1.4 3.1 5.8 4.4 3.3 5.3 62.3 10.0 1.7 13.9 2,130.0 1.2 23.1 12.4 1.8 1.4 6.4 1.1 14.2 5.3 17.2 2.7 1.2 1.3 1.4 3.1 ......... 4.5 3.3 5.2 61.7 10.0 1.4 13.7 2,215.0 –0.3 ......... –2.1 –0.1 ......... –* ......... 2.5 –0.1 –* –0.1 ......... –* * –* –5.8 0.1 –* –* –0.6 ......... –0.3 –0.2 85.0 –20.5% ......... –14.7% –5.4% ......... –0.5% ......... 20.8% –1.6% –0.2% –3.1% ......... –3.0% 0.4% –1.2% –100.0% 2.0% –1.0% –0.7% –1.0% ......... –17.9% –1.3% 4.0% not want to make a career of Government service, but who still want to serve for a limited time (e.g., STEM fields; medicine, biological science, health science and emergency management). To redress the existing disincentive to term hires, the Budget includes a new proposal under which term employees receive an expanded defined contribution benefit through the TSP, in lieu of the defined benefit annuity that offers them little value. Federal employee sick and annual leave benefits are also managed differently than in the private sector. All 73 7. Strengthening the Federal Workforce Table 7–2. TOTAL FEDERAL EMPLOYMENT (As measured by Full-Time Equivalents) 2018 Actual Description Executive Branch Civilian: All Agencies, Except Postal Service ������������������������������������������������������������������������������������������ Postal Service 1 �������������������������������������������������������������������������������������������������������������������������� Subtotal, Executive Branch Civilian �������������������������������������������������������������������������������������� 2019 Estimate 2,061,248 585,530 2,646,778 2020 Estimate 2,129,983 584,914 2,714,897 2,215,006 585,687 2,800,693 Change: 2019 to 2020 FTE 85,023 773 85,796 Executive Branch Uniformed Military: Department of Defense 2 ���������������������������������������������������������������������������������������������������������� 1,352,971 1,367,840 1,384,111 16,271 Department of Homeland Security (USCG) ������������������������������������������������������������������������������ 42,077 41,527 41,766 239 Commissioned Corps (DOC, EPA, HHS) ���������������������������������������������������������������������������������� 6,667 6,733 6,734 1 Subtotal, Uniformed Military ������������������������������������������������������������������������������������������������� 1,401,715 1,416,100 1,432,611 16,511 Subtotal, Executive Branch ��������������������������������������������������������������������������������������������������� 4,048,493 4,130,997 4,233,304 102,307 Legislative Branch 3 ����������������������������������������������������������������������������������������������������������������������� 30,103 41,342 41,586 244 Judicial Branch ������������������������������������������������������������������������������������������������������������������������������ 32,711 33,237 33,448 211 Grand Total ��������������������������������������������������������������������������������������������������������������������������� 4,111,307 4,205,576 4,308,338 102,762 1 Includes Postal Regulatory 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% 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 used in the private sector to grant employees maximum flexibility by combining all leave into one paid time off category. While the total leave days would be reduced, the proposal adds a short term disability insurance policy to protect employees. 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 calendar year 2020. The Administration believes in aligning pay with an employee’s performance where possible. The existing Federal 2015 dollars per hour Average Federal Benefits Average Private-Sector Benefits Average Federal Wages Average Private-Sector Wages 100 80 60 40 20 0 High School Diploma or Less Some College Bachelor's Degree Source: Congressional Budget Office. 3.8% 0.1% 3.1% 1.2% 0.6% * 1.2% 2.4% 0.6% 0.6% 2.4% salary structure rewards longevity over performance. This is most evident in the tenure-based “step-increase” promotions that most Federal employees receive on a fixed, periodic schedule without regard to whether they are performing at an exceptional or merely passable level. (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. The Budget proposes that agencies use their performance awards accounts to finance more strategic workforce awards spending and innovative approaches to meeting critical recruitment, retention, and reskilling needs across Government. Currently, agencies spend approximately one percent of their payroll on awards. However, awards funding is often spent in a non-strategic Chart 7-7. Average Compensa on of Federal and Private-Sector Workers by Educa onal A ainment 120 PERCENT Master's Degree Professional Degree or Doctorate 74 ANALYTICAL PERSPECTIVES Table 7–3. OCCUPATIONS OF FEDERAL AND PRIVATE SECTOR WORKFORCES (Grouped by Average Private Sector Salary) Percent Occupational Groups Federal Workers Private Sector Workers Highest Paid Occupations Ranked by Private Sector Salary Lawyers and judges ������������������������������������������������������������������������������������������������������������������������������ Engineers ��������������������������������������������������������������������������������������������������������������������������������������������� Scientists and social scientists ������������������������������������������������������������������������������������������������������������� Managers ���������������������������������������������������������������������������������������������������������������������������������������������� Pilots, conductors, and related mechanics ������������������������������������������������������������������������������������������� Doctors, nurses, psychologists, etc. ����������������������������������������������������������������������������������������������������� Miscellaneous professionals ���������������������������������������������������������������������������������������������������������������� Administrators, accountants, HR personnel ����������������������������������������������������������������������������������������� Inspectors ��������������������������������������������������������������������������������������������������������������������������������������������� 3% 4% 5% 13% 2% 8% 17% 7% 1% 1% 2% 1% 14% 0% 6% 10% 3% 0% Total Percentage ������������������������������������������������������������������������������������������������������������������������������������� 60% 37% 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% 3% 2% 8% 2% 2% 1% 3% 12% 2% 6% 5% 3% 1% 5% 1% 3% 10% 10% 8% Total Percentage ������������������������������������������������������������������������������������������������������������������������������������� 35% 51% Lowest Paid Occupations Ranked by Private Sector Salary Other miscellaneous service workers ��������������������������������������������������������������������������������������������������� Janitors and housekeepers ������������������������������������������������������������������������������������������������������������������ Cooks, bartenders, bakers, and wait staff �������������������������������������������������������������������������������������������� 3% 2% 1% 6% 2% 4% Total Percentage ������������������������������������������������������������������������������������������������������������������������������������� 4.7% 12.0% Source: 2014–2018 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. manner that both management and employees report in the Federal Employee Viewpoint Survey (FEVS) does not adequately provide an incentive to perform or reward the best employee. OMB will issue guidance to ensure agencies use their awards funding to reward their most critical employees, with the best performance. President’s Management Agenda 21st Century Workforce Goal While the FY 2020 Budget proposes several structural reforms, the PMA also lays out a framework for change that has the Federal workforce at its core. The Cross Agency Priority Goal focused on “Developing the 21st Century Workforce” has three focus areas: (1) actively managing the workforce based on performance; (2) developing agile operations, which includes efforts to reskill and redeploy current Federal employees toward higher value work; and (3) transforming processes to acquire top talent. Complementing the PMA, OPM published the first ever Federal Workforce Priorities Report, a quadrennial report that outlines evidence-based Federal strategic HR priorities. Actively Managing the Workforce Based on Performance The Senior Executive Service (SES), comprising roughly 7,000 of the highest ranking Federal managers, hold the most critical career positions in the Government. SES members are disproportionately retirement-eligible. Due to the aging of the workforce, 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. During the past year, OPM has modernized its approach to a 75 7. Strengthening the Federal Workforce Table 7–4. PERSONNEL PAY AND BENEFITS (In millions of dollars) Description 2018 Actual 2019 Estimate 2020 Estimate Change: 2019 to 2020 Dollars Percent Civilian Personnel Costs: Executive Branch (excluding Postal Service): Pay ����������������������������������������������������������������������������������� Benefits ���������������������������������������������������������������������������� Subtotal ����������������������������������������������������������������������� 195,351 87,096 282,447 202,048 88,603 290,651 208,825 89,013 297,838 6,777 410 7,187 3.4% 0.5% 2.5% Postal Service: Pay ����������������������������������������������������������������������������������� Benefits ���������������������������������������������������������������������������� Subtotal ����������������������������������������������������������������������� 38,075 14,808 52,883 39,035 14,386 53,421 39,356 13,860 53,216 321 –526 –205 0.8% –3.7% –0.4% Legislative Branch: Pay ����������������������������������������������������������������������������������� Benefits ���������������������������������������������������������������������������� Subtotal ����������������������������������������������������������������������� 2,197 749 2,946 2,326 757 3,083 2,438 820 3,258 112 63 175 4.8% 8.3% 5.7% Judicial Branch: Pay ����������������������������������������������������������������������������������� Benefits ���������������������������������������������������������������������������� Subtotal ����������������������������������������������������������������������� Total, Civilian Personnel Costs �������������������������������������������������� 3,272 1,101 4,373 342,649 3,399 1,151 4,550 351,705 3,580 1,205 4,785 359,097 181 54 235 7,392 5.3% 4.7% 5.2% 2.1% Department of Defense--Military Programs: Pay ����������������������������������������������������������������������������������� Benefits ���������������������������������������������������������������������������� Subtotal ����������������������������������������������������������������������� 100,394 46,028 146,422 104,156 49,768 153,924 107,952 52,694 160,646 3,796 2,926 6,722 3.6% 5.9% 4.4% All other Executive Branch uniform personnel: Pay ����������������������������������������������������������������������������������� Benefits ���������������������������������������������������������������������������� Subtotal ����������������������������������������������������������������������� Total, Military Personnel Costs �������������������������������������������������� 3,552 756 4,308 150,730 3,575 811 4,386 158,310 3,718 837 4,555 165,201 143 26 169 6,891 4.0% 3.2% 3.9% 4.4% Grand total, personnel costs �������������������������������������������������� 493,379 510,015 524,298 14,283 2.8% Former Civilian Personnel: Pensions �������������������������������������������������������������������������������� Health benefits ����������������������������������������������������������������������� Life insurance ������������������������������������������������������������������������ Subtotal ����������������������������������������������������������������������� 87,510 12,904 42 100,456 89,725 13,264 43 103,032 93,156 14,136 44 107,336 3,431 872 1 4,304 3.8% 6.6% 2.3% 4.2% Former Military Personnel: Pensions �������������������������������������������������������������������������������� Health benefits ����������������������������������������������������������������������� Veterans compensation and pensions ����������������������������������� Subtotal ����������������������������������������������������������������������� Total, Former Personnel ������������������������������������������������������������ 60,868 10,453 92,357 163,678 264,134 62,667 11,086 101,204 174,957 277,989 64,401 11,544 109,988 185,933 293,269 1,734 458 8,784 10,976 15,280 2.8% 4.1% 8.7% 6.3% 5.5% Military Personnel Costs ADDENDUM range of SES processes, including performance appraisal programs, the Presidential Rank Awards program, SES allocations, and SES interviews. Employee engagement indicators continued to improve, increasing one point from a year ago and five points since 2014. Almost all of the approximately 600,000 FEVS respondents reported that they are willing to put in extra effort to get the job done and are constantly looking for ways to do their jobs better. However, despite a system designed to protect the merit system, less than 40 percent believe pay raises depend on job performance, that promotions are based on merit, or that managers recognize differences in performance and take steps to address poor performers. As part of the PMA, agencies are working to enhance employee engagement via new training programs and strategic employee award funding. Moreover, the Administration seeks other actions to address root cause challenges to employee engagement. The President issued three Executive Orders (EOs) in May 2018 to rebalance the labor-management relation- 76 ship after years of management ceding its authority and increasing the costs of Government operations. Combined, (1) EO 13837 – Ensuring Transparency, Accountability, and Efficiency in Taxpayer-Funded Union Time Use; (2) EO 13836 – Developing Efficient, Effective, and Cost-Reducing Approaches to Federal Sector Collective Bargaining; and (3) EO 13839 – Promoting Accountability and Streamlining Removal Procedures Consistent with Merit System Principles, streamline dismissal procedures, minimize paid work time that Federal employees spend on union-related activities, and ensure that agencies emphasize Government efficiency as a goal of collective bargaining. OPM must publicly post online all union contracts and the amount of time employees spend on union operations. Agencies are to limit to a reasonable amount time spent in negotiation and the number of discretionary topics negotiated. A new Interagency Labor Relations Working Group has been stood up to assist the OPM Director on Executive Branch labor-management relations matters and to make recommendations to the President for improving the organization, structure, and functioning of labor relations programs across agencies. To better manage performance, legislation is required to further streamline procedures for addressing unacceptable behavior and adverse action procedures, including judicial review of certain arbitration awards. Developing Agile Operations and Reskilling As agencies implement new technology and processes, the Administration will invest in reskilling its workforce to meet current needs. Certain transactional work is going away; for example, there are fewer Federal forms such as tax returns that require manual processing. Those who perform such work can shift to other responsibilities, including customer-facing roles. Current employees can also shift from legacy positions to emerging fields in which the Government faces shortages, such as data analysis, cybersecurity, and other IT disciplines. Reskilling was one of the issues discussed at a September 2018 symposium on the Future of Work that OMB convened, which created a dialogue among more than 150 experts from Government, academia, and the private sector. The Administration is also putting this idea into practice. For instance, Federal cybersecurity reskilling academies are being initiated under a joint venture being conducted by the Chief Information Officer (CIO) Council and the Department of Education, in partnership with a private educational partner. Under this intensive program, cohorts of Federal employees from both IT and non-IT occupations will be trained to move into critically needed cybersecurity work roles such as incident response analysts and cyber defense analysts. Transforming the Hiring Process The Administration seeks process improvements to core hiring, which currently includes at least 14 steps, is cumbersome and frustrating for Federal hiring managers and potential employees, and causes agencies to lose attractive candidates in the lengthy process. ANALYTICAL PERSPECTIVES While the Administration will focus on using the statutory flexibilities Congress has already provided, it will also seek further statutory flexibilities to improve hiring and performance management. Reflecting both the needs of Government and preferred career paths of top talent, these authorities would: (1) enable the temporary hire of highly qualified experts; (2) create an industry exchange similar to that which allows nonprofit employees and academics to serve temporarily on Government projects; (3) expand the limits of temporary and term hires; and (4) modernize qualification requirements. The Administration is using tools at its disposal to create hiring and pay flexibilities in critical areas within the Federal workforce where mission-critical recruitment and retention needs are currently unmet. For example, in the fall of 2018, OPM announced special hiring authorities for qualified applicants to fill a variety of STEM occupations, expanding a list previously comprised predominantly of medical professions. The impacted occupations include economists, biological and physical scientists, engineers, statisticians, and cybersecurity and acquisition professionals. This hiring flexibility will enable agencies to be more nimble and hire more quickly in these areas. Separately, DHS is implementing a new personnel system for its cybersecurity staff. This new system, authorized by Congress, provides for new career paths, hiring methods, and compensation for these mission critical cyber positions. One challenge to timely hiring is the existing background investigation inventory, which can delay hiring in critical need areas such as cybersecurity. The Administration inherited a significant and growing inventory of background investigations for Federal employment and security clearances, which reached its peak of 725,000 in April 2018. Since that time, the Security Executive Agent (the Office of the Director of National Intelligence (ODNI) and the Suitability and Credentialing Executive Agent (OPM)) chartered a new “Trusted Workforce 2.0” (TW 2.0) effort to transform and modernize background investigations. This work has dramatically reduced the inventory to approximately 550,000 cases, as of February 2019. In addition, the Administration is creating a new, modern Executive branch policy structure that supports the new vetting approach. The new policy will be established formally in 2019. At the same time, a congressional mandate for the National Background Investigations Bureau (NBIB) at OPM to transfer DOD background investigations (constituting approximately 70 percent of NBIB’s transaction volume) to DOD raised concerns about the viability of the remaining OPM NBIB operation. Following an interagency review, the Administration decided to transfer the entire NBIB program (including mission, assets, and resources) from OPM to DOD. This averts potential problems with splitting the existing program. It will retain “economies of scale,” facilitate better leveraging of DOD’s existing enterprise capabilities, and provide the opportunity for truly transformational reform. The Security Clearance, Suitability, and Credentialing Performance 77 7. Strengthening the Federal Workforce Accountability Council (PAC), which includes OMB, ODNI, OPM, and DOD, will oversee the transition and be accountable for ongoing reform of Executive Branch vetting, including background investigations. Further improving the recruitment process, USAJOBS, the Government’s job board, is being upgraded via integration with Login.gov, a user account and authentication shared service. USAJOBS converted more than 3.9 million user accounts with minimal disruption. Another enhancement is adding Open Opportunities, a Government-wide reskilling and employee development platform that facilitates micro-details. In FY 2018, USAJOBS posted 316,074 job announcements resulting in 17,727,616 applications submitted to agencies. To assist with development of employees, OPM’s USA Learning delivered more than 18 million online training courses. As a result of changes to student programs required to meet statutory requirements, options for internships and apprenticeships have dwindled. New hires of student interns fell from about 35,000 in 2010 to 4,000 in 2018. Additionally, third-party providers of interns can no longer non-competitively place students from special interest populations who otherwise may have been overlooked (i.e., those with disabilities). Increasing the number of interns and apprentices gaining work experience in the Federal Government remains an Administration priority. Congress recently authorized agencies to hire 15 percent of their interns directly (Public Law 115-232, section 1108), a recognition that the Federal Government has a structural problem in hiring college students and recent graduates. The Administration welcomes this development, and further recommends that the 15-percent cap be removed. Summary The National Government should be a model employer, as former Civil Service Commissioner Theodore Roosevelt stated, “It should demand the highest quality of service from each of its employees and it should care for them all properly in return.” It is encouraging that more than 90 percent of Federal employees believe the work they do is important and will devote more effort to get the job done. The Administration is committed to doing its part to facilitate a work culture and a personnel system that best enables and inspires Federal civil servants to serve the public to the fullest extent of their commitment and their abilities. The Administration looks forward to working with the Congress and other stakeholders in developing a civil service system that meets the expectations of the citizens it serves. 8. REORGANIZATION The Federal Government has operated for too long under outdated technology, organizational constructs, and processes, leaving the American people and Federal workforce frustrated. In June 2018, the Administration laid the groundwork for transformation by issuing the “Delivering Government Solutions in the 21st Century” plan, which provided a cornerstone for bipartisan dialogue on how the Executive Branch can operate effectively in the 21st Century. Evidence from the private sector indicates that reorganization is best implemented in phases to ensure a focus on successful results over the long term. Therefore, the Budget prioritizes critical areas to transform how the Federal Government serves the American people. In particular, the Budget would restructure governance of one of the Government’s larger and more impactful investments—a Federal workforce of 2.1 million civilians—by supporting a full reorganization of the Office of Personnel Management. Reorganizing and Reforming the Office of Personnel Management The President’s Budget for FY 2020 reflects a full reorganization of the Office of Personnel Management (OPM). Some policy and workforce strategy functions will be elevated to the Executive Office of the President (EOP), and the conduct of background investigations will transfer to the Department of Defense (DOD). All remaining functions, including Merit System Accountability and Compliance, Retirement Services, and Healthcare & Insurance, will transfer to the General Services Administration (GSA). Federal Workforce Management Today Forty years ago, the Civil Service Reform Act of 1978 established OPM to aid and advise the President on actions to promote an efficient civil service. This was the last time the Government implemented broad civil service reform. There is widespread acknowledgment that OPM and the Federal employment system, as both are currently structured, are archaic in many significant respects and do not reflect the realities of the contemporary workforce. Core strategic and policy concerns about the Federal workforce have gone unaddressed for too long, according to most observers, including the Government Accountability Office, which has had Federal human capital on its highrisk list since 2001. Dissatisfaction with the existing statutory and regulatory regime has led the Congress to exempt an increasing portion of the civilian workforce from its purview. One consequence is that OPM’s ability to manage the Federal workforce holistically is reduced. More fundamentally, OPM’s resources are misaligned to its mission of promoting an efficient civil service. Its original mission focus has become blurred by new responsibilities, such that more than 80 percent of OPM’s workforce and budget are now dedicated to transactional activities. These include important functions, such as administering the Federal Employees Health Benefits Program for more than 8.2 million active Federal employees, retirees, and their families; administering the Civil Service Retirement System and the Federal Employees Retirement System for over 5.3 million active Federal employees, annuitants, and survivors; processing more than two million background investigations each year for over 100 Federal agencies; and managing USAJOBS, which receives over 85 million searches each month from 15 million site visitors. While these functions are vital, their scope and scale are such that they necessarily distract agency leadership’s attention from strategic workforce management and stewardship of an efficient civil service structure. Less than 20 percent of the agency’s workforce and budget is now dedicated to policy and oversight activities related to hiring, performance management, compensation, merit system compliance, and labor relations. In addition, high-profile operational challenges with its transactional obligations have distracted OPM leadership from the core workforce policy functions that are its primary charge. In 2014, a data breach into OPM’s information technology (IT) systems exposed personally identifiable information for over 20 million individuals, including Federal employees and their families, job applicants, and contractors. The breach constituted a major national security threat and required the Federal Government to pay for credit monitoring for affected individuals for 10 years. Between FY 2014 and FY 2018, OPM increased prices on background investigations by more than 40 percent, and the timeline for processing background investigations tripled, further straining agency budgets and the ability to fill critical positions. Currently, OPM is working to reduce a background investigation inventory of over 550,000 cases. Additionally, in 2007, OPM issued a stop work order marking its fourth consecutive failure to automate its retirement processing function. The 2.1 million-person civilian workforce represents one of the Federal Government’s larger investments and one with great impact. Like any large organization, the Federal Government is only as effective as its people. To address serious shortcomings in the areas of hiring, retention, and performance management, the Executive Branch needs a workforce management structure that elevates personnel strategy and policy, allows for a holistic view of its human capital, and continually optimizes the human resources transactional services necessary to administer one of the largest workforces in the world. 79 80 ANALYTICAL PERSPECTIVES Federal Workforce Management of Tomorrow Federal employees underpin nearly all the operations of the Government, ensuring the smooth functioning of our democracy. To build a Federal workforce management structure for the 21st Century, the Administration must improve alignment and strategic management of the Federal workforce by strengthening leadership of human capital systems; developing better human resources processes and capabilities; and enhancing the workforce culture. To address longstanding workforce management issues, the Administration’s June 2018 “Delivering Government Solutions in the 21st Century” included a proposal to merge all of OPM’s transactional and consultative services (e.g., those within Human Resources Solutions (HRS), Retirement Services, and Healthcare & Insurance) into GSA; to transfer in full the National Background Investigations Bureau (NBIB) to DOD; and to transfer elements of OPM’s workforce policy function into the OMB. The 2020 President’s Budget reflects the end-state organizational structure and resources necessary to achieve this reorganization of OPM, to build and sustain the Federal workforce of tomorrow. Building Organizational Effectiveness and Efficiency Since June 2018, the Administration has been developing plans to execute transfers of OPM functions to GSA and DOD using a combination of existing legal authority and legislation. The reorganization is under way in FY 2019 with implementation planning for affected functions, including the transfer of background investigations and other OPM functions that can move administratively. Through legislation and a request for a direct appropriation to cover transition costs, the reorganization of further OPM functions, such as Retirement Services and Healthcare & Insurance, would be completed in FY 2020. Specifically, the 2020 President’s Budget proposal reflects the following end-state for OPM’s existing services: • Establishment of a new Federal workforce policy office in OMB focused on strategic workforce planning and employee performance management policy by elevating elements of these policy functions from OPM to OMB. This new office, and its relationship with GSA, will be modeled on OMB’s statutory Office of Federal Procurement Policy, which provides leadership on Federal procurement issues, while working closely with GSA on Government-wide implementation. • Transfer of all OPM transactional services (e.g., those within HRS, Retirement Services, and Healthcare & Insurance) to GSA as a third “Service,” comparable to GSA’s current Public Buildings Service and Federal Acquisition Service. • Transfer of OPM’s NBIB in its entirety to DOD pur- suant to Executive Order and the National Defense Authorization Act for FY 2018 (Public Law 115-91). • Transfer of OPM’s oversight functions to GSA, including the OPM Office of Inspector General (OIG), which will complement the GSA OIG’s expertise conducting audits, investigations, and evaluations and providing recommendations to help improve the efficiency and effectiveness of agency operations. • Transfer to GSA of OPM’s Merit System Accountability and Compliance division, which ensures Federal agency human resources programs are effective and meet merit system principles and related civil service requirements. Delivering on Our Goals Reorganization is one tool among many that this Administration is using to drive transformational change in Government. Meeting the needs of the American people, as well as the President’s mandate for greater efficiency, effectiveness, and accountability, requires a range of transformational approaches. To that end, the President’s Management Agenda (PMA) outlines a range of additional priorities and tools that, in combination, will create an Executive Branch that is prepared to meet the needs of the American people both now and in the future. With the complete reorganization of OPM, the 2020 President’s Budget delivers on the Administration’s Delivering Government Solutions in the 21st Century plan and the PMA. The PMA provides a long-term vision for modernizing the Federal Government to improve agencies’ ability to deliver mission outcomes, provide excellent service, and effectively steward taxpayer dollars on behalf of the American people. The reorganization of OPM specifically supports six Cross-Agency Priority Goals, to include: • Workforce for the 21st Century: Improve alignment and strategic management of the Federal workforce by strengthening leadership of human capital systems, developing better human resources processes and capabilities, and enhancing the workforce culture. • IT Modernization: Enhance OPM mission effective- ness and reduce cybersecurity risks to the Federal enterprise through IT Modernization. • Improving Customer Experience: Provide a modern, streamlined, and responsive customer experience improving transactional services provided to Federal applicants, employees, retirees, annuitants, and survivors. • Sharing Quality Services: Implement process improvements through greater sharing of quality services. • Shifting from Low-Value to High-Value Work: Streamline time, effort, and funding spent performing repetitive administrative tasks and complying 81 8. Reorganization with unnecessary and obsolete policies, guidance, and reporting requirements. • Security Clearances, Suitability, and Credentialing Reform: Protect the Nation’s interests by ensuring an aligned, secure, and reciprocal process to support a trusted Federal workforce. Overall, the path laid out in the 2020 President’s Budget provides the best opportunity for a greater Governmentwide strategic focus on Federal workforce management and policy. With end-to-end services around the Federal employee lifecycle maintained in GSA, considerable operational efficiencies can be achieved, as well as stronger cybersecurity, and improved customer service. Ultimately, this important reorganization effort will position the Federal Government to achieve a state where Federal agencies and managers can hire the best employees, remove low performing employees, and engage employees at all levels of the organization, putting a framework in place that drives and encourages strategic human capital management. Government must recognize that it can no longer meet modern needs with the same approaches, technology, and skillsets from centuries past. By acknowledging shortcomings, setting a modern vision, and delivering on concrete goals, the Administration can adapt Federal programs, capabilities, and the Federal workforce to more efficiently, effectively, and accountably meet mission demands and public expectations. Other Reform Priorities The complete reorganization of OPM is a leading development as the Administration moves forward with its reform and reorganization plan. Additional proposals that the Administration is taking include: • Optimizing a Fragmented and Outdated Humanitarian Assistance Structure. In the President’s June 2018 Government Reform and Reorganization Plan, the Administration committed to make fundamental changes to optimize the effectiveness of our fragmented and outdated humanitarian assistance structure. In addition to the previously announced merger of humanitarian offices at the U.S. Agency for International Development (USAID), the 2020 President’s Budget consolidates the overseas humanitarian assistance programming currently conducted by the Department of State (DOS) into the new bureau at USAID. In addition, all humanitarian assistance would be funded through a single flexible appropriations account. This reorganization builds on each organization’s comparative advantages by leveraging USAID’s program implementation and partner oversight expertise with DOS expertise on humanitarian policy, diplomacy, and refugee issues. The 2020 President’s Budget pairs this restructuring with a high-level, dual-hat humanitarian leadership structure at DOS and USAID under the authority of the Secretary of State. DOS will continue management and implementation of the U.S. Refugee Admissions Program through the Migration and Refugee Assistance account. This restructuring and consolidation will facilitate dynamic funding allocations and program coordination to assist refugees abroad, those displaced within their own country, and other victims as conflict-driven crises evolve. This restructuring is critical to establishing a strong, unified U.S. voice that can extract optimal reforms from the United Nations and deliver longoverdue optimal outcomes for both beneficiaries and taxpayers. • Reorganizing Economic Statistical Agencies. Relocating the Bureau of Labor Statistics within the Department of Commerce (DOC) alongside the Bureau of the Census and the Bureau of Economic Analysis will improve the delivery of America’s economic statistics. Recognizing the importance of economic statistics for businesses and everyday citizens to make informed decisions and confidently invest in America’s future, consolidating critical economic statistics programs at the Census Bureau, the Bureau of Economic Analysis, and the Bureau of Labor Statistics within DOC will make agency operations more efficient, improve products, and reduce the burden on respondents, while preserving the agencies’ brand recognition and independence. • Transitioning to Electronic Records. This initiative will begin moving Federal agencies’ business processes and recordkeeping to a fully electronic environment and end the National Archives and Records Administration’s (NARA) acceptance of paper records by December 31, 2022. Electronic records will greatly improve the Government’s ability to provide public access to Federal records, promoting transparency and accountability. Over the long term, this transition also will reduce agencies’ records management and storage costs and streamline the records management process, freeing resources for other high priority activities. In support of this important effort, the Budget includes $22 million to modernize NARA work processes and accelerate its electronic records activities. • Solving the Federal Cybersecurity Workforce Short- age. The Federal Government struggles to recruit and retain cybersecurity professionals due to a shortage of talent along with growing demand for these employees across the public and private sectors. OMB is working with the Department of Homeland Security and all Federal agencies to establish a unified cyber workforce capability across the civilian enterprise. This Administration is standardizing its approach to federal cybersecurity personnel by ensuring Government-wide visibility into talent gaps, as well as finding unified solutions to fill those gaps in a timely and prioritized manner. • Government Effectiveness Advanced Research (GEAR) Center. OMB is working with business, academia, and other partners to co-establish capacity to improve operational and management challenges 82 ANALYTICAL PERSPECTIVES across the Federal enterprise through applied research. For example, reskilling Federal employees to adapt to today’s work environment and commercializing appropriate Federal data sets to drive economic growth are potential areas of focus where cross-sector pilot projects will help drive the best outcomes for the American people. Stakeholders can follow the latest information on the GEAR Center through http://www.performance.gov/GEARcenter/. • Strengthening Federal Evaluation. Bringing evidence to bear in decision-making is a critical component of good government, and agencies need the infrastructure and commitment to credibly build and use evidence and to develop a culture of learn- ing and continuous improvement. However, current capacity in Federal agencies to build and use evidence varies widely. In order to generate more evidence about what works and what needs improvement, and consistent with requirements in the recently enacted Foundations for Evidence-Based Policymaking Act, the Administration is tasking Federal agencies with establishing and utilizing multi-year learning agendas to strategically plan their evidence-building activities and carry out priority studies in order to facilitate policy and program improvement. Agencies will also designate an Evaluation Officer responsible for overseeing the agency’s evaluation efforts and playing a leading role in other evidence-building activities. 