[Analytical Perspectives]
[Budget Enforcement Act Preview Report]
[14. Review of Direct Spending and Receipts]
[From the U.S. Government Publishing Office, www.gpo.gov]


[[Page 241]]

 
               14. REVIEW OF DIRECT SPENDING AND RECEIPTS

                              Introduction

  The Budget Enforcement Act of 1990 established caps to control 
discretionary spending and a pay-as-you-go requirement to control 
legislative changes to mandatory programs and revenues. It did not, 
however, control the growth of mandatory spending resulting from 
economic and technical factors. In August 1993, the President 
established procedures to control this growth in mandatory spending by 
issuing Executive Order 12857. The Order set targets on the level of 
mandatory spending, excluding deposit insurance and net interest, for 
1994 through 1997. The Order also specified actions to be taken if the 
targets had been exceeded. These actions could have included specific 
revenue or direct spending changes or reductions in the discretionary 
caps. If the targets were exceeded, the savings to remove the excess in 
the prior, current, and/or budget years were required over a six-year 
period covering the current year through four years beyond the budget 
year. The President also had the option of recommending breaching the 
targets because of economic conditions or other specific reasons. This 
chapter presents the final annual review of direct spending and 
receipts. The Administration is proposing to control both discretionary 
and mandatory spending through a joint budget resolution (see Chapter 
13, ``Preview Report'' in this volume).
  OMB issued an initial report to the Congress in September 1993 setting 
the mandatory targets for 1994 through 1997. The initial targets were 
based on the economic and technical assumptions used in preparing the 
congressional budget resolution for 1994. They were consistent with the 
policies in the resolution as adjusted by final Congressional action on 
the Omnibus Budget Reconciliation Act of 1993 (OBRA 1993). The targets 
were revised in the 1995, 1996, and 1997 Budgets. Under the Order, no 
further adjustments are required.

      Comparison of Mandatory Targets and Outlays under Current Law

  Table 14-1 shows the major changes from the 1997 Budget in estimated 
outlays for mandatory programs in existing law that are covered by the 
target. Over the two year period, current law estimates have declined by 
$37.8 billion. Most of this difference is the result of reestimates for 
Medicaid, Medicare and credit liquidating accounts. In addition, outlays 
decreased for a redefinition of the budgetary component of the Universal 
Service Fund and changed for timing shifts in spectrum auction receipts. 
Table 14-2 shows the beneficiary assumptions of major benefit programs.
  As Table 14-1 shows, estimates of spending for programs covered by the 
targets were $46.7 below in 1996 and are projected to be $63.3 billion 
below the target in 1997. Since current law spending is projected to be 
below the targets, a special message to reduce direct spending is not 
required.

  Table 14-1.  MANDATORY TARGETS AND SUMMARY OF CHANGES TO CURRENT LAW  
                                 OUTLAYS                                
                        (In billions of dollars)                        
------------------------------------------------------------------------
                                                 1996     1997   1996-97
------------------------------------------------------------------------
                                                                        
Mandatory targets as of March 1996...........    840.0    908.5         
                                                                        
    Changes to outlays under current laws                               
                                                                        
Outlays under current laws as of March 1996..    808.6    867.7         
                                                                        
Changes since March 1996:                                               
  Medicaid...................................     -2.9     -3.8     -6.7
  Universal service fund.....................     -3.3     -3.3     -6.6
  Credit liquidating accounts................     -4.1     -2.3     -6.3
  Medicare...................................     -3.4     -1.6     -5.0
  Spectrum auctions..........................      3.9     -6.4     -2.5
  Other......................................     -5.5     -5.2    -10.7
                                              --------------------------
    Total adjustments........................    -15.3    -22.5    -37.8
                                                                        
Outlays under current laws as of February                               
 1997........................................    793.3    845.2         
Amount over (+) or under (-) the current                                
 target......................................    -46.7    -63.3   -110.0
                                                                        
