Full text of Mid-Session Review of the Budget : Fiscal Year 2002
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F ISCAL YEAR 2002 MID-SESSION REVIEW BUDGET OF THE UNITED STATES GOVERNMENT August 22, 2001 The Honorable J. Dennis Hastert Speaker of the House of Representatives Washington, DC 20515 Dear Mr. Speaker: Section 1106 of Title 31, United States Code, requires that the President transmit to the Congress a supplemental update of the Budget that was transmitted to the Congress earlier in the year. This supplemental update of the Budget, commonly known as the Mid-Session Review, contains revised estimates of the budget surplus, receipts, outlays, and budget authority for fiscal years 2001 through 2011 and other summary information required by statute. This report also includes the 0MB Sequestration Update Report to the President and Congress for Fiscal Year 2002, as required by the Budget Enforcement Act of 1990 (BEA), as amended. The report provides current estimates of the status of discretionary spending and the discretionary spending limits. It also provides the status of pay-as-you-go legislation based on reports transmitted to date. The report shows that, in the absence of changes in the caps and payas-you-go requirements, the law would require large automatic reductions in both discretionary and mandatory programs. The Administration will work with Congress to ensure that no unintended sequesters of spending occur. Sincerely, Mitchell E. Daniels, Jr. Director Enclosure Identical Letter Sent to The President of the Senate TABLE OF CONTENTS Page Transmittal Letter Table of Contents ............................................................................................................... i List of Tables ...................................................................................................................... iii List of Charts ..................................................................................................................... iv Summary ............................................................................................................................ 1 Maximum Debt Retirement and Projected Surpluses .................................................... 11 Medicare ............................................................................................................................. 13 Economic Assumptions ...................................................................................................... 17 Receipts ............................................................................................................................... 23 Spending ............................................................................................................................. 25 Summary Tables ................................................................................................................ 31 Appendix A: Basis of Social Security Tax Receipts in the Budget ................................ 49 Appendix B: Sequestration Update Report to the President and Congress for 2002 53 GENERAL NOTES 1. All years referred to are fiscal years unless otherwise noted. 2. All totals in the text and tables display both on-budget and offbudget spending and receipts unless otherwise noted. 3. Details in the tables and text may not add to totals due to rounding. 4. Web address: http://www.whitehouse.gov/omb/budget i LIST OF TABLES Page Mid-Session Review Table 1. Change in Budget Policy Surpluses ............................................................. 4 Table 2. Current Surplus Totals .................................................................................. 7 Table 3. April and Mid-Session Budget Totals ........................................................... 8 Table 4. Medicare Fully Funded Under All Budget Scenarios ................................. 13 Table 5. Economic Assumptions .................................................................................. 20 Table 6. Change in Receipts ........................................................................................ 24 Table 7. Change in Outlays ......................................................................................... 27 Table 8. Estimated Spending from 2002 Balances of Budget Authority: Discretionary Programs ............................................................................ 31 Table 9. Outlays for Mandatory Programs Under Current Law .............................. 32 Table 10. Mandatory Proposals ..................................................................................... 33 Table 11. Effect of Proposals on Receipts ..................................................................... 35 Table 12. Outlays by Category ...................................................................................... 37 Table 13. Receipts by Source ......................................................................................... 38 Table 14. Outlays by Agency ......................................................................................... 39 Table 15. Outlays by Function ...................................................................................... 40 Table 16. Discretionary Budget Authority by Agency ................................................. 41 Table 17. Discretionary Budget Authority by Function .............................................. 42 Table 18. Mid-Session Baseline Totals ......................................................................... 43 Table 19. Federal Government Financing and Debt .................................................... 44 Appendix A. Basis of Social Security Tax Receipts in the Budget Table A–1. On-Budget and Social Security Surpluses ................................................... Appendix B. 50 Sequestration Update Report to the President and Congress for 2002 Table 1. Historical Summary of Changes to Discretionary Spending Limits .......... 56 Table 2. Discretionary Spending Limits ..................................................................... 58 Table 3. Summary of 2001 Discretionary Appropriations ......................................... 61 iii Page Table 4. Status of 2002 Appropriations Actions ......................................................... 62 Table 5. Comparison of OMB and CBO Discretionary Spending Limits ................. 64 Table 6. Net Cost of Pay-As-You-Go Legislation Enacted as of August 15, 2001 ........................................................................................ 68 Pay-As-You-Go Legislation with Impact of $500,000 or Less Enacted as of August 15, 2001 ................................................................ 69 Table 7. LIST OF CHARTS iv Chart 1. Second Largest Surplus in History ................................................................. 1 Chart 2. Social Security Surpluses Alone Exceed Maximum Retireable Debt ........... 3 Chart 3. Average Percentage Growth by Agency .......................................................... 6 Chart 4. Medicare 2002 Shortfall ................................................................................... 14 Chart 5. Medicare Long-Term Shortfall ........................................................................ 14 SUMMARY Despite a nearly stagnant economy, the government’s finances are remarkably sound. The budget’s enormous surpluses have allowed us to deliver significant tax relief to working Americans, providing badly needed fiscal stimulus to counteract the year-long slowdown in the economy. Even while weathering the slowdown and taking action on tax relief, we continue to take in huge surplus revenues, and to use the extra receipts to steadily reduce the nation’s outstanding debt. The current estimate for the 2001 surplus is $158 billion, the second highest in history. This is lower than the $281 billion surplus estimated in the April Budget. The lower surplus is due largely to the year-long economic slowdown and the decision to incorporate immediate fiscal stimulus, in the Economic Growth and Tax Relief Reconciliation Act. The 2002 surplus projection is $173 billion, compared to April’s $231 billion estimate. Over the 10 years from 2002 to 2011, the surplus totals $3,113 billion, down from the $3,433 billion estimated in April. Both this year and next year, the overall budget surpluses are equal to the surpluses generated by Social Security payroll taxes (and interest earnings). The President and Congress are both committed to preserving the Social Security surplus for debt reduction. As a result, the additional surplus available for new spending or further tax relief in the next few years is limited. In order to fully reserve the Social Security surplus for debt reduction, any further initiatives beyond those included in this review will also have to be accompanied by offsets in other areas. Chart 1. Second Largest Surplus in History Despite an Economic Slowdown Billions of dollars 300 Current Economic Slowdown Started 3rd Quarter 2000 200 100 0 -100 Recessions -200 -300 1969 1973 1977 1981 1985 1989 1993 1997 2001 1 2 Tax Relief for Working Americans From the Administration’s first day in office, President Bush worked to deliver on his campaign promise of meaningful tax relief. This package, which was originally crafted to ensure long-term economic growth and to return excess surplus funds to taxpayers, became even more urgent as the extent of the economic slowdown became apparent. Congress moved with exceptional speed in response to the President’s plan. On June 7, 2001 the President signed the Economic Growth and Tax Relief Reconciliation Act of 2001. This historic measure of tax relief reduces the bottom marginal tax rate from 15 percent to 10 percent, delivering savings to every income taxpayer, and reduces the top rate to a maximum of 35 percent. It also doubles the child tax credit from $500 to $1,000, enhances incentives for investment in education, eliminates the marriage penalty, phases out the death tax, and encourages retirement saving. Of immediate importance, the tax measure includes a rebate provision that puts $38 billion in savings from the new 10 percent bracket quickly and directly back in the taxpayers’ hands. The rebate checks, which taxpayers are receiving in the months of July, August, and September, could not have come at a better time to invigorate today’s shaky economy. Economic growth has slowed steadily for over a year to a point that it has nearly stopped. The rebate checks will help prevent further deterioration by supporting consumer spending. Reserving the Social Security Surplus for Debt Reduction A strong bipartisan consensus has arisen in this country, and in the Congress, to preserve very large surpluses as a threshold condition of public finance. Both parties and both the Legislative and Executive Branches, in this Administration and the previous one, have concurred in maintaining a surplus at least the size of the Social Security surplus. Some would set the minimum surplus level even higher, using as a target the artificial MID–SESSION REVIEW overage in the Medicare Part A trust fund. This is a relatively modest difference, amounting to a question of whether the minimum surplus should be more like 8.0 percent or 9.5 percent of total receipts. It is also a difference that is completely irrelevant either to the level of future Medicare benefits or to the health of the trust fund financing those benefits, which will be exactly the same size regardless of the level of the overall budget surplus. (For further discussion, see the Medicare section of this document.) There are several reasons that the Social Security surplus makes a good surplus target. First, unlike Medicare, which costs much more than it takes in, Social Security is in true surplus for the moment. Second, the Administration and a majority of Americans hope for reform that converts a portion of Social Security receipts from mere IOUs to real assets, owned by the worker who paid those taxes. At that point, the notion of a Social Security ‘‘lockbox’’ will take on real, literal meaning. The final reason for choosing this surplus target is that it permits the Treasury to achieve—with some room to spare—the maximum amount of debt retirement possible. Over the next 10 years, Social Security will take in excess funds of $2.5 trillion, whereas maximum debt retireable without incurring unjustifiable premium expenses is between $2.0 trillion and $2.2 trillion. This year, the Treasury will eliminate well over $100 billion of existing debt, marking the fourth year in a row of such reductions. Further such reductions are scheduled for each succeeding year. This is an important accomplishment for which both political parties, both branches of government, and both the current and prior administrations deserve credit. The update of the budget outlook in this Mid-Session Review foresees continued large surpluses above the size of the Social Security surplus for all years in the budget horizon. The President is determined to preserve surpluses at this level, and to continue using these funds for the steady reduction of outstanding publicly held debt. 3 SUMMARY Chart 2. Social Security Surpluses Alone Exceed Maximum Retireable Debt Trillions of dollars 4 All Other 3 Medicare Part A "Surplus" 2 Maximum Retireable Debt By 2011 Likely Range is $2.0 to $2.2 Trillion Social Security Debt At The End Of 2001 Trust Fund Surpluses 2002-2011 1 0 Changes in the Economic and Budget Outlook Since April Since the President submitted his budget in April, the extent of the economic slowdown has become more evident. In retrospect, its length and depth are clear: the stock market began to fall in March, 2000; manufacturing employment in August, 2000; and GDP growth in the third quarter of 2000. Overall, the economy has grown at only a 1.3 percent rate since the second quarter of last year, including an estimated 0.7 percent annual growth rate in the most recently completed quarter. As discussed in a subsequent section of this review, the Administration—and other forecasters—believe that recent interest rate cuts by the Federal Reserve, coupled with the fiscal stimulus from the Economic Growth and Tax Relief Reconciliation Act, will spur the economy back to solid, sustainable growth by next year. 4 MID–SESSION REVIEW Table 1. CHANGE IN BUDGET POLICY SURPLUSES (In billions of dollars) 2001 2002 2002–2011 April budget estimate of total surplus ............................................... Social Security surplus .................................................................... Non-Social Security surplus ............................................................ 281 159 122 231 175 56 3,433 2,583 850 Change since April: Tax rebates and other enacted tax changes ................................... Corporate tax timing shift ............................................................... Medicare Reform policy ................................................................... Tax proposals .................................................................................... Defense requirements ...................................................................... Farm assistance and other policy ................................................... Economic and technical adjustments .............................................. Related debt service ......................................................................... –40 –28 3 ................ –4 –5 –46 –1 –40 28 11 3 –11 –1 –44 –6 25 28 –37 43 –198 1 –46 –136 Total, change ................................................................................. –123 –59 –320 Current policy surplus ......................................................................... Social Security surplus 1 .................................................................. Non-Social Security surplus 1 .......................................................... 158 157 1 173 171 1 3,113 2,538 575 1 The 2001 estimate is adjusted to assign $5.6 billion in prior year receipts to their correct year. See text box on page 9 and Appendix A on page 49. Economic weakness, coupled with the tax rebate action that is designed to counteract that weakness, results in a lower surplus outlook this year and next year. In the current year, economic revisions and technical factors reduce the surplus $46 billion from the April estimate, a difference of about two percent of receipts. Tax rebates and related provisions account for $40 billion, a legislated shift in timing of corporation income tax receipts reduces the surplus another $28 billion, and supplemental spending for meeting national defense and other needs uses $5 billion. This combination of factors and a technical adjustment described below still leaves a very small on-budget surplus for 2001. In 2002, economic and technical revisions are slightly smaller than in 2001. The effect of the tax relief provisions stays level at about $40 billion, while the shift of corporate receipts is recaptured. The net result is a small on-budget surplus. One factor artificially reducing the 2001 on-budget surplus from the April estimate is an upward revision to the Social Security trust fund due to reestimates of payroll taxes paid in previous years. As explained in the accompanying box, this practice has the effect of inflating the current Social Security surplus by adding credits during 2001 for taxes actually paid and collected in 2000, 1999, and earlier years. This reduces the apparent 2001 on-budget surplus by $6 billion. Correcting this distortion by assigning the extra revenues to their appropriate year makes clear that there is a small on-budget surplus in 2001. OMB will review with the Department of the Treasury the possibility of prospective changes to record the adjustments in the correct years. Over the full 10-year budget horizon, the surplus outlook is relatively unchanged from April. The unified surplus total for 2002 through 2011 is now estimated at $3,113 billion, down from the $3,433 billion estimated in the April Budget. The largest factor in the reduction is incorporating the outyear implications of the Administration’s $18.4 billion defense amendment for 2002. This is the first installment, totaling $209 billion, of investment in restoring our national defense capabilities after years of neglect. The tax bill, because it was scaled back during Congressional consideration, increases the surplus slightly relative to the April Budget (which assumed the President’s proposals), while the 10-year economic and technical adjustments reduce the surplus by $46 billion. This update to the President’s budget increases the resources set aside for Medicare modernization, and an integrated prescription 5 SUMMARY drug benefit, to $190 billion over the period 2004 to 2011. This new estimate is consistent with the Framework to Strengthen Medicare that the President announced on July 12th and is $37 billion more than was allocated in total to additional Medicare spending in the April Budget submission over 10 years. The President’s April Budget proposed a program to help low income seniors and those with particularly high prescription drug costs get immediate assistance while Congress considered comprehensive reform. However, with the President’s support, a consensus is now building in Congress which focuses on comprehensive Medicare modernization. The President’s Framework to Strengthen Medicare and his budget reflect this emerging agreement, setting aside substantial resources to meet this objective which could be implemented as soon as 2004. The Administration is committed to continuing to work with the Congress on enacting legislation to strengthen Medicare consistent with the President’s framework. Although the Administration is committed to enacting comprehensive Medicare legislation soon, the President believes we must help seniors get the prescription drugs they need at an affordable price now. That is why the Administration has begun the voluntary Medicare Prescription Drug Discount Card program. This program will allow seniors access to the same kinds of drug discounts that other Americans with good private health insurance currently receive. The President believes that seniors, who face the heaviest burden for prescription drug costs, should not also have to pay the highest retail prices for drugs. The discount card is not a substitute for prescription drug coverage in a reformed Medicare system, but it will bring important relief to seniors who need it beginning next year. Of the current 10-year total surplus, $2,538 billion is from the Social Security trust fund, down slightly from $2,583 billion in April. As noted above, the Administration is devoting as much of this amount as possible to the reduction of publicly held debt. After reserving the Social Security surplus, the remaining 10-year surplus is $575 billion, down from $850 billion in April, with most of this difference attributed to the $198 billion increase in spending on national defense and the additional commitment to Medicare. The Best Course Forward The government’s finances are extremely sound. Only persistent, long-term economic weakness can threaten this position. Hence, promoting a return to vigorous growth must be our common objective. The best course forward is clear: first, we must contain spending over the coming year. Last year’s appropriations, agreed to 8 months ago by the last Congress and the last President, contained the largest oneyear spending increase in history, about $50 billion over 2000. Obviously, a smaller surge in spending last year would have ensured a larger surplus today. The spending growth rates of 1999 through 2001 cannot be repeated if we are to preserve the on-budget surpluses that we have all worked so hard to create. Congress must limit this year’s appropriations to the level of the 2002 Budget Resolution, including the defense amendment recently proposed by the President. Second, Congress and the President must work together to continue restraining total spending in the next few years. Businesses, states, cities, and families do not hesitate to limit their spending when revenues diminish. The fifty state governments recently reported that collectively they are lowering spending growth from 8 percent last year to a more sustainable 3-1/2 percent in 2002. Spending in the federal domestic agencies exploded during the last three years, including growth of 45 percent at the Department of Health and Human Services and 27 percent at Department of Transportation. These departments can benefit from a