[A Citizen's Guide to the Federal Budget]
[From the U.S. Government Printing Office, www.gpo.gov]


[[Page i]]
 
Table of Contents

   A Note to the Reader......................................   iii

   1. What Is the Budget?....................................     1

   2. Where the Money Comes From-and Where It
      Goes...................................................     5
       Revenues..............................................     7
       Spending..............................................    10
       ``On'' and ``Off'' Budget.............................    15

   3. How Does the Government Create a Budget................    17
       The President's Budget................................    17
       The Budget Process....................................    17
       Action in Congress....................................    18
       Monitoring the Budget.................................    20

   4. The Budget Surplus and Fiscal Discipline...............    21
       Why a Budget Surplus is Important.....................    23
       Surplus and Debt......................................    25
       Returning the Budget to Surplus.......................    26

   5. The President's 2000 Budget............................    29
       Investing in the Future...............................    29
       Improving Performance Through Better Management.......    32

Glossary.....................................................    35

List of Charts and Tables....................................    39




[[Page iii]]

A Note to the Reader

   Next year, your Federal Government will spend nearly $1.8 trillion.

   Needless to say, that's a lot of money. And the Government spends it 
   on lots of things--on programs as large and popular as Social 
   Security, and on activities as small and unknown as repairs to the 
   National Zoo.  Together, these programs are what make up the Federal 
   budget.

   How much do you know about the budget? If your answer is ``not much,''
   you're not alone. In fact, hardly anybody knows everything that's in 
   the thousands of pages, and several books, that make up the budget 
   each year.

   But we know you care a lot about how the Government spends your money.
   That's why we created A Citizen's Guide to the Federal Budget four 
   years ago, and why we have published this fifth edition. With it, we 
   hope to make the budget more accessible and understandable.

   The Guide is designed to give you a walking tour of the budget. In 
   these pages, we will outline for you how the Government raises 
   revenues and spends money, how the President and Congress enact the 
   budget, why the budget deficit and Federal debt have been problems, 
   and what the President hopes to accomplish with his 2000 budget.

   After you read these pages, we hope that you will think the tour was 
   worth your time.


[[Page 1]]

 
1. What Is the Budget?

The Federal budget is:

 a plan for how the Government spends your money.

What activities are funded? How much does it spend for defense, 
national parks, the FBI, Medicare, and meat and fish inspection? 

 a plan for how the Government pays for its activities.

How much revenue does it raise through different kinds of taxes-- 
income taxes, excise taxes, and social insurance payroll taxes? 

 a plan for Government borrowing.

If revenues are greater than spending, the Government runs a surplus. 
When there is a surplus, the Government can reduce the national debt. 

 something that affects the Nation's economy.

Some types of spending--such as improvements in education and 
support for science and technology--increase productivity and raise 
incomes in the future. 

Taxes, on the other hand, reduce incomes, leaving people with less 
money to spend.

 something that is affected by the Nation's economy. 

When the economy is doing well, people are earning more and 
unemployment is low. In this atmosphere, revenues increase and the 
deficit shrinks. 

 an historical record.

The budget reports on how the Government has spent money in the 
past, and how that spending was financed. 

The 2000 Budget is a document that embodies the President's budget 
proposal to Congress for fiscal 2000, the fiscal year that begins on 
October 1, 1999. It reflects the President's priorities and proposes to 
protect the budget surplus until Social Security is reformed.

The Federal budget, of course, is not the only budget that affects the 
economy or the American people. The budgets of State and local 


[[Page 2]]

        Chart 1-1.  Government Spending as a Share of GDP, 1998





       Total Government spending accounts for about one-third of 
     the national economy. Federal spending is about two-thirds of 
                   this amount, or 20 percent of GDP. 

governments have an impact as well. While Federal Government spending 
was a little less than 20 percent of the Gross Domestic Product (or GDP, 
which measures the size of the economy) in 1998, State and local 
governments spending was about another nine percent (see Chart 1-1). 