Memorandum:                                                             
  Initial mandatory targets (Executive Order                            
   12857)....................................    823.7    887.7         
------------------------------------------------------------------------

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                         Table 14-2.  BENEFICIARIES ESTIMATES FOR MAJOR BENEFIT PROGRAMS                        
                                          (Annual average, in thousands)                                        
----------------------------------------------------------------------------------------------------------------
                                                     1996     1997     1998     1999     2000     2001     2002 
----------------------------------------------------------------------------------------------------------------
Family education loans...........................    3,221    3,080    2,928    2,681    2,610    2,710    2,812
Direct education loans...........................    1,731    2,194    2,644    3,140    3,447    3,574    3,702
Foster care and adoption assistance..............      390      417      445      475      508      540      572
Medicaid \1\.....................................   34,152   34,495   34,996   35,547   36,100   36,633   37,207
Medicare:                                                                                                       
  Hospital insurance.............................   37,675   38,117   38,561   39,025   39,523   40,022   40,531
  Supplementary medical insurance................   35,978   36,481   36,906   37,327   37,751   38,181   38,601
Railroad retirement..............................      775      754      731      708      685      663      641
Federal civil service retirement.................    2,322    2,350    2,380    2,407    2,429    2,446    2,468
Military retirement..............................    1,836    1,864    1,891    1,916    1,934    1,949    1,961
Unemployment insurance...........................    8,270    8,350    8,820    9,300    9,430    9,510    9,510
Food stamps......................................   25,633   24,303   23,377   23,511   23,526   23,525   23,527
Child nutrition..................................   28,199   28,646   29,059   29,484   29,902   30,808   30,700
Supplemental security income (SSI):                                                                             
  Aged...........................................    1,318    1,263    1,019      994      972      952      934
   Blind/Disabled................................    5,000    5,004    4,807    4,846    4,916    4,968    5,022
                                                  --------------------------------------------------------------
  Subtotal, SSI..................................    6,318    6,267    5,826    5,840    5,888    5,920    5,956
Temporary assistance for needy families \2\......    4,389        *        *        *        *        *        *
Child Care Entitlement to States.................       NA      393      407      409      436      462      477
Earned income tax credit.........................   14,528   14,777   15,012   15,299   15,483   15,692   15,898
Social Security (OASDI):                                                                                        
  Old age and survivors insurance................   37,504   37,821   38,129   38,435   38,766   39,128   39,527
  Disability insurance...........................    5,910    6,160    6,432    6,714    6,994    7,270    7,541
Veterans compensation............................    2,549    2,571    2,589    2,606    2,619    2,632    2,645
Veterans pensions................................      765      738      714      694      677      663      650
----------------------------------------------------------------------------------------------------------------
NA  = Not Applicable.                                                                                           
\1\ Average number of enrolles during the year.                                                                 
\2\  TANF replaced AFDC with a block grant giving States broad flexibility to design and run welfare programs.  
  HHS has little information on which to base future estimates of beneficiaries. The 1996 figure represents the 
  AFDC caseload at the end of 1996.                                                                             

                      Growth in Mandatory Programs

  Table 14-3 shows outlays for mandatory and related programs for the 
years 1996 through 2002. Under current law, spending on mandatory 
programs including net interest is projected to be $1,140.0 billion in 
1998, $59.3 billion more than the 1997 estimate of $1,080.7 billion. By 
2002, spending for mandatory programs including net interest is 
projected to reach $1,384.9 billion.
  Spending on programs covered by the mandatory targets is projected to 
grow from $845.2 billion in 1997 to $1,139.2 billion in 2002, an annual 
average rate of 6.2 percent. In percentage terms, the areas of largest 
growth are the health entitlements. More than half of the growth is in 
Medicaid and Medicare. For additional information on the trends in 
mandatory spending, see Chapter 16 ``Current Services Estimates'' in 
this volume.