period of digestion without great growth beyond these expanded levels. The Administration is prepared where necessary to extend the principle of restraint to its own high priority initiatives. The Administration continues to propose several tax initiatives from the April Budget, with the effective dates delayed two years until January 1, 2004. In addition, the Administration proposes to fund other initiatives that 6 MID–SESSION REVIEW Chart 3. Average Annual Percentage Growth by Agency Discretionary Program Level, 1998-2002 Percent 15 11.2 10.6 10 7.5 6.4 6.2 5.1 5.3 5.2 5 4.6 4.6 4.0 3.5 3.1 1.6 0 Agriculture Defense Commerce Energy Education can not be delayed within the additional discretionary resources provided in the budget resolution, and will work with Congress to revise these proposals as necessary to ensure their enactment. There are a number of other items that may place demands on the budget. Consistent with the requirements of the Budget Enforcement Act, action on these or other items with additional costs to the budget must be accompanied by provisions to offset the costs to ensure that no automatic reductions are triggered. Alternatively additional requirements could be funded within the discretionary levels agreed to in the Congressional Budget Resolution including the defense amendment recently proposed by the President. Living within these constraints will ensure that the Social Security surplus is protected and can be fully reserved for debt reduction. Examples of these further requirements include: • Farm bill. The costs of the farm bill now moving through Congress, which restructures farm programs through the next sev- HUD HHS International Interior Assistance Justice Labor Treasury Transportation Veterans Affairs eral years, will have to be offset where necessary to maintain on-budget surplus. • Tax provisions. Several long-standing tax credits and other provisions expire at the end of 2001. The Administration supports the extension of these provisions in a fiscally responsible manner and looks forward to working with Congress to achieve that goal. These expiring provisions include Archer Medical Savings Accounts, the work opportunity tax credit, the welfare-to-work tax credit, provisions dealing with the minimum tax for individuals, and the treatment of active financial services income of foreign subsidiaries. • Response to natural disasters. A high level of disaster related needs could require spending beyond the amounts assumed. • Railroad Retirement Investment Trust. The House-passed Railroad Retirement and Survivors’ Improvement Act (HR 1140) would authorize a new federal trust fund to purchase stocks and bonds. The purchases could amount to $15 billion. Under 7 SUMMARY long-standing budget scoring rules, these purchases would be scored as outlays, the same as purchases of stocks, bonds, and any other asset by all agencies within the federal government. However, section 105 of the House-passed bill directs OMB and CBO not to score outlays for these purchases. Regardless of how the purchases are scored, Treasury would have to pay for them in the same way—by using some of the budget surplus that otherwise would be used to redeem debt held by the public. If all of the purchases were made in 2002, they would exceed the non-Social Security surplus by $14 billion. Treasury would have to use $14 billion of the surplus generated by Social Security to finance the remainder. Table 2. This Mid-Session Review presumes a policy of fiscal restraint, but restraint does not mean paralysis. The President’s management initiatives and the on-going review of programs at all levels will result in our ability to do more with the same or similar resources. In government, as in any business or family, the burden of proof must be placed on spending proponents to demonstrate the ongoing value received for whatever money is being spent today. Any healthy organization constantly searches for ways to redeploy money from less efficient to more efficient purposes, and it is past time for the federal government to adopt this outlook. We expect that improvements in managing resources that are already underway will pay greater dividends than the exclusive focus on incremental new resources. Excellence is defined by continuing to raise the bar of performance and achievement. CURRENT SURPLUS TOTALS (In billions of dollars) 2001 2002 Overall Surplus ........................................................ Social Security 1 ................................................... 158 157 173 171 Postal Service ....................................................... On-Budget 1 .......................................................... –1 2 –3 4 Non-Social Security .......................................... 1 1 Examples of potential further requirements • • • • Extend expiring tax provisions Farm Bill Funding for natural disasters Railroad Retirement Investment Trust 1 The 2001 estimate is adjusted to assign $5.6 billion in prior year receipts to their correct year. See text box on page 9 and Appendix A on page 49. 8 Table 3. APRIL AND MID–SESSION BUDGET TOTALS (In billions of dollars) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2002–2006 2002–2011 April Budget: Revenues ............................................................. Outlays ................................................................ 2,137 1,856 2,192 1,961 2,258 2,016 2,339 2,077 2,438 2,169 2,529 2,224 2,643 2,303 2,771 2,398 2,910 2,490 3,058 2,593 3,233 2,706 11,755 10,446 26,370 22,938 Surplus ................................................................ Social Security ................................................ Non-Social Security ........................................ 281 159 122 231 175 56 242 193 49 262 210 52 269 235 34 305 251 54 340 270 70 373 286 87 420 301 118 465 322 143 526 341 186 1,309 1,063 246 3,433 2,583 850 Mid-Session Review:. Revenues ............................................................. Outlays ................................................................ 2,013 1,855 2,135 1,962 2,220 2,025 2,328 2,111 2,463 2,208 2,553 2,272 2,668 2,354 2,797 2,447 2,941 2,543 3,095 2,648 3,245 2,761 11,698 10,578 26,444 23,331 Surplus ................................................................ Social Security 1 .............................................. Non-Social Security 1 ...................................... 158 157 1 173 171 1 195 192 2 217 211 6 254 236 19 281 249 32 314 266 47 350 280 70 398 293 105 447 311 136 484 328 157 1,119 1,059 60 3,113 2,538 575 Change: Revenues ............................................................. Outlays ................................................................ –124 –1 –57 2 –38 9 –11 34 25 40 24 48 24 51 27 49 31 52 36 54 13 55 –58 132 74 393 Surplus ................................................................ Social Security ................................................ Non-Social Security ........................................ –123 –2 –121 –59 –4 –55 –47 –* –47 –45 1 –46 –15 * –15 –24 –1 –23 –26 –3 –23 –22 –6 –17 –21 –8 –13 –18 –11 –7 –42 –13 –29 –190 –4 –186 –320 –45 –275 * $500 million or less. 1 The 2001 estimate is adjusted to assign $5.6 billion in prior year receipts to their correct year. See text box on page 9 and Appendix A on page 49. MID–SESSION REVIEW 9 SUMMARY Accurate Accounting for Social Security The President is committed to reserving the Social Security surplus for debt reduction and Social Security reform. It is evident that there is a widespread, bipartisan consensus that this is the right goal for fiscal policy this year and in the years ahead. Current estimates indicate the total budget surplus will be $158 billion in 2001, or about $1 billion more than the Social Security surplus. 2001 Surplus Estimates (In billions of dollars) Total Budget Surplus ....................................................... Social Security Surplus .................................................... 158 157 Non-Social Security Surplus ............................................ 1 On-budget Surplus ........................................................... Postal Service Loss (off-budget) ...................................... Non-Social Security Surplus ............................................ 2 –1 1 Given the heightened status, real and symbolic, of the Social Security surplus, it is important to measure it accurately. Current budget practices potentially confuse that measurement in two important ways. First, the shorthand approach of using the off-budget surplus as a proxy for the Social Security surplus combines Social Security transactions with those of the Postal Service, the only other ‘‘off-budget’’ program. The Postal Service is supposed to break even at a minimum, and in most past years it did. But in 2001 it is estimated to lose approximately $1 billion, so the true Social Security surplus is larger than the off-budget figure by that amount. Second, a large correction to prior year estimates of Social Security payroll tax collections will be booked in 2001, crediting the trust fund balances with an additional $5.6 billion. This correction reflects the fact that the Social Security surplus was larger than previously thought in 1998, 1999, and in 2000. (There is a lag of a year or more before the necessary information is available to determine exactly what portion of tax proceeds stemmed from Social Security payroll taxes.) Counting this revenue as though it had been paid in 2001 overstates the Social Security surplus for this year. Precise accuracy in determining the Social Security surplus in any year requires comparing revenue to actual expenditures.* In 2001, the excess of Social Security revenues over expenditures is $157 billion. (See Appendix A for additional details). * This correction has been made in this report for the sake of accuracy. Other official publications may use the historical method and therefore report slightly different figures. OMB will review with the Department of the Treasury the possibility of prospective changes to record the adjustments in the correct years. MAXIMUM DEBT RETIREMENT AND PROJECTED SURPLUSES The Mid-Session Review (MSR) estimates that federal budget surpluses will continue to allow the government to repay historic amounts of the publicly held debt. Since its peak in 1997 at $3.8 trillion, the debt held by the public has fallen by $363 billion through the end of 2000. This review projects that debt held by the public will fall to $3.3 trillion at the end of the current year. From 2002 through 2011, the MSR estimates that surpluses will allow a total of $2.0 trillion to $2.2 trillion in debt repayment. At the end of 2011, the debt will total around $1.1 trillion, or 6.1 percent of gross domestic product (GDP). This will be the lowest ratio of debt to GDP since 1917. As in the April Budget, the MSR projects that before the end of the budget horizon, the large budget surpluses will exceed the amount of publicly held debt that is available to be redeemed. While short-term Treasury bills roll over constantly and hence can be paid down easily, a significant amount of Treasury debt is longer-term notes and bonds that do not mature for as long as 30 years. Certain types of outstanding debt, such as savings bonds, serve other public policy purposes besides financing past government deficits and are expected to continue to be issued for a number of years. The amount of non-redeemable debt will depend on many debt management decisions that have not yet been made and will not be made until the appropriate future occasions. The MSR therefore makes a number of simplified assumptions that are not intended to prejudge future debt management decisions. As of June 2001, there were $0.5 trillion in bonds with maturity dates beyond 2011, the end of the current 10-year budget horizon. This review assumes that Treasury will diminish its auctions of notes and bonds over the next few years, but that the remaining auctions will add another $0.1 trillion in securities with post-2011 maturity dates. The MSR also assumes that nonmarketable securities will total $0.5 trillion in 2011. About three-quarters of these securities consist of savings bonds and securities issued to state and local governments to meet certain tax requirements. The remainder includes zero-coupon securities issued to foreign governments and the Resolution Funding Corporation, as well as securities held by the Federal Thrift Savings Plan on behalf of federal employees and retirees. Treasury’s current program to repurchase outstanding bonds before maturity will reduce somewhat the amount of these long-maturity securities that will remain outstanding in 2011. The MSR assumes that $35 billion in buybacks will be settled in 2001 and another $40 billion in 2002. While the buyback program may well continue beyond that year, at some point the remaining long-maturity Treasury securities would acquire a scarcity premium, making it financially unwise for Treasury to continue the program. The reduction in publicly held debt closely tracks the size of the unified surplus, but the two are not identical. Certain transactions create cash requirements that are not included in the measured surplus. These transactions include increases in the government’s cash balances, issues of student loans and other federal direct loans, and premiums paid to repurchase Treasury debt. These cash requirements are usually small in relation to the surplus. Because surpluses in 2010 and beyond exceed the estimated amount of debt that is available to be redeemed, running larger surpluses does not result in additional debt repayment. These amounts are instead assumed to accumulate as excess balances. The Administration opposes investing such 11 12 balances outside the federal government on the grounds that this would inevitably lead MID–SESSION REVIEW to unwarranted government interference in the private economy. MEDICARE TRUST FUNDS 1 Every dollar of Medicare funding is spent on Medicare and Medicare alone in the President’s budget. The President’s budget fully funds both the Medicare Hospital Insurance (HI) Trust Fund and Medicare benefits for our nation’s seniors and disabled, as required by law. Under the President’s budget, the Medicare HI Trust Fund balance will increase by $537 billion, and Medicare spending will reach the highest levels ever, nearly doubling over the next 10 years. The President’s budget protects the Medicare program for future generations and continues the promise of full financing of Medicare benefits. In 2001 the Medicare HI Trust Fund, which provides hospital insurance to seniors and is funded by a payroll tax, will collect $175 billion and spend $143 billion, yielding a $32 billion surplus. Federal law requires that this $32 billion overage be credited to the Medicare HI Trust Fund. However, the federal government does not keep actual dollars in the Medicare Trust Fund, or any other trust fund for that matter. Instead, it lends the money to itself and issues an IOU, in the form of a Treasury security, to the trust fund. In sum, over the period 2002 to 2011, the projected HI accounting ‘‘surplus’’ of $537 billion is overwhelmed by the SMI’s shortfall 1 Trust fund estimates in this section refer to the Mid-Session Review baseline. Table 4. of $1.14 trillion. There is actually a Medicare shortfall in every year, with a total of $603 billion over the next 10 years. The President has proposed a unified trust fund to make it easier to understand Medicare finances. The gap between Medicare’s dedicated receipts and spending will widen as the baby boomers enter the program. Between now and 2030 the number of persons age 65 and older is expected to increase rapidly from 40 million to 77 million. Expenses will also rise because healthcare costs are expected to increase. There is a common misperception that there is a Medicare surplus and that Congress must take action to preserve its assets. There is no Medicare surplus. Any excess cash collected from the payroll tax that is not used to provide hospital insurance is used for other Medicare spending such as doctor bills, which are not fully covered by premiums paid by beneficiaries. These premiums cover only about 25 percent of doctor bills and other costs paid from Medicare’s other trust fund, the Part B, or Supplementary Medical Insurance trust fund. Additional funds come from the general fund of the government to cover Medicare’s remaining costs. In fact, in 2002, without this general fund transfer, Medicare would face a $48 billion shortfall. MEDICARE FULLY FUNDED UNDER ALL BUDGET SCENARIOS (Dollar amounts in billions) Current Projections Alternative Projections Unified Budget Surplus in 2002 ................. 173 200 225 250 Total Medicare Spending in 2002 .............. 254 ———— No change ———— HI Trust Fund Balance in 2002 ................. 234 ———— No change ———— Increase in Benefits Paid in 2011 Compared to 2002 ............................................ 196 ———— No change ———— HI Exhaustion Date .................................... 2029 ———— No change ———— 13 14 MID–SESSION REVIEW Chart 4. Medicare 2002 Shortfall Billions of dollars 300 250 Medicare Shortfall $48 Billion 200 Insurance Premiums Doctors 150 Home Health Payroll Taxes 100 Hospitals 50 0 Income Spending Chart 5. Medicare Long-Term Shortfall Medicare Outlays Exceed Dedicated Tax Receipts and Premiums Trillions, constant 2000 dollars 5 4 3 Outlays 2 Shortfall 1 Dedicated Tax Receipts and Premiums 0 2000 2015 2030 2045 2060 2075 MEDICARE TRUST FUNDS Myths About the Medicare Trust Fund Today there is much confusion about Medicare spending and the Medicare Trust Funds. Some contend that if the on-budget surplus is less than the size of the Medicare Hospital Insurance (HI) ‘‘surplus,’’ this constitutes a ‘‘raid’’ on the HI Trust Fund. This contention is factually false. Under the President’s budget the Medicare HI Trust Fund is fully funded; there is no ‘‘raid.’’ And Medicare spending continues to rise, as required by law. Despite the fact that neither Medicare spending nor solvency is affected by the unified budget surplus, some have been misled by assertions that Medicare financing is shrinking. Some worry that this means Medicare won’t be there when they need it. This is not true. The facts are: • The Medicare trust funds are completely unaffected by the enactment of the President’s tax plan or the size of the government’s surplus. In other words the trust fund balances would not be one cent larger if no tax cut had ever passed. This is also true for the Social Security trust funds. • The President’s budget increases Medicare spending $196 billion over the next 10 years, from $228 billion in 2002 to $423 billion in 2011. • The President’s budget increases the Medicare HI Trust Fund balance by $537 billion over the next 10 years, rising from $200 billion in the beginning of 2002 to $737 billion at the end of 2011. • According to the Medicare Trustees, Medicare is projected to remain solvent until 2029. • This will be true regardless of short-term fluctuations in budget surplus projections. • The long-term solvency of Medicare depends not on the size of any annual surplus, but preservation of sustained economic growth, and on comprehensive reform of the Medicare program. 15 16 MID–SESSION REVIEW Third party experts and commentators clarify that there is no relationship between Medicare trust fund balances and the unified budget surplus: ‘‘Does how you use the Medicare annual surplus have any effect on the solvency of the Medicare program? No. [Ir]respective of how the Congress decides to use the annual Medicare surpluses (e.g. tax cuts, spending increases, paying down the debt held by the public), trust fund solvency will not be affected in any way.’’ David M. Walker, Comptroller General of the United States and former Social Security and Medicare trustee, 7/25/01 ‘‘The image of raids on the Medicare and Social Security trust funds is false. The surpluses in these trust funds reflect a temporary excess of payroll taxes over current benefits. When this occurs, the trust funds transfer their spare cash to the Treasury, which gives them ‘special issue’ Treasury securities in return. The trust funds get the securities regardless of how the Treasury uses the spare cash— whether to repay publicly held federal debt or to pay the government’s bills. The trust funds simply aren’t being raided.’’ Robert J. Samuelson, Newsweek, 7/16/01 ‘‘Q.What can the government do with the surplus? A. It has to spend it, because the federal government can’t park that much money in a bank without affecting the financial markets. Q. [I]f we spend money intended for Social Security or Medicare on other government programs, aren’t we raiding those programs? A. No. Under government accounting rules, no matter if we use the Social Security and Medicare payroll taxes for debt reduction or plain old spending, the programs receive an equivalent amount in interest-earning Treasury bonds. [N]o matter how the money is used, the programs’ trust funds are unaffected because, in effect, they are lending the money to the United States. Q. So does it make a difference whether we use some of the Medicare funds for spending this year? A. Economically, it means virtually nothing in the short run. The government is still running a substantial surplus and paying down debt, but because the U.S. economy is so large, the amount of money involved is like pennies.’’ Glenn Kessler, Washington Post, 7/22/01 ‘‘When an individual buys a government bond, he or she has established a financial claim against the government. When the government issues a security to one of its own accounts, it hasn’t purchased anything or established a claim against some other person or entity. The key point is that the Trust Funds do not hold financial resources to pay benefits rather, they provide authority for the Treasury Department to use whatever money it has on hand to pay them. . . .[T]he trust funds themselves do not hold or receive money.’’ David Koitz, Congressional Research Service report, 3/20/01 ‘‘They [trust funds] do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large trust fund balances, therefore, does not, by itself, have any impact on the government’s ability to pay benefits.’’ President Clinton’s 2000 Budget, Analytical Perspectives, page 337 ECONOMIC ASSUMPTIONS Introduction For the past year, economic growth has been sluggish, restrained by slower growth of domestic and foreign demand. After a period of unsustainably rapid growth, slower growth was widely expected. The extent of the slowdown, however, has been greater than most forecasters anticipated. Nonetheless, the economy appears poised to recover. Most forecasters, including the Administration, expect a return soon to solid, sustainable growth. Monetary and fiscal policy are acting in concert to provide a powerful stimulus to growth in the coming months. During the first six months of this year, the Federal Reserve cut the federal funds rate by 2-3/4 percentage points, the largest reduction in such a short period since 1984. Given the lags between changes in monetary policy and its effects on the real economy, interest-sensitive sectors are likely to strengthen during the second half of this year. The recently enacted Economic Growth and Tax Relief Reconciliation Act of 2001 is likely to provide a boost to consumer spending during the second half of this year and into 2002. In the current quarter, households will receive $38 billion in rebate checks reflecting the lower tax liabilities associated with the new, 10 percent tax bracket. Beginning next January, these lower liabilities will be permanently reflected in lower income tax withholding from paychecks. In addition, income tax withholding schedules were lowered July 1st to reflect the first installment of the phase-in of permanently lower marginal income tax rates for those currently in the 28 percent bracket and higher. This change is estimated to boost take-home pay by $5 billion during the second half of this year. With the prospect of permanently lowered income taxes, consumers are likely to spend a significant part of this addition to their disposable income. While the economy has been battered by a series of negative shocks, recent months have seen some positive developments. Inven- tory liquidation during the first half of this year has helped reduce the excess stocks that accumulated when sales slowed unexpectedly. When stocks have been cut enough, increases in demand will require increases in production. In addition, energy prices have declined recently, after rising sharply in 1999 and 2000. Lower energy prices reduce overall inflation, increase the purchasing power of consumers, and boost the profits of most industries. Finally, the stock market, which fell sharply between March 2000 and April 2001, has recovered from its earlier lows. The long-term economic outlook continues to appear bright. The technological innovations and business practice changes that helped propel productivity growth to a new higher trend during the last half of the 1990s are likely to sustain strong productivity growth into the future. Even during the current slowdown, productivity growth remains healthy. Inflation remains low and under control, which will enable businesses and households to plan and invest for the long haul. Moreover, the reductions in marginal tax rates enacted this year are likely to have important positive effects in coming years on the supply of labor and saving, which will benefit long-term growth. In the interest of cautious budgeting, however, the Administration has not built these long-term supplyside effects into its long-term economic assumptions, choosing instead to remain close to consensus forecasts. Recent Developments Real Gross Domestic Product (GDP) is estimated to have grown at only a 0.7 percent annual rate in the second quarter. According to the initial estimate released at the end of July, the principal restraint on growth was weak business investment in equipment and software, which fell at a 14.5 percent annual rate in the second quarter. Faced with unexpectedly sluggish demand, excess capacity, falling profits, and a more difficult equity-financing environment, 17 18 businesses have had to cut back or postpone capital spending, especially for high-tech equipment. In contrast to business investment, consumer spending has held up well, increasing at a 2.1 percent annual rate in the second quarter. This is slower than consumption was growing prior to the slowdown, but unlike business investment, consumption continues to expand, with especially strong spending on consumer durables. Because the consumer accounts for two-thirds of GDP, the willingness of households to continue spending despite the stock market correction and recent job losses has been key to maintaining positive overall growth in recent quarters. Residential investment, after adjustment for inflation, also has supported overall growth this year, rising at a 7.4 percent rate in the second quarter, following a similar advance in the first quarter. The swing from falling residential investment in the second half of last year to positive growth this year reflects the upturn in housing starts. Homebuilding has been stimulated by relatively low mortgage interest rates. During the first six months of this year, the fixed rate 30-year mortgage averaged just over 7 percent, more than one percentage point below the rate a year earlier, and almost one percentage point below the average rate during the 1990s. Government spending on consumption and investment, primarily at the state and local level, has also added to demand and helped keep real GDP rising. Real state and local consumption and investment purchases rose at a 7.5 percent annual rate in the second quarter; federal purchases increased at a 1.6 percent rate. Changes in inventories and in net exports in the second quarter had very little impact on overall growth. Inflation, which was already low, has abated further as a consequence of slower growth and falling energy prices. The Consumer Price Index (CPI) rose at a 3.1 percent annual rate in the second quarter, slightly less than the 3.4 increase over the prior year. The core CPI, which excludes food and energy prices, rose at a 2.6 percent rate in the second quarter, close to the pace during the prior year. The GDP chain- MID–SESSION REVIEW weighted price index, a broader measure of inflation than the CPI, rose at a 2.3 percent annual rate in the second quarter, the same pace as during the preceding four quarters. Sluggish growth during the past year has also begun to affect labor markets. Businesses began to slow the pace of hiring during the second half of last year and continued to do so into the first quarter. During April through July, private sector payrolls were reduced by almost 400,000. The manufacturing sector more than accounted for all of these job losses. Since its recent peak in July 2000, the manufacturing sector has lost 840,000 jobs. The unemployment rate has edged up from 4.0 percent in December to 4.5 percent in June and July, but this rate is still 2 percentage points below the average unemployment rate of the past 25 years. In financial markets, short-term interest rates have fallen sharply this year in response to the slowing economy and the Federal Reserve’s reductions in the federal funds rate. The 3-month Treasury bill rate fell from 5.8 percent in December to 3.5 percent in early August. In contrast, at the longerend of the maturity spectrum, interest rates have been relatively steady this year. The yield on the 10-year Treasury note was 5.2 percent in early August, the same level as in December and 1.2 percentage points below the average of the prior 10 years. Together, the sharp drop in short-term rates has shifted the yield curve from relatively flat to upward sloping, a signal that investors believe that economic growth will soon pick up. Equity prices have recovered from their April lows in response to further easing of monetary policy and investors’ expectations that the economy and corporate profits are likely to improve. Nonetheless, the major indexes remain well below their levels at the end of last year. Revised Economic Assumptions The economic projections for the Mid-Session Review, summarized in Table 5, have been revised from those used in the Administration’s 2002 Budget to incorporate recent devel- ECONOMIC ASSUMPTIONS opments and policy actions, notably the weaker economic growth and profits, the nearterm fiscal stimulus from the recently enacted tax package, and the Federal Reserve’s easing of monetary policy.2 The Mid-Session Review projections are similar to those of private-sector forecasters and, except for the near term, close to those used for the 2002 Budget. The Administration projects economic growth to slow this year to a greater extent than anticipated earlier, and to recover next year. The longrun sustainable rates of GDP growth and unemployment, which are maintained during the second half of the 10-year projection horizon, are the same as in the budget projections. Beginning with 2002, the inflation projection is nearly identical to that in the Budget. Interest rates, however, are lower than in the Budget assumptions, especially short-term rates. Real GDP, Potential GDP and Unemployment: The most important revision to the economic assumptions is the lowered real growth projection for this year. By the end of the year and into 2002, however, real growth is expected to increase significantly as the fiscal and monetary stimulus takes hold and as the cutbacks in capital spending wane. During the outyears of the projection period, real GDP is projected to rise 3.1 percent per year, the Administration’s estimate of the nation’s potential GDP growth during this period. Over the 10 years, 20022011, real GDP growth averages 3.2 percent per year, the same as in the April Budget, and slightly below the Blue Chip consensus 2 The economic growth assumptions are based on data available as of June, 2001. The Addendum to Table 5 adjusts the levels of the Mid-Session Review assumptions for revisions to the National Income and Product Accounts, released on July 27, covering the period from the first quarter of 1998 through the first quarter of 2001. The effect of these revisions was to restate real and nominal GDP downward; the GDP inflation measure was hardly revised. On the income side, by the first quarter of 2001 the level of corporate profits before tax was lowered while wages and salaries were revised up by a slightly larger amount. Adjusting the MSR assumptions for consistency with the revised historical data does not affect the projections of receipts or outlays because these are based on the economic assumption’s projections of growth rates of GDP and incomes, not the projections of levels of these variables. 19 of private-sector forecasts published in March, the latest consensus long-range projection. As a consequence of slow growth this year, the unemployment rate is forecasted to edge up slightly. During 2002 and 2003, as economic growth picks up, the unemployment rate is projected to move down again. In 2004 and beyond, the unemployment rate is projected to remain on a plateau of 4.6 percent, the same level as the private sector consensus. Inflation: The CPI and GDP measures of inflation have been raised slightly in 2001 to incorporate recent data. For 2002 and beyond, the inflation projections are virtually the same as in the Budget. For 2002-2011, the Consumer Price Index is projected to rise 2.5 percent per year on average; the GDP chain-weighted price index is projected to increase 2.1 percent yearly. The slower rise in the GDP measure reflects the fixed weighting in the CPI; the higher weights for housing in the CPI combined with a relatively faster rise projected for housing prices; and the lower weight for computers in the CPI combined with a projected decline in computer prices. The 10year inflation projections are very close to those of the private sector consensus. Interest Rates: Short-term interest rates this year have fallen significantly below the levels projected in the Budget as a consequence of weaker-than-expected growth and monetary policy actions. The yield on the 10-year Treasury note has also been below the earlier budget projection. The Mid-Session Review assumptions anticipate some rise in the 91-day Treasury bill rate through the end of 2002 as the recovery strengthens. Thereafter, the rate is projected to remain at 4.3 percent. During the last five years of the projection period, this T-bill rate is 0.7 percentage point lower than assumed in the budget. The yield on the 10-year Treasury note is projected to remain at 5.2 percent, consistent with the historical spread between short-term and long-term interest rates. ECONOMIC ASSUMPTIONS 20 Table 5. 1 (Calendar years; dollar amounts in billions) Actual 2000 Gross Domestic Product (GDP): Levels, dollar amounts in billions: Current dollars .................................................................................... Real, chained (1996) dollars ................................................................ Chained price index (1996 = 100), annual average .......................... Percent change, fourth quarter over fourth quarter: Current dollars .................................................................................... Real, chained (1996) dollars ................................................................ Chained price index (1996 = 100) ....................................................... Percent change, year over year: Current dollars .................................................................................... Real, chained (1996) dollars ................................................................ Chained price index (1996 = 100) ....................................................... Projections 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 9,963 10,364 10,937 11,575 12,228 12,880 13,553 14,263 15,009 15,794 16,619 17,488 9,318 9,474 9,776 10,122 10,468 10,800 11,133 11,476 11,829 12,194 12,569 12,956 107.0 109.5 111.9 114.3 116.8 119.2 121.7 124.3 126.9 129.5 132.2 135.0 4.2 1.7 2.4 6.0 3.7 2.2 5.8 3.5 2.2 5.5 3.4 2.1 5.2 3.1 2.1 5.2 3.1 2.1 5.2 3.1 2.1 5.2 3.1 2.1 5.2 3.1 2.1 5.2 3.1 2.1 5.2 3.1 2.1 7.1 5.0 2.1 4.0 1.7 2.3 5.5 3.2 2.2 5.8 3.5 2.2 5.6 3.4 2.1 5.3 3.2 2.1 5.2 3.1 2.1 5.2 3.1 2.1 5.2 3.1 2.1 5.2 3.1 2.1 5.2 3.1 2.1 5.2 3.1 2.1 Incomes, billions of current dollars: Corporate profits before tax ................................................................ Wages and salaries .............................................................................. Other taxable income 2 ........................................................................ 926 4,769 2,281 796 4,989 2,372 969 5,272 2,418 1,020 5,621 2,507 1,104 5,951 2,589 1,164 6,270 2,693 1,182 6,572 2,788 1,202 6,888 2,887 1,224 7,224 2,994 1,254 7,589 3,107 1,291 7,969 3,226 1,337 8,370 3,326 Consumer Price Index (all urban): 3 Level (1982–84 = 100), annual average ............................................. Percent change, fourth quarter over fourth quarter ......................... Percent change, year over year .......................................................... 172.3 3.4 3.4 178.0 3.2 3.3 182.7 2.6 2.7 187.4 2.5 2.5 192.0 2.5 2.5 196.8 2.5 2.5 201.8 2.5 2.5 206.8 2.5 2.5 212.0 2.5 2.5 217.3 2.5 2.5 222.7 2.5 2.5 228.3 2.5 2.5 Unemployment rate, civilian, percent: Fourth quarter level ............................................................................ Annual average .................................................................................... 4.0 4.0 4.8 4.6 4.7 4.8 4.7 4.7 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 Federal pay raises, January, percent: Military 4 ............................................................................................... Civilian 5 ............................................................................................... 4.8 4.8 3.7 3.7 4.6 3.6 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 Interest rates, percent: 91-day Treasury bills 6 ........................................................................ 10-year Treasury notes ....................................................................... 5.8 6.0 3.8 5.2 3.9 5.2 4.3 5.2 4.3 5.2 4.3 5.2 4.3 5.2 4.3 5.2 4.3 5.2 4.3 5.2 4.3 5.2 4.3 5.2 ADDENDUM: 7 Gross Domestic Product (GDP): Levels, dollar amounts in billions: Current dollars ................................................................................. Real, chained (1996) dollars ............................................................ Chained price index (1996 = 100), annual average ....................... Percent change, fourth quarter over fourth quarter: Current dollars ................................................................................. Real, chained (1996) dollars ............................................................ Chained price index (1996 = 100) ................................................... 9,873 10,278 10,846 11,479 12,126 12,772 13,440 14,144 14,884 15,662 16,481 17,343 9,224 9,385 9,685 10,027 10,370 10,699 11,028 11,368 11,719 12,080 12,451 12,835 107.0 109.5 111.9 114.4 116.8 119.3 121.8 124.3 126.9 129.5 132.2 135.0 5.3 2.8 2.4 4.2 1.8 2.4 6.0 3.7 2.2 5.8 3.5 2.2 5.5 3.4 2.1 5.2 3.1 2.1 5.2 3.1 2.1 5.2 3.1 2.1 5.2 3.1 2.1 5.2 3.1 2.1 5.2 3.1 2.1 5.2 3.1 2.1 MID–SESSION REVIEW 5.8 3.4 2.3 ECONOMIC ASSUMPTIONS 1—Continued (Calendar years; dollar amounts in billions) Actual 2000 Projections 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Percent change, year over year: Current dollars ................................................................................. Real, chained (1996) dollars ............................................................ Chained price index (1996 = 100) ................................................... 6.5 4.1 2.3 4.1 1.7 2.3 5.5 3.2 2.2 5.8 3.5 2.2 5.6 3.4 2.1 5.3 3.2 2.1 5.2 3.1 2.1 5.2 3.1 2.1 5.2 3.1 2.1 5.2 3.1 2.1 5.2 3.1 2.1 5.2 3.1 2.1 Incomes, billions of current dollars: Corporate profits before tax ............................................................ Wages and salaries .......................................................................... Other taxable income 2 .................................................................... 845 4,837 2,236 714 5,085 2,341 870 5,374 2,387 916 5,730 2,476 991 6,066 2,558 1,045 6,391 2,661 1,061 6,699 2,755 1,079 7,022 2,855 1,099 7,363 2,961 1,125 7,735 3,074 1,159 8,123 3,193 1,200 8,532 3,293 ECONOMIC ASSUMPTIONS Table 5. 1 Based on information available as of June 2001. interest, dividend and proprietor’s components of personal income. adjusted CPI for all urban consumers. 4 Percentages apply to basic pay only; additional rank-specific adjustments are proposed for 2002; adjustments for housing and subsistence allowances will be determined by the Secretary of Defense. 5 Overall average increase, including locality pay adjustments. 6 Average rate (bank discount basis) on new issues within period. 7 Assumptions adjusted to reflect revised historical series for GDP and incomes released by the Bureau of Economic Analysis in July 2001. 2 Rent, 3 Seasonally 21 RECEIPTS The current estimates of receipts for 2001 and 2002 are below the April Budget estimates by $124.2 billion and $57.0 billion, respectively. The current estimates are below the April Budget estimates for 2003 and 2004, but exceed the April Budget estimates in 2005 and subsequent years, resulting in a net upward revision in receipts of $73.7 billion over the 10-year period 2002 to 2011. These changes are the net effect of enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001 (Tax Relief Act), modification of the Administration’s proposals to reflect the Administration’s National Energy Policy tax incentives and enactment of the Tax Relief Act, revised economic projections, and technical reestimates. The Tax Relief Act, which was signed by President Bush on June 7, 2001, provides over $1.3 trillion in tax relief over the 11-year period 2001 to 2011. Because this Act (1) provides individual income tax relief beginning this year, with the first installment provided through payments of advanced credits and reduced withholding, which began in July, (2) increases the child tax credit to $600 beginning January 1, 2001, and (3) delays the payment of estimated taxes by corporations, otherwise due on September 17, 2001, until October 1, 2001, receipts are reduced relative to the April Budget proposals by $67.9 billion in 2001. However, because the tax relief provided in this Act is less than the relief proposed by President Bush in the budget, receipts are increased relative to the April Budget proposals by $505.0 billion over the 10 years, 2002 through 2011. The Administration’s policy initiatives are estimated to reduce receipts by $0.6 billion in 2002 and $314.2 billion over the 10year period 2002 through 2011. These initia- tives include the Administration’s National Energy Policy tax incentives, many of the Administration’s April Budget proposals that were not enacted in the Tax Relief Act, and permanent extension of the provisions provided in the Tax Relief Act that are scheduled to expire in 2010. Revised economic projections reduce receipts by $21.2 billion in 2001 and $27.3 billion in 2002. For the 10-year period 2002 to 2011, revised economic assumptions account for $147.9 billion of the downward revision in receipts. Collections of individual income taxes and Social Security and Medicare payroll taxes are reduced by $4.6 billion in 2001, $13.6 billion in 2002 and $71.2 billion over the 10-year period 2002 through 2011, in large part due to lower levels of wages and salaries in most years. Lower corporate profits in most years reduce collections of corporation income taxes by $14.1 billion in 2001, $7.3 billion in 2002, and $25.7 billion over the 10 years, 2002 to 2011. Lower levels of nominal and real GDP, which affect excise taxes, and lower interest rates, which affect deposits of earnings by the Federal Reserve, also contribute to the reduction in receipts in each year. Customs duties are lower in most years, reflecting lower levels of imports than forecast for the April Budget. Technical adjustments reduce receipts by $35.1 billion in 2001, $26.2 billion in 2002, and declining amounts through 2004. Technical adjustments increase receipts in each subsequent year, resulting in a net increase in receipts of $30.8 billion for the 10-year period 2002 to 2011. These technical adjustments are in large part attributable to revisions in estimating models and actual collection experience. 23 24 MID–SESSION REVIEW Table 6. CHANGE IN RECEIPTS (In billions of dollars) April estimate ......................................... Revisions due to: Enacted legislation, relative to April proposals 1 ........................................ Proposed legislation 1 ......................... Economic assumptions ....................... Technical reestimates ......................... 