State and local governments are independent of the Federal Government, 
and they have their own sources of revenue (taxes and borrowing). But 
the Federal Government supplements State and local revenues by making 
grants to them. Of the $989 billion that State and local governments 
spent in 1998, $230 billion came from Federal grants.

As shown in Chart 1-2, compared to six other industrialized nations, 
the United States allocates the smallest share of its GDP to government 
spending (Federal, State, and local combined).



[[Page 3]]

        Chart 1-2.  Total Government Outlays as a Percent of GDP







      The United States allocates a smaller portion of its GDP to 
                government than any other nation shown. 




[[Page 5]]

 
2. Where the Money Comes From-- 
and Where it Goes 

In a typical American household, a father and mother might sit around 
the kitchen table to review the family budget. They might discuss how 
much they expect to earn each year, how much they can spend on food, 
shelter, clothing, transportation, and perhaps a vacation, and how much 
they might be able to save for their future needs.

If they do not have enough money to make ends meet, they might discuss 
how they can spend less, such as by cutting back on restaurants, movies, 
or other entertainment. They also might consider whether to try to earn 
more by working more hours or taking another job. If they expect their 
shortfall to be temporary, they might try to borrow.

                      Chart 2-1.  Family Budgeting



                        SOURCES: CASH AND CREDIT


[[Page 6]]



Generally speaking, the Federal Government plans its budget much like 
families do. The President and Congress determine how much money they 
expect the Government to receive in each of the next several years, 
where it will come from, and how much to spend to reach their goals--
goals for national defense, foreign affairs, social insurance for the 
elderly, health insurance for the elderly and poor, law enforcement, 
education, transportation, science and technology, and others.

They decide how much spending they will finance through taxes and how 
much through borrowing. They debate how to use the budget to help the 
economy grow, or to redistribute income. And, especially lately, they 
debate how to use the budget surplus to adress longer-term concerns and 
invest in the Nation's future.

In this chapter, we will discuss these decisions in some detail--that 
is, how the Government raises revenues and where it spends money.

                     Chart 2-2.  National Budgeting



                      SOURCES: TAXES AND BORROWING



[[Page 7]]

Revenues

Chart 2-3.  The Federal Government Dollar--
              Where It Comes From



The money that the Federal Government uses to pay its bills--its 
revenues--comes mostly from taxes. In 1998, revenues were greater than 
spending, and the Government was able to reduce the national debt with 
the difference between revenues and spending--that is, the surplus. 

Revenues come from these sources:

 Individual income taxes will raise an estimated $900 billion 
         in 2000, equal to about 10 percent of GDP.

 Social insurance payroll taxes--the fastest growing category 
         of Federal revenues--include Social Security taxes, Medicare 
         taxes, unemployment insurance taxes, and Federal employee 
         retirement payments. This category has grown from two percent 
         of GDP in 1955 to an estimated seven percent in 2000.

 Corporate income taxes, which will raise an estimated $189 
         billion, have shrunk steadily as a percent of GDP, from 4.5 
         percent in 1955 to an estimated 2.1 percent in 2000.



[[Page 8]]

                  Table 2-1.  Revenues By Source Summary
                        (In billions of dollars)

----------------------------------------------------------------------------
       Source                 1998                  Estimate
                             Actual  1999   2000   2001   2002   2003   2004

----------------------------------------------------------------------------
Individual income taxes.....   829    869    900    912    943    971    1,018
Corporate income taxes......   189    182    189    197    203    212      221
Payroll taxes...............   572    609    637    660    686    712      739
Excise taxes................    58     68     70     71     72     74       75
Estate and gift taxes.......    24     26     27     28     30     32       34
Customs duties..............    18     18     18     20     21     23       25
Miscellaneous receipts......    33     35     42     45     50     52       53
                             -------------------------------------------------
Total receipts.............. 1,722  1,806  1,883  1,933  2,007  2,075    2,166
------------------------------------------------------------------------------

Notes: The revenues listed in this table do not include revenues from 
the Governments business-like activities--i.e., the sale of electricity 
and fees at national parks. The Government counts these revenues on the 
spending side of the budget, deducting them from other spending to 
calculate its outlays for the year.

