AN ANALYSIS OF THE 

PRESIDENT'S BUDGETARY PROPOSALS 

FOR FISCAL YEAR 1980 

The Congress of the United States 

Congressional Budget Office 

If 01' salo by tho Superintendont of Documonts, U.S. OovernnU}1H Prindng Offlcf> 

Washington, D.C. 20·102 

Slock: Number 052-()70-04824-7 
NOTES 

Unless otherwise indicated, all years referred to are 

fiscal years. For 1976 and before, fiscal years ran from 

July 1 through June 30 and were referred to by the years 

in which they ended. The Congressional Budget Act of 

1974 changed the fiscal year to begin on October 1 and 

end on September 30. The interim between the old and 

new fiscal years, July 1 through September 30, 1976, is called 

the transition quarter; fiscal year 1977 began on October 

1,1976. 

Details in the text, tables, and figures of this report 

may not add to totals because of rounding. 

11 
PREFACE 

Analysis of the President's Budgetary Proposals for Fiscal Year 1980 

was prepared at the request of the House Committee on Appropriations to 

assist Members and staff in preparing for overview hearings on the Administration's fiscal year 1980 budget proposals. The report analyzes the 

economic outlook for the next two years and the fiscal policy impact of the 

President'S budgetary proposals. It also examines the major features of the 

Administration's revenue and spending proposals for 1980 and compares 

them with past trends and current policy as set forth in the Second 

Concurrent Resolution on the Budget for Fiscal Year 1979. Finally, the 

report discusses the budgetary outlook for 1981 and 1984. 

The report was prepared by staffs of the CBO Budget Analysis, Fiscal 

Analysis, and Tax Analysis Divisions, under the supervision of James Blum, 

WilHam Beeman, and Charles Davenport. Thelma 1. Jones supervised the 

production of the report; Patricia H. Johnston edited the manuscript; and it 

was typed for publication by Betty Jarrells, Nancy Wenzel, Gwen Coleman, 

Barbara Bakari, Debbie Vogt, Dorleen Dove, and Kath Quattrone. 

January 1979 

iii 

Alice M. Rivlin 

Director 

TABLE OF CONTENTS 

PREFACE 

SUMMARY 

CHAPTER I. 

CHAPTER II. 

CHAPTER III. 

THE ADMINISTRATION'S FISCAL POLICY 

AND THE ECONOMY . 

xv 

1 

The Economic Outlook • 2 

Fiscal Policy Proposed by the Administration 4 

Comparison of Administration and CBO 

Foc&~u 6 

Economic Effects of the Administration's 

Fiscal Proposals 10 

Economic Assumptions and Budget 

Estimates 11 

Longer-Run Considerations-1981 through 

1984 . 12 

Conclusions . 13 

REVENUE ESTIMATES AND PROPOSALS 

Past and Future Revenues . 

Real Wage Insurance 

Cash Management Initiatives • 

Inflation Indexing, Social Security 

Taxes, and Future Tax Cuts . 

Other Administration Tax Proposals . 

SPENDING ESTIMATES AND PROPOSALS . 

Accuracy of Spending Estimates • 

Spending Trends . 

Changes from Current Policy . 

Federal Credit Activities . 

v 

15 

15 

17 

21 

23 

25 

29 

30 

33 

37 

42 

Page 

CHAPTER IV. THE BUDGET BY FUNCTION 45 

National Defense 46 

International Affairs 58 

General Science, Space and Technology 65 

Energy 67 

Natural Resources and Environment . 72 

Agriculture 76 

Commerce and Housing Credit 80 

Tr ans porta tion 83 

Community and Regional Development 87 

Education, Training, Employment, and 

Social Services . 92 

Health 97 

Income Security . 102 

Veterans Benefits and Services 113 

Administration of Justice . 116 

General Government 118 

General Purpose Fiscal Assistance 120 

Interest 122 

Allowances 124 

Undistributed Offsetting Receipts 126 

CHAPTER V. THE BUDGET OUTLOOK FOR 1981-1984 129 

Long Range Economic Goals 129 

The Budget Outlook Under Current Policy 130 

Multiyear Effects of Changes from 

Current Policy . 133 

Long-Run Goals for the Economy and the 

Budget Deficit . 135 

vii 

TABLES 

Page 

TABLE 1- SUMMARY OF CBO'S ECONOMIC 

PROJECTIONS UNDER CURRENT 

POLICY. 3 

TABLE 2. THE FEDERAL BUDGET OUTLOOK 

UNDER CBO CURRENT POLICY AND 

ADMINISTRA TION PROPOSALS 4 

TABLE 3. PROPOSED CHANGES FROM CURRENT 

POLICY IN THE ADMINISTRATION'S 

BUDGET, ON A NATIONAL INCOME 

ACCOUNTS BASIS 7 

TABLE 4. A COMPARISON OF FORECASTS BY THE 

ADMINISTRATION AND BY THE CBO WITH 

ADMINISTRATION FISCAL PROPOSALS . 9 

TABLE 5. CBO ESTIMATES OF THE ECONOMIC 

EFFECTS OF THE ADMINISTRATION'S 

PROPOSED REDUCTIONS IN FEDERAL 

EXPENDITURES RELATIVE TO 

CURRENT POLICY 10 

TABLE 6. ADMINISTRATION'S LONG-RANGE 

ECONOMIC ASSUMPTIONS AND 

CBO'S FIVE-YEAR PROJECTIONS 

ASSUMPTIONS, 1981-1984 13 

TABLE 7. DISTRIBUTION OF BUDGET RECEIPTS BY 

SOURCE, SELECTED FISCAL YEARS 

1960-1984 . 16 

TABLE 8. COMPARISON OF ADMINISTRATION AND 

CBO CURRENT POLICY REVENUE 

ESTIMATES, FISCAL YEARS 1979, 

1980, AND 1984 18 

TABLE 9. INCREASED BUDGET RECEIPTS FROM 

CASH MANAGEMENT INITIATIVES, 

FISCAL YEARS 1980-1982 22 

ix 

TABLE 10. 

TABLE 11. 

TABLE 12. 

TABLE 13. 

TABLE 14. 

TABLE 15. 

TABLE 16. 

TABLE 17. 

TABLE 18. 

TABLE 19. 

TABLE 20. 

TABLE 21. 

EFFECTS OF INFLATION AND SOCIAL 

SECURITY TAX INCREASES ON 

TOTAL TAX RECEIPTS FROM 

INDIVIDUALS, FISCAL YEARS 1979-1984 

CHANGES IN TOTAL TAX LIABILITIES 

FOR TAXPAYERS AT DIFFERENT INCOME 

LEVELS RESULTING FROM INFLATION 

AND SOCIAL SECURITY TAX INCREASES, 

CALENDAR YEARS 1979-1984, FOR 

FOUR-PERSON, ONE-EARNER 

FAMILIES • 

TOTAL FEDERAL SPENDING • 

ESTIMA TED EFFECTS ON OUTLAYS OF 

CBO'S ECONOMIC FORECAST. • 

CBO ESTIMATES OF FISCAL YEAR 1979 

SPENDING UNDER POLICIES IN THE 

SECOND BUDGET RESOLUTION 

GROWTH IN BUDGET OUTLAYS. • • 

COMPOSITION OF BUDGET OUTLAYS • 

PROJECTED INCREASES IN FEDERAL 

OUTLAYS IN FISCAL YEAR 1980 

UNDER CURRENT POLICIES 

MAJOR DIFFERENCES BETWEEN CBO 

CURRENT POLICY ESTIMATES FOR FISCAL 

YEAR 1980 OUTLAYS AND OMB CURRENT 

SER VICES ESTIMATES • • • • • • 

1980 CURRENT POLICY OUTLAYS AND 

ADMINISTRATION'S PROPOSED 

CHANGES • 

LONG TERM ECONOMIC ASSUMPTIONS 

CURRENT POLICY PROJECTIONS OF 

REVENUES. • • •• ••• 

xi 

24 

26 

30 

31 

33 

34 

36 

38 

40 

43 

130 

131 

TABLE 22. 

TABLE 23. 

TABLE 24. 

CURRENT PROJECTIONS OF OUTLAYS 

ESTIMATED MULTIYEAR EFFECTS 

OF MAJOR ADMINISTRATION 

SPENDING PROPOSALS. • • 

ALTERNATIVE SPENDING STRATEGIES 

AND GOALS FOR THE ECONOMY. • 

xiii 

132 

137 

SUMMARY 

The President's budget for fiscal year 1980 recommends outlays of 

$531.6 billion, receipts of $502.6 billion, and a budget deficit of $29.0 

billion. The Administration proposes to reduce spending growth significantly 

in 1980 in order to complement the anti-inflationary effects of the wageprice program and tight monetary policy. The Administration's major 

revenue proposal--real wage insurance--is designed to help achieve 

compliance with the wage guidelines. It should be noted that the projected 

budget deficit for 1980 depends to a great extent on the economic outlook 

for the next two years. The following table summarizes the budget totals 

for the President's 1980 request. 

SUMMARY TABLE 1. THE FEDERAL BUDGET OUTLOOK: BY FISCAL 

YEAR, IN BILLIONS OF DOLLARS 

1979 Estimates 

Second President's 

1978 Concurrent President's 1980 

(Actual) Resolution Estimate Request 

Receipts 402.0 448.7 456.0 502.6 

Outlays 450.8 487.5 493.4 531.6 

Deficit (-) -48.8 -38.8 -37.4 -29.0 

Budget 

Authority 501.5 555.65 559.7 615.5 

THE ECONOMIC OUTLOOK 

There are two cross-currents in the economy today that make 

forecasting especially uncertain. First, economic growth was quite robust 

at the end of the year. The fourth quarter gains in retail sales, production, 

employment and new orders were substantial, and the momentum of this 

increased activity should carryover into early 1979. 

xv 
Second, the high rate of inflation has planted the seeds of a slowdown 

in the economy: 

o In response to the increase in prices and the associated depreciation of the dollar, the Federal Reserve has tightened 

monetary policy. Short-term interest rates are up sharply 

from mid-1978, and the growth of the money supply has slowed 

dramatically since last fall. The resulting credit restraint is 

expected to affect housing and business investment adversely 

later this year. 

o Rapid inflation has also apparently led to buy-in-advance 

behavior by consumers. This response is reflected in the 

record high ratios of consumer debt to income and may be 

borrowing sales from later in the year. 

o Finally, in part because periods of high inflation are typically 

followed by recession, consumer and business confidence 

dropped sharply toward the end of last year. Surveys of 

business spending plans show relatively weak growth in outlays 

for plant and equipment in 1979. 

There is widespread agreement among forecasters that the outcome of these 

cross-currents will be a slowdown in the pace of economic activity this year. 

Differences of opinion concern the timing and severity of the slowdown. 

The Administration's budget for fiscal year 1980 projects growth of 

real gross national project (GNP) at 2.2 percent during the four quarters of 

calendar year 1979, down from the 4.3 percent real growth during the past 

four quarters. The Administration expects that the lower growth in 1979 

will result in a small rise in unemployment to about 6.2 percent by year end 

at which level it will remain during 1980. As a consequence of the 

Administration's anti-inflationary program, including a restrained budgetary 

policy, inflation is projected to decline from 9 percent during 1978 to near 6 

percent by the end of 1980. 

The Administration's economic assumptions are more optimistic than 

the eBO economic forecast. As may be seen in the following table, the 

Administration's projection of real growth is at the optimistic end of the 

eBO range for 1979, but at the pessimistic end for 1980. The Administration's projections of both inflation and unemployment, however, are at or 

near the optimistic end of the eBO range for both years. 

xvi 
SUMMARY TABLE 2. COMPARISON OF ADMINISTRA nON AND CBO 

ECONOMIC ASSUMPTIONS: BY CALENDAR 

YEARS 

Economic Variable 

Real GNP (percent change) 

Administr ation 

CBO 

GNP Deflator (percent change) 

Administration 

CBO 

Unemployment Rate End of 

Period (percent) 

Administration 

CBO 

o 

1978;4 to 

1979:4 

2.2 

to 2.0 

7.4 

7.0 to 9.0 

6.2 

6.2 to 7.2 

1979:4 to 

1980:4 

3.2 

3 to 8.5 

6.4 

6.5 to 8.5 

6.2 

6.2 to 7.2 

The CBO economic forecast assumes continuation of current fiscal 

policy and no easing of monetary policy during the first half of calendar 

year 1979, as long as inflation rates remain high. Under these assumptions, 

real output is forecast to slow significantly, with a small downturn beginning 

in the second half of the year. A mild recovery is expected in 1980, with 

real growth averaging 3 to 5 percent. The inflation rate is expected to 

remain quite high, however, and the unemployment rate is projected to 

increase to between 6.2 to 7.2 percent by late 1979 and remain in that range 

throughout 1980. With this economic outlook, CBO estimates that if current 

policies are maintained, the federal deficit for 1980 would be about $49 

billion. 

THE 1980 BUDGET OUTLOOK 

The differences in economic assumptions do not produce widely 

divergent revenue estimates for fiscal year 1980 because the impact of 

faster real growth in the Administration's forecast is largely offset by its 

projected lower inflation. The economic assumptions do have a significant 

effect on spending estimates, however, because both the lower 

unemployment and lower inflation in the Administration's forecast result in 

lower spending estimates. 

xvii 
CBO has reestimated the Administration's budget proposals using its 

own economic assumptions and estimating methodology. On this basis, CBO 

estimates that receipts would total about $499 billion, outlays would total 

$540 billion, and the budget deficit would be close to $41 billion. The major 

CBO reestimates of the Administration's budget are shown in the Summary 

Table 3. On the receipt side, CBO estimates that the real wage insurance 

proposal could cost as much as $1 billion more than the Administration's 

estimate of $2.5 billion, primarily because of higher inflation rates. CBO 

also estimates current law revenues at $2 billion less than the 

Administration, largely because of differences in economic assumptions. 

For outlays, CBO estimates that the somewhat higher unemployment 

and inflation than foreseen by the Administration could add over $4.5 billion 

for programs such as unemployment insurance, sodal security, food stamps, 

medicare, and medicaid. Other estimating differences could add about 

another $4 billion to the Administration's outlay estimate. 

SUMMARY TABLE 3. CBO ESTIMATES OF THE ADMINISTRA nON'S 

BUDGET FOR FISCAL YEAR 1980: IN 

BILLIONS OF DOLLARS 

Receipts 

Administration's estimate 

Changes under CBO economic assumptions 

Real wage insurance 

Other differences 

CBO estimate of Administration's budget receipts 

Outlays 

Administration's estimate 

Changes under CBO economic assumptions 

Unemployment insurance 

Sodal security 

Medicare and medicaid 

Food stamps and other 

Changes due to other estimating differences 

CBO estimate of Administration's budget outlays 

xviii 

502.6 

-0.9 

-2.3 

499.4 

531.6 

2.3 

0.9 

0.6 

0.8 

3.8 

540.0 
Under the economic conditions forecast by CBO, the Congress would 

have to adopt deeper spending cuts than proposed by the President in order 

to achieve a budget deficit of under $30 billion and to hold the growth in 

outlays to below 8 percent in 1980. 

PROPOSED POLICY CHANGES 

The major policy change for receipts is the Administration's real 

wage insurance proposal designed to help achieve compliance with the 7 

percent wage guidelines. The cost of the real wage insurance depends upon 

both the rate of inflation and compliance with the President's wage 

standard. The Administration estimates that the proposal will cost $2.5 

billion ($2.3 billion in lower receipts and $0.2 billion in increased outlays), 

assuming a 7.5 percent increase in the CPI from October-November 1978 -to 

October-November 1979. The Administration's proposal is a novel approach 

that might contribute to holding down inflation. It should be recognized. 

however, that if the program is not successful in restraining inflation, it 

might cost more that the Administration estimates. CBO estimates that if 

inflation were 8 percent rather than 7.5 percent, the real wage insurance 

proposal could cost $3.5 billion. 

A useful benchmark for analyzing the Administration's proposed 

policy changes for spending is a projection of 1980 outlays under a 

continuation of current spending polides as set forth in the second budget 

resolution for 1979. CBO estimates that current policy outlays in 1980 

would total $551 billion, or about $12 billion above the President's budget 

estimate adjusted for CBO economic assumptions and estimating methodology. The Administration's lower spending level reflects recommended 

policy changes. 

Although the Administration recommends a few proposed increases 

above current policy spending levels (such as lifting the authorization ceiling 

for food stamps), the most significant feature of the 1980 budget is an 

absence of new spending initiatives and a general effort to hold existing 

programs at or below current policy levels. Since the CBO estimate of 

current policy outlays for national defense included a 3 percent real growth 

resulting from past appropriations for weapons procurement, the President's 

proposed 3 percent real growth in defense outlays does not represent a 

significant change from current policy. The budget proposes significant 

reductions from current policy spending levels in a number of areas, as 

shown in the following table. 

xix 
SUMMARY TABLE 4. CURRENT POLICY OUTLAYS AND ADMINISTRA nON'S PROPOSED CHANGES FOR FISCAL 

YEAR 1980: IN BILLIONS OF DOLLARS 

CBO CBO Estimate 

Current of President's 

Major Function Policy Request Difference 

National Defense 125.3 125.4 0.1 

Human Resources 

Education, training, 

employment, and 

social services 34.7 30.7 -4.0 

Health 57.7 55.0 -2.7 

Income security 184.2 185.3 1.1 

Veterans benefits 

and services 21.6 20.6 -1.0 

Subtotal 298.2 291.6 -6.6 

Net Interest 46.0 45.2 -0.8 

All Other 

International affairs 7.7 8. 1 0.4 

General science, space 

and technology 5.4 5.5 0.1 

Energy 7.8 7.6 -0.2 

Natural resources and 

environment 12.8 11.9 -0.6 

Agriculture 5.1 4.5 -0.6 

Commerce and housing 

credit 4.1 3.4 -0.7 

Transportation 19.0 18.7 -0.3 

Community and regional 

development 9. 1 7.3 -1.8 

Administrations 

of justice 4.5 4.5 al 

General government 4.3 4.3 ~I General purpose fiscal 

assistance 9.0 8.8 -0.2 

Allowances 1.4 1.4 -0.1 

Undistributed offsetting 

receipts (except interest) -8.3 -8.3 al 

Subtotal 82.0 77.8 -4.2 

Total 551.5 540.0 -11.5 

~I Less than $50 million. 

xx 
Some of the major cuts from current policy proposed in the Administration's 1980 budget are: 

o Reducing the number of public service jobs to 467,000 by the 

end of 1980 compared to 725,000 assumed under current policy 

($3.1 billion); 

o Lower spending for medicare and medicaid, primarily as the 

result of savings from proposed legislation for hospital cost 

containment and other cost-saving legislative proposals and 

administrative actions ($2.3 billion); 

o Holding the October 1, 1979 pay raise for federal employees to 

5.5 percent compared to 7.6 percent assumed under current 

policy ($1.4 billion savings); and 

o Cutting certain social security benefits, including eliminating 

the $255 lump-sum death benefit, phasing out college aid for 

survivors, eliminating the minimum benefit for new recipients, 

and other legislative cost-saving proposals for social security 

benefits ($0.6 billion in 1980, rising to over $4 billion by 1984). 

LONGER-RUN BUDGET OUTLOOK 

The fiscal year 1980 budget reflects for the first time the results of 

the Administration's multiyear budget planning system. The spending 

estimates for the first two years beyond the 1980 budget year (1981 and 

1982) now receive explicit policy review and represent tentative planning 

bases for executive agencies. 

The Administration's longer-term budgetary goals are to reduce 

federal outlays as a percent of GNP and to achieve a balanced budget as 

soon as economic conditions permit. The 1980 budget projects that outlays 

as a percent of GNP would decline to 20.3 percent by 1982. The budget 

projections do not include any proposals for future tax reductions, so that 

receipts increase quite rapidly relative to outlays, resulting in projected 

large budget surpluses after 1981. 

The Aministration recognizes, however, that these projected large 

budget surpluses do not imply that budget surpluses will in fact occur. 

Rather, they represent at best the amount of resources that would be 

available to accommodate future discretionary policy decisions regarding 

tax reductions, new or expanded programs, and debt reduction. Further tax 

xxi 
reductions or spending increases would be needed to offset the increasingly 

restrictive effects of the budget projections, but no quantitative estimates 

are provided. 

The longer-run economic assumptions used for the Administration's 

multiyear budget projections are in accord with the 4 percent unemployment 

and 3 percent inflation goals established in the Full Employment and 

Balanced Growth Act of 1978 (Humphrey-Hawkins Act). The Administration's budget makes clear, however, that these assumptions are not an 

explicit economic forecast. 

CBO analysis of longer-run economic and budgetary goals suggests 

that the simultaneous achievement of the Administration's budgetary objectives and the Humphrey-Hawkins Act economic goals may not be possible. 

To achieve the 4 percent unemployment goal using aggregate fiscal policies 

alone, CBC estimates that substantial additional tax cuts and/or spending 

increases would be needed, and that the budget could be expected to stay in 

deficit over the next five years. In addition, the inflation rate would remain 

a t high levels. Alternatively, by running a slack economy for a prolonged 

period, the inflation rate might be brought down to 4 percent by 1984, but at 

great cost in terms of lost production and jobs. Under this second strategy, 

budget balance would be feasible in the early 1980s. 

As the Humphrey-Hawkins Act emphasizes, the simultaneous 

achievement of two desirable economic goals may require other policies 

besides aggregate monetary and fiscal policies, But the effects of these 

other policies on the economy are uncertain. The 1980 budget outlines 

current and proposed efforts to achieve the Humphrey-Hawkins Act goals, 

but does not clearly set forth how these efforts would alter some of the 

basic factors and relationships that to date have determined unemployment 

and inflation. 

xxii 
CHAPTER I. THE ADMINISTRATION'S FISCAL POLICY AND 

THE ECONOMY 

The economic outlook has important implications for the federal 

budget, and, in turn, decisions about the budget have important effects on 

the economy. The economic forecast prepared by the Congressional Budget 

Office (CBO), assuming continuation of current fiscal policies, indicates 

that real economic growth will slow significantly to 0.0 to 2.0 percent 

between the fourth quarter of calendar year 1978 and the fourth quarter of 

1979. A mild recovery is expected in 1980, with real growth averaging 3 to 

5 percent. The inflation rate is expected to remain quite high, however, and 

the unemployment rate is expected to increase to between 6.2 and 7.2 

percent by late 1979 and remain in about that range in 1980. With this 

economic outlook, CBO estimates that, if current policies are maintained, 

the federal deficit for 1980 would be about $49 billion. 

The Administration's economic outlook is more optimistic. According 

to its forecast, which incorporates the Administration's fiscal proposals, real 

gross national product (GNP) is projected to increase by 2.2 percent from 

the last quarter of calendar year 1978 to the last quarter of 1979, and by 

another 3.2 percent by late 1980. The inflation rate declines from 8.4 

percent in 1978 to 7.4 percent in 1979, and to 6.4 percent in 1980 (percent 

changes in the GNP deflator), while the unemployment rate increases 

slightly. The Administration's estimate of the 1980 budget deficit is $29.0 

billion. A modified forecast by CBO, which assumes the Administration's 

fiscal policy, indicates a more pronounced slowdown in economic growth, a 

larger increase in the unemployment rate, less progress in slowing inflation, 

and a higher deficit than forecast by the Administration. 

The economic downturn forecast by CBO during the second half of 

1979 is the outcome of continued high rates of inflation and tight credit 

conditions. (eBO assumes that monetary policy will not ease during the 

first half of 1979 as long as inflation rates remain high.) The Administration 

forecast, on the other hand, shows a greater moderation of inflation in 1979 

and somewhat higher real growth. The slowdown in the eBO forecast is 

expected to be most pronounced in areas affected by credit conditions--

residential construction and business investment. Some weakening of 

consumer spending is also anticipated. 

1 
The Administration's major fiscal proposals involve significant 

reductions in federal expenditures of about $11.5 billion in fiscal year 1980, 

compared with CBO's estimates of current policy levels. While their effects 

on the budget are significant, the spending cuts are not large relative to the 

overall economy. CBO estimates that these expenditure reductions would 

lower the inflation rate by approximately 0.2 percent points in calendar year 

1981 and increase the unemployment rate by 0.2 percent points by the last 

quarter of 1980. In addition, CBO estimates that the proposal for real wage 

insurance would lower tax receipts by $3.2 billion in 1980 and increase 

expenditures by about $0.3 billion. Because of the complicated nature of 

that proposal and the lack of relevant experience, it is especially difficult to 

gauge its economic impact. 

The Administration'S longer-range economic assumptions, for 1981 

through 1984, are in accord with the goals required by the 

Humphrey-Hawkins Act. There is considerable uncertainty about the 

feasibility of achieving these goals, at least with conventional aggregate 

economic policies. Further, the attainment of the unemployment goal with 

fiscal policy tools--if it can be attained--would likely involve extremely 

large tax reductions or expenditure increases to offset the drag exerted by 

the federal budget on the economy, caused by the interaction of the tax 

system, inflation, and economic growth. 

THE ECONOMIC OUTLOOK 

CBO's forecast for the economy is summarized in Table 1. 1/ Two 

important policy assumptions were made in preparing that forecast: -

o The fiscal policy assumption is a continuation of current 

policy, resulting in estimated federal outlays of $494 billion in 

fiscal year 1979 and $551 billion in fiscal year 1980. Thus, the 

COO forecast does not include either the spending cuts 

proposed by the Administration or its real wage insurance 

program. 

o Monetary policy is assumed to remain restrictive, with shortterm interest rates rising somewhat further and peaking in the 

second quarter of calendar year 1979. 

Y For a more detailed analysis of the economic outlook, see Congressional 

Budget Office, The Fiscal Policy Response to Inflation, particularly 

Chapter III (January 1979). 

2 
TABLE 1. SUMMARY OF CBO'S ECONOMIC PROJECTIONS UNDER 

CURRENT POLlCY: BY CALENDAR YEAR 

1976:4 to 1977:4 to 

Economic 1977:4 1978:4 1978:4 1979:4 

Variable (actual) (actual) to 1979:4 to 1980:4 

GN P (current dollars 

percent change) 11.9 12.9 7.0 to 11.1 9.7 to 13.9 

GNP (1972 dollars 

percent change) 5.5 4.3 0.0 to 2.0 3.0 to 5.0 

Consumer Price Index 

(percent change) 6.6 9.0 7.0 to 9.0 6.5 to 8.5 

UnerT\ployment Rate, 

End of Period 

(percent) 6.6 5.8 6.2 to 7.2 6.2 to 7.2 

SOURCES: The Budget of the United States Government, Fiscal Year 

1980, and the Congressional Budget Office. 

As shown in the table, CBO forecasts real output to slow significantly 

to a 0 to 2 percent rate during 1979. The strong momentum in output, 

employment, and sales at the end of 1978 is expected to carryover into the 

first half of 1979. But CBO does expect a small downturn beginning in the 

second half of the year, caused by rapid inflation and the maintenance of 

tight credit conditions by the Federal Reserve. A mild recovery is expected 

in 1980, with real growth averaging 3 to 5 percent. As a result of the 

weaker economic activity, the unemployment rate is projected to rise to a 

6.2 to 7.2 percent range by the end of 1979 and to continue in the same 

range throughout 1980. Meanwhile, inflation is expected to remain 

stubbornly high. The increase in the Consumer Price Index is forecast to 

range between 7 and 9 percent in 1979. 

The prospective recovery in economic activity during 1980 is 

expected to be relatively mild because the downturn is not deep and 

inflation remains high. Consequently, the Federal Reserve is assumed to 

continue its policy of credit restraint in 1980. Furthermore, federal fiscal 

3 
policy, even without the Administration's proposed spending cuts, exerts a 

restraining influence on the growth of total demand next year, as the 

interaction of inflation and the progressive tax structure causes effective 

personal income tax rates to rise. Despite relatively slack labor and product 

markets, inflation is not expected to moderate significantly in 1980. 

FISCAL POLICY PROPOSED BY THE ADMINISTRATION 

The Administration proposes to reduce spending growth significantly 

in fiscal year 1980 in order to complement the anti-inflationary effects of 

the wage-price program and tight monetary policy. The Administration's 

budget recommends outlays of $531.6 billion, receipts of $502.6 billion and a 

budget deficit of $29.0 blllion (see Table 2). This represents a reduction in 

outlays of about $20 billion from CBO's current policy estimate if the $8.5 

billion caused by differences in economic assumptions and estimations is 

added to the $11.5 billion caused by proposed policy changes. 2/ The Budget 

proposes no significant net change in receipts. -

TABLE 2. THE FEDERAL BUDGET OUTLOOK UNDER CBO CURRENT 

POLICY AND ADMINISTRATION PROPOSALS: BY FISCAL 

YEAR, IN BILLIONS OF DOLLARS 

Administration 

CBO Current Pollcy Budget 

1978 Estimates Pro(?osal 

(actual) 1979 1980 1979 1980 

Receipts 402.0 453.3 502 456.0 502.6 

Outlays 450.8 493.8 551 493.4 531. 6 

Deficits 48.8 40.5 49 37.4 29.0 

SOURCES: The Budget of the U.S. Government, Fiscal Year 1980, and the 

Congressional Budget Office. 

2/ For an analysis of major differences between CBO's current policy 

estimates and the Administration's "current services" estimates, see 

Chapter III of this report. 
The major thrust of the proposed changes is to shift fiscal policy in a 

restraining direction. A more restrictive federal budget, emphasizing 

reductions in outlays, is proposed as part of a concerted program aimed at 

slowing inflation. The other elements of the anti-inflation program include 

the lagged effects of the recent tightening of monetary policy, the wageprice standards, the real wage insurance proposal, and several specific 

proposals to slow inflation directly, including hospital cost containment, 

deregulation of surface transportation, and lower federal pay increases. 