9. PAYMENT INTEGRITY This Administration has made protecting taxpayer money a top priority, which includes making sure that taxpayer money is serving its intended purpose. This chapter describes proposals aimed at bolstering Federal payment integrity by reducing improper payments that result in a monetary loss. These proposals are intended to significantly reduce Government-wide improper payments through increased data access, additional legal and regulatory authorities, increased use of analytic tools, improved pre-payment reviews, and simplification of eligibility determination re- quirements. If adopted, these proposals will improve the effectiveness of Federal programs while providing better stewardship of taxpayer resources. Maintaining integrity of Federal programs is essential to sustaining public trust in Government. Accordingly, the Administration supports a number of legislative and administrative reforms to help prevent improper payments with priority given to the prevention of improper payments that result in a monetary loss. Specifically, the Budget includes concrete payment integrity proposals to save $162.5 billion over 10 years (see Table 9–1). I. IMPROPER PAYMENT PREVENTION The proposals detailed in this chapter include significant reforms to ensure that taxpayer dollars are spent correctly by expanding oversight and enforcement activities in the largest Federal benefit programs such as Child Nutrition, Earned Income Tax Credit (EITC), Federal Employees’ Compensation Act (FECA), Medicaid, Medicare, Pell Grants, Social Security, Supplemental Nutrition Assistance Program (SNAP), and Unemployment Insurance (UI). These proposals seek to maximize savings to the Government, while also considering and balancing costs, risks and program performance in establishing realistic improper payment targets. In addition to efforts outlined in this chapter, the Administration will continue to identify areas where it can work with the Congress to further enhance efforts to detect, prevent, and recover improper payments. Monetary Loss Prevention While government and other reports about improper payments in Federal programs can erode citizens’ trust in government, not all reported improper payments result from fraud and some of the reported improper payments do represent payments that should have been made. The term “improper payment” consists of two main components (1) improper payments resulting in a monetary loss to the Government and (2) improper payments that do not result in a monetary loss to the Government. Monetary loss occurs when payments are made to the wrong recipient and/or in the wrong amount. Improper payments that do not result in a monetary loss include underpayments and payments made to the right recipient for the right amount, but the payment was not made in strict accordance with statute or regulation. Although working to reduce all improper payments is important, the Administration has made prevention of improper payments resulting in a monetary loss its highest priority. As a first step, OMB released the Getting Payments Right1 Cross Agency Priority (CAP) goal as part of the President’s Management Agenda in March 2018. This CAP goal is focused on reducing monetary loss by issuing payments correctly the first time. Establishment of this CAP goal has already led to exceptional collaboration across the Federal Government by sharpening the focus of the Government efforts to prevent improper payments through two main strategies: (1) reducing monetary loss and (2) clarifying and streamlining reporting requirements. For example, on June 26th, 2018 the Office of Management and Budget released a revised Circular A-123, Appendix C, Requirements for Payment Integrity Improvement2, M-18-20. The revised guidance streamlines reporting requirements to help improve the prevention of improper payments by creating a more meaningful, unified, and comprehensive piece of guidance that significantly reduces unnecessary and burdensome improper payment requirements. 1 https://www.performance.gov/CAP/CAP_goal_9.html 2 https://www.whitehouse.gov/wp-content/uploads/2018/06/M-18-20. pdf II. PROPOSALS FOR GOVERNMENT-WIDE PAYMENT INTEGRITY IMPROVEMENT Historically, and for a variety of reasons, the Federal Government addressed improper payments broadly, including placing similar efforts towards addressing process errors that do not result in a payment to the wrong recipient or in the wrong amount as those payments that result in a monetary loss. Agencies currently respond to numerous improper payment requirements – often to comply with prescriptive laws and regulations or in response to audit reports and other questions about reported improper payments. In some cases, agencies spend more time complying with low-value activities than researching the underlying causes of improper payments and identifying best practices and building the capacity to help prevent future improper payments. The Getting 83 84 ANALYTICAL PERSPECTIVES Payments Right CAP goal is geared toward improving payment integrity by preventing improper payments that result in monetary loss. Proposals that impact the prevention of improper payments across multiple agencies are a critical part of the 2020 Budget. Implementation of these proposals will significantly improve Agency capacity to prevent improper payments and thus bolster the integrity of Federal programs. Reducing improper payment reporting burden through changes to the Improper Payments Information Act of 2002 (IPIA), as amended.— The Budget proposes making explicit changes to existing improper payment laws intended to have agencies re-direct resources from complying with low-value activities to activities that will prevent improper payments resulting in monetary loss. Examples of changes that will improve burden reduction and allow agencies to redirect resources to improving prevention of improper payments include: • Reducing burden of improper payment risk assessments. Specifically, under IPIA Section 2, reduce the burden for smaller programs with outlays falling below the statutory threshold by eliminating the improper payment risk assessment requirements. Requiring only agencies with outlays that exceed the statutory definition of significant (i.e. $10 million) to conduct improper payment risk assessments. This would significantly reduce the review burden for smaller agencies. • Clarifying the definition of improper payments. The Budget proposes isolating the items with documentation or procedural errors as control deficiencies and including a provision addressing program statutes that cause otherwise proper payment to be classified as improper. Agencies are currently required to place too much emphasis and effort on reporting improper payments that do not result in a monetary loss, such as payments that simply lacked complete documentation but would have been made regardless of those errors. In addition, an improper payment should not include any overpayment that is the result of a statutory requirement to pay benefits or to continue to pay benefits by a specified period when all necessary information has not been received due to statutory barriers. This would give agencies the ability to wait to count a payment as proper or improper until after the statutory due process specified in the program has occurred. • Streamlining reporting requirements to reduce burden. Specifically, the Budget proposes changes to the Improper Payments Elimination and Recovery Act of 2010 (IPERA) Section 2 to change an annual November 1 report so that the information can be included in an Agency Annual Financial Report or Performance and Accountability Report (which is typically November 15) to eliminate the need for agencies to produce two separate reports. • Clarifying requirements for IPERA compliance to improve improper payment prevention and reduction. Specifically, the Budget proposes that the requirement in IPERA Section 3 to set and meet a reduction target should be modified so that that the program will be considered compliant if it is demonstrating improvement (this moves the requirement away from an estimation exercise and toward driving for improved improper payment rates). • Reducing risk assessment burden by clarifying assessment method type. Specifying under IPIA Section 2 clarifying that the risk factors are only for programs and activities performing a qualitative risk assessments. This is an important distinction as the programs and activities that perform a quantitative risk assessment will be developing an improper payment estimate to determine whether the program is susceptible to significant improper payments under statute (which is the main goal of the risk assessment). Requiring programs and activities to also consider and document consideration of the other numerous factors is burdensome and unnecessary. • Specifying which programs should be assessed for compliance annually by the Office of Inspectors General (OIG). The Budget proposes changing IPERA Section 3 to require OIGs to evaluate only programs and activities that are susceptible to significant improper payments by statute for compliance with the law. This will reduce burden for both OIGs and agencies. The rationale is that programs and activities below the statutory threshold for susceptibility to significant improper payments are not required to be reporting improper payments estimates, therefore finding a program non-compliant because they missed a reduction target when they are already below the acceptable threshold established under statute is counterproductive and creates extra burden for the OIG and the Agency. • Increasing interagency collaboration and reducing burden of duplicate working groups. The Budget proposes replacing requirements for narrowly focused working groups such as that required in the Fraud Reduction and Data Analytics Act of 2015 with a requirement for an interagency payment integrity working group. This change allows for sharing and collaborating about payment integrity rather than narrowly focusing on fraud or other topics from a narrow perspective. This change will allow for statutorily required working groups to modify their focus and structure so that they are better equipped to strengthen overall payment integrity and take a more holistic view of improper payments and fraud. Creating narrowly defined working groups legislatively, while well intended, increases burden and prohibits agencies from taking a more risk based approach to the problem and adapt- 85 9. Payment Integrity ing the strategy to address emerging areas needing attention. • Increasing the threshold of significant improp- er payments. Giving the Office of Management and Budget the authority to adjust the dollar threshold of “significant” every five years for inflation to ensure that the threshold remains relevant. • Improve accountability and transparency for material programs. To improve accountability and transparency in programs, the Budget proposes adding a requirement for managers of high-priority Federal programs to meet with the Director of the Office of Management and Budget at least once a year to discuss actions taken or planned to prevent improper payments within their programs. • Provide the Do Not Pay (DNP) initiative the authority to include publically available data sources for review. The Budget proposes providing the DNP initiative the authority under the Improper Payments Elimination and Recovery Improvement Act of 2012 (IPERIA) Section 5, to include publically available data sources in their suite of data for precheck for the purposes of identifying, preventing, and reducing improper payments. This will increase the identification and prevention of improper payments across the initiative. Data analytics and data access to improve payment accuracy.—Government-wide efforts to improve payment accuracy include increased access to data and better matching services to help detect, prevent, and recover improper payments. The Administration is continuing to pursue opportunities to improve information sharing by developing or enhancing policy guidance, ensuring privacy protection, and developing legislative proposals to leverage available information and technology in determining benefit eligibility and other opportunities to prevent improper payments. The Budget proposes legislation to enhance the Government’s capacity to identify, detect, and prevent fraud and improper payments across all Federal programs and activities. Examples of efforts that will improve data analytics for payment integrity improvement include: • Expand access to the National Directory of New Hires (NDNH). The Budget includes a set of proposals that expands access to valuable employment and earnings data—NDNH—for evidence build- ing and program integrity purposes, while ensuring privacy and security safeguards. The proposals are detailed in the Building and Using Evidence to Improve Government Effectiveness in the Analytical Perspectives volume, and include provisions to enable efficiencies for program integrity and eligibility verification and to reduce improper payments. For example, the Budget proposals would enable the Department of the Treasury’s DNP Business Center to access NDNH and to assist agencies to reduce improper payments, while ensuring data privacy and security. • Eliminate constraints on the DNP Business Center to work with States on improper payments. This effort would allow the Department of Treasury’s DNP Business Center to work with Federally funded state administered programs, state auditors, or other state entities that play a role in preventing and detecting improper payments in these programs. • Do Not Pay obtaining authority to serve as a central repository for death records. This effort would move and centralize the management and custodial authorities for death reporting to the Department of Treasury’s for the use of preventing improper payments and fraud. This provides a more accurate and complete “Death Master File” to be used for checks against Government-wide payment files. • Share full death master file with Treasury’s DNP Business Center. This proposal would authorize the Social Security Administration (SSA) to share its full file of death information—including State-reported death data—with Federal law enforcement agencies, and with the Department of the Treasury’s DNP Business Center for use in preventing improper payments. SSA receives death information from many sources, including family members, funeral homes, financial institutions, and the States. Current law limits the purposes for which SSA can share death information it receives from the States, and does not provide SSA authority to share State death data with Federal law enforcement agencies or Treasury’s DNP Business Center. This proposal would ensure that Federal law enforcement and Treasury’s DNP Business Center have access to all death information in SSA’s records, including State-reported death data. III. PROPOSALS FOR PROGRAM-SPECIFIC PAYMENT INTEGRITY IMPROVEMENT In addition to including proposals that will reach across the Government-wide enterprise to tackle the improper payment problem, it is also critical to pursue program specific proposals aimed at preventing improper payments. Department of Agriculture The 2020 Budget demonstrates the Administration’s commitment to reducing payment error and ensuring the Department of Agriculture’s (USDA) nutrition assistance benefits go to the intended recipients. The Budget proposes increasing and improving verification of information reported on household applications for benefits, and strengthening use of technology to prevent improp- 86 ANALYTICAL PERSPECTIVES er payments in SNAP, and Child Nutrition Programs. Administrative application processing errors and errors in household reporting are the most common causes of improper payments in these programs. The proposals would result in more than $500 million in savings over 10 years. Supplemental Nutrition Assistance Program.— • Improve income verification. The Budget is requesting an additional $4 million in administrative funding to support payment accuracy. USDA will evaluate and implement the best options and practices related to electronic data matching through existing data sources, such as the Work Number. The evaluation will provide the data necessary to estimate the potential reductions in improper payments that could be achieved if States implement the best practices identified. Improve Child Nutrition Program integrity.— • Provide technology grants. To incentivize technology upgrades aimed at improper payment prevention, the Budget requests an additional $200 million in administrative funding to support State grants for technology upgrades. These upgrades will improve data systems used by States to collect meal claims from Local Educational Agencies (LEAs). Improvements in these systems will help prevent and detect improper payments that occur when LEAs submit incorrect meal counts or make claim aggregation errors. The proposal saves $44 million over 10 years. • Increase school meal verification to eight per- cent. The Budget proposes increasing the number of household applications for free and reduced price meal benefits that schools participating in the National School Lunch and School Breakfast Programs must annually verify. Currently, the Richard B. Russell National School Lunch Act limits verification to a maximum of three percent of all applications or 3,000 “error prone” applications. This limit restricts the ability of USDA, States, and LEAs to identify and reduce payment error. This proposal would increase the verification limit to eight percent of applications with reduced requirements for high performing schools. The proposal saves $483 million over 10 years. Department of Education The 2020 Budget reflects the Administration’s commitment to protecting Pell Grant funding in fiscal year 2020, ensuring the program remains on stable footing, and expanding options available to pursuing postsecondary education and training. The Budget also includes proposals to reduce the risk of improper payments, which will help protect those benefits by improving the long-term fiscal strength of the program. Pell Grant improper payments that result in monetary loss are most frequently the result of administrative errors by schools, including distribution of funds to ineligible students or in incorrect amounts based on a students’ eligibility. The Budget proposes legislative and administrative actions that would improve data accuracy, prevent fraud and abuse, and better target the Department of Education’s enforcement and oversight mechanisms. Pell Grants.— • Except education from Section 6103 for certain student aid programs. One of the primary causes of improper payments in the Pell Grant program is failure to accurately verify financial data. The Budget proposes to except the Department of Education from restrictions of Section 6103 of the Internal Revenue Code to allow the Department to more easily receive income tax data from the IRS, thereby simplifying and improving the accuracy of Free Application for Federal Student Aid filing by prepopulating certain fields. This exception will also allow borrowers to more easily recertify their income to stay enrolled in Income Driven Repayment plans. This proposal would reduce discretionary program costs by $782 million and mandatory outlays by $177 million over 10 years. • Improve Pell fraud prevention. The Budget pro- poses to bar someone from receiving another Pell Grant if they have been awarded three consecutive Pell Grants without earning any credits. This will prevent the fraudulent practice of people going from school to school, enrolling long enough to receive a reimbursement but not pursuing any credits. This proposal would reduce discretionary program costs by $163 million and mandatory outlays by $38 million over 10 years. • Improve selection for verification. The Department of Education is in the process of strengthening its use of administrative data to create a smarter system for selecting students for verification. By selecting for verification reviews those applicants with greater likelihood of incorrect information, this proposal will improve schools’ ability to detect and prevent improper payments. In addition, it will help ensure students and schools bear the burden of verification only when necessary, balancing the need to protect taxpayers and access to student aid for those who need it most. • Better target program reviews. The Department of Education will strengthen its use of administrative data to target Federal Student Aid’s (FSA) program compliance reviews on schools with higher risk of improper payments. This proposal should increase both the number of improper payments FSA identifies and the amounts it recovers. • Take enforcement actions against noncompliant schools. The Department of Education has the authority to issue fines or take other enforcement actions to penalize schools for noncompliance. Enforcement actions currently are determined based on the type and level of severity, as well as the Department’s ability to execute successfully based on 87 9. Payment Integrity available resources. The Department will consider how it may use this authority to incentivize schools further to put the necessary controls into place to reduce improper payments, particularly for those schools that neglect their responsibilities. Department of Health and Human Services The Budget includes a robust package of Medicare, Medicaid, and Children’s Health Insurance Program (CHIP) payment 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 includes several proposals aimed at strengthening the authorities and tools that the Centers for Medicare & Medicaid Services (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 payment 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 payment integrity legislative and administrative proposals would net approximately $65.4 billion in savings over 10 years. Finally, the Budget proposes to continue investments in Health Care Fraud and Abuse Control (HCFAC) program, which will provide CMS with the resources and tools to combat waste, fraud, and abuse and promote high-quality and efficient healthcare. Additional information can be found in the Budget Process chapter in the Analytical Perspectives volume. Medicare Fee for Service Program.— • Expand prior authorization to additional Medi- care fee-for-service items at high risk of fraud, waste, and abuse. The Budget proposes expanding the Medicare program’s authority to conduct prior authorization on certain items or services that are prone to high improper payments, such as inpatient rehabilitation services. The proposal would reduce improper payments and save taxpayer dollars from paying for Medicare services that are not medically necessary by ensuring that the right payment goes to the right provider for the appropriate service. The proposal saves $6.26 billion over 10 years. • Prevent fraud by applying penalties on provid- ers and suppliers who fail to update enrollment records. The Budget proposes increasing CMS’ authority to enforce appropriate reporting of changes in provider enrollment information through civil monetary penalties or other intermediate sanctions to mitigate the associated risk. This proposal will ensure CMS has the most up-to-date data as it continues to monitor for fraud and abuse. The proposal saves $32 million over 10 years. • Require reporting on clearinghouses and bill- ing agents when Medicare providers and suppliers enroll in the program. This proposal would provide CMS with the necessary organizational information to remove providers or suppliers from the Medicare program if clearinghouses and billing agents, acting on behalf of the provider or supplier, engage in abusive or potentially fraudulent billing practices. • Assess a penalty on physicians and practitioners who order services or supplies without proper documentation. This proposal allows the Secretary to assess an administrative penalty on providers for claims that have not been properly documented for high risk and high cost items and services. • Address improper payments of chiropractic ser- vices through targeted medical review. Under this administrative proposal, CMS will test whether prior authorization review is an effective tool at addressing improper payments in chiropractic services. • Address overutilization and billing of durable medical equipment, prosthetics, and orthotics (DMEPOS) by expanding prior authorization. In 2016, CMS established a master list of DMEPOS items that were both high cost and at high risk for improper payments that could be subject to prior authorization. The Budget proposes expanding prior authorization to additional items that are at high risk of improper payments. This administrative proposal saves $300 million over 10 years. • Address excessive billing for durable medical equipment (DME) that requires refills on serial claims. Under this administrative proposal, CMS would test whether creating a DME benefits manager for serial claims, such as for non-emergency oxygen supplies, results in more appropriate utilization and lower improper payments. The benefits manager would be responsible for ensuring beneficiaries receive the correct quantity of supplies or services for the appropriate time period by contacting the ordering physician directly to obtain documentation. Medicare Advantage Program (Medicare Part C).— • Implement targeted risk-adjustment pre-payment review in Medicare Advantage. The Budget proposes requiring CMS, in a targeted fashion, to confirm diagnoses submitted by Medicare Advantage Organizations (MAOs) for risk-adjustment with the medical record prior to CMS paying riskadjustment payments. • Expand Medicare Advantage risk adjustment data validation audits. The Budget proposes doubling the level of effort for Medicare Advantage riskadjustment data validation audits by 2022. These audits are an important component to verifying that 88 ANALYTICAL PERSPECTIVES the diagnoses submitted by the MAO are supported by the medical record. Medicaid Program.— • Strengthen CMS’s ability to recoup improper payments. The Budget proposes strengthening CMS’s ability to partner with States to address improper payments and ensure Federal recovery of incorrect eligibility determinations, an area of concern identified by the HHS Office of Inspector General. This proposal saves $4.4 billion over 10 years. • Implement pre-payment controls to prevent in- appropriate personal care services (PCS) payments. The Budget proposes to require States to implement claims edits to automatically deny unusual PCS payments such as duplicative services, services provided by unqualified providers, or services provided to those no longer eligible for Medicaid, as recommended by the HHS OIG. This proposal saves $8.7 billion over 10 years. in non-PAYGO savings. The PAYGO and non-PAYGO savings include a reduction in State unemployment taxes, which would reduce revenues for State accounts within the Unemployment Insurance Fund. Unemployment Insurance Program.— • Expand State use of the Separation Information Data Exchange System. This proposal 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. This proposal would require State UI agencies to use the National Directory of New Hires to better identify individuals continuing to claim unemployment compensation after returning to work, which is one of the leading root causes of UI improper payments. • Allow States the flexibility to complete more fre- • Allow • Consolidate • Require quent eligibility redeterminations. The Budget proposes to allow States flexibility to more frequently assess beneficiary eligibility to ensure taxpayer resources are not supporting ineligible beneficiaries. This administrative proposal saves $45.6 billion over 10 years. provider screening for Medicaid and CHIP. The leading driver of Medicaid and CHIP improper payments is State noncompliance with provider screening and documentation requirements. To address this problem, the Budget proposes requiring CMS to conduct all eligibility screenings for Medicaid and CHIP providers, as it does for Medicare. Medicare and Medicaid programs (crosscutting proposals).— • Allow revocation and denial of provider enrollment based on affiliation with a sanctioned entity. Under this administrative proposal, CMS will strengthen the enrollment process and the Medicare program’s authority to remove bad actors from the program. This proposal would provide CMS with the authority to take administrative action (either to revoke or deny billing privileges) against providers or suppliers that have any affiliation with another provider or supplier that has previously been sanctioned by Medicare. This administrative proposal saves $78 million over 10 years. Department of Labor The Budget includes proposals aimed at improving integrity in the Department of Labor’s UI program. The proposals would result in approximately $1 billion in savings subject to the Pay-As-You-Go Act of 2010 (PAYGO) over 10 years, and would result in more than $1.4 billion the Secretary to set corrective action measures for poor State performance. This proposal would allow the Secretary of Labor to require States to implement corrective action measures for poor State performance in the UI program, helping to reduce improper payments in States with the higher improper payment rates. States to cross-match claimants against the Prisoner Update Processing System (PUPS). Under current law, State UI agencies’ use of this cross-match is permissible and the Social Security Administration’s PUPS is currently only used by some States for UI verification. Requiring States to cross-match claims against the PUPS or other repositories of prisoner information will help identify those individuals ineligible for benefits due to incarceration and reduce improper payments. • Allow States to retain five percent of overpay- ment and tax investigation recoveries to fund program integrity activities. This proposal would allow States to retain up to five percent of overpayment recoveries to fund additional program integrity activities in each State’s UI program. This provides an incentive to States to increase detection and recovery of improper payments and provides necessary resources to carry out staff-intensive work to validate cross-match hits as required by law. • Require States to implement the UI integrity center of excellence’s integrated data hub. This proposal would require States to implement the Integrated Data Hub as a program integrity tool, allowing them to identify fraud schemes and conduct cross-matches that will help them reduce improper payments. • Implement Reemployment Services and Eligibility Assessments (RESEA) cap adjustment. The Budget also includes $175 million in discretion- 89 9. Payment Integrity ary funding for RESEA, including $117 million in base funding and $58 million in program integrity cap adjustment funding, as authorized in the Balanced Budget and Emergency Deficit Control Act of 1985 (as amended by the Bipartisan Budget Act of 2018). Research, including a random-assignment evaluation, shows that a combination of eligibility reviews and reemployment services reduces the time on UI, increases earnings, and reduces improper payments to claimants who are not eligible for benefits. Additional detail about the cap adjustment can be found in the Budget Process chapter in the Analytical Perspectives volume. Federal Employees’ Compensation Act program.— • Reform FECA. — The Budget incorporates longstanding Government Accountability Office, Congressional Budget Office, and Labor Inspector General recommendations to improve and update the FECA. The reform package includes changes that generate cost savings by simplifying FECA benefit rates, introducing controls to prevent fraud and limit improper payments, and modernizing benefit administration. The provisions would prevent retroactive selection of FECA benefits after claimants have declined them in favor of Federal retirement benefits; apply a consistent waiting period for compensation for all covered employees; suspend payments to indicted medical providers; and make other changes to improve program integrity and reduce improper payments. The proposal saves $220 million over 10 years. Department of the Treasury The Department of the Treasury and the Internal Revenue Service (IRS) proposals will save an estimated $56 billion over 10 years by increasing IRS enforcement efforts, increasing the accuracy of tax returns filed by paid preparers, providing IRS additional authority to correct errors on a taxpayer’s tax return, ensure that only those eligible for refundable tax credits receive them, improving wage and information reporting, and increasing the recovery of unclaimed assets and collection of non-tax debts. Tax Administration.— • Increase oversight of paid tax return preparers. This proposal would give the IRS the statutory authority to increase its 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. 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 $507 million over 10 years • Provide more flexible authority for the Internal Revenue Service to address correctable errors. The Budget proposes giving the IRS expanded au- thority 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, where Government databases showed that the taxpayer-provided information was incorrect, where the taxpayer had exceeded the lifetime limit for claiming a deduction or credit, or where the taxpayer had failed to include with the tax return documentation that was required to be included or attached to the return. This proposal would save $17.4 billion over 10 years. • Improve clarity in worker classification and in- formation reporting requirements. The Budget would require the form 1099-K to be filed by January 31 and would expand electronic wage reporting. Under current law, Forms 1099-K must be furnished to the recipient by January 31 and filed with IRS by March 31. The proposal would change the filing requirement to January 31. The IRS would also eliminate the regulations that allow for an automatic 30day filing extension. This would allow IRS to receive information about some sources of self-employment income earlier in the filing season. This proposal saves $2.2 billion over 10 years and includes an existing proposal to improve clarity in worker classification and information reporting requirements. • Expand mandatory electronic filing of W-2s. Under current law, employers who file 250 or more forms must file Form W-2 electronically. The Budget proposes to reduce the mandatory electronic filing threshold to 10. This would increase the accuracy of W-2 data and allow the Social Security Administration to make more W-2 data available to IRS early in the filing season. This proposal saves $319 million over 10 years. • Implement tax enforcement program integrity cap adjustment. The Budget proposes establishing and fund a new adjustment to the discretionary caps for program integrity activities related to IRS program integrity operations starting in 2020. 