2001 2002 2003 2004 2005 2006 2002–2006 2002–2011 2,136.9 2,191.7 2,258.2 2,338.8 2,437.8 2,528.7 –67.9 ............ –21.2 –35.1 –3.0 –0.6 –27.3 –26.2 –14.8 –1.3 –9.8 –12.2 –2.5 –6.0 3.7 –6.4 32.1 –13.6 5.3 0.9 46.4 –20.5 –4.5 2.5 58.2 –41.9 –32.6 –41.4 505.0 –314.2 –147.9 30.8 –57.7 73.7 Total change .................................... –124.2 –57.0 –38.0 –11.3 24.7 23.9 Mid-session estimate .............................. 2,012.7 2,134.7 2,220.2 2,327.5 2,462.5 2,552.6 1 Affects both outlays and receipts; only the receipt effect is shown here. SPENDING Total outlays for 2001 are now estimated to be $1,854.9 billion, $1.3 billion below the April Budget estimate. The reduction is the net effect of the Supplemental Appropriations Act, inaction on the Administration’s Immediate Helping Hand prescription drug program, enactment of relief for farmers, and revised economic and technical assumptions. For 2002, the estimate of total outlays has increased by $1.5 billion relative to April to $1,962.1 billion. Increases related to the Administration’s assessment of immediate defense needs and enactment of the Economic Growth and Tax Relief Reconciliation Act are partially offset by reductions resulting from economic and technical factors. For the 10-year period 2002 through 2011, the Administration now estimates total outlays at $393.4 billion higher than in April. Enacted legislation and revisions to Administration policies increase the 10-year projections by $412.9 billion. Changes due to revised economic and technical assumptions, on net, reduce outlays by $19.5 billion for the period. Policy changes In total, policy changes increase total outlays by $8.2 billion and $8.4 billion for 2001 and 2002, respectively. Over 10 years, outlay changes resulting from policy differences total $412.9 billion. The Supplemental Appropriations Act increased 2001 outlays by $4.9 billion, largely for additional needs of the Department of Defense. The Agricultural Economic Assistance Act, which provided relief for farmers affected by continuing low prices for farm products, increases outlays for 2001 by $5.5 billion. The Economic Growth and Tax Relief Reconciliation Act included provisions that increased the refundable portion of the earned income and child tax credits beyond what was proposed in the April Budget, raising outlays by $5.0 billion in 2002. Congressional inaction on the Administration’s Immediate Helping Hand prescription drug program reduces outlays by $2.5 billion and $11.2 billion, in 2001 and 2002 respectively. On the other hand, new estimates reflect the President’s Framework to Strengthen Medicare, announced on July 12. From 2004–2011, the Administration now proposes to spend $190 billion for Medicare modernization efforts, including a prescription drug benefit. This amount is up $37 billion from the April Budget, and occurs in 8 years rather than ten. Upon taking office, the Administration discovered that the Defense Department (DOD) had serious unmet needs in several critical areas, such as readiness and health care. As a result, the Administration requested, on top of new funds in the 2001 supplemental, an additional $18.4 billion in funding for 2002, increasing 2002 outlays by $9.5 billion. The longer-term defense review, which will establish funding requirements for future years, is still ongoing. Pending the completion of the defense strategy review, this Review assumes a current services budget for DOD in the outyears based on the proposed 2002 level, an increase in budget authority of $209 billion over the next 10 years. Revisions in Administration tax policy since the April Budget have changed the composition of the proposed health tax credit, increasing the proportion that will be reflected on the outlay side of the budget. In addition, the effective date of the credit has been delayed. On net, outlays for the credit have increased by $22.5 billion over 10 years as a result of these changes. Debt service costs associated with policy changes, including the tax rebates in the Economic Growth and Tax Relief Reconciliation Act, increase outlays by $0.9 billion in 2001 and $3.3 billion in 2002. Economic assumptions Revisions in economic assumptions, discussed earlier in this report, reduce outlays by $1.6 billion in 2001 and $6.3 billion in 2002. Over the 10-year period 2002 through 2011, however, outlay estimates increase by 25 26 a net of $21.8 billion due to revised economic assumptions. Outlays are increased by higher unemployment and inflation rates. Through 2005, these increases are more than offset by lower interest rates that reduce debt service costs. The savings from lower interest rates gradually decreases as the total debt being financed grows smaller. By 2009, lower interest rates increase assumed outlays as earnings on assumed escalating cash balances are reduced. Technical changes For 2001, estimated outlays are $1.3 billion lower than in April for technical reasons. For 2002, technical changes increase outlays by $1.5 billion. The following changes in outlay projections all arise from technical factors. Discretionary programs.—Estimated outlays for discretionary programs have decreased by $2.2 billion and $4.2 billion in 2001 and 2002, respectively, relative to the April Budget, to reflect revisions in expected rates of spending appropriated funds. The Department of Justice expects to spend state and local law enforcement grants more heavily in 2001, shifting spending that was expected in 2002. Training and employment programs are expected to spend more slowly in both 2001 and 2002, while spending more rapidly in 2003 and beyond. In addition, outlays for the highway program have been reduced for 2003 and beyond to reflect lower than expected revenues to the Highway Trust Fund. Commodity Credit Corporation (CCC) farm programs.—Spending on farm programs through the Commodity Credit Corporation is projected to increase by $2.2 billion in 2002 and $12.5 billion over the 10 years 2002 through 2011, relative to the April Budget. These changes largely reflect increases in projected demand for USDA commodity loans and payments due primarily to increased crop production estimates and slower price recovery for certain commodities. The reduction shown for 2001 is primarily the result of a reduction in the estimated subsidy cost of loans made in previous years, which is reflected here as required by the Credit Reform Act. MID–SESSION REVIEW Postal service.—Administrative decisions to postpone capital improvements and limit general operating expenses have reduced projections of outlays for the Postal Service by $1.3 billion in 2001. The $0.5 billion reduction in 2002 projected outlays is a result of increased revenues from the July 2001 postage rate increase. Projections for 2003 and beyond continue to assume that the postal fund achieves balance on an accrual basis. Universal service fund.—The estimate of spending from the universal service fund has declined by $1.1 billion in 2001, reflecting a decrease in expected collections in various programs and a slower rate of spending from obligated balances within the schools and libraries program than had previously been assumed. Medicaid.—Projected outlay estimates for Medicaid are $1.5 billion above the April estimate for 2001, $0.6 billion for 2002, and $30.0 billion higher for the 10-year period 2002 through 2011 for technical reasons. This is primarily the result of higher projections of state spending on nursing facilities, prescription drugs, managed care, and inpatient facilities, offset in part by administrative actions aimed at improving Medicaid program integrity. Because changes in economic assumptions have lowered Medicaid outlay projections, the net change in Medicaid outlays over the 10-year period is $25.4 billion. Medicare.—Technical revisions reduce current estimates of Medicare outlays by $1.8 billion in both 2001 and 2002 relative to the April estimate. Medicare outlays are projected to be $29.4 billion lower over the 10-year period, 2002 through 2011 due to technical factors. About half of this decrease is driven by reductions in estimates for physician fee schedule expenditures, reflecting lower actual outlays for the year to date, lower estimates for certain new preventive services mandated by last year’s Benefits Improvement and Protection Act, and a lower performance adjustment for 2002. The remaining decrease reflects reductions in outpatient hospital, home health, and managed care payments offset slightly by increases for inpatient hospital, durable medical equipment and lab payments. Including the impact of 27 SPENDING revised economic assumptions, the total decrease in Medicare current law outlays over the 10-year period is $44.2 billion. Unemployment compensation.—As a result of revised technical assumptions, outlays for unemployment compensation have increased by $1.7 billion for 2001 and $2.2 billion for 2002 relative to the April estimates. The assumed ratio of the insured unemployment rate to the total unemployment rate has increased thereby increasing the projected number of people eligible for benefits at each level of total unemployment. Average weekly benefits are also assumed to be greater than projected in April. Temporary Assistance for Needy Families (TANF).—Technical revisions have increased projections of TANF outlays by $1.3 billion in 2001 and $1.1 billion in 2002. This increase is due to states spending for the year to date at a higher rate than previously estimated. Social Security.—Estimated outlays for Social Security are lower than the April Budget by $0.4 billion in 2001, $1.3 billion in 2002, and $44.5 billion over 10 years as the result of technical factors. The reduction is primarily the result of updated demographic Table 7. projections contained in the 2001 Trustees Report and additional actual experience through March 2001. The downward technical reestimates are partially offset by upward reestimates for cost-of-living increases and other economic factors so that the net change in the program over 10 years is a decrease of $25.5 billion. Spectrum auction receipts.—Receipts from the auction of electromagnetic spectrum, which are recorded as offsets to spending in the budget, are projected to be $1.2 billion lower in 2002 and $1.0 billion higher in 2004 than in April. This reflects regulatory action taken by the Federal Communications Commission, which shifts the expected receipts from two major auctions. Net interest.—Estimates of net interest outlays are $27.2 billion higher than in April over the 10-year period 2002 through 2011, primarily reflecting increased debt service costs related to technical changes in receipts and outlays. The Mid-Session estimates assume that the Treasury will buy back securities in face value amounts of $35 billion in 2001 and $40 billion in 2002. The Budget assumed $35 billion for 2001 and had no buybacks for 2002. CHANGE IN OUTLAYS (In billions of dollars) 2001 2002 2003 2004 2005 2006 1,960.6 2,016.2 2,076.7 2,168.7 2,223.9 10,446.2 22,937.5 9.5 1.5 0.0 13.3 0.3 0.0 23.3 0.1 0.0 18.8 0.1 0.0 22.1 * 0.0 87.0 1.9 0.0 196.5 1.9 0.0 5.0 –0.1 –11.2 0.4 3.3 6.3 –1.9 –12.9 –0.6 4.5 5.7 –0.8 –0.8 –0.6 6.0 5.3 2.2 7.5 –0.4 7.4 7.6 3.5 8.2 –0.3 8.5 29.9 2.9 –9.2 –1.5 29.7 72.5 22.5 37.0 –2.0 84.4 8.2 8.4 8.9 32.9 40.9 49.6 140.7 412.9 April estimate ............................................ 1,856.2 Change due to: Policy: Defense review ................................ 0.0 Supplemental .................................. 4.9 Farm assistance ............................. 5.5 Earned income and child tax credits .................................................. 0.0 Health tax credit ............................ 0.0 –2.5 Medicare modernization 1 .............. Other ............................................... –0.6 Debt service .................................... 0.9 Subtotal, policy ................................... 2002–2006 2002–2011 Economic assumptions: Social Security ................................. Medicare .......................................... Other mandatory programs .......... Net interest: Effect of rates and CPI ............... Debt service ................................. 0.3 * 0.8 2.3 –0.3 2.2 3.0 –0.5 3.0 2.4 –0.4 3.1 2.1 –0.3 2.9 1.5 –0.6 2.8 11.2 –2.0 14.0 19.0 –14.8 16.9 –3.0 0.2 –11.7 1.2 –10.6 2.0 –9.1 2.0 –6.8 1.7 –4.4 1.7 –42.5 8.6 –30.9 31.5 Subtotal, economics ............................ –1.6 –6.3 –3.1 –2.0 –0.4 1.2 –10.7 21.8 28 MID–SESSION REVIEW Table 7. CHANGE IN OUTLAYS—Continued (In billions of dollars) 2001 Technical reestimates: Discretionary programs: Highways ..................................... State and local law enforcement assistance ................................. Training and employment services ............................................ Other ............................................ 2002 2003 2004 2005 2006 2002–2006 2002–2011 0.0 0.0 –1.7 –4.4 –5.6 –6.0 –17.7 –52.4 0.8 –0.9 0.0 * 0.0 0.0 –0.8 –0.8 –0.8 –2.2 –1.0 –2.4 0.4 –0.7 0.6 1.6 0.1 0.6 0.1 0.2 0.1 –0.7 0.6 –2.0 Total, discretionary programs ........ Commodity Credit Corporation ..... Postal service .................................. Universal service fund .................... Medicaid .......................................... Medicare .......................................... Unemployment compensation ........ TANF ............................................... Social Security ................................. Spectrum auction receipts .............. Other mandatory programs ........... Net interest ..................................... –2.2 –2.4 –1.3 –1.1 1.5 –1.8 1.7 1.3 –0.4 0.4 –3.0 –0.4 –4.2 2.2 –0.5 0.6 0.6 –1.8 2.2 1.1 –1.3 1.2 –0.2 –0.4 –2.1 2.1 0.4 0.1 2.2 –2.4 1.1 1.0 –2.1 0.0 * 3.0 –2.2 2.6 0.5 0.6 2.5 –3.7 0.7 0.7 –2.8 –1.0 0.9 4.4 –4.9 1.9 0.5 0.2 2.7 –3.1 0.6 0.5 –3.5 0.0 0.1 4.0 –5.7 1.0 0.6 0.2 2.8 –2.4 0.6 * –4.2 0.0 –* 4.1 –19.1 9.8 1.6 1.7 10.8 –13.4 5.1 3.5 –13.9 0.2 0.8 15.1 –54.6 12.5 5.1 3.1 30.0 –29.4 8.3 –1.0 –44.5 0.2 1.8 27.2 Subtotal, technical .............................. –7.8 –0.6 3.4 3.1 –0.9 –3.0 2.0 –41.3 Total, changes ........................................ –1.3 1.5 9.2 34.0 39.6 47.7 132.0 393.4 Current estimate ....................................... 1,854.9 1,962.1 2,025.4 2,110.7 2,208.3 2,271.6 10,578.2 23,330.9 * $50 million or less. 1 The President proposed to add $153 billion over 10 years in the April Budget for Medicare modernization. This table displays a $37 billion increase to the April Budget. In total the Mid-Session Review proposes to increase spending for Medicare modernization by $190 billion. SUMMARY TABLES 29 SUMMARY TABLES Table 8. ESTIMATED SPENDING FROM 2002 BALANCES OF BUDGET AUTHORITY: DISCRETIONARY PROGRAMS 1 (In billions of dollars) Total Total balances, end of 2002 .......................................................... Spending from 2002 balances: 2003 ............................................................................................ 2004 ............................................................................................ 2005 ............................................................................................ 2006 ............................................................................................ Expiring balances, 2003 through 2006 ....................................... Unexpended balances at the end of 2006 ................................... 767.1 288.7 161.8 100.6 68.9 ............ 147.1 1 This table is required by section 221(b) of the Legislative Reorganization Act of 1970. 31 32 Table 9. OUTLAYS FOR MANDATORY PROGRAMS UNDER CURRENT LAW 1 (In billions of dollars) 2000 Actual Human resources programs: Education, training, employment and social services ............. Health ......................................................................................... Medicare ..................................................................................... Income security .......................................................................... Social security ............................................................................ Veterans’ benefits and services ................................................ Subtotal, human resources programs ................................... 10.3 124.5 194.1 206.5 406.0 26.3 Estimate 2001 9.0 140.3 214.2 220.0 429.9 22.8 2002 14.5 152.6 224.3 239.7 452.5 27.9 2003 15.0 170.3 235.8 248.2 474.4 29.9 2004 15.5 185.4 248.1 257.1 497.6 31.5 2005 16.0 201.0 267.4 268.5 522.9 35.7 2006 17.0 217.5 276.4 278.1 550.3 34.3 2007 17.8 235.7 297.0 284.5 580.4 33.3 2008 18.6 255.4 315.9 296.4 613.6 36.7 2009 19.6 276.7 336.3 306.0 651.5 38.7 2010 20.7 300.7 357.8 317.8 693.5 39.8 2011 21.8 324.4 387.0 333.9 738.4 40.8 967.8 1,036.1 1,111.5 1,173.6 1,235.1 1,311.5 1,373.5 1,448.7 1,536.7 1,628.8 1,730.3 1,846.3 Other mandatory programs: International affairs .................................................................. Energy ........................................................................................ Agriculture ................................................................................. Commerce and housing credit .................................................. Transportation ........................................................................... Undistributed offsetting receipts .............................................. Other functions .......................................................................... –4.1 –4.0 32.0 –1.3 2.1 –42.6 0.8 –6.3 –3.3 23.5 –6.8 2.2 –47.0 1.0 –3.3 –3.4 15.2 6.3 1.8 –48.5 3.2 –3.2 –3.2 11.6 5.6 2.0 –64.0 2.7 –3.3 –3.7 10.9 5.4 2.0 –64.2 4.1 –3.2 –3.6 10.2 4.6 1.9 –57.3 3.5 –3.2 –3.6 9.6 3.8 1.9 –59.2 3.5 –3.1 –3.5 9.3 5.4 1.9 –61.6 3.6 –3.0 –2.7 9.4 4.7 1.9 –64.5 3.7 –2.9 –2.4 9.6 5.3 2.0 –66.7 3.7 –2.9 –2.3 9.5 5.0 2.0 –69.8 3.8 –2.9 –2.3 9.6 5.1 2.0 –73.2 4.0 Subtotal, other mandatory programs ................................... –17.0 –36.8 –28.8 –48.4 –48.8 –43.8 –47.2 –48.0 –50.5 –51.5 –54.8 –57.8 Total, outlays for mandatory programs under current law .................................................................................... 950.8 999.3 1,082.7 1,125.2 1,186.4 1,267.7 1,326.3 1,400.7 1,486.2 1,577.3 1,675.5 1,788.6 1 This table meets the requirements of Section 221(b) of the Legislative Reorganization Act of 1970. MID–SESSION REVIEW MANDATORY PROPOSALS (In millions of dollars) 2001 2002 2003 2004 Allowance for Medicare Modernization ............ ............ ............ ............ 14,000 Health care tax credit ............................................ ............ ............ ............ 419 ............ ............ –25 –13 2006 2007 2008 2009 2010 2011 20,000 4,104 21,000 5,517 22,000 5,910 25,000 6,061 27,000 6,224 29,000 6,392 32,000 6,564 55,000 190,000 10,040 41,191 –2 –2 28 13 1 .............. .............. –42 .............. ............ ............ ............ –1,200 .............. .............. .............. .............. .............. .............. .............. ............ –1,200 –1,200 –218 –218 88 358 –1,203 1,203 –3 –1,208 1,208 –8 –335 .............. –335 –218 ............ ............ .............. .............. .............. .............. .............. .............. .............. ............ ............ –39 –2 49 80 134 92 44 .............. .............. ............ ............ ............ –1,201 ............ ............ ............ 1,201 ............ ............ ............ –1 –1 1 –1 –1 1 –1 –1 1 –1 –1 1 –1 –1 1 –1 –1 1 –1 ............ ............ ............ ............ .............. .............. .............. .............. .............. .............. ............ ............ ............ 2002–06 2002–11 –1 1 –1 –6 –6 –6 –6 –6 –6 –6 –6 –18 –48 –37 –60 –85 –107 –133 –163 –188 –208 –196 –996 ............ ............ ............ ............ .............. .............. .............. .............. ............ ............ ............ ............ .............. .............. .............. .............. ............ ............ ............ ............ .............. .............. .............. .............. ............ 19 –9 –12 –21 –26 –29 –34 –127 –275 –24 –37 –138 –280 –27 –36 –149 .............. –286 .............. –25 .............. –40 –49 –415 –841 –76 –225 ............ ............ ............ –10 ............ ............ ............ –198 –15 –5 –5 3,600 –5,100 –200 –200 –5 .............. .............. .............. .............. .............. .............. –2,000 –200 –4,000 .............. .............. .............. .............. .............. –200 –175 –150 –75 –25 .............. –25 –25 –7,500 –998 –7,500 –1,423 ............ –92 –97 –101 –106 –112 –118 –123 –129 –136 –143 –508 –1,157 ............ –12 –41 –93 –194 –334 –410 –416 –421 –421 –421 –674 –2,763 33 Other mandatory proposals: Agriculture: Long-term recreation fee program with fouryear reauthorization ........................................ Energy: ANWR, lease bonuses .......................................... HUD FHA mark-to-market extension ........................ Interior: Use recreation fees to reduce NPS backlog (NPS/FWS/BLM) .............................................. ANWR, lease bonuses: State of Alaska’s share: Receipts ......................................................... Expenditure .................................................. Federal share .................................................... Treasury: Modify and simplify EITC ................................. Veterans Affairs: OBRA Extenders: IRS income verification on means tested veterans and survivors benefits .................. Round-down disability benefits to nearest dollar after COLA ......................................... Limit VA pensions to Medicaid recipients in nursing homes (includes Medicaid offsets) Continue current housing loan fees ................ Loan resale loss ................................................ Eliminate Vendee loan program ....................... Army Corps of Engineers: Recreation user fee increase .............................. FCC: Shift spectrum auction deadlines and promote clearing ............................................................. Analog spectrum lease fee ................................. FDIC: State Bank examination fees: Reduction in FDIC outlays .............................. FEMA: Phase out subsidized premiums for non-primary residences in the flood insurance program .................................................................. 2005 SUMMARY TABLES Table 10. 