Expenditure Proposals 

Compared with CBO's estimates of current policy expenditure levels, 

the changes proposed by the Administration would result in a net reduction 

of $11.5 billion. 3/ Some of the most important expenditure reductions 

include: -

o Comprehensive Employment and Training Act (CETA) 

programs--including phasing down the countercyclical jobs 

program to 200,000 at the end of 1980, and cutting back 

selected youth programs; 

o Federal pay raises--holding pay increases of federal workers to 

5.5 percent; and 

o Medicare and medicaid--including a ceiling on federal 

reimbursement for increases in hospital costs. 

Spending increases are proposed in several areas of the 

budget: defense, energy and scientific research. But the increases sum to 

less than the proposed decreases. 

Tax Proposals 

Real Wage Insurance. The real wage insurance proposal was 

designed to encourage workers to conform tg the Administration's 7 percent 

standard for pay increases. Eligible workers would be offered a tax credit 

equal to one percent of wages for each percent point by which the inflation 

rate exceeds 7 percent. Only the first $20,000 of wages would be covered, 

H For information on these spending functions, see Chapters III and IV. 

5 
and no credit would be paid for inflation in excess of 10 percent. CBO 

estimates that this proposal would reduce receipts by $3.2 billion and 

increase spending by SO.3 billion. ,:!) 

Other tax ro osals. The Administration has already taken steps to 

increase receipts by 2.2 billion in fiscal year 1980 by accelerating the 

collection of social security taxes withheld by state and local governments. 

Additionally and primarily affecting receipts after 1980, the Administration 

proposes to accelerate payment of income taxes and social security taxes to 

reduce the lags between the time when tax liabilities accrue and the time 

when they are paid. The other tax proposals, which have only minor effects 

on 1980 receipts, include increasing the employers' payroll tax for railroad 

retirement and taxing oil refining to cover oil spills. 

COMPARISON OF ADMINISTRA nON AND CBO FORECASTS 

The departures from current policies recommended in the 

Administration's budget are summarized on a national income accounts basis 

in Table 3. National income and product estimates are used because they 

are more appropriate for measuring economic effects than the unified 

budget concepts used elsewhere in this report. With the proposed cuts in 

expenditures, grants to state and local governments would be reduced by 

$4-.5 billion, purchases of goods and services by the federal government by 

$2.7 billion, and transfers to individuals by $1.5 billion. More than 

offsetting the proposed cuts in transfers would be payments in early 1980 to 

those workers affected by the real wage insurance proposal. 5/ Tax receipts 

would be increased by $0.3 billion. -

CBO added estimates of the effects of the changes in fiscal policy 

proposed in the Administration budget to its economic outlook under current 

policy. Because estimates of the effects of real wage insurance are highly 

uncertain, expenditures for this program were not included. In addition, the 

projections do not include regulatory and administrative reforms that have 

been recommended in order to lower inflation. With these exceptions, this 

4-/ The cost of this proposal is quite uncertain. For a discussion, see 

Chapter II. 

5/ On a unified basis, most of these payments are treated as a reduction in 

tax receipts. 

6 
TABLE 3. PROPOSED CHANGES FROM CURRENT POLICY IN THE 

ADMINISTRATION'S BUDGET, ON A NATIONAL INCOME 

ACCOUNTS BASIS a/: IN BILLIONS OF DOLLARS 

Spending Changes 

Fiscal Year 

1980 

Purchases of goods and services -2.7 

Transfer payments to individuals -1.5 

Grants to state and local governments -4.5 

Net interest paid -0.8 

Total Spending Changes -9.5 

Real Wage Insurance (Transfer Payments 

to Individuals) 'e.! 3.5 

Net Spending Change and Real Wage Insurance -6.0 

Tax Changes 5:/ 

Railroad retirement tax increase for employers 

Oil spill fee 

Total Tax Changes 

0.2 

0.1 

0.3 

SOURCES: The Budget of the United States Government, Fiscal Year 

1980, and the Congressional Budget Office. 

~/ The estimates in this table are in the national income and product 

accounting framework, which is generally more useful in measuring 

economic impacts than the unified budget concepts used elsewhere in 

this report. 

'?./ Estimates of the cost of the real wage insurance proposal depend on 

many uncertain parameters. This estimate, detailed in Chapter II of 

this report, is predicated on more projected inflation than the 

Administration's $2.5 billion estimate. 

5;./ The proposed acceleration in the deposit of social security tax receipts 

held by state and local governments is not reflected. Because on an 

NIA basis, tax liabilities are recorded on an accrual rather than cash 

basis, the acceleration of collections has no effect. 
modified forcast is based on assumptions for fiscal policy similar to the 

Administration's forecast. The two forecasts are summarized in Table 4. 

The CBO forecast based on the Administration's fiscal assumptions 

suggests that the Administration's forecast of 2.2 percent growth in real 

GNP (GNP in constant prices) from the last quarter of 1978 to the last 

quarter of 1979 may be too high. Of course, it is extremely difficult to 

forecast the timing and extent of the economic slowdown expected in both 

forecasts and much depends, too, on the course of monetary policy. By 

contrast, the Administration's forecast shows less rapid growth in 1980, so 

that the implied growth in real GNP over the entire forecast period is well 

within the range projected by the CBO. 

The inflation rate in the Administration's forecast remains high by 

historical standards, but notable progress in reducing that rate is indicated. 

The CBO forecast incorporating the Administration's fiscal policy 

assumptions (excluding real wage insurance) shows substantially less 

progress, reflecting the strong momentum of inflation and its high level in 

1978. But, the Administration's estimates of inflation do lie within the 

lower bound of the CBO forecast range, and cannot be regarded as 

unreasonable given the difficulty of forecasting the inflation rate. 

The Administration'S forecast of unemployment lies slightly below 

the CBO range. It has also proved very difficult recently to forecast 

unemployment very accurately. Productivity increases have been very low 

the last few years so that a given rate of real economic growth has produced 

more jobs than previously. It is not clear, however, whether or not such 

poor productivity performance is temporary or more long-lasting. On the 

other hand, the growth in the labor force has been much more rapid than 

would have been expected with past economic relationships, and it is also 

uncertain whether this more rapid growth will continue. 

The Administration and CBO forecasts imply different assumptions 

about productivity increases and/or labor force growth. By the end of 1980, 

the forecasts of real GNP are fairly close, but the midpoint of the CBO 

forecast of unemployment is about one-half percent point higher. The 

Administration may be assuming lower productivity growth than the CBO, or 

lower growth in the labor force. If the performance of productivity 

continues to be poor through 1980, the continuation of large wage gains 

could exert strong pressure to raise prices. This development would 

seriously jeopardize the improvements in inflation that the Administration 

forecast anticipates. 

8 
TABLE 4. A COMPARISON OF FORECASTS BY THE ADMINISTRATION 

AND BY CBO WITH ADMINISTRATION FISCAL PROPOSALS, 

CALENDAR YEARS 1979 AND 1980 a/ 

Economic Growth (annual 

percent change in constantdollar GNP) 

1978:4 to 1979:4 

1979:4 to 1980:4 

1978:4 to 1980:4 

Inflation (annual percent 

change in the GNP implicit 

price deflator) 

1978:4 to 1979:4 

1979:4 to 1980:4 

1978:4 to 1980:4 

Unemployment Rate, 

End of Period (percent) 

1979:4 

198D:4 

CBO Forecast 

Administration with Administration 

Forecast Fiscal Policy Proposals ~/ 

2.2 

3.2 

2.7 

7.4 

6.4 

6.9 

6.2 

6.2 

-0.1 to 1. 9 

2.7 to 4.7 

1. 3 to 3.3 

7.D to 9.D 

6.4 to 8.4 

6.7 to 8.7 

6.2 to 7.2 

6.4 to 7.4 

SOURCES: The Budget of the United States Government, Fiscal Year 

198D, p. 35 and the Congressional Budget Office. 

~/ The CBO forecast does not include effects of proposed real wage 

insurance. 

9 
ECONOMIC EFFECTS OF THE ADMINISTRATION'S FISCAL PROPOSALS 

CBO estimates of the economic effects of the Administration's 

fiscal proposals for the 1980 budget, relative to current policy, are 

summarized in Table 5. 

TABLE 5. CBO ESTIMATES OF THE ECONOMIC EFFECTS OF THE 

ADMINISTRA TION'S PROPOSED REDUCTIONS IN FEDERAL 

EXPENDITURES RELATIVE TO CURRENT POLICY: BY 

CALENDAR YEARS ~/ 

GNP (billions of current dollars) 

GNP (billions of 1972 dollars) 

Unemployment Rate (percent) 

Employment (thousands) 

Inflation Rate (percent change in GNP 

implicit price deflator, fourth quarter 

to fourth quarter) 

1980:4 

-15 

-5 

0.2 

-350 

-0.1 

~/ Does not include the real wage insurance proposal. 

1981 :4 

-20 

-4 

0.2 

-350 

-0.2 

Overall, the Administration's cuts in spending relative to current 

policy are not expected to have major effects on the economy because they 

are not large in relation to the economy. The cuts in outlays slow real 

growth by about 0.3 percent points from late 1979 to late 1980 and add 0.2 

percent points to the unemployment rate by late 1980. The reductions are 

estimated to lower the inflation rate by 0.2 percent points in 1981. The cuts 

lower inflation because they reduce demand pressures generally. Some of 

them, such as the proposed cap on hospital cost reimbursement, may have a 

direct effect on inflation that is not incorporated in CBO's estimates. 

10 
The reductions in the CETA employment programs have a larger 

effect on employment and unemployment than expenditure reductions in 

general. In addition, they have a disproportionate effect on disadvantaged 

and minority workers. The largest cuts in the proposed employment budget 

are concentrated in the countercyclical jobs program. Although the 

eligibility criteria for the countercyclical program are somewhat less 

focused on the disadvantaged than some of the structural programs designed 

to affect longer-lasting problems, enrollment data suggest that a high 

proportion of those in the countercyclical program are economically 

disadvantaged. 

ECONOMIC ASSUMPTIONS AND BUDGET ESTIMATES 

As indicated earlier, the estimates of receipts and outlays in the 

Administration's budget are based upon economic assumptions that are more 

optimistic than the CBO economic forecast. The differences in economic 

assumptions do not produce widely divergent revenue estimates for fiscal 

year 1980 because the impact of faster real growth in the Administration's 

forecast is largely offset by its projected lower inflation. The economic 

assumptions do have a significant impact on spending estimates, however, 

because both the lower unemployment and lower inflation in the 

Administration's forecast result in lower spending estimates. 

CBO has reestimated the Administration's budget proposals, using its 

own economic assumptions and estimating methodolo&y. On this basis, 

receipts are estimated to be about $499 billion, outlays S540 billion, and the 

budget deficit close to $41 billion. 6/ On the receipt side, CBO estimates 

that the real wage insurance proposal could cost as much as $1 billion more 

than the Administration's $2.5 billion estimate, primarily because of higher 

inflation rates. CBO also estimates current law revenues at $2 billion less 

than the Administration, largely because of differences in economic 

assumptions. 

On the outlay side, CBO estimates that somewhat higher unemployment and inflation than foreseen by the Administration could add over $4.5 

billion for programs such as unemployment insurance, social security, food 

stamps, medicare, and medicaid. Other estimating differences could add 

about another $4 billion to the Administration's outlay estimate. 

6/ The Administration budget proposal is more restrictive than current 

policy and, thereby, would reduce economic activity. The budget 

estimate above excludes the "feedback" effect of the reduced activity 

which would increase the deficit by perhaps $3 billion above the figure 

shown above. 

11 

33-601 {) - 79 - 3 
Thus, given the economic conditions forecast by CBO, deeper 

spending cuts would be required than those proposed by the President if a 

budget deficit of less than $30 billion is to be achieved. 

LONGER-RUN CONSIDERATIONS--1981 THROUGH 1984 

The Administration's longer-run economic assumptions, for calendar 

years 1981 through 1984, are presented in Table 6, together with CBO's fiveyear projections assumptions. The Administration's longer-run assumptions 

are required to be in accord with the Humphrey-Hawkins Act. These 

projections are only assumed, however, and a discussion of their feasibility 

is found in the Administration's 1979 Economic Report. The 

Administration's budget states that some further budget stimulus may be 

necessary to achieve the Humphrey-Hawkins goals, since the budget 

becomes increasingly restrictive in later years, but it offers no quantitative 

estimates. 

In The Fiscal Polie 

feasibility of economic anp budgetary goals. 7 In general, the analysis 

suggests that by aggregate policies alone the achievement of a 4 percent 

unemployment rate by 1983 would cause inflation to accelerate 

substantially. In achieving the unemployment goal of the HumphreyHawkins Act, however, CBO estimates that substantial additional stimulus 

would be needed (in the form of tax cuts and/or spending increases) and that 

the budget would realistically be expected to stay in deficit over the entire 

period. 

Alternatively, by running a very slack economy for a sustained 

period, the inflation rate might be brought down to 4 percent by 1984, but at 

great cost in terms of lost production and slack labor markets. Under this 

policy, budget balance would be feasible in the early 1980s. As the 

Humphrey-Hawkins Act emphasizes, the simultaneous achievement of what 

is regarded as satisfactory economic goals may require other policies 

besides aggregate monetary and fiscal policies. But, the magnitude of the 

contribution of these other policies toward the attainment of aggregate 

economic goals is uncertain. The Administration budget does not present a 

detailed plan for mapping out such a strategy. 

?./ The Fiscal Policy Response to Inflation (January 1979), Chapter V. 

12 
TABLE 6. ADMINISTRATION'S LONG-RANGE ECONOMIC ASSUMPTIONS AND CBO'S FIVE-YEAR PROJECTIONS ASSUMPTIONS, CALENDAR YEARS 1981-1984 

Economic Variable Administration CBO 

Economic Growth (percent change 

in constant dollar GNP) 

1981 4.2 4.3 

1982 4.7 4.5 

1983 4.4 4.6 

1984 3.4 4.5 

Inflation (percent change in GNP deflator) 

1981 5.7 7.0 

1982 4.5 6.7 

1983 3.4 6.5 

1984 2.8 6.1 

Unemployment Rate (percent, annual average) 

1981 5.7 6.6 

1982 4.9 6.2 

1983 4.2 5.9 

1984 4.0 5.5 

SOURCES: The Budget of the United States Government, Fiscal Year 

1980, p. 36, and the Congressional Budget Office. 

CONCLUSIONS 

The Administration's forecast indicates faster economic growth, 

accompanied by less inflation and lower unemployment than the CBO 

forecast which incorporates the Administration's fiscal policy. The 

differences are notable, but they need to be interpreted in the context of a 

great deal of uncertainty. The Administration's estimates in general are 

either within, or not far outside of, the CBO ranges. 

13 
The Administration's fiscal proposals, which add to budget restraint, 

would help to slow inflation but the effects would not be sudden or 

pronounced, and they would add to already expected increases in unemployment and to the disparity of unemployment among groups. 

The longer-term assumptions in the Administration'S Budget need to 

be interpreted with caution since they are not forecasts of probable events 

and may not be feasible. In addition, longer-run continuation of economic 

growth seems likely to be dependent on some substantial budget stimulus--

either in the form of tax reductions or expenditure increases from current 

policy levels. 

14 
CHAPTER II. REVENUE ESTIMATES AND PROPOSALS 

The President's budget for fiscal year 1980 proposes only two 

departures from current policy that are likely to have a substantial impact 

on revenues over the 1980-1982 period--the anti-inflationary real wage 

insurance plan and a series of "cash management initiatives" designed to 

speed up revenue collections. The Administration estimates that the real 

wage insurance plan will cost $2.5 billion in fiscal year 1980; CBO estimates 

that the cost could be closer to $3.5 billion. The Administration estimates 

that its cash management initiatives could increase collections by $2.2 

billion in 1980 and $5.3 billion in 1982. 

The Administration's projections of current policy revenues for the 

five-year period from 1980 to 1984 differ significantly from those of CBO, 

especially for the later years. The differences are caused principally by 

different economic assumptions. 

The effects of inflation on individual income taxes and scheduled 

increases in social security taxes will significantly increase individual tax 

burdens over the next few years. The tax cuts provided in the Revenue Act 

of 1978 serve generally to offset the effects of inflation and social security 

tax increases for calendar year 1979. In the years after 1979, however, the 

additional tax burden caused by inflation and social security tax increases 

will grow substantially. This is likely to cause increasing pressure for cuts 

in both income and social security taxes. The Administration has said it 

may propose such cuts, but that its final decision will depend on future 

economic conditions and on legislative action to reduce the costs of future 

social security benefits. 

PAST AND FUTURE REVENUES 

The distribution of budget receipts by source for selected past years 

and for 1980 and 1984 under CBO current policy assumptions is shown in 

Table 7. Total receipts as a percent of gross national product (GNP) are 

estimated to increase from 19.7 percent in 1980 to 21.9 percent in 1984, 

reflecting mainly the effects of inflation on individual income taxes and 

scheduled increases in social security taxes. 

15 
TABLE 7. DISTRIBUTION OF BUDGET RECEIPTS BY SOURCE, SELECTED FISCAL YEARS 1960-1984 

Percent of Gross National Product 

CBO Current 

Actual Policy Estimates 

1960 1965 1970 1975 1980 1984 

Individual Income 

Taxes 8.0 7. 1 9.2 8.0 8.9 10.7 

Corporation Income 

Taxes 4.3 3.7 3.3 2.7 2.9 2.9 

Social Insurance 

Taxes and 

Contributions 2.9 3.2 4.6 5.6 6.3 6.9 

Other 3.1 3.0 2.6 2. 1 1.6 1.4 -- --

Total 18.3 17.0 19.7 18.4 19.7 21.9 

-----------------------------------------------------------------------------------

Percent of Total ReceiEts 

CBO Current 

Actual Policy Estimates 

1960 1965 1970 1975 1980 1984 

Individual Income 

Taxes 44.0 41.8 46.7 43.6 45.1 49.0 

Corporation Income 

Taxes 23.2 21.8 16.9 14.4 14.5 13.2 

Social Insurance 

Taxes and 

Contributions 15.9 19. 1 23.4 30.8 32.1 31.6 

Other 16.9 17.3 13.0 11.2 8.3 6.2 

Total 100.0 100.0 100.0 100.0 100.0 100.0 
The Administration's estimates of current policy revenues for 1979-

1984 are substantially different from those of CBO, largely because of the 

different economic assumptions used by the Administration for its projections. The Administration assumes, for example, that the 1984 inflation 

rate will be 2.7 percent and that the unemployment rate will be 4.0 percent. 

CBO assumes a 1984 inflation rate of 6.0 percent and an unemployment rate 

of 5.5 percent. The Administration states explicitly in the budget, however, 

that: 

... the longer-range assumptions for the period 1981 to 1984 are 

not forecasts of probable economic conditions. Instead, they 

are projections that assume progress in moving toward the 

goals of the [Humphrey-Hawkins Act]. 1/ (Emphasis in 

original.) -

The effects of the different economic assumptions used by the 

Administration and CBO on projected 1979, 1980 and 1984 revenues are 

shown in Table 8. Fiscal year 1980 current policy revenues under CBO 

economic assumptions are $502.3 billion, compared to $504.5 billion under 

Administration assumptions. For 1984, CBO projects total revenues of $848, 

compared to the Administration's projection of $778 billion. 

REAL W AGE INSURANCE 

As part of its anti-inflation policy, the Administration has proposed a 

real wage insurance program. Under the proposed plan, groups of employees 

whose average hourly pay goes up this year by only 7 percent or less wiH be 

eligible for refundable tax credits if the inflation rate exceeds 7 percent. 

The crecli t would be equal to one percent of wages for each percentage point 

by which inflation exceeds 7 percent. Only the first $20,000 of wages would 

be covered, however, and no crecli t would be granted if inflation exceeds 10 

percent. The maximum credit would, thus, be $600 (3 percent of $20,000). 

Cost and Potential Effect on Inflation 

The Administration estimates that the real wage insurance plan wiU 

cost $2.3 biUion in reduced revenues in 1980, plus another $0.2 biUion in 

outlays for refunds to those whose credits exceed their tax liability. The 

Administration estimates that the plan wil1 reduce the inflation rate by onehalf a percentage point below what it would otherwise have been. 

1.1 Budget of the United States Government for Fiscal Year 1980, p. 37. 

17 
TABLE 8. COMPARISON OF ADMINISTRATION AND CBO CURRENT 

POLICY REVENUE ESTIMATES, FISCAL YEARS 1979, 1980, 

AND 1984-: IN BILLIONS OF DOLLARS 

Congressional Budget 

Administration Office 

1979 1980 1984- 1979 1980 1984-

Individual Income 

Taxes 203.6 229.6 391.8 202.7 226.3 4-15.5 

Corporation Income 

Taxes 70.3 71.0 97.4- 67.7 73.0 111.9 

Social Insurance 

Taxes and 

Contributions 14-1. 8 161.3 236.6 14-2.7 161.1 268.2 

Excise Taxes 18.4- 18.4- 20.3 18.8 18.8 20.3 

Other 21.9 24-.3 31.7 21.4- 23.1 32.6 

Total 4-56.0 504-.5 777 .8 4-53.3 502.3 84-8.5 

CBO estimates that the cost of the plan could be closer to $3.5 

billion ($3.2 billion in lost revenues and $0.3 billion in increased outlays). 

This higher estimate reflects the combined effects of a higher rate of 

inflation and CBO's assumption that fewer workers than the Administration 

predicts will accept lower wages in response to the plan. 

Estimates of the potential cost of the plan depend mainly on three 

interrelated factors: 

o The numbers of workers taking part in the plan; 

o The impact of the plan itself on the rate of inflation; and 

o The effects of factors other than wages on the rate of inflation. 

18 
The Administration estimates that 47 million workers--about 54 

percent of all employees--will receive a credit under the plan. About 26 

million of these workers are assumed to be in line for wage increases of less 

than 7 percent, so they will get the credit without having to accept any 

reduction in their expected wage increases. The other 21 million are 

assumed to be in line for wage increases of more than 7 percent, but are 

expected to hold their wage demands below that level in exchange for the 

wage insurance tax credit. ~/ 

The Administration's estimate that 21 million workers will accept 

lower wage increases in exchange for the credit may be somewhat 

optimistic. The Administration's assumption that the wage restraint exercised by these 21 million workers will reduce the rate of increase in 

employee compensation this year by 0.7 percent implies a reduction in 

compensation for these workers of around $6 billion after taxes. Since these 

21 million workers will receive only a little over $1.1 billion in real wage 

insurance after taxes under the Administration's estimate, the Administration is assuming that they will forego $6 billion in higher wages in exchange 

for $1.1 billion in real wage insurance. Their total wage insurance payments 

could of course be higher if inflation is higher than the Administration 

expects, and these workers would benefit along with everyone else if the 

wage insurance plan is effective in reducing inflation. But the exchange 

may nonetheless not appear attractive for as many workers as the Administration assumes. 

If fewer workers than the 21 million assumed by the Administration 

are induced to accept wage increases below 7 percent, these higher wages 

will increase the rate of inflation, and the higher rate of inflation will 

trigger higher rebates for each worker who remains eligible for the plan, 

thus increasing its budgetary costs. Since rebates must always be paid to 

the 26 million workers expected to be in line for wage increases below 7 

percent, while decreases in participation come only from the 21 million 

assumed to be in line for increases of more than 7 percent, decreases in 

participation tend to push up the overall cost of the plan over a fairly wide 

range of assumed participation rates. For example, if only 7 million workers 

are induced to accept wage increases below 7 percent rather than the 21 

million assumed by the Administration, the impact on inflation will be less 

than the 0.5 percentage point reduction estimated by the Administration. 

?:../ A total of 61 million workers are estimated to be in line for wage 

increases of more than 7 percent, but the Administration assumes 

that 26 million of them are effectively locked into higher increases 

by existing contracts or statutory increases in the minimum wage, 

and that 14 million of them will choose to take higher wages rather 

than the wage insurance credit. 

19 
The cost of the plan could also be pushed up by increases in the rate 

of inflation caused by factors unrelated to the rate of wage increases, such 

as increases in the prices of food and energy. Approximately one-fifth of 

the 9 percent inflation rate for 1978, for example, was due to increases in 

prices for food, energy, and other items not affected much by the rate of 

wage increases. 

Using CBO's lower estimate of compliance, each percentage point of 

inflation above 7 percent would increase the cost by $3.5 billion. If inflation 

were 10 percent or more, the total cost could thus be as much as $10.5 

billion. A higher-than-expected cost for the plan could also increase the size 

of the deficit, making it more difficult to follow a course of fiscal restraint. 

Possible Alternatives 

Three general types of alternatives to the Administration's real wage 

insurance plan have been discussed. One would substitute some form of 

inflation indexing of the individual income tax. The impact of inflation 

indexing is touched on briefly later in this chapter, and will be discussed in 

detail in a forthcoming CBO background paper. 3/ A second general 

alternative would calculate the tax credit on the basis of each individual's 

pay increase, rather than on the basis of the average pay increase of the 

employee group of which the individual is a member. A third alternative 

would provide a general tax cut to all taxpayers if the rate of inflation 

remained below some specified level. 

Those who favor the second alternative--providing the credit on an 

individual rather than a group basis--argue that this would be more 

equitable, since all those who received a pay increase of less than 7 percent 

would then receive a credit, while none of those who received more than 7 

percent would get one. The Administration has argued, however, that going 

from a group to an individual basis for real wage insurance would eliminate 

most of the anti-inflation benefits from the plan. In addition, the Administration argues, it could cause workers to avoid overtime pay and promotions, complicate company pay systems, and make the plan much more 

difficult to administer. 

3/ Congressional Budget Office, Indexing the Individual Income Tax for 

Inflation, Background Paper, forthcoming. 

20 
It is difficult, on the basis of data currently available, to estimate 

the cost and impact on inflation of wage insurance plans based on individuals 

rather than groups. More people would probably receive rebates under an 

indi vidual system, since the group system probably excludes more people 

who are in line for pay increases of less than 7 percent than it adds from 

among those who are in line for increases of more than 7 percent. Detailed 

analysis of the pay levels of those included and excluded is needed, however, 

before reliable estimates of the cost of an individual-based plan can be 

made. 

The third alternative, providing a general tax cut if inflation does not 

exceed some threshold level, in effect would treat all taxpayers as one 

group. Since either all taxpayers or none would qualify for the tax rebate, 

the program would either cost a very large amount or nothing. If, for 

example, a $100 credit were provided to all taxpayers, the program would 

cost about $7 billion for each percentage point of inflation above the 

threshold. Such a program would be easy to administer, but it would 

probably not do much to induce wage restraint or to bring down the rate of 

inflation. Individual workers would be likely to figure that wage restraint on 

their part would do little or nothing by itself to affect whether or not the 

credit was granted, and would simply gamble on getting the credit as a 

result of restraint by others. 

CASH MANAGEMENT INITIATIVES 

The Administration has proposed a series of cash management 

initiatives designed to speed up tax collections so that the Treasury receives 

actual tax payments more promptly after tax liabilities are incurred. Under 

the current system, taxpayers are allowed to postpone making payments for 

varying lengths of time. 

As shown in Table 9, these cash management initiatives are expected 

to increase receipts by $2.2 billion in 1980, and by $5.3 billion in 1982. 

About $1.7 billion of the estimated $5.3 billion speed-up in collections for 

1982 could be accomplished by administrative action, while the remaining 

$3.6 billion would require new legislation. 

The acceleration of state and local government deposits of withheld 

social security taxes cquld be accomplished administratively, but Congressional hearings on it will be held before it is scheduled to go into effect. The 

requirement that private employers deposit withheld income and payroll 

taxes more promptly can be accomplished administratively under existing 

21 
TABLE 9. INCREASED BUDGET RECEIPTS FROM CASH MANAGEMENT INITIATIVES, FISCAL YEARS 1980-1982 

Tax Source 

Individual Income Taxes 

Employer deposits of 

withheld taxes 

Individual payments of 

estimated taxes al 

Corporation Income Taxes 

Corporate income tax payments ~I 

Social Insurance Taxes 

and Contributions 

Acceleration of state and 

local deposits of social 

1980 

security taxes 2.2 

Employer deposits of 

withheld taxes 

Other 

Customs duties 

Tobacco excise taxes 

(Total requiring legislative 

action) 

Total 2.2 

Source: Department of the Treasury. 

~I Legislative action required. 

'9..1 $50 million or less. 

22 

1981 1982 

1.5 0.9 

0.1 0.4 

1.8 3.2 

0.3 0.2 

0.9 0.6 

0.2 bl 

0.2 hi 

( 1.9) (3.6) 

5.0 5.3 
law; similar speed-ups were ordered administratively in 1968 and 1972. The 

p.roposed changes in estimated tax payments for individuals and corporatlOns, on the other hand, would require legislation. These estimated tax 

changes would generally ease the requirements for smaller taxpayers, while 

tightening them for individuals and corporations with large tax liabilities. 

INFLATION INDEXING, SOCIAL SECURITY TAXES, AND FUTURE TAX 

CUTS 

The President's budget proposes no tax cuts, other than his real wage 

insurance plan, for 1980. 

For 1981 and 1982, the budget states: 

The desirability of tax reductions... will depend on the 

future state of the economy, especially progress in reducing 

inflation, and on the need to reduce tax burdens. The 

Administration will consider future tax changes, including 

social security tax reductions in conjunction with the savings 

resulting from benefit reforms and other cost saving proposals.4/ 

For calendar year 1979, the tax cuts approved in the Revenue Act of 

1978 generally offset the effects of inflation-induced increases in individual 

income taxes and legislated increases in social security taxes. After 1979, 

however, as inflation continues to push people into higher tax brackets, and 

as scheduled increases in social security taxes continue to take effect, the 

overall tax burden on individuals will grow substantially. As shown in Table 

10, the aggregate tax increases resulting from inflation and higher social 

security taxes amount to $8.3 billion in fiscal year 1980, and $60.4 billion in 

1984. 