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 2020 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 $47 billion in additional revenue over 10 years and cost approximately $15 billion resulting in an estimated net savings of $33 billion. Once the new enforcement staff are trained and become fully 90 ANALYTICAL PERSPECTIVES operational these initiatives are expected to generate roughly $3 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 $3.5 trillion in taxes paid each year without direct enforcement measures. Additional detail about the cap adjustment can be found in the Budget Process chapter in the Analytical Perspectives volume. • Require a Social Security Number (SSN) that is valid for employment to claim the EITC. As part of a broader proposal, the 2020 Budget includes a proposal to require an SSN that is valid for employment in order to claim the EITC. While this is already current law for the EITC, the proposal fixes an administrative gap to strengthen enforcement of this provision. This proposal ensures that only individuals who are authorized to work in the United States are able to claim this credit. The proposal saves roughly $3 billion over 10 years. • Increase and streamline recovery of unclaimed assets. This proposal would increase and streamline recovery of unclaimed assets owed to the United States by authorizing Treasury to locate and recover these assets and to retain a portion of amounts collected to pay for the costs of recovery. States and other entities hold assets in the name of the United States or in the name of departments, agencies, and other subdivisions of the Federal Government. Many agencies are not recovering these assets due to lack of expertise and funding. While unclaimed Federal assets are generally not considered to be delinquent debts, Treasury’s debt collection operations personnel have the skills and training to recover these assets. The proposal saves $60 million over 10 years. • Increase delinquent Federal non-tax debt collections. This proposal would increase delinquent Federal non-tax debt collections by authorizing administrative bank garnishment for non-tax debts of commercial entities. It would allow Federal agencies to collect delinquent non-tax debt by garnishing the accounts of delinquent commercial debtors without a court order after providing full administrative due process. The proposal is modeled on existing authority for the Internal Revenue Service to collect Federal tax debts. In addition to providing appropriate limitations, the legislation would direct the Secretary of the Treasury to issue Government-wide regulations implementing the authority of bank garnishment for non-tax debts of commercial entities. The proposal saves $320 million over 10 years. Social Security Administration Overall, the Budget proposes legislation that would avert close to $12.2 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 $836 million from various proposals would be PAYGO savings. In addition, the Budget proposes administrative actions to reduce improper payments that would result in $11 billion in outlay savings over 10 years. The Budget proposes to continue investments in SSA dedicated program integrity funding. SSA uses this funding to conduct continuing disability reviews and SSI redeterminations to confirm that participants remain eligible to receive benefits. These funds also support anti-fraud cooperative disability investigation units and special attorneys for fraud prosecutions. Additional information can be found in the Budget Process chapter in the Analytical Perspectives volume. Old Age Survivors Disability Insurance (OASDI) and Supplemental Security Income (SSI).— • Reduce improper payments caused by barriers for beneficiaries to report income and assets. The Budget proposes to reduce improper payments in disability programs by targeting administrative resources to the development of a uniform system of reporting in mySocialSecurity. This is in addition to instituting a holistic view that provides all beneficiaries’ data, including income and assets, in one electronic location, while simultaneously developing a network of automated processes across other IT platforms for work-related benefit payment adjustments, work continuing disability reviews, redeterminations, and payments to Ticket to Work providers. In addition, future related legislative changes to address the root causes of these improper payments could include requiring suspension of benefits when beneficiaries neglect wage and resource reporting requirements, and instituting mandatory training for beneficiaries on reporting requirements prior to receipt of their first benefit checks. • Hold fraud facilitators liable for overpayments. The Budget proposes holding 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 $10 million in savings over 10 years. • Allow Government-wide use of Custom and Bor- der Protection (CBP) entry/exit data to prevent improper payments. The Budget proposes the use of CBP Entry/Exit data to prevent improper OASDI and 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 91 9. Payment Integrity prevent improper payments. This proposal would result in an estimated $181 million in savings 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 percent 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 percent rule. Debtors could still pay less if the negotiated amount would allow for repayment of the debt in 36 months. If the beneficiary cannot afford to have his or her full benefit payment withheld because he or she cannot meet ordinary and necessary living expenses, the beneficiary may request partial withholding. To determine a proper partial withholding amount, SSA negotiates (as well as renegotiates at the overpaid beneficiary’s request) a partial withholding rate. This proposal would result in savings of almost $1.5 billion over 10 years. • Authorize SSA to use all collection tools to re- cover funds in certain scenarios. The Budget proposes allowing 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 $46 million in savings over 10 years. • Simplify administration of the SSI program. 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 appli- cants. 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 $648 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 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 $9.5 billion over 10 years. • Provide 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. • 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 $274 million over 10 years. 92 ANALYTICAL PERSPECTIVES Table 9–1. SUMMARY OF PAYMENT INTEGRITY INITIATIVES (Deficit increases (+) or decreases (–) in millions of dollars) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 10-year total Agriculture: SNAP Improve income verification ����������������������������������������������������������� 2 2 ......... ......... ......... ......... ......... ......... ......... ......... 4 Improve Child Nutrition Program integrity Provide technology grants ������������������������������������������������������������� Increase school meal verification to 8% ��������������������������������������� Total, Agriculture ������������������������������������������������������������������������ 20 ......... 22 20 ......... 22 20 –28 –8 11 –59 –48 1 –61 –60 –8 –63 –71 –18 –65 –83 –23 –67 –90 –29 –69 –98 –38 –71 –109 –44 –483 –523 –8 –2 ......... ......... ......... –10 –17 –4 ......... ......... ......... –21 –18 –4 ......... ......... ......... –22 –18 –4 ......... ......... ......... –22 –18 –4 ......... ......... ......... –22 –19 –4 ......... ......... ......... –23 –19 –4 ......... ......... ......... –23 –20 –4 ......... ......... ......... –24 –20 –4 ......... ......... ......... –24 –20 –4 ......... ......... ......... –24 –177 –38 ......... ......... ......... –215 –430 –510 –540 –570 –610 –640 –680 –720 –760 –800 –6,260 –2 –2 –3 –3 –3 –3 –4 –4 –4 –4 –32 ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... –15 –25 –25 –25 –30 –30 –35 –35 –40 –40 –300 ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... –100 –430 –460 –490 –520 –550 –590 –620 –660 –4,420 –700 –730 –760 –800 –840 –880 –920 –970 –1,010 Education: Pell Grants 1 Except Education Section 6103 for certain student aid programs (Non-PAYGO) ��������������������������������������������������������������������������� Improve Pell fraud prevention �������������������������������������������������������� Improve selection for verification ��������������������������������������������������� Better target program reviews ������������������������������������������������������� Take enforcement actions against noncompliant schools �������������� Total, Education ������������������������������������������������������������������������� Health and Human Services: Medicare Fee for Service Expand prior authorization to additional Medicare fee-for-service items at high risk of fraud, waste, and abuse �������������������������� Prevent fraud by applying penalties on providers and suppliers who fail to update enrollment records �������������������������������������� Require reporting on clearinghouses and billing agents when Medicare providers and suppliers enroll in the program ����������� Assess a penalty on physicians and practitioners who order services or supplies without proper documentation ���������������� Address improper payments of chiropractic services through targeted medical review* ���������������������������������������������������������� Address overutilization and billing of DMEPOS by expanding prior authorization* ���������������������������������������������������������������������������� Address excessive billing for DME that requires refills on serial claims* �������������������������������������������������������������������������������������� Medicare Advantage (Medicare Part C) Implement targeted risk-adjustment pre-payment review in Medicare Advantage ����������������������������������������������������������������� Expand Medicare Advantage risk adjustment data validation audits* ��������������������������������������������������������������������������������������� Medicaid Strengthen CMS’s ability to recoup Medicaid improper payments Implement pre-payment controls to prevent inappropriate personal care services payments ��������������������������������������������� Allow States the flexibility to compete more frequent eligibility redeterminations* ��������������������������������������������������������������������� Consolidate provider screening for Medicaid and CHIP ��������������� –1,060 –8,670 –1,300 –2,700 –4,300 –4,500 –4,800 –5,000 –5,300 –5,600 –5,900 –6,200 ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... –45,600 ......... Medicare and Medicaid (Cross-cutting proposals) Allow revocation and denial of provider enrollment based on affiliation with a sanctioned entity* ������������������������������������������� Total, Health and Human Services �������������������������������������������� ......... ......... –1 –2,447 –4,067 –6,059 Labor: Improve UI program integrity ��������������������������������������������������������������� PAYGO effects ������������������������������������������������������������������������������� Non-PAYGO effects ����������������������������������������������������������������������� Reform the Federal Employees’ Compensation Act (FECA) ��������������� Total, Labor �������������������������������������������������������������������������������� –11 –6,369 –11 –6,784 –11 –7,084 –11 –7,500 –11 –7,930 –11 –8,345 –11 –8,775 –78 –65,360 –103 –33 –70 –31 –134 –225 –53 –172 –26 –251 –258 –59 –199 –29 –287 –259 –69 –190 –18 –277 –258 –78 –180 –18 –276 –370 –87 –283 –19 –389 –190 –96 –94 –19 –209 –133 –106 –27 –20 –153 –193 –111 –82 –21 –214 –244 –121 –123 –19 –263 –2,233 –813 –1,420 –220 –2,453 –25 –35 –39 –44 –48 –53 –57 –62 –69 –75 –507 Treasury: Tax administration Increase oversight of paid tax return preparers ����������������������������� 93 9. Payment Integrity Table 9–1. SUMMARY OF PAYMENT INTEGRITY INITIATIVES—Continued (Deficit increases (+) or decreases (–) in millions of dollars) 2020 Provide more flexible authority for the Internal Revenue Service to address correctable errors ���������������������������������������������������� Improve clarity in worker classification and information reporting requirements ����������������������������������������������������������������������������� Implement tax enforcement program integrity cap adjustment ������ Increase discretionary outlays (non-add, program integrity) ��������� Require Social Security Number (SSN) for Child Tax Credit, Earned Income Tax Credit, and credit for other dependents 2 ... Other payment integrity proposals Increase and streamline recovery of unclaimed assets ���������������� Increase collections of delinquent Federal non-tax debt ��������������� Total, Treasury ��������������������������������������������������������������������������� Social Security Administration (SSA): Reduce improper payments caused by barriers for beneficiaries to report income and assets* �������������������������������������������������������������� Hold fraud facilitators liable for overpayments ����������������������������������� PAYGO effects ������������������������������������������������������������������������������� Non-PAYGO effects ����������������������������������������������������������������������� Allow Government-wide use of CBP entry/exit data to prevent improper payments ������������������������������������������������������������������������� PAYGO effects ������������������������������������������������������������������������������� Non-PAYGO effects ����������������������������������������������������������������������� Increase overpayment collection threshold for Old Age, Survivors, and Disability Insurance (non-PAYGO) ������������������������������������������� Authorize Social Security Administration (SSA) to use all collection tools to recover funds in certain scenarios (non-PAYGO) ��������������� Simplify administration of the SSI program ����������������������������������������� Improve collection of pension information from States and localities (non-PAYGO) ���������������������������������������������������������������������������������� Provide additional debt collection authority for civil monetary penalties (CMPs) and assessments ����������������������������������������������� Exclude SSA debts from discharge in bankruptcy ������������������������������ PAYGO effects ������������������������������������������������������������������������������� Non-PAYGO effects ����������������������������������������������������������������������� Expand mandatory electronic filing of W–2s 3 ������������������������������������� Total, Social Security ��������������������������������������������������������������������� 2021 2022 2023 2024 2025 2026 2027 2028 2029 –1,061 –1,584 –1,632 –1,685 –1,750 –1,809 –1,871 –1,934 –2,014 –2,086 –17,426 –86 –160 320 –104 –818 693 –138 –1,895 1,040 –177 –3,166 1,386 –206 –4,558 1,737 –235 –5,899 1,850 –271 –6,880 1,865 –298 –7,510 1,875 –315 –7,942 1,885 –337 –8,241 1,893 –2,167 –47,069 14,544 0 –308 –309 –319 –322 –324 –336 –337 –340 –354 –2,949 –6 –32 –1,370 –6 –32 –2,887 –6 –32 –4,051 –6 –32 –5,429 –6 –32 –6,922 –6 –32 –8,358 –6 –6 –6 –6 –32 –32 –32 –32 –9,453 –10,179 –10,718 –11,131 –60 –320 –70,498 ......... ......... ......... ......... –500 ......... ......... ......... –800 –1,100 –1 –2 ......... –1 –1 –1 –1,100 –2 –1 –1 –1,500 –1,500 –1,500 –1,500 –1,500 –1 –1 –1 ......... –2 ......... ......... ......... ......... –1 –1 –1 –1 ......... –1 –11,000 –10 –3 –7 ......... ......... ......... ......... ......... ......... –1 –1 ......... –5 –4 –1 –11 –9 –2 –18 –16 –2 –27 –24 –3 –35 –31 –4 –43 –39 –4 –41 –36 –5 –181 –160 –21 –12 –77 –100 –110 –135 –161 –181 –237 –254 –251 –1,518 ......... ......... –2 –382 –3 –98 –4 –69 –5 –46 –5 –34 –6 –23 –6 –11 –7 2 –8 13 –46 –648 18 28 24 –474 –1,135 –1,614 –1,735 –1,645 –1,547 –1,429 –9,509 ......... ......... ......... ......... ......... ......... ......... ......... ......... –12 –20 –24 –29 –32 –34 –37 –39 –43 –1 –2 –2 –2 –3 –3 –4 –4 –4 –11 –18 –22 –27 –29 –31 –33 –35 –39 –37 –36 –33 –32 –31 –30 –28 –27 –26 –982 –1,035 –1,821 –2,495 –3,396 –3,537 –3,500 –3,415 –3,287 ......... –274 –25 –249 –319 –23,505 ......... –4 ......... –4 –39 –37 10-year total Total, Payment Integrity Proposals ������������������������������������������������������ –3,976 –8,186 –11,462 –13,966 –16,559 –19,321 –20,805 –21,876 –22,814 –23,589 –162,554 Please note that all proposal estimates are subject to PAYGO unless noted otherwise * This is an administrative proposal, and therefore not subject to PAYGO. Savings estimates for this proposal are included in the baseline. 1 In addition to the mandatory savings shown here, the Pell Grant payment integrity proposals also reduce discretionary program costs. Over 10 years, Except Education from 6103 reduces these costs by $782 million and Improve Pell Fraud Prevention by $163 million. 2 This proposal reflects savings from improper payments in the Budget proposal to Require Social Security Number (SSN) for Child Tax Credit, Earned Income Tax Credit, and credit for other dependents. 3 The proposal to expand mandatory electronic filing of W–2s is a tax administration proposal, and is detailed in the Treasury section of the chapter text. 10. FEDERAL REAL PROPERTY The Federal Government owns and leases an extensive portfolio of real property to support execution of the Federal missions, and it is critical that Federal agencies effectively manage those assets. The President’s real property agenda expands the Government’s focus to date on managing the real property portfolio to include obtaining key data on assets to ensure that the right investment and divestment decisions are made. Aligned with the President’s Management Agenda, the real property agenda provides a roadmap for agencies to strengthen stewardship, improve service to the taxpayer, and leverage real property. To achieve these objectives, agencies will increase focus on creating standard business processes and data definitions in the real property arena, identifying opportunities to share common business application tools and improving the overall management of the portfolio. The Federal portfolio of real property assets is diverse, has an average age of more than 47 years, and as with any portfolio, requires significant upkeep. Agencies invest billions of dollars in the operation, repair and alteration of existing assets and construction of new assets necessary to meet Federal mission requirements. It is important to reinvest in the Federal portfolio at the appropriate level. Deferring necessary maintenance and repair can result in higher outyear costs. Deteriorated condition or the failure of Federal real property can affect the efficiency of agencies’ capability to deliver their missions and could potentially inhibit economic growth and lead to divestiture. The Administration’s initiatives will ensure that agencies have the information necessary to make the right decisions to maintain their assets and have the right type and amount of assets in place to ensure mission capability, manage costs and serve taxpayers. Overview of the Federal Inventory The Federal inventory of buildings contains a wide range of assets - office buildings, warehouses, hospitals, service buildings, and land ports of entry, among several other building types required to implement agencies’ missions. The Department of Defense manages the largest domestic building portfolio, followed by the Department of Veterans Affairs and the Department of Energy. The General Service Administration (GSA) manages approximately 50 percent of the office space in the portfolio, providing office space for most Federal agencies. The largest building type - office space - comprises 21 percent of the total square footage of the building space. Of the total office inventory, leased office space comprises 36 percent (on a square foot basis) of all office space and is 67 percent of total office building expenditures. By continuing to emphasize capital planning, improving data quality, and implementing legislative reforms, the Federal Government could better optimize leased and owned building space to improve mission support and reduce costs, as discussed later in this chapter. The Government’s real property inventory also includes structures, the most numerous of which are utility systems, roads and bridges, navigation and traffic aids, miscellaneous military structures, and parking structures. Divestiture, through sale or demolition where operationally feasible, is often the most appropriate method to control the cost of the structure portfolio. Fifteen Years of Progress and Improvement Over the last 15 years, the Federal Government has made significant strides in identifying the full range of real property within the Federal inventory, improving the asset management planning process, measuring performance of the assets, leveraging assets to reduce the Federal footprint and disposing of assets that no longer meet the Federal need. In February 2004, Executive Order 13327 tasked agencies with creating the first, detailed Government-wide inventory of buildings and structures under Federal control. Prior to this time, the best estimation of the number and value of Federal assets was garnered from Government-wide financial audit property, plant, and Table 10–1. FY 2016 INVENTORY OF FEDERAL ASSETS, OWNED AND LEASED FY 2016 Owned Leased Total Buildings Total Number ������������������������������������ Total Square Feet ����������������������������� Total Annual Operating Costs ����������� 232,419 2,368,129,721 $11,507,899,223 19,404 280,103,254 $7,284,160,244 251,823 2,648,232,976 $18,792,059,467 Structures Total Number ������������������������������������ Total Annual Operating Costs ����������� 415,146 $6,230,950,083 3,449 $59,135,377 418,595 $6,290,085,460 95 96 equipment reporting. High-value, easy-to-dispose real property assets have largely left the Federal inventory. During the 2004-2009 timeframe, the Office of Management and Budget (OMB) utilized a Management Agenda “scorecard” methodology to measure agency success in achieving the Administration’s management agenda. In the area of real property, OMB expected agencies to achieve milestones that included the use of data and achievement of disposal targets. Between 2004 and 2009, agencies completed the first inventory of assets, established agency-specific asset management plans, and disposed of thousands of assets with an aggregate replacement value of more than $5 billion. The vast majority of these disposals were demolitions of assets on Federal campuses for which there was no marketable return (e.g., located within the center of a campus), so the main benefit was reduced operating costs. From 2013-2015, agencies disposed of 24.7 million square feet under the “Freeze the Footprint” policy. This averages to approximately 8.3 million square feet annually, with an estimated gross cost avoidance of $100 million per year. The “Reduce the Footprint” (RTF) policy, in effect since 2015, targeted an additional 61 million square feet of building disposals (owned and leased) during 2016–2020, or 12 million square feet annually. Executing identified disposals is largely predicated on availability of discretionary agency funds necessary to complete remediation, relocation, and disposition, and enactment of necessary statutory fixes to aid in the disposal of unneeded assets. To aid in achieving these ongoing goals, the Administration proposes legislative fixes to streamline the disposal of unneeded assets. For example, current statutory prohibitions on the disposal of certain pieces of property mean that the Government continues to pay to maintain assets it no longer needs. In other instances, the Government wishes to dispose of property, but local stakeholders have impeded disposal for years. In the early years of these more aggressive real property efforts, agencies were successful in disposing of the “low-hanging fruit”: those assets without high-cost environmental contamination requiring remediation, those without stakeholder interests prohibiting disposition, and those empty facilities with private sector marketability. High value disposals, such as San Francisco’s Presidio via transfer, were completed early in the effort to improve focus on real property. However, GSA, the Government’s disposal agent by statute, generated an average of only $53 million in annual gross proceeds through public and negotiated sales of both GSA’s and other agencies’ property during FY 2009 – FY 2013. To increase annual sales proceeds, the Government would need to identify and sell larger, difficult-to-market, and politically contentious properties. In recent years, agencies have expanded their focus to managing their entire portfolios strategically to gain efficiencies and improved mission performance. Agencies have established agency-specific design standards for space utilization, set explicit targets to reduce the amount of unneeded real property that agencies retain, and developed and implemented new analytical tools. ANALYTICAL PERSPECTIVES Administration Initiatives to Optimize the Portfolio to Achieve the Mission and Manage Costs The Administration’s multi-pronged approach continues the historic progress made over the last 15 years to continue to improve the management of Federal real property, while also recognizing that new, transformative authorities and reform initiatives are necessary to achieve the next level of accomplishments. The Administration is taking necessary administrative action, as well as proposing legislation, to optimize the Federal real property portfolio. Under this leadership, agencies are making smart decisions to reduce their square footage and consolidate into federally owned space, such as the Bureau of Labor Statistics (BLS) moving from an expiring lease to the GSA-owned Suitland Federal Center and reducing the BLS footprint by more than 340,000 square feet. The ongoing administrative initiatives and legislative proposals reflected in the FY 2020 Budget include: Federal Real Property Council. OMB issued Memorandum M—18-21 in July 2018 to reconstitute the Federal Real Property Council (FRPC), comprised of agency Senior Real Property Officers and empowered to provide comprehensive program governance Government-wide. The FRPC’s objective is to provide the Administration with recommendations on the strategic direction over the Government-wide approach to optimizing the real property portfolio to support mission success, manage costs, and help Federal managers provide the best value for the Government and taxpayer. The FRPC is also working to implement the requirements of recently enacted legislation, including the Federal Assets Sale and Transfer Act (Public Law 114-287) and the Federal Real Property Management and Reform Act (Public Law 114-318). Revised National Strategy for Real Property. OMB issued the National Strategy for the Efficient Use of Real Property in 2015 to build upon OMB’s Freeze the Footprint policy’s success in reducing agency portfolios and reducing costs. The RTF policy, focused solely on office and warehouse facilities, reduced the baseline by 12 million square feet and generated an estimated cost avoidance of $125 million in fiscal years 2016 and 2017. In line with the President’s Management Agenda, the FRPC will lead revisions to the National Strategy focusing on emphasizing application of a consistent Government-wide real property capital planning process, creating standard business processes and data definitions in line with the Administration’s Cross-Agency Priority Goal on Sharing Quality Services and improved transparency, and addressing other issues identified in audit reports . Federal Capital Revolving Fund. Last year, the Administration proposed the establishment of a Federal Capital Revolving Fund, a new and innovative way to budget for the largest civilian real property construction projects, valued at more than $250 million. This Budget includes $10 billion in mandatory resources to seed the Fund to execute these vital efforts. This Fund will provide the necessary upfront amounts to execute projects and then require agencies to repay those funds over 15 97 10. Federal Real Property years, similar to how state capital budgeting occurs, while conforming to a Federal cash budget environment. Without enactment of the Fund, agencies will continue to turn to more costly solutions to meet some of these large requirements, including operating leases, to avoid the upfront cost requirement associated with Federal construction. Further, since projects executed via the new Fund would be paid through annual operations over a 15-year period, Federal decision-makers are incentivized to fund only those projects with the highest return on investment and mission priority to protect taxpayers. Providing budget resources through the Fund will enable agencies to prioritize real property actions that result in lower long-term costs for taxpayers. The FY 2020 Budget proposes using $288 million from the new fund for the renovation and expansion of a key National Institute of Science and Technology facility in Boulder, Colorado, as the priority project. The Administration transmitted to the Congress in June 2018 a legislative proposal to establish the Fund and looks forward to working with Congress to enact this implementing legislation. Disposing Government Property Directly to the Market. The current process for disposing of unneeded Federal real property is long, convoluted, and results in diminished returns to taxpayers. Title 40 of the U.S. Code requires agencies to screen property disposals for at least 12 discrete public benefit conveyance requirements prior to taking assets to market for sale. The average disposal timeframe is more than 12 months, unnecessarily long and at a time where the Government continues to carry the operating costs. Additionally, certain nonprofit institutions and state and local government can obtain Federal property at no cost or at a substantial discount if they use the property for various types of public uses. Such transfers divert Federal taxpayer funds from deficit reduction and services provided to citizens. The Administration proposes streamlining the disposal process by eliminating all of the public benefit conveyances and taking all excess Federal real property directly to sale, thereby maximizing the return to taxpayers. The Administration also sup- ports expanding existing authority to allow GSA to assist other Federal agencies in preparing unneeded properties for disposition. This expansion would further streamline and accelerate the disposal process, allowing GSA to be reimbursed from the sale proceeds rather than requiring agencies to dedicate appropriated budgetary resources up front. Government to Citizens. The Administration has pursued efforts to ensure that agency footprints better match the location of where citizens rely on their missions, including in the Infrastructure Initiative, the Government Reform agenda, Federal workforce efforts, and the President’s Budget. Recently, GSA spearheaded an effort referred to as the Government-to-Citizens (G2C) initiative, with support from the Office of Personnel Management and the Department of Labor. The three agencies developed a playbook that provides Federal agencies with access to data and tools necessary for analyzing which missions and functions can be better executed closer to the populations serviced, and at a lower cost to the taxpayer. Agencies, including the Department of Agriculture, are actively pursuing opportunities to relocate personnel and office space closer to the populations they serve. GSA is also undertaking efforts with the Small Business Administration to begin looking at potential opportunities. Conclusion The Administration continues to pursue opportunities to optimize the Federal portfolio of real property by disposing of unneeded assets, investing in mission-critical assets, bringing the delivery of the Federal mission closer to the populations serviced, and proposing necessary legislative action to support the real property agenda. The efforts of this Administration are positioning agencies to make informed decisions on their portfolios, executing missions, and serving taxpayers. For more details on the agency real property inventory see the following website: https://www.gsa.gov/cdnstatic/FY_2016_Open_Data_Set.xlsx BUDGET CONCEPTS AND BUDGET PROCESS 99 11. 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 2020. (Fiscal year 2020 will begin on October 1, 2019, and end on September 30, 2020.) 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 2019, 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 2018, 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 101 102 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 Overview,’’ 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 103 11. 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 104 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. 11. 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 three agreements to increase the caps on discretionary programs over what would have been available under the Joint Committee enforcement mechanisms. 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 non-defense 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. The BBA of 2018 set new discretionary caps for 2018 at $629.0 billion for the defense category and $579.0 for the non-defense category and for 2019 at $647.0 billion for the defense category and $597.0 billion for the non-defense category. These increases to the caps in the 2013 and 2015 agreements were paid for while the 2018 agreement only partially offset the increases. The offsets for these cap increases largely came from savings in mandatory spending. 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; appropriations designated by Congress as being for disaster relief; appropriations for reemployment services and eligibility assessments; and appropriations for wildfire suppression at the Department of Agriculture and the Department of the Interior. 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 105 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 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 106 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 10year periods starting with the budget year. Any impacts of PAYGO legislation on the current year deficit are counted as budget year impacts when placed on the scorecard. Like the discretionary caps, PAYGO is enforced by sequestration. Within 14 business days after a congressional session ends, OMB issues an annual PAYGO report and determines whether a violation of the PAYGO requirement has occurred. If either the 5- or 10-year scorecard shows net costs in the budget year column, the President is required to issue a sequestration order implementing across-the-board cuts to nonexempt mandatory programs by an amount sufficient to offset those net costs. The PAYGO effects of legislation may be directed in legislation by reference to statements inserted into the Congressional Record by the chairmen of the House and Senate Budget Committees. Any such estimates are determined by the Budget Committees and are informed by, but not required to match, the cost estimates prepared by the Congressional Budget Office (CBO). If this procedure is not followed, then the PAYGO effects of the legislation are determined by OMB. During the first year of statutory PAYGO, nearly half the bills included congressional estimates. 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. ANALYTICAL PERSPECTIVES 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 and reductions in the discretionary caps. These reductions have already been ordered to take effect for 2013 through 2019, with some modifications as provided for in the American Taxpayer Relief Act of 2012, the BBA of 2013, the BBA of 2015, and the BBA of 2018. Unless any legislative changes are enacted, further reductions will be implemented by pro rata reductions to the discretionary caps in 2020 and 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 2020 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 2020 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, the BBA of 2015, which extended sequestration through 2025, and the BBA of 2018, which extended sequestration through 2027. Sequestration during these years will use the same percentage reductions 107 11. Budget Concepts for defense and non-defense as calculated for 2021 under the procedures outlined above.2 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 or in excess 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 2 The BBA of 2018 specified that, notwithstanding the 2 percent limit on Medicare sequestration in the BCA, in extending sequestration into 2027 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. 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, through a “rescission” or “cancellation” of those funds. How the President proposes this reduction determines whether it is considered a rescission or a cancellation. A rescission is a reduction in previously enacted appropriations proposed following the requirements of the Impoundment Control Act (ICA). The ICA allows the President, using the specific authorities in that Act, to transmit a “special message” to the Congress to inform them of these proposed rescissions, at which time the funding can be withheld from obligation for up to 45 days on the OMB-approved apportionment. Agencies are instructed not to withhold funds without the prior approval of OMB. If Congress does not act to rescind these funds within the 45 day period, the funds are made available for obligation. In May of 2018, the President proposed the largest single ICA rescissions package by sending a request to permanently reduce approximately $15 billion of budget authority. The President can also propose reductions to previously enacted appropriations outside of the ICA; in these cases, these reductions are referred to as cancellations. Cancellation proposals are not subject to the requirements and procedures of the ICA and amounts cannot be withheld from obligation. The 2020 President’s Budget includes $31 billion in proposed cancellations. 