                    Table 14-3.  OUTLAYS FOR MANDATORY AND RELATED PROGRAMS UNDER CURRENT LAW                   
                                             (In billions of dollars)                                           
----------------------------------------------------------------------------------------------------------------
                                                                    Estimate                                    
                                   1996   ------------------------------------------------------------   Total  
                                  actual     1997      1998      1999      2000      2001      2002    1997-2002
----------------------------------------------------------------------------------------------------------------
Human resources programs:                                                                                       
  Education, training,                                                                                          
   employment, and social                                                                                       
   services:                                                                                                    
     Family education loans....       3.0       0.3       2.4       2.2       2.1       2.2       2.3       11.5
    Direct loans...............       0.6       0.4       1.1       1.4       1.3       1.2       1.3        6.7
    Social services............       8.7       9.4       9.5       9.9      10.3      10.6      11.1       60.9
    Other......................       1.6       0.4      -0.3      -0.5      -0.5      -0.5      -0.5       -2.0
                                --------------------------------------------------------------------------------
    Subtotal, education,                                                                                        
     training, employment, and                                                                                  
     social services...........      13.9      10.5      12.7      13.0      13.3      13.5      14.1       77.1
  Health:                                                                                                       
    Medicaid...................      92.0      98.5     104.5     111.2     119.6     129.1     139.2      702.0
    FEHB and other.............       4.8       5.0       5.1       5.1       5.2       5.5       5.9       31.9
                                --------------------------------------------------------------------------------
    Subtotal, health...........      96.8     103.5     109.6     116.3     124.8     134.6     145.1      734.0
  Medicare:                                                                                                     
    Hospital insurance.........     126.5     136.3     147.5     159.5     172.0     185.6     199.6     1000.5
    Supplementary medical                                                                                       
     insurance.................      67.2      74.9      82.5      91.1     100.0     109.7     120.6      578.9
    Medicare premiums and                                                                                       
     collections...............     -22.4     -19.7     -21.3     -22.4     -23.3     -24.2     -25.2     -136.1
                                --------------------------------------------------------------------------------
    Subtotal, medicare.........     171.3     191.6     208.6     228.2     248.8     271.1     295.1    1,443.3

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  Income security:                                                                                              
    General retirement and                                                                                      
     disability:                                                                                                
      Railroad retirement......       4.4       4.2       4.2       4.2       4.4       4.5       4.5       26.1
      Other....................       0.5  ........  ........      -0.1       0.1       0.1  ........        0.2
                                --------------------------------------------------------------------------------
      Subtotal, general                                                                                         
       retirement and                                                                                           
       disability..............       4.8       4.2       4.2       4.2       4.5       4.7       4.5       26.3
                                                                                                                
    Federal employee retirement                                                                                 
     and disability:                                                                                            
      Civilian employees                                                                                        
       retirement..............      40.1      41.9      43.9      46.0      48.0      50.0      52.3      282.1
      Military retirement......      28.8      30.1      31.3      32.4      33.5      34.5      35.5      197.3
      Other....................      -1.0      -0.9      -1.1      -0.9      -0.8      -0.8      -0.7       -5.4
                                --------------------------------------------------------------------------------
      Subtotal, Federal                                                                                         
       employees retirement and                                                                                 
       disability..............      68.0      71.1      74.1      77.4      80.6      83.7      87.1      474.0
                                                                                                                
    Unemployment compensation..      22.6      22.8      24.7      26.1      27.4      28.5      29.6      159.0
                                                                                                                
    Food and nutrition                                                                                          
     assistance:                                                                                                
      Food stamps (incl. Puerto                                                                                 
       Rico)...................      25.4      24.5      25.0      26.1      27.0      27.9      28.8      159.4
      State child nutrition                                                                                     
       programs................       7.9       8.3       8.5       8.9       9.3       9.8      10.3       54.9
      Other....................       0.4       0.5       0.4       0.4       0.4       0.4       0.4        2.6
                                --------------------------------------------------------------------------------
      Subtotal, food and                                                                                        
       nutrition assistance....      33.7      33.2      33.9      35.4      36.7      38.1      39.5      216.9
                                                                                                                