This same pattern can be seen in the tax increases that will be 

experienced by individual taxpayers at different income levels. Table 11 

shows the effects of inflation and social security tax increases for calendar 

years 1979-1984 on families of four with 1979 earnings of $10,000, $20,000, 

$30,000, and $40,000. By calendar year 1981, the total tax increase for the 

$10,000 family is estimated to be $269, while the increase for the $30,000 

family is estimated to be $817. 

'±I Budget for Fiscal Year 1980, p. 60. 

23 
TABLE 10. EFFECTS OF INFLATION AND SOCIAL SECURITY TAX 

INCREASES ON TOTAL TAX RECEIPTS FROM INDIVIDUALS, 

FISCAL YEARS 1979-1984: IN BILLIONS OF DOLLARS 

Infla tion-Induced 

Increases in Individual Income Taxes ~/ 

Increases in Social 

Security Taxes 'Q/ 

Total 

1979 1980 1981 

8.1 16.5 

0.2 7.1 

8.3 23.6 

1982 1983 1984 

25.7 36.1 47.4 

9.8 11.4 13.0 

35.5 47.5 60.4 

~/ Calculated as the difference between actual tax liabilities resulting 

from the law in effect January 1, 1979, and the liabilities that would 

result if inflation did not increase effective tax rates as a percent of 

adjusted gross income. 

'pj Employee share only. Includes increases resulting from rates in 

excess of the 1979 rate of 6.13 percent, and from increases in the 

wage base above those that would result from increasing the 1979 

wage base of $22,900 in line with estimated increases in average 

wages. 

24 
OTHER ADMINISTRATION TAX PROPOSALS 

The Administration has proposed a number of other tax changes that 

are not likely to have major effects on revenues over the next few years. 

These include proposals dealing with taxation of capital gains at death, 

taxation of fringe benefits, the classification of workers as employees or 

independent contractors, increases in railroad retirement taxes, extension 

and modification of airport and airway trust fund taxes, an oil spill clean-up 

fund, and increased employer social security taxes on tips. 

One Administration proposal--limits on the use of tax-exempt bonds 

for housing--raises some issues related to housing programs within the 

jurisdiction of the Appropriations Committees. Under the Administration's 

proposal, tax-exempt bond financing of single-family mortgages could only 

be used to assist low-and moderate-income families or to achieve "other 

narrowly targeted public policy objectives.",2/ 

While in the past tax-exempt housing bonds have been used primarily 

to assist low- and moderate-income, multi-family rental housing, there has 

been a substantial shift in the last few years toward the use of these bonds 

to assist middle-income, single-family homeownership. State housing agencies have been moving in this direction, and last year Chicago and a large 

number of other cities began issuing tax-exempt bonds to provide lowinterest home mortgage loans to buyers with incomes up to $40,000 or more. 

CBO is currently preparing an analysis of the use of tax-exempt housing 

bonds by cities at the request of the Chairman of the House Committee on 

Banking, Finance and Urban Affairs. 

The federal subsidy provided by the tax exemption for state and local 

housing bonds is an important, but often overlooked, component of the total 

federal subsidy for low- and moderate-income rental housing. A large share 

of HUD Section 8 rental housing projects receives this form of subsidy, as do 

all low-income public housing projects. The sharp increase in recent years 

in the use of tax-exempt bonds for single-family homeowners hip could result 

in a total indirect tax subsidy for homeownership under this mechanism 

rivaling in size the direct subsidies for homeownership currently provided by 

the federal government. In fiscal year 1980, for example, tax-exempt bonds 

2./ Budget for Fiscal Year 1980, p.7l. 

25 
TABLE 11. CHANGES IN TOTAL TAX LIABILITIES FOR TAXPAYERS AT 

DIFFERENT INCOME LEVELS RESULTING FROM INFLATION 

AND SOCIAL SECURITY TAX INCREASES, CALENDAR YEARS 

1979-1984, FOR FOUR-PERSON, ONE-EARNER FAMILIES 

Equivalent Incomes ~I 

Tax Increase because 

of Inflation bl 

Increase in Social 

Security Tax s..1 

Net Effect 

Equivalent Incomes ~I 

Tax Increase because 

of Inflation bl 

Increase in Social 

Security Tax 9 

Net Effect 

1979 1980 1981 1982 1983 1984 

10,000 10,840 11,686 12,515 13,354 14,248 

o 103 208 332 459 587 

o o 61 72 77 82 

o 103 269 404 536 669 

20,000 21,680 23,371 25,030 26,707 28,497 

o 105 248 393 543 746 

o o 122 143 153 163 

o 105 370 536 696 909 

1979 incomes are increased in line with the increases in the CPI 

projected by the Congressional Budget Office. (Continued) 

26 
TABLE 11. (CONTINUED) 

1979 1980 1981 1982 1983 1984 

Equivalent Incomes ~/ 30,000 32,520 35,057 37,546 40,061 42,745 

Tax Increase because 0 214 502 802 1,139 1,556 of Inflation b/ 

Increase in Social 0 58 315 298 301 263 Security Tax !;:/ 

Net Effect 0 272 817 1,100 1,440 1,819 

-------------------------------------------------------------------------------------

Equivalent Incomes ~/ 40,000 43,360 46,742 50,061 53,415 56,994 

Tax Increase because 0 427 868 1,468 2,086 2,710 of Inflation ~/ 

Increase in Social ° 58 315 298 301 263 Security Tax !;:/ 

Net Effect 0 485 1, 183 1,766 2,387 2,973 

~/ Calculated as the difference between actual tax liabilities resulting 

from the law in effect January 1, 1979, and the liabilities that would 

result if rate brackets, personal exemptions, the zero bracket amount, 

and the earned income credit were increased in line with increases in 

the CPI projected by the Congressional Budget Office. 

!;:/ Employee share only. Includes increases resulting from rates in excess 

of the 1979 rate of 6.13 percent, and increases in the wage base above 

those that would result from increasing the 1979 wage base of $22,900 

in line with estimated increases in average wages. 

27 

30-664 0 - 7~ - 4 
for single-family homeownership are likely to result in a revenue loss of 

$560 million, while the 1980 outlays under the HUD Section 235 homeownership program are estimated to be $111 million and those under the Farmers 

Home Administration homeownership assistance programs are estimated at 

$640 million. 

28 
CHAPTER III. SPENDING ESTIMATES AND PROPOSALS 

The President's budget for fiscal year 1980 proposes a significant 

deceleration in the growth of federal spending in order to restrict the size 

of the budget deficit and to reduce the share of the gross national product 

(GNP) spent by the federal government. The most significant features of 

the 1980 budget are an absence of major new spending initiatives and a 

general effort to hold existing programs at or below current policy levels as 

set forth in the second budget resolution for fiscal year 1979 that was 

adopted by the Congress last September. The Administration's budget 

estimates total outlays for 1980 at $531.6 billion, only 7.7 percent above the 

estimated 1979 level. This contrasts with the 9.5 percent growth in federal 

outlays expected in 1979 and the 11.9 percent growth in 1978. 

Another benchmark for comparison is the level of 1980 outlays under 

a continuation of current spending policies as set forth in the second budget 

resolution for 1979, with adjustments for inflation, economic growth and 

population changes. CBO estimates that current policy outlays in 1980 

would total $551.5 billion, or nearly $20 billion above the Administration's 

budget estimate. The Administration'S lower spending level reflects both 

differences in economic assumptions and policy changes. Afer adjusting the 

Administration's outlay estimates for the somewhat less optimistic 

economic outlook forecast by CBO (see Chapter I), CBO estimates that 

federal outlays in 1980 under the President's proposed spending policies 

would total $540 billion, a reduction of $11.5 billion from current policy 

levels (see Table 12). This would represent a growth of 9.2 percent for 1980, 

about the same rate of growth expected for 1979. 

The President's budget proposes a 10 percent growth in budget 

authority for 1980, about the same growth as estimated by CBO under 

current policies. However, almost two-thirds of the increase in budget 

authority for 1980 would be for trust funds (primarily social security and 

medicare) and interest on the public debt which is available without current 

action by the Congress. For budget authority made available through 

appropriations actions, the President's budget requests a total of $386.7 

billion, a growth of 5.5 percent from the level requested for fiscal year 

1979. This would be a sharp reduction from the 12.2 percent growth in 

budget authority in 1979 resulting from appropriations actions. 

29 
TABLE 12. TOTAL FEDERAL SPENDING: BY FISCAL YEAR, IN 

BILLIONS OF DOLLARS 

1979 Estimates 1980 Estimates 

CBO CBO 

2nd. Pres. Estimate CBO Pres. Estimate 

Con. Latest of Pres. Current Budget of Pres. 

Res. Request Request ~ Policy Request Request a/ 

Budget 

Authority 555.65 559.7 560.5 615.0 615.5 617.8 

Outlays 487.5 493.4 494.4 551.5 531.6 540.0 

~/ Preliminary, subject to change. 

The President's latest budget estimates for 1979 exceed the ceilings 

set by the second budget resolution for both budget authority and outlays. 

An adjustment to the resolution ceilings may be needed to accommodate the 

President's proposals for additional spending action for fiscal year 1979. 

This chapter evaluates the Administration's spending estimates and 

provides a summary discussion of its proposed spending policies for fiscal 

year 1980. Chapter IV provides further details of the President's spending 

proposals and estimates, within each major functional category representing 

national needs. Chapter V discusses the outlook for the federal budgets for 

fiscal years 1981 to 1984. 

ACCURACY OF SPENDING ESTIMATES 

The Administration's estimates of total outlays for both fiscal year 

1979 and 1980 appear to be reasonable, given the Administration's economic 

forecast. As shown in the Summary section, however, the Administration's 

30 
projections of both inflation and unemployment are at or near the optimistic 

end of the CBO range for both calendar years 1979 and 1980. These 

economic assumptions have a significant impact on spending estimates, 

because both the lower unemployment and lower inflation in the Administration's forecast result in lower spending estimates. 

CBO has reestimated the Administration's spending estimates using 

the CBO economic forecast and estimating methodology. CBO estimates 

that somewhat higher unemployment and inflation than foreseen by the 

Administration could add over $4.5 billion in 1980 for programs such as 

unemployment insurance, social security, food stamps, medicare and medicaid (see Table 13). Other estimating differences could add about another 

$4 billion to the Administration's 1980 outlay estimate. In total, CBO 

estimates that the Administration's 1980 budget could result in outlays of 

$540 billion, $8.4 billion above the Administration's estimate. 

For 1979, the estimating differences are much smaller. The effect of 

using CBO economic assumptions and estimating methodology would raise 

the Administration's spending estimate by only $1 billion, from $493.4 billion 

to $494.4 billion. This is very close to the CBO current policy estimate of 

$493.8 billion for 1979. 

TABLE 13. ESTIMATED EFFECTS ON OUTLAYS OF CBO'S ECONOMIC 

FORECAST: BY FISCAL YEAR, IN BILLIONS OF DOLLARS 

1979 1980 

President's Budget Outlay Estimate 493.4 531.6 

Adjustment for CBO Economic Forecast: 

Unemployment insurance 0.3 2.3 

Social security 0.5 0.9 

Medicaire and medicaid 0.6 

Food stamps and other O. 1 0.8 

Subtotal 494.3 536.2 

Adjustment for Other Estimating 

Differences O. 1 3.8 

CBO Reestimate of President's Budget Outlays 494.4 540.0 

31 
In order to hold the growth in outlays to below 8 percent under the 

economic conditions forecast by CBO, the Congress would have to make 

deeper spending cuts than proposed by the President. 

Outlay Shortfalls 

Federal budget outlays for fiscal year 1978 fell short of the level 

specified by the second Congressional budget resolution by $8.~ billion, and 

were $12.3 billion below the Administration's January 1978 estimate contained in the President's 1979 budget. This marked the third year in a row 

that actual outlays fell short of the levels planned by the Congress and the 

Administration. In each case, the outlay shortfalls were caused by estimating problems rather than by deliberate policy actions. 

For fiscal year 1979, however, the second budget resolution outlay 

ceiling appears to be too low, largely because of a change in the economic 

outlook (see below). Also, CBO believes that the upward bias in outlay 

estimates was effectively removed from both the 1979 second resolution and 

from the Administration's latest estimates. As a result, the outlay shortfall 

problem is not expected to continue in fiscal year 1979 and beyond. 1/ 

1979 Second Budget Resolution 

It is likely that the 1979 second budget resolution ceilings for both 

budget authority and outlays will be exceeded by as much as $~ to $9 billion, 

largely because of a revised economic outlook for calendar year 1979. The 

largest single factor causing an increase in federal spending from the levels 

specified in the second resolution are higher than expected interest rates 

which will add about $~ billion to net interest payments. Higher inflation 

and unemployment rates than those assumed for the second resolution are 

estimated to add another $2 billion in outlays, as shown below in Table l~. 

Under the second resolution spending policies, adjusted for CBO economic 

assumptions, it is estimated that 1979 outlays will total $494 billion, roughly 

the same as the Administration's latest estimate. 

!/ For further details, see Congressional Budget Office, Analysis of 

the Fiscal Year 1978 Federal Bud et Outla Shortfall, Staff 

Working Paper forthcoming. 

32 
TABLE 14. CBO ESTIMATES OF FISCAL YEAR 1979 SPENDING UNDER 

POLICIES IN THE SECOND BUDG ET RESOLUTION: IN 

BILLIONS OF DOLLARS 

Second Budget Resolution Ceilings for 1979 

Adjustment for CBO Economic 

Forecast: 

Net interest 

Unemployment compensation 

Federal civilian and military 

retirement benefits 

Social security (OASDI) 

Medicare and medicaid 

Assistance payments 

Second Budget Resolution with CBO 

Economic Forecast 

Note: Preliminary, subject to change. 

SPENDING TRENDS 

Budget 

Authority 

555.65 

4.2 

1.1 

0.1 

0.1 

0.4 

O. 

561.7 

Outlays 

487.5 

4.2 

1.2 

0.4 

0.3 

0.2 

0.1 

493.8 

A brief synopsis of past spending trends is useful to provide prospective for analyzing the Administration's budget proposals for 1980. 

Between 1968 and 1978, federal outlays increased from $179 billion 

to $451 billion, for an average annual increase of 9.7 percent. As stated 

above, the President's budget proposes to reduce the federal spending 

growth rate to 7.7 percent in 1980. Under CBO economic assumptions, 

however, the 1980 outlay growth rate could be above 9 percent. 

33 
Real Growth 

A large portion of the past growth in federal spending has been in 

response to inflation. Therefore, it is useful to eliminate the effects of 

inflation in analyzing budget trends. Measured in constant dollars, the 

recent growth in federal spending has been significantly less than growth 

calculated in current dollars. As shown in Table 15, total budget outlays in 

real terms increased by 23 percent between 1968 and 1978. When measured 

in current dollars, total budget outlays increased by 152 percent during this 

period. 

The annual real growth in federal spending has averaged 2.1 percent 

during the past 10 years. The Presidentrs budget for 1980 would reduce the 

real growth in federal spending to below one percent. 

TABLE 15. GROWTH IN BUDGET OUTLAYS: BY FISCAL YEAR 

1980 Reguest 

1979 Admin. CBO 1968 1973 1978 Est. Est. Est. 

Total Budget Outlays 

(in billions of dollars) 

In current dollars 179 247 451 494 532 540 

In constant (I 972) 

dollars 230 233 283 284 286 290 

Ratio of Federal Spending 

to GNP (percent) 

In current dollars 21.5 20.0 22.1 21.5 21.2 21.4 

In constant (1972) 

dollars 22.3 19.4 20.7 19.9 19.7 20.0 

34 
Spending as a Percent of GNP 

Another way to examine federal spending trends is to compare budget 

outlays to the gross national produce (GNP), the most widely used measure 

of the size of the economy. During the past five years, federal spending has 

increased at a faster rate than the total economy. Consequently, total 

budget outlays as a percent of GNP rose from 20.0 percent in fiscal year 

1973 to 22.1 percent in fiscal year 1978. 

Most of this increase in this ratio occurred in fiscal year 1975, 

largely as a result of the 1974-1975 recession. The effect of the recession 

was to raise federal spending (for programs such as unemployment compensation, food stamps, public service jobs and welfare payments) and to lower 

GNP from the level it would have reached under a higher employment 

economy. Federal spending has continued at fairly high levels relative to 

GNP since fiscal year 1975, as part of the government's efforts to stimulate 

the economy. 

The President's budget for 1980 proposes to reduce the level of 

federal spending to 21.2 percent of GNP. Under the CBO economic 

assumptions and estimates of outlays resulting from the Administration's 

budget proposals, federal spending in 1980 would be reduced to 21.4 percent, 

somewhat higher than estimated by the Administration. 

Spending Mix 

The major trend in the mix of federal spending during the past 10 

years has been the rapid increase in the share of the budget allocated to 

human resource programs, from 32 percent of total outlays in 1968 to 52 

percent in 1978. These programs include social security and other income 

security programs; medicare, medicaid and other health programs; education, training, employment, and social services; and veterans' benefits and 

services. At the same time, the share of the budget allocated to national 

defense has fallen markedly, from 44 percent of total outlays in 1968 to 23 

percent in 1978 and 1979, as shown in Table 16. 

The Administration's budget for 1980 would not change appreciably 

the relative shares of the budget allocated to national defense and to human 

35 
TABLE 16. COM POSITION OF BUDG ET OUTLA YS: BY FISCAL YEAR 

1968 1973 

National Defense 79 74 

Human Resources 58 117 

Net Interest 11 17 

All Other 31 39 

Total 179 247 

National Defense 44 30 

Human Resources 32 47 

Net Interest 6 7 

All Other 18 16 

Total 100 100 

National Defense 9.5 6.0 

Human Resources 7.0 9.4 

Net Interest 1.3 1.4 

All Other 3.7 3.2 

Total 21.5 20.0 

36 

1978 

1979 

Est. 

1980 Request 

Admin. CBO 

Est. Est. 

In Billions of Dollars 

105 114 126 125 

235 262 283 292 

35 42 46 45 

75 77 77 78 

-m 494 532 540 

Percent Distribution 

23 23 24 23 

52 53 53 54 

8 8 9 8 

17 16 14 14 

100 100 100 100 

As a Percent of GNP 

5.2 4.9 5.0 5.0 

11.5 11.4 11.3 11.6 

1.7 1.8 1.8 1.8 

3.7 3.3 3.1 3.1 

22.1 21.5 21.2 21.4 
resource programs. Using the Administration's estimates, outlays for 

national defense in 1980 would grow by 3 percent in real terms, but human 

resources programs would grow by less than one percent. Under CBO 

economic assumptions and estimating methodology, however, both national 

defense and human resource programs would have real growth in outlays of 

about 3 percent in 1980. Under both the Administration and CBO estimates, 

other federal outlays would decline in real terms in 1980. 

CHANGES FROM CURRENT POLICY 

In analyzing the Presidentrs spending proposals for fiscal year 1980, it 

is also useful to compare the budget to estimates of federal spending if 

current policies were simply continued. 

CBO Current Policy Estimates 

The CBO estimates of current policy outlays for fiscal year 1980 are 

based on Congressional actions to date (through the end of the 95th 

Congress), allowances in the Second Concurrent Resolution on the Fiscal 

Year 1979 Budget for additional spending actions not yet acted upon by the 

Congress, and the CBO economic forecast for calendar years 1979 and 1980. 

The CBO estimates of 1980 current policy outlays assume that 1979 

spending policies, as em bodied in the second budget resolution and other 

actions by the 95th Congress, will continue unchanged, with full adjustment 

for anticipated inflation. Real growth in spending is limited to those 

programs--such as social security, medicare, and federal employee retirement programs--in which the number of beneficiaries are expected to 

increase, or in defense and other programs in response to past appropriations 

actions. This is estimated to add $38 billion to federal spending in 1980. 

Automatic inflation adjustments are estimated to add another $13 billion in 

1980, and the cost of making further adjustments for inflation--for programs in which this is not mandated by current law--is estimated to be $6 

billion. Table 17 shows the sources of increases for 1980 current policy 

outlays above the CBO estimate of 1979 outlays. ~/ 

~/ 

37 
TABLE 17. PROJECTED INCREASES IN FEDERAL OUTLAYS IN FISCAL 

YEAR 1980 UNDER CURRENT POLICIES: IN BILLIONS OF 

DOLLARS 

CBO Current Policy Estimate of 1979 Outlays 

Real Growth 

Social security 

Medicare and medicaid 

Defense purchases 

Retired military and civil service 

retirement 

Net interest 

Other 

Subtotal 

Automatic Inflation Adjustments 

Social security 

Medicare and medicaid 

Retired military and civil service 

retirement 

Pay increases for federal employees 

Other 

Subtotal 

Discretionary Inflation Adjustments 

Defense programs 

Veterans compensation and readjustment 

benefits 

Other federal programs 

CBO Current Policy Estimate of 1980 Outlays 

493.8 

11.6 

3.4 

5.6 

2.0 

3.3 

12.0 

531.6 

2.3 

4.0 

1.0 

4.5 

1.8 

545.2 

2.1 

0.8 

3.5 

551.5 

The Office of Management and Budget (OMB) calculates similar estimates for outlays under current policies. The OMB "current services" 

estimates for 1980 differ by $15 billion from the CBO "current policyll 

estimates. The major differences are shown in Table 18 and fall into the 

following four categories: 

38 
o The OMB estimates are based on the Administration's economic 

forecast for calendar years 1979 and 1980 which is somewhat more 

optimistic than CBO's economic forecast (less unemployment and 

inflation). This accounts for about two-fifths of the difference 

between the CBO and OMB 1980 estimates (see Table 18). The CBO 

current policy estimates for 1980 have higher outlays because differences in economic assumptions for unemployment compensation ($2.3 

billion); social security ($0.9 billion); Comprehensive Employment and 

Training Act (CETA) public service jobs ($1.4 billion); medicare and 

medicaid ($0.6 billion), and food stamps, Aid to Families with 

Dependent Children (AFDC) and other programs ($0.8 billion). 

o The OMB estimates do not adjust all programs for expected inflation--increasing only those programs where spending is indexed for 

inflation by law (such as social security) and defense programs. The 

CBO estimates adjust all programs for inflation, even for those in 

which this is discretionary. This different treatment amounts to $4 

billion for 1980. 

o Although the OM B estimates are also based on Congressional actions 

through the 95th Congress, they do not include allowances provided in 

the 1979 second budget resolution for additional spending actions not 

yet acted upon by the Congress, except for an extension of antirecession financial assistance. The CBO current policy estimates 

include the estimated 1980 outlay effects of the second resolution 

allowances for additional spending actions in 1979. These allowances 

include additional funds for energy, natural resources and environment, transportation, education, and health programs as well as for 

supplementary fiscal assistance or an extension of anitrecession 

financial assistance to state and local governments. The House 

Budget Committee also included an allowance of $0.7 billion in 

budget authority in 1979 for public works which would have an 

estimated $0.3 billion effect on 1980 outlays. This conceptual 

difference between the OMB and CBO estimates amounts to about $3 

billion for 1980. 

o The OM B estimates also differ in some respects from CBO estimates 

on the definition of current policies or services for individual 

programs. For example, the OMB current services estimate of 

federal pay raises for 1980 include a catch-up for the 5.5 percent pay 

cap imposed on the 1979 pay raises, whereas the CBO current policy 

39 
estimates do not. The OMB estimates also include the effects of 

administrative actions to prevent waste, fraud and abuse in various 

benefit programs, such as medicare and medicaid. These effects 

have not yet been included in the CBO estimates, except for 

programs in which these can be found in actual spending patterns. 

There are further estimating differences on what outlays would result 

under current law in 1980 for such programs as disaster loans. These 

different treatments account for $2 billion of the difference between 

the CBO and OMB estimates. 

TABLE 18. MAJOR DIFFERENCES BETWEEN CBO CURRENT POLlCY 

ESTIMATES FOR FISCAL YEAR 1980 OUTLAYS AND OMB 

CURRENT SER VICES ESTIMATES: IN BILLIONS OF DOLLARS 

CBO Current Policy Estimate 

OMB Current Services Estimate 

Difference 

Major Differences 

Economic assumptions 

Discretionary inflation adjustment 

Estimated impact of allowances in 

2nd. Con. Res. for additional 

spending actions in 1979 

Other estimating differences 

Total Difference 

President's 1980 Spending Proposals 

551.5 

536.1 

15.4 

6.0 

4.3 

3. 1 

2.0 

15.4 

Although there are a few proposed increases above current policy 

levels (such as lifting the authoriziation ceiling for food stamps), the 1980 

budget generally proposes to hold federal spending at or below current 

policy levels. The CBO estimate of current policy outlays for national 

defense includes 3 percent real growth, resulting from past appropriations 

for weapons procurement. Therefore, the President's proposed 3 percent 

40 
real growth in outlays for national defense does not represent a significant 

change from curent policy. As shown in Table 19, some of the major cuts 

from current policy proposed in the Administration's 1980 budget are: 

o Lower spending for the Comprehensive Employment and Training 

Act (CETA) employment and training programs ($3.1 billion), 

primarily a result of reducing the number of public service jobs 

from 625,000 to 467,000 by the end of 1980. Under CBO 

economic assumptions, with unemployment rising to 6.7 percent 

by the fourth quarter of calendar year 1979 and remaining at this 

level during 1980, the CBO current policy estimate for fiscal year 

1980 assumes that the number of public service jobs would 

increase to 725,000 by the end of the year. 

o Reduced spending for medicare and medicaid ($2.3 billion), 

primarily as the result of savings from proposed legislation for 

hospital cost containment and other cost-saving legislative proposals and administrative actions. The Administration's proposed 

new child health assessment program and extension of medicaid 

coverage to low-income pregnant women were assumed for the 

second budget resolution for 1979, so an allowance for these 

proposals is included in the CBO current policy estimates for 

1980. 

o Holding the October 1, 1979 pay raise for federal employees to 

5.5 percent rather than the 7.6 percent increase assumed for the 

CBO 1980 current policy estimates (for a savings of $1.4 billion) 

or the 10.25 percent increase assumed by OMB for its current 

services estimate which includes a catch up from the 5.5 percent 

pay cap last year (for a savings of $3.0 billion). 

o Reducing expenditures for national forests, conservation of agricuI tural lands, operation and development of recreational resources, and other natural resources and environment programs 

($0.9 billion). 

o Limiting the authority to make emergency farm disaster loans to 

the Farmers Home Administration (FHA) and instituting a requirement that firms seeking disaster loan assistance from the 

Small Business Administration (SBA) must first be denied loan 

assistance by private lenders ($0.8 billion). 

41 
o Cutting the level of short-term export credit provided by the 

Commodity Credit Corporation ($0.8 billion). 

o Cutting certain social security benefits, including eliminating the 

$255 lump-sum death benefit, phasing out college aid for survivors, terminating the parent's benefit once the youngest child 

reaches age 16 (rather than age 18), eliminating the minimum 

benefit for new recipients, and other legislative cost-savings 

proposals for social security benefits ($0.6 billion). 

Chapter IV provides further details on these and other changes from current 

spending policy. 

FEDERAL CREDIT ACTIVITIES 

The President's 1980 budget proposes a new control system for 

federal credit activities, fulfilling a pledge contained in the 1979 budget. 

The budget also contains new and expanded information about federal credit 

programs, including a separate schedule in the appendix reporting the status 

of loan guarantee authority for each budget account or fund having such 

authority. 

Federal lending and loan guarantees are becoming an increasingly 

important means of providing government services. The total volume of 

new loans and loan guarantees by the federal government, including those by 

off-budget entities, is expected to be $107.4 billion in fiscal year 1980, an 

increase of 30 percent above the actual level of new loans in fiscal year 

1978. Outstanding loans and loan guarantees are estimated to total $391.4 

billion by the end of fiscal year 1980. 

While plans for direct and guaranteed loans under individual federal 

credit programs are reviewed each year during the budget process, there is 

no systematic mechanism in the Congress or the executive branch for 

reviewing the volume of total federal credit activity. Consequently, there 

is no systematic way to consider the resource allocation effects of loans and 

loan guarantees, nor the reasonableness of the total volume. It has become 

clear that, if the government wishes to allocate efficiently its credit 

resources and to coordinate that allocation with its fiscal policy and direct 

expenditures, it must exercise control over federal credit activities in a 

manner similar to that for direct spending activities. 

42 
TABLE 19. 1980 CURRENT POLICY OUTLAYS AND ADMINISTRATION'S 

PROPOSED CHANGES: IN BILLIONS OF DOLLARS 

CBO CBO Estimate 

Current of President's Difference 

Policy Request 

National Defense 

Military and civilian 

pay raises 3.1 2.2 -0.9 

DoD operations and 

investment 119.5 120.4 0.9 

Other national defense 2.7 2.8 0.1 

Subtotal 125.3 125.4 ------o:T 

Human Resources 

CET A employment and 

training programs 12.7 9.6 -3.1 

Education programs 14.5 13.9 -0.6 

Other function 500 7.6 7.3 -0.3 

Medicare and medicaid 48.4 46.1 -2.3 

Other health programs 9.3 8.9 -0.3 

Social security 117.3 116.7 -0.6 

Food stamps 6. 1 7.5 1.4 

Real wage insurance 0.0 0.3 0.3 

Other income security 60.8 60.8 a/ 

Veterans' readjustment benefits 2.6 2.3 -0.3 

Veterans' hospital and 

medical care 6.4 5.8 -0.5 

Other veterans' benefits 

and ser vices 12.6 12.5 -0. 1 

Subtotal 298.2 291.6 -6.6 

Net Interest 46.0 45.2 -0.8 

All Other 

Natural resources and 

environment 12.8 11.9 -0.9 

Farm price supports 3.4 2.6 -0.8 

Commerce and housing credit 4. 1 3.4 -0.7 

SBA disaster loans 0.8 a/ -0.8 

Antirecession fiscal assistance 0.5 0.0 -0.5 

Civilian agency pay raises 1.4 0.9 -0.5 

All other, net 59.0 59.0 a/ 

Subtotal 82.0 77 .8 -4.2 --

Total 551.5 540.0 -11. 5 

~/ Less than $50 million. 