Numbers may not add to the totals because of rounding.


 Excise taxes apply to various products, including alcohol, 
         tobacco, transportation fuels, and telephone services. The 
         Government earmarks some of these taxes to support certain 
         activities--including highways and airports and airways--and 
         deposits others in the general fund.

 The Government also collects miscellaneous revenues--e.g., 
         customs duties, Federal Reserve earnings, fines, penalties, 
         and forfeitures.



[[Page 9]]

                  Chart 2-4.  Composition of Revenues



   The United States and Japan have the lowest revenues as a percent 
            of GDP of the seven countries listed above.



[[Page 10]]

Spending

As we have said, the Federal Government will spend nearly $1.8 
trillion\1\ and have a surplus of over $117 billion in 2000, which 
we divided into nine large categories as shown in Chart 2-6.

 The largest Federal program is Social Security, 
         which will provide monthly benefits to nearly 45 million 
         retired and disabled workers, their dependents, and survivors. 
         It accounts for 22 percent of your Federal dollar (or 23 
         percent of all Federal spending).

 Medicare, which will provide health care coverage for
         over 40 million elderly Americans and people with 
         disabilities, consists of Part A (hospital insurance) 
         and Part B (insurance for physician costs and other 
         services).Since its birth in 1965, Medicare has accounted 
         for an ever-

        Chart 2-6.  The Federal Government Dollar--Where It Goes





   *Means-tested entitlements are those for which eligibility is 
    based on income. The Medicaid program is also a means-tested 
    entitlement.

--------
\1\ In calculating Federal spending, the Government deducts collections
(revenues) generated by the Government's business-like activities, such
as fees to national parks. These collections will total an estimated $216
billion in 2000. Without them, spending would total an estimated $2.0
trillion in 2000, not $1.8 trillion.


[[Page 11]]

growing share of spending. In 2000 it will comprise 11 percent of your Federal dollar (or 12 percent of all Federal spending).

 Medicaid, in 2000, will provide health care services 
         to over 34 million Americans, including the poor, people 
         with disabilities, and senior citizens in nursing homes. 
         Unlike Medicare, the Federal Government shares the costs 
         of Medicaid with the States, paying between 50 and 83 percent 
         of the total (depending on each State's requirements). 
         Federal and State costs are growing rapidly. Medicaid 
         accounts for six percent of your Federal dollar (also six 
         percent of the budget).

 Other means-tested entitlements provide benefits to people 
         and families with incomes below certain minimum levels that 
         vary from program to program. The major means-tested 
         entitlements are Food Stamps and food aid to Puerto Rico,
         Supplemental Security Income, Child Nutrition, the Earned 
         Income Tax Credit, and veterans' pensions. This category 
         will account for an estimated six percent of your Federal 
         dollar (also six percent of the budget).

 The remaining mandatory spending, which mainly consists of 
         Federal retirement and insurance programs, unemployment 
         insurance, and payments to farmers, comprise six percent 
         of your Federal dollar (also six percent of the budget).


 National defense discretionary spending will total an 
         estimated $275 billion in 2000, comprising over 15 percent 
         of your Federal dollar (and 16 percent of the budget).

 Non-defense discretionary spending--a wide array of programs 
         that include education, training, science, technology, 
         housing, transportation, and foreign aid_has shrunk as a 
         share of the budget from 23 percent in 1966 to an estimated 
         187 percent in 2000. (or 17 percent of your Federal dollar).



 Interest payments, primarily the result of previous budget 
         deficits, averaged seven percent of Federal spending in the 
         1960s and 1970s. But, due to the large budget deficits that 
         began in the 1980s, that share quickly doubled to 15 percent. 
         Since the budget is now is surplus, interest payments are 
         estimated 12 percent of the budget in 2000 (11 perceent of 
         your Federal dollar).