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 108 ANALYTICAL PERSPECTIVES protected material, and (2) the amount paid by users of copyrighted material to copyright owners is related to the frequency or quantity of the material used. The budget excludes license royalties collected and paid out by the Copyright Office for the retransmission of network broadcasts via cable collected under 17 U.S.C. 111 because these revenues meet both of these conditions. The budget includes the royalties collected and paid out for license fees for digital audio 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 12 of this volume, “Coverage of the Budget,” provides more information on this subject. (In billions of dollars) Estimate 2019 •A function must be of continuing national importance, and the amounts attributable to it must be significant. • Each Table 11–1. TOTALS FOR THE BUDGET AND THE FEDERAL GOVERNMENT 2018 Actual needs and agency missions and programs. The remaining three functions—Net Interest, Undistributed Offsetting Receipts, and Allowances—enable the functional classification system to cover the entire Federal budget. The following criteria are used in establishing functional categories and assigning activities to them: • A function encompasses activities with similar purposes, emphasizing what the Federal Government 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). 2020 Budget authority Unified ���������������������������������������������� On-budget ������������������������������������ Off-budget ������������������������������������ 4,466 3,614 852 4,661 3,745 916 4,944 3,971 973 Receipts: Unified ���������������������������������������������� On-budget ������������������������������������ Off-budget ������������������������������������ 3,330 2,475 855 3,438 2,527 911 3,645 2,695 949 Outlays: Unified ���������������������������������������������� On-budget ������������������������������������ Off-budget ������������������������������������ 4,109 3,260 849 4,529 3,620 909 4,746 3,778 968 Deficit (–) / Surplus (+): Unified ���������������������������������������������� On-budget ������������������������������������ Off-budget ������������������������������������ –779 –785 6 –1,092 –1,094 2 –1,101 –1,082 –18 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 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 OMB’s website. 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 OMB’s website. 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 109 11. Budget Concepts also includes the proceeds of general borrowing. General fund appropriations accounts record general fund expenditures. General fund appropriations draw from general fund receipts and borrowing collectively and, therefore, are not specifically linked to receipt accounts. Special funds consist of receipt accounts for Federal fund receipts that laws have designated for specific 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 individ- ual employee. The Government accounts for such funds in deposit funds, which are not included in the budget. (Chapter 27 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 20 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 110 ANALYTICAL PERSPECTIVES income taxes and social insurance taxes, but also include excise taxes, compulsory user charges, regulatory fees, customs duties, court fines, certain license fees, and deposits of earnings by the Federal Reserve System. Total receipts for the Federal Government include both onbudget and off-budget receipts (see Table 11–1, “Totals for the Budget and the Federal Government,” which appears earlier in this chapter.) Chapter 14 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. 111 11. Budget Concepts Offsetting Receipts Collections that are offset against gross outlays but are not authorized to be credited to expenditure accounts are credited to receipt accounts and are called offsetting receipts. Offsetting receipts are deducted from budget authority and outlays in arriving at total net budget authority and outlays. However, unlike offsetting collections credited to expenditure accounts, offsetting receipts do not offset budget authority and outlays at the account level. In most cases, they offset budget authority and outlays at the agency and subfunction levels. Proprietary receipts from a few sources, however, are not offset against any specific agency or function and are classified as undistributed offsetting receipts. They are deducted from the Government-wide totals for net 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 15, “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 112 ANALYTICAL PERSPECTIVES 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. 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 available for obligation for a longer period or indefinitely (that is, until expended or until the program objectives have been attained). Typically, budget authority for current operations is made available for only one year, and budget authority for construction and some research projects is available for a specified number of years or indefinitely. Most budget authority provided in authorizing statutes, such as for most trust funds, is available indefinitely. If budget authority is initially provided for a limited period of availability, an extension of availability would require enactment of another law (see “Reappropriation” later in this chapter). Budget authority that is available for more than one year and not obligated in the year it becomes available is carried forward for obligation in a following year. In some cases, an account may carry forward unobligated budget authority from more than one prior year. The sum of such amounts constitutes the account’s unobligated balance. Most of these balances had been provided for specific uses such as the multi-year construction of a major project and so are not available for new programs. A small part may never be obligated or spent, primarily amounts provided for contingencies that do not occur or reserves that never have to be used. Amounts of budget authority that have been obligated but not yet paid constitute the account’s unpaid obligations. For example, in the case of salaries and wages, one to three weeks elapse between the time of obligation and the time of payment. In the case of major procurement and construction, payments may occur over a period of several years after the obligation is made. Unpaid obligations (which are made up of accounts payable and undelivered orders) net of the accounts receivable and unfilled customers’ orders are defined by law as the obligated balances. Obligated balances of budget authority at the end of the year are carried forward until the obligations are paid or the balances are canceled. (A general law provides that the obligated balances of budget authority that was made available for a definite period is automatically cancelled five years after the end of the period.) Due to such flows, a change in the amount of budget authority available in any one year may change the level of obligations and outlays for several years to come. Conversely, a change in the amount of obligations incurred from one year to the next does not necessarily result from an equal change in the amount of budget authority available for that year and will not necessarily result in an equal change in the level of outlays in that year. The Congress usually makes budget authority available on the first day of the fiscal year for which the appropriations act is passed. Occasionally, the appropriations language specifies a different timing. The language may provide an advance appropriation—budget authority that does not become available until one year or more beyond the fiscal year for which the appropriations act 113 11. Budget Concepts is passed. Forward funding is budget authority that is made available for obligation beginning in the last quarter of the fiscal year (beginning on July 1) for the financing of ongoing grant programs during the next fiscal year. This kind of funding is used mostly for education programs, so that obligations for education grants can be made prior to the beginning of the next school year. For certain benefit programs funded by annual appropriations, the appropriation provides for advance funding—budget authority that is to be charged to the appropriation in the succeeding year, but which authorizes obligations to be incurred in the last quarter of the current fiscal year if necessary to meet benefit payments in excess of the specific amount 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 2018 appropriations act extends the availability of unobligated budget authority that expired at the end of 2017, new budget authority would be recorded for 2018. This scorekeeping is used because a reappropriation has exactly the same effect as allowing the earlier appropriation to expire at the end of 2017 and enacting a new appropriation for 2018. 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 114 ANALYTICAL PERSPECTIVES the public, the associated trust fund receipts are netted against the bureau totals to prevent double-counting budget authority and outlays at the bureau level. The Government usually makes outlays in the form of cash (currency, checks, or electronic fund transfers). However, in some cases agencies pay obligations without disbursing cash, and the budget nevertheless records outlays for the equivalent method. For example, the budget records outlays for the full amount of Federal employees’ salaries, even though the cash disbursed to employees is net of Federal and State income taxes withheld, retirement contributions, life and health insurance premiums, and other deductions. (The budget also records receipts for the amounts withheld from Federal employee paychecks for Federal income taxes and other payments to the Government.) When debt instruments (bonds, debentures, notes, or monetary credits) are used in place of cash to pay obligations, the budget records outlays financed by an increase in agency debt. For example, the budget records the acquisition of physical assets through certain types of lease-purchase arrangements as though a cash disbursement were made for an outright purchase. The transaction creates a Government debt, and the cash lease payments are treated as repayments of principal and interest. The budget records outlays for the interest on the public issues of Treasury debt securities as the interest accrues, not when the cash is paid. A small portion of Treasury debt consists of inflation-indexed securities, which feature monthly adjustments to principal for inflation and semi annual payments of interest on the inflation-adjusted principal. As with fixed-rate securities, the budget records interest outlays as the interest accrues. The monthly adjustment to principal is recorded, simultaneously, as an increase in debt outstanding and an outlay of interest. Most Treasury debt securities held by trust funds and other Government accounts are in the Government account series. The budget normally states the interest on these securities on a cash basis. When a Government account is invested in Federal debt securities, the purchase price is usually close or identical to the par (face) value of the security. The budget generally records the investment at par value and adjusts the interest paid by Treasury and collected by the account by the difference between purchase price and par, if any. For Federal credit programs, outlays are equal to the subsidy cost of direct loans and loan guarantees and are recorded as the underlying loans are disbursed (see “Federal Credit” later in this chapter). 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 2020 will be obligated or spent in 2020. Outlays during a fiscal year may liquidate obligations incurred in the same year or in prior years. Obligations, in turn, may be incurred against budget authority provided in the same year or against unobligated balances of budget authority provided in prior years. Outlays, therefore, flow in part from budget authority provided for the year in which the money is spent and in part from budget authority provided for prior years. The ratio of a given year’s outlays resulting from budget authority enacted in that or a prior year to the original amount of that budget authority is referred to as the outlay rate for that year. As shown in the accompanying chart, $3,710 billion of outlays in 2020 (78 percent of the outlay total) will be made from that year’s $4,944 billion total of proposed new budget authority (a first-year outlay rate of 75 percent). Thus, the remaining $1,036 billion of outlays in 2020 (22 percent of the outlay total) will be made from bud- Chart 11-1. Relationship of Budget Authority to Outlays for 2020 (Billions of dollars) New Authority Recommended for 2020 4,944 Unspent Authority Enacted in Prior Years 2,818 To be spent in 2020 Outlays in 2020 3,710 To b e in fu spent ture year s t en sp 0 e 2 b 0 To in 2 -3 6 1,03 4,746 1,2 35 Authority written off, expired, and adjusted (net) To be spent in Future Years 1,779 Unspent Authority for Outlays in Future Years 3,017 115 11. Budget Concepts get authority enacted in previous years. At the same time, $1,235 billion of the new budget authority proposed for 2020 (25 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 31 percent of total outlays in 2018 ($1,185 billion) were discretionary and the remaining 69 percent ($2,667 billion in 2018) were mandatory spending and net interest. Such a large portion of total spending is mandatory because authorizing rather than appropriations legislation determines net interest ($240 billion in 2018) and the spending for a few programs with large amounts of spending each year, such as Social Security ($910 billion in 2018) and Medicare ($588 billion in 2018). The bulk of mandatory outlays flow from budget authority recorded in the same fiscal year. This is not necessarily the case for discretionary budget authority and outlays. For most major construction and procurement projects and long-term contracts, for example, the budget authority covers the entire cost estimated when the projects are initiated even though the work will take place and outlays will be made over a period extending beyond the year for which the budget authority is enacted. Similarly, discretionary budget authority for most education and job training activities is appropriated for school or program years that begin in the fourth quarter of the fiscal year. Most of these funds result in outlays in the year after the appropriation. FEDERAL CREDIT Some Government programs provide assistance through direct loans or loan guarantees. A direct loan is a disbursement of funds by the Government to a non-Federal borrower under a contract that requires repayment of such funds with or without interest and includes economically equivalent transactions, such as the sale of Federal assets on credit terms. A loan guarantee is any guarantee, insurance, or other pledge with respect to the payment of all or a part of the principal or interest on any debt obligation of a non-Federal borrower to a nonFederal lender. The Federal Credit Reform Act of 1990, as amended (FCRA), prescribes the budgetary treatment for Federal credit programs. Under this treatment, the budget records obligations and outlays up front, for the net cost to the Government (subsidy cost), rather than recording the cash flows year by year over the term of the loan. FCRA treatment allows the comparison of direct loans and loan guarantees to each other, and to other methods of delivering assistance, such as grants. The cost of direct loans and loan guarantees, sometimes called the “subsidy cost,’’ is estimated as the present value of expected payments to and from the public over the term of the loan, discounted using appropriate Treasury interest rates.3 Similar to most other kinds of programs, agencies can make loans or guarantee loans only if the Congress has appropriated funds sufficient to cover the subsidy costs, or provided a limitation in an appropriations act on the amount of direct loans or loan guarantees that can be made. The budget records the subsidy cost to the Government arising from direct loans and loan guarantees—the budget authority and outlays—in credit program accounts. When a Federal agency disburses a direct loan or when a non-Federal lender disburses a loan guaranteed by a Federal agency, the program account disburses or outlays an amount equal to the estimated present value cost, or subsidy, to a non-budgetary credit financing account. The financing accounts record the actual transactions 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. 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 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 ac- 116 ANALYTICAL PERSPECTIVES tivities, 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 pursu- ant 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 bor- rowing 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 2018, the Government borrowed $1,084 billion from the public, bringing debt held by the public to $15,750 billion. This borrowing financed the $779 billion deficit in that year, partly offset by the net impacts of the other means of financing, such as changes in cash balances and other accounts discussed below. In addition to selling debt to the public, the Treasury Department issues debt to Government accounts, primarily trust funds that are required by law to invest in Treasury securities. Issuing and redeeming this debt does not affect the means of financing, because these transactions occur between one Government account and another and thus do not raise or use any cash for the Government as a whole. (See Chapter 4 of this volume, “Federal Borrowing and Debt,” for a fuller discussion of this topic.) 117 11. Budget Concepts 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 borrow- ing 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 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. 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. 118 ANALYTICAL PERSPECTIVES 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 Data for the Outyears The past year column (2018) 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 28 of this volume, “Comparison of Actual to Estimated Totals,” for a summary of these differences). The budget presents estimates for each of the nine years beyond the budget year (2021 through 2029) in order to reflect the effect of budget decisions on objectives and plans over a longer period. Data for the Current Year The current year column (2019) 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. Data for the Budget Year The budget year column (2020) 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 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. Allowances 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. Baseline The budget baseline is an estimate of the receipts, outlays, and deficits or surpluses that would occur if no changes were made to current laws and policies during the period covered by the budget. The baseline assumes that receipts and mandatory spending, which generally are authorized on a permanent basis, will continue in the future consistent with current law and policy. The baseline assumes that the future funding for most discretionary programs, which generally are funded annually, will equal the most recently enacted appropriation, adjusted for inflation. Baseline outlays represent the amount of resources that would be used by the Government over the period covered by the budget on the basis of laws currently enacted. The baseline serves several useful purposes: • It may warn of future problems, either for Government fiscal policy as a whole or for individual tax and spending programs. • It may provide a starting point for formulating the President’s Budget. • It may provide a “policy-neutral’’ benchmark against which the President’s Budget and alternative pro- 119 11. Budget Concepts 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 26 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 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. 120 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 achieving at least $1.2 trillion of deficit reduction was not enacted. Budget resolution—see concurrent resolution on the budget. Budget totals mean the totals included in the budget for budget authority, outlays, receipts, and the surplus or deficit. Some presentations in the budget distinguish on-budget totals from off-budget totals. On-budget totals reflect the transactions of all Federal Government entities except those excluded from the budget totals by law. Off-budget totals reflect the transactions of Government entities that are excluded from the on-budget totals by law. Under current law, the off-budget totals include the Social Security trust funds (Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds) and the Postal Service Fund. The budget ANALYTICAL PERSPECTIVES 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. 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. 11. Budget Concepts 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 determination under section 102(2) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act. Discretionary spending means budgetary resources (except those provided to fund mandatory spending programs) provided in appropriations acts. (Cf. mandatory spending.) Emergency requirement means an amount that the Congress has designated as an emergency requirement. Such amounts are not included in the estimated budgetary effects of PAYGO legislation under the requirements of the Statutory Pay-As-You-Go Act of 2010, if they are mandatory or receipts. Such a discretionary appropriation that is subsequently designated by the President as an emergency requirement results in a cap adjustment to the limits on discretionary spending under BBEDCA. Entitlement refers to a program in which the Federal Government is legally obligated to make payments or pro- 121 vide 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. 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, 122 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 expenditure accounts. The legislation that authorizes the offsetting receipts may earmark them for a specific purpose and either appropriate them for expenditure for that purpose or require them to be appropriated in annual appropriation acts before they can be spent. Like offsetting collections, they result from business-like transactions or market-oriented activities with the public, including payments from the public in exchange for goods and services, reimbursements for damages, and gifts or donations of money to the Government and from intragovernmental transactions with other Government accounts. (Cf. receipts, undistributed offsetting receipts, and offsetting collections.) On-budget refers to all budgetary transactions other than those designated by statute as off-budget. (Cf. budget totals.) ANALYTICAL PERSPECTIVES 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, 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 cancella- 11. Budget Concepts tions 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. 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 123 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). 12. 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 11, “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 11, “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 30-1, “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 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 30-1 can be found at: https://www.whitehouse.gov/omb/ analytical-perspectives. 125 126 ANALYTICAL PERSPECTIVES Table 12–1. COMPARISON OF TOTAL, ON-BUDGET, AND OFF-BUDGET TRANSACTIONS 1 (In billions of dollars) Receipts Outlays Surplus or deficit (–) Year Total On-budget Off-budget Total On-budget 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 3,526.6 3,454.9 3,506.3 2,902.4 3,104.5 3,019.0 2,821.1 2,800.2 554.7 498.6 507.6 633.8 706.1 –1,294.4 –1,299.6 –1,076.6 –679.8 –484.8 –1,371.4 –1,366.8 –1,138.5 –719.2 –514.3 77.0 67.2 61.9 39.5 29.5 2015 ���������������������������������������������������������������������������� 2016 ���������������������������������������������������������������������������� 2017 ���������������������������������������������������������������������������� 2018 ��������������������������������������������������������������������������� 3,249.9 3,268.0 3,316.2 3,329.9 2,479.5 2,457.8 2,465.6 2,475.2 770.4 810.2 850.6 854.7 3,691.8 3,852.6 3,981.6 4,109.0 2,948.8 3,077.9 3,180.4 3,260.5 743.1 774.7 801.2 848.6 –442.0 –584.7 –665.4 –779.1 –469.3 –620.2 –714.9 –785.3 27.3 35.5 49.4 6.2 2019 estimate �������������������������������������������������������������� 3,437.7 2,526.5 911.1 2020 estimate �������������������������������������������������������������� 3,644.8 2,695.5 949.3 2021 estimate �������������������������������������������������������������� 3,876.9 2,873.5 1,003.3 2022 estimate �������������������������������������������������������������� 4,128.6 3,069.9 1,058.7 2023 estimate �������������������������������������������������������������� 4,421.5 3,308.1 1,113.3 2024 estimate �������������������������������������������������������������� 4,752.5 3,578.6 1,173.9 1 Off-budget transactions consist of the Social Security Trust funds and the Postal Service fund. 4,529.2 4,745.6 4,945.2 5,177.5 5,330.1 5,453.0 3,620.3 3,777.9 3,916.4 4,082.3 4,165.3 4,213.7 908.9 967.7 1,028.8 1,095.2 1,164.8 1,239.3 –1,091.5 –1,100.8 –1,068.3 –1,048.8 –908.6 –700.5 –1,093.7 –1,082.4 –1,042.8 –1,012.4 –857.2 –635.0 2.2 –18.4 –25.5 –36.5 –51.5 –65.4 127 12. Coverage of the Budget has received a majority of 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 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 4 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. 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 designated in law as off-budget at various times before 1986 have been classified as on-budget by law since at least 1985 as a result of the Balanced Budget and Emergency Deficit Control Act of 1985 (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 12–1 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. 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 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 16 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. 128 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 11 of this volume, “Budget Concepts.” More detail on credit programs is in Chapter 22 of this volume, “Credit and Insurance.” Deposit funds.—Deposit funds are non-budgetary accounts that record amounts held by the Government temporarily until ownership is determined (such as earnest money paid by bidders for mineral leases) or held by the Government as an agent for others (such as State income taxes withheld from Federal employees’ salaries and not yet paid to the States). The largest deposit fund is the Government Securities Investment Fund, also known as the G-Fund, which is part of the TSP, the Government’s defined contribution retirement plan. The Federal Retirement Thrift Investment Board manages the fund’s investment for Federal employees who participate in the TSP (which is similar to private-sector 401(k) plans). The Department of the Treasury holds the G-Fund assets, which are the property of Federal employees, only in a fiduciary capacity; the transactions of the Fund are not resource allocations by the Government and are therefore non-budgetary.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 22 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 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 Loan Banks. ANALYTICAL PERSPECTIVES 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 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 9 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. 12. Coverage of the Budget 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 budget outlays. In addition to Federal funding, FFRDCs may receive funding from non-Federal sources. Non-appropriated fund instrumentalities (NAFIs) are entities that support an agency’s current and retired personnel. Nearly all NAFIs are associated with the Departments of Defense, Homeland Security (Coast Guard), and Veterans Affairs. Most NAFIs are located on military bases and include the armed forces exchanges (which sell goods to military personnel and their families), recreational facilities, and childcare centers. NAFIs are financed by proceeds from the sale of goods or services and do not receive direct appropriations; thus, they are characterized as non-budgetary but any agency payments to the NAFIs are recorded as budget outlays. A number of entities created by the Government receive a significant amount of non-Federal funding. Non-Federal individuals or organizations significantly control some of these entities. These entities include Gallaudet University, Howard University, 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 30-1. 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 10 The National Science Foundation maintains a list of FFRDCs at www.nsf.gov/statistics/ffrdc. 11 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 129 Monetary policy.— As a fiscal policy tool, the budget is used by elected Government officials to promote economic growth and achieve other public policy objectives. Monetary policy is another tool that governments use to promote economic policy objectives. In the United States, the Federal Reserve System—which is composed of a Board of Governors and 12 regional Federal Reserve Banks—conducts monetary policy. The Federal Reserve Act provides that the goal of monetary policy is to “maintain long-run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”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 2018, Treasury recorded $70.8 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. annual benefits of Federal regulations it reviewed from October 1, 2006, to September 30, 2016, range from $219 billion to $695 billion, while the estimated annual costs range from $59 billion to $88 billion, reported in 2001 dollars. 14 See 12 U.S.C. 225a. 15 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. 13. 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 and what comes after the expiration of the discretionary caps in 2021; program integrity initiatives both enacted and proposed within budget law; 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 civilian Federal capital projects; and fast track spending reduction powers. Second, this chapter describes proposals for budget enforcement and budget presentation. The budget enforcement proposals include a discussion of the system under the Statutory Pay-AsYou-Go Act of 2010 (PAYGO Act) 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; funds that would encourage deficit reduction underneath the 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; using fair value as a method of estimating the cost of credit programs; and outlay caps and sequestration. These reforms combine fiscal responsibility with measures to provide citizens with 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 2020, and forced additional sequestrations of mandatory spending in each of fiscal years 2014 through 2019. A further sequestration of mandatory spending is scheduled to take effect beginning on October 1, 2019 based on the order released with the 2020 Budget. To date, various laws have changed the annual reductions required to the discretionary spending limits set in the BCA through 2019. Most recently, the Bipartisan Budget Act of 2018 (BBA) adjusted these discretionary spending limits for fiscal years 2018 and 2019. The 2019 caps remain at the levels enacted in this Act and are reflected in the Sequestration Update Report transmitted in August of 2018. The sequestration preview report issued with this Budget reduces the 2020 discretionary caps according to current law. Looking ahead, reductions to the discretionary caps for fiscal year 2021 are to be implemented in the sequestration preview report of the 2021 Budget. 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 2027, which are triggered by the transmittal of the President’s Budget for each year and take effect on the first day of the fiscal year. The Budget proposes to continue mandatory sequestration into 2028 and 2029 to generate an additional $51.2 billion in deficit reduction. For discretionary programs, under current law, the 2019 caps remain at $647 billion for defense and $597 billion for non-defense while, for 2020, the Joint Committee procedures reduce the defense cap from $630 billion to $576 billion and the non-defense cap from $578 billion to $543 billion. For 2020, the Administration will enforce much needed spending discipline by budgeting to the current law caps for defense and non-defense after accounting for the Joint Committee reductions. In 2021, the caps are proposed to remain at the estimated 2021 levels after reduction for Joint Committee procedures. However, proposed levels for defense programs will be at the 2021 cap while proposed levels for non-defense programs will be reduced by 2 percent from the cap. In order to fully resource national defense requirements while staying at the current 2020 and 2021 caps, the 2020 Budget proposes increases in the Overseas Contingency Operations budget to nearly $165 billion and $156 billion in 2020 and 2021, respectively. An additional $9 billion is requested for defense in 2020 as an emergency requirement. Together, this defense funding will support the National Security Strategy goal of preserving peace through strength with a substantial investment that will protect America’s vital national interests. In total, $750 billion is provided for defense programs in 2020 while 131 132 ANALYTICAL PERSPECTIVES base non-defense programs are held to $543 billion. After 2021, the Administration would support new base caps for defense and non-defense programs through 2029 at the levels included in the 2020 Budget. 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. Discretionary Cap Adjustment Funding Discretionary Funding for Program Integrity Cap Adjustments All Federal programs must be run efficiently and effectively. There is compelling evidence that investments in administrative resources can significantly decrease the rate of improper payments and recoup many times their initial investment for certain programs. In such programs, the Administration continues to support using discretionary dollars to make significant investments in activities that ensure that taxpayer dollars are spent correctly. Using cap adjustment funding on program integrity activities allows for the expansion of oversight and enforcement activities in the largest benefit programs including Social Security, Unemployment Insurance, Medicare and Medicaid, where return on investment using discretionary dollars is proven. Additionally, the Administration supports increasing investments in tax compliance related to Internal Revenue Service tax enforcement. The following sections explain the benefits and budget presentation of the enacted and proposed adjustments to the discretionary caps for program integrity activities. The Administration proposes legislative and administrative reforms that support several other program integrity efforts. Chapter 9, Payment Integrity, provides a comprehensive discussion of these proposals. Enacted Adjustments Pursuant to BBEDCA.—The Balanced Budget and Emergency Deficit Control Act of 1985, as amended (BBEDCA), recognizes that a multiyear strategy to reduce the rate of improper payments, commensurate with the large and growing costs of the programs administered by the Social Security Administration (SSA), the Department of Health and Human Services and the Department of Labor, is a laudable goal. To support the overall goal, BBEDCA provides 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, in the Medicare and Medicaid programs and more recently, in Unemployment Insurance 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 amounts authorized in BBEDCA do not supplant other Federal spending on these activities and that such spending is not diverted to other purposes. The Budget continues to support full funding of the authorized cap adjustments for these programs through 2021 and proposes to extend the cap adjustments through 2029 at the rate of inflation assumed in the Budget for the current services baseline. The 2020 Budget shows the baseline and policy levels at equivalent amounts. Accordingly, savings generated from such funding levels in the baseline Table 13–1. PROGRAM INTEGRITY DISCRETIONARY CAP ADJUSTMENTS, INCLUDING MANDATORY SAVINGS (Budget authority and outlays in millions of dollars) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 10-year Total Social Security Administration (SSA) Program Integrity: Discretionary Budget Authority (non add)1 ����������������������������������������������������� Discretionary Outlays1 ��������������������������������������������������������������������� Mandatory Savings2 ������������������������������������������������������������������������ Net Savings ������������������������������������������������������������������������������� 1,309 1,301 –56 1,245 1,302 1,303 –2,069 –766 1,351 1,351 –3,405 –2,054 1,403 1,403 –3,982 –2,579 1,456 1,455 –4,403 –2,948 1,511 1,511 –5,258 –3,747 1,569 1,569 –5,863 –4,294 1,629 1,629 –6,468 –4,839 1,690 1,688 –7,434 –5,746 1,754 14,974 1,754 14,964 –7,374 –46,312 –5,620 –31,348 Health Care Fraud and Abuse Control Program: Discretionary Budget Authority/Outlays1 ����������������������������������������� Mandatory Savings2,3 ���������������������������������������������������������������������� Net Savings ������������������������������������������������������������������������������� 475 –951 –476 496 –1,017 –521 515 –1,080 –565 534 –1,148 –614 555 –1,191 –636 576 –1,235 –659 598 –1,281 –683 620 –1,331 –711 644 –1,382 –738 668 5,681 –1,433 –12,049 –765 –6,368 Unemployment Insurance (UI) Program Integrity: Discretionary Costs1 ������������������������������������������������������������������������ 58 83 133 258 433 533 608 633 646 659 4,044 Mandatory Savings2 ������������������������������������������������������������������������ –425 –440 –488 –591 –846 –921 –880 –760 –688 –373 –6,412 Net Savings ������������������������������������������������������������������������������� –367 –357 –355 –333 –413 –388 –272 –127 –42 286 –2,368 1 The discretionary costs are equal to the outlays associated with the budget authority levels authorized for cap adjustments in BBEDCA through 2021; the costs for each of 2022 through 2029 are equal to the outlays associated with the budget authority levels inflated from the 2021 level for SSA and HCFAC, using the 2020 Budget assumptions. The UI levels for 2022 through 2027 are equal to the amounts authorized for congressional enforcement, while 2028 and 2029 are inflated using of 2027. For each program the levels in the baseline are equal to the 2020 Budget policy levels. 