34 Table 10. MANDATORY PROPOSALS—Continued (In millions of dollars) 2001 2002 2003 Reform flood insurance program for repetitive loss properties that experience chronic flooding ...................................................................... ............ ............ OPM: Extend higher agency contributions to the Civil Service Retirement Fund ....................... ............ ............ Other: Indirect impact of other proposals .................... ............ ............ 2004 2005 2006 2007 2008 2009 2010 2011 2002–06 2002–11 –20 –30 –38 –43 –46 –49 –51 –53 –55 –131 –385 –469 –482 –449 –415 –380 –343 –306 –268 –222 –1,815 –3,334 –2 –4 –7 –7 –6 –3 –4 –4 –7 –20 –44 Total, other mandatory proposals ................... ............ –511 2,678 –7,286 –3,040 –5,151 –1,116 –1,153 –1,575 –1,584 –1,899 –13,309 –20,635 Total, mandatory proposals .................................. ............ –511 2,678 7,133 21,064 21,366 26,794 29,908 31,650 33,809 36,666 ............ 11 5 5 5 6 6 6 6 7 7 32 64 ............ 30 158 192 196 200 200 200 200 200 200 776 1,776 ............ 9 ............ ............ 46 400 58 300 60 60 60 150 .............. .............. 60 –200 60 –200 60 –200 60 –250 Fund with discretionary appropriations: Education: Expand teacher loan forgiveness ....................... HHS: Child welfare preventative services .................. Education and training for older foster children ................................................................... Charity State tax credit, TANF outlays ........... Interior: Correct trust accounting deficiencies (individual Indian money investments) ................. Justice: Radiation exposure compensation ..................... ............ 7 ............ ............ .............. .............. .............. .............. .............. .............. .............. 51,730 210,557 233 533 850 .............. 7 7 ............ 97 155 150 108 68 55 40 20 12 5 578 710 Total, fund with discretionary appropriations ............ 154 764 705 519 334 321 106 86 79 22 2,476 3,090 MID–SESSION REVIEW EFFECT OF PROPOSALS ON RECEIPTS (In millions of dollars) 2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2002–2006 2002–2011 ............ ............ .............. –527 –1,844 –3,252 –4,879 –6,569 –7,537 –7,568 –7,639 –5,623 –39,815 ............ ............ .............. –195 –210 –225 –241 –258 –277 –299 –322 –630 –2,027 ............ ............ .............. –100 –158 –154 –163 –173 –183 –206 –227 –412 –1,364 ............ ............ .............. –18 –179 –209 –227 –244 –247 –250 –253 –406 –1,627 ............ ............ .............. –2 –6 –6 –6 –6 –6 –6 –7 –14 –45 ............ ............ .............. –174 –1,641 –3,445 –3,626 –3,930 –4,029 –4,131 –4,234 –5,260 –25,210 ............ ............ .............. –346 –574 –1,150 –2,007 –2,365 –2,646 –2,945 –3,287 –2,070 –15,320 ............ ............ .............. –423 –713 –782 –831 –878 –926 –980 –1,036 –1,918 –6,569 ............ ............ .............. –22 –39 –45 –52 –60 –69 –81 –94 –106 –462 ............ ............ .............. –79 –362 –431 –482 –510 –534 –567 –589 –872 –3,554 ............ ............ .............. –370 –463 –490 –518 –529 –540 –557 –552 –1,323 –4,019 ............ ............ .............. –88 –230 –161 –116 –85 –65 –50 –41 –479 –836 ............ ............ .............. –4 –46 –202 –525 –987 –1,514 –2,020 –2,406 –252 –7,704 ............ ............ .............. –154 –265 –281 –297 –306 –143 –34 –35 –700 –1,515 ............ ............ .............. –236 –373 –364 –355 –344 –333 –321 –310 –973 –2,636 –49 –102 –115 –132 –155 –187 –231 –292 –270 –1,267 ............ –1 –3 35 2002 Budget Proposals:. Incentives for charitable giving: Provide charitable contribution deduction for nonitemizers .......................................... Permit tax-free withdrawals from IRAs for charitable contributions .............................. Raise the cap on corporate charitable contributions ..................................................... Strengthen and reform education: Allow teachers to deduct out-of-pocket classroom expenses ............................................. Assist Americans with disabilities: Exclude from income the value of employerprovided computers, software and peripherals ............................................................. Invest in health care: Provide refundable tax credit for the purchase of health insurance 1 ......................... Provide an above-the-line deduction for long-term care insurance premiums .......... Allow up to $500 in unused benefits in a health flexible spending arrangement to be carried forward to the next year ........... Provide additional choice with regard to unused benefits in a health flexible spending account ......................................................... Permanently extend and reform Archer MSAs ............................................................ Provide an additional personal exemption to home caretakers of family members ......... Help farmers and fishermen manage economic downturns: Establish FFARRM savings accounts ........... Increase housing opportunities: Provide tax credit for developers of affordable single-family housing .......................... Encourage savings: Establish Individual Development Accounts Protect the environment: Permanently extend expensing of brownfields remediation costs .................... Exclude gains from the sale of property for conservation purposes ................................ 2002 SUMMARY TABLES Table 11. 36 Table 11. EFFECT OF PROPOSALS ON RECEIPTS—Continued (In millions of dollars) 2001 Energy policy proposals: Modify treatment of nuclear decommissioning funds ............................................... Extend and modify tax credit for producing electricity from certain sources .................. Provide tax credit for residential solar energy systems ................................................ Promote trade: Extend and expand Andean trade preferences 2 ....................................................... Additional Energy Proposals: Provide tax credit for purchase of certain hybrid and fuel cell vehicles 2 ............................ Provide tax credit for energy produced from landfill gas ...................................................... Provide tax credit for combined heat and power property ................................................ Provide excise tax exemption (credit) for ethanol .................................................................. 2003 2006 2007 2008 2009 2010 2011 2002–2006 2002–2011 –91 –160 –172 –181 –192 –202 –212 –223 –235 –247 –796 –1,915 ............ –116 –203 –222 –125 –58 –59 –57 –55 –56 –58 –724 –1,009 ............ –7 –15 –19 –25 –15 –10 –5 .............. .............. ................ –81 –96 ............ ............ .............. –154 –214 –55 .............. .............. .............. .............. ................ –423 –423 ............ –22 –81 –180 –358 –615 –1,026 –817 –108 –126 –179 –1,256 –3,512 ............ –23 –51 –75 –103 –138 –156 –158 –161 –164 –66 –390 –1,095 ............ –119 –197 –200 –212 –268 –126 .............. 6 5 5 –996 –1,106 ............ ............ .............. .............. .............. .............. .............. .............. .............. .............. ................ ................... ................... ............ ............ .............. .............. .............. .............. .............. .............. .............. –13,910 ............ ............ .............. .............. .............. .............. .............. .............. .............. .............. ............ ............ .............. .............. .............. .............. .............. .............. .............. .............. ............ –1 –5 –10 –15 –20 –26 –32 –39 –45 –67,757 ................... –4,639 ................... –4,532 ................... –890 –51 –81,667 –4,639 –4,532 –1,083 ............ –271 –614 –1,215 –1,792 –2,475 –2,726 –3,226 –4,040 ............ ............ .............. .............. .............. .............. .............. .............. .............. ............ ............ .............. .............. .............. .............. .............. .............. .............. –26,651 –6,367 –2,371 ................... –257 ................... –47,894 –2,372 –196 Permanent extension of R&E tax credit .. ............ ............ .............. 70 74 Total effect of proposals 1 2 ............................. ............ –581 –1,255 2 Net 2005 ............ Other Provisions that Affect Receipts: Recover State bank supervision and regulation expenses (receipt effect) 2 ....................... ............ 1 Affects 2004 –4,884 –1 61 –1,055 –3,431 –5,415 –6,543 –7,388 –8,019 –8,567 –9,168 –9,901 –49,586 76 80 84 88 92 96 101 105 384 866 –6,013 –13,581 –20,479 –25,243 –29,202 –31,779 –48,067 –138,029 –41,909 –314,229 both receipts and outlays; only the receipt effects are shown here. The outlay effects are shown in Table 10. of income offsets. MID–SESSION REVIEW Expiring Provisions: Permanent extension of provisions expiring in 2010: Marginal individual income tax rate reductions ............................................................. Expanded child tax credit .............................. Marriage penalty relief 1 ................................ Education incentives ...................................... Repeal of estate and generation-skipping transfer taxes, and modification of gift taxes ............................................................. Modifications of IRAs and pension plans ..... Other incentives for families and children ... 2002 OUTLAYS BY CATEGORY (In billions of dollars) 2001 April estimates Discretionary: Defense ................................................ Non-defense ........................................ 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 299.6 349.8 319.2 372.5 322.1 389.7 333.5 397.8 347.6 406.8 354.6 415.8 361.0 425.5 374.1 435.3 384.9 445.1 396.0 458.4 411.4 465.1 Subtotal, discretionary ................... Mandatory: Social Security ................................ Medicare .......................................... Medicaid .......................................... Other ................................................ 649.4 691.7 711.8 731.2 754.5 770.4 786.5 809.5 830.0 854.4 876.5 430.0 216.0 128.9 225.6 451.6 226.4 142.4 260.3 473.5 238.6 152.7 264.3 498.0 252.2 166.0 267.8 524.3 279.1 180.5 285.7 553.0 292.2 196.4 284.8 584.1 314.0 213.6 296.2 618.0 335.6 232.2 312.3 656.2 358.4 252.6 323.9 698.3 384.3 274.6 336.2 743.6 419.2 297.9 349.4 Subtotal, mandatory ................... Net interest ......................................... 1,000.5 206.4 1,080.7 188.1 1,129.2 175.2 1,184.0 161.5 1,269.6 144.7 1,326.3 127.2 1,408.0 108.9 1,498.2 90.3 1,591.2 69.1 1,693.5 45.7 1,810.1 19.8 1,856.2 1,960.6 2,016.2 2,076.7 2,168.7 2,223.9 2,303.4 2,397.9 2,490.3 2,593.5 2,706.3 304.0 347.4 329.9 369.5 335.7 387.8 357.0 395.5 366.6 401.9 376.8 410.1 385.3 419.2 395.8 428.5 406.9 438.0 418.5 450.9 430.5 457.4 Total, outlays ................................. Mid-session estimates: Discretionary: Defense ............................................ Non-defense ..................................... Subtotal, discretionary ............... Mandatory: Social Security ................................ Medicare .......................................... Medicaid .......................................... Other ................................................ 651.4 699.4 723.5 752.5 768.5 786.9 804.5 824.3 844.9 869.4 887.9 429.9 214.2 130.3 224.9 452.5 224.3 143.0 262.4 474.4 235.8 155.1 262.6 497.6 262.1 168.9 264.9 522.9 287.4 183.6 294.8 550.3 297.4 199.3 300.6 580.4 319.0 216.5 311.6 613.6 340.9 234.8 326.7 651.5 363.3 255.3 338.7 693.5 386.8 277.1 351.8 738.4 419.0 300.7 366.9 Subtotal, mandatory ................... 999.3 1,082.2 1,127.8 1,193.5 1,288.8 1,347.6 1,427.4 1,516.0 1,608.8 1,709.2 1,825.1 Net interest ......................................... 204.2 180.5 174.1 164.8 151.0 137.1 122.3 106.9 88.9 69.0 48.1 1,854.9 1,962.1 2,025.4 2,110.7 2,208.3 2,271.6 2,354.2 2,447.2 2,542.6 2,647.6 2,761.0 4.4 –2.4 10.7 –3.0 13.6 –1.9 23.5 –2.3 18.9 –4.9 22.2 –5.7 24.3 –6.3 21.7 –6.9 22.1 –7.1 22.5 –7.4 19.1 –7.7 Total, outlays ................................. Difference: Discretionary: Defense ............................................ Non-defense ..................................... 2.1 7.6 11.7 21.2 14.0 16.5 18.0 14.8 14.9 15.1 11.4 –0.1 –1.8 1.4 –0.7 0.9 –2.2 0.6 2.1 0.8 –2.8 2.4 –1.7 –0.4 9.9 2.9 –3.0 –1.4 8.3 3.1 9.1 –2.7 5.2 2.9 15.8 –3.8 5.0 2.9 15.4 –4.4 5.3 2.6 14.4 –4.7 4.9 2.7 14.8 –4.8 2.5 2.5 15.6 –5.1 –0.2 2.8 17.5 Subtotal, mandatory ................... Net interest ......................................... –1.2 –2.2 1.5 –7.6 –1.3 –1.1 9.5 3.3 19.2 6.4 21.3 9.9 19.4 13.4 17.9 16.6 17.6 19.8 15.8 23.3 15.0 28.3 –1.3 1.5 9.2 34.0 39.6 47.7 50.8 49.3 52.3 54.2 54.7 Total, outlays ................................. 37 Subtotal, discretionary ............... Mandatory: Social Security ................................ Medicare .......................................... Medicaid .......................................... Other ................................................ SUMMARY TABLES Table 12. 38 Table 13. RECEIPTS BY SOURCE (In billions of dollars) Estimates April estimates Individual income taxes ................................................................. Corporation income taxes .............................................................. Social insurance and retirement receipts ..................................... Excise taxes .................................................................................... Estate and gift taxes ...................................................................... Customs duties ............................................................................... Miscellaneous receipts ................................................................... Total ............................................................................................. Mid-Session estimates Individual income taxes 1 .............................................................. Corporation income taxes .............................................................. Social insurance and retirement receipts 1 .................................. Excise taxes .................................................................................... Estate and gift taxes ...................................................................... Customs duties ............................................................................... Miscellaneous receipts ................................................................... Total ............................................................................................. Difference Individual income taxes ................................................................. Corporation income taxes .............................................................. Social insurance and retirement receipts ..................................... Excise taxes .................................................................................... Estate and gift taxes ...................................................................... Customs duties ............................................................................... Miscellaneous receipts ................................................................... Total ............................................................................................. 1 The 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1,072.9 213.1 689.7 71.1 31.1 21.4 37.6 1,078.8 218.8 725.8 74.0 28.7 22.5 43.1 1,092.3 227.3 766.0 76.3 26.6 24.3 45.4 1,117.9 235.5 806.0 78.3 28.3 25.0 47.8 1,157.0 244.2 855.8 80.5 24.9 26.0 49.3 1,196.6 252.2 896.4 82.3 22.5 27.7 51.0 1,255.2 259.9 942.0 84.8 20.4 29.3 51.6 1,330.4 268.1 984.4 87.3 15.7 30.7 54.1 1,410.2 275.8 1,030.8 90.0 13.4 33.0 56.8 1,499.6 283.5 1,087.9 92.8 0.7 34.5 59.5 1,598.2 294.3 1,145.1 95.7 0.7 36.2 62.4 2,136.9 2,191.7 2,258.2 2,338.8 2,437.8 2,528.7 2,643.3 2,770.6 2,909.9 3,058.4 3,232.6 1,014.3 155.4 689.4 67.6 30.0 19.8 36.2 1,024.2 229.1 721.9 70.4 28.0 21.5 39.6 1,068.0 221.3 768.7 72.8 23.6 23.2 42.6 1,115.9 231.0 810.1 74.8 26.9 24.2 44.6 1,171.1 258.7 860.3 76.8 24.3 25.3 46.1 1,215.2 259.3 897.7 78.3 27.2 26.8 48.1 1,281.0 264.2 941.5 80.5 23.8 28.0 48.7 1,356.0 270.9 982.8 83.0 24.6 29.2 50.9 1,439.3 277.9 1,027.2 85.7 25.9 31.3 53.5 1,529.6 285.8 1,082.9 88.4 19.6 32.5 56.0 1,627.1 295.3 1,139.2 91.1 0.1 33.7 58.8 2,012.7 2,134.7 2,220.2 2,327.5 2,462.5 2,552.6 2,667.8 2,797.4 2,940.8 3,094.8 3,245.3 –58.6 –57.7 –0.2 –3.6 –1.1 –1.6 –1.4 –54.6 10.3 –3.9 –3.6 –0.7 –1.0 –3.5 –24.3 –6.0 2.7 –3.4 –3.0 –1.0 –2.8 –2.0 –4.5 4.0 –3.6 –1.4 –0.7 –3.2 14.1 14.5 4.5 –3.8 –0.6 –0.7 –3.2 18.6 7.2 1.3 –4.1 4.7 –1.0 –2.9 25.8 4.2 –0.5 –4.2 3.4 –1.3 –2.9 25.6 2.9 –1.6 –4.3 8.9 –1.5 –3.2 29.1 2.2 –3.6 –4.4 12.6 –1.7 –3.3 30.0 2.4 –4.9 –4.4 18.9 –2.0 –3.5 28.9 0.9 –5.9 –4.6 –0.5 –2.6 –3.5 –124.2 –57.0 –38.0 –11.3 24.7 23.9 24.5 26.9 30.9 36.4 12.8 2001 estimate is adjusted to correct for $5.6 billion in prior year receipts. See text box on page 9 and Appendix A on page 49. MID–SESSION REVIEW OUTLAYS BY AGENCY (In billions of dollars) 2000 Actual April estimates 2001 Legislative Branch .............................. 2.9 3.1 Judicial Branch ................................... 4.1 4.3 Agriculture .......................................... 75.7 69.6 Commerce ............................................ 7.8 5.5 Defense—Military ............................... 281.2 283.9 Education ............................................. 33.9 36.7 Energy .................................................. 15.0 16.7 Health and Human Services .............. 382.6 430.5 Housing and Urban Development ..... 30.8 37.3 Interior ................................................. 8.0 8.7 Justice .................................................. 19.6 20.7 Labor .................................................... 31.4 38.2 State ..................................................... 6.8 9.3 Transportation .................................... 46.0 50.6 Treasury .............................................. 391.2 388.5 Veterans Affairs .................................. 47.1 45.2 Corps of Engineers .............................. 4.3 4.6 Other Defense Civil Programs ........... 32.9 34.4 Environmental Protection Agency ..... 7.2 7.5 Executive Office of the President ...... 0.3 0.3 Federal Emergency Management Agency ............................................... 3.1 3.1 General Services Administration ....... * 0.6 International Assistance Programs ... 12.1 11.4 National Aeronautics and Space Administration ...................................... 13.4 13.8 National Science Foundation ............. 3.5 4.0 Office of Personnel Management ....... 48.7 51.0 Small Business Administration ......... –0.4 –1.0 Social Security Administration .......... 441.8 463.0 Other Independent Agencies .............. 10.6 4.9 Allowances ........................................... ................ ................ Undistributed Offsetting Receipts ..... –172.8 –190.2 Total ................................................. 1,788.8 1,856.2 2002 2003 2004 Mid-Session estimates 2005 2006 2001 2002 2003 2004 2005 2006 3.3 4.9 63.2 5.2 303.4 45.2 17.2 468.8 34.8 9.3 22.5 42.0 9.7 54.9 381.5 51.5 4.4 35.4 7.6 0.3 3.4 5.0 61.4 5.4 306.2 49.6 17.5 498.8 34.9 9.6 25.4 42.3 9.7 56.9 385.1 53.5 4.2 41.2 7.6 0.3 3.4 5.1 61.9 5.3 317.2 50.6 17.7 532.7 33.5 11.1 23.9 43.1 9.9 59.2 388.2 55.7 4.3 42.4 7.6 0.3 3.4 5.2 63.8 5.4 331.0 51.9 18.1 566.7 33.4 10.1 23.3 44.8 10.1 61.7 388.9 60.3 4.3 43.7 7.6 0.3 3.5 5.3 65.9 5.5 337.7 53.3 18.4 594.1 33.6 10.3 23.6 46.7 10.4 63.4 390.3 59.5 4.2 44.9 7.6 0.3 3.2 4.3 72.1 5.4 288.3 36.9 17.3 428.3 35.9 8.2 20.9 39.4 8.3 50.5 387.0 45.0 4.4 34.4 7.3 0.3 3.3 4.9 65.7 5.2 313.9 45.5 17.3 457.1 34.4 9.1 21.7 43.7 10.0 54.6 380.9 51.0 4.2 35.6 7.5 0.3 3.4 5.0 63.6 5.4 319.6 50.2 17.5 486.7 34.8 9.7 25.4 44.3 9.7 55.2 388.0 53.5 4.0 41.5 7.6 0.3 3.4 5.1 64.5 5.3 340.5 51.4 17.7 532.7 33.6 11.4 24.0 45.1 10.0 54.9 395.2 55.7 4.1 42.7 7.6 0.3 3.4 5.2 65.6 5.4 349.8 52.5 18.2 574.4 33.7 10.4 23.3 46.2 10.2 56.3 399.9 60.3 4.1 43.9 7.6 0.3 3.5 5.3 66.7 5.5 359.9 54.0 18.4 602.1 33.7 10.6 23.6 48.3 10.4 57.5 406.7 59.5 4.2 45.1 7.6 0.3 3.2 –0.2 12.1 3.0 0.3 12.4 2.7 0.4 12.5 2.4 0.4 12.4 1.9 0.3 12.7 3.4 0.6 11.3 3.2 –0.2 12.0 2.9 0.3 12.3 2.9 0.4 12.5 2.3 0.4 12.7 1.9 0.3 13.0 14.2 4.4 53.4 0.7 488.2 19.0 2.4 –201.8 14.7 4.5 56.3 0.6 511.5 16.8 3.9 –226.0 15.1 4.7 59.5 0.5 537.4 17.1 4.7 –251.0 15.4 4.7 62.8 0.5 567.7 17.8 5.4 –254.9 15.8 13.8 4.8 4.0 66.0 51.0 0.6 –1.0 595.5 462.6 17.7 1.4 5.7 ................ –275.8 –189.5 14.2 4.3 53.7 0.7 489.2 18.7 2.4 –201.7 14.7 4.5 56.7 0.6 512.6 17.6 3.3 –225.4 15.1 4.7 59.8 0.5 537.2 18.5 4.0 –250.0 15.4 4.7 63.1 0.5 566.6 18.2 4.9 –251.6 15.8 4.8 66.3 0.6 593.1 18.5 5.3 –271.0 1,960.6 2,016.2 2,076.7 2,168.7 1,962.1 2,025.4 2,110.7 2,208.3 2,271.6 2,223.9 1,854.9 SUMMARY TABLES Table 14. * $50 million or less. 39 40 Table 15. OUTLAYS BY FUNCTION (In billions of dollars) 2000 Actual April estimates 2001 National defense ................................. 294.5 299.1 International affairs ........................... 17.2 17.5 General science, space, and technology ................................................ 18.6 19.7 Energy .................................................. –1.1 –0.7 Natural resources and environment .. 25.0 27.4 Agriculture .......................................... 36.6 25.9 Commerce and housing credit ........... 3.2 –0.8 Transportation .................................... 46.9 51.1 Community and regional development ................................................... 10.6 10.6 Education, training, employment, and social services ............................ 59.2 65.3 Health .................................................. 154.5 175.3 Medicare .............................................. 197.1 219.3 Income security ................................... 247.9 262.6 Social Security ..................................... 409.4 433.6 Veterans benefits and services .......... 47.1 45.4 Administration of justice .................... 27.8 29.4 General government ........................... 13.5 16.8 Net interest ......................................... 223.2 206.4 Allowances ........................................... ................ ................ Undistributed offsetting receipts ....... –42.6 –47.7 Total ................................................. 