38-66' 0 -10- 5 
The President's proposed credit control system is based on annual 

limitations on gross lending for both direct lending and loan guarantee 

programs. These credit program limitations are proposed in the President's 

budget for each individual credit program and for the total for all credit 

programs. The proposal envisions that the Congress would set aggregate 

targets and ceilings on credit program limitations in the Congressional 

budget resolutions. Binding limitations on individual programs would be set 

in the regular annual appropriations acts. In essence, then, the President's 

proposal would establish a separate credit section in the budget, in which 

limitations on credit programs would be enacted separately from but 

concurrently with regular appropriations and spending decisions. 3/ 

The President's credit control proposal directly addresses the issue of 

controls on gross new lending activity. It does not, however, address various 

proposals to change the budgetary treatments of particular credit activities. 

Two budgetary practices that have generated controversy are counting the 

sales of certificates of beneficial ownership as loan repayments instead of 

as borrowing by the issuing agency, and not reflecting in the unified budget 

totals the conversion of agency guarantees of lending into direct federal 

lending through Federal Financing Bank purchases of guaranteed loans. 

Combined they cause unified budget totals in the President's budget to be 

understated by $10.2 billion. This $10.2 billion is, instead, counted in the 

outlays of the Off-budget Federal Financing Bank. Explanations of these 

two practices and discussions of alternative budgetary treatments can be 

found in two papers to be published by CBO shortly. 4/ 

~/ The President'S proposal for a credit control system will be spelled 

out in a legislative proposal to be transmitted to the Congress later 

this year. The reasons for a credit control system and an explanation 

of various control alternatives, including a separate credit section in 

the budget, are discussed in greater detail in Loan Guarantees: 

Current Concerns and Alternatives for Control (CBO: August 1978). 

'if See "Loan Asset Sales: Current Budgetary Treatment and Alternatives" and "The Federal Financing Bank: A Primer" in Loan 

Guarantees: Current Concerns and Alternatives for ControTl"A 

Compilation of Staff Working Papers) (forthcoming). 

44 
CHAPTER IV. THE BUDGET BY FUNCTION 

This chapter analyzes the President's spending proposals for fiscal 

year 1979 in each major functional category. The functional classification 

is used as the basis for discussing national budget priorities in the deliberations by the Congress on the annual budget resolution. The functional 

classifications presented in the President's 1980 budget have not changed 

significantly from those used for the 1979 budget. 

The Congressional Budget Office (CBO) estimates of the President's 

budget proposals for both fiscal years 1979 and 1980 are preliminary 

adjustments of budget authority and outlay estimates using CBO economic 

assumptions (see Chapter I) and alternative programmatic assumptions 

where relevant. 

The CBO estimates of 1980 current policy spending are described in 

Chapter III and in the recent C BO report, Fi ve-Year Budget Projections and 

Alternative Budgetary Strategies for Fiscal Years 1980-1984. 

It should be noted that in the 1979 columns containing the President's 

latest request and the CBO estimate of the President's request in the 

following tables, the cost of the October 1, 1978 pay raise is shown in the 

allowances function rather than distributed by function and progam as is 

done in the President's printed 1979 budget proposals. The cost of the 

anticipated federal employee pay raise for October 1, 1979 is shown in the 

allowances function in all 1980 estimates. 

45 
NATIONAL DEFENSE (050) 

This function includes programs in Department of Defense--Military 

that provide for the pay and allowances for military personnel, the maintenance of forces, construction of military facilities, research and development, and the procurement of support and major combat equipment. It also 

provides funding for atomic energy defense activities and various defense 

related activities such as the Intelligence Community Staff, Renegotiation 

Board, and Selective Service System. 

Function Totals: In BiHions of Dollars 

1979 Estimates 1980 Estimates 

----"-

2nd Pres. CBO CBO Pres. CBO 

Con. Latest Estimate Current Budget Estimate 

of Pres. of Pres. Res. Request Request ~ Policy Request Request ~ 

Budget 

Authority 127.0 127.9 127.9 137.4 138.2 138.2 

Outlays 112.4 114.5 113.7 125.3 125.8 125.4 

~/ Preliminary, subject to change. 

The President has assured NATO that the United States will honor its 

commitment to increase defense spending by 3 percent in real terms, but 

there is some uncertainty about what the commitment means. The 

President's budget takes the NATO commitment to mean 3 percent growth 

in total defense outlays after allowance for inflation. The arithmetic is a 

bit confusing because the calculation of the real increase depends on the 

assumed inflation rate in 1980 and the fiscal year 1979 defense funding base. 

Using the Administration's 1979 base and their 1980 inflation assumptions the President's budget shows 1980 real growth in outlays of 3.3 

percent. Using CBO's more pessimistic inflation rate, the real outlay 

growth from the Administration's base would be only 1.7 percent in 1980. 

The President's budget requests 1.9 percent real growth for 1980 defense 

budget authority. Under CBO's forecast of inflation there would be no real 

growth implied in the Administration's 1980 budget authority request. 

46 
Budget authority is the primary indicator of new initiatives and 

policies in defense programs since about 90 percent of it is discretionary. 

On the other hand outlays are not as significant an indicator of future 

defense programs as is budget authority since only about 60 percent of each 

year's outlays are discretionary. The non-discretionary outlays are mainly 

the result of prior year decisions with respect to arms purchases that are 

being executed in the budget year. These non-discretionary outlays are the 

reason for the real growth in outlays shown in the President's budget. 

Summary of Major Programs--Function 050: In Billions of DolJars 

,~ _. ~ _., .'_w> "4 ~ _~ .. .. -~.-" .. -."-", ...... ,~--~-~ .... ~~~. ~ .. ,,_ .. __ .. ···~w·"" _ ~, __ "",",_.~ ... __ , • -.. ~,.~,.-.. -•... --,-.,~., 

FY 1979 FY 1980 

President's CBO President's 

Latest Current Budget 

Estimate Policy Request 

Research &: Development BA 12.8 13.1 13.5 

0 11.7 12.0 13.0 

Military Construction BA 2.5 2.5 2.2 

0 1.9 1.9 2.0 

Procurement BA 31.5 34.3 35.4 

0 22.5 26.4 25.7 

Operations &: Maintenance BA 37.5 39.9 40.2 

0 35.4 38.5 38.7 

Military Personnel BA 27.4 28.7 28.9 

0 26.9 28.2 28.4 

Retired Pay BA 10.3 11.4 11.5 

0 10.3 11.4 11.4 

Other BA 5.9 7.5 6.5 

0 5.8 6.9 6.6 

Total (Function 050) BA 127.9 137.4 138.2 

0 114.5 125.3 125.8 

The next two sections analyze the President's budget in terms of 

defense investment and operating programs. 

47 
INVESTMENT 

The development and procurement of new weapons and associated 

facilities is the primary area where there is real growth in the 1980 defense 

budget. Using the Administration's 1979 base and their economic assumptions, real growth in defense budget authority is 3.6 percent in 1980. Under 

CBO economic assumptions real growth in budget authority would be only 

2.2 percent. These rates include the 1979 supplemental budget authority in 

the President's budget. If that is excluded, the 1980 growth rate would be 

between 6 and 8 percent depending on inflation assumptions. This growth is 

primarily in defense procurement programs. 

The inflation assumptions from 1981 to 1984 also are important in 

evaluating the investment accounts since the funds appropriated in fiscal 

year 1980 wiJJ spend over the next five years and beyond. To the extent the 

President's budget underestimates inflation in these out years the Congress 

could be requested to provide for "cost growth" in the out years. If the CBO 

inflation estimates for the next five years are realized rather than those in 

the President's budget, the "cost growth" for 1980 investment appropriations 

in the out years would be about $2.1 biJJion. 

1979 Supplemental Request 

The President's 1980 budget submission is unique in that the President 

proposes to implement some of the basic investment decisions made in the 

development of the 1980 budget before the budget year begins. This is 

accomplished by incorporating in the 1980 budget submission, a large 1979 

supplemental for the investment appropriations. 

The Research and Development portion of the supplemental includes 

$523 miUion. More than half of this request is for the MX missile system 

($265 million). The President now proposes to begin full scale development 

of the MX missile. The balance of the request includes funds for the 

Pershing II missile, B-52 modification, ALCM and the Trident II missile. In 

the case of each of these weapons systems, their inclusion in the supplemental represents a recent decision to speed development. 

The procurement portion of the supplemental largely would be initial 

implementation of a Presidential decision to sharply increase funding of the 

nonstrategic portion of the Navy. Approximately two thirds of the $1.2 

biJ1ion procurement supplemental is for Navy shipbuilding. The request 

includes funds for a guided missile destroyer (~540 million), a guided missile 

frigate ($190 miJJion) and shipbuilding claims ($100 million). Most of the 
balance of the procurement supplemental is for NATO AWACS and urgent 

aircraft modifications and spare parts. The supplemental for military 

construction consists mostly of funds to offset the impact of dollar 

devaluation. 

Research and Development (R&D) 

The fiscal year 1980 R&D budget reflects the following: 

o Overall R&D funds in fiscal year 1980 reflect no real growth over 

the fiscal year 1979 level using the President's economic assumptions. However, using CBO economic assumptions, the R&D 

request reflects a 1.4 percent real decline in fiscal year 1980. 

o As a result of a basic Administration policy decision, funds for the 

technology base portion of the research and development budget 

in fiscal year 1980 increase by 7.3 percent in real terms over 

fiscal year 1979 using the President's economic assumptions. 

o The balance of the R&D budget is reduced lower R&D support for 

many new weapons systems that are now moving into fuJJ scale 

production. These systems include the F-16 and F/A-18 aircraft, 

the XM-l tank, the air launched cruise missile (ALCM) and the 

Patriot, Tomahawk and Trident I missiles. 

The major program initiative contained in the fiscal 1980 budget 

submission is the decision to begin full scale development of the expensive 

Air Force MX Inter-continental ballistic missile. This decision results in an 

increase of $265 million in fiscal year 1979 and a funding level of $675 

million in 1980 for the MX system. Although last year the administration 

deferrred funding for full scale development pending resolution of the basing 

question, part of the MX funding request is for continued study of alternate 

basing options for the MX missile. MX funding is projected to reach $1.2 

biUion in 1981 and total investment cost could be more than $20 bilJion. 

The fiscal year 1980 budget also includes increased funding for 

development of: the Trident II submarine launched ballistic missile; a new 

cruise missile carrier aircraft to supplement or fill the current role of the 

B-52; the Pershing II missile; a new strategic missile firing submarine; and a 

new attack submarine. 

49 
Military Construction 

The military construction budget authority request declines in both 

current and real dollars. This decline reflects a decision to defer the 

upgrade, replacement and modernization of existing facilities. 

The real decline is 23.6 percent using the Administration's 1979 base 

and 1980 inflation rates. The decline would be 25 percent using CBO 1980 

infla tion rate. 

Procurement 

In the fiscal year 1980 defense budget, if the real growth in budget 

authority were to be identified with one principal portion of the budget, it 

would be in procurement. Overall, procurement in fiscal year 1980 shows a 

real increase of 6.7 percent over the fiscal year 1979 level {including the 

supplemental request} using the President's economic assumptions. Using 

CBO economic assum ptions the real growth is 5.1 percent. 

In the Army, the major increases are for missiles and tracked combat 

vehicles. Funds for missiles in fiscal year 1980 increase $485 million or 63.5 

percent as a result of initial production of the Patriot Air Defense Missile 

and the General Support Rocket System (GSRS) and large increases in the 

production of the TOW antitank missile and the Roland air defense missile, 

as shown in the following chart: 

Patriot 

GSRS 

TOW 

Roland 

Number of Missiles Ordered 

1979 

o 

o 

9,600 

75 

1980 

155 

1,764 

12,865 

410 

Funds requested for Army weapons and tracked combat vehicles 

increase by 25 percent or $378 million. This increase is largely due to the 

introduction of a new family of armored combat vehicles, with substantially 

higher unit costs than the vehicles they replace as shown below: 

50 
New Combat Vehicles Ordered 

XM-l Tank 

Infantry Fighting Vehicle 

Cavalry Fighting Vehicle 

1979 

110 

o 

o 

1980 

352 

119 

89 

The fiscal year 1980 budget contains the funds for further increases 

in general purpose ships as well as funds for a strategic submarine deferred 

from 1979. The President's total new request for shipbuilding is $6.9 billion. 

($6.1 billion in the basic budget and $.8 billion is the supplemental) 

compared to the $3.8 billion approved for the original fiscal year 1979 

budget. 

This large increase can be attributed to 3 types of ships that were not 

approved by Congress in fiscal year 1979, but are now requested by the 

President, a CVV attack aircraft carrier ($1,617 million), a Trident 

submarine ($1,107 million) and an AEGIS destroyer ($820 million). The 

shipbuilding program is the largest single area of real growth in the entire 

defense budget. 

In the Marine Corps, procurement declines $72 million or 20 percent 

from the fiscal year 1979 funding level, as a result of sharp reductions in 

orders for radar equipment (-$27 million) and night vision devices (-$25 

million) and no further orders for tanks in fiscal year 1980 (-$20 million). 

In the Air Force, the largest increases over fiscal year 1979 are for 

missile procurement ($775 million or 51 percent) and aircraft procurement 

($787 million or 11 percent). 

Major items contributing to the missile procurement increase of $775 

million are: 

Expanded production of the ALCM ($27~ million) 

Space shuttle ($7~ million) 

Other space programs ($92 million) 

Special programs ($247 million) 

Strategic ballistic missiles ($~2 million) 

51 
In fiscal year 1980, funds requested for procurement of new aircraft decline 

slightly (-$99 million), while funds for modification of aircraft increase 

sharply ($587 million). More than half of this modification increase is for 

modification of the B-52 ($338 million) to become a cruise missile carrier. 

Other large increases are for the modification of the E-4 ($109 million) the 

C-5 ($70 million), the C-141 ($29 million) and the C-135 ($13 million). 

The most useful way to summarize the thrust of the procurement 

budget is to group the major Administration funding decisions by mission. 

The decisions are: 

Mission 

Naval Forces 

Strategic Forces 

NA TO Land Forces 

Major Funding Decision 

CVV aircraft carrier 

AEGIS destroyer 

Guided missile destroyer* 

Total 

Trident submarine 

Expanded ALCM production 

B-52 bomber modifications 

Total 

Expanded production of 

army missiles 

New family of combat 

vehicles 

Total 

Increases in 

Millions of Dollars 

1,620 

820 

540 

2,980 

1,110 

270 

340 

1,720 

490 

380 

870 

* Requested in fiscal 1979 supplemental. All other items in fiscal year 

1980 budget. 

OPERATIONS 

The fiscal year 1979 program supplemental includes about $444 

million for defense operations. Increased subsistence, quarters, and travel 

costs account for $120 million of this request while miscellaneous force and 

nonforce programs account for the remaining $323 million. 

Real growth of budget authority for defense operations in the 

President's request is about one percent or less under Administration or CBO 

economic assumptions. 

52 
Many of the modernization programs of recent years are beginning to 

be reflected .in the force levels both in quantity and quali ty. Preliminary 

CBO analysis shows that with the force programs approved through the end 

of the 95th Congress, the funding requirements in military personnel and 

operation and maintenance wi11 rise about $1.5 biUion by 1984 unless there 

are offsetting efficiencies. The increase in procurement funding requirements for training ammunition and spare parts could be significant also as a 

net 400 unit equipment aircraft and 67 ships (including 27 guided missile 

frigates and 22 attack submarines) are added to the force while two infantry 

divisions are mechanized. The force profile that was used in the analysis 

was derived from unclassified sources such as Congressional testimony and, 

although it may deviate from actual plans, it is clear that real growth in 

budget authority for defense operations could be required during each of the 

next fi ve years. 

Operations and Maintenance 

The fiscal year 1980 request for operation and maintenance contains 

approximately $300 million (Jess than 1 percent) real growth in budget 

authority. Among the increases over the 1979 budget is $285 million for the 

Civilian Health and Medical Program of the Uniformed Services 

(CHAMPUS). Prior to 1979 CHAMPUS payments were made when services 

were rendered; starting in 1979 they were made when billing was received. 

The big increase in the 1980 budget is the result of the transition between 

payment systems. 

The budget, also, includes $110 million for transportation and purchase of prepositioned materiel and $116 million for the overhaul of one 

more ballistic missile submarine than in 1979. Other increases include about 

$50 to $60 million each for unit training, logistics support, deployment of 

the Trident I sea-launched ballistic missile, JCS exercises, and weapon 

systems maintenance. 

Offsetting decreases are in the general areas of real property 

maintenance, depot maintenance, and civilian personnel. The net decrease 

in civilian manpower is 9,000 employees and is made up of a 13,000 decrease 

made possible by expected efficiencies and use of contracted supp'ort and an 

increase resulting from the transfer into DoD of approximately 4,000 

Panama Canal employees. 

53 
Military Personnel 

From fiscal year 1979-1980 the President's budget projects an 

increase of $207 million in military personnel appropriations, which is about 

the amount CBO estimates is necessary to cover inflation. Active duty end 

strength is projected to remain at 2,050,000 for fiscal year 1980, the same 

as in 1979. The budget provides, however, $58.7 million for an additional 

5,200 manyears in fiscal year 1980. 

The budget estimates savings of $33 million for elimination of administration duty pay and dual compensation of reservists, two proposals which 

were rejected by the Congress last year. 

The budget also projects a reduction of about $20 million for reduced 

reserve average strength with a 38,000 manyear reduction in the Naval 

Reserve being partially offset with increases of a 12,000 manyears in the 

Army Reserves, and 3,000 manyears in the Army National Guard, 11,000 

manyears in the Army Reserves, and 3,000 manyears in the Air Force 

Reserves. There is also an increase of $70 million in full time active duty 

support for the Reserves. The reduction in the naval reserve was rejected 

by the Congress last year. 

The budget provides increases of $40 million for overseas station 

allowances and $50 million for enlistment/reenlistment bonus program for 

active and reserve forces. The budget also includes $18 million to reimburse 

the airlift industrial fund for the transportation of naval reservists as one 

alternative to procuring additional reserve navy airlift. 

Retired Pay and Compensation Issues 

The retired pay account funds the retirement benefits paid during the 

fiscal year to all military personnel who will have retired before the end of 

that year; it does not anticipate the retirement costs of current military 

personnel in the future. Military retirement benefits are not funded on an 

accrual basis. While it does not appear in this request, the President will 

propose legislation to: 

o provide by law for an independent assessment of annual accrued 

retirement and unfunded liabill ty; 

o establish a trust fund from which to pay military retirees; 

54 
o fund accrued military retirement benefits in the military personnel appropriations; 

o provide for appropriation of funds to liquidate the present unfunded liabili ty; and 

o display accrued costs in the national defense function and the 

payments to retirees in the income securi ty function. 

The Administration will also propose a major restructuring of the 

military retirement system. The proposed changes could increase benefits 

for those who leave the military with fewer than 20 years of service, while 

decreasing benefits for retirees with 20 or more years of service. These 

changes could eventually result in substantial cost savings, but they are 

likely to increase outlays during the next few years. 

Once again, the President includes a proposal to reform the wage 

board pay system by revising the step structure in each pay grade, by 

repealing the Monroney amendment, which requires the use of out-of-area 

wage data in federal wage surveys under certain conditions, by changing the 

night shift differential to a fixed amount per hour rather than the 

percentage now used, and by broadening the wage surveys to include state 

and local governments. Passage of this legislation would result in a full year 

savings of about $81 million in 1980. 

The President reduces federal pay to over 5 percent below comparability with the private sector by capping the pay raise for military and 

civilian employees at 5.5 percent for the second consecutive year. The 5 

percent reduction amounts to about $2.1 billion for defense employees 

alone. The pay cap could cause recruitment and retention problems for 

enlisted personnel at a time when the Department of Defense is finding it 

necessary to offer enlistment and reenlistment bonuses to achieve its 

military manpower program. 

The imposition of a stringent pay cap for the second straight year 

probably means a significant change in the comparability system for 

adjusting the wages of federal general schedule employees and military 

personnel since the 1981 pay raise would be 13 percent amounting to over 

$5.6 billion in defense alone. 

55 
ESTIMATING DIFFERENCES 

The next table shows the differences between the Administration's 

estimate and CBO's estimate of budget authority and outlays based upon the 

President's program for fiscal years 1979 (including the full supplemental 

request) and 1980. There are no significant differences in the estimates of 

budget authority since for the purpose of this analysis CBO has assumed the 

5.5 percent 1980 pay cap included in the 1980 budget. The cap results in a 

savings over CBO's current policy estimate (7.6 percent) of about 900 

million. 

COO does not expect a shortfall in defense outlays in either 1979 or 

1980. For fiscal year 1979 the CBO estimate for outlays is about $750 

million less than the Administration's of which $400 million is attributable 

to differences in estimating the spendout of the program supplemental. 

CBO assumed that the supplemental would be enacted in full and begin 

spending during the last quarter of fiscal year 1979. Although certain 

elements like the retired pay request would spend at nearly 100 percent 

other major pieces (R&D and Procurement) are assumed to spend at about 

25 percent of the normal first year amount. As a result, the 1980 spendout 

of the supplemental is about $100 million higher in the CBO estimate than in 

the Administration's. 

The remaining differences in both fiscal years 1979 and 1980 are a 

function of estimates of spendout rates for new budget authority and the 

speed with which unexpended balances will liquidate. The estimates shown 

in Table 4 are aggregated from lower levels of detail where no general 

patterns for the differences need exist except for the revolving and management funds where CBO estimates are both zero and the difference, then, is 

equal to the Administration's estimate. 

56 
Differences Between Administration and eBO Outlay Estimates: In Billions 

of Dollars 

1979 1980 

Budget Budget 

Authorit~ Outla~s Authorit~ Outla~s 

President's Latest Request 127.9 114.5 138.2 125.8 

Operation & Maintenance 0.6 0.2 

Procurement -0.5 0.3 

Research and 

Development -0.4 -0.5 

Revolving Funds -0.3 -0.1 

Atomic Energy Defense -0.1 -0.3 

Other -0.1 -0.1 

eBO estimate of 

President's Request ~/ 127.9 113.7 138.2 125.4 

~7 Preliminary, subject to change. 

57 
INTERNATIONAL AFFAIRS (FUNCTION 150) 

The international affairs function includes foreign economic and 

financial assistance, military assistance, activities associated with the 

conduct of foreign affairs, foreign information and exchange activities, and 

international financial programs. 

Function Totals: In Billions of Dollars 

1979 Estimates 1980 Estimates 

2nd Pres. CBO CBO Pres. CBO 

Estimate Estimate Con. Latest of Pres. Current Budget of Pres. Res. Request Request ~/ Policy Request Request ~ 

Budget 

Authority 12.6 13.6 12.9 13.5 13.7 13.6 

Outlays 7.1 7.3 7.3 7.7 8.2 8.1 

a/ Preliminary, subject to change. 

The President's 1980 budget includes real growth in bilateral and 

multilateral assistance, migration assistance, and contributions to international organizations and programs. Major programs of the Export-Import 

Bank are expected to grow in real terms. The request for grant military 

assistance program is cut in half to $110 million. A new Foundation for 

International Technical Cooperation is proposed with an initial appropriation 

of $25 million. Other programs are continued at roughly their current level. 

The President is proposin~ program supplementals of $275 million to 

fiscal year 1979. They include S60 million for a contribution to the International Tin Council, S63 million for migration and refugee assistance, $58 

million to United Nations and affiliated agencies, $40 million for UN 

peacekeeping operations in Lebanon, and other smaller programs. 

Highlights of major programs are discussed in the following sections: 

58 
Summary of Major Programs--Function 1.50: In Billions of Dollars 

FY 1979 FY 1980 

President's CBO President's 

Latest Current Budget 

Estimate PoHcy Request 

Security Assistance BA 1.9 2.0 2.0 

0 2.1 1.9 2.0 

Multilateral Assistance SA 2.5 3.0 3.6 

0 0.9 0.9 1.0 

Agency for International BA 1.5 1.7 1.8 

Development 0 1.2 1.2 1.3 

PL 480 Food Aid BA 0.8 0.6 0.7 

0 1.1 1.0 1.0 

Military Assistance BA 0.7 0.7 0.6 

0 0.6 0.5 0.5 

Foreign Military Sales BA 2.4 1.9 2.2 

Trust Fund 0 -0.1 -0.2 0.0 

Export-Import Bank BA 0.0 1.7 0.8 

0 0.1 0.4 0.6 

International Monetary Fund BA 1.8 0.0 0.0 

Supplementary Facility 0 0.0 0.0 0.0 

Exchange Stabilization Fund BA 0.0 0.0 0.0 

0 0.0 0.0 -0.2 

Other BA 2.0 1.9 2.0 

0 1.4 2.0 2.0 

Total Function 150 BA 13.6 13.5 13.7 

0 7.3 7.7 8.2 

59 

33-604 0 .. 7f! - G 
SECURITY ASSISTANCE 

The Economic Support Fund provides budget support and development 

assistance to countries of political importance to the United States. Of the 

$1.9 billion appropriated in fiscal year 1979, $1.8 billion went to Israel, 

EgyptJ Jordan and Syria. The 1980 request of $2.0 billion maintains the 1979 

nominal level for Israel and Egypt while reducing the level requested for 

Jordan and Syria by $70 million. The reduction is offset by an increase in 

request for Turkey, Portugal and Southern Africa of $153 million. 

CONTRIBUTIONS TO MULTILATERAL DEVELOPMENT BANKS 

The $3.6 billion budget request for fiscal year 1980 reflects a 44 

percent increase over the level appropriated for fiscal year 1979. $1.6 

billion of the request is for scheduled contributions under current replenishments (international agreements for increasing the financial resources of 

the banks); $1 billion represents contributions for new replenishments for 

which authorizing legislation will be sought. The $1 billion increase in 

budget authority from the $2.5 billion appropriated in fiscal year 1979 is due 

to the request for full appropriation of the "arrearages" (the amount by 

which appropriation levels have fallen short of authorization schedules) 

amassed over the past three years. The request, together with the levels 

appropriated for fiscal year 1979, is described in the following table: 

60 
Funding for Multinational Development Banks: 

By Fiscal Years, in Millions of Dollars 

FY 1979 Fiscal Year 1980 

Authorization 

Scheduled Required Requested ~/ Total 

IBRD 163.1 522.9 503.0 1025.9 

IDA 1258.0 800.0 292.0 1092.0 

IFC 40.0 33.4 33.4 

IDB 588.7 687.3 687.3 

FSO 175'.0 175.0 150.3 325.3 

ADB 194.5 203.6 44.6 248.2 

ADF 70.4 60 Ill. 3 171.3 

AFDF 25.0 41.7 41.7 

Total 

of which: 2514.6 1619.9 1015.3 989.9 3625.1 

Paid in 1631.5 966.0 379.5 497.1 1842.6 

Callable 883.2 653.9 635.8 492.8 1782.5 

a/ These estimates were also requested for fiscal years 1978 and 1979 but 

were not appropriated. " 

The request for fiscal year 1980 includes approximately $1.8 billion in 

callable capital and the remaining $1.8 billion in paid-in capital and contributions for development loans with very low interest rates (soft loans). 

Callable capital, which serves as a guarantee of the institutions· borrowing 

in private markets, has never been drawn and is estimated not to outlay. 

Contributions to the "soft loan" affiliates of the banks, once made, are 

committed for particular development projects. These institutions will draw 

funds from Treasury as needed for particular development projects and 

therefore outlays will occur over a period of years. Outlays in fiscal year 

1980 from the $3.6 billion request are estimated to equal $397 million with 

$626 million estimated to outlay from prior year appropriations. 

61 
CBO's current policy estimate differs from the CBO estimate of the 

budget request primarily due to the treatment of arrearages. Given the 

history of appropriating total authorization levels over time, current policy 

assumes the arrearages will be made up over a two year period. Current 

policy includes new replenishment levels adjusted for inflation where an 

existing replenishment is completed. No new replenishment level is assumed 

where a replenishment is still underway. 

AGENCY FOR INTERNATIONAL DEVELOPMENT 

Bilateral development assistance programs administered by the 

Agency for International Development support the efforts of less developed 

countries to meet the fundamental needs of their people. The request for 

fiscal year 1980 of $1,762 million is an increase of $218 million, or 15.8 

percent. The largest increase of 19.2 percent is in the functional development assistance and Sahel development programs. This represents real 

growth of over 11 percent for these programs. Operating expenses in fiscal 

year 1980 grow by 5.5 percent over the level appropriated in 1979 for no 

real growth. 

PUBLIC LAW 480 (FOOD AID) 

The Agriculture and Related A~encies Appropriation Act for fiscal 

year 1979 placed a program ceiling of 51,413 million dollars on the P.L. 480 

program in fiscal year 1979. The President is requesting the ceiling be 

raised by $59 million to permit the shipment of 300 thousand metric tons of 

commodities, under agreements signed in fiscal year 1978,in addition to full 

programming of 6.4 million metric tons in fiscal year 1979. The President's 

1980 request of $1,399 million assumes a programming of 6.6 million metric 

tons with slightly lower commodity costs projected in fiscal year 1980. 

Reflows of $383 million and $406 million in fiscal years 1979 and 1980 

respectively are offset against both budget authority and outlays. 