2 The mandatory savings from the cap adjustment funding are included in the baselines for Social Security, Medicare, Medicaid, and UI programs. For SSA, amounts are based on SSA’s Office of the Chief Actuary’s and CMS’ Office of the Actuary’s estimates of savings. For UI amounts are based on the Department of Labor’s Division of Fiscal and Actuarial Services’ estimates of savings. 3 These savings are based on estimates from the HHS Office of the Actuary for return on investment (ROI) from program integrity activities. 13. Budget Process for program integrity activities are reflected in the baselines for Social Security programs, Medicare, Medicaid, and Unemployment Insurance. SSA Medical Continuing Disability Reviews (CDRs) and Non-Medical Redeterminations of SSI Eligibility.— For SSA, the Budget’s proposed discretionary amount of $1,582 million ($273 million in base funding and $1,309 million in cap adjustment funding, pursuant to BBEDCA) will allow SSA to conduct 674,000 full medical CDRs and approximately 2.8 million Supplemental Security Income (SSI) non-medical redeterminations of eligibility. The Social Security Act requires that SSA conducts Medical CDRs, which are periodic reevaluations to determine whether disabled Old-Age, Survivors, and Disability Insurance (OASDI) or SSI beneficiaries continue to meet SSA’s standards for disability. As a result of the discretionary funding requested in 2020, as well as the fully funded base and cap adjustment amounts in 2021 through 2029, the OASDI, SSI, Medicare and Medicaid programs would recoup about $46 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 $31 billion in the 10-year window, and additional savings in the outyears. These costs and savings are reflected in Table 13-1. 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 2019 are included in the BBEDCA baseline, consistent with the levels adopted by the Bipartisan Budget Act of 2015 (BBA), because the baseline assumes the continued funding of program integrity activities. The BBA of 2015 increased the level of such adjustments for Social Security programs by a net $484 million over the 2017-2021 period, and it expanded the uses of cap adjustment funds to include cooperative disability investigation (CDI) units, and special attorneys for fraud prosecutions. To support these important antifraud activities, the Budget continues to provide 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 Budget shows the savings that would result from the increase in CDRs and redeterminations made possible by the discretionary cap adjustment funding requested in 2020 through 2029. With access to program integrity cap adjustments, SSA is on track to remain current with program integrity workloads throughout the budget window. Current estimates indicate that CDRs conducted in 2020 will yield a return on investment (ROI) of about $8 133 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 2020 will yield a ROI of about $3 on average of net Federal program savings over 10 years per $1 budgeted for dedicated program integrity funding, including SSI and Medicaid program effects. The Budget assumes the full cost of performing CDRs to ensure that sufficient resources are available. The savings from one year of program integrity activities are realized over multiple years because some results find that beneficiaries are no longer eligible to receive OASDI or SSI benefits. Redeterminations are periodic reviews of non-medical eligibility factors, such as income and resources, for the 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 2020 through 2029. 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 program amounts provided annually. 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 (HCFAC).—The Budget proposes base and cap adjustment funding levels over the next 10 years and continues the program integrity cap adjustment through 2029. In order to maintain the same level of effort throughout the Budget window, the Budget proposes that the base amount increase annually at the rate of inflation in the current services baseline 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 2029. The mandatory savings from both the base and cap adjustment amounts are included in the Medicare and Medicaid baselines. The discretionary base funding of $311 million plus an additional $6 million adjustment for inflation and cap adjustment of $475 million for HCFAC activities in 2020 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 134 ANALYTICAL PERSPECTIVES 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 2020 through 2029, as reflected in Table 13-1, this $5.7 billion investment in HCFAC cap adjustment funding will generate approximately $12.0 billion in savings to Medicare and Medicaid. This results in net deficit reduction of $6.4 billion over the 10-year period, reflecting prevention and recoupment of improper payments made to providers, as well as recoveries related to civil and criminal penalties. For HCFAC program integrity efforts, CMS actuaries conservatively estimate approximately $2 is saved or averted for every additional $1 spent. Reemployment Services and Eligibility Assessments (RESEA).—The BBA of 2018 established a new adjustment to the discretionary caps for program integrity efforts targeted at Unemployment Insurance. Like the SSA and HCFAC cap adjustments, the RESEA cap adjustment is permitted up to a maximum amount specified in the law if the underlying appropriations bill first funds a base level of $117 million for these activities. While the discretionary caps are in statute through 2021, the law allows for the adjustment for Congressional budget enforcement procedures through 2027, which the Budget proposes. Program integrity funding in 2028 and 2029 continue at level that results from applying the rate of inflation in the current services baseline to the 2027 amount. In order to maintain the same level of effort throughout the Budget window, the base amount is proposed to increase annually with inflation over the 10-year period. The mandatory savings from both the base and cap adjustment are included in the Unemployment Insurance baseline. Table 13-1 shows the mandatory savings of $6.4 billion over 10 years, which includes an estimated $2.3 billion reduction in State unemployment taxes. When netted against the discretionary costs for the cap adjustment funding, the 10-year net savings for the program is $2.4 billion. 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 2020, as shown in Table 13-2. 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 2020 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 $47 billion in additional revenue over 10 years and cost approximately $15 billion resulting in an estimated net savings of almost $33 billion. Once the new enforcement staff are trained and become fully operational these initiatives are expected to generate roughly $3 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 that enhanced enforcement has on deterring noncompliance. This indirect deterrence helps to ensure the continued payment of over $3.5 trillion in taxes paid each year without direct enforcement measures. 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. “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. Prior to enactment of the Consolidated Appropriations Act of 2018 (Public Law 115-141; “CAA of 2018”), BBEDCA set an annual limit for the adjustment (or “funding ceiling”) that was calculated by adding the average funding provided for disaster re- Table 13–2. PROPOSED PROGRAM INTEGRITY CAP ADJUSTMENT FOR THE INTERNAL REVENUE SERVICE (IRS) (Budget authority/outlays/receipts in millions of dollars) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 10-year Total Proposed Adjustment Pursuant to the BBEDCA, as amended: Enforcement Base (budget authority) ���������������������������������������� 8,515 8,603 8,691 8,781 8,871 8,962 9,055 9,148 9,242 9,337 89,205 Cap Adjustment: Budget Authority ������������������������������������������������������������������ Outlays �������������������������������������������������������������������������������� 362 320 749 693 1,097 1,040 1,448 1,386 1,802 1,737 1,895 1,850 1,896 1,865 1,905 1,875 1,914 1,885 1,924 1,893 14,992 14,544 Receipt Savings from Discretionary Program Integrity Base Funding and Cap Adjustments:1 Enforcement Base2 �������������������������������������������������������������������� Cap Adjustment3 ����������������������������������������������������������������������� 59,400 –160 59,400 –818 59,400 –1,895 59,400 –3,166 59,400 –4,558 59,400 –5,899 59,400 –6,880 59,400 –7,510 59,400 –7,942 59,400 594,000 –8,241 –47,069 Net Savings from Proposed IRS Cap Adjustment:1 ����������������� 160 –125 –855 –1,780 –2,821 –4,049 –5,015 –5,635 –6,057 –6,348 –32,525 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 2020 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 $47 billion in savings over ten years. Aside from direct enforcement revenue, the deterrence impact of these activities suggests the potential for even greater savings. 135 13. Budget Process lief over the previous 10 years (excluding the highest and lowest years) plus any portion of the ceiling for the previous year that was not appropriated (or “carryover”). If the carryover from one year was not used in the subsequent year, it would not carry forward for a second year. This led to precipitous decline in the funding ceiling as higher disaster funding years began to fall out of the 10-year average formula. The ceiling fell from a high of $18,430 million in 2015 to a low of $7,366 million in 2018. The “use or lose” aspect of the carryover discouraged judicious use of the cap adjustment funding and the Administration proposed to work with the Congress in its 2018 and 2019 Budgets to address the declining ceiling. Division O of the CAA of 2018 amended BBEDCA to stabilize the disaster formula by redefining the calculation beginning in fiscal year 2019. Under the new calculation, the funding ceiling is determined by adding three pieces: 1) the same 10-year average as calculated under the previous formula; 2) a portion of discretionary amounts appropriated to address Stafford Act disasters that were designated as emergency requirements pursuant to BBEDCA; and 3) the cumulative net carryover from 2018 and all subsequent fiscal years. With respect to the portion of emergency funding, the new calculation permits an adjustment of five percent of the total appropriations (net of any rescissions) that were provided after 2011 (or in the previous 10 years, whichever is less) as emergency requirements pursuant to section 251(b)(2)(A) (i) of BBEDCA for Stafford Act emergencies. On April 23, 2018, OMB released the OMB Report on Disaster Relief Funding to the Committees on Appropriations and the Budget of the U.S. House of Representatives and the Senate, 20181 which specified the methodology and criteria OMB is using for estimating the emergency appropriations for Stafford Act disasters that will apply in the new formula. Furthermore, the final piece of this change effectively allows any unused carryover to continue to be factored into each funding ceiling until it is used. As required by law, OMB included in its Sequestration Update Report for 2019 a preview estimate of the 2019 adjustment for disaster relief. In this report, the ceiling for the disaster relief adjustment in 2019 was calculated to be $14,965 million. This ceiling was calculated by adding together the three components under the new formula: the 10-year average ($6,814 million); 5 percent of Stafford Act emergencies since 2012 ($6,296 million); and carryover from the previous year ($1,855 million). At the time the Budget was prepared, the Government was operating under a continuing resolution set in the Continuing Appropriations Act, 2019 (the “CR”). The CR had provided for 2019 a continuing appropriation of $7,366 million for the Federal Emergency Management Agency’s Disaster Relief Fund (DRF). OMB must include in its Sequestration Update Report for 2020 a preview estimate of the ceiling on the adjustment for disaster relief funding. This estimate will contain the same components discussed above. At the time of the Budget, based on continuing appropriations, OMB esti1 The report is available on the OMB website: https://www.whitehouse.gov/omb/legislative/omb-reports/ mates the total adjustment available for disaster funding for 2020 at $21,371 million. This ceiling estimate is based on these three components under the new formula: the 10-year average ($7,392 million); 5 percent of Stafford Act emergencies since 2012 ($6,380 million); and carryover from the previous year ($7,599 million). Any revisions necessary to account for final 2019 appropriations will be included in the 2020 Sequestration Update Report. In the 2020 Budget, based on the CR level assumed at the time, the Administration is requesting $19,423 million in funding for FEMA’s DRF to cover the costs of Presidentially declared major disasters, including identified costs for previously declared catastrophic events (defined by FEMA as events with expected costs that total more than $500 million) and the predictable annual cost of non-catastrophic events expected to obligate in 2020. The Administration’s request addresses the significant and unprecedented recovery needs of the recent hurricanes and wildfires that have devastated our Nation. Consistent with past practice, the 2020 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 2019 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 10-year average ($7,392 million) of disaster relief currently estimated under the new formula 2020 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. Wildfire Suppression Operations at the Departments of Agriculture and the Interior 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 2018, Forest Service wildfire suppression spending reached a record $2.6 billion, necessitating transfers of $720 million from other non-fire programs. Historically, these transfers have been repaid in subsequent appropriations; however, “fire borrowing” impedes the missions of land manage- 136 ment agencies to reduce the risk of catastrophic fire and restore and maintain healthy functioning ecosystems. In order to more adequately plan for these events, the 2019 Budget proposed a new cap adjustment for wildfire suppression to create funding certainty in times of wildfire disasters. Since that time, with bipartisan support, division O of the CAA of 2018 enacted a new cap adjustment, which begins in 2020 and the Administration proposes using it in this Budget. The adjustment is permitted so long as a base level of funding for wildfire suppression operations is funded in the underlying appropriations bill under the caps. The base level is defined as being equal to average cost over 10 years for wildfire suppression operations that was requested in the President’s 2015 Budget. These amounts have been determined to be $1,011 million for the Department of Agriculture’s Forest Service and $384 million for the Department of the Interior (DOI). The 2020 Budget requests these base amounts for wildfire suppression and seeks the full $2,250 million adjustment authorized in BBEDCA for 2020 with $1,950 million included for Forest Service and $300 million included for DOI. Providing the full level authorized in 2020 will ensure that adequate resources are available to fight wildland fires, protect communities, and safeguard human life during the most severe wildland fire season. For the years after 2020, the Administration does not have sufficient information about future wildfire suppression needs and, therefore, includes a placeholder in the 2020 Budget for wildfire suppression in each of the outyears that is equal to the current 2020 request. Actual funding levels, up to but not exceeding the 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) 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. In ANALYTICAL PERSPECTIVES support of this, the 2020 Budget proposes reforms to certain mandatory programs which have been the target of CHIMPs in the past, including the Department of Justice’s Crime Victims Fund and the Department of Agriculture’s Section 32 program. One goal of these reforms is to reduce the availability of CHIMPs by setting funding levels in permanent law rather than through annual appropriations Acts. For example, the appropriations Acts will no longer be able to claim billions in discretionary offsets from temporarily blocking the same funding in the Crime Victims Fund year after year. In addition, the Budget proposes permanent reductions to the Department of Health and Human Services’ Children’s Health Insurance Program to ensure that these amounts cannot be used as discretionary offsets in future fiscal years. 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 forward funded (available beginning July 1 of the fiscal year) to provide certainty of funding for an entire school year, since school years straddle Federal fiscal years. This funding is recorded in the budget year because the funding is first legally available in that fiscal year. However, $22.6 billion of this funding is advance appropriated (available beginning three months later, on October 1) rather than forward funded. Prior Congresses increased advance appropriations and decreased the amounts of forward funding as a gimmick to free up room in the budget year without affecting the total amount available for a coming school year. This gimmick works because the advance appropriation is not recorded in the budget year but rather the following fiscal year. However, it works only in the year in which funds switch from forward funding to advance appropriations; that is, it works only in years in which the amounts of advance appropriations for such “straddle” programs are increased. To curtail this gimmick, which allows over-budget funding in the budget year and exerts pressure for increased funding in future years by committing upfront a portion of the total budget authority limits under the discretionary caps in BBEDCA in those years, congressional budget resolutions since 2001 have set limits on the amount of advance appropriations. When the congressional limit equals the amount that had been advance appropriated in the most recent appropriations bill, there is no additional room to switch forward funding to advance appropriations, and so no room for this particular gimmick to operate in that year’s budget. 137 13. Budget Process The Budget includes $28,683 million in advance appropriations for 2021 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 2021, 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. Outside of these limits, the Administration would allow discretionary advance appropriations for veterans medical care, as is required by the Veterans Health Care Budget Reform and Transparency Act (Public Law 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 2021 veterans medical care funding request. For a detailed table of accounts that have received discretionary and mandatory advance appropriations since 2018 or for which the Budget requests advance appropriations for 2021 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 2019-2020 is $6,195, of which $5,135 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 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 dif- Table 13–3. DISCRETIONARY PELL FUNDING NEEDS (Dollars in billions) Discretionary Pell Funding Needs (Baseline) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Estimated Program Cost for $4,860 Maximum Award ��� Cumulative Incoming Surplus ���������������������������������������� Mandatory Budget Authority Available ��������������������������� Total Additional Budget Authority Needed ��������������������� 24.2 8.9 1.4 13.9 24.8 ......... 1.1 23.6 25.2 ......... 1.1 24.1 25.8 ......... 1.1 24.6 26.4 ......... 1.1 25.2 27.0 ......... 1.1 25.8 27.6 ......... 1.1 26.5 28.3 ......... 1.1 27.1 29.2 ......... 1.1 28.0 29.9 ......... 1.1 28.8 Fund Pell at 2019 Enacted Level ����������������������������������� Surplus/Funding Gap (–) from Prior Year ���������������������� Cumulative Surplus/Discretionary Funding Gap (–) ������ 22.5 22.5 8.6 7.4 22.5 7.4 5.8 22.5 5.8 3.7 22.5 3.7 0.9 22.5 0.9 –2.4 22.5 –2.4 –6.4 22.5 –6.4 –11.1 22.5 –11.1 –16.6 22.5 –16.6 –22.9 8.6 Effect of 2020 Budget Policies Expand Pell to Short-Term Programs ���������������������������� –0.1 –0.1 –0.2 –0.2 –0.2 –0.2 –0.2 –0.2 –0.2 –0.2 Fund Iraq-Afghanistan Service Grants through Pell 1 ���� –0.0 –0.0 –0.0 –0.0 –0.0 –0.0 –0.0 –0.0 –0.0 –0.0 Reduce Improper Payments ������������������������������������������ 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Cancellation of Unobligated Balances ��������������������������� –2.0 ......... ......... ......... ......... ......... ......... ......... ......... ......... Mandatory Funding Shift 2 ��������������������������������������������� –0.0 –0.0 –0.0 –0.0 –0.0 –0.0 –0.1 –0.1 –0.1 –0.1 Surplus/Funding Gap (–) from Prior Year ���������������������� 6.5 5.3 3.6 1.3 –1.6 –5.1 –9.2 –14.0 –19.8 Cumulative Surplus/Discretionary Funding Gap (–) ������ 6.5 5.3 3.6 1.3 –1.6 –5.1 –9.2 –14.0 –19.8 –26.2 1 Amounts between -$50 million and zero represented with –0.0. 2 Some budget authority, provided in previous legislation and classified as mandatory but used to meet discretionary Pell grant program funding needs, will be reallocated to support new costs associated with the mandatory add-on. 138 ANALYTICAL PERSPECTIVES ference 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.2 • To prevent deliberate underfunding of Pell costs, in 2006 the congressional and Executive Branch scorekeepers agreed to a special scorekeeping rule for Pell. Under this rule, the annual appropriations bill is charged with the full Congressional Budget Office estimated cost of the Pell Grant program for the budget year, plus or minus any cumulative shortfalls or surpluses from prior years. This scorekeeping rule was adopted by the Congress as §406(b) of the Concurrent Resolution on the Budget for Fiscal Year 2006 (H. Con. Res. 95, 109th Congress). Given the nature of the program, it is reasonable to consider Pell Grants an individual entitlement for purposes of budget analysis and enforcement. The discretionary portion of the award funded in annual appropriations Acts counts against the discretionary spending caps pursuant to section 251 of BBEDCA and appropriations allocations established annually under §302 of the Congressional Budget Act. The total cost of Pell Grants can fluctuate from year to year, even with no change in the maximum Pell Grant award, because of changes in enrollment, college costs, and 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. 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. Enrollment and costs declined continuously from 2011 to 2018, and the funding provided has lasted longer than anticipated. Recent changes to the program expanded the amount 2 This ability to “borrow” from a subsequent appropriation is unique to the Pell program. It comes about for two reasons. First, like many education programs, Pell is “forward-funded”—the budget authority enacted in the fall of one year is intended for the subsequent academic year, which begins in the following July. Second, even though the amount of funding is predicated on the expected cost of Pell during one academic year, the money is made legally available for the full 24-month period covering the current fiscal year and the subsequent fiscal year. This means that, if the funding for an academic year proves inadequate, the following year’s appropriation will legally be available to cover the funding shortage for the first academic year. The 2020 appropriation, for instance, will support the 2020-2021 academic year beginning in July 2020 but will become available in October 2019 and can therefore help cover any shortages that may arise in funding for the 2019-2020 academic year. of aid available to students, including the enactment of Year-Round Pell and increases to the maximum award, and the Budget projects enrollment to increase in 2019 and 2020. As a result, total program costs increased in the 2017-18 award year for the first time since the recession. Nevertheless, assuming no changes in current policy, the 2020 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 13-3). 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 2020 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. The Budget provides $22.5 billion in discretionary budget authority in 2020, the same as the 2019 enacted appropriation. Level-funding Pell in 2020, combined with available budget authority from the previous year and mandatory funding provided in previous legislation, provides $8.6 billion more than is needed to fully fund the program in the 2020-21 award year. In light of these additional resources, the Budget proposes a cancellation of $2 billion from the unobligated carryover from 2019. 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 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 13–3). Finally, the Budget includes proposals to reduce the risk of improper payments in the program (see the Payment Integrity chapter for more detail). With the proposed cancellation and these other reforms, the Pell program still is expected to have sufficient discretionary funds until 2024. 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 State and local government levels. Expenditures for capital investment are combined with operating expenses in the Federal unified budget. Both 139 13. Budget Process 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 based on 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 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; Chart 13-1. Scoring of $288 Million NIST Renova on Project using the Federal Capital Revolving Fund Federal Capital Revolving Fund Year 1 Mandatory: Transfer to purchasing agency to renovate building………....……. Purchasing agency repayments.... 288 -19 Years 2-15 -269 Purchasing Agency Year 1 Mandatory: Collec on of transfer from Federal Capital Revolving Fund…….…....…… Payment to renovate building…….…. -288 288 Discre onary: Repayments to Federal Capital Revolving Fund………….……. 19 Total Government-Wide Deficit Impact Year 1 Years 2-15 Mandatory: Renovate building………………………………...……… Collec ons from purchasing agency….….….….. Discre onary: Purchasing agency repayments…….………..……. Total Government-wide…………..………………….……. Total 288 -19 -269 288 -288 19 269 288 288 --- 288 Years 2-15 269 140 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 2020 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 only 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 $2.5 billion or the balance in the FCRF, including annual repayments. The Budget uses the FCRF concept to fund the expansion and remaining renovation, estimated at $288 million for the Department of Commerce National Institute of Standards and Technology (NIST) to do advance precision measurement tools and technologies for a variety of scientific endeavors at Building One on the Boulder Colorado campus. In accordance with the principles and design of the FCRF, the 2020 budget requests appropriations language designating the NIST expansion and renovation as a project to be funded out of the FCRF, which is housed within the General Services Administration, along with 1/15 of the full purchase price, or $19.2 million for the first year repayment back to the FCRF. The FCRF account is displayed funding the NIST project in 2020 and a total of $15 billion worth of federal buildings projects using the initial $10 billion in mandatory appropriations and $5 billion from revolving the collections from annual project repayments starting in 2025. The flow of funds for the expansion and renovation of a NIST research building with a $288 million cost and the proposed scoring are illustrated in Chart 10–1. Current budget enforcement rules would require the entire $288 million 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 capital projects, $288 million in the case of the NIST project, and the actual execution 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, or $19.2 million for ANALYTICAL PERSPECTIVES the NIST building construction first year repayment. The proposal allocates the costs between direct spending and discretionary spending-- the up-front cost of capital investment would already be reflected in the baseline as direct spending once the FCRF is enacted with $10 billion in mandatory capital. This scoring approves a total capital investment upfront, keeping individual large projects from competing with annual operating expenses in the annual appropriations process. On the discretionary side of the budget the budgetary trade off would be locking into 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, as shown with the NIST request, 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 civilian real property projects, and is similar to capital budgets used by State and local governments. Fast Track Spending Reductions The Administration is committed to ensuring the Federal Government spends precious taxpayer dollars in the most efficient, effective manner possible. Given the long-term fiscal constraints facing our Nation, we must put our fiscal house back in order. The President’s Budget proposes redirecting funding away from programs 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, as occurred in May of 2018, when the President proposed the largest single ICA rescissions package ever proposed by sending a request to cut approximately $15 billion of spending that was no longer needed. In such cases, the ICA requires that the President transmit a special message to the Congress at which time the funding can be withheld from obligation for up to 45 days. Also, the package receives privileged treatment where both the House and Senate can use expedited procedures for considering rescission bills 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 support legislative proposals that ease the President’s ability to reduce unnecessary spending through expedited rescission procedures. 141 13. Budget Process 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 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, six 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 second session of the 115th Congress, the most recent session, enacted legislation placed costs of $1,646 million in each year of the 5-year scorecard and $1,032 million in each year of the 10-year scorecard. However, the budget year balance on each of the PAYGO scorecards is zero because two laws, the Bipartisan Budget Act of 2018 (Public Law 115-123), and the Further Additional Continuing Appropriations Act, 2019 (Public Law 116-5), directed changes to the balances of the scorecards. Public Law 115-123 removed all balances included on the scorecards at the time of enactment, and Public Law 116-5 shifted the debits on both scorecards from fiscal year 2019 to fiscal year 2020, so no sequestration was required.3 There are limitations to Statutory PAYGO’s usefulness as a budget enforcement tool. In the past, 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 the Congress also suggests the PAYGO regime has been ineffective at controlling deficits. In the coming year the Administration looks forward to working with the Congress to rein in the deficit by exploring budget enforcement tools, including reforms to 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 3 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/. 142 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 $1,057.5 billion over the 2025-2029 period relative to the BBEDCA baseline. This yields a more realistic depiction of the outlook for receipts 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 145.6 billion over the 2022-2029 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 within the HTF was created. 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 ANALYTICAL PERSPECTIVES 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), shored up the HTF 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. The last year of the FAST Act’s authorization is 2020, and for 2020, 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 2020 level through 2029. 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 long- term 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 that could be supported, 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 supports such actions by States and localities, 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 the rate of inflation for current services 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 2020 and 2021, the Budget supports main- 143 13. Budget Process taining the base caps for discretionary programs at the Joint Committee-enforced levels for defense and nondefense. In 2021, however, the Administration would seek to begin rebalancing Federal responsibilities by instituting a two-percent (or “two-penny”) reduction to non-defense programs. While no change is proposed to the current non-defense cap in 2021, the Budget assumes spending below that cap consistent with the two-penny plan. After 2021, the Administration would support new caps at the levels in the 2020 Budget that would codify a shift in resources from non-defense programs by continuing the two-penny plan through the budget window while increasing the defense category to fully resource national defense programs. The discretionary cap policy levels are reflected in Table S–7 of the main Budget volume. Further adjustments to the proposed discretionary caps for Employer-Employee Share of Federal Employee Retirement The Budget includes a proposal that starts in 2021 to reduce the contributions of Federal agencies to the retirement plans of civilian employees. 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 proposed non-defense levels starting in 2021. Additionally, the discretionary non-defense caps proposed in the 2020 Budget for the 2022 through 2029 period (post Joint Committee enforcement) are reduced further to account for the reduction in discretionary costs. This proposal starts at a reduction of discretionary budget authority of $6.4 billion in 2021 and totals $85.1 billion in reduced discretionary spending over the 2021 to 2029 period. Funds for Reducing Discretionary Spending Discretionary spending caps can be an important tool to reign in Government spending, but only when they are set at levels that reflect a balanced and limited approach to Government spending in the economy. Since the discretionary spending caps were reinstated in 2013 as part of the Budget Control Act of 2011, these caps have not been exceeded, an indication that avoiding a discretionary sequester is a powerful discretionary budget enforcement tool. While spending caps are effective, in that they require the Administration and Congress to balance competing tradeoffs for limited federal funds, these caps are usually treated as a floor rather than as a ceiling. If the caps were considered a ceiling, annual discretionary choices could include spending levels below the cap, as proposed by the Administration in prior years and in this Budget for 2021. The 2020 Budget maintains the estimated 2021 post-sequester cap while also making choices that bring non-defense spending levels to an amount that is $31 billion below the expected 2021 non-defense current law cap. The Administration is interested in proposals that help Congress consider proposals to reduce spending below the discretionary caps. For instance, the 2019 House Financial Services and General Government bill included the Fund for America’s Kids and Grandkids to set aside $585 million under the Committee’s 2019 congressional allocation that would be spent only if deficits were certified at zero. Using funds such as these promotes transparency about the choice between deficit reduction and additional spending. The Administration is open to using such reserve funds in the coming years. 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 2020 Budget shows the net effect of Joint Committee sequestration reductions by accounting for reductions in 2020, and each outyear, that remain in the sequestered account and are anticipated to 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 billion in 2020. Additionally, the Budget annually accounts for lost savings that results from the sequestration of certain interfund payments, which produces no net deficit reduction. Such amount is $804 million in 2020. 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 (Public Law. 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 (Public Law 111-289) to be remitted to several Federal affordable housing programs; the Budget proposes to eliminate the 4.2 basis point set-aside and discontinue funding for these programs. The GSEs are discussed in more detail in Chapter 22, “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 General Services Administration 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 oper- 144 ate 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. 