Six percent of your Fedral dollar (the budget surplus) will 
        not be spent. The President has proposed that any surplus be 
        reserved until a plan to save Social Security has been enacted.

[[Page 12]]

                       Table 2-2.  Spending Summary
                     (Outlays, in billions of dollars)

----------------------------------------------------------------------------
                                                 Estimate
                              1998  ----------------------------------------
                             Actual  1999   2000   2001   2002   2003   2004
----------------------------------------------------------------------------
Budget Policy with Social Security 
 reform:

 Outlays:

Discretionary:
 Department of Defense.......  258    265    262    269    279    291    301
 Non-DoD discretionary.......   19     19     19     19     19     19     19
 Priority initiatives........  ...    ...    ...      2      4      7     10
                             -----------------------------------------------
   Subtotal, discretionary...  555    581    592    612    623    636    649

Mandatory:
 Programmatic:
  Social security............  376    389    405    424    444    465    487
  Medicare and Medicaid......  291    311    328    350    363    391    416
  Means-tested entitlements 
   (except Medicaid)..........  99    107    112    118    124    129    134
  Deposit insurance.........   -4     -5      -2    -2      -1     -*      1
  Other......................   92    117    116    118    115    125    131
                             -----------------------------------------------
   Subtotal, mandatory.......  855    919    959  1,007  1,044  1,110  1,170
Net interest.................  243    227    215    207    197    188    179
                             -----------------------------------------------
   Subtotal, mandatory and
    net interest.............1,098  1,146  1,174  1,214  1,241  1,297  1,349

                             -----------------------------------------------
Total outlays................1,653  1,727  1,766  1,826  1,863  1,934  1,998

Receipts.....................1,722  1,806  1,883  1,933  2,007  2,075  2,166

Resources contingent upon Social
  Security reform:

   Department of Defense.....  ...    ...    ...    -10    -17    -13    -15
   Non-DoD discretionary.....  ...    ...    ...    -15    -20    -16     -9
   Priority initiatives......  ...    ...    ...     -2     -4     -7    -10
   Related debt service......  ...    ...    ...     -1     -2     -4     -6
                             -----------------------------------------------
    Total....................  ...    ...    ...    -27    -43    -41    -40

Reserve pending Social 
 Security reform..............   69     79    117    134    187    182    208


    Surplus...................    0      0      0      0      0      0      0


MEMORANDUM:

 Discretionary totals if no Social 
  Security reform is enacted,
  net of designated offsets.... 555    581    574    573    568    584    600

----------------------------------------------------------------------------
*$500 million or less.




[[Page 13]]



                        Table 2-3. Spending by Function
                        (Outlays, in billions Of dollars)
------------------------------------------------------------------------------
                                                     Estimate
             Function                1998  -----------------------------------
                                    Actual  1999  2000  2001  2002  2003  2004
------------------------------------------------------------------------------
National defense:
 Department of Defense-Military...     256   264   261   269   278   290   300
 Other............................      12    13    13    14    14    14    14
                                  --------------------------------------------

Total, national defense...........     268   277   274   282   292   304   314
International affairs ............      13    15    16    17    18    18    18
General science, space, and
 technology.......................      18    19    19    19    19    19    19
Energy............................       1     *    -2    -1    -1    -1    -1
Natural resources and environment.      22    24    24    24    24    24    24
Agriculture.......................      12    21    15    13    11    10    10
Commerce and housing credit.......       1     *     6     8     9    10    10
Transportation....................      40    43    46    49    50    52    53
Community and regional development.     10    10    10    10    10     9     9
Education, training, employment,
 and social services..............      55    60    63    68    67    69    70
Health............................     123   143   152   163   173   185   197
Medicare..........................     193   205   217   231   235   252   266
Income security....................    233   243   258   267   275   282   291
Social security....................    379   393   409   427   447   468   491
Veterans benefits and services....      42    44    44    45    46    47    48
Administration of justice.........      23    24    28    29    28    28    28
General government................      13    15    14    15    15    15    15
Net interest......................     243   227   215   206   195   183   173
Allowances........................     ...     3     3   -27   -40   -34   -29
Undistributed offsetting receipts.     -47    40   -46   -45   -51   -47   -48
                                  --------------------------------------------
Total.............................   1,653 1,727 1,766 1,799 1,820 1,893 1,958
------------------------------------------------------------------------------
* $500 million or less.