MILIT AR Y ASSISTANCE 

The Foreign Assistance Act of 1979 placed a limit of $210 million on 

spending authority on the grant military assistance program (MAP) in fiscal 

year 1979. The President is requesting that ceiling be raised to $243 

million. The 1980 request cuts the MAP account in half to $110 million. 

Foreign military credit sales and international military education and 

training are kept to the same nominal level as 1979. 

62 
FOREIGN MILITARY SALES (FMS) TRUST FUND 

Estimates of trust fund obligations, receipts, and outlays are surrounded by considerable uncertainty under the best of circumstances. The 

recent events in Iran have made these estimates especially tentative. 

Neither the President's nor CBO's estimates make any allowances for 

changes in the Iranian FMS program. 

Implicit in the President's estimates are $14.0 billion of new acceptances in 1980. The level implicit in the CBO current policy projection is 

$14.4 in 1980. The budget estimate of net outlays reflects the intent of the 

managers of the trust fund to draw down the balance of cash in the trust 

fund over the next few years to a level more consistent with quarterly cash 

requirements for disbursements. The CBO estimates do not reflect this. 

THE EXPORT-IMPORT BANK 

No budget authority is estimated to be required to support the 

Export-Import Bank activity in fiscal year 1979 as unobligated balances, 

accumulated during fiscal years 1977 and 1978, are drawn upon and 

depleted. In fiscal year 1980, $829 million of budget authority is requested. 

This will support a 12 percent nominal growth in the level of credit 

authorizations; the guarantee and insurance program is estimated to grow by 

44 percent. The amount of budget authority contained in the ~residentfs 

request reflects a new accounting procedure whereby 25 percent of guarantees and insurance is no longer included as a component of required 

budget authority. Under the prior accounting methodology, CBO estimates 

that budget authority would total $1.8 billion for fiscal year 1980. 

Outlays, which are defined as disbursements of direct credit less 

repayments and net income, increase from $0.1 billion in fiscal year 1979 to 

$0.6 billion in fiscal year 1980 reflecting the shift from slower to faster 

disbursing credits. In fiscal year 1980, slower-disbursing credi ts authorized 

in previous years are beginning to spend at the same time that fasterdisbursing credits authorized currently are spending. 

The CBO current policy estimate of budget authority continues past 

accounting practices. The assumptions underlying the COO current policy 

estimate for fiscal year 1980 differ slightly from those in the budget 

estimate; current policy assumes a lower level of credit authorizations. The 

current policy level for 1980 is derived by applying the GNP deflator to the 

63 
1979 level of authorizations. The President's loan authorization request is 

. consistent with the President's export policy announced in September 1978 

which promised to increase the level of loans authorized in fiscal year 1980 

by $500 million. 

THE EXCHANGE STABILIZATION FUND 

The Exchange Stabilization Fund (ESF) was created by the Gold 

Reserve Act of 1934 which authorized the Secretary of Treasury to deal in 

gold, foreign exchange, credit instruments and securities to stabilize the 

exchange value of the dollar. Net earnings, defined as gains and losses on 

foreign exchange transactions plus interest earned on special drawing rights 

(SDRs) and securities held less administrative expenses, have accrued to the 

Fund. 

For budgetary purposes the ESF was classified as a deposit fund until 

fiscal year 1978 when it was reclassified as an off-budget federal entity. 

The Exchange Stabilization Fund Amendments of 1978 (Public Law 95-6l2) 

provided that the ESF is no longer available for administrative expenses and 

authorized the appropriation of $24 million for this purpose. The Act will 

take effect pursuant to appropriation Acts; a supplemental is requested in 

fiscal year 1979. Although the administrative expenses will be classified in 

function 800, the Administration is now recording interest collections of the 

ESF on Treasury securities as outlays in the international affairs function. 

The remaining component of ESF activity, gains and losses in foreign 

exchange transactions, are once again counted as a deposit fund; no outlays 

are recorded even as a memorandum item in the President's budget. 

Because Public Law 95-612 has not yet taken effect, no estimate of 

this account was included in the Second Concurrent Resolution and none 

appears in CBO current policy estimate. 

64 
GENERAL SCIENCE, SPACE AND TECHNOLOGY (FUNCTION 250) 

This function includes the general science and basic research programs of the National Science Foundation (NSF) and the Department of 

Energy (DOE), and the space programs of the National Aeronautics and 

Space Administration (NASA). 

Function Totals: In Billions of Dollars 

1979 Estimates 1980 Estimates 

2nd Pres. CBO COO Pres. CBO 

Con. Latest Estimate Current Budget Estimate 

of Pres. of Pres. Res. Request Request ~ Policy Request Request ~/ 

Budget 5.2 5.4 5.4 5.6 5.7 5.7 Authority 

Outlays 5.0 5.2 5.2 5.4 5.5 5.5 

~/ Preliminary, subject to change. 

The President's budget authority request for fiscal year 1980 represents an increase of almost $300 million (about 5.5 percent) over his 1979 

estimate. Almost half of that additional funding is for the NSF and DOE 

research programs, which would result in a 10 percent increase over their 

1979 funding levels and an 8 percent increase in outlays. The proposed 1980 

budget authority for both agencies exceeds the projected current policy 

levels by almost 2 percent, indicating an increase in real resources available 

for these programs. 

The remainder of the proposed funding increase is concentrated in 

NASA's space science, applications, and technology activities, which are 

targeted for a 15 percent increase in budget authority (up $185 million) and 

a 13 percent increase in outlays (up $151 million). This area encompasses 

unmanned space exploration and the development of space technology and 

its practical applications. Projects targeted for large increases include 

65 
development of a space telescope and work on the Jupiter orbiter and probe 

mISSIon. If the President's request is enacted, 1980 budget authority and 

outlays will represent an increase of more than 30 percent in two years, 

reflecting an increasing emphasis on this portion of the space program. 

The President is also requesting a supplemental appropriation of $185 

million for fiscal year 1979 for additional engineering and design work on 

the NASA space shuttle, which is currently scheduled for its first flight in 

November 1979. The Administration believes that this supplemental, which 

would require additional authorizing legislation, is necessary to avoid a 

delay of six to twelve months in the first flight date. If the proposed 

supplemental is enacted, the fiscal year 1979 budget authority for space 

flight will total $2.4 billion, $80 million more than the 1980 request, which 

provides for no new flight starts and no funding for a fifth space shuttle. 

66 
ENERGY (FUNCTION 270) 

This function includes the major energy programs of the federal 

government. These programs focus on energy research and development, 

conservation, regulation, emergency preparedness, and production. The 

Department of Energy (DOE) is responsible for most of these programs. 

Several other agencies, including the Tennessee Valley Authority (TVA),the 

United States Geological Survey, and the Environmental Protection Agency, 

also perform activities that fall within this function. 

Function Totals: In Billions of Dollars 

1979 Estimates 1980 Estimates 

2nd Pres. CBO COO Pres. CBO 

Con. Latest Estimate Current Budget Estimate 

of Pres. of Pres. Res. Request Request ~ Policy Request Request ~/ 

Budget 8.7 7.5 7.6 6.0 19.5 19.7 Authority 

Outlays 8.1 8.6 7.8 7.8 7.9 7.6 

~/ Preliminary, subject to change. 

The President is requesting a substantial increase in budget authority 

for function 270, with a proposed increase from $7.5 billion in fiscal year 

1979 to $19.5 billion in 1980. Outlays, on the other hand, are projected to 

drop from $8.6 billion to $7.9 billion. However, this comparison of 1979 and 

1980 levels is greatly affected by substantial changes in two major accounts, 

and by a projected increase in offsetting receipts. First, the fiscal year 

1980 budget authority includes an additional $15 billion for the TVA fund. 

This new budget authority is requested in the form of an increase in the 

agency's limitation on borrowing. This is not expected to have an impact on 

fiscal year 1980 spending. Second, the 1980 request includes only $8 million 

in budget authority for the Strategic Petroleum Reserve, because the 

unexpended balances available for this program are sufficient to cover the 

planned 1980 program level. (The fiscal year 1979 appropriation was 

approximately $3 billion.) The President is projecting outlays for this 

program to drop by about $400 million in 1980, because less additional oil 

storage capacity is projected to be available. Third, the 1980 request 

67 
projects significantly higher receipts in fiscal year 1980 than in fiscal year 

1979 (an increase of approximately $300 million from the sale of power, the 

Naval Petroleum Reserve, and a proposed spent nuclear fuel revolving fund). 

For the remaining activities in the energy function, excluding the requested 

borrowing authority for the spent nuclear fuel revolving fund, the 1980 

budget request of $5.5 billion represents a decrease of about 3 percent from 

the 1979 level. The President estimates that outlays for these other 

activities will be $7.2 billion in fiscal year 1980, about the same as his 1979 

estimate. 

The President's request for fiscal year 1980 includes a slight reduction in budget authority for energy research and technology (down $42 

million), a 17 percent decrease in new funding for energy conservation (down 

$116 million), and a 17 percent increase in budget authority requested for 

regulation and information (up $47 million). Outlays for research and 

technology are estimated to increase slightly, while substantial outlay 

increases are projected for conservation (up $155 million), regulation and 

information activities (up $75 million), reflecting the spend out from the 

large funding increases in previous years and the impact of the National 

Energy Act passed in the 95th Congress. These increases in outlays, 

however, are offset by a projected reduction of outlays in the power 

marketing program of approximately 15 percent ($240 million) in fiscal year 

1980. 

The request also indicates several changes in research emphasis. 

Budget authority for solar energy research is 13 percent above the amount 

allocated in fiscal year 1979. In contrast, funds requested for nuclear 

fission are 14 percent below the fiscal year 1979 level. No funds are 

requested for the Clinch River Breeder Reactor, but the budget authority 

request for breeder reactor research, $590 million, accounts for approximately 57 percent of nuclear fission research request. This is, however a 

reduction of 20 percent ($152 million) below the 1979 level. The funding 

request for magnetic fusion is 2 percent above the fiscal year 1979 request, 

while fossil energy research funding remains roughly unchanged. 

As noted above, only $8 million in budget authority is requested for 

the Strategic Petroleum Reserve, although the President is projecting 

outlays of approximately $2 billion. The Department expects to have 248 

million barrels of oil in storage by the end of calendar year 1980. (CBO is 

currently projecting 230 million barrels by that time. Neither estimate 

reflects any potential impact of oil supply shortages that might result from 

a prolonged drop in Iranian oil production. While none of the oil to be 

acquired for the reserve is from Iran, a shortage might result in a diversion 

of reserve oil to other demands.) The President's estimate also assumes that 

the Congress will approve a $745 million reprogramming request early in the 

68 
Summary of Major Programs--Function 270: In Billions of Dollars 

FY 1979 FY 1980 

President's CBO President's 

Latest Current Budget 

Request Policy Request 

Strategic Petroleum Reserve BA 3.0 0.0 * 

0 2.4 1.6 2.0 

Offsetting Receipts-- BA -1.0 -1.0 -1.2 

Energy Supply 0 -1.0 -1.0 -1.2 

Requested TVA Borrowing BA 0.0 0.2 15.0 

Authority 0 0.0 0.0 0.0 

Proposed Spent Fuel BA 0.0 0.0 0.3 

Storage Program 0 0.0 0.0 -0.1 

Subtotal--SPR, Receipts, BA 2.0 -0.8 14.1 

and Initiatives 0 1.4 0.6 0.7 

Other Energy Activities: 

Energy Supply BA 4.0 5.0 3.9 

0 5.9 5.5 5.7 

Energy Conservation BA 0.7 0.9 0.6 

0 0.5 0.8 0.7 

Energy Information, Policy, BA 0.9 0.9 0.9 Regulation, and Other 0 0.9 0.9 0.9 Receipts --

Subtotal--Other Energy BA 5.5 6.8 5.4 

Activities 0 7.2 7.2 7.2 

-- T otal--Function 270 BA 7.5 6.0 19.5 

0 8.6 7.8 7.9 

* less than $50 million 

69 
session, allowing a shift of funds from oil acquisition to the development of 

storage capacity. Appropriations through fiscal year 1980, assuming this 

reprogramming, will provide funding to reach a storage capacity of 608 

million barrels of oil. Although no request has been made for appropriations 

to reach the 750 million barrel level, DOE has indicated that funds may be 

available through the government contingency fund should program progress 

warrant additional funds. 

The fiscal year 1980 budget request also assumes two major legislative proposals. The President has proposed for later transmission legislation 

to increase the limitation on the amount of TV A power bonds issued under 

the TVA Act as amended. The legislation would create new budget 

authority in the amount of $15 billion by raising TVA's authority to borrow 

from $15 billion to $30 billion. The cost of repayment of TVA borrowing is 

charged to TVA's customers through rates paid for electricity. TVA will use 

the new borrowing authority to finance acquisition of additional power 

generating capacity. In the past, TVA has operated on a full funding basis. 

On this basis, TV A can be expected to make new construction starts up to 

the point where projects can be completed under existing borrowing 

authority, or for the next three to five years. Outlays, however, can be 

expected to continue from this new budget authority for more than five 

years. 

The Department of Energy will propose the creation of the Spent 

Fuel Storage Program. The program calls for DOE to dispose of spent 

nuclear fuel from commercial reactors for a fee. A revolving fund would be 

created to finance the program. The initial borrowing authority request is 

for $300 million. The Department expects to receive approximately $100 

million in receipts in fiscal year 1980. 

In addition to these proposals, supplemental appropriations totaling 

$156 million in budget authority and $90 million in outlays (excluding pay 

supplementals and funds allocated to other budget functions) are requested 

for fiscal year 1979. These supplementals are primarily to cover various 

costs of implementing the National Energy Act. 

The eBO preliminary estimate of the President's fiscal year 1980 

request reflects estimating differences in four program areas. First, eBO 

projects lower receipts to the Naval Petroleum Reserve in fiscal year 1980. 

This accounts for the higher budget authority estimate, and also increases 

the outlay estimate. The eBO estimate of TVA outlays is also about $170 

million higher than that assumed in the President's request. 

These increases, however, are offset by lower estimates in two other 

program areas. The e BO outlay projection for the Strategic Petroleum 

70 
Reserve is $385 million lower than that included in the request. This is 

because of different assumptions regarding the rate of oil acquisition and 

the spendout of construction funds. Second, CBO outlay projections for the 

energy research and development programs and the energy conservation 

programs are lower ($328 million), because of slower spendout rates 

projected on the basis of historical experience. Similar differences in 

estimates for receipts, petroleum reserve spending, and conservation activities are reflected in the CBO estimate of fiscal year 1979 outlays. 

71 
NATURAL RESOURCES AND ENVIRONMENT (FUNCTION 300) 

This function is composed of programs for the development and 

management of water resources, conservative and land management, development of recreational resources, pollution control and abatement, and 

other natural resource programs. 

Function Totals: In Billions of Dollars 

1979 Estimates 1980 Estimates 

2nd Pres. CBO COO Pres. CBO 

Estimate Estimate Con. Latest of Pres. Current Budget of Pres. Res. Request Request ~/ Policy Request Request ~/ 

Budget 13.3 12.8 12.9 14-.3 12.9 13.0 Authority 

Outlays 11.5 11. 1 11.0 12.8 11.5 11.9 

~/ Preliminary, subject to change. 

For fiscal year 1980, the President is proposing to maintain budget 

authority for this function virtually unchanged from the 1979 level, with an 

outlay increase of $376 mlllion, about 3 percent above his current estimate 

for 1979. This represents a reduction of $1.4- billion, or about 10 percent, 

below the current policy levels projected by COO for both budget authority 

and outlays. However, the 1980 budget authority request is not fully 

comparable with the 1979 funding level, because the former includes 

approximately $0.5 billion for full funding of new water projects, a concept 

that was substantially rejected by the 95th Congress. When the 1980 budget 

is adjusted for this factor, the budget authority requested for function 300 is 

a net reduction of almost $500 million below the 1979 level, and about 14-

percent below the current policy projection. 

The President is proposing increases in funding for water resources 

and other natural resources programs for fiscal year 1980, which are offset 

by a sharp cut in conservation and land management funds, and by modest 

cuts in funds for recreational resources and pollution control and abatement 

programs. When adjusted for the proposed full funding provisions, the 

72 
budget request for water resources represents an increase of 3 percent 

(about $100 million), while other natural resources programs are targeted 

for about a 7 percent increase ($94 million) over the 1979 level. These are 

more than offset by the $267 million reduction in conservation and land 

management programs, representing a 12 percent decrease from the current 

1979 estimate. In addition, the President is seeking a reduction of almost 6 

percent ($106 milJion) in recreational resources programs, and about 4-

percent ($200 mi11ion) in po11ution control and abatement activities. 

The major reductions primarily affect programs of the Department of 

Agriculture (USDA), the Department of the Interior (DOl), and the Environment Protection Agency (EPA). The President has proposed a reduction of 

$114- million for the conservation activities of USDA's Soil Conservation 

Service (SCS) and Agricultural Stabilization and Conservation Service, which 

would result in a 26 percent decrease in the aggregate obligation level, 

sharply reducing cost-sharing assistance to farmers and SCS conservation 

planning assistance to states and localities. The President is also requesting 

a $233 million reduction in funding for the Forest Service, a 14- percent cut 

in budget authority. This decrease is primarily attributable to a reduction in 

funds for forest road construction in the national forests and to the proposed 

elimination of the Youth Conservation Corps. 

Reductions proposed for the Department of the Interior include a 

$128 million decrease in requested appropriations for the Land and Water 

Conservation Fund (a decline of 17 percent), a $50 million cut in construction and acquisition of facilities for sports fishing and wildlife resources, a 

$4-4 mil1ion drop in funds for the Bureau of Land Management, and a $33 

million reduction in construction of facilities contained wi thin the National 

Park system. 

The single largest funding decrease proposed for this function is a 

$4-00 million decrease in EPA's construction grant program. This wi11 not 

significantly affect the program, since states and territories wiU sti11 have 

available approximately $4.5 billion from appropriations prior to fiscal year 

1980 to J:-e utilized for new construction projects. Therefore, in fiscal year 

1980, approximately $8.3 billion would be available for new construction 

projects, an amount far exceeding the likely obligation level for this 

program. 

These reductions are only partially offset by increases in other 

programs and by proposed new initiatives. The largest increase is $605 

million for water resources projects of the Corps of Engineers and Bureau of 

Reclamation. However, as discussed above, most of this increase is 

attributable to the proposed full funding of a number of new projects and 

does not represent a significant increase in program level. Such full funding 

73 
Summary of Major Programs--Function 300: In Billions of Dollars 

FY 1979 FY 1980 

President's CBO President's 

Latest Current Budget 

Request Policy Request 

Corps of Engineers BA 2.7 2.9 3.1 

0 2.6 2.8 2.7 

Other Water Resources BA 0.8 1.1 1.0 

0 0.9 1.0 0.9 

Forest Service BA 1.7 1.9 1.5 

0 1.5 1.8 1.4 

Other Conservation and 

Land Management 

Programs ~/ BA 1.2 1.2 1.1 

0 1.2 1.2 1.1 

Recreational Resources BA 1.9 2.0 1.8 

0 1.4 1.8 1.4 

Pollution Control and 

Abatement BA 5.3 5.9 5. 1 

0 4.1 5.0 4.7 

Other Natural Resources BA 1.3 1.4 1.4 

0 1.3 1.3 1.3 

Offsetting Receipts P.J BA -2.0 -2.1 -2.1 

0 -2.0 -2.1 -2.1 

Total-Function 300 BA 12.8 14.3 12.9 

0 11. 1 12.8 11.5 

~/ Excluding offsetting receipts 

':!J Includes general function 300 and subfunction 302 receipts 

74 
requests submitted to the Congress by the President for fiscal year 1979 

were rejected for the most part. 

The President's water policy, announced in June 1978, is likely to be a 

significant issue during the 96th Congress. The 1980 budget also includes 

continued funding for the Water Resources Council at levels similar to the 

$50 million requested as a supplemental for fiscal year 1979. In addition, 

this budget includes funds to resume working on the replacement of Lock 

and Dam 26 on the Mississippi River. It does not include a request for any 

additional funds for the Auburn Dam or the Garrison Diversion Project, 

because of unresolved legal questions. 

The President is also requesting a $37.5 million supplemental appropriation in fiscal year 1979 and $150 million for 1980 for urban park and 

recreation grants, authorized by the 95th Congress. These grants will 

subsidize 70 percent of the cost of rehabilitation of city parks and 

recreational facilities. In addition, he is seeking an increase of $94 million 

(or 8.5 percent) in various existing EPA programs other than construction 

grants and is proposing the initiation of a $75 million program, to be 

administered by the SCS, to provide technical and financial assistance for 

the control of non-point sources of water pollution. 

The President is also requesting a $78 million increase in funding for 

DOl's Office of Surface Mining, Reclamation and Enforcement in anticipation of the first year in which most states will have their independent 

programs approved and in operation. In addition, the budget calls for an 

increase of $54 million (or 8 percent) for operations, research, and facili ties 

of the National Oceanic and Atmospheric Administration (NOAA). Finally, 

the President intends to propose legislation establishing a system of liability 

and compensation for damages resulting from oil spills. He will seek 

establishment of an oil pollution liability compensation fund, administered 

by the Coast Guard, to provide for cleanup of oil spills, and proposes initial 

funding of $25 million in fiscal year 1980. 

The major estimating difference in this function involves EPA 

construction grants. COO's preliminary estimate for fiscal year 1980 

outlays is $3.8 billion, compared to the President's estimate of $3.6 billion. 

CBO also projects somewhat higher 1980 outlays for the Land and Water 

Conservation Fund, with total outlays for the function estimated to be $11.9 

billion, $0.4 higher than the Administration's estimate. 

75 

3B-664 0 - 7~ - '1 
AGRICULTURE (FUNCTION 350) 

This function includes programs that provide farm income security, 

as well as agricultural research. With the exception of two minor Farm 

Credit Administration Funds, all programs fall under the jurisdiction of the 

Department of Agriculture. 

Function Totals: In Billions of Dollars 

1979 Estimates 1980 Estimates 

2nd Pres. CBO CBO Pres. CBO 

Con. Latest Estimate Current Budget Estimate 

of Pres. of Pres. Res. Request Request ~ Policy Request Reauest a/ . -

Budget 9.2 8.3 8.3 5.1 4.9 4.9 Authority 

Outlays 7.5 6.2 6.4 5. 1 4.3 4.5 

~/ Preliminary, subject to change. 

The major program in this function is agricultural price supports and 

related activities, administered through the Commodity Credit Corporation 

(CCC). Price support outlays are expected to constitute about 80 percent of 

total function 350 outlays in fiscal year 1979, decreasing to about 60 

percent of fiscal year 1980 outlays. Other accounts of major importance 

are the Agricultural Credit Insurance Fund, the Federal Crop Insurance 

Fund, and the Agricultural Stabilization and Conservation Service. 

76 
Summary of Major Programs--Function 350: In Billions of Dollars 

FY 1979 FY 1980 

President's CBO President's 

Latest Current Budget 

Request Policy Request 

CCC-Price Supports BA 6.5 3.2 3.1 

0 5.0 3.4 2.6 

Agricultural Credit 

Insurance Fund BA 0.1 0.2 0.3 

0 -0.4 0.2 0.2 

Other Agriculture Programs 

and Receipts BA 1.7 1.7 1.5 

0 1.6 1.5 1.5 

Total-Function 350 BA 8.3 5.1 1J.9 

0 6.2 5.1 1J.3 

The President's budget request for fiscal year 1980 is substantially 

below the projected 1979 level for both budget authority and outlays, almost 

entirely because of an expected decline in funding required for CCC price 

support programs. In fiscal year 1979, the CCC received an appropriation of 

$1.0 billion to restore realized losses from its operations, and $5.5 billion in 

new borrowing authority. In fiscal year 1980, the President's budget 

requests $3.1 billion to restore realized losses, but no new borrowing 

authority. CBO estimates that fiscal year 1980 outlays for CCC programs 

will decline by $2.3 billion from the current estimate for 1979, due largely 

to higher prices for 1979 crops than for 1978 crops. The lower estimate of 

1980 outlays also reflects the fact that the 1980 level the Administration 

has set for the CCC short-term export credit program is $0.8 billion below 

the fiscal year 1979 level. (This reduction accounts for most of the 

difference between the President's 1980 request and the CBO estimate of 

current policy outlays for CCC, which was based on an assumed continuation 

of the short-term export credit program at the fiscal year 1979 level of $1.6 

billion.) Activity in this export credit program is discretionary, up to an 

annual limit established in the appropriations bill. 

77 
Budget authority for the Agricultural Credit Insurance Fund of the 

Farmers Home Administration is appropriated to restore realized losses in 

previous years. In fiscal year 1980, the President is requesting budget 

authority of $273 million--$129 million more than his current estimates for 

1979. Outlays for this account are extremely volatile, and in anyone year 

may bear little relationship to the level of program activity. They are 

affected not only by administrative and loan subsidy costs, but also by 

financial transactions with the Federal Financing Bank (FFB), which are 

fuUy at the discretion of the Administration. Outlays projected for the 

Agricultural Credit Insurance Fund for fiscal year 1979 assume net receipts 

from sale of loans to the FFB. In fiscal year 1980, however, outlays are 

projected to be $0.2 billion, or $0.6 billion more than for 1979. 

The President is proposing an absolute n~t reduction in funding for 

other agriculture programs, with both budget authority and outlays cut by 

over $100 million from 1979 levels. This is a reduction of 9 percent in 

budget authority and 7 percent in outlays. Reduced appropriations are being 

requested for the Agricultural Stabilization and Conservation Service (down 

$37 million), and for extension and animal and plant health programs (down 

$27 million). Aside from non-recurring items of about $76 million requested 

for fiscal year 1979, the requests for appropriations for agricultural 

research programs is about the same in fiscal year 1980 as in 1979. 

The President's budget includes two major legislative proposals 

affecting function 350. The first is an International Emergency Food 

Reserve, to be purchased during fiscal year 1979. Outlays during fiscal year 

1979 are estimated by the Administration to be $0.3 billion for wheat 

purchases, transportation and storage, and interest paid to the Treasury. 

For fiscal year 1980, the Administration estimates that outlays for storage 

and interest would be less than $0.1 billion. However, deficiency payments 

and loans on the 1979 wheat crop would be decreased by an estimated $0.1 

billion, because the purchase of wheat for the reserve would increase wheat 

prices. 

The other major proposal is for a nation-wide all risk crop insurance 

program, to be administered through the CCC. Start-up costs for this 

program are estimated to be $0.1 billion in fiscal year 1980. The Federal 

Crop Insurance Corporation would be phased out, so that an offsetting 

sa vings of less than $0.1 billion would be realized. 

The Congress is likely to consider additional legislation in the 

agricultural area. Items with potentially significant budget impacts include 

sugar price support, the level of dairy price supports, and parity supports for 

wheat, food grains, and cotton. 

78 
The loan and purchase program for sugar ends with the 1978 crop. 

Legislation may extend the current program, initiate a direct payment 

program similar to that for other crops, or rely on import fees and/or quotas 

to support domestic prices. 

Milk prices are supported at 80 percent of parity through fiscal year 

1979. In the absence of legislation to extend this level of support for future 

years, the Secretary of Agriculture may reduce the support level to 75 

percent of parity beginning in f.iscal year 1980. However, the President's 

budget assumes that support will be extended at 80 percent of parity 

through fiscal year 1980. 

79 
COMMERCE AND HOUSING CREDIT (FUNCTION 370) 

Most of the programs in this function are designed to ensure an 

adequate supply of funds to meet the nation's housing and credit needs. 

These programs include the mortgage insurance and purchase activities of 

the Department of Housing and Urban Development (HUD) and the Department of Agriculture (USDA), the federal government's thrift deposit insurance programs and many of the direct loan and loan guarantee programs 

of the Small Business Administration. The function also includes funding for 

the Postal Service, for parts of the Department of Commerce and for a 

number of independent agencies. 

Function Totals: In Billions of Dollars 

1979 Estimates 1980 Estimates 

2nd Pres. CBO CBO Pres. COO 

Con. Latest Estimate Current Budget Estimate 

of Pres. of Pres. Res. Request Request ~/ Policy Request Request ~/ 

Budget 5.5 6.9 6.7 6.0 8.3 8.3 Authority 

Outlays 2.8 2.9 3.1 4.1 3.4 3.4 

a/ Preliminary, subject to change. 

For fiscal year 1980, the President has requested new budget 

authority of $8.3 billion, a 20 percent increase over his 1979 estimate of 

$6.9 billion. Most of this growth is attributable to the proposed $1.7 billion 

initial funding of the National Credit Union Administration's Central Liquidity Facility. Also included is an increase in funding of $434 million for the 

Census Bureau, to cover costs of the 1980 decennial census. The increases 

are partially offset by lower requests for USDA's Rural Housing Insurance 

Fund (RHIF), HUD's Government National Mortgage Association (GNMA) 

and the U.S. Postal Service. 

The large differences in budget authority between the current 

estimates for fiscal year 1979 and the Second Concurrent Resolution on the 

Budget for Fiscal Year 1979 result primarily from a $985 million supplemental request in 1979 for the RHIF's homeownership assistance program and 

80 
the recalculation of the budget authority needed to support the RHIF's rural 

rental assistance program. This recalculation accounts for about $400 

million of the increase in the President's estimate of 1979 RHIF budget 

authority and was made to reflect the long-term costs of the rental 

assistance program. A similar impact is also apparent in the RHIF fiscal 

year 1980 budget request. 

The President's budget estimates outlays of $3.4 billion for fiscal 

year 1980, an increase over current estimates for 1979 of $0.5 billion, or 

about 17 percent. The estimates for 1980, however, represent a decrease of 

17 percent from the CBO current policy estimate. For the most part, this 

decrease is not because of lower program levels but represents Administration projections of larger asset sales by the RHIF and GNMA and smaller 

losses in HUD's Federal Housing Administration Fund. 