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 on-budget accounts through lower projected defaults affect both the PAYGO scorecard and the unified deficit. Fair Value for Credit Programs Fair value is an approach to measuring the cost of Federal direct loan and loan guarantee programs that would align budget estimates with the market value of Federal assistance, typically by including risk premiums observed in the market. Under current budget rules, the cost of Federal credit programs is measured as the net present value of the estimated future cash flows resulting from a loan or loan guarantee discounted at 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 ANALYTICAL PERSPECTIVES imposed on taxpayers from Federal credit programs and would align with private sector standard practices for measuring the value of loans and loan guarantees. The 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. Outlay Caps and Sequestration The Budget achieves declining deficits over the next ten years, due to proposals to empower States and consumers to reform healthcare; eliminate wasteful spending in Medicare and improve drug pricing and payment policies; reform student loans, disability programs, and the welfare system; and reprioritize Government to focus on the most effective programs. While the Budget’s policies help bring spending under control, additional efforts to control spending are needed, such as setting caps on mandatory outlays consistent with the historical average as a share of gross domestic product (GDP), post-World War II levels. Such caps could be enforced with sequestration across programs similar to other budget enforcement regimes. An outlay cap on mandatory spending would complement discretionary caps that have been in place since 2013, and that the Budget proposes to continue through 2029. Program reforms such as those in the Budget would be necessary to bring outlays to or below the historical average as a share of GDP, post-World War II. FEDERAL RECEIPTS 145 14. 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, the first comprehensive tax reform in a genera- tion, 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 tax legislation enacted in 2018, discusses the provisions of those enacted laws, and explains the Administration’s additional receipt proposals. Table 14–1. RECEIPTS BY SOURCE—SUMMARY (In billions of dollars) 2018 Actual Estimate 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Individual income taxes ������������������������������������������ 1,683.5 1,698.4 1,824.2 1,945.8 2,081.1 2,236.8 2,394.5 2,567.8 2,752.4 2,944.1 3,151.4 3,365.2 Corporation income taxes ��������������������������������������� 204.7 216.2 255.2 284.1 314.7 370.9 418.4 443.4 428.6 418.0 428.1 432.4 Social insurance and retirement receipts ��������������� 1,170.7 1,242.4 1,295.5 1,370.0 1,446.9 1,523.2 1,607.0 1,692.6 1,788.4 1,876.9 1,989.6 2,092.6 (On-budget) �������������������������������������������������������� (316.0) (331.3) (346.2) (366.6) (388.2) (409.8) (433.1) (457.3) (483.6) (505.6) (535.0) (563.0) (Off-budget) �������������������������������������������������������� (854.7) (911.1) (949.3) (1,003.3) (1,058.7) (1,113.3) (1,173.9) (1,235.3) (1,304.8) (1,371.3) (1,454.5) (1,529.6) Excise taxes ����������������������������������������������������������� 95.0 98.7 108.8 111.5 115.0 107.7 136.4 126.6 130.2 134.1 122.7 143.0 Estate and gift taxes ����������������������������������������������� 23.0 19.3 19.3 20.4 21.8 23.3 24.9 26.5 28.0 29.4 30.7 31.9 Customs duties ������������������������������������������������������� 41.3 69.5 48.4 45.2 48.2 51.0 53.8 56.7 59.6 62.5 65.5 68.6 Miscellaneous receipts ������������������������������������������� 111.7 93.3 94.4 99.9 104.5 112.5 121.9 130.5 139.1 146.8 154.7 162.8 Allowance for empowering States and consumers to reform healthcare ������������������������������������������ ......... ......... –1.0 * –3.5 –4.0 –4.4 –4.1 –3.7 –3.4 –3.7 –3.9 Total, receipts ���������������������������������������������������� 3,329.9 3,437.7 3,644.8 3,876.9 4,128.6 4,421.5 4,752.5 5,040.1 5,322.6 5,608.5 5,938.9 6,292.5 (On-budget)��������������������������������������������������� (2,475.2) (2,526.5) (2,695.5) (2,873.5) (3,069.9) (3,308.1) (3,578.6) (3,804.7) (4,017.9) (4,237.2) (4,484.4) (4,762.9) (Off-budget) �������������������������������������������������� (854.7) (911.1) (949.3) (1,003.3) (1,058.7) (1,113.3) (1,173.9) (1,235.3) (1,304.8) (1,371.3) (1,454.5) (1,529.6) Total receipts as a percentage of GDP ��������������� 16.5 16.1 16.3 16.5 16.7 17.0 17.4 17.6 17.7 17.8 17.9 18.1 * $50 million or less. 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 through 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 15, “Offsetting Collections and Offsetting Receipts,” in this volume. Total governmental receipts (hereafter referred to as “receipts”) are estimated to be $3,437.7 billion in 2019, an increase of $107.8 billion or 3.2 percent from 2018. The estimated increase in 2019 is largely due to increases in social insurance and retirement receipts and customs du- ties. Receipts in 2019 are estimated to be 16.1 percent of Gross Domestic Product (GDP), which is lower than in 2018, when receipts were 16.5 percent of GDP. Receipts are estimated to rise to $3,644.8 billion in 2020, an increase of $207.1 billion or 6.0 percent relative to 2019. Receipts are projected to grow at an average annual rate of 6.9 percent between 2020 and 2024, rising to $4,752.5 billion. Receipts are projected to rise to $6,292.5 billion in 2029, growing at an average annual rate of 5.8 percent between 2024 and 2029. This growth is largely due to assumed increases in incomes resulting from both real economic growth and inflation. As a share of GDP, receipts are projected to increase from 16.1 percent in 2019 to 16.3 percent in 2020, and to steadily increase to 18.1 percent of GDP by 2029. 147 148 ANALYTICAL PERSPECTIVES LEGISLATION ENACTED IN 2018 THAT AFFECTS GOVERNMENTAL RECEIPTS Five laws were enacted during 2018 that affect receipts. The major provisions of these laws that have a significant impact on receipts are described below.1 to the Airport and Airway Trust Fund. The Act also increases the State housing credit ceiling for 2018 through 2021. AN ACT MAKING FURTHER CONTINUING APPROPRIATIONS FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2018, AND FOR OTHER PURPOSES (Public Law 115–120) ECONOMIC GROWTH, REGULATORY RELIEF, AND CONSUMER PROTECTION ACT (Public Law 115–174) This Act, which was signed into law on January 22, 2018, extends for two years, through 2019, the moratorium on the 2.3% excise tax on the sale of medical devices. It also delays for two years, until 2022, implementation of the excise tax on high cost employer-sponsored health coverage. This Act, which was signed into law on May 24, 2018, permits some credit unions to issue more loans for non-owner occupied housing. Under this Act, loans for non-owner occupied homes that house one to four families would not count against the cap on member business loans. This would shift some of the business of issuing such loans from taxable banks and thrifts to nonprofit credit unions. BIPARTISAN BUDGET ACT OF 2018 (Public Law 115–123) This Act, which was signed into law on February 9, 2018, provides tax relief to certain individuals and businesses in the areas affected by the California wildfires and areas affected by Hurricanes Harvey, Irma, and Maria. The Act also extends expiring provisions providing tax relief for families and individuals; incentives for growth, jobs, investment, and innovation; and incentives for energy production and conservation. Finally, the Act extends funding for the Children’s Health Insurance Program and extends several Medicare provisions, among other health provisions. CONSOLIDATED APPROPRIATIONS ACT, 2018 (Public Law 115–141) This Act, which was signed into law on March 23, 2018, extends existing fuel and ticket taxes that are dedicated MISCELLANEOUS TARIFF BILL ACT OF 2018 (Public Law 115–239) This Act, which was signed into law on September 13, 2018, provides for duty suspensions and reductions for specified chemicals and other items through December 31, 2020. FAA REAUTHORIZATION ACT OF 2018 (Public Law 115–254) This Act, which was signed into law on October 5, 2018, establishes a Concrete Masonry Products Board to carry out promotion, research, and education activities regarding concrete masonry products. The Board is funded by a manufacturer-paid assessment of $0.01 per concrete masonry unit sold. 1 In the discussions of enacted legislation, years referred to are calendar years, unless otherwise noted. Table 14–2. ADJUSTMENTS TO THE BALANCED BUDGET AND EMERGENCY DEFICIT CONTROL ACT (BBEDCA) BASELINE ESTIMATES OF GOVERNMENTAL RECEIPTS (In billions of dollars) 2020– 2024 2020– 2029 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 BBEDCA baseline receipts �������������������������������� 3,437.6 3,642.6 3,874.1 4,125.9 4,414.5 4,742.5 5,043.5 5,463.2 5,843.9 6,194.8 6,561.7 20,800.1 49,909.0 Adjustments to BBEDCA baseline: Extend individual income tax provisions 1 �������� Extend estate and gift tax provisions ��������������� Total, adjustments to BBEDCA baseline��� ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... –17.0 ......... –17.0 –157.2 ......... –157.2 –235.6 –15.8 –251.4 –256.2 –16.1 –272.3 –269.7 –17.2 –286.8 Adjusted baseline receipts �������������������������������� 3,437.6 3,642.6 3,874.1 4,125.9 4,414.5 4,742.5 5,026.5 5,306.0 1 This provision affects both receipts and outlays. Only the receipt effect is shown here. The outlay effects are listed below: 5,592.5 5,922.5 6,274.9 20,800.1 48,924.3 2027 2028 2029 2019 Extend individual income tax provisions ���������� Total, outlay effects of adjustments to BBEDCA baseline �������������������������������� 2020 2021 2022 2023 2024 2025 2026 ......... ......... ......... 2020– 2024 –935.6 –49.0 –984.7 2020– 2029 ......... ......... ......... ......... ......... ......... ......... 0.7 23.7 23.7 24.7 ......... 72.8 ......... ......... ......... ......... ......... ......... ......... 0.7 23.7 23.7 24.7 ......... 72.8 149 14. Governmental Receipts 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 tax changes include expiration in 2025 of the individual income and estate and gift tax pro- visions enacted in the Tax Cuts and Jobs Act. This Budget uses an adjusted baseline that is intended to be more realistic by assuming permanent extension of 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 assumes permanent extension of all 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 assumes permanent extension of the estate and gift tax parameters and provisions in effect for calendar year 2025. BUDGET PROPOSALS The 2020 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 to support continued economic growth. The Budget’s additional proposals affecting governmental receipts are as follows: Establish Education Freedom Scholarships.—The Administration proposes to make available annually $5 billion worth of income tax credits for individual and corporate donations to State-authorized nonprofit education scholarship granting organizations (SGOs). (Taxpayers who claim the credit will not be allowed to claim an itemized deduction for the same contribution.) These SGOs will use donated funds to provide families with Education Freedom Scholarships that can be used on a range of educational activities such as career and technical dualenrollment programs, afterschool tutoring programs, and tuition for private schools. States will decide family eligibility requirements and allowable uses of scholarship funds. 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. Provide tax exemption for Indian Health Service (IHS) Health Professions, NURSE Corps, and Native Hawaiian scholarship and loan repayment programs in return for obligatory service requirement.—The Administration proposes to allow scholarship funds for qualified tuition and related expenses received under the IHS Health Professions, NURSE Corps, and Native Hawaiian scholarships to be excluded from income. The Administration also proposes to allow students to exclude from gross income student loan amounts forgiven or repaid by the IHS Loan Repayment Program and NURSE Corps. 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 or repaid 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. Eliminating the current tax burden on scholarship and loan repayment recipients would allow IHS and the Health Resources and Services Administration to leverage another tool to bolster their ongoing efforts to recruit and retain qualified healthcare providers and provide equity between participants in these programs and other similar programs currently receiving these tax benefits. 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. Require a minimum contribution for Premium Tax Credits (PTC).—The Administration proposes a minimum required contribution percent for subsidized in- 150 dividuals enrolled in health plans on the Exchange. While the PTC would continue to be calculated based on the required contribution percent of an individual’s income and the second lowest cost silver plan, an individual’s PTC would be reduced when they buy a less expensive plan so that they are required to spend at least a minimum percentage of their income on any health plan. Improve and expand access to health savings accounts (HSAs).—The Administration proposes to allow taxpayers enrolled in health plans with an actuarial value of 70 percent or below to make contributions to health savings accounts; deem all individual and small group market plans meeting the PPACA out-of-pocket spending limit as meeting the HSA out-of-pocket limit; and allow fees for direct primary care arrangements to be paid out of HSAs. Reform medical liability.—The Administration proposes to reform medical liability beginning in 2020. This proposal has the potential to lower health insurance premiums, increasing taxable income and payroll tax receipts. 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 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 extends 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 CBP. 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 and 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 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, 2018. 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. ANALYTICAL PERSPECTIVES 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 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 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) assessments to annual appropriations action.—Expenses of the Financial Stability Oversight Council (FSOC) and Office of Financial Research (OFR) are paid through the FRF, which is authorized to assess fees on certain bank holding companies 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 the activities of FSOC and OFR to the appropriations process. In so doing, currently authorized assessments would, beginning in 2021, be reclassified as discretionary offsetting collections and set at a level determined by the Congress. 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 2020. 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 2020 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 $47 billion in additional revenue over 10 years and cost approximately $15 billion, resulting in an estimated net savings of $33 billion. Once the new staff are trained and become fully operational, these initiatives are expected to generate roughly $3 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 14. Governmental Receipts deterring noncompliance. This indirect deterrence helps to ensure the continued payment of $3.5 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 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 or Form W-2, or from other third party databases as the Secretary determines by regulation; (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 to be included on or attached to the return. This proposal would make it easier for IRS to correct clear taxpayer errors, directly improving tax compliance and reducing EITC and other improper payments and freeing IRS resources for other enforcement activities. Eliminate the qualified plug-in electric drive motor vehicle credit.—The Administration proposes to repeal the tax credit for vehicles placed in service after December 31, 2019. Current law provides a non-refundable tax credit of up to $7,500 to the purchaser of a qualified plug-in electric drive motor vehicle. The credit phases out for a manufacturer’s vehicles over a one-year period beginning with the second calendar quarter after which the manufacturer has sold a cumulative 200,000 qualifying vehicles. Repeal exclusion of utility conservation subsidies.—The Administration proposes to repeal the exclusion of utility conservation subsidies to non-business customers who invest in energy conservation measures. The current rate subsidies are equivalent to payments from the utility to its customer, but individuals are not taxed on the value of these subsidies. Repeal accelerated depreciation for renewable energy property.—The Administration proposes to repeal accelerated (five-year) depreciation for renewable energy property. The cost recovery period for such property—including solar energy, wind energy, biomass, geothermal, combined heat and power, and geothermal heat pump property; fuel cells; and micro-turbines—would range 151 from five to 20 years, depending on the specific activity of the taxpayer and the type of property in service after repeal. Qualifying properties would still be eligible for the bonus depreciation allowance included in the TCJA. Repeal energy investment credit.—The Administration proposes to repeal the energy investment credit for property for which construction begins after December 31, 2019. The IRC currently provides a credit equal to a certain portion of the cost of solar energy property, geothermal electric property, qualified fuel cell power plants, small wind energy property, stationary micro-turbine power plants, geothermal heat pumps, and combined heat and power property. Repeal credit for residential energy efficient property.—The Administration proposes to repeal the credit for residential energy efficient property for property placed in service after December 31, 2019. Currently, a credit is available for a portion of the purchase of qualified photovoltaic and solar water heating property, fuel cell power plants, geothermal heat pumps, and small wind property used in or placed on a residence. 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 waterways to support economic growth. The current excise tax on diesel fuel used in inland waterways commerce will not produce sufficient revenue to cover these costs. Increase employee contributions to the Federal Employees 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 costs of their retirement packages 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 reduce the impact on employees, this proposal will be phased in, increasing employee contributions by one percentage point per year, and reducing employer contributions by one percentage point per year, until both are equalized. Implement a defined contribution system for term employees.—The Administration proposes to provide new federal term employees with a more generous TSP defined contribution plan, in lieu of participation in the FERS defined benefit plan. Term employees would receive a defined contribution that consists of an automatic 5 percent agency contribution to the Thrift Savings Plan, 152 ANALYTICAL PERSPECTIVES Table 14–3. EFFECT OF BUDGET PROPOSALS (In millions of dollars) 2019 Establish Education Freedom Scholarships �������������������������������������������������� Give Medicare beneficiaries with high deductible health plans the option to make tax deductible contributions to Health Savings Accounts or Medical Savings Accounts ��������������������������������������������������������������������������������������� Provide tax exemption for certain HRSA and IHS scholarship and loan repayment programs������������������������������������������������������������������������������������ Reduce the grace period for Exchange premiums������������������������������������������� Introduce new minimum required contribution for premium tax credits������������ Improve and expand access to Health Savings Accounts�������������������������������� Reform medical liability������������������������������������������������������������������������������������� Establish Electronic Visa Update System user fee������������������������������������������� Make full Electronic System for Travel Authorization (ESTA) receipts available to CBP��������������������������������������������������������������������������������������������������������� 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 authority for Bureau of Engraving and Printing to construct a new facility����������������������������������������������������������������������������������������������������������� Subject Financial Research Fund to appropriations 1 ������������������������������������� Implement tax enforcement program integrity cap adjustment������������������������� Increase oversight of paid tax return preparers������������������������������������������������ Provide more flexible authority for the Internal Revenue Service to address correctable errors �������������������������������������������������������������������������������������� Repeal the qualified plug-in electric drive motor vehicle credit������������������������� Repeal exclusion of utility conservation subsidies�������������������������������������������� Repeal accelerated depreciation for renewable energy property��������������������� Repeal energy investment credit���������������������������������������������������������������������� Repeal credit for residential energy efficient property�������������������������������������� Reform inland waterways financing������������������������������������������������������������������ Increase employee contributions to 50 percent of cost, phased in at 1 percent per year ������������������������������������������������������������������������������������������������������ Implement defined contribution system for term employees���������������������������� Expand mandatory electronic filing of W–2s���������������������������������������������������� Eliminate allocations to the Housing Trust Fund and Capital Magnet Fund ��� Improve clarity in worker classification and information reporting requirements ����������������������������������������������������������������������������������������������� Empowering States and consumers to reform healthcare�������������������������������� Require Social Security Number (SSN) for Child Tax Credit, Earned Income Tax Credit, and credit for other dependents ����������������������������������������������� Offset overlapping unemployment and disability payments 1 ������������������������� Total, effect of budget proposals ������������������������������������������������������������������ 1 Net of income offsets ......... 2020 2021 2022 2023 2024 2025 2026 2027 2028 2020– 2024 2020– 2029 –893 –4,847 –4,928 –5,006 –4,974 –5,036 –4,916 –4,934 –4,960 –4,994 –20,648 –45,488 ......... ......... –601 –1,056 –1,267 –1,472 –1,577 –1,652 –1,724 –1,785 –1,223 ......... –24 –32 –32 –32 –32 –32 –35 –35 –35 ......... 47 –20 ......... ......... ......... ......... ......... ......... ......... ......... ......... 38 ......... ......... ......... ......... ......... ......... ......... ......... ......... –2,122 –2,997 –2,933 –2,872 –2,948 –3,077 –3,216 –3,339 ......... 18 64 94 117 134 183 147 33 ......... ......... 34 38 42 47 52 58 64 72 79 ......... ......... ......... ......... ......... ......... ......... 2029 –4,396 –12,357 –36 –152 –325 ......... 27 27 ......... 38 38 –3,467 –10,924 –26,971 ......... 427 790 88 213 574 ......... ......... ......... ......... ......... –1 ......... ......... 209 216 466 471 479 486 494 508 523 538 554 570 13 14 15 15 15 15 15 15 15 15 403 533 539 544 551 552 536 535 543 546 ......... ......... 538 803 887 966 1,042 1,113 1,180 1,241 ......... ......... 332 678 1,042 1,472 2,047 404 690 1,062 ......... –1 –8 –22 –39 54 –143 –214 –169 –140 0 2,396 72 2,570 2,228 2,052 –70 424 5,089 147 5,282 7,770 7,727 –682 42 5 ......... ......... ......... 160 ......... 19 3 –83 360 54 –19 3 223 3 ......... –51 –51 –51 –51 –51 –51 –51 –51 –51 818 1,895 3,166 4,558 5,899 6,880 7,510 7,942 8,241 19 21 24 26 29 32 35 39 43 339 –204 10,597 109 549 –459 47,069 287 ......... ......... ......... ......... ......... ......... ......... 634 666 700 736 773 812 852 893 937 379 386 381 319 234 207 221 208 156 10 9 8 8 7 7 6 6 5 395 591 655 688 690 622 534 448 352 274 1,184 1,457 1,382 1,254 1,105 1,019 957 916 676 192 34 ......... ......... ......... ......... ......... ......... 178 178 178 178 178 178 178 178 178 3,155 1,499 37 2,456 4,137 1,276 890 7,422 2,525 68 5,102 9,388 1,276 1,780 ......... ......... 2,121 4,400 6,687 8,627 10,191 11,505 11,699 11,762 11,819 ......... –33 –90 –92 –93 –95 –98 –100 –102 –104 –106 ......... 12 12 12 11 11 11 11 10 10 10 ......... 64 72 65 66 66 66 66 67 68 70 21,835 –403 58 333 78,811 –913 110 670 ......... ......... 419 34 2 127 –160 374 178 86 –959 124 147 188 220 249 282 302 321 341 765 2,260 24 –3,489 –4,014 –4,355 –4,081 –3,688 –3,415 –3,737 –3,901 –12,793 –31,615 ......... 1,780 3,587 3,662 3,764 3,887 4,028 4,175 4,328 4,501 4,694 ......... ......... ......... ......... –1 –7 –18 –15 –17 –20 –28 42 2,172 2,720 2,711 6,950 10,038 13,556 16,582 15,986 16,406 17,554 and up to 5 percent additional in matching contributions. These employees are currently provided a 1 percent automatic agency contribution to the Thrift Savings Plan and up to 4 percent additional in matching contributions. For certain term employees in the public safety field, the automatic Government contribution would consist of 7 percent of basic pay, with a Government match of up to 7 percent. Lower the threshold from 250 to 10 for mandatory electronic reporting of W-2 data by employers.—Providing the IRS with timely and accurate W-2 information reported by employers facilitates pre-refund verification of wage and withholding informa- 16,680 38,406 –8 –106 24,591 104,675 tion, which, in turn, can prevent issuance of questionable tax refunds through early detection of fraud and other erroneous refund claims. Extra time and resources are needed for the SSA to process paper W-2s submitted by employers before information on paper statements can be transmitted to the IRS. Under current law, employers who file 250 or more Forms W-2 in a year must e-file these information returns but those filing fewer than 250 Forms W-2 in a year can choose to file on paper. To enhance IRS pre-refund W-2 verification, the Administration proposes increasing the number of employers subject to mandatory electronic reporting of W-2 data. The proposal would reduce the W-2 e-file threshold from 250 to 10 Forms W-2. 14. Governmental Receipts 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 increase governmental receipts. Improve clarity in worker classification and information reporting requirements.—The Administration proposes to: (1) establish a new safe harbor that allows 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. In addition, Form 1099-K would be required to be filed with the IRS by January 31 of the year following the year for which the information is being reported. The proposal increases clarity in the tax code, reduces costly litigation, and improves tax compliance. Empower States and consumers to reform healthcare.—The Administration is committed to empowering consumers and States to reimagine health care. Enacting ACA reform legislation would affect governmental receipts by repealing the Premium Tax Credit and several of the damaging Obamacare taxes. It would also make reforms to HSAs that would expand individuals’ ability to contribute pre-tax dollars to their health care. Require a social security number (SSN) that is valid for work in order to claim child tax credit, 153 earned income tax credit (EITC), and/or credit for other dependents (ODTC).—The Administration proposes requiring a SSN that is valid for work to claim the EITC, the child tax credit (both the refundable and nonrefundable portion), and/or the ODTC for the taxable year. For all credits, this requirement would apply to taxpayers (including both the primary and secondary filer on a joint return) and all qualifying children or dependents. Under current law, taxpayers who do not have SSNs that are valid for work may claim the child tax credit (CTC) as long as the qualifying child for whom the credit is claimed has a valid SSN. Furthermore, the ODTC, created by the Tax Cuts and Jobs Act, allows taxpayers whose dependents do not meet the requirements of the CTC—including the SSN requirement—to claim this non-refundable credit. This proposal would ensure that only individuals who are authorized to work in the United States could claim these credits by extending the SSN requirement for qualifying children to parents on the tax form for the CTC and instituting an SSN requirement for the ODTC. While this SSN requirement is already current law for the EITC, this proposal would also fix an administrative gap to strengthen enforcement of the provision. 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. 154 ANALYTICAL PERSPECTIVES Table 14–4. RECEIPTS BY SOURCE (In millions of dollars) Source 2018 Actual Estimate 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Individual income taxes: Federal funds���������������������������������������� 1,683,538 1,698,353 1,821,791 1,945,724 2,081,146 2,235,619 2,391,867 2,563,837 2,747,521 2,938,708 3,145,623 3,358,755 Legislative proposal, not subject to PAYGO ��������������������������������������� ......... ......... 102 741 1,767 3,002 4,368 5,675 6,622 7,345 7,752 8,025 Legislative proposal, subject to PAYGO ��������������������������������������� ......... ......... 2,292 –678 –1,863 –1,852 –1,743 –1,742 –1,729 –1,929 –1,989 –1,535 Total, Individual income taxes���������������� 1,683,538 1,698,353 1,824,185 1,945,787 2,081,050 2,236,769 2,394,492 2,567,770 2,752,414 2,944,124 3,151,386 3,365,245 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 ������������������������������ Disability insurance (off-budget)������ Legislative proposal, not 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 retirement employee share ������������������������� Legislative proposal, subject to PAYGO ���������������������������������� Non-Federal employees retirement 2��� Total, Other retirement ������������������������� Total, Social insurance and retirement receipts (trust funds)�������������������������� On-budget��������������������������������������������� Off-budget��������������������������������������������� 204,733 216,194 255,598 284,269 314,104 370,177 417,717 442,942 428,264 417,683 427,773 432,163 ......... ......... –11 3 3 3 2 2 1 1 1 1 ......... 204,733 ......... 216,194 –426 255,161 –214 284,058 570 314,677 768 370,948 684 418,403 496 443,440 375 428,640 364 418,048 303 428,077 187 432,351 691,215 767,747 811,470 858,009 905,648 952,447 1,004,297 1,056,904 1,116,360 1,173,033 1,244,273 1,308,411 ......... 163,532 ......... 143,367 11 137,797 –320 145,699 –597 153,789 –718 161,737 –817 170,541 –906 179,474 –988 189,571 –807 199,194 –887 211,292 –856 222,183 ......... 260,659 ......... 276,253 2 288,938 –54 306,642 –101 324,951 –122 342,843 –138 362,213 –154 381,745 –167 403,745 –137 425,219 –150 451,693 –145 476,070 ......... ......... –8 –10 –41 –63 –80 –100 –118 –58 –73 –89 ......... ......... –5 –113 –167 –178 –192 –188 –206 –239 –253 –224 2,396 2,363 2,508 2,600 2,700 2,803 2,899 2,999 3,098 3,197 3,300 3,406 3,353 3,300 3,408 3,458 3,585 3,716 3,843 3,972 4,099 4,229 4,361 4,703 1,121,155 1,193,030 1,244,121 1,315,911 1,389,767 1,462,465 1,542,566 1,623,746 1,715,394 1,803,631 1,913,556 2,013,459 (266,408) (281,916) (294,841) (312,577) (331,028) (349,121) (368,683) (388,428) (410,618) (432,348) (459,028) (483,866) (854,747) (911,114) (949,280) (1,003,334) (1,058,739) (1,113,344) (1,173,883) (1,235,318) (1,304,776) (1,371,283) (1,454,528) (1,529,593) 36,222 37,850 39,502 39,682 38,913 38,906 39,562 41,210 42,823 44,276 45,875 47,867 ......... ......... ......... –1 –6 –18 –32 88 –152 –235 –175 –135 ......... 8,686 ......... 6,405 ......... 6,528 ......... 6,657 669 6,792 994 6,931 1,084 7,078 1,164 7,222 1,258 7,374 1,336 7,536 1,414 7,708 1,476 7,708 ......... 134 45,042 ......... 134 44,389 ......... 124 46,154 ......... 127 46,465 414 142 46,924 848 142 47,803 1,302 129 49,123 1,839 129 51,652 2,558 146 54,007 506 156 53,575 863 156 55,841 1,326 154 58,396 4,473 4,955 5,211 5,524 5,897 6,291 6,701 7,127 7,567 8,024 8,472 8,960 ......... 31 4,504 ......... 31 4,986 –33 31 5,209 2,031 30 7,585 4,308 30 10,235 6,594 30 12,915 8,532 29 15,262 10,093 29 17,249 11,405 29 19,001 11,597 28 19,649 11,658 28 20,158 11,713 28 20,701 1,170,701 1,242,405 1,295,484 1,369,961 1,446,926 1,523,183 1,606,951 1,692,647 1,788,402 1,876,855 1,989,555 2,092,556 (315,954) (331,291) (346,204) (366,627) (388,187) (409,839) (433,068) (457,329) (483,626) (505,572) (535,027) (562,963) (854,747) (911,114) (949,280) (1,003,334) (1,058,739) (1,113,344) (1,173,883) (1,235,318) (1,304,776) (1,371,283) (1,454,528) (1,529,593) 155 14. Governmental Receipts Table 14–4. RECEIPTS BY SOURCE—Continued (In millions of dollars) Source 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 ����� Total, Federal funds������������������������������ Trust funds: Transportation���������������������������������� Airport and airway��������������������������� 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���������������������������������������� Legislative proposal, subject to PAYGO ���������������������������������� 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�������������������������� Legislative proposal, subject to PAYGO ���������������������������������� Fines, penalties, and forfeitures������� Legislative proposal, subject to PAYGO ���������������������������������� Refunds and recoveries ������������������ 2018 Actual Estimate 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 10,057 12,861 –1,459 512 10,204 13,210 –3,710 464 10,305 13,150 –1,018 414 10,363 12,898 –1,022 363 10,353 12,908 –1,016 310 10,460 12,806 –1,007 257 10,524 12,690 –1,004 203 10,581 12,619 –1,001 148 10,755 12,522 –992 98 10,967 12,426 –990 47 11,213 12,337 –985 44 11,488 12,241 –984 33 ......... 4,681 69 –176 3,522 30,067 ......... 9,590 67 ......... 3,063 32,888 ......... 15,397 65 1,755 3,188 43,256 ......... 16,221 62 2,624 3,260 44,769 1,608 16,897 60 2,794 3,339 47,253 5,584 5,878 58 2,969 3,356 40,361 6,377 30,024 55 3,152 3,426 65,447 7,329 19,200 53 3,332 3,528 55,789 8,455 20,075 51 3,526 3,635 58,125 9,726 20,952 48 3,735 3,742 60,653 11,191 7,322 46 3,957 3,858 48,983 12,885 22,188 43 4,193 3,977 66,064 42,613 15,793 42,772 16,309 43,348 17,176 43,411 18,066 43,471 19,004 43,467 19,945 43,469 20,879 43,467 21,943 43,575 23,130 43,755 24,311 44,002 25,555 44,427 26,960 562 3 384 115 503 568 ......... 238 108 146 573 ......... 194 106 ......... 577 ......... 192 104 ......... 583 ......... 188 101 ......... 589 ......... 188 100 ......... 595 ......... 195 98 ......... 601 ......... 199 96 ......... 608 ......... 203 95 ......... 614 ......... 204 93 ......... 621 ......... 205 93 ......... 628 ......... 207 92 ......... ......... 309 223 4,095 319 64,919 94,986 ......... 305 215 4,709 411 65,781 98,669 511 310 216 2,800 345 65,579 108,835 675 307 214 2,800 360 66,706 111,475 681 310 213 2,800 376 67,727 114,980 688 314 210 1,492 395 67,388 107,749 698 317 208 4,108 414 70,981 136,428 699 318 206 2,800 434 70,763 126,552 696 321 205 2,800 454 72,087 130,212 699 327 203 2,800 476 73,482 134,135 709 331 202 1,492 499 73,709 122,692 712 337 201 2,800 523 76,887 142,951 22,983 22,983 19,295 19,295 19,304 19,304 20,405 20,405 21,803 21,803 23,313 23,313 24,874 24,874 26,504 26,504 27,958 27,958 29,424 29,424 30,712 30,712 31,887 31,887 39,692 67,737 46,534 43,265 46,153 48,808 51,502 54,224 56,984 59,799 62,646 65,580 ......... 1,607 41,299 ......... 1,732 69,469 ......... 1,849 48,383 ......... 1,953 45,218 ......... 2,064 48,217 ......... 2,195 51,003 ......... 2,323 53,825 ......... 2,451 56,675 ......... 2,582 59,566 ......... 2,718 62,517 ......... 2,857 65,503 ......... 3,007 68,587 666 676 639 630 631 631 629 630 629 630 630 622 70,750 48,741 49,446 52,262 56,277 61,533 68,039 73,327 78,733 84,419 90,393 96,674 ......... 381 42 533 28 504 519 516 445 528 901 541 607 553 547 566 583 580 817 594 611 608 622 622 ......... ......... –23 –516 –528 –541 –553 –566 –580 –594 –608 –622 18,930 19,114 19,193 20,491 22,666 25,043 28,092 31,306 34,177 35,774 37,458 38,931 ......... 19,193 ......... 22,690 500 22,438 441 23,558 453 22,231 465 22,427 478 22,615 497 22,806 519 23,044 541 23,163 774 23,423 806 23,676 ......... –26 ......... –26 13 –26 14 –26 15 –26 15 –26 15 –26 15 –26 15 –26 15 –26 15 –26 15 –26 156 ANALYTICAL PERSPECTIVES Table 14–4. RECEIPTS BY SOURCE—Continued (In millions of dollars) Source 2018 Actual Estimate 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Total, Federal funds ����������������������������� 109,894 91,770 92,712 97,889 102,692 110,989 120,449 129,102 137,674 145,333 153,278 161,320 Trust funds: United Mine Workers of America, combined benefit fund ��������������� 19 17 16 14 13 12 11 9 9 8 7 7 Defense cooperation ���������������������� 656 333 361 734 504 223 154 157 160 163 166 169 Inland waterways (Legislative proposal, subject to PAYGO) ����� ......... ......... 