Note: Spending that is shown as a minus means that receipts exceed outlays.
      Numbers may not add to the totals because of rounding.



[[Page 14]]

                    Table 2-4.  Spending by Agency
                   (Outlays, in billions of dollars)
----------------------------------------------------------------------------
                                                       Estimate        
         Agency                     1998 -----------------------------------
                                   Actual 1999  2000  2001  2002  2003  2004
----------------------------------------------------------------------------
Legislative Branch.................    2     2     3     3     3     3     3
Judicial Branch....................    3     3     4     4     4     4     4
Agriculture........................   16    17    16    15    15    15    15
Commerce...........................    4     5     7     5     5     5     5
Defense-Military...................  258   265   262   269   279   291   301
Education..........................   26    29    32    35    35    35    35
Energy.............................   17    17    18    18    18    18    18
Health and Human Services..........   35    39    42    43    43    43    43
Housing and Urban Development......   33    33    34    34    32    31    30
Interior...........................    7     8     8     9     9     9     9
Justice............................   15    16    19    20    19    19    19
Labor..............................   10    11    11    11    11    12    12
State..............................    5     6     6     7     7     6     7
Transportation.....................   37    4-    43    47    49    40    51
Treasury...........................   11    12    12    13    13    13    13
Veterans Affairs...................   18    19    19    19    19    19    19
Corps of Engineers.................    4     4     4     4     4     4     4
Other Defense Civil Programs.......    *     *     *     *     *     *     *
Environmental Protection Agency....    7     7     7     8     7     7     7
Executive Office of the President..    *     *     *     *     *     *     *
Federal Emergency Management Agency    3     3     3     3     2     2     2
General Services Administration....    1     *     *     *     *     *     *
International Assistance Programs..   11    12    12    12    13    12    12
National Aeronautics and Space
 Administration....................   14    14    13    13    13    14    14
National Science Foundation........    3     3     4     4     4     4     4
Office of Personnel Management.....    *     *     *     *     *     *     *
Small Business Administration......    1     1     1     1     1     1     1
Social Security Administration.....    5     6     6     6     6     6     6
Other Independent Agencies.........    6     6     6     6     7     7     7
Allowances ........................ ....     3     3   -24   -36   -29   -24
Undistributed offsetting receipts.. ....  ....    -3     1     1    -*    -*
                                   -----------------------------------------
  Total............................  555   581   592   586   582   600   615
----------------------------------------------------------------------------
* $500 million or less.




Note: Discretionary spending is appropriated by the Congress each 
      year, in contrast with mandatory spending, which is automatic 
      under permanent law. For a more complete discussion of 
      discretionary spending, see ``Action in Congress'' in Chapter 3.

Spending that is shown as a minus means that receipts exceed outlays.
      Numbers may not add to the totals because of rounding.



[[Page 15]]

``On'' and ``Off'' Budget

From time to time, you may hear about programs that are ``off-budget,'' 
meaning that the Government categorizes them separately from other 
programs.

Specifically, the law requires that the spending and revenues of 
two Federal programs, Social Security and the Postal Service, 
be excluded from the budget totals--that is, categorized as ``off-budget.'' Therefore, the budget displays ``on-budget,'' ``off-budget,'' and 
``unified budget'' totals to satisfy this legal requirement.