As mentioned above, the President has requested fiscal year 1980 

funding for the credit union Central Liquidity Facility (CLF). The legislation that established the CLF, the Financial Institution Regulatory and 

Interest Rate Control Act of 1978 (Public Law 95-630), grants the CLF a 

$500 million emergency line of credit from the U.S. Treasury, and in 

addition, allows the CLF to issue debt to others than the Treasury in 

amounts up to 12 times its paid-in capital. The President's proposed funding 

level of $1.7 billion represents a request for an appropriation of the entire 

emergency line of credit plus borrowing authority based on paid-in capi tal of 

$100 million. 

The President's budget request of $1.7 billion for fiscal year 1980 for 

the payment to the U.S. Postal Service is $105 million lower than the fiscal 

year 1979 budget. Included in the request is a proposed supplemental of $18 

million to cover the fiscal year 1979 costs of reduced rates for political mail 

as recently authorized by the Congress. The $105 million reduction 

primarily reflects a decline in the public service subsidy, which is based on a 

percentage of the amount appropriated to the former Post Office Department for fiscal year 1971. Beginning in fiscal year 1980, this public service 

subsidy declines 10 percent annually. Legislation offered in both the House 

and the Senate during the 95th Congress would have continued the subsidy at 

the same or higher levels as fiscal year 1979, as well as expanded the 

categories of mail eligible for reduced rates which the Congress subsidizes 

through the revenue foregone appropriation. Postal Service budget authority and outlays may well exceed the President's estimates by over $100 

million if similar legislation passes this session. 

Total program levels for fiscal year 1980 for the loan programs of the 

Small Business Administration show no change over fiscal year 1979: $372 

million in commitments for direct loans and $3.5 billion in loan guarantees. 

81 
Certain program ceiling shifts have occurred, however, with an increase in 

specialized loans for energy applications and for the handicapped, at the 

expense of the 7(a) business loan program. Historically, the Congress has 

approved increases over the President's recommended level; as a result, the 

loan program levels have shown an annual growth averaging between 20 and 

30 percent in recent years. 

The budget authority and outlays for the periodic censuses and 

programs of the Bureau of the Census have more than tripled from fiscal 

year 1979 to fiscal year 1980. The increase of $434 million in budget 

authori ty and $354 million in outlays is required to carry out the decennial 

census. A relatively small contingency has been allowed, but problems with 

response rates, staffing quality, processing or extensive followup could raise 

total outlays from estimated levels. 

The President has also requested a $54 million supplemental in fiscal 

year 1979 and $89 million in fiscal year 1980 for funding the newly created 

National Consumer Cooperative Bank, which has the authority to make loans 

and capital advances to business cooperatives. The President's long-range 

estimates project increased funding of $128 million for the bank in fiscal 

year 1981, with decreasing amounts thereafter. 

82 
TRANSPOR TA nON (FUNCTION 400) 

Function 400 includes the programs of the Department of Transportation (DOT), as well as the Maritime Administration of the Department of 

Commerce, and activities of a number of independent agencies related to 

transportation. 

Function Totals: In Billions of Dollars 

1979 Estimates 1980 Estimates 

2nd Pres. COO COO Pres. COO 

Estimate Estimate Con. Latest of Pres. Current Budget of Pres. Res. Request Request ~ Policy Request Request ~/ 

Budget 19.5 19.9 19.9 20.9 19.1 19.1 Authority 

Outlays 17.3 17.4 17.3 19.0 17.6 18.7 

a/ Preliminary, subject to change. 

The President's transportation budget message contains two goals 

that the Administration plans to pursue. The first is regulatory reform of 

the rail, truck and intercity bus operations. The second is to have the costs 

of federal government transportation programs shared equitably by those 

who benefit from them. These two initiatives have slight budget impact in 

fiscal year 1980, but have significant potential long-run budget implications, 

possibly affecting federal funding of operating assistance in the rail and 

mass transit programs, uses of the airport and airways trust fund monies, 

waterway user charge fees, and the levels of highway and aviation user 

taxes imposed on various classes of users. 

The President's 1980 budget request reflects a real decline from the 

funding requested for fiscal year 1979. Overall budget authority for 

transportation activities is projected to decline almost 4 percent relative to 

the 1979 level. 

83 
Summary of Major Programs--Function 4-00: In Billions of Dollars 

FY 1979 FY 1980 

President's CBO President's 

Latest Current Budget 

Request Policy Request 

Federal-Aid Highways BA 8.0 8.6 8.6 

0 6.6 7.3 6.9 

Mass Transit BA 2.4- 3. 1 2.5 

0 2.4- 2.9 2.5 

Purchase of Conrail Securities BA 1.4- 0.6 0.0 

0 0.8 0.6 0.4-

Other Highway and BA 2.3 2.4- 2. 1 

Railroad Programs 0 2.2 2.3 2.0 

Federal Aviation BA 3.1 3.2 3.1 

Administration 0 2.9 3.1 3.0 

Coast Guard BA 1.5 1.6 1.6 

0 1.4 1.6 1.5 

Maritime Administration BA 0.5 0.7 0.5 

0 0.5 0.6 0.5 

Other Transportation BA 0.7 0.7 0.7 

0 0.6 0.7 0.8 

Total--Function 400 BA 19.9 20.9 19.1 

0 17.4 19.0 17.6 

Almost all of the decline in budget authority occurs in ground 

transportation (subfunction 401). The President is requesting almost $900 

million less budget authority for this subfunction for fiscal year 1980 than 

currently estimated for 1979, despite a $600 million increase in budget 

authority for the federal-aid highways program. This reduction is due to the 

President'S proposal for funding the purchase of Conrail sec uri ties. The 

President has requested a supplemental appropriation of $974 million in 

fiscal year 1979 for this purpose. This exhausts the existing authorization 

84 
and no new authorization is requested. As a result, total requested funding 

for Conrail in fiscal year 1979 is $1.4 billion, with no funds requested in 

1980. 

Aside from the increase in the federal-aid highway program and the 

proposed decline in Conrail funding in 1980, the President's total request for 

all other transportation programs is virtually the same in fiscal year 1980 as 

in 1979 ($10.5 billion in budget authority). This is the result of proposed 

cuts in a number of programs, and of relatively small increases in most 

others. 

The President has requested no new funding for several highway 

programs authorized in the Surface Transportation Assistance Act of 1978. 

This includes the off-systems roads program, the Alaska highway, the 

highway beautification program, highways to public recreation areas, and 

the railroad-highway crossing demonstration projects. Total budget authority for these programs is $106 million in fiscal year 1979. The budget does 

not request funds for several new programs authorized in the Surface 

Transportation Assistance Act, each of which is funded from general 

revenues and would require subsequent action by the Appropriations Committees. 

The President has also requested budget authority below the 1979 

level for a number of other programs. The request for the construction 

differential subsidy for ship construction (CDS) is $56 million below that 

requested in 1979 and $190 million below the CBO current policy projection 

for this account. In addition, the operating subsidy portion of grants to 

Amtrak is proposed to drop by $48 million, reflecting the requested $90 

million supplemental for 1979 and a proposed reduction in the Amtrak route 

structure. 

Authorization for the preference share portion of the rail rehabilitation and improvement financing fund expires in 1979. The President 

requests no budget authority for this program in fiscal year 1980, but he will 

propose legislation this year to reauthorize and restructure assistance 

programs for freight railroads. This is reflected in the $250 million 

requested for a legislative initiative under the rail service assistance 

program. 

The President's budget for fiscal year 1980 also reflects a decline in 

the airport and airways trust fund contribution to Federal Aviation Administration (FAA) operations, the grants-in-aid for airports program, and the 

FAA facilities and equipment program. Proposed budget authority for these 

programs in fiscal year 1980 is $1.16 billion, down $118 million from 1979. 

These are one-year reductions, however, for the administration has stated 

85 
its intention to submit legislation to extend the airport and airways trust 

fund and to fund an expanded air program. The new legislation is expected 

to ask for funding of $14-.6 billion from the trust fund over five years 

starting in 1981, compared to the CBO current policy level of approximately 

$9 billion. A major part of this proposal ($8 billion of the $14-.6 billion) 

represents funding for FAA operating expenses, most of which are now 

funded from general revenues. 

The President's budget provides for virtually identical funding for the 

programs of the Urban Mass Transportation Administration (UMTA) as in 

fiscal year 1979, with obligation levels in both years estimated to be $3.5 

billion. This represents a decline in real resources for these activities, when 

the impact of inflation is considered. The requested funding level is also 

below the amounts authorized in the Surface Transportation Assistance Act 

of 1978. 

The largest absolute increase proposed in this function, aside from 

the federal-aid highways program, is for programs of the Coast Guard. The 

$90 million increase in budget authority approximates the COO current 

policy projection for that agency. 

Preliminary COO estimates indicate transportation outlays in fiscal 

year 1980 about $1.1 billion higher than the President's estimate. The 

largest differences in outlay estimates are in the federal-aid highways 

program ($0.4- billion), and in the purchase of Conrail securities ($0.3 

billion). CBO estimates total federal-aid highways obliga tions of $7.7 billion 

in fiscal year 1979 and $8.2 billion in fiscal year 1980. The President's 

budget assumes obligations of $7.6 billion and $8.4- billlon respectively for 

the two years. The outlay estimating differences are because of different 

estimates of the time lag between obligations and outlays. 

The Administration expects to spend $4-4-0 million for Conrail securities in fiscal year 1980. This outlay figure is based on expected improvements in Conrail performance and on the pricing and abandonment flexibility provided by a less regulated environment. If realized, it will mean an 

improvement in Conrail's financial performance of roughly $300 million in a 

single year. Such a drastic turnaround is improbable, given Conrail's record 

to date. CBO estimates that the government will purchase approximately 

$700 mi11ion in ConraiJ securities in 1980, an amount that would exhaust the 

fuB $3.3 biUion Conrail authorization. 

The remaining, smaller estimating differences fall primariJy in several FAA accounts, UMTA, and the Northeast Corridor Improvement program. 

86 
COMMUNITY AND REGIONAL DEVELOPMENT (FUNCTION 450) 

This function includes programs for community and regional development and disaster relief administered by the Departments of Housing and 

Urban Development (HUD), Commerce, Interior, and Agriculture, and the 

Small Business Administration (SBA). The President's fiscal year 1980 

budget anticipates the establishment in 1979 of the Federal Emergency 

Management Agency (FEMA) to consolidate several disaster assistance 

programs. 

Function Totals: In Billions of Dollars 

1979 Estimates 1980 Estimates 

2nd Pres. CBO CBO Pres. COO 

Con. Latest Estimate Current Budget Estimate 

of Pres. of Pres. Res. Request Request ~/ Policy Request Request ~/ 

Budget 8.9 8.2 8.2 9.5 11. 3 11. 3 Authority 

Outlays 9.6 9. 1 9.1 9. 1 7.3 7.3 

~/ Preliminary, subject to change. 

The keystone of the President's fiscal year 1980 proposal for community and regional development is the proposed National Development 

Bank. The bank, together with numerous resource reallocations and several 

smaller initiatives, reflects an attempt by the President to increase the 

cooperative participation of state and local governments and the private 

sector in the revitalization of economically depressed urban and rural areas. 

In total, the President'S 1980 budget proposes budget authority of 

$11.3 billion, an increase of $3.1 billion, or 39 percent over the estimated 

fiscal year 1979 level. This increase is a direct consequence of the proposed 

National Development Bank, for which the President is requesting $3.5 

billion in budget authority for 1980. Additional requested funding increases 

include $150 million in fiscal year 1980 for a new inland energy impact 

program, as well as $20 million for the livable cities and neighborhood selfhelp development programs, which were included in the President'S urban 

87 
initiative and were authorized in 1978. For the remaining programs in the 

function, the President is asking for 7 percent less than his latest request 

for 1979, and 20 percent less than the C BO current policy projection for 

1980. 

These budget authority reductions are spread unevenly throughout the 

function. The President is requesting $4.8 billion in budget authority for 

community development programs, including an additional $150 million for 

the community development block grant program. This is the same total 

requested for fiscal year 1979, and it is $250 million below the C BO 

estimate of budget authority necessary to maintain current program activity 

in 1980. 

A total of, $2.4 billion in budget authority is requested for currently 

authorized area and regional development programs. This represents a 

decrease from the $2.8 billion requested in 1979, and is $500 million below 

the CBO current policy projection for 1980 for the same programs. 

Requests for resources in disaster relief and insurance decrease from 

$550 million in 1979 to $390 million in 1980. The President's budget 

proposes several program changes designed to restrict the demand for Small 

Business Administration disaster loans to the program's historical constituency of homeowners and nonfarm businesses. It is also based on very 

optimistic assumptions about the level of need for disaster relief during the 

budget year. The $390 million requested for 1980 is 30 percent below the 

level requested for 1979 and substantially below the CBO current policy 

level of $1.5 billion. 

The funding reductions for existing activities affect a number of 

individual programs. The President has proposed $130 million in budget 

authority for the "312" rehabilitation loan program in fiscal year 1980. This 

compares with $230 million in current year authority, which the Congress 

increased from an initial Presidential request of $95 million. The President 

is requesting no 1980 budget authority for the urban homesteading program, 

compared with a $20 million authorization for 1979, and he is asking for cuts 

in authority for both the 701 comprehensive planning program and HUD 

research efforts. 

In addition, the President is proposing a $300 million decrease in 

funding for loans insured or guaranteed by the Farmers Home Administration for capital investment in rural areas, and has proposed to eliminate 

rural development planning grant and rural fire protection grant programs. 

(This proposal was also made last year, and was rejected by the Congress.) 

Funds requested for Indian area and regional development programs declined 

by $85 million in 1980, with most of the cuts coming in nonhighway 

88 
Summary of Major Programs--Function 450: In Billions of Dollars 

FY 1979 FY 1980 

President's CBO President's 

Latest Current Budget 

Request Policy Request 

Existing Programs: 

Community Development BA 3.8 4.0 3.9 

Block Grants 0 2.9 3.4 3.3 

Other Community BA 1.0 1.0 0.9 

Development 0 0.8 1.2 1.0 

Rural Development BA 0.5 0.4 0.1 

Insur ance Fund 0 0.1 0.2 * 

Other Farmers Home BA 0.5 0.6 0.5 

Administration 0 0.5 0.5 0.5 

Local Public Works BA * 0.0 0.0 

0 2.1 0.4 0.3 

Other Economic BA 0.5 0.7 0.6 

Development Administration 0 0.3 0.5 0.4 

Bureau of Indian BA 1.0 1.0 0.9 

Affairs 0 0.8 1.0 0.7 

Other Regional BA 0.3 0.3 0.3 

Development 0 0.2 0.4 0.2 

SBA Disaster Loans BA 0.2 1.0 0.1 

0 0.8 0.8 * 

Other Disaster BA 0.3 0.5 0.3 

Assistance 0 0.5 0.6 0.5 

Subtotal-- / BA 8.2 9.5 7.6 

Existing Programs~ 0 9.1 9.1 7.0 

Legislative Initiatives: 

National Development BA * 0.0 3 . .5 

Bank 0 * 0.0 0.2 

Inland Energy Impact BA 0.0 0.0 0.2 

Assistance 0 0.0 0.0 0.1 

Total-- / BA 8.2 9.5 11.3 

Function 4 50~ 0 9.1 9.1 7.3 

* Less than $50 miJJion. 

~/ Budget authority and outlays include estimates of offsetting receipts 

assigned to function 450. 
construction. The requested $885 million is $80 million below C BO's 

estimate of funds needed to sustain current policy. Program funds for the 

Appalachian Regional Commission also show a decline between 1979 and 

1980. The $358 million requested for 1980 is $10 million below the 1979 

level in the President's budget and $40 million below the CBO current policy 

projection for fiscal year 1980. 

The 1980 budget also requests funding for various disaster assistance 

programs at levels substantially below their actual funding requirements in 

recent years. Funds requested for the President's disaster relief fund are 

$193 million below CBO's current policy estimate for 1980. The request for 

the Small Business Administration's disaster loan fund assumes a loan 

demand of $250 million in 1980, whereas demand averaged over $500 

million, in 1980 dollars, from 1974 to 1978, excluding drought loan demand 

in 1978. If disasters occur with "normal" frequency and intensity in 1980, 

additional appropriations will be required. 

The proposed reductions in currently authorized programs in this 

function are offset, in part, by some funding increases. The President is 

seeking $3.9 billion for the community development block grant program 

(CDBG) and $400 million for the urban development action grant program 

(UDAG) in 1980. The CDBG funding includes $100 million to be used for 

settlement of commitments made by communities under the old categorical 

grant programs. The CDBG proposal is $150 million higher than the 

appropriation requested for fiscal year 1979, while the UDAG program is 

continued at its 1978 and 1979 levels. The combined budget authority of 

$4.3 billion for the two programs is $114 million lower than the amount 

projected for 1980 by CBO under current policy assumptions. 

The President is also requesting a $75 million increase in funding for 

EDNs business development loan guarantee program, which would allow 

EDA to maintain in 1980 the program level established in 1979. EDA was 

allowed a one-time transfer of $75 million from its revolving fund to the 

loan program in 1979. In addition to the requested increase, the President is 

considering including the loan program in the National Development Bank. 

The President's budget for 1980 anticipates an outlay level of $7.0 

billion, excluding estimated outlays of $278 million for new programs. This 

estimate is $2 bi1Jjon below 1979 estimates, and nearly $4 biIJion below 1978 

actual outlays for the same programs. This drop is in jarge part caused by 

the phaseout of the local public works program funded in 1977, and the 

President's decision not to seek enactment of the jabor-intensive public 

90 
works proposal outlined in the 1979 urban initiative. The CBO current 

policy estimate for 1980 of $9.1 biJJion in outlays differs from the 

President's request mainly in the area of disaster assistance and the 

activities of the Rural Development Insurance Fund. 

The proposed National Development Bank is the central element in 

the attempt by the President in 1980 to encourage the relocation or 

revitalization of labor-intensive industry in areas of lagging growth and 

substantial unemployment. The President's long-range estimates project 

budget authority of about $2.6 billion per year between 1981 and 1981f, with 

outlays increasing from the estimated $195 million in 1980 to $1.3 billion in 

fiscal year 1981f. 

The inland energy impact program proposes to address the problems 

of runaway demand for local government services in areas of rapid economic 

growth caused by energy development, mainly in the nation'S surface coal 

mmmg areas. Presumably, the gap between this demand and state and 

locally-generated resources will decrease substantially as tax revenues from 

this development increase. 

The President'S proposal for disaster relief and insurance repeats an 

attempt made in the 1979 budget to limit eligibility for disaster loans made 

through the SBA to the fund's traditional constituency, homeowners and 

nonagricultural businesses. It further proposes to require business applicants 

to pass a "no credit elsewhere" test before being approved for an SBA loan. 

The elimination of SBA lending for agricultural disasters is likely to lead to 

a greater demand for the disaster loan programs of the Farmers Home 

Administration (FmHA). However, because FmHA can offset the budget 

impact of such loans through asset sales to the Federal Financing Bank, the 

potential shift in loan activity may have the effect of moving some loan 

costs off-budget. Congress was unWilling to exclude farmers from the 

program during the 95th Congress, and there was substantial support to 

continue the program in its 1978 form. 

91 

.90-654 0 - 79 - () 
EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES 

(FUNCTION 500) 

This function provides federal funds for education, training and 

employment, and other social services. The Department of Health, 

Education, and Welfare administers 60 percent of the funds, of which 40 

percent support education programs and 20 percent support social service 

programs. The remaining funds cover the training and employment accounts 

of the Department of Labor. 

Function Totals: In Billions of Dollars 

1979 Estimates 1980 Estimates 

2nd Pres. COO eBO Pres. CBO 

Con. Latest Estimate Current Budget Estimate 

of Pres. of Pres. Res. Request Request ~I Policy Request Request ~I 

Budget 

Authority 32.9 33.0 33.0 36.8 30.9 30.9 

Outlays 30.3 30.6 30.7 34.7 30.2 30.7 

~I Preliminary, subject to change. 

For the function as a whole, the President's budget authority request 

declines by $2.1 billion from fiscal year 1979; the outlays decline by $400 

million. The decline in the 1980 request involves significant reductions in 

public service employment and CET A summer youth programs, and a 

legislative proposal to eliminate portions of impact aid. In addition, the 

estimate of full funding of the basic education opportunity grants (BEOGS) 

program is considered by CBO to be too low. 

92 
The difference between CBO current policy and the President's request 

as reestimated by CBO is $5.9 billion in budget authority and $4.0 billion 

in outlays. These differences result primarily from proposed cuts in public 

service employment job slots and the failure to maintain real dollar levels 

in the education and other training programs. 

EDUCATION 

In fiscal year 1980, the Administration is requesting a total of $14.3 

billion for the education programs. This is a decrease of $300 million from 

the 1979 program levels. No major new initiatives are proposed. 

Education Estimates: In Billions of Dollars 

1978 1979 1980 

CBO 

Pres. Estimate CBO Pres. CBO Est. 

Latest of Pres. Current Budget of Pres. 

Actual Request Request Policy Request Request 

Budget Authority 12.2 14.6 14.6 15.9 14.3 14.3 

Outlays 10.3 12.7 12.8 14.5 13.3 13.9 

The funding request for the elementary and secondary education 

programs basically maintains the 1979 levels, with the exception of increases 

for Title I concentration grants and education for the handicapped. These 

increases are estimated at $200 million. A $300 million decrease for the 

elimination of funds for category "B" children in the impact aid program 

is also requested. Taking account of inflation, federal dollars per pupil 

would decline 7 percent in real terms in fiscal year 1980. 

Because these programs are advance-funded, outlays in one year 

primarily reflect the funding levels in prior years. CBO's outlays are higher 

than the President's by $100 million in 1979 and $200 million in 1980 to 

reflect current spending patterns. The Administration's outlay estimates 

assume a slowdown in spending from prior year budget authority. 

93 
The Administration's higher education request for fiscal year 1980 

assumes full funding for the BEOG program. The budget also states that the 

Administration wi11 award the maximum grant levels in fiscal year 1979. 

The President's budget did not include any additional funds for the BEOG 

program in fiscal year 1979. For fiscal year 1980 the Administration has 

requested a total of $2.4 biHion for the program: $1.7 biHion in new budget 

authority and $700 mi11ion in reappropriated 1978 funds. As CBO projects a 

larger potential BEOG recipient population, the Administration's request 

would provide less than fu11 program funding. 

To meet the President's stated goals, CBO estimates that an 

additional $100 miHion is needed in 1979. In 1980, CBO estimates that fu11 

program funding would require budget authority of $2.8 biUion, $400 miHion 

above the Administration's estimate. In addition, CBO estimates the 

amount of 1978 funds which wi11 be available for reappropriation in 1980 to 

be $500 mi11ion, $200 miHion less than the President's estimate. CBO, 

therefore, estimates the need for an additional $600 miHion in budget 

authority in 1980. 

CBO Estimate for the Cost and Funding Requirements of the BEOG Program 

for Fiscal Years 1978-1980: In MiHions of Do11ars 

Needed Unobligated ~/ 

Fiscal Recipients Total Available New BA to Be 

Year (thousands) Cost BA BA Reappropriated 

1978 1,943 1,634 2,160 0 526 

1979 '9../ 2,904 2,740 2,600 140 0 

1980 c/ 2,814 1,837 2,837 0 

~/ Assumes $526 miHion available to be reappropriated in fiscal year 1980. 

b/ Assumes maximum awards made under the appropriation law. 

~/ Assumes fu11 funding of the BEOG program. 

94 
The CBO figures are based on the latest available data and include 

the impact of the Middle Income Student Assistance Act as well as the new 

computer audit system. CBO estimates the number of BEOG recipients in 

1978, 1979, and 1980 to be 1.9 million, 2.9 million, and 2.8 million, 

respecti vely. The Administration assumes recipients for those same years 

to be 1.8 million, 2.8 million, and 2.6 million, respectively. The main 

difference in the estimates is that CBO projects a higher number of eligible 

students. 

CBO's estimates for fiscal year 1980 higher education outlays are 

above Administration estimates by $300 million to reflect higher spending 

levels from prior year budget authority. 

EMPLOYMENT, TRAINING AND SOCIAL SERVICES 

The President's budget authority request for CETA in fiscal year 1980 

is 14 percent below the fiscal year 1979 request and 31 percent below the 

CBO current policy estimate. The net decrease of $1.5 billion from fiscal 

year 1979 reflects major decreases in the Title VI public service 

employment program and a decrease in the summer youth program. 

The Administration estimates a $600 million drop in outlays for Title 

VI from the fiscal year 1979 level as a result of proposed reductions in 

public service employment slots from 358,000 at the end of 1979 to 200,000 

at the end of 1980. The Title II D public service employment program is 

held steady at 267,000 slots through 1979 and 1980. Total public service 

employment slots in the President's request average 546,000 during 1980. 

The President's estimate of outlays for fiscal year 1980 is below the 

CBO current policy outlay estimate by $3 billion--$2.6 billion below in 

public service employment estimates alone. CBO estimates assume 

application of the statutory formula (20 percent of the unemployed in excess 

of 4 percent) to Title VI which yields 576,000 slots at a CBO projected 6.75 

percent unemployment rate (assumption of gradual phase-in yields an annual 

average of 458,000 Title VI slots in fiscal year 1980 with an end of year slot 

level of 576,000). Title II D is assumed to have 293,000 slots consistent with 

its fiscal year 1979 authorization. CBO's current policy estimates are based 

on an annual average of 751,000 public service employment slots in 1980. 

In addition to greater slot numbers, COO estimates a higher unit cost 

than that reflected in the Administration's request. The Administration's 

estimate of a $9,500 average slot cost for public service employment (Titles 

95 
II and VI) in fiscal year 1980 represents a 3 percent increase over the fiscal 

year 1979 slot cost estimate of $9,200. The CBO estimate of a $9,800 

average during fiscal year 1980 represents a 7 percent increase over the 

fiscal year 1979 estimate to reflect indexing of the average wage to 

increases in public and private sector wages. If CBO slot cost estimates are 

applied to the Administration's outlay estimates, an average of 522,000 slots 

for Titles II and VI combined would be funded in fiscal year 1980. This 

would represent a 16 percent cut from the fiscal year 1979 level of 625,000. 

End of year totals for public service employment would be 419,000 slots 

instead of the 467,000 estimated by the Administration. 

Spending for youth and other training programs remains close to 

fiscal year 1979 levels with the exception of the summer youth program 

which is to be reduced by 250,000 slots, reflecting a decision to exclude 14 

year olds from eligibility. This will result in a S100 million reduction in 

outlays. 

Funds are requested for two initiatives authorized in fiscal year 1979. 

The welfare reform demonstration initiative has been absorbed in the Title 

II 0 request for fiscal year 1980, of which it represents $200 million for 

17,000 positions. Supplemental budget authority of $400 million is requested 

for fiscal year 1979 for private sector initiatives. 

The Administration's 1980 budget authority request for human 

development and social service programs is 3 percent higher than the fiscal 

year 1979 request implying a real 4 percent cut. The fiscal year 1979 

request includes supplementals of $200 million for grants to states for social 

services and $100 million for human development services. The fiscal year 

1980 request includes a legislative proposal to increase the permanent 

ceiling for grants to states for social services from $2.5 billion to $2.9 

billion. This new ceiling would absorb a now separate $200 million 

authorization for child welfare services which currently includes a 100 

percent federal matching provision. Under the ceiling the federal matching 

rate for this program would drop to 75 percent. 

96 
HEAL TH (FUNCTION 550) 

This function includes programs for health care services, health 

research, education and training of health care personnel, occupational 

health and safety activities, and consumer education activities. Medicare 

and medicaid account for over 80 percent of aU health outlays. 

Function Totals: In Billions of Dollars 

1979 Estimates 1980 Estimates 

2nd Pres. CBO CBO Pres. CBO 

Estimate Estimate Con. Latest of Pres. Current Budget of Pres. Res. Request Request ~/ Policy Request Request ~/ 

Budget 

Authority 52.0 52.5 52.7 59.3 57.6 58.3 

Outlays 48.1 49.1 49.6 57.7 53.4 55.0 

a/ Preliminary, subject to change. 

CBO's estimate of the President's budget raises total budget 

authority by $200 million in 1979 and $700 million in 1980. These 

differentials are primarily due to the reestimate of the medicaid 

entitlement program. CBO has revised the President's estimate of outlays 

upwards by $500 million in 1979 and $1.6 billion in 1980. CBO's higher 

inflation forecast accounts for $500 million of the difference in 1979 and 

$1.1 billion in 1980. The remaining difference results primarily from CBO's 

lower estimates of savings generated by the medicaid fraud and abuse 

detection program and the proposed hospital cost containment program. 

97 
MEDICARE 

The medicare program, which includes hospital insurance (HI) and 

supplementary medical insurance (SMI), is expected to continue to expand 

through fiscal year 1980. On a current policy basis, eBO projects outlays to 

increase 17.1 percent in fiscal year 1979 and 15.9 percent in 1980. Although 

some of this increase is due to growth in the covered population and 

increases in utilization, the major factor is the continued rise in medical 

care costs. 

Medicare Outlay Estimates: In Millions of Dollars 

1979 Estimates 1980 Estimates 

Pres. CBO Est. Pres. CBO Est. 

Latest of Pres. Budget of Pres. 