178 178 178 178 178 178 178 178 178 178 Fines, penalties, and forfeitures ������ 1,095 1,151 1,112 1,121 1,081 1,099 1,111 1,102 1,102 1,097 1,102 1,100 Total, Trust funds ��������������������������������� 1,770 1,501 1,667 2,047 1,776 1,512 1,454 1,446 1,449 1,446 1,453 1,454 Total, Miscellaneous receipts����������������� 111,664 93,271 94,379 99,936 104,468 112,501 121,903 130,548 139,123 146,779 154,731 162,774 Allowance for empowering States and consumers to reform healthcare ������ ......... ......... –959 24 –3,489 –4,014 –4,355 –4,081 –3,688 –3,415 –3,737 –3,901 Total, budget receipts������������������������������ 3,329,904 3,437,656 3,644,772 3,876,864 4,128,632 4,421,452 4,752,521 5,040,055 5,322,627 5,608,467 5,938,919 6,292,450 On-budget ��������������������������������������� (2,475,157) (2,526,542) (2,695,492) (2,873,530) (3,069,893) (3,308,108) (3,578,638) (3,804,737) (4,017,851) (4,237,184) (4,484,391) (4,762,857) Off-budget ��������������������������������������� (854,747) (911,114) (949,280) (1,003,334) (1,058,739) (1,113,344) (1,173,883) (1,235,318) (1,304,776) (1,371,283) (1,454,528) (1,529,593) 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. 15. 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 2020 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 offsetting 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 2018, offsetting receipts and offsetting collections from the public were $564 billion, while receipts and collections from intragovernmental transactions were $1,128 billion, for a total of $1,692 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 11 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 12, “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 ($24.4 billion in 2018) 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- 157 158 ANALYTICAL PERSPECTIVES Table 15–1. OFFSETTING COLLECTIONS AND OFFSETTING RECEIPTS FROM THE PUBLIC (In billions of dollars) Estimate Actual 2018 2019 2020 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 ��������������������������������������������������������������������������������������������������������������������������������������������������������������� 70.0 4.8 16.4 71.3 5.2 16.9 74.4 4.4 17.7 47.7 3.6 10.5 16.3 51.5 220.8 47.3 3.9 10.9 8.6 45.2 209.2 47.8 3.8 10.4 12.4 47.0 217.8 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 ��������������������������������������������������������������������������������������������������������������������������������������������������������� 7.7 2.6 35.4 45.8 266.6 8.7 2.7 6.4 17.8 227.0 10.7 2.8 4.9 18.3 236.1 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 ��������������������������������������������������������������������������������������������������������������� 100.1 5.9 3.2 4.8 24.0 138.0 107.6 1.1 3.9 5.5 28.5 146.6 112.7 2.8 3.8 6.0 29.0 154.4 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 ������������������������������������������������������������������������������������������������������������������������������������������������������������������ 32.2 42.1 9.9 26.8 48.5 159.5 297.5 43.1 50.0 21.0 12.3 52.1 178.4 325.0 47.4 51.5 18.8 9.2 44.1 171.1 325.4 Total, offsetting collections and offsetting receipts from the public �������������������������������������������������������������������������������������������������� Total, offsetting collections and offsetting receipts excluding off-budget ��������������������������������������������������������������������������������������������������� 564.0 477.5 552.0 472.7 561.6 479.9 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 15–3. 358.8 205.3 355.8 196.2 372.2 189.4 Offsetting receipts (deposited in receipt accounts): 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 that are intended to provide broadly dispersed benefits, such as protect- 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. The spending associated with the activities that generate offsetting collections and offsetting receipts from the public is included in total or “gross outlays.” Offsetting ing 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. 159 15. Offsetting Collections and Offsetting Receipts Table 15–2. SUMMARY OF OFFSETTING RECEIPTS BY TYPE (In millions of dollars) Estimate Actual 2018 Receipt Type Intragovernmental ����������������������������������������������������������������������������� 2019 2020 2021 2022 2023 2024 780,357 801,689 853,288 893,210 938,218 986,816 1,042,628 Proprietary ������������������������������������������������������������������������������������ 279,032 310,335 307,560 318,426 331,760 349,533 368,424 Offsetting governmental ��������������������������������������������������������������� 18,427 14,656 17,883 15,675 15,920 16,539 17,018 Total, receipts from non-Federal sources ������������������������������� 297,459 324,991 325,443 334,101 347,680 366,072 385,442 Total Offsetting receipts ���������������������������������������������������������������� 1,077,816 1,126,680 1,178,731 1,227,311 1,285,898 1,352,888 1,428,070 Receipts from non-Federal sources: 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 2018, gross outlays were $5,801 billion, or 28.7 percent of GDP and offsetting collections and offsetting receipts were $1,692 billion, or 8.4 percent of GDP, resulting in net outlays of $4,109 billion or 20.3 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 2018, governmental receipts were $3,330 billion, or 16.5 percent of GDP, and the deficit was $779 billion, or 3.8 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 15–3. GROSS OUTLAYS, USER CHARGES, OTHER OFFSETTING COLLECTIONS AND OFFSETTING RECEIPTS FROM THE PUBLIC, AND NET OUTLAYS (In billions of dollars) Actual 2018 Gross outlays to the public ������������������������������������������������ Estimate 2019 4,673.1 5,081.0 2020 5,306.6 Offsetting collections and offsetting receipts from the public: User charges 1 �������������������������������������������������������������� 358.8 355.8 372.2 Other ������������������������������������������������������������������������������ 205.3 196.2 189.4 Subtotal, offsetting collections and offsetting receipts from the public ���������������������������������������������������������������������� 564.0 552.0 561.6 Net outlays ������������������������������������������������������������������������� 4,109.0 4,529.1 4,745.0 1 $4.9 billion of the total user charges for 2018 were classified as governmental receipts, and the remainder were classified as offsetting collections and offsetting receipts. $5.1 billion and $5.7 billion of the total user charges for 2019 and 2020 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 15–1 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 2020, the table shows that total offsetting collections and offsetting receipts from the public are estimated to be $561.6 billion or 2.5 percent of GDP. Of these, an estimated $236.1 billion are offsetting collections and an estimated $325.4 billion are offsetting receipts. Table 15–1 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 15–2 and 15–3 provide further detail about offsetting receipts, including both offsetting receipts from the public (as summarized in Table 15–1) and intragov- 160 ANALYTICAL PERSPECTIVES ernmental transactions. Table 15–5, formerly printed in this chapter, and Table 15–6. Offsetting Collections and Offsetting Receipts, Detail—FY 2020 Budget, which is a complete listing by account, are available on the Internet at https://www.whitehouse.gov/omb/analytical-perspectives/. In total, offsetting receipts are estimated to be $1,178.7 billion in 2020; $853.3 billion are from intragovernmental transactions and $325.4 billion are from the public. The offsetting receipts from the public consist of proprietary receipts ($307.6 billion), which are those resulting from business-like 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 2020, only an estimated 1.5 percent of user charges are classified as governmental receipts. As summarized in Table 15–3, total user charges for 2020 are estimated to be $377.9 billion with $372.2 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 15–1 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 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 11 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. 161 15. Offsetting Collections and Offsetting Receipts a limited number of private individuals or organizations 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 15–3, 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 $5.7 billion in 2020 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 $372.2 billion in 2020, 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 15–1, an estimated $217.8 billion of user charges for 2020 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 $154.4 billion of user charges for 2020 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 15–4, the Administration is proposing new or increased user charges that would, in the aggregate, increase collections by an estimated $3.8 billion in 2020 and an average of $13.7 billion per year from 2021 through 2029. 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 11, “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 162 Service (APHIS) Agricultural Quarantine Inspection (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): 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. FDA: Expand tobacco product user fee. Currently, FDA’s regulation of all tobacco products is financed through user fees collected from six product categories: cigarettes, roll your own tobacco, snuff, chewing tobacco, cigars, and pipe tobacco. This proposal would expand FDA’s tobacco user fees and include user fee assessments on deemed products, which currently do not pay user fees. To ensure that resources keep up with new tobacco products, the proposal would also index future collections to inflation. FDA: Establish innovative food products user fee. Innovative food products include new ingredients, methods, and food contact substances. Examples of new products include new proteins, new ingredients, and synthetic foods. Food contact substances include components of food packaging and food processing equipment that come in contact with food. This new fee will allow FDA to evaluate emerging products and technologies to ensure their safety and get them to the market in a timely manner, thus fostering innovation. 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: Establish 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. ANALYTICAL PERSPECTIVES 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 2020 Budget proposes to increase the passenger security fee from $5.60 to $6.60 in FY 2020, and from $6.60 to $8.25 starting in FY 2021 in order to recover the full cost of aviation security from the traveling public by 2029. This proposal will increase offsetting collections by an estimated $22.4 billion between 2020 and 2029. 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 2023, 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 2020, 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) assessments to annual appropriations action. Expenses of the Financial Stability Oversight Council (FSOC) and Office of Financial Research (OFR) are paid through the FRF, which is authorized to assess fees on certain bank holding companies 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 the activities of FSOC and OFR to the appropriations process. In so doing, currently authorized assessments would, beginning in 2021, be reclassified as discretionary offsetting collections and set at a level determined by the Congress. 163 15. Offsetting Collections and Offsetting Receipts Establish Committee on Foreign Investments in the United States (CFIUS) filing fees. The Budget proposes that CFIUS will assess and collect filing fees on certain covered transactions for which a written notice is submitted to the Committee, as authorized by The Foreign Investment Risk Review Modernization Act (FIRRMA). Collected fees will be deposited into a newly-established CFIUS Fund and remain available for transfer to departments and agencies to support FIRRMA activities and address emerging needs. Fee collection will begin no sooner than mid–2020, when all FIRRMA regulations must be issued and take effect. Environmental Protection Agency (EPA) Establish ENERGY STAR fee. The Administration proposes to collect fees to fund EPA’s administration of the ENERGY STAR program. Energy Star is a voluntary certification program that aims to help businesses and individuals save money and protect the environment through improved energy efficiency. By administering the voluntary program through the collection of user fees, entities participating in Energy Star would directly pay for the services and benefits that the program provides. 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, 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. Commodity Futures Trading Commission (CFTC) Establish CFTC user fee. The Budget proposes an amendment to the Commodity Exchange Act authorizing 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 CFTC from the general taxpayer to the primary beneficiaries of CFTC oversight. Contingent upon enact- ment of legislation authorizing CFTC to collect fees, the Administration proposes that collections begin in 2020 to offset a portion of CFTC’s annual appropriation. Social Security Administration Establish replacement Social Security card fee. The Budget proposes to collect fees on replacement Social Security cards. First-time Social Security cards including cards issued at birth would not be subject to the fee. The new fee would offset some administrative costs of processing Social Security card requests. While having a Social Security Number is required for many public and private sector transactions, individuals rarely need to display the physical Social Security card. 2. Offsetting receipts Department of State Extend Western Hemisphere Travel Initiative surcharge. 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. Increase Border Crossing Card (BCC) fee. 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 2020 are projected to increase by $13 million (from $3 million to $16 million). B. Mandatory User Charge Proposals 1. Offsetting collections Department of Health and Human Services Pass Treasury collection fees for CMS overpayment collections on to debtor. The Budget proposes to pass Treasury fees for CMS overpayment collections onto the debtor. Currently CMS pays the fee from the overpayment amount resulting in CMS recouping less than the overpayment. This proposal would require the debtor to pay the collection fee on top of the overpayment amount owed to CMS, resulting in all of the overpayment going back into the trust funds. Department of Labor Improve Pension Benefit Guaranty Corporation (PBGC) Multiemployer Program solvency. PBGC acts as a backstop to protect pension payments for workers whose companies have failed. Currently, PBGC’s multiemployer 164 pension insurance program is 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 over 10 million participants, is at risk of insolvency by the end of fiscal year 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 variable-rate premiums if there is a substantial risk that the payment of premiums will accelerate plan insolvency, resulting in earlier financial assistance to the plan. These proposals would raise approximately $18 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 and retirees whose multiemployer plans fail. Reform PBGC’s single-employer premiums. The financial condition of PBGC’s single-employer program has improved in recent years, reflecting premium increases enacted by Congress, a strong economy, and the absence of large claims. Under current law, for plan years beginning in 2019, the single-employer premium consists of a flat-rate premium of $80 per participant and a variable-rate premium of $43 per $1,000 of unfunded vested benefits. The variable-rate premium is capped at $541 per participant and the flat and variable rates and the cap are indexed to wages. The Budget proposes to pause the indexation of premium rates for one year so that the rates for the 2020 plan year remain at the 2019 level. Indexation would resume for plan years beginning in 2021. The Budget also proposes to rebalance the single-employer premium structure by increasing the cap on the variable-rate premium. Recent increases in the variable premium rate, without a corresponding increase in the cap, have resulted in more plans with very significant underfunding having their premiums limited by the cap, thereby eroding the premium incentive to improve funding of pensions. The Budget proposes to increase the cap to $900 per participant in order to help restore the incentive to better fund promised pensions. 2. Offsetting receipts Department of Agriculture 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 ANALYTICAL PERSPECTIVES 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. 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. Establish Forest Service Mineral Program cost recovery fee. The Forest Service does not currently collect user fees to recover costs for special use permits to extract energy and hardrock mineral resources. The Administration proposes establishing fees to reduce the need for discretionary appropriations to fund permitting and oversight for surface extraction mining operations. For oil and gas resources, this proposal would bring Forest Service authorities in closer alignment with those of the Department of the Interior (DOI) where the Bureau of Land Management has responsibility for subsurface minerals below most federal lands and collects permitting fees for oil and gas. For hardrock mining, if the fees are properly structured, they could provide additional resources to improve permitting times. Amend land uses cost recovery authority. The Administration proposes to change cost recovery authority to allow the Forest Service to collect funds for the full cost of processing a public lands-related special use proposal, primarily for new infrastructure owned and maintained by private sector entities. This technical 15. Offsetting Collections and Offsetting Receipts amendment would authorize the agency to collect fees at the beginning of the project screening process and bring Forest Service land uses cost recovery practice in line with the Bureau of Land Management. Current Forest Service authority provides for fee collection after an application has been fully screened and accepted for consideration as a formal application. 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 $670 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 Federal 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 Homeland Security Extend expiring Customs and Border Protection (CBP) fees. The Budget proposes to extend the Merchandise 165 Processing Fee beyond its current expiration date of October 20, 2027 to January 14, 2031, and makes permanent the rate increase (from 0.21 percent ad valorem to 0.3464 percent ad valorem) enacted in section 503 of the U.S.-Korea Free Trade Agreement Implementation Act (P.L. 112–41). 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, 2027 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 (to $7.75) 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, CBP would potentially collect the same amount it incurs in COBRA/ECCF eligible costs in FY 2020. 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 im7 GAO–16–443, Enhanced Oversight Could Better Ensure Programs Receiving Fees and Other Collections Use Funds Efficiently, http:// www.gao.gov/products/GAO–16–443 166 migration 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 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 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; 4) charge employer fees for CW–1 Northern Mariana Islands transitional workers; and 5) 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. Increase H–1B ACWIA filing fee. The Budget proposes authorizing legislation to double the American Competitiveness and Workforce Improvement Act (ACWIA) fee for the H–1B visa program in order to help train domestic workers and close the skills gap. The increased fee revenue would provide additional funding for DOL’s training grants to support apprenticeship while creating a new funding source for the Department of Education’s Career and Technical Education formula grant. Under the proposal, the prescribed allocations for DOL job training grants (50 percent) and foreign labor certifications (five percent) would remain the same. The National Science Foundation’s allocation for the Innovative Technology Experiences for Students and Teachers program (10 percent) would remain the same, while its allocation for STEM scholarships would decrease 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 ANALYTICAL PERSPECTIVES from 30 percent to 15 percent, a level that would nonetheless maintain absolute funding levels under current estimates. The proposal would initiate a new 15 percent allocation for the Department of Education’s Career and Technical Education formula grant, which would provide additional support for technical training at the K–12 and community college levels. The remaining 5 percent would be maintained for Department of Homeland Security processing costs. 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 2020 through 2021, and then extend the 0.20 percentage point fee for acquisitions through 2024. 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 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. Make full Electronic System for Travel Authorization (ESTA) receipts available to CBP. The Budget proposes to permanently extend the ESTA receipts beyond the current September 30, 2027 expiration date, 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 167 15. Offsetting Collections and Offsetting Receipts 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) assessments 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. 168 ANALYTICAL PERSPECTIVES Table 15–4. USER CHARGE PROPOSALS IN THE FY 2020 BUDGET 1 (Estimated collections in millions of dollars) 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 20202024 2029 20202029 OFFSETTING COLLECTIONS AND OFFSETTING RECEIPTS DISCRETIONARY: Offsetting collections Department of Agriculture Establish Federal Grain Inspection Service fee ��������������������������������������� Establish Agricultural Quarantine Inspection fee ������������������������������������� Department of Health and Human Services Food and Drug Administration (FDA): Increase export certification user fee cap ������������������������������������������������������������������������������������������������ FDA: Establish over-the-counter monograph user fee ���������������������������� FDA: Expand tobacco product user fee ��������������������������������������������������� FDA: Establish innovative food products user fee ������������������������������������ Centers for Medicare and Medicaid Services (CMS): Establish survey and certification revisit fee ������������������������������������������������������������������ Health Resources and Services Administration: Establish 340B Program user fee ����������������������������������������������������������������������������������������������� Department of Homeland Security Transportation Security Administration (TSA): Increase aviation passenger security fee ����������������������������������������������������������������������� ......... ......... 25 31 25 32 25 33 25 34 25 35 25 35 25 36 25 37 25 38 25 39 125 165 250 350 ......... ......... ......... ......... 4 28 100 28 4 30 120 28 4 31 141 28 4 33 162 28 4 35 184 28 4 36 207 28 4 38 230 28 4 40 253 28 5 42 277 28 5 44 302 28 20 157 707 140 42 357 1,976 280 ......... 0 11 22 22 23 23 24 24 25 25 78 199 ......... 19 19 19 19 19 19 19 19 19 19 95 190 600 1,842 2,246 2,314 2,384 2,455 2,528 2,604 2,683 2,763 9,386 22,419 80 80 ......... Department of Housing and Urban Development Federal Housing Administration (FHA): Establish Information Technology (IT) fee ������������������������������������������������������������������������������������������������ ......... 20 20 20 ......... * * * * * * * * * * * * ......... 50 50 50 50 50 50 50 50 50 50 250 500 Department of the Treasury Subject Financial Research Fund assessments to annual appropriations action �������������������������������������������������������������������������������������������������� ......... ......... Establish Committee on Foreign Investments in the United States (CFIUS) filing fees. ����������������������������������������������������������������������������� ......... 10 68 68 68 68 68 68 68 68 68 272 612 20 20 20 20 20 20 20 20 20 90 190 Department of State Establish Diplomacy Center Rental Fee �������������������������������������������������� Department of Transportation Federal Railroad Administration (FRA): Establish Railroad Safety Inspection fee ������������������������������������������������������������������������������������� 20 ......... ......... ......... ......... ......... ......... 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 ������������������������������������������������������������������������� ......... 65 66 68 69 70 72 73 75 76 78 338 712 Social Security Administration Establish replacement Social Security card fee �������������������������������������� ......... 270 270 270 270 270 270 270 270 270 270 1,350 2,700 Department of State Extend Western Hemisphere Travel Initiative surcharge ������������������������� ......... 483 483 483 483 483 483 483 483 483 483 Increase Border Crossing Card Fee �������������������������������������������������������� ......... 13 13 13 13 13 13 13 13 13 13 Subtotal, discretionary user charge proposals ������������������������������� ......... 1,822 3,177 3,617 3,710 3,787 3,884 3,985 4,089 4,198 4,308 2,415 65 16,113 4,830 130 36,577 20 100 200 –709 4,918 2,118 2,107 2,101 8,090 18,625 Offsetting receipts MANDATORY: Offsetting collections Department of Health and Human Services Pass Treasury collection fees for CMS overpayment collections on to debtor ������������������������������������������������������������������������������������������������� ......... Department of Labor Improve Pension Benefit Guaranty Corporation (PBGC) Multiemployer Program solvency�������������������������������������������������������������������������������� ......... ......... 1,963 2,008 2,048 2,071 20 20 20 20 20 20 20 20 20 169 15. Offsetting Collections and Offsetting Receipts Table 15–4. USER CHARGE PROPOSALS IN THE FY 2020 BUDGET 1 —Continued (Estimated collections in millions of dollars) 2019 Reform PBGC’s single-employer premiums �������������������������������������������� 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 20202024 20202029 ......... ......... 233 59 –9 –6 –63 –35 –70 –62 –77 277 –31 Department of Agriculture Establish Food Safety and Inspection Service (FSIS) user fee���������������� Establish Packers and Stockyards Program user fee ������������������������������ Establish Animal and Plant Health Inspection Service (APHIS) user fee Establish Agricultural Marketing Service (AMS) user fee ������������������������ Establish Forest Service Mineral Program cost recovery fee ������������������ Amend land uses cost recovery authority ����������������������������������������������� ......... ......... ......... 23 ......... 22 ......... 20 ......... 60 ......... 3 660 23 22 20 60 3 660 23 23 20 60 3 660 23 23 20 60 3 660 23 24 20 60 3 660 23 24 20 60 3 660 23 24 20 60 3 660 23 25 20 60 3 660 23 25 20 60 3 660 23 26 20 60 3 2,640 115 114 100 300 15 5,940 230 238 200 600 30 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 (PMA) power rates ������������������ ......... 247 253 259 266 274 283 291 298 304 83 1,299 2,558 Department of Homeland Security Extend expiring Customs and Border Protection (CBP) fees ������������������ Increase Customs user fees �������������������������������������������������������������������� Increase immigration user fees ��������������������������������������������������������������� ......... ......... ......... ......... ......... ......... ......... ......... ......... 342 402 417 434 452 469 489 ......... 351 401 415 472 488 592 612 967 5,477 5,848 509 521 534 726 750 825 ......... 2,047 2,127 12,292 4,569 5,632 Department of Labor Expand Foreign Labor Certification fees ������������������������������������������������� Increase H–1B ACWIA filing fee ������������������������������������������������������������� ......... ......... 103 380 114 380 297 1,900 814 3,800 Department of the Treasury Increase and extend guarantee fee charged by GSEs ���������������������������� ......... 224 1,013 1,616 3,002 4,352 5,108 4,971 4,371 3,771 3,284 Subtotal, mandatory user charge proposals ����������������������������������� ......... 1,743 5,548 6,101 7,548 8,975 7,034 12,603 10,293 14,248 13,989 Subtotal, user charge proposals that are offsetting collections and offsetting receipts �������������������������������������������������������������������������� ......... 3,565 8,725 9,718 11,258 12,762 10,918 16,588 14,382 18,446 18,297 10,208 29,914 31,714 88,081 46,027 124,658 ......... 34 38 42 47 52 58 64 72 79 88 ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... 213 ......... 574 ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... Offsetting receipts 1 380 40 380 82 380 85 380 89 380 94 380 98 380 108 380 GOVERNMENTAL RECEIPTS Department of Homeland Security CBP: Establish user fee for Electronic Visa Update System �������������������� Eliminate BrandUSA; make revenue available to CBP ���������������������������� Make full Electronic System for Travel Authorization (ESTA) receipts available to CBP ��������������������������������������������������������������������������������� 209 216 ......... 425 –68 –68 –68 –272 –612 178 182 178 398 178 414 890 831 1,780 2,167 Total, user charge proposals ��������������������������������������������������������������������� ......... 3,777 8,873 9,870 11,415 12,924 11,086 16,762 14,564 18,844 18,711 1 A positive sign indicates an increase in collections. * $500,000 or less 46,858 126,825 Department of the Treasury Subject Financial Research Fund assessments to annual appropriations action �������������������������������������������������������������������������������������������������� ......... ......... –68 –68 –68 –68 –68 –68 Corps of Engineers - Civil Works Reform inland waterways funding ������������������������������������������������������������ ......... Subtotal, governmental receipts user charge proposals �������������������� ......... 178 148 178 152 178 157 178 162 178 168 178 174 178 212 16. TAX EXPENDITURES The Congressional Budget Act of 1974 (Public Law 93344) 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 2018–2028 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, 2018 and reflect the economic assumptions from the Mid-Session Review of the 2018 Budget. In some cases, expired or repealed provisions are listed if their revenue effects occur in fiscal year 2018 or later. The total revenue effects for tax expenditures for fiscal years 2018–2028 are displayed according to the Budget’s functional categories in Table 16–1. 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 law baseline. The alternative baseline concepts are discussed in detail below. Tables 16–2A and 16–2B 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 from the special tax provisions in proportion to the respective tax expenditure amounts shown. Rather, these 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. 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 16–3 ranks the major tax expenditures by the size of their 2018–2028 revenue effect. The first column provides the number of the provision in order to cross reference this table to Tables 16–1, 16–2A, and 16–2B, as well as to the descriptions below. Interpreting Tax Expenditure Estimates The estimates shown for individual tax expenditures in Tables 16–1 through 16–3 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 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. 171 172 ANALYTICAL PERSPECTIVES 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 16–1 are the totals of individual and corporate income tax revenue effects reported in Tables 16–2A and 16–2B, and do not reflect any possible interactions between individual and corporate income tax receipts. For this reason, the estimates in Table 16–1 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 16–4. 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 16–4 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 2018 that cause the deferrals or other long-term revenue effects. For instance, a pension contribution in 2018 would cause a deferral of tax payments on wages in 2018 and on pension fund earnings on this contribution (e.g., interest) in later years. In some future year, however, the 2018 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 law 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 tax law baseline tax expenditures are limited to special exceptions from a generally provided tax rule that serves programmatic functions in a way that is analogous to spending programs. Provisions under the reference tax law baseline are generally tax expenditures under the normal tax law baseline, but the reverse is not always true. Both the normal and reference tax law baselines allow several major departures from a pure comprehensive income tax. For example, under the normal and reference tax law baselines: • Income is taxable only when it is realized in exchange. Thus, the deferral of tax on unrealized capital gains is not regarded as a tax expenditure. Accrued income would be taxed under a comprehensive income tax. • There is a separate corporate income tax. • Tax rates on noncorporate business income vary by level of income. • Individual tax rates, including brackets, standard deduction, and personal exemptions, are allowed to vary with marital status. • Values of assets and debt are not generally adjust- ed for inflation. A comprehensive income tax would adjust the cost basis of capital assets and debt for changes in the general price level. Thus, under a comprehensive income tax baseline, the failure to take account of inflation in measuring depreciation, capital gains, and interest income would be regarded as a negative tax expenditure (i.e., a tax penalty), and failure to take account of inflation in measuring interest costs would be regarded as a positive tax expenditure (i.e., a tax subsidy). • The base erosion and anti-abuse tax (BEAT) for multinational corporations is treated as a minimum tax and considered part of the rate structure. Although the reference tax law and normal tax baselines are generally similar, areas of difference include: 173 16. Tax Expenditures Tax rates. The separate schedules applying to the various taxpaying units are included in the reference tax 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 tax law 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 law 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 tax law 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. 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, 2 Gross income does, however, include transfer payments associated with past employment, such as Social Security benefits. 3 In the case of individuals who hold “passive’’ equity interests in businesses, the pro rata shares of sales and expense deductions reportable in a year are limited. A passive business activity is defined generally to be one in which the holder of the interest, usually a partnership interest, does not actively perform managerial or other participatory functions. The taxpayer may generally report no larger deductions for a year than will reduce taxable income from such activities to zero. Deductions in excess of the limitation may be taken in subsequent years, or when the interest is liquidated. In addition, costs of earning income may be limited under the Alternative Minimum Tax. the appendix updates 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, 2018. National Defense 1. Exclusion of benefits and allowances to armed forces personnel.—Under the baseline tax system, all compensation, including dedicated payments and in-kind benefits, should be included in taxable income because they represent accretions to wealth that do not materially differ from cash wages. As an example, a rental voucher of $100 is (approximately) equal in value to $100 of cash income. In contrast to this treatment, certain housing and meals, in addition to other benefits provided military personnel, either in cash or in kind, as well as certain amounts of pay related to combat service, are excluded from income subject to tax. International Affairs 2. Exclusion of income earned abroad by U.S. citizens.—Under the baseline tax system, all compensation received by U.S. citizens and residents is properly included in their taxable income. It makes no difference whether the compensation is a result of working abroad or whether it is labeled as a housing allowance. In contrast to this treatment, U.S. tax law allows U.S. citizens and residents who live abroad, work in the private sector, and satisfy a foreign residency requirement to exclude up to $80,000, plus adjustments for inflation since 2004, in foreign earned income from U.S. taxes. In addition, if these taxpayers are provided housing by their employers, then they may also exclude the cost of such housing from their income to the extent that it exceeds 16 percent of the earned income exclusion limit. This housing exclusion is capped at 30 percent of the earned income exclusion limit, with geographical adjustments. If taxpayers do not receive a specific allowance for housing expenses, they may deduct housing expenses up to the amount by which foreign earned income exceeds their foreign earned income exclusion. 