1,788.8 1,856.2 2002 2003 2004 Mid-Session estimates 2005 2006 2001 2002 2003 2004 2005 2006 319.2 21.0 322.1 21.3 333.1 21.5 347.2 21.6 354.0 22.2 303.6 16.6 329.8 21.4 335.5 21.4 356.5 21.7 366.0 22.1 376.2 22.6 20.8 –0.3 27.5 18.6 6.9 55.0 21.4 –0.1 27.7 15.0 4.7 57.5 22.2 –0.6 28.0 14.0 3.6 59.7 22.6 –0.4 28.4 14.1 3.5 62.1 23.1 –0.3 28.7 14.5 2.3 63.8 19.7 –0.3 26.6 28.9 –5.2 51.0 20.7 –0.4 27.1 20.7 6.4 54.8 21.4 –0.1 27.6 16.8 5.5 55.7 22.2 –0.6 28.1 16.2 4.9 55.3 22.6 –0.4 28.7 15.5 4.0 56.8 23.1 –0.3 29.0 14.9 3.2 57.9 11.7 11.3 10.8 10.5 10.1 10.8 11.8 11.3 11.1 10.5 10.2 76.6 201.5 229.9 275.7 455.1 51.6 32.3 16.3 188.1 2.4 –49.4 81.3 224.4 242.1 285.9 477.1 53.6 35.4 16.7 175.2 3.9 –60.4 82.6 243.3 255.9 295.9 501.6 55.8 35.5 18.4 161.5 4.7 –70.6 84.7 250.7 282.8 308.8 528.1 60.4 35.2 17.4 144.7 5.4 –58.9 87.2 64.2 264.8 173.8 296.0 217.4 317.1 265.1 556.8 433.5 59.6 45.1 35.8 29.7 17.6 17.2 127.2 204.2 5.7 ................ –62.4 –47.0 75.5 190.7 227.7 286.5 456.1 51.1 31.4 16.5 180.5 2.4 –48.7 82.1 212.0 239.3 296.7 478.0 53.6 35.4 16.9 174.1 3.3 –61.0 84.0 231.7 265.8 306.2 501.3 55.8 35.5 18.6 164.8 4.0 –72.4 85.4 251.8 291.1 318.4 526.7 60.4 35.2 17.6 151.0 4.9 –59.9 88.0 271.1 301.2 328.6 554.1 59.6 35.8 17.8 137.1 5.3 –63.8 1,960.6 2,016.2 2,076.7 2,168.7 1,962.1 2,025.4 2,110.7 2,208.3 2,271.6 2,223.9 1,854.9 MID–SESSION REVIEW DISCRETIONARY BUDGET AUTHORITY BY AGENCY (In billions of dollars) 2000 Actual April estimates 2001 Legislative Branch .............................. 2.5 2.7 Judicial Branch ................................... 3.7 4.0 Agriculture .......................................... 17.1 19.3 Commerce ............................................ 8.7 5.1 Defense—Military ............................... 287.3 296.3 Education ............................................. 29.4 39.9 Energy .................................................. 17.8 19.7 Health and Human Services .............. 45.5 53.9 Housing and Urban Development ..... 21.1 28.5 Interior ................................................. 8.5 10.2 Justice .................................................. 18.8 20.9 Labor .................................................... 8.8 11.9 State ..................................................... 7.8 7.5 Transportation .................................... 14.5 18.4 Treasury .............................................. 12.5 14.0 Veterans Affairs .................................. 20.8 22.4 Corps of Engineers .............................. 4.1 4.5 Other Defense Civil Programs ........... 0.1 0.1 Environmental Protection Agency ..... 7.6 7.8 Executive Office of the President ...... 0.3 0.3 Federal Emergency Management Agency ............................................... 3.9 2.4 General Services Administration ....... –* 0.5 International Assistance Programs ... 13.6 12.9 National Aeronautics and Space Administration ...................................... 13.6 14.3 National Science Foundation ............. 3.9 4.4 Office of Personnel Management ....... 0.2 0.2 Small Business Administration ......... 0.9 0.3 Social Security Administration .......... 5.7 6.0 Other Independent Agencies .............. 5.8 6.3 Allowances ........................................... ................ ................ Total ................................................. 584.4 634.9 2002 2003 2004 Mid-Session estimates 2005 2006 2001 2002 2003 2004 2005 2006 3.0 4.6 17.9 4.8 310.5 44.5 19.2 56.7 30.4 9.8 19.9 11.3 9.1 16.3 14.7 23.4 3.9 0.1 7.3 0.3 3.0 4.5 18.8 5.3 319.0 45.5 19.7 61.7 32.2 10.0 21.9 11.8 9.3 17.3 15.0 23.9 4.0 0.1 7.4 0.3 3.1 4.6 19.0 5.3 327.9 47.0 20.3 63.3 33.3 10.2 22.0 12.1 9.5 17.7 15.4 24.4 4.1 0.1 7.6 0.3 3.1 4.7 19.4 5.4 337.1 48.1 20.7 64.9 34.6 10.4 22.3 12.4 9.7 18.1 15.7 25.0 4.2 0.2 7.2 0.3 3.2 4.9 19.8 5.5 346.6 49.1 21.2 66.5 35.7 10.6 22.8 12.6 9.9 18.5 16.1 25.6 4.3 0.2 6.6 0.3 2.8 4.0 19.3 5.0 301.9 40.1 20.0 54.1 28.4 10.3 20.9 11.7 7.5 18.5 14.2 22.3 4.7 0.1 7.8 0.3 3.0 4.6 17.9 4.9 328.9 44.6 19.2 56.8 30.4 9.9 20.0 11.4 9.1 16.3 14.7 23.2 3.9 0.1 7.3 0.3 3.0 4.5 18.8 5.3 337.9 45.5 19.7 61.8 32.2 10.1 22.1 12.0 9.3 17.3 15.0 23.7 4.0 0.1 7.4 0.3 3.1 4.6 19.0 5.3 347.4 47.0 20.3 63.4 33.3 10.3 22.2 12.3 9.5 17.7 15.4 24.3 4.1 0.1 7.6 0.3 3.1 4.7 19.4 5.4 357.1 48.1 20.7 65.0 34.6 10.5 22.4 12.6 9.7 18.1 15.7 24.8 4.2 0.2 7.2 0.3 3.2 4.9 19.8 5.5 367.1 49.1 21.2 66.7 35.7 10.7 22.9 12.8 9.9 18.5 16.1 25.3 4.3 0.2 6.6 0.3 2.2 0.5 12.8 2.3 0.5 13.1 2.3 0.5 13.4 2.4 0.5 13.6 2.4 0.5 13.9 2.4 0.5 13.0 2.2 0.5 12.9 2.3 0.5 13.2 2.3 0.5 13.5 2.4 0.5 13.8 2.4 0.5 14.1 14.5 4.5 0.2 0.5 6.4 6.0 5.3 15.0 4.6 0.2 0.6 6.5 6.0 5.4 15.4 4.7 0.2 0.6 6.7 6.3 5.6 15.7 4.8 0.2 0.6 6.8 6.3 5.7 16.1 14.3 4.9 4.4 0.2 0.2 0.6 0.9 7.0 6.0 6.4 6.3 5.8 ................ 14.5 4.5 0.2 0.5 6.4 6.1 5.4 15.0 4.6 0.2 0.6 6.5 6.0 5.0 15.4 4.7 0.2 0.6 6.7 6.2 5.1 15.7 4.8 0.2 0.6 6.8 6.3 5.3 16.1 4.9 0.2 0.6 7.0 6.4 5.5 660.6 685.1 702.7 720.1 679.8 704.0 722.2 740.1 758.4 737.9 642.1 SUMMARY TABLES Table 16. * $50 million or less. 41 42 Table 17. DISCRETIONARY BUDGET AUTHORITY BY FUNCTION (In billions of dollars) 2000 Actual April estimates 2001 National defense ................................. 300.8 311.3 International affairs ........................... 23.5 22.7 General science, space, and technology ................................................ 19.2 20.9 Energy .................................................. 2.7 3.1 Natural resources and environment .. 24.6 28.7 Agriculture .......................................... 4.7 5.1 Commerce and housing credit ........... 5.1 0.7 Transportation .................................... 15.2 18.9 Community and regional development ................................................... 12.2 11.0 Education, training, employment, and social services ............................ 44.4 61.1 Health .................................................. 33.8 38.9 Medicare .............................................. 3.0 3.4 Income security ................................... 31.6 39.5 Social Security ..................................... 3.2 3.4 Veterans benefits and services .......... 20.9 22.5 Administration of justice .................... 27.1 30.0 General government ........................... 12.4 14.0 Allowances ........................................... ................ ................ Total ................................................. 584.4 634.9 2002 2003 2004 Mid-Session estimates 2005 2006 2001 2002 2003 2004 2005 2006 325.1 23.9 333.9 24.4 343.2 24.9 352.7 25.5 362.5 26.0 317.1 22.7 343.7 24.0 353.0 24.5 362.8 25.0 372.7 25.6 383.1 26.1 21.2 2.8 26.4 4.8 –0.3 16.8 21.9 2.9 27.0 5.2 –0.1 17.8 22.4 3.1 27.6 5.2 –0.4 18.2 22.9 3.2 27.6 5.3 –0.5 18.6 23.5 3.3 27.4 5.4 –0.5 19.0 20.9 3.1 28.9 5.1 0.6 19.0 21.2 2.8 26.4 4.8 –0.1 16.8 21.9 2.9 27.1 5.2 –0.1 17.8 22.4 3.1 27.6 5.2 –0.4 18.2 22.9 3.2 27.7 5.3 –0.5 18.6 23.5 3.3 27.5 5.4 –0.5 19.0 10.4 10.7 10.9 11.1 11.3 11.6 10.4 10.7 10.9 11.1 11.3 65.4 41.0 3.5 42.8 3.5 23.5 29.8 14.8 5.3 67.1 45.7 3.5 45.1 3.6 24.0 31.9 15.0 5.4 69.0 46.9 3.6 46.7 3.7 24.5 32.3 15.4 5.6 70.7 48.1 3.7 48.3 3.8 25.1 32.8 15.7 5.7 72.3 61.1 49.4 38.8 3.8 3.4 49.6 39.7 3.8 3.4 25.7 22.4 33.5 30.0 16.0 14.2 5.8 ................ 65.7 40.9 3.5 42.9 3.5 23.3 29.8 14.8 5.4 67.4 45.6 3.5 45.1 3.6 23.8 31.9 15.1 5.0 69.4 46.8 3.6 46.8 3.7 24.3 32.3 15.4 5.1 71.0 48.0 3.7 48.4 3.8 24.9 32.8 15.7 5.3 72.7 49.3 3.8 49.6 3.8 25.4 33.5 16.1 5.5 660.6 685.1 702.7 720.1 679.8 704.0 722.2 740.1 758.4 737.9 642.1 MID–SESSION REVIEW MID–SESSION BASELINE TOTALS (In billions of dollars) 2001 Discretionary: Defense ........................................................................ Non-defense ................................................................ 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2002–2011 304.0 347.4 317.1 368.6 325.5 387.3 336.8 398.0 351.0 406.2 357.5 416.4 363.7 427.8 376.5 439.2 387.3 450.7 398.4 462.6 413.9 474.9 3,627.8 4,231.6 Subtotal, discretionary ........................................... Mandatory: Social Security ............................................................ Medicare ..................................................................... Medicaid ...................................................................... Other ........................................................................... 651.5 685.7 712.7 734.7 757.2 773.9 791.5 815.7 838.0 861.0 888.8 7,859.4 429.9 214.2 130.3 224.9 452.5 224.3 143.0 262.9 474.4 235.8 155.1 259.9 497.6 248.1 168.9 271.8 522.9 267.4 183.6 293.8 550.3 276.4 199.3 300.3 580.4 297.0 216.5 306.9 613.6 315.9 234.8 321.9 651.5 336.3 254.9 334.6 693.5 357.8 276.7 347.5 738.4 387.0 300.3 362.8 5,775.1 2,946.0 2,133.1 3,062.5 Subtotal, mandatory ............................................... Net interest ............................................................. 999.3 204.2 1,082.7 180.2 1,125.2 173.1 1,186.4 162.7 1,267.7 147.1 1,326.3 130.6 1,400.7 112.8 1,486.2 93.8 1,577.3 72.1 1,675.5 47.7 1,788.6 19.7 13,916.7 1,139.8 Total, outlays ................................................................. Receipts .......................................................................... 1,855.0 2,012.7 1,948.7 2,135.3 2,011.0 2,221.5 2,083.8 2,333.5 2,172.0 2,476.1 2,230.9 2,573.1 2,305.0 2,693.0 2,395.8 2,826.6 2,487.4 2,972.6 2,584.3 3,142.9 2,697.2 3,383.4 22,916.0 26,758.0 Surplus ........................................................................... On-budget surplus 1 ................................................... Postal service surplus ................................................ Social Security surplus 1 ............................................ 157.8 1.9 –1.3 157.1 186.6 18.0 –2.6 171.2 210.5 18.2 0.1 192.2 249.8 38.9 0.2 210.6 304.1 67.8 0.8 235.5 342.2 92.0 1.2 248.9 388.0 122.2 –0.1 265.9 430.9 150.3 0.7 279.9 485.2 191.4 0.9 293.0 558.6 247.3 1.1 310.2 686.2 357.7 1.4 327.1 3,842.0 1,303.8 3.7 2,534.5 1 The SUMMARY TABLES Table 18. 2001 estimate is adjusted to correct for $5.6 billion in prior year receipts. See text box on page 9 and Appendix A on page 49. 43 44 Table 19. FEDERAL GOVERNMENT FINANCING AND DEBT (In billions of dollars) 2000 actual Financing: Unified budget surplus .............................................................................. Financing other than the change in debt held by the public: Premiums paid (–) on buybacks of Treasury securities 1 .................... Changes in: 2 Treasury operating cash balance ....................................................... Checks outstanding, deposit funds, etc. 3 .......................................... Seigniorage on coins ............................................................................... Less: Net financing disbursements: Direct loan financing accounts ........................................................... Guaranteed loan financing accounts ................................................. Total, financing other than the change in debt held by the public ................................................................................................... Estimate 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 158 173 195 217 254 281 314 350 398 447 484 –6 –11 –10 .......... .......... .......... .......... .......... .......... .......... .......... .......... 4 3 2 –2 –4 1 –5 1 1 .......... .......... 2 –5 .......... 2 .......... .......... 2 .......... .......... 2 –5 .......... 2 .......... .......... 2 .......... .......... 2 –5 .......... 2 .......... .......... 2 –22 4 –31 –1 –4 –1 –17 1 –18 –* –17 –* –16 1 –16 1 –16 1 –16 1 –16 1 –15 1 –13 –48 –17 –15 –21 –16 –14 –19 –14 –14 –18 –13 223 110 155 180 196 239 267 295 337 385 429 471 –223 .......... –110 .......... –155 .......... –180 .......... –196 .......... –239 .......... –267 .......... –295 .......... –337 .......... –385 .......... –155 –274 –35 –436 –223 –110 –155 –180 –196 –239 –267 –295 –337 –385 –429 –471 5,601 5,727 5,829 5,935 6,040 6,125 6,201 6,266 6,303 6,310 6,568 6,963 –15 6 –15 6 –15 6 –15 6 –15 6 –15 6 –15 6 –15 6 –15 6 –15 6 –15 6 –15 6 Total, debt subject to statutory limitation 8 ......................................... Debt Outstanding, End of Year: Gross Federal debt: 9 Debt issued by Treasury ........................................................................ Debt issued by other agencies ............................................................... 5,592 5,717 5,819 5,926 6,031 6,115 6,192 6,256 6,294 6,300 6,558 6,954 5,601 28 5,727 27 5,829 27 5,935 26 6,040 25 6,125 23 6,201 22 6,266 20 6,303 20 6,310 20 6,568 20 6,963 20 Total, gross Federal debt .................................................................... Held by: Debt securities held as assets by Government accounts ..................... Debt securities held as assets by the public: 5 Debt held by the public ...................................................................... Less excess balances ........................................................................... 5,629 5,753 5,855 5,961 6,065 6,148 6,223 6,286 6,323 6,330 6,588 6,983 2,219 2,453 2,711 2,996 3,296 3,618 3,959 4,317 4,691 5,082 5,495 5,926 3,410 .......... 3,300 .......... 3,145 .......... 2,965 .......... 2,769 .......... 2,531 .......... 2,264 .......... 1,969 .......... 1,632 .......... 1,248 .......... 1,093 –274 1,057 –710 Net indebtedness 10 ......................................................................... 3,410 3,300 3,145 2,965 2,769 2,531 2,264 1,969 1,632 1,248 819 348 Total, amount available to repay debt held by the public ........ Change in debt held by the public: 4 5 Change in debt held by the public ........................................................ Less change in excess balances ............................................................. Change in net indebtedness ............................................................... Debt Subject to Statutory Limitation, End of Year: Debt issued by Treasury ............................................................................ Adjustment for Treasury debt not subject to limitation and agency debt subject to limitation 6 ..................................................................... Adjustment for discount and premium 7 .................................................. * $500 million or less. 1 This table includes estimates for Treasury buybacks of outstanding securities only through 2002. These estimates assume that Treasury will buy back $35 billion (face value) of securities in 2001 (in terms of settlements) and $40 billion in 2002. The premiums paid on buybacks are based on experience to date and the interest rates in the economic assumptions. MID–SESSION REVIEW 236 SUMMARY TABLES 2 A decrease in the Treasury operating cash balance (which is an asset) would be a means of financing a deficit and therefore has a positive sign. An increase in checks outstanding or deposit fund balances (which are liabilities) would also be a means of financing a deficit and therefore would also have a positive sign. 3 Besides checks outstanding and deposit funds, includes accrued interest payable on Treasury debt, miscellaneous liability accounts, allocations of special drawing rights, and, as an offset, cash and monetary assets other than the Treasury operating cash balance, miscellaneous asset accounts, and profit on sale of gold. 4 Indian tribal funds that are owned by the Indian tribes and held and managed in a fiduciary capacity by the Government on the tribes’ behalf were reclassified from trust funds to deposit funds as of October 1, 1999. Their holdings of Treasury securities were accordingly reclassified from debt held by Government accounts to debt held by the public, which affected the change in debt held by the public without affecting borrowing or the repayment of debt. 5 The amount of the unified budget surplus that is available to repay debt held by the public is estimated to be more than the amount of debt that is available to be redeemed in 2010 and subsequent years. The difference is assumed to be held as ‘‘excess balances.’’ (‘‘Excess’’ means in excess of the amounts held for operational and programmatic purposes.) The debt held by the public is the amount of Federal debt securities held by the public. The net indebtedness is the debt held by the public less the excess balances. 6 Consists primarily of Federal Financing Bank debt. 7 Consists 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. 8 The statutory debt limit is $5,950 billion. 9 Treasury securities held by the public and zero-coupon bonds held by Government accounts are almost entirely measured at sales price plus amortized discount or less amortized premium. Agency debt is almost entirely measured at face value. Treasury securities in the Government account series are measured at face value less unrealized discount (if any). 10 At the end of 2000, the Federal Reserve Banks held $511 billion of Federal securities and the rest of the public held $2,899 billion. Debt held by the Federal Reserve Banks is not estimated for future years. 45 APPENDIX A. Basis of Social Security Tax Receipts in the Budget 47 BASIS OF SOCIAL SECURITY TAX RECEIPTS IN THE BUDGET Most budget receipts equal cash collections. However, Social Security records the estimated tax liability incurred, adjusted for the estimated timing of tax payments and for reestimates of tax liability in previous years. Individual income taxes are a residual, after subtracting the estimated Social Security employment tax liabilities from total cash collections of income taxes and employment taxes.1 Adjustments for reestimates of Social Security tax liability amounted to $5.6 billion in the first three quarters of 2001. In the past, this has not concerned decision makers, because it has no effect on the unified surplus. However, it reduces the apparent on-budget surplus for 2001 by $5.6 billion. When the fiscal policy goal is defined as avoiding a budget deficit excluding Social Security, the inaccuracies of the traditional estimation system can distort perceptions about the success or failure of the Nation’s fiscal policy. Receipts as Estimated Liability.—By law, the Social Security trust funds are credited with amounts equal to the tax liability incurred. The budget records receipts equal to the estimated tax liability, with the receipts spread over the months that taxes are expected to be paid. If actual tax payments are less than the estimated liability, the general fund implicitly makes up the difference. The initial estimate is based on the economic assumptions for the President’s budget at the time the estimate is made. For example, the receipts reported in the March 2000 Monthly Treasury Statement were estimates of liability prepared in December 1999, using the economic assumptions for the 2001 budget. Beginning about one year after the initial estimate, as information about employers’ reports of wages paid becomes available, adjustments are made to correct for differences between the es1 Companies are not required to distinguish income taxes separately from employment taxes, when they remit tax withholdings to Treasury. Therefore, while Treasury knows the total cash collections, it must estimate the amount of tax payments made for the various purposes. timated and actual tax liability incurred. For example, the first adjustment for JanuaryMarch 2000 was made in March 2001. The adjustments can be increases or decreases. Because wage reports trickle in over many years, each adjustment reflects reestimates of tax liability for several years. Budget Scoring of Adjustments.—(Reestimates of Social Security tax receipts are recorded as adjustments to current year receipts, not as revisions to the published estimates for the year in which the liability was incurred.) 2 About one-half of the June 2001 adjustment reflected actual reported wage data for 2000, one-third for 1999, and the remainder for all prior years. As a result, the amount of employment taxes recorded in the budget do not correspond to either the tax liability incurred or the taxes actually paid in that year. As explained above, the adjustments also affect the amounts reported as individual income tax receipts. If employment tax receipts are adjusted upwards, income tax receipts are automatically reduced by the same amount. On-budget Surplus Effect.—These adjustments have no effect on the unified budget surplus, but they affect the Social Security surplus and the on-budget surplus by equal and opposite amounts. If Social Security tax receipts for the current year are increased by an adjustment for employment tax liability for previous years, then income tax receipts for the current year are decreased by the same amount. This artificially inflates the Social Security surplus and decreases the on-budget surplus. As a result, the reported on-budget surplus for the current year is distorted by the amount of the reestimates of employment tax liability in previous years. The impact can be large in comparison to the on-budget surplus. For the first three quarters of 2001, the 2 This correction has been made in this report for the sake of accuracy. Other official publications may use the historical method and therefore report slightly different figures. OMB will review with the Department of the Treasury the possibility of prospective changes to record the adjustments in the correct years. 49 50 MID–SESSION REVIEW adjustments raised the reported Social Security surplus and reduced the on-budget surplus by $5.6 billion. This raises the following question for policy makers. If the fiscal policy target is set in terms of the on-budget surplus, should the success or failure of achieving the target be affected by a scoring convention that has nothing to do with actual tax collections in that year? Or should the targets exclude adjustments for events that occurred in prior years? TABLE A–1. ON-BUDGET AND SOCIAL SECURITY SURPLUSES (In billions of dollars) 2001 On-budget Surplus: Current rule—adjustment recorded in 2001 .......................... Assign receipts to year actually collected ........................... –3.7 5.6 Real 2001 surplus .................................................................... 1.9 Social Security Surplus: Current rule—adjustment recorded in 2001 .......................... Assign receipts to year actually collected ........................... 162.7 –5.6 Real 2001 surplus .................................................................... 