Request Request Difference Request Request Difference 

Current Law 

wlo Program 

Changes 

Benefits 28,490 28,477 

Admin. 1,032 1,131 

Program 

Changes -23 -23 

Proposed Legislation 

Hosp. Cost 

Containment -350 0 

All Other 

Total 29,149 29,585 

-13 

99 

0 

350 

436 

98 

33,146 

1,064 

-386 

-1,500 

-244 

32,080 

33,549 

1,217 

-386 

-900 

-244 

33,236 

403 

153 

o 

600 

o 

1,156 
The difference between eBO and the President's estimates of 1980 HI 

benefits under current law (no program changes) can be entirely explained 

by different expectations about inflation. The eBO estimate of 

administrati ve costs is $153 million higher than the President's because the 

President's anticipated increase of 3.1 percent in 1980 is not sufficient to 

allow for inflation. 

The President has proposed several current law regulatory changes in 

an effort to trim program outlays. These changes include reduced 

reimbursement to inefficient providers, a stricter formula for reimbursing 

medicare'S share of malpractice insurance costs, and more restrictive 

guidelines for allowable costs of inhalation therapy. Due to these efforts 

the Administration expects savings of $23 million in fiscal year 1979 and 

$386 million in fiscal year 1980. 

The President is also proposing a number of legislative measures that 

in some cases are designed to extend benefits and in others to result in 

savings. The most important of these is a proposal to control the growth of 

total hospital expenditures. A mandatory cap on hospital expenditures 

would be imposed if a voluntary effort by hospitals failed to hold the annual 

rate of increase in expenditures to 9.7 percent. The 9.7 percent goal is 

based on the Administration's estimate of a 7.9 percent increase in the cost 

of hospital inputs, plus a 0.8 percent allowance for population growth and 

utilization, and a one percent allowance for additional services. The goal 

would be reformulated in future years in accordance with changes in the 

rate of increase in population and the cost of hospital inputs. According to 

eBO economic assumptions, hospitals would require at least an 8.9 percent 

annual increase to purchase the same market basket of goods in fiscal years 

1979 and 1980 that they did in fiscal year 1978. With a one percent 

allowance each for the increase in population and increased services, the 

revised eBO estimate of the President's goal is 10.9 percent for 1980. This 

new goal is below the 11.6 percent voluntary goal announced last year by the 

hospi tal industry. 

eBO currently projects total hospital expenditures to increase at a 

higher rate than would be allowed under the voluntary goal due to a higher 

estimate of increased services than the one percent allowed by the 

President. Therefore, eBO does not assume savings in 1979. In fiscal year 

1980, savings of approximately $900 million are expected to result from the 

mandatory cap if implemented October 1979. 

Other proposed legislation would expand medicare coverage for 

outpatient mental health services, shorten the waiting period for re-entitled 

disabled individuals, and require continuation of health care coverage by 

employers of aged workers as well as a contribution to medicare by the aged 

self-employed. 

99 
MEDICAID 

The medicaid program is expected to expand through fiscal years 

1979-1980, largely because of a continued increase in the prices of medical 

services. Without any legislated or programmatic changes, outlays are 

projected by CBO to increase by 11.7 percent in fiscal year 1979 and by 12.0 

percent in fiscal year 1980. The Administration projects outlays on the 

same basis to increase by 13.8 percent in fiscal year 1979 and by 9.3 percent 

in fiscal year 1980. 

Medicaid Outlay Estimates: In Millions of Dollars 

1979 Estimates 1980 Estimates 

Pres. CBO Est. Pres. CBO Est. 

Latest of Pres. Budget of Pres. 

Request Request Difference Request Request Difference 

Current Law 

w/o Program 

Changes 12,152 11,928 -224 13,281 13,359 78 

Program Changes 

Fraud & 

abuse -348 -50 298 -616 -250 366 

Other -291 -291 0 

Proposed Legislation 

Hosp. cost 

containment -53 0 53 -225 -140 85 

Other 206 206 0 

Total 11,751 11,878 127 12,355 12,884 529 

100 
The Administration estimates savings of $348 million in 1979 and 

$616 million in 1980 due to an expanded program to detect fraud, abuse, and 

error. Based on the current plans of several large states, CBO projects 

federal budget savings of only $50 million in fiscal year 1979 and only $250 

million in 1980. The Administration also proposes to save an additional $291 

million in 1980 as a result of both regulatory changes that can be made 

under current law and a technical change in the way states are reimbursed. 

These amounts were included in CBO's estimate of the President's request 

for 1980. 

With respect to new legislation, the Administration is assuming 

savings of $53 million in 1979 and $225 million in 1980 resulting from the 

President's proposal to control hospital costs. CBO assumes no savings will 

occur in 1979 and that only $140 million will be saved in 1980 (see discussion 

under Medicare). For fiscal year 1980, the President is proposing 12 

additional pieces of legislation, both to initiate new programs and to provide 

cost savings. The major components are the child health assurance program 

(CHAP) costing $220 million and the extension of medicaid eligibility to 

low-income women which would cost $68 million. The $82 million in savings 

attributable to the other pieces of legislation is included in CBO's estimate 

of the President'S budget. The resulting CBO estimate of the President's 

request for 1980 is $12.9 billion, which exceeds the President's estimate of 

$12.4 billion by $529 million. 

OTHER HEALTH PROGRAMS 

Included in this category are the major HEW discretionary programs 

for health services, research, education and training. Also included are 

programs for consumer and occupational health and safety. 

The President'S budget request of $9.1 billion in budget authority for 

these programs is $600 million for these programs is below the level CBO 

estimates is required to maintain current services. Most health research 

programs, with the exception of mental health research, have been targeted 

for reductions in real terms. Manpower training programs in general have 

also been cut, implying a policy shift away from federal promotion of an 

increased supply of health professionals. Nevertheless, many programs 

which are intended to improve distribution of health resources or increase 

access to care for certain groups have been expanded. Finally, the 

President's budget appears to emphasize preventive and public education 

programs. Efforts to reduce hypertension, and to improve access to genetic 

counseling services have received increased funding in the President'S 

request. 

101 
INCOME SECURITY (FUNCTION 600) 

Income security programs account for close to one- third of the 

federal budget. The function is dominated by social security which made up 

64 percent of income security outlays in fiscal year 1978. Other major tLUst 

fund accounts in income security include railroad retirement, civil service 

retirement, and unemployment insurance. The remainder of the function 

provides cash and in-kind benefits, primarily to low income individuals, 

through a number of public assistance programs including aid to families 

with dependent children, supplemental security income, food stamps, school 

lunch and other nutrition programs, housing assistance and the refundable 

portion of the earned income credit. The refundable portion of the 

Administration's proposed real wage insurance program is also included in 

this function. 

Function Totals: In Billions of Dollars 

1979 Estimates 1980 Estimates 

2nd Pres. CBO CBO Pres. CBO 

Con. Latest Estimate Current Budget Estimate 

of Pres. of Pres. Res. Request Request ~/ Policy Request Request ~/ 

Budget 

Authority 191. 8 191. 0 193. 1 221.6 214.5 216.8 

Outlays 159.3 158.9 161. 3 184.2 179. 1 185.3 

a/ Preliminary, subject to change. 

Most of the income security programs are entitlements and economic 

conditions strongly influence their patterns of growth. Many of the 

benefits are, by jaw, automatically adjusted for increases in the cost of 

living. In addition, unemployment and other economic and demographic 

factors affect the number of persons eligible for benefits. 

102 
Percentage Increase from Preceeding Year in Income Security Outlays 

CBO 

Estimate 

Fiscal Years 1974 1975 1976 1977 1978 1979 1980 

--"--~----

Nominal terms 16.2 28.6 17.3 8.2 6.5 10.5 14. 1 

CPI Deflated 

terms 6.1 15.8 9.5 0.7 -0.5 1.1 6.4 

The high annual rates of increase in income security outlays from 

1974 to 1976 reflect the effects of the recession combined with high rates 

of inflation; the lower rates of increase from 1976 to 1978 reflect the 

improving economic conditions. The President's request, as reestimated by 

CBO, shows a swing once again to a faster rate of increase in these 

programs, largely as a result of the economic slowdown projected by CBO. 

The Administration is also projecting a slowdown, but it is less severe and 

begins somewhat later. 

103 
CBO Reestimates of the President's Budget Request: In Billions of Dollars 

1979 1980 

Budget Outlays Budget Outlays Authority Authority 

President's January Request 191. 0 158.9 21~.5 179.1 

CBO Reestimates: 

Current Services 

Social Security 1.1 1.0 .2 1.~ 

Unemployment Insurance .8 1.3 .5 2.9 

Assistance Payments . 1 .1 .3 .~ 

Food Stamps -.2 -.2 

Earned Income Credit . 1 . 1 .3 .3 

Other .2 . 1 .2 

Subtotal 2:l 2.4 1-:3 5.2 

Legislation 

Food Stamps .6 .6 

Assistance Payments . 1 . 1 

Real Wage Insurance . 1 .1 

Other .2 2 

Subtotal 1.0 1:5 

CBO Estimate of 

President's Request ~/ 193.1 161. 3 216.8 185.3 

a/ Preliminary, subject to change. 

In 1980, CBO has reestimated the President's outlay estimates up by 

$6.2 billion. Four billion dollars or 65 percent of the reestimate results 

from differences in economic assumptions. An additional $0.4 to $0.5 billion 

of the $6.2 billion difference reflects CBO's lower estimates of savings that 

could result from certain management improvements, additional quality 

control, and fraud and abuse reduction. While savings in these areas are 

possible, historical experience has shown that these savings are frequently 

overestimated. The remaining $1.8 billion revision in 1980 outlays results 

from factors relating to individual programs and are detailed in the program 

discussions that follow. 

104 
SOCIAL SECURITY 

Budget authority in the old age and survivor's insurance (OAS!) and 

disability insurance (D!) programs primarily consists of payroll tax receipts. 

These receipts are a component of social insurance revenues which are 

discussed in Chapter 2. Social security outlays for fiscal years 1979 and 

1980 are expected to increase somewhat more rapidly than over the past 

year. About two-thirds of the expected increase in cash payments in 1980 is 

the result of the automatic cost of living benefit increases in June 1979 and 

June 1980. Increases in the number of beneficiaries and in the real benefit 

for new retirees account for the remainder of the program's growth. 

Social Security Outlay Estimates: In Billions of Dollars 

1979 Estimate 1980 Estimate 

eBO CBO 

Pres. Reest. of Pres. Reest. of 

Latest Budget Budget Budget 

Request Request Difference Request Request Difference 

Current Law 

OASI 89.6 90.4 0.7 101. 5 102.2 0.7 

DI 14.1 14.4 0.3 15.7 16.5 0.8 

OASDI 

Subtotal 103.7 104.8 1.1 117.2 118.7 1.4 

Proposed Legislation 

OASI * * * -0.5 -0.4 0.1 

DI -0.1 -0.2 -0.1 

OASDI 

Subtotal -.6 -.6 0.0 

---

Total 

,Outlays 103.7 104.8 1.1 116.6 118. 1 1.4 

* Less than $50 million 

Totals may not add due to rounding. 

105 
The eBO current policy estimate of social security outlays in 1980 is 

$1.4 billion higher than the Administration's. The eBO estimate explicitly 

takes into account the effect of unemployment, wages, and social security 

benefit levels in determining the number of beneficiaries coming onto the 

social security rolls. The eBO economic assumptions for higher 

unemployment and slower growth in real wages (wages adjusted for 

inflation) result in an acceleration of retirements, reversing the trend of the 

past two years. The effect is stronger for the disability program. 

The Administration intends to improve the review process for 

screening DI applicants and to make other improvements in the management 

of the program. If these efforts are instituted they may well result in 

program savings; but these have not been taken into account in the current 

eBO estimates. 

The Administration is proposing several minor changes in the social 

security legislation, estimated to save about $600 million in fiscal year 

19&0. If enacted, the proposals would tend to strengthen the earnings 

replacement features of social security and limit dependents benefits and 

other benefits which are more welfare oriented. Low income recipients of 

these benefits would receive increased benefits from other programs to 

compensate for the loss of social security benefits. 

106 
CBO Estimates of the Savings in OASDI Outlays From Administration's 

Proposed Legislation ~/: In Millions of Dollars 

Phase-out of post-secondary school student benefit 

Eliminate lump sum death benefit 

Eliminate minimum benefit 

Eliminate windfall for those with federal pension 

Reduce drop-out years for calculating 

disabled worker and survivor benefits 

Limit family benefit for disabled 

Phase-out benefit for parents of 16-17 year olds 

Other proposals 

Total 

a/ Preliminary, subject to change. 

1980 198~ 

175 1,700 

150 300 

50 200 

20 200 

35 300 

120 620 

20 500 

30 200 

600 ~,020 

As indicated in the table, the proposal with the largest dollar savings 

would phase-out benefits to students aged 18 to 22 years enrolled in postsecondary schools, who are chHdren of retired, disabled or deceased 

workers. Variants of this change have been proposed in past budgets. The 

phasing out of the student benefits is expected to result in additional costs 

to the Basic Educational Opportunity Grants (BEOG) of $10 million in fiscal 

year 1980 and $~O million in fiscal year 198~. 

Another proposal would eliminate the lump-sum death payment to 

survivors of deceased workers. The Administration has estimated this would 

save $206 million in payments for fiscal year 1980 plus additional savings in 

staff. CBO is estimating a 1980 savings of only $150 million after allowing 

for increased expenses of determining beneficiary deaths. 

A proposal to eliminate the minimum benefit for all new recipients 

has been reintroduced. (The 1977 social security amendments froze these 

benefits at $122 a month to new recipients) The Administration estimates 

107 

30-0640- 79 - 9 
that SSI payments would rise by about $10 million to offset reduced social 

security payments to low income recipients of the minimum. About 30 

percent of retired federal workers who had also worked in covered 

employment currently receive the minimum. This group would also be 

affected by a new proposal providing for a reduction of a dollar of social 

security benefits for every $3 of federal pension for federal pension amounts 

above the average social security benefit. Social security benefits, 

however, would not fall below the level where they replaced 32 percent of 

the federal pensioner's average covered earnings. The intent is to eliminate 

windfall benefits to federal workers with only a few years of covered 

employment who now benefit from the progressivity in the formula for 

determining social security benefits. 

Several proposals are variants of legislation introduced in the 95th 

Congress which aim to limit benefits to disabled workers. One of these 

proposals would limit the ratio of family benefits to past earnings. 

Currently it is possible for a disabled worker to collect total family benefits 

which far exceed prior earnings. Other proposed changes are intended to 

provide incentives for disabled workers to return to work and ultimately 

leave the rolls. Such incentives include expanded medicare coverage, a 

longer trial work period and increased allowances for certain disability 

related work expenses. These provisions would result in small additional 

costs to the program in the short run. 

The net savings of all of these proposals is projected to be 

approximately $4.0 billion by fiscal year 1984. Assuming the maximum 

taxable wage base changes as scheduled, these savings would allow the 

currently legislated OASDI tax rates to be lowered by 0.1 percentage point 

in fiscal year 1984 without any change in the trust fund balances. 

UNEMPLOYMENT INSURANCE 

CBO has reestimated the President's outlay request in unemployment 

insurance up $1.3 billion in 1979 and up $2.9 billion in 1980. Most of the 

differences relate to higher CBO estimates of state benefit payments in the 

regular and extended benefit programs. Differences in economic 

assumptions account for $300 million of the difference in 1979 and $2.3 

billion in 1980. The remainder of the difference in 1980 ($600 million) and 

part of the remainder in 1979 ($400 million) results from higher CBO 

108 
estimates of the average weekly benefit. The average benefit projected by 

the Administration seems unrealistic, since benefits are tied to wages 

which, even under the President's guidelines, would rise by 7 percent a year. 

Average Unemployment Insurance Benefit: In Dollars 

1978 1979 1980 

Actual Estimated Estimated 

CBO 80.38 84.01 91.40 

Administration 80.38 80.55 83.88 

The differences in average weekly benefit estimates account for about $400 

million in 1976 and $600 million in 1980. This leaves $600 million of the 

1979 difference unexplained. 

ASSISTANCE PAYMENTS 

The President's estimates of outlays for aid to families with 

dependent children (AFDC) fall below CBO's by $100 million in 1979 and by 

$400 million in 1980. These differences result primarily from higher CBO 

projections of the average monthly payment per recipient. 

Average Monthly AFDC Payment Per Recipient: In Dollars 

1978 a/ 1979 1980 

CBO Estimates 82.16 88.08 95.12 

President's Estimates 82.16 86.58 91.04 

a/ Actual 

109 
The Administration also includes an estimate for $100 million in 

savings for both 1979 and 1980 for ongoing quality control activities. CBO 

estimates implicitly include savings for quality control based on historical 

trends in the program. CBO does not believe that additional quality control 

savings are likely to materialize. 

The Administration is proposing legislation which it estimates would 

save a net of $212 million in AFDC during fiscal year 1980. The proposals 

include counting the income of a stepparent in determining AFDC benefits, 

standardizing the work expense disregard, raising federal reimbursements 

for Guam, Puerto Rico and the Virgin Islands, and modifying the child 

support enforcement program. CBO believes the Administration has 

overestimated the savings from proposed changes in the work expense 

disregard and in the child support program. CBO estimates total savings 

from these proposals at $111 million. 

FOOD STAMPS 

The Administration is requesting a supplemental appropriation of 

$245 million for fiscal year 1979, while CBO estimates show a need for a 

supplemental of $54 million. The Administration's request for a larger 

supplemental reflects the uncertain outlook for program growth resulting 

from the implementation of new food stamp regulations. These new 

regulations, implemented in January 1979, result in major changes in the 

program as authorized in the Food Stamp Act of 1977. CBO estimates 

reflect a gradual program growth over the remainder of fiscal year 1979 

resulting from the new provisions. The Administration estimates imply a 

more rapid adjustment. 

The Administration's request for fiscal year 1980 assumes enactment 

of legislation removing the current law authorization ceiling of $6.2 billion. 

The authorization ceilings were based on significantly different food price 

and economic projections than have actually occurred since the law was 

enacted. Along with proposed legislation to improve quality control in the 

program, the Administration estimates outlays of $6.9 billion--

approximately $700 million higher than the outlays that would occur under 

the authorization ceiling. Using CBO economic assumptions and assuming 

legislation removing the authorization ceiling, CBO estimates that outlays 

would be $7.5 billion, an increase of $600 million over the Administration's 

estimate. Approximately $500 million of the increase results from less 

110 
optimistic economic assumptions. The remaining $100 million is for lower 

savings from the Administration's proposed quality control legislation. 

Because of the time constraints inherent in establishing national error 

payment standards that could then be implemented in fiscal year 1980, the 

CBO estimate does not include any additional quality control savings. 

Savings from the proposed legislation could occur beginning in fiscal year 

1981. 

EARNED INCOME CREDIT 

The addition of $100 million in 1979 and $300 million in 1980 to the 

Administration's budget estimates for the earned income credit reflects 

CBO's estimate of a provision in the Revenue Act of 1978 which allows some 

individuals to file for benefits through withholding. The President's budget 

is carrying similiar estimates except the entire impact of the new 

legislation is shown as a revenue loss. This change, therefore, is an 

accounting change which should have no impact on the budget deficit. 

REAL WAGE INSURANCE 

CBO has reestimated the President's request for the refundable 

portion of real wage insurance by $100 million in 1980. This reestimate is 

based primarily on the higher inflation rate assumed by CBO. 

CHILD NUTRITION 

The President's budget request proposes reducing subsidies by 5 cents 

per meal to middle and high income children, eliminating the special milk 

program in schools operating a lunch or breakfast program, and redefining 

the eligibility requirements for free and reduced price meals. The 

Administration estimates that these changes would save $358 million in 

1980. Due to implementation problems, CBO assumes that only about half 

of these savings could be realized in fiscal year 1980. 

HOUSING ASSISTANCE 

There are major program changes in the President's budget 

submission for housing assistance programs. Additional Section 8 and public 

housing units are being reduced from 370,000 in 1978 to 360,000 in 1979 to 

111 
300,000 in 1980. In addition, the President's budget proposes a rescission of 

$600 million of existing authority in fiscal year 1979. These funds, 

appropriated in the 1976 HUD Appropriations Act, were intended for 

interest reduction grants to state housing agencies pursuant to Section 802 

of the Housing and Community Development Act of 1974. HUD indicates 

that these funds are not needed because of the availability of financing 

under more favorable terms from other sources. 

112 
VETERANS' BENEFITS AND SERVICES (FUNCTION 700) 

This function provides a variety of benefits and services to veterans, 

their families and survivors. These benefits include compensation to 

veterans for service-incurred disabilities and to the survivors of veterans 

dying in service, income assistance for needy veterans disabled from causes 

not related to military service, educational benefits for recently discharged 

veterans, medical care for disabled and elderly veterans, and loan 

guarantees for veterans wishing to purchase homes. 

Function Totals: In Billions of Dollars 

1979 Estimates 1980 Estimates 

2nd Pres. CBO CBO Pres. CBO 

Con. Latest Estimate Current Budget Estimate 

of Pres. of Pres. Res. Request Request ~/ Policy 'p./ Request Request ~/ 

Budget 

Authority 21.05 20.4 20.4 21.8 21.0 21.0 

Outlays 20.7 20.2 20.2 21.6 20.5 20.6 

~/ Preliminary, subject to change. 

'£/ CBO current policy estimates assume full discretionary inflation. In 

function 700 this comprises cost-of-living increases in the compensation 

and readjustment benefits programs and the cost with inflation of 

maintaining the current level of services in the medical programs. 

The President's fiscal year 1980 budget requests an increase of $0.6 

billion in budget authority and $0.2 billion in outlays from 1979 levels. This 

increase is the result primarily of increases in the compensation and pension 

programs necessitated by the enactment of the Veterans' and Survivors' 

Pension Improvement Act of 1978 (Public Law 95-588) and the Veterans' 

Disability Compensation and Survivors' Benefit Act of 1978 (Public Law 95-

479). Although the CBO estimates of the President's request do not change 

the functional totals (with the exception of $0.1 billion difference in 1980 

outlays), the estimates of several accounts differ significantly. 

113 
Differences Between Administration and eBO Spending Estimates: In 

Billions of Dollars 

1979 1980 

Budget Outlays Budget Outlays Authority Authority 

President's January Request 20.4 20.2 21.0 20.5 

eBO Reestimates: 

eomp. & Pen. -0.1 -0.1 -0.1 -0.1 

Readj. Benefits 0.1 0.1 0.1 O. 1 

Loan Guaranty 0.2 

eBO Estimate of 

President's Request ~I 20.4 20.2 21.0 20.6 

~I Preliminary, subject to change. 

The eBO estimate of the compensation and pensions account is down 

approximately $100 million in budget authority and outlays for both fiscal 

years 1979 and 1980 as the result of a reestimate of the anticipated cost of 

the new pension law. The Administration's estimate assumes that all 

pensioners who would benefit by electing the new program would do so, 

while the new eBO estimate assumes that only one-third of the eligibles will 

switch. 

The President is proposing a 7.8 percent increase in the rates of 

disability compensation at an estimated cost of $498 million in budget 

authority and $457 million in outlays for 1980. According to the current 

eBO economic forecast, however, an 8.3 percent rate increase would be 

required in this program to cover the inflation anticipated during fiscal year 

1979. A rate increase at this level is expected to cost approximately $577 

million in budget authority and $531 million in outlays. 

In the readjustment benefits program, the eBO reestimate of the 

President's request for budget authority and outlays exceeds the 

Administration's estimates in both 1979 and 1980 by about $100 million. In 

1979 the increase is due to a higher eBO projection of the number of 

trainees, and in 1980 to a higher eBO estimate of average cost. 

114 
The Administration has proposed legislation which would eliminate 

correspondence and flight training for veterans, service persons and those 

receiving dependents educational benefits for an estimated savings of $58 

million in 1980. In addition, the Administration has proposed a two-year 

extension of the GI Bill training period for Vietnam era veterans taking onthe-job training and for those without a high school diploma (or equivalent) 

for the purpose of taking vocational, technical or high school training, at an 

estimated cost of $54 million. 

The President's 1980 request does not include a cost-of-living 

increase for readjustment benefits. The CBO current policy estimate 

assumes an 8 percent increase for fiscal year 1979 inflation. It is more 

likely, however, that Congress will follow convention and raise rate levels 

by 17 percent to cover the increase in the CPI from October 1, 1977, the 

effective date of the last rate increase. A rate increase of this magnitude 

could be expected to add approximately $600 million to outlays in fiscal 

year 1980. The absence of a rate increase in the President's request implies 

a continuing real decline in the purchasing power of GI Bill benefits. 

The outlays in the loan guaranty program for 1980 are estimated by 

CBO to be $159 million more than requested by the President. This is a 

direct result of a CBO estimate of $250 million in loan sales as opposed to 

the V A estimate of $409 million. 

The President has requested a 3.4 percent increase in 1980 outlays 

for veterans medical care. This is approximately 4 percent below the 

increase in the CPI anticipated by CBO and about 6 percent below the 

expected increase in the medical CPl. The Administration expects to avoid 

higher cost increases through greater efficiency. In some cases, however, 

the expected efficiency savings may be difficult to achieve. For example, 

the President's budget does not include an inflation allowance for grants to 

state-operated facilities treating veterans, even though the Administration 

has little control over the management of these facilities. Thus, the 

Administration proposed funding levels could result in a reduction in service. 

CBO estimates that approximately $300 million over the amount shown in 

the President's 1980 request would be required to maintain current program 

levels. 

The President has also proposed other legislation that the 

Administration anticipates will result in a net savings of about $300 million 

in 1980. Included in these proposals are measures that would provide 

psychological readjustment counseling for Vietnam veterans, require 

reimbursement to the Veterans Administration from health insurers for 

certain treatment of insured veterans, and limit travel allowances and overthe-counter drugs for veterans with non-service connected disabilities. 

115 
ADMINISTRATION OF JUSTICE (FUNCTION 750) 

Function 750 includes activities of the Federal Bureau of Investigation, the Immigration and Naturalization Service, the Drug Enforcement 

Administration, the Federal Prison System, the Law Enforcement Assistance 

Administration, the Customs Service, the Legal Services Administration, the 

Equal Employment Opportunity Commission and the Judiciary. 

Function Totals: In Billions of Dollars 

1979 Estimates 1980 Estimates 

2nd Pres. CBO CBO Pres. CBO 

Con. Latest Estimate Current Budget Estimate 

of Pres. of Pres. Res. Request Request ~I Policy Request Request ~I 

Budget 4.3 4.2 4.2 4.5 4.3 4.3 Authority 

Outlays 4.2 4.3 4.3 4.5 4.4 4.5 

~I Preliminary, subject to change. 

As shown above, the President's 1980 budget authority request is $0.1 

billion above the 1979 level (an increase of about 2 percent) and $0.2 billion 

below the CBO current policy estimate of $4.5 billion. Much of this 

difference relative to current policy is attributable to the President's 

funding request for the Law Enforcement Assistance Administration 

(LEAA). He will be submitting a proposal to combine activities operated 

under the present LEAA with those of the National Institute of Corrections 

(a part of the Federal Prison System) to form the Office of Justice 

Assistance, Research and Statistics (OJARS). A total of $546 million in 

budget authority is requested for this office in fiscal year 1980, $112 million 

below the 1979 funding level for the two existing programs and $163 million 

below what would be expected under current policy assumptions in 1980. 

This reduction in funding would be reflected in 1) the elimination of several 

block gran t programs, such as planning formula grants and corrections 

formula grants, 2) a decrease in funds for criminal justice formula grants, 

and 3) the termination of certain correctional programs. 

116 
For the other activities in this function, the President's 1980 request 

for budget authority is $213 million above the current 1979 estimate, while 

projected outlays are up by $217 million. Both represent an increase of 6 

percent over the President's 1979 estimate, but fall short of CBO's projected 

current policy levels. Almost half ($104 million) of the requested increase 

in budget authority is for judicial activities, with the largest increases 

sought for salaries and expenses of bankruptcy courts (up $33 milJion, almost 

doubling the 1979 level) and salaries of supporting personnel (up $25 million, 

an increase of 14 percent). These increases reflect the costs of establishing 

independent bankruptcy courts as mandated in the Bankruptcy Reform Act 

of 1978, and the costs associated with the increase of 152 federal judgeships 

created by the Omnibus Judgeship Act of 1978. The budget also provides an 

increase of $38 million (or 19 percent) for U.S. attorneys and marshalls, in 

order to meet the needs created by the additional judgeships. 

The President is asking a relatively small increase in funding for law 

enforcement activities. He is proposing a budget authority increase of $73 

million (less than 4 percent) for such activities, with outlays projected to 

rise by only $50 million from 1979 levels. Small increases are requested for 

the Federal Bureau of Investigation and the Customs Service, with virtually 

no change in funding for the Immigration and Naturalization Service and the 

Drug Enforcement Administration. As a result, the requested budget 

authority for law enforcement activities is $110 million (or 5 percent) below 

the projected current policy level. 

The only major cut proposed, other than in LEA A funding, is a $29 

million reduction in budget authority requested for prison buildings and 

facilities. No new prison construction is proposed for fiscal year 1980. 

New program initiatives proposed for 1980 include fair housing 

assistance, authorized by Title VIII of the Civil Rights Act, to aid in 

eliminating housing discrimination. The President is also proposing to 

establish a program of services for drug dependent offenders, authorized by 

Title II of the Narcotic Addict Rehabilitation Act, to reduce the incidence 

of criminal acts by persons under supervision of the U.S. Parole Commission. 

The budget authority requested for each program in fiscal year 1980 is less 

than $4 million. 

117 
GENERAL GOVERNMENT (FUNCTION 800) 

The programs in the general government function are designed to 

carry out the legislative and administrative responsibilities of the federal 

government. Included in the function are the Legislative Branch, the White 

House and the Executive Office of the President, and the agencies responsible for personnel management, fiscal operations, and property control. 