    Other income security:                                                                                      
      Supplemental security                                                                                     
       income..................      24.1      26.6      25.5      26.8      29.7      26.5      29.7      164.7
      AFDC and temporary                                                                                        
       assistance for needy                                                                                     
       families................      16.7      18.8      19.7      20.2      20.1      20.1      20.1      119.0
      Earned income tax credit.      19.2      21.2      22.0      22.9      23.8      24.6      25.5      140.0
      Other....................      -1.1      -0.4      -0.3      -0.4      -0.4      -0.3      -0.4       -2.3
                                --------------------------------------------------------------------------------
      Subtotal, other income                                                                                    
       security................      58.9      66.1      66.8      69.5      73.2      70.9      75.0      421.5
                                --------------------------------------------------------------------------------
    Subtotal, income security..     188.0     197.4     203.8     212.6     222.5     225.9     235.6    1,297.7
  Social Security..............     347.1     364.2     380.9     398.6     417.7     438.0     459.7     2459.2
  Veterans' benefits and                                                                                        
   services:                                                                                                    
    Compensation \1\...........      14.2      16.2      16.7      17.3      19.1      17.0      18.8      105.1
    Pensions...................       2.8       3.1       3.2       3.7       4.0       3.5       3.9       21.4
    Other......................       1.8       1.3       2.1       2.6       2.5       2.5       2.5       13.5
                                --------------------------------------------------------------------------------
      Subtotal, veterans                                                                                        
       benefits and services...      18.8      20.6      22.0      23.6      25.6      23.0      25.2      140.0
                                ================================================================================
Subtotal, human resources                                                                                       
 programs......................     835.8     887.8     937.7     992.3   1,052.6   1,106.1   1,174.8    6,151.3
                                                                                                                
Other programs included in the                                                                                  
 entitlement target:                                                                                            
  Commodity Credit Corporation.       4.6       7.8       9.9       9.5       9.0       7.8       7.6       51.6
  Undistributed offsetting                                                                                      
   receipts:                                                                                                    
    Employer share, employee                                                                                    
     retirement................     -33.5     -34.4     -35.3     -36.4     -38.1     -39.7     -41.7     -225.5
    Rents and royalties on the                                                                                  
     Outer Continental Shelf...      -3.7      -4.2      -4.4      -4.0      -3.9      -4.0      -4.3      -24.8
    Spectrum auction...........      -0.3      -8.0      -9.4      -1.3      -0.3      -0.1  ........      -19.0
    Other undistributed                                                                                         
     offsetting receipts.......  ........  ........      -4.3  ........  ........  ........  ........       -4.3
                                --------------------------------------------------------------------------------
      Subtotal, undistributed                                                                                   
       offsetting receipts.....     -37.6     -46.5     -53.3     -41.7     -42.2     -43.8     -46.0     -273.6
                                                                                                                
  Other functions..............      -9.6      -3.9      -0.4      -1.2       3.7       2.6       2.8        3.7
                                --------------------------------------------------------------------------------
Subtotal, other programs                                                                                        
 included in the entitlement                                                                                    
 target........................     -42.5     -42.6     -43.8     -33.5     -29.5     -33.4     -35.6     -218.3
                                --------------------------------------------------------------------------------
Subtotal, mandatory programs                                                                                    
 included in the entitlement                                                                                    
 target........................     793.3     845.2     894.0     958.9   1,023.1   1,072.7   1,139.2    5,933.0
                                                                                                                