157.1 Postal Service (off-budget) ..................................................... –1.3 Unified Surplus: Current rule—adjustment recorded in 2001: On-budget surplus ................................................................ Social Security surplus ........................................................ Postal Service ....................................................................... –3.7 162.7 –1.3 Subtotal, unified surplus .................................................. 157.8 Real 2001 surplus: On-budget surplus ................................................................ Social Security surplus ........................................................ Postal Service ....................................................................... 1.9 157.1 –1.3 Subtotal, unified surplus .................................................. 157.8 Memorandum—Real Non-Social Security Surplus: Real on-budget surplus ............................................................. Postal Service deficit ................................................................. 1.9 –1.3 Real Non-Social Security Surplus ........................................ 0.6 APPENDIX B. Sequestration Update Report to the President and Congress for 2002 51 I. OVERVIEW The Budget Enforcement Act of 1997 (BEA of 1997) extended and modified the expiring enforcement requirements of the Budget Enforcement Act of 1990 (BEA of 1990). The BEA of 1997 established limits, or ‘‘caps,’’ for discretionary spending through 2002. It also extended the pay-as-you-go (PAYGO) requirement that legislation affecting direct spending or receipts not result in net costs to the Federal Government. The Transportation Equity Act for the 21st Century (TEA–21) further modified the discretionary spending limits and created new categories for highway and mass transit spending. An across-the-board reduction of non-exempt spending, known as ‘‘sequestration,’’ enforces compliance with these constraints. Based on preliminary OMB scoring of the latest House and Senate action for the 13 annual appropriations bills, if offsets are not enacted or the caps are not raised, a sequester of discretionary programs would be required under current law as shown in Table 4. In addition, if this year ended with no further action on PAYGO, a sequester of mandatory programs at the maximum level achievable under current law would be required as shown in Table 6. Notwithstanding the potential for sequestration in 2002, both appropriations set to be enacted and authorizing legislation already enacted this year are within the 2002 congressional budget resolution framework. The current PAYGO scorecard contains $16 billion of costs in 2002 from legislation enacted last year. The Administration will work with Congress to ensure that no unintended sequesters of spending occur under current law or through enactment of any other proposals that meet the President’s objectives to reduce the debt, fund priority initiatives, and grant tax relief to all income tax paying Americans. 53 II. DISCRETIONARY SEQUESTRATION REPORT The Budget Enforcement Act (BEA) requires that OMB issue reports after enactment of individual bills on the scoring of those bills and three times a year on the overall status of discretionary legislation. This report provides OMB’s updated estimates, reflecting legislation for which OMB has issued reports as of August 15, 2001. As the BEA requires, the estimates rely on the same economic and technical assumptions as in the President’s 2002 budget, which the Administration transmitted to Congress on April 9, 2001. Discretionary programs are funded annually through the appropriations process. The scorekeeping guidelines accompanying the BEA identify accounts with discretionary resources. The BEA limits—or caps—budget authority and outlays available for discretionary programs each year through 2002. For 2001 and 2002, the BEA specified a single category for all discretionary spending. The Transportation Equity Act for the 21st Century (TEA–21) established two additional categories for highway and mass transit outlays for 1999 through 2003. The Department of the Interior and Related Agencies Appropriations Act, FY 2001 established a new category for conservation spending with limits on budget authority and outlays for 2002 through 2006. In addition to specifying overall limits for the conservation category, the Act also specifies levels of spending for six subcategories. The statutory spending limits established by the BEA are set to expire in 2002. To maintain the viability of the caps as a tool for fiscal discipline, the Administration proposed in the President’s 2002 budget to raise the 2002 discretionary spending limits and extend them through 2005. Although an agreement has not yet been reached with the Congress on this proposal, the Administration remains committed to ensuring that the success of the caps is continued in the future. OMB monitors compliance with existing discretionary spending limits throughout the year. Appropriations that cause a breach in the budget authority or outlay limits would trigger an across-the-board reduction (sequester) to eliminate that breach. The BEA, however, does not require that Congress appropriate the full amount available under the discretionary limits. Table 1 summarizes historical changes to the caps since 1990. 55 56 Table 1. HISTORICAL SUMMARY OF CHANGES TO DISCRETIONARY SPENDING LIMITS (In billions of dollars) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 BA OL 491.7 514.4 503.4 524.9 511.5 534.0 510.8 534.8 517.7 540.8 519.1 547.3 528.1 547.3 530.6 547.9 533.0 559.3 537.2 564.3 542.0 564.4 551.1 560.8 BA OL BA OL BA OL N/A N/A .......... .......... .......... .......... N/A N/A 7.7 1.0 –0.5 –0.3 N/A N/A 8.2 2.4 –5.1 –2.5 N/A N/A 8.2 2.3 –9.5 –5.8 N/A N/A 8.8 3.0 –11.8 –8.8 N/A N/A –0.6 –0.5 3.0 1.8 N/A N/A –0.4 –2.6 2.6 2.3 –6.9 6.8 3.1 –2.8 0.0 0.9 N/A N/A –0.2 –0.3 N/A N/A N/A N/A 2.8 0.1 N/A N/A N/A N/A –0.1 –0.1 N/A N/A N/A N/A –3.3 –3.3 N/A N/A BA OL BA OL BA OL 0.2 0.3 0.9 1.1 .......... .......... 0.2 0.3 8.3 1.8 ............ ............ 13.0 0.8 4.6 5.4 ............ ............ 0.6 0.8 12.2 9.0 ............ ............ 0.7 0.9 7.7 10.1 –15.0 –1.1 0.1 0.1 5.1 6.4 –0.1 –3.5 0.2 0.3 9.3 8.1 –0.1 –2.4 1.0 0.6 5.7 7.0 ............ –1.5 19.4 1.1 31.9 22.9 N/A N/A 1.0 0.7 43.6 35.8 N/A N/A 0.6 1.2 0.0 20.3 N/A N/A .......... 0.2 0.0 6.3 N/A N/A BA OL BA OL .......... .......... .......... 2.6 3.5 1.4 ............ 1.7 2.9 2.2 ............ 0.5 2.9 2.6 ............ 1.0 2.9 2.7 ............ ............ ............ 1.1 ............ ............ ............ 0.5 ............ ............ ............ 0.1 ............ 1.2 N/A N/A ............ ............ N/A N/A ............ 0.8 3.2 N/A ............ 2.4 N/A N/A .......... .......... BA OL BA OL BA OL BA OL BA OL BA OL 1.1 3.9 44.2 33.3 N/A N/A N/A N/A N/A N/A N/A N/A 19.3 5.9 14.0 14.9 N/A N/A N/A N/A N/A N/A N/A N/A 23.6 8.8 0.6 7.6 N/A N/A N/A N/A N/A N/A N/A N/A 14.3 10.0 * 2.8 N/A N/A N/A N/A N/A N/A N/A N/A –6.7 6.8 * 1.1 N/A N/A N/A N/A N/A N/A N/A N/A 7.5 5.4 ............ ............ N/A N/A N/A N/A N/A N/A N/A N/A 11.6 6.3 ............ ............ ............ ............ N/A N/A N/A N/A N/A N/A 2.9 12.3 ............ ............ ............ ............ N/A N/A N/A N/A N/A N/A 51.1 23.7 N/A N/A ............ ............ –0.9 1.1 N/A N/A N/A N/A 47.4 37.3 N/A N/A 1.1 ............ –0.9 2.6 N/A N/A N/A N/A 3.7 23.8 N/A N/A 0.0 ............ –0.9 5.2 95.9 58.6 N/A N/A –3.3 3.3 N/A N/A .......... .......... –0.9 7.1 N/A N/A 1.8 1.2 Total adjustments ........................................................................................ BA OL 45.3 37.2 33.2 20.8 24.2 16.4 14.3 12.8 –6.7 7.9 7.5 5.4 11.6 6.3 2.9 12.3 50.2 24.9 47.6 40.0 98.8 87.6 –2.4 11.6 Update Report spending limits 5 .............................................................. BA OL 537.0 551.6 536.6 545.7 535.7 550.4 525.1 547.6 511.0 548.7 526.6 552.7 539.7 553.6 533.5 560.2 583.2 584.2 584.8 604.2 640.8 652.0 548.7 572.4 TOTAL DISCRETIONARY Statutory Caps as set in OBRA 1990, OBRA 1993, and 1997 Bipartisan Budget Agreement ............................................................. Adjustment to 1998 OBRA limits to reach discretionary spending limits included in the 1997 Bipartisan Budget Agreement ................................ Adjustments for changes in concepts and definitions .................................. Adjustments for changes in inflation ............................................................. Adjustments for credit reestimates, IRS funding, debt forgiveness, Arrearages, EITC, IMF, and CDRs ............................................................ Adjustments for emergency requirements ..................................................... Adjustment pursuant to Sec. 2003 of P.L. 104–19 1 ..................................... Adjustments for special allowances: Discretionary new budget authority ........................................................... Outlay allowance ......................................................................................... Subtotal, adjustments excluding Desert Shield/Desert Storm ............. Adjustments for Operation Desert Shield/Desert Storm .............................. Rounding Adjustment ..................................................................................... Adjustment to reach spending limits mandated in P.L. 106–429 3 ............. Adjustment for conservation limits established by P.L. 106–291 4 ............. AAN/A = Not Applicable * Less than $50 million. 1 P.L. 104–19, Emergency Supplemental Appropriations for Additional Disaster Assistance, for Anti-Terrorism Initiatives, for Assistance in the Recovery from the Tragedy that Occurred at Oklahoma City, and Rescissions Act, 1995, was signed into law on July 27, 1995. Section 2003 of that bill directed the Director of OMB to make a downward adjustment in the discretionary spending limits for 1995–1998 equal to the aggregate amount of reductions in new budget authority and outlays for discretionary programs resulting from the provisions of the bill, other than emergency appropriations. 2 Sec. 8101(a) of P.L. 105–178, the Transportation Equity Act for the 21st Century (TEA–21), which was signed by the President on June 6, 1998, established two new discretionary spending categories: Highway and Mass Transit. Sec. 8101(b) of TEA–21 provided for an offsetting adjustment in the existing discretionary spending limits. OMB SEQUESTRATION UPDATE REPORT TEA–21 Adjustment (Net) 2 ............................................................................ II. DISCRETIONARY SEQUESTRATION REPORT 3 Sec. 701 of P.L. 106–429, the Foreign Operations and Related Agencies Appropriations Act, 2001, included revised budget authority and outlay caps for 2001. In addition, this section provided for a budget authority rounding adjustment of 0.5 percent, and also prohibited OMB from making adjustments in the Final Sequestration Report for emergency requirements. 4 Title VIII of of P.L.–291, the Interior and Related Agencies Appropriations Act, FY 2001, created a new conservation cagetory with limits on budget authority and outlays for 2002–2006. 5 Reflects combined Defense Discretionary, Non-Defense Discretionary, Violent Crime Reduction, Highway Category, Mass Transit Category, and Conservation Category spending limits. 57 58 OMB SEQUESTRATION UPDATE REPORT Table 2. DISCRETIONARY SPENDING LIMITS (In millions of dollars) 2000 2001 2002 VIOLENT CRIME REDUCTION SPENDING Preview Report Violent Crime Reduction Spending Limits ............................... Adjustments for the Update Report: No Adjustments .............................................................................................................. Update Report Violent Crime Reduction Spending Limits ................................ Anticipated Adjustments for the Final Sequestration Report: No Adjustments .............................................................................................................. Anticipated Final Sequestration Report Limits .................................................... BA OL 4,500 6,344 N/A N/A N/A N/A BA OL BA OL .............. .............. 4,500 6,344 N/A N/A N/A N/A N/A N/A N/A N/A BA OL BA OL .............. .............. 4,500 6,344 N/A N/A N/A N/A N/A N/A N/A N/A BA OL .............. 24,574 .............. 26,920 .............. 28,489 BA OL BA OL .............. .............. .............. 24,574 .............. .............. .............. 26,920 .............. .............. .............. 28,489 BA OL BA OL .............. .............. .............. 24,574 .............. .............. .............. 26,920 .............. .............. .............. 28,489 BA OL .............. 4,117 .............. 4,639 .............. 5,275 BA OL BA OL .............. .............. .............. 4,117 .............. .............. .............. 4,639 .............. .............. .............. 5,275 BA OL BA OL .............. .............. .............. 4,117 .............. .............. .............. 4,639 .............. .............. .............. 5,275 BA OL BA OL BA OL BA OL BA OL BA OL N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 1,760 1,232 540 .............. 300 .............. 160 .............. 50 .............. 150 .............. HIGHWAY CATEGORY Preview Report Highway Category Spending Limits .......................................... Adjustments for the Update Report: No Adjustments .............................................................................................................. Update Report Highway Category Spending Limits ............................................ Anticipated Adjustments for the Final Sequestration Report: No Adjustments .............................................................................................................. Anticipated Final Sequestration Report Limits .................................................... MASS TRANSIT CATEGORY Preview Report Mass Transit Category Spending Limits ................................... Adjustments for the Update Report: No Adjustments .............................................................................................................. Update Report Mass Transit Category Spending Limits ..................................... Anticipated Adjustments for the Final Sequestration Report: No Adjustments .............................................................................................................. Anticipated Final Sequestration Report Limits .................................................... CONSERVATION CATEGORY Preview Report Conservation Category Spending Limits .................................. Federal and State Land and Water Conservation Fund subcategory .............. State and Other Conservation subcategory ............................................................ Urban and Historic Preservation subcategory ...................................................... Payments in Lieu of Taxes subcategory .................................................................. Federal Deferred Maintenance subcategory .......................................................... 59 II. DISCRETIONARY SEQUESTRATION REPORT Table 2. DISCRETIONARY SPENDING LIMITS—Continued (In millions of dollars) 2000 Coastal Assistance subcategory ................................................................................. 2001 2002 BA OL BA OL N/A N/A N/A N/A N/A N/A N/A N/A 440 .............. 120 .............. BA OL BA OL N/A N/A N/A N/A N/A N/A N/A N/A .............. .............. 1,760 1,232 BA OL BA OL N/A N/A N/A N/A N/A N/A N/A N/A .............. .............. 1,760 1,232 BA OL 580,289 569,224 640,803 617,507 546,945 537,091 BA OL BA OL BA OL N/A N/A N/A N/A N/A N/A N/A N/A .............. 451 .............. 2,434 .............. .............. .............. 292 .............. .............. Subtotal, Adjustments for the Update Report ................................................. BA OL N/A N/A .............. 2,885 .............. 292 Update Report Other Discretionary Spending Limits ......................................... BA OL 580,289 569,224 640,803 620,392 546,945 537,383 BA OL BA OL BA OL N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 146 146 433 390 20 2 Subtotal, Adjustments for the Final Sequestration Report ......................... BA OL N/A N/A N/A N/A 599 538 Anticipated Final Sequestration Report Spending Limits .................................. BA OL 580,289 569,224 640,803 620,392 547,544 537,921 Unallocated ...................................................................................................................... Adjustments for the Update Report: No Adjustments .............................................................................................................. Update Report Conservation Category Spending Limits .................................... Anticipated Adjustments for the Final Sequestration Report: No Adjustments .............................................................................................................. Anticipated Final Sequestration Report Limits .................................................... OTHER DISCRETIONARY SPENDING Preview Report Other Discretionary Spending Limits ....................................... Adjustments for the Update Report: Appropriations Enacted in P.L. 107–20, the 2001 Supplemental Appropriations Bill ............................................................................................................................... Contingent Emergency Appropriations Released ........................................................ Special Outlay Allowance .............................................................................................. Anticipated Adjustments for the Final Sequestration Report: EITC Tax Compliance Initiative ................................................................................... Continuing Disability Reviews ...................................................................................... Adoption Incentive Payments ....................................................................................... 60 OMB SEQUESTRATION UPDATE REPORT Table 2. DISCRETIONARY SPENDING LIMITS—Continued (In millions of dollars) 2000 2001 2002 584,789 604,259 584,789 604,259 584,789 604,259 640,803 649,066 640,803 651,951 640,803 651,951 548,705 572,087 548,705 572,379 549,304 572,917 TOTAL DISCRETIONARY SPENDING Preview Report Total Discretionary Spending Limits ......................................... Update Report Total Discretionary Spending Limits .......................................... Anticipated Final Sequestration Report Spending Limits .................................. BA OL BA OL BA OL N/A = Not Applicable. Adjustments to discretionary limits.— Table 2 shows how adjustments pursuant to section 251(b) of the BEA of 1997 affect the discretionary limits in 2000 through 2002. Section 251(b)(2) of the BEA authorizes certain adjustments after the enactment of appropriations. Table 2 includes those adjustments that can be made now due to legislation enacted to date. Table 2 also includes anticipated adjustments that would be made assuming enactment of 2002 appropriations bills, although the Administration cannot determine the actual adjustments that would be included in the final sequestration report at the end of this year’s session of Congress until all appropriations are enacted. The section 251(b)(2) adjustments include: Emergency Appropriations.—These adjustments include funding for amounts that the President designates as ‘‘emergency requirements’’ and that Congress so designates in law. Since the President submitted the 2002 budget in April, Congress has not enacted any additional emergency spending for fiscal year 2001. The President has authorized the release of some previously enacted emergency appropriations since the April Budget submission. These funds will allow the Federal Emergency Management Agency to carry out its mission in response to natural disasters like Tropical Storm Allison. While adjustments to the caps were made for these funds in the Preview Report, the effects of new estimates of the rate at which these funds will be spent are included here. Additional Adjustments that Would Be Made Contingent Upon Final Congressional Action.—Table 2 also shows how adjustments permitted under section 251(b) of the BEA would affect the discretionary limits if the following were included in 2002 appropriations bills. Earned Income Tax Credit (EITC) Compliance Initiative.—The Balanced Budget Act of 1997 authorized appropriations for the Treasury Department to enforce EITC compliance and made specific allowance for adjustment of the caps by the appropriated amounts. This funding is provided in order to reduce the number of erroneous EITC claims, including the detection of erroneous claims and enforcement of EITC eligibility rules. The House-passed version of the 2002 Treasury and General Government appropriations bill provides $146 million for this initiative. Continuing Disability Reviews (CDRs).—The BEA authorizes adjustment of the caps by the amounts appropriated for CDRs, which are periodic examinations conducted to verify that recipients of Social Security disability insurance benefits and Supplemental Security Income benefits for persons with disabilities are still disabled. Cap adjustments are limited to the exact levels of budget authority and outlays specified in the BEA, but the Administration has requested appropriations below the level set for 2002. While the Congress has yet to take up the 2002 Labor, Health and Human Services, and Education appropriations bill, OMB has included an adjustment of $433 million, the funding level in the 2002 budget requested for CDRs. 61 II. DISCRETIONARY SEQUESTRATION REPORT Adoption Incentive Payments.—The Adoption and Safe Families Act of 1997 authorizes bonus payments to States that increase the number of adoptions from the foster care system. It provides for a discretionary cap adjustment for appropriations up to $20 million annually in each of the years 1999 through 2003, because the cost of adoption bonuses are assumed to be offset by reductions in mandatory foster care costs. Again, OMB has included an adjustment equal to the level requested in the budget ($20 million in budget authority) since the Congress has not yet acted on the 2002 Labor, Health Table 3. and Human Services, and Education appropriations bill. Summary of 2001 discretionary appropriations.