Function Totals: In Billions of Dollars 

1979 Estimates 1980 Estimates 

2nd Pres. COO CBO Pres. CBO 

Con. Latest Estimate Current Budget Estimate 

of Pres. of Pres. Res. Request Request ~/ Policy Request Request ~/ 

Budget 4-.1 4-.3 4-.3 4-.4- 4-.5 4-.5 Authority 

Outlays 4-.0 4-.2 4-.2 4-.4- 4-.3 4-.3 

~/ Preliminary, subject to change. 

The President's request for fiscal year 1980 of $4-.5 billion in budget 

authority is $14-5 million over the latest request for fiscal year 1979, but 

represents a $381 million increase over the fiscal year 1979 budget authority 

enacted to date. Included in the President's request for fiscal year 1979 are 

several supplementals totaling $214- million in budget authority, $50 million 

of which is for the new Senate office building, $4-0 million for the Internal 

Revenue Service (IRS), and $81 million for the General Services Administration's (GSA) motor pool. The President's request for fiscal year 1980 

includes an increase of $79 million for the legislative branch. The largest 

portion of that increase is an added $25 million for the General Accounting 

Office. The President is also requesting a $97 million increase over fiscal 

year 1979 levels for the IRS, mainly in the Taxpayer Service and Returns 

Processing account. This increase is for maintaining the automated 

processing system and for additional staff and expenses to keep pace with 

the increasing workload. Another significant change from fiscal year 1979 

to 1980 is in requested budget authority for the GSA. The fiscal year 1980 

118 
total is $61 million less than the 1979 request in total, but this difference 

can be attributed to the one-time funding needs of $81 million for the motor 

pool and $21 million for the Federal Buildings Fund in fiscal year 1979. 

There are many accounts wi thin the function where the preliminary 

COO estimates of outlays differ slightly from those of the President for 

fiscal year 1980, but those differences net out to a small change. The 

greatest difference ($68 million) is in the estimate of outlays for the 

Federal Buildings Fund, for which OMB estimates that outlays will be -$138 

million in fiscal year 1980. 

The President's estimates for both 1979 and 1980 are affected by a 

change in the accounting treatment of gold sales. On November 1, 1978, the 

President announced that as part of his plan to strengthen the dollar, the 

Treasury would expand its monthly sale of gold. The proceeds from such 

sales have historically been included on budget as an offsetting receipt to 

the Department of the Treasury in function 800. In the fiscal year 1980 

budget submission, the President reclassified these receipts for fiscal years 

1978-1980 as a means of financing, and they are no longer included in the 

calculation of budget authority and outlays. For fiscal year 1979, profit on 

the sale of gold (the amount in excess of the $11-2 per ounce asset value) is 

estimated by the Treasury Department to be $2.5 billion, assuming a sale of 

16.05 million ounces. No estimate has been included for fiscal year 1980. 

119 
GENERAL PURPOSE FISCAL ASSISTANCE (FUNCTION 850) 

This function includes the general revenue sharing programs, antirecession financial assistance, broad-purposed shared revenues, and payments and loans to the District of Columbia. 

Function Totals: In Billions of Dollars 

1979 Estimates 1980 Estimates 

2nd Pres. CBO CBO Pres. CBO 

Con. Latest Estimate Current Budget Estimate 

of Pres. of Pres. Res. Request Request ~ Policy Request Request ~ 

Budget 

Authority 8.8 8.8 8.8 9.0 8.8 8.8 

Outlays 8.8 8.9 8.9 9.0 8.8 8.8 

~/ Preliminary, subject to change. 

The Administration recommends full funding of the general revenue 

sharing program, which was extended in 1976 through fiscal year 1980. The 

authorization level is $6,855 million in fiscal year 1979 and 1980. General 

revenue sharing makes up 77 percent of this function's outlays. 

The major legislative initiatives included in this function concern the 

Antirecession Financial Assistance (ARFA) program. This program was 

designed to give assistance to state and local governments during periods of 

high unemployment. The ARF A program expired on September 30, 1978 and 

has not been renewed. The Administration has included tentative proposals 

for two separate programs and both are intended to be highly targeted 

towards only the most hard-pressed governments. 

Funds are included in the budget only for the proposed Targeted 

Fiscal Assistance program. ($250 million for 1979 and $150 million for 

1980). Its function would be to provide transitional assistance to a small 

number of the most needy local governments. 

120 
The Administration also intends to propose a separate standby 

program to provide fiscal assistance to state and local governments in case 

of recession, but no funds are provided in the budget. The details of this 

proposal are not final, but it would probably be similar to the expired ARFA 

program, except that the trigger would be higher and the funds would be 

distributed in a more targeted fashion. 

Under the expired program, the total amount of funds to be distributed varied with the size of the national unemployment rate. Quarterly 

payments for the program were made on the basis of the unemployment rate 

in the calendar quarter that ended three months prior. At 6 percent 

unemployment, ,$125 miUion was distributed and for each tenth of a 

percentage point over that mark another $30 milJion was also distributed. 

Under the new proposal the unemployment rate trigger would 

probably be higher than 6.0 percent. If it were assumed to be be 6.5 percent 

or higher then there would be no payments made under the Administration's 

current economic assumptions. On the other hand, under CBO's current 

economic assumptions and assuming a 6 •. 5 percent trigger, payments totaling 

$340 miHion would be made in fiscal year 1980 and greater amounts in fiscal 

year 1981. 

121 
INTEREST (Function 900) 

The interest function has two major components: interest on the 

public debt and other interest. Interest on the public debt is the cost of 

borrowing to finance the public debt. Other interest is composed mostly of 

offsetting receipts that reflect on- and off-budget agency interest payments 

to the Treasury for loans outstanding. Budget authority and outlays are 

identical for both components. 

Function Totals: In Billions of Dollars. 

-_ ...... _---------------------------

1979 Estimates 1980 Estimates 

2nd Pres. CBO CBO Pres. CBO 

Con. Latest Estimate Current Budget Estimate 

of Pres. of Pres. Res. Request Request ~/ Policy Request Request ~/ 

Budget 

Authority 48.0 52.8 52.0 56.9 57.0 56.3 

Outlays 48.0 52.8 52.0 56.9 57.0 56.3 

~/ Preliminary, subject to change. 

Growth in interest on the public debt is caused primarily by increases 

in the amount of debt outstanding. (The debt is increased to cover the onand off-budget deficits and the trust funds' surpluses.) Additionally, changes 

in the level of interest rates can affect interest costs. The growth in other 

interest is due to increased agency borrowing (primarily by the Federal 

Financing Bank) from Treasury and, consequently, to larger interest 

repayments. 

122 
Components of the Interest Function: In Billions of Dollars 

Interest on the 

Public Debt 

Other Interest 

Total 

1979 Estimates 

Administration CBO ~/ 

59.8 59.0 

-7.0 -7.0 

52.8 52.0 

~/ Preliminary, subject to change. 

1980 Estimates 

Administration CBO ~/ 

65.7 65.0 

-8.7 -8.7 

57.0 56.3 

The only difference between the Administration's estimates and the 

CBO estimates in both 1979 and 1980 is for interest on the public debt. The 

CBO estimate of interest on the public debt is based on the assumption that 

the public debt will increase by $74- billion both in fiscal years 1979 and 

1980. The large increase in interest on the public debt in 1979 is due to the 

rise in interest rates over the last 18 months and their expected continued 

rise during most of fiscal year 1979. During the latter part of 1979 and in 

1980, interest rates are projected to decline. Thus, the increase in interest 

on the public debt is moderated in 1980. 

The CBO estimate of interest on the public debt differs from the 

Administration estimate because of different assumptions about the increase in the debt outstanding and the level of interest rates. The 

Administration estimate assumes lower increases in the amount of debt 

outstanding ($56 and $60 billion for fiscal years 1979 and 1980, respectively.) The differences in the assumptions about the increase in the debt 

are primarily due to different unified budget deficit assumptions in both 

years; and, in fiscal year 1979, the Administration's assumption of a 

reduction to cash balances held by the Treasury. The lower amount of debt 

outstanding assumed for the Administration estimate is more than offset by 

assumed higher interest rates than projected by CBO. The net effect is that 

the CBO estimate is lower than the Administration's estimate. 

123 

aB-Gu; 0 - 79 - 10 
ALLOWANCES (Function 920) 

This function is composed of two parts, allowances for civilian 

(nondefense) agency pay raises and for contingences. 

Function Totals: In Billions of Dollars. 

1979 Estimates 1980 Estimates 

2nd Pres. CBO CBO Pres. CBO 

Con. Latest Estimate Current Budget Estimate 

of Pres. of Pres. Res. Request Request ~/ Policy Request Request a/ 

Budget 

Authority 0.8 0.7 0.7 1.5 2.4 2.4 

Outlays 0.8 0.7 0.7 1.4 1.4 1.4 

~/ Preliminary, subject to change. 

CIVILIAN AGENCY PAY RAISES 

For fiscal year 1980, the President's budget has assumed a cap of 5.5 

percent for civilian agency pay raises. This increase does not assume a 3 

percent catch-up from the previous year's pay cap (also set at 5.5 percent) 

nor does it assume a comparability rate of increase. In comparison, the 

CBO current policy estimate assumes an estimated 7.6 percent comparability raise, but no catch-up or pay cap. The Administration's proposed pay 

cap reduces the allowance by about $0.5 billion from CBO current policy. 

The Administration's estimate also assumes that some of the costs of 

a 5.5 percent pay raise will be absorbed by federal agencies. The 

Administration only includes funds sufficient for a 4.5 percent increase, 

with the remainder to be absorbed. Absorption is also being assumed in the 

fiscal year 1979 estimates, however at much higher rate. Funds sufficient 

for only a 3.8 percen.t increase have been budgeted, again with the 

remainder of the 5.5 percent cap to be absorbed by the agencies. 

124 
The Administration's budget also assumes an estimated $24 million 

savings in fiscal year 1980 for blue collar reform legislation that is being 

proposed again. The 95th Congress did not act on similar proposals offered 

in 1979. Other proposed legislation to modify the federal wage system 

includes splitting the general schedule into two parts and extending the 

comparability base to include fringe benefits. No budgetary impact was 

estimated for fiscal year 1980 for either proposal. 

CONTINGENCIES 

Unanticipated contingencies and possible requirements for future 

initiatives of $1.5 billion in budget authority and $500 million in outlays 

have been included in the 1980 budget estimates. Allowances for welfare 

reform proposals and for nondefense purchase inflation are included for 1981 

and subsequent years. In last year's budget request, part of the allowance 

was applied toward middle income student assistance and was transferred to 

function 500. A similiar procedure will probably apply if future initiatives 

are proposed by the Administration in fiscal year 1980. 

125 
UNDISTRIBUTED OFFSETTING RECEIPTS (Function 950) 

This function is composed of intragovernmental and proprietary 

receipts that cannot be reasonably assigned to any other single function. 

Intragovernmental receipts are payments from one part of government to 

another; proprietary receipts come from the public. 

Function Totals: In Billions of Dollars. 

1979 Estimates 1980 Estimates 

2nd Pres. eBO CSO Pres. CBO 

Con. Latest Estimate Current Budget Estimate 

of Pres. of Pres. Res. Request Request '9;.1 Policy Request Request '9;.1 

Budget 

Authority -18.0 -18.7 -18.4 -19.2 -19.0 -19.3 

Outlays -18.0 -18.7 -18.4 -19.2 -19.0 -19.3 

'9;.1 Preliminary, subject to change. 

EMPLOYER SHARE-EMPLOYEE RETIREMENT 

Employer Share is the federal government's contribution to its 

employees' retirement plans (civil service, social security, and so forth). 

The receipt grows each year as a result of federal pay raises, and increases 

in social security withholding rates (fiscal year 1979 only) and the maximum 

taxable wage (fiscal years 1979 and 1980). CBO and Administration 

estimates are virtually identical for this receipt in fiscal year 1979. In 

fiscal year 1980, the Administration's budget estimate does not reflect the 

effects of the October 1, 1979 pay raise, but those effects are included in 

the eBO estimate of the President's request. 

126 
INTEREST RECEIVED BY TRUST FUNDS 

Interest received by trust funds is the income which trust funds earn 

on their investment in public debt securities. Growth for this receipt is 

based on the net trust fund surplus and on changes in interest rates for 

public debt securities. CBO estimates the trust fund interest based on its 

estimate for interest on the public debt; Administration estimates are 

provided by the agencies. The CBO estimate is almost $200 million below 

the Administration's estimate in fiscal year 1979 due to lower interest rate 

assumptions. For fiscal year 1980, the estimates are virtually identical. 

Legislation has been introduced by the Administration to reduce 

social security and medicaid outlays. This would affect trust fund balances, 

and, therefore, trust fund interest. The increase in interest due to the 

legislation, about $100 million, by fiscal year 1980, has been included as 

proposed legislation in this function. 

RENTS AND ROY AL TIES ON THE OUTER CONTINENTAL SHELF 

Receipts are derived from the sale of leases of Outer Continental 

Shelf (OCS) lands and the royalties from the mineral production. Receipts 

vary from year to year based on the sale schedule and anticipated bonuses 

for each sale. 

The bonuses received from these lease sales are highly variable. In 

addition to being dependent upon reserves and other physical factors in the 

particular area, they are also highly dependent upon the psychological mood 

of business and to any expectation or anticipation to changes in the price of 

the minerals (oil and gas). For example, CBO estimated that the change in 

bonus receipts in fiscal year 1979 due to increasing gas prices in the Natural 

Gas Policy Act of 1978 would be $700 million. 

The CBO and Administration estimates by sale for fiscal years 1979 

and 1980 are listed below. (The Administration weights the total sale 

revenue by the probability that the sale will be held; its receipts are 

expected receipts.) 

127 
Estimated Outer Continental Shelf Receipts: 

By Fiscal Year, in Millions of Dollars 

Administration1s CBO 

Sale Expected Receipts Estimate 

Fiscal Year 1979 

65 Eastern Gulf of Mexico 61 120 a/ 

51 Gulf of Mexico 884 730 ~ 49 Mid-Atlantic 475 620 

48 Southern California 244 assumed 

delayed 

58 Gulf of Mexico 264 440 

42 North Atlantic 157 440 

Escrow Release 148 

Rents and Royalties 1,255 1,000 

Total, Fiscal Year 1979 3,488 3,350 

Fiscal Year 1980 

58A Gulf of Mexico 264 300 

Beaufort Sea 

55 Gulf of Alaska 55 200 

62 Gulf of Mexico 264 300 

42 North Atlantic 157 

48 Southern California 104 400 

49 Mid-Atlantic 119 

Escrow 148 

Rents and Royalties l,485 1,500 

Total, Fiscal Year 1980 2,596 2,700 

~/ These figures are the most recent official CBO estimate. These sales, 

however, have been held, and CBO underestimated them by about $100 

million. 

128 
CHAPTER V. THE BUDGET OUTLOOK FOR 1981-1984 

The 1980 budget reflects for the first time a three-year budget 

planning system instituted by the Administration to gain better control on 

the longer-range effects and direction of federal government policies. 

Budget estimates for the first two years beyond the 1980 budget year (1981 

and 1982) have received explicit policy review and represent planning 

ceilings for executive branch agencies. Projections for 1983 and 1984 are 

extrapolations of the policies in the planning base. 

A longer-term perspective is particularly important this year when 

reviewing the budget. First, one of the themes of the 1980 budget proposal 

is the Administration's anti-inflationary effort. Fiscal policy restraint, as 

exemplified in the budget, generally does not result in large near-term 

dividends for reducing the inflation rate, but the long-term effects can be 

significant. A second theme of the budget is reducing the size of the 

federal sector through spending restraint. To accomplish this, the budget 

includes a number of proposals for cuts in existing federal programs. Some 

of these cuts have a small effect on fiscal year 1980 budget outlays, but the 

effects grow significantly in 1981-1984. 

This chapter analyzes the long-term aspects of the President's 

budget. 

LONG-RANGE ECONOMIC GOALS 

Inflation, unemployment, and other levels of economic activity 

greatly affect federal spending and revenues. For example, higher inflation 

and unemployment rates automatically lead to increases in federal outlays, 

especially for social security and unemployment compensation. On the 

other hand, higher inflation rates lead to greater taxable personal income 

and, consequently, to greater tax receipts, whereas higher unemployment 

rates tend to work in the opposite direction. In order to develop budget 

projections, therefore, explicit assumptions must be made about economic 

trends over the next several years. 

The economic assumptions for calendar years 1979 and 1980 underlying the 1980 budget represent a forecast by the Administration of probable 

economic conditions. The assumptions for 1981-1984 are not forecasts but 

rather long-range goals, consistent with those set forth in the Full Employment and Balanced Growth Act of 1978 (the Humphrey-Hawkins Act). 

129 
CBO has also prepared a set of long-range economic assumptions for 

the purpose of analyzing alternative budget strategies in a long-run context. 

These assumptions build on the CBO economic forecast for 1979 and 1980. 

For 1981-1984 a set of internally consistent long-range economic targets are 

assumed. 

Over the five-year period 1980-1984, the Administration's assumptions for real economic growth (as measured by the average annual rate of 

increase in GNP) are very similar to those used by CBO for its five-year 

budget projections (See Table 20). The average rate of real growth 

projected by CBO is 3.9 percent, while the Administration assumes 3.8 

percent. However, the Administration is considerably more optimistic than 

CBO about unemployment and inflation. For calendar year 1984, the rate of 

increase in the Consumer Price Index (CPI) assumed for the Administration's 

budget projections is 2.7 percent, compared to 6.0 percent for CBO's 

projections. The average unemployment rate during 1984 for the Administration projections is 4.0 percent, compared to 5.5 percent for CBO's. 

TABLE 20. LONG-TERM ECONOMIC ASSUMPTIONS: BY CALENDAR 

YEAR, IN PERCENTS 

Economic Variable Administration CBO 

Real GNP Growth (average 1980-1984) 3.8 3.9 

Unemployment Rate (average 1984) 4.0 5.5 

Consumer Price Index (percent change, 

year over year, 1984) 2.7 6.0 

THE BUDGET OUTLOOK UNDER CURRENT POLICY 

Both the Administration and CBO estimate federal receipts and 

outlays under a continuation of current policy. These estimates provide a 

useful baseline for consideration of budget options. 

The Administration's estimates for current policy receipts are lower 

than those of CBO beginning in 1981 (see Table 21). The average annual 

rate of increase in the Administration's estimates is 11.3 percent, compared 

130 
to 13.4 percent for CBO. The difference is largely attributable to lower 

inflation rates in the Administration's economic assumptions; these inflation 

rates, in turn result in lower current dollar values for personal income and 

corporate profits--the main determinants of federal government receipts. 

TABLE 21. CURRENT POLICY PROJECTIONS OF REVENUES: BY 

FISCAL YEAR, IN BILLIONS OF DOLLARS 

1979 1980 1981 1982 1983 1984 

CBO 453 502 574 661 749 849 

Administration 456 504 571 647 715 778 

The comparison of Administration and CBO estimates for outlays 

under of current policy is more complex than the comparison of receipts. 

The Administration's concept of "current services" differs from the CBO 

concept of current policy in several ways: 

o The Administration does not make adjustments for inflation to 

the projections of all programs, but rather only adjusts national 

defense and various entitlement programs that are indexed to 

inflation under current law. CBO holds real resources constant 

throughout the budget and, consequently, adjusts all programs 

for inflation. 

o With minor exceptions, the Administration projections contain 

budget authority and outlays for only those programs that have 

already been funded for fiscal year 1979, while CBO projections 

include allowances in the Second Concurrent Resolution on the 

Budget for Fiscal Year 1979 for legislation not yet enacted but 

anticipated within the fiscal year. 

o The Administration interpretation of current policy for some 

individual programs differ from that of CBO, these differences 

are rela ti vely minor. 

131 
CBO current policy estimates for outlays rise from about $494 billion 

in 1979 to $755 billion in 1984. The Administration's starting point, $491 

billion for 1979, is close to the CBO estimate; but the differences between 

the two baselines grow very large by fiscal year 1984 (see Table 22). Part of 

the difference between the two estimates is attributable to economic 

assumptions and part is because of different concepts of "current policy." 

TABLE 22. CURRENT POLICY PROJECTIONS OF OUTLAYS: BY FISCAL YEAR, IN BILLIONS OF DOLLARS 

1979 1980 1981 1982 1983 1984 

CBO Projections 494 551 604 655 706 755 

Administration Projections 491 536 578 611 640 667 

Difference 3 15 26 44 66 88 

Conceptual difference 2 9 13 23 35 47 

Economic assumptions 6 13 21 31 41 

The inclusion of discretionary inflation adjustments in the CBO 

projections and other conceptual differences account for slightly more than 

half of the almost $90 billion difference between the CBO and Administration current policy projections for 1984. The remaining difference--

over $40 billion by 1984--is attributable to different economic assumptions. 

The Administration's assumptions about inflation and unemployment 

dramatically affect the five-year spending estimates. The Administration's 

lower inflation rates would mean that smaller cost-of-Hving increases would 

be necessary for programs like social security and federal employee 

retirement, and the lower unemployment rates would result in less spending 

for unemployment compensation and various other programs that provide 

benefit payments to individuals. 

132 
MULTIYEAR EFFECTS OF CHANGES FROM CURRENT POLICY 

The 1980 budget contains many recommendations for changes from 

current policies. For some of these, the multiyear effects are much larger 

than the near-term effects in fiscal year 1980. During the next few months 

CBO will be reestimating the 1981-1984 effects of most of these proposals. 

At present, however, it is only possible to identify the major proposals and 

show the administration's estimates of the multiyear effects. 

Receipts Proposals 

On the receipts side of the budget, the major Administration proposal 

is for the real wage insurance program. The Administration estimates tax 

credits of $2.3 billion in fiscal year 1980 (plus $0.2 billion in outlays for 

individuals with credits in excess of liability for tax). The budget shows no 

effects for 1981-1984 because the proposal is for one year and, under the 

Administration assumption of a decline in the inflation rate, credits would 

not be necessary in later years even if the program were extended. 

The budget also proposes various cash management initiatives that 

would require taxpayers to make payments closer to the time when 

liabilities occur and would require employers to deposit more rapidly taxes 

withheld. The Administration estimates that these initiatives will increase 

receipts up to $5 billion in 1981. 

Spending Proposals 

The 1980 budget proposes several changes from current policies for 

federal spending, which, according to the Administration, would increase 

projected outlays by $6 billion in 1984 (see Table 23.) These changes are the 

net of proposals for increases that by 1984 total $32 billion and proposed 

decreases of $26 billion. Some of the proposed spending changes are part of 

regular appropriations requests, such as the proposed increases for defense 

spending. Others require legislative action that would change existing laws, 

such as the proposed hospital cost containment and reductions in proposed 

social security benefits. 

The proposed increases above the Administration's current services 

estimates are apportioned roughly equally among national defense, human 

resources programs, and all other spending. The increases for national 

defense are mostly for investments that modernize military forces. This 

proposal represents the effects of a policy of sustained real growth in 

defense spending throughout the five-year period. In the human resources 

area, the largest proposed increase for welfare reform. Although no funding 

is requested for fiscal year 1980, the Administration has provided funds for 

133 
a new welfare reform proposal in its J981-J98lJ. projections. The Administration anticipates that the proposal will result in increases of $5 to $6 

billon per year in J 982-198lJ.. 

TABLE 23. ESTIMATED MULTIYEAR EFFECTS OF MAJOR ADMINISTRA TION SPENDING PROPOSALS: BY FISCAL YEAR, IN 

BILLIONS OF DOLLARS 

Increases 

Requiring Legislation 

Not Requiring Legislation 

Total 

Decreases 

Requiring Legislation 

Not Requiring Legislation 

Total 

Grand Total, Net 

1980 

2 

5 

7 

-lJ. 

-8 

----=12 

-5 

1981 

-7 

-8 

-=15 

0 

1982 

lJ. 

18 

-n 

-10 

-8 

--=18 

lJ. 

1983 

lJ. 

23 

27 

-13 

-9 

-22 

5 

1981J. 

-16 

-10 

-26 

6 

SOURCE: The Budget of the United States Government, Fiscal Year 

1980. 

For the remainder of the budget, a number of proposals are included 

that have a small effect on 1980 outlays, but relatively large effects by 

1981J.. International affairs proposals are estimated to increase 1980 outlays 

by $0.3 billion, but the effect will grow to $3.6 billion by 1981J.. Most of the 

increase is for foreign economic development assistance. The Administration's proposals for a National Development Bank is the major new initiati ve 

in the area of community and regional economic development. Outlays for 

the bank, whose mission would be to stimulate private sector investment and 

employment in economically distressed urban and rural areas, are projected 

by the Administration to grow to $1.3 billion by fiscal year 1981J., The 

budget projection also contains an allowance for other contingencies which 

totals $3 billion by 1981J.. 

134 
The reductions proposed in the President's budget are projected by 

the Administration to grow from about $12 billion in 1980 to about $26 

billion in 1984. CBO has examined some of the estimates for fiscal year 

1980, but has not yet reviewed the estimates for 1981-1984 (see Chapter IV). 

The reductions in defense are for continued caps on federal pay 

raises. A continuation of pay caps throughout the five year period for all 

defense employees may have some adverse effects on recruitment and 

retention, especially in the uniformed military. 

The largest reductions in the budget are in the human resources area. 

These cuts are dominated by reductions for social security and health care. 

By fiscal year 1984, the Administration estimates that the changes proposed 

for 1980 will result in savings of about $14 billion. CBO believes, however, 

that the 1980 savings may be overestimated. Consequently, the out year 

savings may be somewhat smaller than estimated by the Administration. 

Most of the proposed spending reductions in 1980-1984 for the remainder of 

the budget results from projected caps on civilian agency federal pay raises. 

LONG-RUN GOALS FOR THE ECONOMY AND THE BUDGET DEFICIT 

Any formulation of long-run budgetary targets must somehow balance 

goals for the economy, the size of government, and the budget deficit. 

These goals must also be weighed against demands for tax cuts and various 

programmatic requirements. 

Goals for the economy and the deficit are separable from goals for 

the size of the federal sector. Contractionary spending policies do not 

necessarily imply less fiscal stimulus and slower economic growth if 

spending reductions are offset by tax cuts. On the other hand, contractionary spending policies are often advocated as a way to reduce the budget 

deficit. In general, unless cuts in spending somehow produce a surge in 

demand in the nonfederal sectors of the economy, the two goals of a smaller 

federal sector and a lower deficit probably require accepting lower economic growth. 

The Administration is proposing multiyear spending goals that reduce 

spending as a percent of GNP. Although the five year projections in the 

1980 budget contain a slight net increase above the Administration's current 

services levels, the spending targets for 1980-1984 fall far below CBO's 

estimates of outlays under a contInuation of current policy. A large part of 

the difference results from the 1980 budget proposed to hold many programs 

constant in current dollar for 1981 and 1982 terms. This means that these 

programs would in real terms decline under the Administration's proposed 

multiyear planning base. 

135 
The 1980 budget contains no proposed tax cuts (other than real wage 

insurance for 1980). The combination of restrictive spending policies and no 

tax cuts makes it unlikely that the assumption of 3.8 percent average real 

growth in 1980-1984 can be achieved. The Administration's budget takes 

explicit note of this and states in several cases that tax cuts may be 

necessary in 1981-1984. For that reason, the budget cautions against taking 

seriously the large budget surpluses in 1983-1984 that are implied by 

subtracting projected outlays from projected receipts. 

CBO has estimated that, in order to achieve an assumed average of 

3.9 percent real growth in 1980-1984, fiscal policy changes in the form of 

additional tax cuts or spending increases from current policy levels will be 

necessary. These fiscal policy changes would mean that the budget would 

probably not be balanced before 1983. A contractionary spending policy 

that was offset by tax cuts would have little effect on real economic growth 

and the date of budget balance, although the size of the federal sector 

would be smaller. 

By way of contrast, a contractionary spending policy could be 

combined with a weaker economic growth target. For example, spending 

cuts from CBO current policy levels that are roughly consistent with the 

Administration's multiyear targets could be combined with a goal for 

average real growth of 3.4 percent per year for 1980-1984. As shown in 

Table 24, this would lead to a deficit in fiscal year 1980 of about $40 billion. 

The budget could probably be balanced by 1982 under this weaker growth 

scenario and the 1984 inflation rate would be about 4.5 percent. The 

drawback of this scenario is that the unemployment rate does not fall below 

6 percent during the five-year period. !! 

!! For further details, see CBO, Five-Year Budget Projections and 

Al ternati ve Budgetary Strategies for Fiscal Years 1980-1984, January 

1979. 

136 
TABLE 24. AL TERNA TIVE SPENDING STRATEGIES AND GOALS 

FOR THE ECONOMY 

Economic Goals (in percents) 

Real growth (average, 1980-1984) 

Unemployment rate (1984) 

Inflation rate (1984) 

Budget Defici t 

1980 (in billions of dollars) 

Year of budget balance 

Current Policy 

Spending Strategy 

and Moderate 

Growth Target 

3.9 

5.6 

6.0 

50 

1983 

Contr actionar y 

Spending Policy 

and Lower Growth 

Target 

3.5 

6.5 

4.4 

40 

1982 

The Administration's 1980 budget contains multiyear assumptions for 

the economy and the projections for the budget deficit that contrast sharply 

with those in Table 24. In particular, under a contractlonary spending policy 

with no tax cuts, the 1980 budget projections assumes real economic 

average growth of 3.8 percent, unemployment at 4 percent by the end of 

1983, a 1984 inflation rate of only 2.7 percent, and a near balanced budget 

by 1981. Unfortunately, this combination of economic growth, inflation, 

spending targets, and budget deficits is probably inconsistent. ~/ 

'l:./ For a further discussion of this point, see CBO, The Policy Response 

to Inflation, (January 1979), Chapter V. 

137 

o