Deposit insurance..............      -8.4     -12.1      -3.9      -1.9      -1.3      -1.6      -1.5      -22.2
Net interest:                                                                                                   
  Interest on the public debt..     344.0     356.7     365.2     370.9     371.9     374.1     375.9    2,214.7
  Interest received on trust                                                                                    
   funds.......................     -97.4    -104.0    -108.1    -111.8    -114.4    -116.8    -120.1     -675.0
  Other interest...............      -5.5      -5.2      -7.2      -6.6      -7.3      -8.0      -8.7      -43.0
                                --------------------------------------------------------------------------------
    Subtotal net interest......     241.1     247.6     249.9     252.4     250.2     249.4     247.2    1,496.7
                                --------------------------------------------------------------------------------
Total, outlays for mandatory                                                                                    
 and related programs..........   1,026.0   1,080.7   1,140.0   1,209.4   1,272.0   1,320.5   1,384.9    7,407.5
----------------------------------------------------------------------------------------------------------------
\1\ 13 benefit payments are outlayed in 2000. Only 11 benefit payments are outlayed in 1996.                    

[[Page 244]]

                           Growth in Receipts

  Baseline receipts are projected to be $1,573.8 billion in 1998, $70.0 
billion more than the 1997 estimate. By 2002, baseline receipts are 
projected to reach $1,901.6 billion. For additional information on the 
trends in baseline receipts, see Chapter 16 ``Current Service 
Estimates'' in this volume.
  The Order requires a comparison between the current level of receipts 
and the levels projected as of the date of enactment of OBRA 93 
(September 1993 Midsession). As shown in Table 14-4, receipts are higher 
than the September 1993 Midsession estimates in each year, by amounts 
ranging from $46.2 billion to $61.2 billion. These increases are the net 
effect of legislative, administrative and regulatory changes; revisions 
in economic assumptions; and technical estimating revisions. Revised 
economic assumptions have increased receipts in each year, by amounts 
ranging from $29.0 billion to $38.0 billion. These economic changes are 
primarily the effect of higher wages and sales and corporate profits, 
partially offset by the effects of lower interest rates. Technical 
revisions, primarily reflecting collection experience, updated 
tabulations from tax returns, and revisions in historical economic data, 
have increased receipts in each year. Regulatory and legislative changes 
since September 1993 have also increased receipts in each year.

Table 14-4.  COMPARISON OF 1994 MIDSESSION (CBO UPDATED) AND 1997 BUDGET
                            BASELINE RECEIPTS                           
                         (In billions of dollars)                       
------------------------------------------------------------------------
                                              1996      1997      1998  
------------------------------------------------------------------------
1994 Midsession baseline estimate.........   1,402.9   1,457.6   1,512.6
Revised economic assumptions:                                           
  Individual income taxes.................      10.2       9.2      17.0
  Corporation income taxes................      19.9      17.4      18.4
  Social insurance taxes and contributions      -0.6       3.6       4.9
  Excise taxes............................       1.0       1.1       1.2
  Estate and gift taxes...................       0.2       0.2       0.2
  Customs duties..........................      -0.1       0.3       0.7
  Federal Reserve deposit of earnings.....       0.2      -2.8      -4.3
  Other miscellaneous receipts............  ........  ........  ........
                                           -----------------------------
    Subtotal, economic assumptions........      30.7      29.0      38.0
                                                                        
Technical revisions:                                                    
  Individual income taxes.................      11.1       6.8       6.9
  Corporation income taxes................      19.3      22.6      30.2
  Social insurance taxes and contributions      -7.7      -7.8     -11.6
  Excise taxes............................      -3.4      -6.4      -6.5
  Estate and gift taxes...................       2.2       1.6       1.8
  Customs duties..........................      -2.0      -2.7      -2.4
  Federal Reserve deposit of earnings.....       2.0       6.9       7.4
  Other miscellaneous receipts............      -3.7      -3.8      -3.6
                                           -----------------------------
    Subtotal technical revisions..........      17.6      17.2      22.2
                                                                        
Enacted legislation and Administration                                  
 action...................................       1.9       0.1       1.0
                                           -----------------------------
    Total changes.........................      50.2      46.2      61.2
1998 Budget baseline estimate.............   1,453.1   1,503.8   1,573.8
------------------------------------------------------------------------