—Table 3 summarizes the status of enacted 2001 discretionary appropriations, relative to the discretionary caps. Enacted budget authority and outlays for all categories for 2001 are within the specified cap levels. The outlays cap for the other discretionary category includes a special outlay adjustment made pursuant to section 251(b)(2)(B) of the BEA. This section gives OMB the authority to adjust upward the outlay cap by up to 0.5 percent of the total pre-adjustment level. SUMMARY OF 2001 DISCRETIONARY APPROPRIATIONS (In millions of dollars) BA Outlays Violent Crime Reduction Spending Adjusted discretionary spending limits ................. Total enacted ........................................................ Spending over/under (–) limits ............................... N/A N/A N/A N/A N/A N/A ................ ................ ................ 26,920 26,897 –23 ................ ................ ................ 4,639 4,639 ................ Highway Category Adjusted discretionary spending limits ................. Total enacted ........................................................ Spending over/under (–) limits ............................... Mass Transit Category Adjusted discretionary spending limits ................. Total enacted ........................................................ Spending over/under (–) limits ............................... Other Discretionary Spending Adjusted discretionary spending limits ................. Total enacted ........................................................ Spending over/under (–) limits ............................... 640,803 640,801 –2 620,392 620,392 ................ Total Discretionary Spending—All Categories Adjusted discretionary spending limits ................. Total enacted ........................................................ Spending over/under (–) limits ............................... Status of 2002 discretionary appropriations.—Table 4 shows preliminary OMB scoring of the latest House and Senate action for the 13 annual appropriations bills. If offsets 640,803 640,801 –2 651,951 651,928 –23 to discretionary spending are not enacted or the caps are not raised, OMB estimates of House and Senate action to date would exceed the outlay limits in the conservation category 62 OMB SEQUESTRATION UPDATE REPORT • Bills that have not been acted on are assumed to be funded at the 302(b) allocation. and would exceed both the budget authority and outlay limits in the other discretionary category. Current OMB estimates of House action to date indicate that a sequester of approximately $192.8 billion in budget authority and $115.7 billion in outlays would be triggered. Current estimates of Senate action, unless offset, would trigger a budget authority sequester of approximately $192.4 billion, and an outlay sequester of $115.5 billion. • The spending limits shown for the House and Senate have been adjusted upward for the earned income tax compliance initiative included in the Treasury and General Government appropriations bill and for CDR and Adoption Incentive Payment levels requested in the budget. OMB estimates of a sequester under House and Senate action to date are based on the following assumptions: Table 4. STATUS OF 2002 APPROPRIATIONS ACTION (In millions of dollars) House BA Senate Outlays BA Outlays DEFENSE DISCRETIONARY Commerce, Justice, State and the Judiciary ..................... Defense ................................................................................. Energy and Water Development ......................................... Military Construction .......................................................... Transportation ..................................................................... Veterans Affairs, HUD, Independent Agencies ................. 567 300,209 14,034 10,152 340 143 546 294,026 13,958 9,447 340 156 Total, Defense Discretionary ............................................... 325,445 318,473 F A F A F F 604 298,568 15,249 9,649 695 138 574 291,692 14,747 9,284 624 154 324,903 317,075 16,392 37,670 392 9,689 15,526 17,381 119,000 1,944 14,907 17,111 83,427 .................. 16,807 38,798 412 9,959 15,761 17,685 107,513 2,029 18,578 16,548 89,891 691 333,439 334,672 C A F A F F NON-DEFENSE DISCRETIONARY Agriculture and Rural Development .................................. Commerce, Justice, State and the Judiciary ..................... District of Columbia ............................................................. Energy and Water Development ......................................... Foreign Operations .............................................................. Interior and Related Agencies ............................................ Labor, HHS, and Education ................................................ Legislative ............................................................................ Transportation and Related Agencies ................................ Treasury, Postal Service, and General Government ......... Veterans Affairs, HUD, Independent Agencies ................. Deficiencies ........................................................................... 15,812 37,454 382 9,652 15,167 17,616 119,725 2,241 14,850 17,107 85,195 .................. 16,733 38,829 401 9,960 15,692 17,815 106,224 2,293 18,545 16,514 89,964 445 Total, Non-Defense Discretionary ....................................... 335,201 333,415 F F A F F F A1 F F F2 F A TOTAL OTHER DISCRETIONARY Subtotal, Other Discretionary, excluding P.L. 107–20 ..... Total, 2002 effects of the 2001 supplemental appropriations bill (P.L. 107–20) .......................................... 660,646 651,888 658,342 651,747 73 1,549 73 1,549 Total, Other Discretionary Spending .............................. 660,719 653,437 658,415 653,296 Estimated Final Sequestration Report Other Discretionary Category Limits. 549,079 538,572 549,079 538,572 CONGRESSIONAL ACTION OVER/UNDER(–) LIMITS 111,640 114,865 109,336 114,724 C C A F C F A1 F F C2 F3 A 63 II. DISCRETIONARY SEQUESTRATION REPORT Table 4. STATUS OF 2002 APPROPRIATIONS ACTION—Continued (In millions of dollars) House BA Senate Outlays BA Outlays HIGHWAY CATEGORY Transportation and Related Agencies ................................ .................. 28,491 Total, Highway Category ..................................................... Estimated Final Sequestration Report Highway Category Limits ...................................................................... .................. CONGRESSIONAL ACTION OVER/UNDER(–) LIMITS F –9 28,493 28,491 –9 28,493 .................. 28,489 .................. 28,489 .................. 2 –9 4 .................. 5,272 F MASS TRANSIT CATEGORY F4 Transportation and Related Agencies ................................ .................. 5,271 Total, Mass Transit Category ............................................. Estimated Final Sequestration Report Spending Limits .. .................. .................. 5,271 5,275 .................. .................. 5,272 5,275 CONGRESSIONAL ACTION OVER/UNDER(–) LIMITS .................. –4 .................. –3 251 1,320 238 1,083 F4 CONSERVATION SPENDING CATEGORY Commerce/Justice/State and the Judiciary ........................ Interior and Related Agencies ............................................ 440 1,320 361 1,085 Total, Conservation Spending Category ......................... Estimated Final Sequestration Report Spending Limits .. 1,760 1,760 1,446 1,232 1,571 1,760 1,321 1,232 .................. 214 –189 89 CONGRESSIONAL ACTION OVER/UNDER(–) LIMITS F F C F TOTAL, DISCRETIONARY SPENDING Total, Discretionary Spending ............................................ Estimated Final Sequestration Report Discretionary Spending Limits ............................................................... 662,479 688,645 659,977 688,382 549,304 572,917 549,304 572,917 CONGRESSIONAL ACTION OVER/UNDER(–) LIMITS 113,175 115,728 110,673 115,465 Key: S = Marked Up by the Subcommittee; C = Bill Reported Out by Committee; F = Bill Passed by House or by Senate; CN = Conference Action has Occurred; E = Enacted bill; A = current 302(b) allocation NOTE: OMB scoring of latest House and Senate action is preliminary 1 Estimates include numbers for House and Senate Continuing Disability Reviews and Adoption Incentive Payments. 2 Estimates include $146 million in BA and outlays for the Earned Income Tax Credit Initiative (EITC) 3 The Senate added an amendment on the Floor that would make $2.0 billion in emergency FEMA funding available upon enactment of the bill. OMB assumes enactment prior to September 30th and, therefore, scores the BA in 2001—the fiscal year in which the funding becomes available. However, OMB assumes that the funding will not actually outlay until 2002. 4 The Administration, House, and Senate have proposed $1.35 billion in Mass Transit BA. However, this amount does not count towards the Mass Transit nor any other cap. The Administration has proposed to score this BA in 2002 against a new cap for all Discretionary spending. Comparison of OMB and CBO discretionary limits.—Section 254(d)(5) of the BEA requires that this report explain the differences between OMB and CBO estimates for discretionary spending limits. Table 5 compares OMB and CBO limits for 2001 and 2002. CBO uses the discretionary limits from OMB’s preview report as a starting point for adjustments in its sequestration update report. There is no difference between OMB and CBO for estimates of budget authority limits in 2001 and 2002. This is the first time in several years that OMB has matched CBO’s estimates of budget authority limits and results primarily from OMB adopting a scoring treatment of contingent emergencies that matches with CBO’s policy. 64 OMB SEQUESTRATION UPDATE REPORT Differences in 2001 outlay limits total $2,885 million, $2,434 million of which is due to OMB’s adjustment of 2001 outlays by the special outlay allowance. CBO did not make a similar adjustment in its update report. The remaining $451 million outlay limit difference in 2001, and all of the $21 million outlay limit difference in 2002, results from different technical assumptions about the spendout of recently released contingent emergency appropriations for the Federal Emergency Management Agency that occurred since the transmission of the 2002 budget to Congress. Table 5. COMPARISON OF OMB AND CBO DISCRETIONARY SPENDING LIMITS (In millions of dollars) 2000 2001 2002 Violent Crime Reduction CBO Update Report limits: BA ...................................................... OL ...................................................... OMB Update Report limits: BA ...................................................... OL ...................................................... Difference: BA ...................................................... OL ...................................................... 4,500 6,344 N/A N/A N/A N/A 4,500 6,344 N/A N/A N/A N/A .............. .............. N/A N/A N/A N/A .............. 24,574 .............. 26,920 .............. 28,489 .............. 24,574 .............. 26,920 .............. 28,489 .............. .............. .............. .............. .............. .............. .............. 4,117 .............. 4,639 .............. 5,275 .............. 4,117 .............. 4,639 .............. 5,275 .............. .............. .............. .............. .............. .............. N/A N/A N/A N/A 1,760 1,232 N/A N/A N/A N/A 1,760 1,232 N/A N/A N/A N/A .............. .............. 580,289 569,224 640,803 617,507 546,945 537,362 580,289 569,224 640,803 620,392 546,945 537,383 .............. .............. .............. 2,885 .............. 21 Highway Category CBO Update Report limits: BA ...................................................... OL ...................................................... OMB Update Report limits: BA ...................................................... OL ...................................................... Difference: BA ...................................................... OL ...................................................... Mass Transit Category CBO Update Report limits: BA ...................................................... OL ...................................................... OMB Update Report limits: BA ...................................................... OL ...................................................... Difference: BA ...................................................... OL ...................................................... Conservation Category CBO Update Report limits: BA ...................................................... OL ...................................................... OMB Update Report limits: BA ...................................................... OL ...................................................... Difference: BA ...................................................... OL ...................................................... Other Discretionary CBO Update Report limits: BA ...................................................... OL ...................................................... OMB Update Report limits: BA ...................................................... OL ...................................................... Difference: BA ...................................................... OL ...................................................... 65 II. DISCRETIONARY SEQUESTRATION REPORT Table 5. COMPARISON OF OMB AND CBO DISCRETIONARY SPENDING LIMITS—Continued (In millions of dollars) 2000 2001 2002 Total Discretionary Spending Limits CBO Update Report limits: BA ...................................................... OL ...................................................... OMB Update Report limits: BA ...................................................... OL ...................................................... Difference: BA ...................................................... OL ...................................................... N/A = Not Applicable. 584,789 604,259 640,803 649,066 548,705 572,358 584,789 604,259 640,803 651,951 548,705 572,379 .............. .............. .............. 2,885 .............. 21 III. PAY–AS–YOU–GO SEQUESTRATION REPORT The BEA requires that OMB issue reports after enactment of individual bills and three times a year on the overall status of Payas-you-go (PAYGO) legislation. This report provides OMB’s updated estimates, reflecting legislation enacted as of August 15, 2001. As the BEA requires, the estimates rely on the same economic and technical assumptions as in the President’s 2002 budget, which the Administration transmitted to Congress on April 9, 2001. PAYGO enforcement covers all direct spending and receipts legislation. The BEA defines direct spending as entitlement authority, the food stamp program, and budget authority provided by law other than in appropriations acts. The BEA requires that, in total, receipts and direct spending legislation not result in a net cost in any year. If such legislation yields a net cost, and if the President and Congress do not fully offset it by other legislative savings, the law requires a sequester of non-exempt direct spending programs. The BEA requires that OMB submit a report to Congress that estimates the change in outlays or receipts for the current year, the budget year, and the following four fiscal years resulting from enactment of PAYGO legislation. The estimates, which must rely on the economic and technical assump- tions underlying the most recent President’s budget, determine whether the PAYGO requirement is met. The PAYGO process requires that OMB maintain a ‘‘scorecard’’ that shows the cumulative net cost of such legislation. Table 6 presents OMB estimates of PAYGO legislation enacted as of August 15, 2001. In total, these bills have resulted in a net cost of $75.0 billion for 2001 and a net cost of $51.7 billion for 2002. As required by the BEA, the 2001 total reflects only Acts added to the scorecard after the OMB Final Sequestration Report for Fiscal Year 2001 was issued. At the end of this session of Congress, OMB will determine the need for sequestration by combining the 2001 and 2002 totals. For legislation enacted as of August 15, 2001, this calculation yields a cost of $126.7 billion, indicating that a sequester would be required for 2002 if there are no changes to current law. For 2002, the maximum savings achievable from a sequester is $33.3 billion. The Administration will work with Congress to ensure that no unintended sequesters of spending occur under current law or through enactment of any other proposals that meet the President’s objectives to reduce the debt, fund priority initiatives, and grant tax relief to all income tax paying Americans. 67 68 Table 6. NET COST OF PAY-AS-YOU-GO LEGISLATION ENACTED AS OF AUGUST 15, 2001 1 (In millions of dollars) Report Number Act Number Act Title 2001 2002 2003 2004 2005 2006 2001–2006 Pay-as-you-go balances in the 2002 Preview Report: 2 OMB estimate ................................................................................................... CBO estimate .................................................................................................... 0 0 16,053 12,884 18,465 14,651 19,336 14,206 20,673 14,551 0 0 74,527 56,292 Legislation enacted in the 1st session of the 107th Congress: 553 554 555 556 N/A 557 P.L. 107–13 H.R. 581 Wildland Fire Management Reimbursement Authority OMB estimate ................................................................................................... CBO estimate .................................................................................................... 3 3 –3 –3 0 0 0 0 0 0 0 0 0 0 P.L. 107–15 H.R. 1727 Fallen Hero Survivor Benefit Fairness Act OMB estimate ................................................................................................... CBO estimate .................................................................................................... 0 1 2 7 4 5 4 5 4 5 4 4 18 27 P.L. 107–16 H.R. 1836 Economic Growth and Tax Relief Reconciliation Act OMB estimate ................................................................................................... CBO estimate .................................................................................................... 69,501 73,808 35,691 37,570 86,399 90,335 105,457 107,421 106,330 107,102 130,781 134,887 534,159 551,123 P.L. 107–18 S. 1029 Manufactured Housing Program User Fee Authority OMB estimate ................................................................................................... CBO estimate .................................................................................................... 0 2 0 1 0 0 0 0 0 0 0 0 0 3 P.L. 107–19 S. 657 National 4–H Program Centennial Initiative OMB estimate ................................................................................................... CBO estimate .................................................................................................... P.L. 107–25 H.R. 2213 Crop Year 2001 Agricultural Economic Assistance. OMB estimate ................................................................................................... CBO estimate .................................................................................................... 5,500 5,500 0 0 0 0 0 0 0 0 0 0 5,500 5,500 Subtotal, legislation enacted in the 1st session of the 107th Congress:. OMB estimate ................................................................................................... CBO estimate .................................................................................................... 75,004 79,314 35,690 37,577 86,403 90,339 105,461 107,425 106,334 107,107 130,785 134,891 539,677 556,653 Total, current balances:. OMB estimate ................................................................................................... CBO estimate .................................................................................................... 75,004 79,314 51,743 50,461 104,868 104,990 124,797 121,631 127,007 121,658 130,785 134,891 614,204 612,945 OMB balance for sequester ............................................................................ ................ 126,747 bills with impact of $500,000 or less in each fiscal year 2001 through 2006 under both OMB and CBO scoring. 2 The Consolidated Appropriations Act of 2001 (P.L. 106–554) set the scorecard to zero for fiscal year 2001. 0 OMB SEQUESTRATION UPDATE REPORT 1 Excludes OMB does not consider this bill as subject to pay-as-you-go 0 2 –1 –1 0 0 69 III. PAY–AS–YOU–GO SEQUESTRATION REPORT Table 7. PAY–AS–YOU–GO LEGISLATION WITH IMPACT OF $500,000 OR LESS ENACTED AS OF AUGUST 15, 2001 1 Public Law Number P.L. P.L. P.L. P.L. Pvt. 107–5 107–8 107–14 107–17 L. 107–1 1 OMB 2 OMB Act Number S.J. Res. 6 H.R. 256 H.R. 801 H.R. 1914 S. 560 Act Title Disapproval of Ergonomics Regulations Family Farmer Bankruptcy Act Extension until June 1, 2001 Veterans’ Survivor Benefits Improvements Act of 2001 Family Farmer Bankruptcy Act Extension until October 1, 2001 Private relief for Rita Mirembe Revell 2 does not issue pay-as-you-go reports for these bills. does not consider this bill as subject to pay-as-you-go requirements; CBO does. Pending legislation.—The Congress completed action on three additional PAYGO bills, but they have not yet been signed into law. These bills are the Federal Firefighters Retirement Age Fairness Act (H.R. 93), the Bull Run Watershed Management Unit Act (H.R. 427), and the Carson City, Nevada, Land Conveyance Act (H.R. 271). OMB estimates that these bills would have a negligible PAYGO impact. Because these bills have not yet been signed into law, OMB did not take them into account for this report. Comparison with CBO estimates.—The BEA requires that OMB explain differences with CBO estimates of enacted PAYGO legislation. Table 6 shows the CBO estimate for each Act as it was reported in CBO’s PAYGO bill reports. For the sum of 2001 and 2002, OMB estimates a net cost of $126.7 billion, while CBO estimates a net cost of $129.8 billion. OMB’s estimate is $3.0 billion lower due to its lower cost estimate of the Economic Growth and Tax Relief Reconciliation Act, partially offset by its higher 2002 PAYGO balance in the Preview Report. The scoring difference for the tax bill is the result of different baseline assumptions and estimating models. Over 2001 through 2006, OMB estimates a net cost of $614.2 billion, $1.3 billion higher than CBO. This difference results from OMB’s lower scoring of the tax bill, more than offset by its higher PAYGO balances in the Preview Report.