3. Exclusion of certain allowances for Federal employees abroad.—In general, all compensation received by U.S. citizens and residents is properly included in their taxable income. It makes no difference whether the compensation is a result of working abroad or whether it is labeled as an allowance for the high cost of living abroad. In contrast to this treatment, U.S. Federal civilian employees and Peace Corps members who work outside the continental United States are allowed to exclude from U.S. taxable income certain special allowances they receive to compensate them for the relatively high costs associated with living overseas. The allowances supple- 174 ANALYTICAL PERSPECTIVES Table 16–1. ESTIMATES OF TOTAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2018–2028 (In millions of dollars) Total from corporations and individuals 2018 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 Reduced tax rate on active income of controlled foreign corporations ���� 6 Deduction for foreign-derived intangible income dervied from trade or business within the United States ������������������������������� 7 Interest Charge Domestic International Sales Corporations (IC-DISCs) ����������������������������������� General science, space, and technology: 8 Expensing of research and experimentation expenditures (normal tax method) �������������������� 9 Credit for increasing research activities ��������������������������������������� Energy: 10 Expensing of exploration and development costs, fuels ������������� 11 Excess of percentage over cost depletion, fuels ���������������������������� 12 Exception from passive loss limitation for working interests in oil and gas properties ������������������������������������ 13 Capital gains treatment of royalties on coal ����������������������������������������� 14 Exclusion of interest on energy facility bonds �������������������������������� 15 Enhanced oil recovery credit ������������ 16 Energy production credit 1 ���������������� 17 Marginal wells credit ������������������������� 18 Energy investment credit 1 ���������������� 19 Alcohol fuel credits 2 ������������������������� 20 Bio-Diesel and small agri-biodiesel producer tax credits 3 ������������������� 21 Tax credits for clean-fuel burning vehicles and refueling property ���� 22 Exclusion of utility conservation subsidies �������������������������������������� 23 Credit for holding clean renewable energy bonds 4 ����������������������������� 24 Deferral of gain from dispositions of transmission property to implement FERC restructuring policy ������������������������������������������� 25 Credit for investment in clean coal facilities ���������������������������������������� 26 Temporary 50% expensing for equipment used in the refining of liquid fuels ������������������������������������ 27 Natural gas distribution pipelines treated as 15-year property ��������� 2019 2020 2021 2022 2023 2024 2025 2026 2027 2019– 2028 2028 12,030 12,450 11,220 11,240 11,590 12,050 12,550 13,090 13,660 14,270 14,920 127,040 6,930 7,280 7,640 8,020 8,420 8,840 9,290 9,750 10,240 10,750 11,290 91,520 240 250 260 280 290 300 320 330 350 370 390 3,140 1,250 0 0 0 0 0 0 0 0 0 0 0 63,400 34,490 38,950 41,870 43,500 34,020 20,510 9,410 45,150 73,890 77,270 419,060 4,290 7,420 7,970 9,730 10,990 11,440 11,950 12,490 9,090 6,880 7,220 95,180 1,220 1,280 1,340 1,410 1,480 1,560 1,630 1,720 1,800 1,890 1,990 16,100 8,510 6,750 7,430 8,420 –26,470 –46,290 –33,850 –20,540 –6,300 0 13,310 14,480 15,870 17,310 18,710 20,080 21,480 22,930 24,390 25,890 27,420 208,560 970 850 820 750 710 710 710 740 1,010 1,230 1,270 8,800 350 290 410 530 590 620 660 700 810 890 920 6,420 10 0 0 0 10 10 10 10 10 10 10 70 160 140 130 130 140 140 150 150 170 190 200 1,540 10 390 3,150 0 3,180 10 10 520 3,240 0 4,300 0 10 570 3,320 70 5,100 0 10 620 3,510 70 5,250 0 10 660 3,680 90 4,650 0 10 750 3,760 140 3,620 0 10 810 3,710 190 2,460 0 10 850 3,570 230 1,700 0 10 850 3,110 270 1,230 0 20 840 2,720 300 1,030 0 20 810 2,360 330 970 0 120 7,280 32,980 1,690 30,310 0 20 0 0 0 0 0 0 0 0 0 0 0 740 640 450 360 360 350 310 240 200 170 160 3,240 430 450 470 490 510 540 570 590 620 650 680 5,570 70 70 70 70 70 70 70 70 70 70 70 700 –80 –120 –100 –80 –60 –40 –10 0 0 0 0 –410 90 60 30 70 160 430 520 350 210 110 30 1,970 –820 –460 –370 –280 –190 –90 –20 0 0 0 0 –1,410 100 70 70 50 30 –10 –50 –80 –120 –140 –140 –320 0 –110,850 175 16. Tax Expenditures Table 16–1. ESTIMATES OF TOTAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2018–2028—Continued (In millions of dollars) Total from corporations and individuals 2018 28 Amortize all geological and geophysical expenditures over 2 years �������������������������������������������� 29 Allowance of deduction for certain energy efficient commercial building property �������������������������� 30 Credit for construction of new energy efficient homes ���������������������������� 31 Credit for energy efficiency improvements to existing homes � 32 Credit for residential energy efficient property ��������������������������������������� 33 Qualified energy conservation bonds 5 ��� 34 Advanced Energy Property Credit ���� 35 Advanced nuclear power production credit �������������������������������������������� 36 Reduced tax rate for nuclear decommissioning funds ��������������� Natural resources and environment: 37 Expensing of exploration and development costs, nonfuel minerals ��������������������������������������� 38 Excess of percentage over cost depletion, nonfuel minerals ���������� 39 Exclusion of interest on bonds for water, sewage, and hazardous waste facilities ������������������������������ 40 Capital gains treatment of certain timber income ������������������������������ 41 Expensing of multiperiod timber growing costs ������������������������������� 42 Tax incentives for preservation of historic structures ������������������������ 43 Carbon oxide sequestration credit ���� 44 Deduction for endangered species recovery expenditures ����������������� Agriculture: 45 Expensing of certain capital outlays ��� 46 Expensing of certain multiperiod production costs �������������������������� 47 Treatment of loans forgiven for solvent farmers ���������������������������� 48 Capital gains treatment of certain agriculture income ����������������������� 49 Income averaging for farmers ����������� 50 Deferral of gain on sale of farm refiners ����������������������������������������� 51 Expensing of reforestation expenditures �������������������������������� 2019 2020 2021 2022 2023 2024 2025 2026 2027 2019– 2028 2028 230 180 180 190 210 220 230 250 290 320 340 2,410 40 10 0 0 0 0 0 0 0 0 0 10 120 50 10 0 0 0 0 0 0 0 0 60 260 0 0 0 0 0 0 0 0 0 0 0 1,900 30 0 1,530 30 10 1,180 30 10 770 30 10 190 30 20 30 30 20 0 30 20 0 30 20 0 30 20 0 30 20 0 30 20 3,700 300 170 0 80 200 300 340 340 340 140 0 0 0 1,740 90 100 100 110 110 120 120 130 130 140 150 1,210 50 20 30 30 50 60 50 30 40 40 50 400 330 250 250 250 250 260 270 280 310 330 330 2,780 320 340 350 370 410 440 460 470 500 530 540 4,410 160 140 130 130 140 140 150 150 170 190 200 1,540 220 200 210 220 230 250 250 270 290 320 340 2,580 290 200 140 110 240 70 350 120 470 190 520 260 530 350 550 440 560 540 570 630 590 720 4,520 3,430 30 30 30 30 30 30 40 40 40 60 60 390 160 150 160 170 180 190 190 200 250 280 290 2,060 260 250 270 280 290 310 320 340 420 460 480 3,420 30 30 30 30 40 40 40 40 70 70 70 460 1,590 100 1,380 110 1,330 110 1,340 120 1,370 120 1,410 130 1,470 130 1,540 140 1,720 230 1,900 230 1,990 230 15,450 1,550 15 15 15 15 15 15 20 20 20 20 20 175 50 50 60 70 70 80 80 80 90 100 100 780 2,380 1,861 2,010 2,097 2,214 2,340 2,411 2,511 2,692 2,865 3,016 24,017 13,510 14,350 15,550 16,600 17,520 18,460 19,390 20,340 21,690 23,480 24,630 192,010 30 40 40 40 40 50 50 50 60 60 60 490 480 320 330 340 350 360 370 380 400 410 420 3,680 10 0 0 0 0 0 0 0 0 0 0 0 Commerce and housing: Financial institutions and insurance: Exemption of credit union income ���� Exclusion of life insurance death benefits ������������������������������������ 54 Exemption or special alternative tax for small property and casualty insurance companies 55 Tax exemption of insurance income earned by tax-exempt organizations ��������������������������� 56 Small life insurance company deduction ��������������������������������� 52 53 176 ANALYTICAL PERSPECTIVES Table 16–1. ESTIMATES OF TOTAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2018–2028—Continued (In millions of dollars) Total from corporations and individuals 2018 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 Exclusion of interest spread of financial institutions ����������������� Housing: Exclusion of interest on owneroccupied 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 17 ���������������������������������� Deferral of income from installment sales ���������������������������������������� Capital gains exclusion on home sales ���������������������������������������� Exclusion of net imputed rental income ������������������������������������� Exception from passive loss rules for $25,000 of rental loss ��������� Credit for low-income housing investments ������������������������������ Accelerated depreciation on rental housing (normal tax method) ��� Discharge of mortgage indebtedness ��������������������������� Commerce: Discharge of business indebtedness ��������������������������� Exceptions from imputed interest rules ����������������������������������������� Treatment of qualified dividends ��� Capital gains (except agriculture, timber, iron ore, and coal) �������� Capital gains exclusion of small corporation stock ��������������������� Step-up basis of capital gains at death ���������������������������������������� Carryover basis of capital gains on gifts ������������������������������������������ Ordinary income treatment of loss from small business corporation stock sale ��������������������������������� Deferral of gains from like-kind exchanges ������������������������������� Depreciation of buildings other than rental housing (normal tax method) ����������������������������������� Accelerated depreciation of machinery and equipment (normal tax method) ���������������� Expensing of certain small investments (normal tax method) ����������������������������������� 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 �������������������������� Allow 20-percent deduction to certain pass-through income ��� 2019 2020 2021 2022 2023 2024 2025 2026 2027 2019– 2028 2028 3,900 2,250 1,170 1,210 1,240 1,280 1,310 1,350 1,420 1,480 1,530 14,240 890 920 960 1,020 1,110 1,200 1,260 1,300 1,380 1,440 1,490 12,080 910 960 990 1,060 1,160 1,250 1,310 1,340 1,430 1,490 1,550 12,540 37,160 26,850 29,820 33,090 36,340 39,480 42,480 45,170 93,380 121,910 129,090 597,610 15,360 6,250 6,650 7,100 7,520 7,930 8,300 8,630 42,220 61,210 65,030 220,840 1,700 1,720 1,750 1,790 1,840 1,910 2,000 2,090 2,190 2,290 2,400 19,980 43,760 44,380 46,600 49,000 51,470 54,020 56,690 59,430 67,070 72,600 76,070 577,330 116,590 121,070 125,610 129,970 134,030 138,090 142,130 146,710 188,840 199,400 5,720 6,030 6,390 6,750 7,090 7,400 7,720 8,380 9,330 9,690 10,060 78,840 9,140 9,040 9,070 9,230 9,410 9,620 9,870 10,130 10,430 10,740 10,960 98,500 2,460 2,810 3,410 4,130 4,890 5,600 6,260 6,920 8,500 9,690 10,500 62,710 210 0 0 0 0 0 0 0 0 0 0 0 –50 10 50 50 40 30 20 20 40 50 50 360 50 29,690 60 28,730 60 29,820 70 31,190 70 32,860 70 34,850 70 37,130 70 39,690 90 45,080 90 50,720 90 54,050 740 384,120 118,630 102,910 99,210 99,890 101,950 105,290 109,710 114,910 128,090 141,870 1,010 1,240 1,410 1,530 1,640 1,750 1,850 1,930 2,000 2,080 2,160 17,590 46,730 49,920 51,840 53,630 56,160 58,980 62,450 66,040 69,900 74,220 79,050 622,190 3,330 3,040 3,030 2,930 2,830 2,740 2,710 2,720 2,950 3,180 3,220 29,350 70 70 70 70 70 70 80 80 80 80 90 760 6,800 2,850 2,980 3,140 3,290 3,460 3,630 3,810 4,000 4,190 4,400 35,750 –8,130 –7,600 –8,110 –8,630 –9,170 –9,710 –10,320 –10,780 –11,940 –12,800 –13,460 –102,520 67,820 68,750 65,410 63,890 63,550 43,830 21,700 4,830 –10,750 –25,410 –10,380 285,420 1,430 1,660 2,290 2,690 3,000 4,540 6,350 7,870 10,280 12,270 11,930 62,880 380 0 0 0 0 0 0 0 0 0 0 0 120 120 120 130 140 150 160 170 180 190 200 1,560 3,610 0 0 0 0 0 0 0 0 0 0 0 1,330 –250 –240 –200 –190 –200 –150 –60 –20 –10 –10 –1,330 34,065 53,273 57,429 61,260 64,855 68,493 72,260 76,707 25,831 0 0 480,108 210,190 1,536,040 148,780 1,152,610 177 16. Tax Expenditures Table 16–1. ESTIMATES OF TOTAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2018–2028—Continued (In millions of dollars) Total from corporations and individuals 2018 Transportation: 86 Tonnage tax �������������������������������������� 87 Deferral of tax on shipping companies ����������������������������������� 88 Exclusion of reimbursed employee parking expenses ������������������������ 89 Exclusion for employer-provided transit passes ������������������������������ 90 Tax credit for certain expenditures for maintaining railroad tracks ����������� 91 Exclusion of interest on bonds for Highway Projects and rail-truck transfer facilities ��������������������������� Community and regional development: 92 Investment credit for rehabilitation of structures (other than historic) ����� 93 Exclusion of interest for airport, dock, and similar bonds ������������������������ 94 Exemption of certain mutuals’ and cooperatives’ income ������������������� 95 Empowerment zones ������������������������ 96 New markets tax credit ��������������������� 97 Credit to holders of Gulf Tax Credit Bonds. ������������������������������������������ 98 Recovery Zone Bonds 6 �������������������� 99 Tribal Economic Development Bonds 100 Opportunity Zones ���������������������������� 101 Employee retention credit ����������������� 2019 2020 2021 2022 2023 2024 2025 2026 2027 2019– 2028 2028 80 90 90 90 100 100 110 110 120 130 130 1,070 12 12 12 12 12 12 12 12 12 12 12 120 2,120 2,201 2,271 2,343 2,449 2,495 2,555 2,639 2,717 2,793 2,874 25,337 340 363 383 407 435 453 475 505 532 562 592 4,707 130 40 40 20 20 10 10 10 0 0 0 150 190 170 170 160 160 140 140 130 130 120 110 1,430 10 10 0 0 0 0 0 0 0 0 0 10 560 570 610 640 700 760 790 820 870 910 930 7,600 110 110 1,410 90 50 1,320 90 40 1,280 100 10 1,210 100 10 1,090 100 10 880 100 10 570 110 10 290 110 0 80 110 0 –120 110 0 –250 1,020 140 6,350 170 90 10 460 460 170 90 10 1,980 200 170 90 10 2,510 60 160 90 10 1,850 40 170 90 10 1,730 40 170 100 10 1,340 30 160 90 10 1,390 30 160 90 10 1,320 30 150 80 10 –4,040 20 150 70 10 –5,930 20 130 70 10 490 10 1,590 860 100 2,640 480 3,070 2,840 2,960 3,100 3,250 3,400 3,550 3,720 4,110 4,730 4,920 36,580 17,450 16,300 16,360 16,490 16,550 16,590 16,550 16,440 16,490 17,220 17,280 166,270 30 40 40 40 40 40 40 30 30 30 30 360 2,300 2,090 1,980 2,200 2,030 2,420 2,060 2,650 2,090 2,920 2,110 3,240 2,150 3,630 2,190 4,110 2,280 5,050 2,700 6,050 2,730 7,170 22,320 39,440 240 250 260 280 300 330 340 350 380 390 410 3,290 1,830 1,900 1,990 2,110 2,310 2,500 2,620 2,690 2,860 3,000 3,080 25,060 180 170 150 130 110 90 80 60 50 50 40 930 30 30 30 40 40 40 40 40 50 50 50 410 2,860 0 0 0 0 0 0 0 5,820 8,790 8,940 23,550 5,400 4,140 4,450 4,790 5,100 5,410 5,720 6,020 7,160 9,200 9,620 61,610 880 890 940 990 1,040 1,090 1,140 1,200 1,410 1,560 1,640 11,900 210 180 180 190 220 220 220 230 240 270 270 2,220 90 90 90 90 90 100 100 100 110 120 130 1,020 Education, training, employment, and social services: 102 103 104 105 106 107 108 109 110 111 112 113 114 115 Education: Exclusion of scholarship and fellowship income (normal tax method) ����������������������������������� Tax credits and deductions for postsecondary education expenses 7 ������������������������������� Education Individual Retirement Accounts ���������������������������������� Deductibility of student-loan interest ������������������������������������� Qualified tuition programs ������������� Exclusion of interest on studentloan bonds ������������������������������� Exclusion of interest on bonds for private nonprofit educational facilities ������������������������������������ Credit for holders of zone academy bonds 8 ��������������������� Exclusion of interest on savings bonds redeemed to finance educational expenses �������������� Parental personal exemption for students age 19 or over ����������� Deductibility of charitable contributions (education) ��������� Exclusion of employer-provided educational assistance ������������ Special deduction for teacher expenses ��������������������������������� Discharge of student loan indebtedness ��������������������������� 178 ANALYTICAL PERSPECTIVES Table 16–1. ESTIMATES OF TOTAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2018–2028—Continued (In millions of dollars) Total from corporations and individuals 2018 116 117 118 119 120 121 122 123 124 125 126 127 128 129 Qualified school construction bonds 9 ������������������������������������� Training, employment, and social services: Work opportunity tax credit ����������� Employer provided child care exclusion ���������������������������������� Employer-provided child care credit ���������������������������������������� Assistance for adopted foster children ������������������������������������ Adoption credit and exclusion ������� Exclusion of employee meals and lodging (other than military) ����� Credit for child and dependent care expenses ������������������������� Credit for disabled access expenditures ���������������������������� Deductibility of charitable contributions, other than education and health ��������������� Exclusion of certain foster care payments ��������������������������������� Exclusion of parsonage allowances ������������������������������� Indian employment credit ������������� Credit for employer differential wage payments ������������������������ Health: 130 Exclusion of employer contributions for medical insurance premiums and medical care 10 ���������������������� 131 Self-employed medical insurance premiums ������������������������������������� 132 Medical Savings Accounts / Health Savings Accounts ������������������������ 133 Deductibility of medical expenses ���� 134 Exclusion of interest on hospital construction bonds ���������������������� 135 Refundable Premium Assistance Tax Credit 11 ��������������������������������������� 136 Credit for employee health insurance expenses of small business 12 ����� 137 Deductibility of charitable contributions (health) ������������������� 138 Tax credit for orphan drug research � 139 Special Blue Cross/Blue Shield tax benefits ���������������������������������������� 140 Tax credit for health insurance purchased by certain displaced and retired individuals 13 �������������� 141 Distributions from retirement plans for premiums for health and long-term care insurance ����������������������������� Income security: 142 Child credit 14 ������������������������������������ 143 Exclusion of railroad retirement (Social Security equivalent) benefits ���������������������������������������� 144 Exclusion of workers’ compensation benefits ���������������������������������������� 145 Exclusion of public assistance benefits (normal tax method) ������� 2019 2020 2021 2022 2023 2024 2025 2026 2027 2019– 2028 2028 620 600 570 540 520 490 470 440 410 390 360 4,790 1,450 1,520 1,100 510 320 240 190 140 100 80 60 4,260 720 680 720 780 840 910 990 1,070 1,400 1,610 490 9,490 10 20 20 20 20 20 20 20 20 20 20 200 550 630 630 630 680 700 740 710 810 760 880 780 950 800 1,020 800 1,110 810 1,190 820 1,290 830 9,300 7,640 4,640 4,260 4,390 4,530 4,700 4,890 5,080 5,400 6,340 6,920 7,200 53,710 4,560 4,360 4,460 4,560 4,690 4,870 4,970 5,100 5,330 5,550 5,610 49,500 10 10 10 10 10 10 10 10 10 10 10 100 45,956 36,660 39,540 42,760 45,510 48,270 51,040 53,750 64,790 84,810 88,800 555,930 480 500 520 530 540 550 560 570 570 580 580 5,500 839 40 850 30 896 20 943 20 993 20 1,046 20 1,101 10 1,160 10 1,221 10 1,285 10 1,353 10 10,848 160 0 0 0 0 10 10 20 20 20 20 20 120 205,080 203,290 214,950 227,350 239,620 253,230 268,240 284,210 333,840 370,750 7,420 7,430 7,910 8,440 8,970 9,450 10,010 10,590 12,520 13,870 14,600 103,790 7,410 8,840 7,810 6,890 8,460 7,130 9,080 7,880 9,760 8,740 10,360 9,690 10,880 10,680 11,450 11,700 13,110 17,820 14,240 22,170 14,740 24,200 109,890 126,900 2,700 2,810 2,930 3,120 3,410 3,680 3,860 3,960 4,210 4,420 4,550 36,950 6,790 5,900 5,930 6,000 6,340 6,710 7,050 7,510 8,610 9,330 9,960 73,340 80 70 50 40 20 20 10 10 10 10 10 250 4,890 1,960 3,960 1,550 4,270 1,880 4,620 2,290 4,930 2,780 5,230 3,370 5,530 4,090 5,820 4,960 7,050 6,020 9,270 7,310 9,710 8,840 60,390 43,090 270 290 310 340 360 390 410 440 460 490 520 4,010 20 10 0 0 0 0 0 0 0 0 0 10 430 420 430 450 460 470 490 500 590 630 650 5,090 30,450 76,010 76,930 77,910 78,890 79,910 80,780 81,640 57,830 21,450 21,220 652,570 250 220 210 200 190 180 170 160 160 170 170 1,830 9,590 9,680 9,780 9,880 9,970 10,070 10,170 10,270 10,370 10,480 10,580 101,250 580 580 600 620 640 660 670 700 720 740 690 6,620 391,420 2,786,900 179 16. Tax Expenditures Table 16–1. ESTIMATES OF TOTAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2018–2028—Continued (In millions of dollars) Total from corporations and individuals 2018 146 Exclusion of special benefits for disabled coal miners �������������������� 147 Exclusion of military disability pensions �������������������������������������� 2019 2020 2021 2022 2023 2024 2025 2026 2027 2019– 2028 2028 20 20 20 10 10 10 10 10 10 10 10 120 160 160 160 170 170 180 180 180 210 220 220 1,850 69,910 71,430 73,540 75,290 75,840 76,400 76,830 76,380 77,840 76,440 75,560 755,550 72,260 19,680 75,720 20,620 84,590 23,590 90,670 24,730 97,200 26,510 104,080 28,150 111,230 29,930 118,850 32,000 142,180 37,340 155,000 40,760 1,180 24,940 1,170 24,120 1,180 26,680 1,180 29,680 1,200 32,720 1,190 35,890 1,200 39,260 1,210 42,660 1,330 50,790 1,320 63,450 1,320 69,680 12,300 414,930 2,810 2,810 2,930 3,060 3,190 3,330 3,470 3,630 4,130 4,410 4,590 35,550 330 330 330 340 340 340 350 350 350 350 350 3,430 30 30 40 40 50 50 50 50 60 60 60 490 1,080 2,020 30 4,230 1,150 2,070 40 4,920 1,230 2,130 40 5,220 1,310 2,180 40 5,590 1,400 2,240 40 6,030 1,490 2,300 40 6,340 1,570 2,370 50 6,750 1,670 2,430 50 7,150 1,860 2,500 50 6,720 1,970 2,560 50 6,690 2,080 2,630 60 7,170 15,730 23,410 460 62,580 0 110 8,050 0 0 8,110 0 0 2,660 0 0 2,710 0 0 2,780 0 0 2,850 0 0 2,940 0 0 3,020 0 390 3,100 0 610 10,520 0 650 10,770 0 1,650 49,460 32,970 29,980 31,020 32,090 33,340 34,870 35,460 35,530 40,840 48,030 49,850 371,010 1,080 1,140 1,200 1,270 1,330 1,400 1,460 1,540 1,610 1,690 1,780 14,420 Veterans benefits and services: 165 Exclusion of veterans death benefits and disability compensation �������� 166 Exclusion of veterans pensions �������� 167 Exclusion of GI bill benefits �������������� 168 Exclusion of interest on veterans housing bonds ����������������������������� 8,240 450 1,650 8,180 420 1,610 8,710 430 1,700 9,060 450 1,780 9,400 470 1,870 9,750 480 1,960 10,100 500 2,050 10,480 520 2,140 11,340 560 2,340 12,860 640 2,680 13,340 660 2,810 103,220 5,130 20,940 40 30 30 40 40 40 40 50 50 50 50 420 General purpose fiscal assistance: 169 Exclusion of interest on public purpose State and local bonds ���� 170 Build America Bonds 16 �������������������� 171 Deductibility of nonbusiness State and local taxes other than on owner-occupied homes 17 ������������ 23,130 0 24,080 0 25,100 0 26,740 0 29,270 0 31,550 0 33,060 0 33,950 0 36,120 0 37,870 0 38,990 0 316,730 0 22,330 4,610 7,520 8,000 8,460 8,880 9,280 9,590 84,070 125,130 132,330 397,870 950 850 840 840 830 820 810 800 790 890 900 8,370 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 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: Premiums on group term life insurance ��������������������������������� Premiums on accident and disability insurance ������������������ Income of trusts to finance supplementary unemployment benefits ���������������������������������������� Income of trusts to finance voluntary employee benefits associations ��� Special ESOP rules �������������������������� Additional deduction for the blind ����� Additional deduction for the elderly �� Tax credit for the elderly and disabled ������������������������������������������������������ Deductibility of casualty losses ��������� Earned income tax credit 15 �������������� 164,490 1,144,010 44,170 307,800 Social Security: Exclusion of social security benefits: Social Security benefits for retired and disabled workers and spouses, dependents and survivors ���������������������������������� 164 Credit for certain employer contributions to social security ��� 163 Interest: 172 Deferral of interest on U.S. savings bonds ������������������������������������������� 180 ANALYTICAL PERSPECTIVES Table 16–1. ESTIMATES OF TOTAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2018–2028—Continued (In millions of dollars) Total from corporations and individuals 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2019– 2028 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 �������������������������������������� 15,360 6,250 6,650 7,100 7,520 7,930 8,300 8,630 42,220 61,210 65,030 220,840 22,330 4,610 7,520 8,000 8,460 8,880 9,280 9,590 84,070 125,130 132,330 397,870 Exclusion of interest on State and local bonds for: Public purposes ���������������������������� 23,130 24,080 25,100 26,740 29,270 31,550 33,060 33,950 36,120 37,870 38,990 316,730 Energy facilities ���������������������������� 10 10 10 10 10 10 10 10 10 20 20 120 Water, sewage, and hazardous waste disposal facilities 320 ����������������������������������������������� 340 350 370 410 440 460 470 500 530 540 4,410 Small-issues ��������������������������������� 120 120 120 130 140 150 160 170 180 190 200 1,560 Owner-occupied mortgage subsidies ���������������������������������� 890 920 960 1,020 1,110 1,200 1,260 1,300 1,380 1,440 1,490 12,080 Rental housing ������������������������������ 910 960 990 1,060 1,160 1,250 1,310 1,340 1,430 1,490 1,550 12,540 Airports, docks, and similar facilities ������������������������������������ 560 570 610 640 700 760 790 820 870 910 930 7,600 Student loans �������������������������������� 240 250 260 280 300 330 340 350 380 390 410 3,290 Private nonprofit educational facilities ������������������������������������ 1,830 1,900 1,990 2,110 2,310 2,500 2,620 2,690 2,860 3,000 3,080 25,060 Hospital construction �������������������� 2,700 2,810 2,930 3,120 3,410 3,680 3,860 3,960 4,210 4,420 4,550 36,950 Veterans’ housing ������������������������� 40 30 30 40 40 40 40 50 50 50 50 420 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: 2018 $48; and $0 thereafter. 2 The alternative fuel mixture credit results in a reduction in excise tax receipts (in millions of dollars) as follows: 2018 $710 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: 2018 $3,410 and $0 thereafter. 4 In addition, the credit for holding clean renewable energy bonds has outlay effects of (in millions of dollars): 2018 $40; 2019 $40; 2020 $40; 2021 $40; 2022 $40; 2023 $40; 2024 $40; 2025, $40; 2026 $40; 2017 $40; and 2028 $40. 5 In addition, the qualified energy conservation bonds have outlay effects of (in millions of dollars): 2018 $40; 2019 $40; 2020 $40; 2021 $40; 2022 $40; 2023 $40; 2024 $40; 2025, $40; 2026 $40; 2027 $40; and 2028 $40. 6 In addition, recovery zone bonds have outlay effects (in millions of dollars) as follows: 2018 $290; 2019 $290; 2020 $290; 2021 $290; 2022 $290; 2023 $290; 2024 $290; 2025, $290; 2026 $290; 2027 $290; and 2028 $290. 7 In addition, the tax credits and deductions for postsecondary education expenses have outlay effects of (in millions of dollars): 2018 $3860; 2019 $4040; 2020 $4000; 2021 $3870; 2022 $3760; 2023 $3730; 2024 $3720; 2025 $3700; 2026 $3670; 2027 $3330; and 2028 $3200. 8 In addition, the credit for holders of zone academy bonds has outlay effects of (in millions of dollars): 2018 $60; 2019 $60; 2020 $60; 2021 $60; 2022 $60; 2023 $60; 2024 $60; 2025 $60; 2026 $60; 2027 $60; and 2028 $60. 9 In addition, the provision for school construction bonds has outlay effects of (in millions of dollars): 2018 $795; 2019 $795; 2020 $795; 2021 $795; 2022 $795; 2023 $795; 2024 $795; 2025 $795; 2026 $795; 2027 $795; and 2028 $795. 10 In addition, the employer contributions for health have effects on payroll tax receipts (in millions of dollars) as follows: 2018 $131850; 2019 $136,880; 2020 $143,060; 2021 $149,500; 2022 $156,100; 2023 $163,730; 2024 $172,170; 2025 $180,970; 2026 $189,960; 2027 $199,570; and 2028 $209,850. 11 In addition, the premium assistance credit provision has outlay effects (in millions of dollars) as follows: 2018 $39,550; 2019 $37,480; 2020 $36,480; 2021 $37,520; 2022 $39,080; 2023 $40,810; 2024 $42,640; 2025 $44,510; 2026 $45,690; 2027 $47,370; and 2028 $49,350. 12 In addition, the small business credit provision has outlay effects (in millions of dollars) as follows: 2018 $20; 2019 $20; 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) 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): 2018 $35,000; 2019 $44,960; 2020 $45,470; 2021 $45,720; 2022 $45,950; 2023 $47,630; 2024 $47,630; 2025 $47,890; 2026 $69,550; 2027 $30,970; and 2028 $30,940. The child tax credit line also includes the credit for other dependents (in millions of dollars): 2018 $3,980; 2019 $9,560; 2020 $9,750; 2021 $9,920; 2022 $10,060; 2023 $10,280; 2024 $10,380; 2025 $10,430; 2026 $3,180; 2027 $0; and 2028 $0. 15 In addition, the earned income tax credit on receipts has outlay effects of (in millions of dollars): 2018 $58,500; 2019 $ 60,250; 2020 $66,680; 2021 $67,740; 2022 $68,910; 2023 $70,210; 2024 $71,600; 2025 $72,820; 2026 $73,529; 2027 $67,380; and 2028 68,460. 16 In addition, the Build America Bonds have outlay effects of (in millions of dollars): 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; 2027 $3,610; and 2028 $3,610. 17 Because of interactions with the $10,000 cap on state and local tax deductions for the years 2018 through 2025, these estimates understate the combined effects of repealing deductions for both owner occupied housing and other taxes. The estimate of repealing both is (in millions of dollars): 2018 $41,090; 2019 $17,360; 2020 $21,470; 2021 $23,310; 2022 $25,200; 2023 $27,060; 2024 $28,880; 2025 $30,540; 2026 $131,460; 2027 $187,990; and 2028 $199,290. 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. 181 16. Tax Expenditures Table 16–2A. ESTIMATES OF TOTAL CORPORATE INCOME TAX EXPENDITURES FOR FISCAL YEARS 2018-2028 (In millions of dollars) Total from corporations 2018 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 Reduced tax rate on active income of controlled foreign corporations ������� 6 Deduction for foreign-derived intangible income dervied from trade or business within the United States ��� 7 Interest Charge Domestic International Sales Corporations (IC-DISCs) ������ General science, space, and technology: 8 Expensing of research and experimentation expenditures (normal tax method) ����������������������� 9 Credit for increasing research activities ���� Energy: 10 Expensing of exploration and development costs, fuels ���������������� 11 Excess of percentage over cost depletion, fuels ������������������������������� 12 Exception from passive loss limitation for working interests in oil and gas properties ��������������������������������������� 13 Capital gains treatment of royalties on coal ������������������������������������������������� 14 Exclusion of interest on energy facility bonds ���������������������������������������������� 15 Enhanced oil recovery credit ��������������� 16 Energy production credit 1 ������������������� 17 Marginal wells credit ���������������������������� 18 Energy investment credit 1 ������������������� 19 Alcohol fuel credits 2 ���������������������������� 20 Bio-Diesel and small agri-biodiesel producer tax credits 3 ���������������������� 21 Tax credits for clean-fuel burning vehicles and refueling property ������� 22 Exclusion of utility conservation subsidies ����������������������������������������� 23 Credit for holding clean renewable energy bonds 4 �������������������������������� 24 Deferral of gain from dispositions of transmission property to implement FERC restructuring policy �������������� 25 Credit for investment in clean coal facilities ������������������������������������������� 26 Temporary 50% expensing for equipment used in the refining of liquid fuels ��������������������������������������� 27 Natural gas distribution pipelines treated as 15-year property ������������ 28 Amortize all geological and geophysical expenditures over 2 years �������������� 29 Allowance of deduction for certain energy efficient commercial building property ������������������������������������������ 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2019–28 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,250 0 0 0 0 0 0 0 0 0 0 0 63,400 34,490 38,950 41,870 43,500 34,020 20,510 9,410 45,150 73,890 77,270 419,060 4,290 7,420 7,970 9,730 10,990 11,440 11,950 12,490 9,090 6,880 7,220 95,180 1,220 1,280 1,340 1,410 1,480 1,560 1,630 1,720 1,800 1,890 1,990 16,100 7,670 11,880 6,020 12,850 6,630 14,100 7,510 15,390 –25,180 16,640 –40,820 17,870 –29,740 19,110 –17,890 20,390 –5,210 21,680 0 22,990 0 24,320 –98,680 185,340 420 370 360 330 310 310 310 320 430 520 540 3,800 250 210 300 380 420 440 470 490 520 540 560 4,330 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 310 2,360 0 2,400 0 0 420 2,430 0 3,240 0 0 460 2,490 20 3,850 0 0 500 2,630 20 3,960 0 0 530 2,760 30 3,520 0 0 600 2,820 40 2,740 0 0 650 2,780 60 1,870 0 0 680 2,680 70 1,300 0 0 680 2,330 80 950 0 0 670 2,040 90 790 0 0 650 1,770 100 740 0 0 5,840 24,730 510 22,960 0 0 0 0 0 0 0 0 0 0 0 0 0 260 200 130 110 110 100 80 60 50 40 40 920 20 20 20 20 20 20 20 20 20 20 20 200 20 20 20 20 20 20 20 20 20 20 20 200 –80 –120 –100 –80 –60 –40 –10 0 0 0 0 –410 80 50 30 60 140 390 470 320 190 100 30 1,780 –820 –460 –370 –280 –190 –90 –20 0 0 0 0 –1,410 100 70 70 50 30 –10 –50 –80 –120 –140 –140 –320 140 110 110 120 130 140 140 150 160 160 170 1,390 10 0 0 0 0 0 0 0 0 0 0 0 182 ANALYTICAL PERSPECTIVES Table 16–2A. ESTIMATES OF TOTAL CORPORATE INCOME TAX EXPENDITURES FOR FISCAL YEARS 2018–2028—Continued (In millions of dollars) Total from corporations 2018 30 Credit for construction of new energy efficient homes ������������������������������� 31 Credit for energy efficiency improvements to existing homes ���� 32 Credit for residential energy efficient property ������������������������������������������ 33 Qualified energy conservation bonds 5 34 Advanced Energy Property Credit ������� 35 Advanced nuclear power production credit ����������������������������������������������� 36 Reduced tax rate for nuclear decommissioning funds ������������������ Natural resources and environment: 37 Expensing of exploration and development costs, nonfuel minerals ������������������������������������������ 38 Excess of percentage over cost depletion, nonfuel minerals ������������� 39 Exclusion of interest on bonds for water, sewage, and hazardous waste facilities ��������������������������������� 40 Capital gains treatment of certain timber income ��������������������������������� 41 Expensing of multiperiod timber growing costs ���������������������������������� 42 Tax incentives for preservation of historic structures ��������������������������� 43 Carbon oxide sequestration credit ������� 44 Deduction for endangered species recovery expenditures �������������������� Agriculture: 45 Expensing of certain capital outlays ���� 46 Expensing of certain multiperiod production costs ����������������������������� 47 Treatment of loans forgiven for solvent farmers ������������������������������������������� 48 Capital gains treatment of certain agriculture income �������������������������� 49 Income averaging for farmers �������������� 50 Deferral of gain on sale of farm refiners ���� 51 Expensing of reforestation expenditures ����������������������������������� 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2019–28 40 10 0 0 0 0 0 0 0 0 0 10 0 0 0 0 0 0 0 0 0 0 0 0 0 10 0 0 10 10 0 10 10 0 10 10 0 10 20 0 10 20 0 10 20 0 10 20 0 10 20 0 10 20 0 10 20 0 100 170 0 80 200 300 340 340 340 140 0 0 0 1,740 90 100 100 110 110 120 120 130 130 140 150 1,210 30 10 20 20 30 40 30 20 20 20 30 240 280 210 210 210 210 220 230 240 250 260 260 2,300 50 40 30 30 30 30 30 30 20 20 20 280 0 0 0 0 0 0 0 0 0 0 0 0 110 90 90 100 100 110 110 120 120 130 140 1,110 230 200 120 110 210 70 310 120 420 190 460 260 470 350 480 440 490 540 500 630 510 720 3,970 3,430 10 10 10 10 10 10 10 10 10 20 20 120 10 10 10 10 10 10 10 10 10 10 10 100 10 10 10 10 10 10 10 10 10 10 10 100 0 0 0 0 0 0 0 0 0 0 0 0 0 0 15 0 0 15 0 0 15 0 0 15 0 0 15 0 0 15 0 0 20 0 0 20 0 0 20 0 0 20 0 0 20 0 0 175 10 0 10 10 10 10 10 10 10 10 10 90 2,380 1,861 2,010 2,097 2,214 2,340 2,411 2,511 2,692 2,865 3,016 24,017 1,260 1,320 1,390 1,460 1,530 1,610 1,690 1,780 1,870 1,960 2,050 16,660 30 40 40 40 40 50 50 50 60 60 60 490 480 320 330 340 350 360 370 380 400 410 420 3,680 10 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 140 100 90 80 80 80 80 80 60 50 60 760 Commerce and housing: 52 53 54 55 56 57 Financial institutions and insurance: Exemption of credit union income ��� Exclusion of life insurance death benefits ��������������������������������������� Exemption or special alternative tax for small property and casualty insurance companies ������������������ Tax exemption of insurance income earned by tax-exempt organizations ������������������������������ Small life insurance company deduction ������������������������������������ Exclusion of interest spread of financial institutions �������������������� Housing: 58 Exclusion of interest on owneroccupied mortgage subsidy bonds ������������������������������������������ 183 16. Tax Expenditures Table 16–2A. ESTIMATES OF TOTAL CORPORATE INCOME TAX EXPENDITURES FOR FISCAL
@FedFRASER