The unified budget is the most useful display of the Government's 
finances; it is vital in calculating how much the Government has 
to borrow.

The ``off-budget'' category is designed to give special status to 
certain programs. Over the years, the Government has placed numerous 
programs``off-budget,'' then returned them to the unified budget. 
But the mere listing of programs as ``off-budget'' does not, by itself, 
protect them from the budget process--e.g., Administration and 
congressional review, possible cuts, and hiring and procurement rules. 


Chart 2-7 illustrates the relationship between on- and off-budget items, 
and the unified budget.

Chart 2-7.  On- and Off-Budget Deficit Projections





[[Page 17]]


 
3. How Does the Government Create a Budget?

   The President and Congress both play major roles in developing the 
   Federal budget.

   The President's Budget

   The law requires that, by the first Monday in February, the 
   President submit to Congress his proposed Federal budget for the 
   next fiscal year, which begins October 1.

   The White House's Office of Management and Budget (OMB) prepares 
   the budget proposal, after receiving direction from the President 
   and consulting with his senior advisors and officials from Cabinet 
   departments and other agencies.

   The President's budget--which typically includes a main book and 
   several accompanying books 1--covers thousands of pages and 
   provides reams of details.

   The Budget Process

   Through the budget process, the President and Congress decide how 
   much to spend and tax in any one fiscal year. More specifically, 
   they decide how much to spend on each activity, ensure that the 
   Government spends no more and spends it only for that activity, 
   and report on that spending at the end of each budget cycle.

   The President's budget is his plan for the next year. But it's 
   just a proposal. After receiving it, Congress has its own budget 
   process to follow. Only after the Congress passes, and the 
   President signs, the required spending bills has the Government 
   created its actual budget.

   \1\ They are the main budget book, entitled, Budget of the United 
       States Government: Fiscal Year 2000, as well as Analytical 
       Perspectives, Appendix, Historical Tables, and A Citizen's 
       Guide to the Federal Budget, which you are now reading.



[[Page 18]]

For fiscal 2000--that is, October 1, 1999 to September 30, 2000_the 
major steps in the budget process are outlined in Chart 3-1.

            Chart 3-1. Major Steps in the Budget Process
-----------------------------------------------------------------------------
Formulation of the    Executive Branch agencies develop     February-December
President's budget    requests for funds and submit them    1998
for fiscal 2000.      to the Office of Management and
                      Budget. The President reviews the
                      requests and makes the final
                      decisions on what goes in his budget.
-----------------------------------------------------------------------------
Budget preparation    The budget documents are prepared     December 1998-
and transmittal.      and transmitted to Congress.          February 1999
-----------------------------------------------------------------------------
Congressional action  Congress reviews the                  March-September
on the budget.        President's budget, develops its      1999
                      own budget, and approves
                      spending and revenue bills.
-----------------------------------------------------------------------------
The fiscal year begins.                                     October 1, 1999
-----------------------------------------------------------------------------
Agency program managers execute the budget                  October 1, 1999-
provided in law.                                            September 30, 2000
-----------------------------------------------------------------------------
Data on actual spending and receipts for                    October-November
the completed fiscal year become available.                 2000
-----------------------------------------------------------------------------

Action in Congress

Congress first must pass a ``budget resolution''--a framework within 
which the Members will make their decisions about spending and taxes. 
It includes targets for total spending, total revenues, and the deficit, 
and allocations within the spending target for the two types of spending-- 
discretionary and mandatory--explained below.

 Discretionary spending, which accounts for 33 percent of all 
         Federal spending, is what the President and Congress must 
         decide to spend for the next year through the 13 annual 
         appropriations bills. It includes money for such activities 
         as the FBI and the Coast Guard, for housing and education, 
         for space exploration and highway construction, and for defense 
         and foreign aid.

 Mandatory spending, which accounts for 67 percent of all 
         spending, is authorized by permanent laws, not by the 13 
         annual appropriations bills. It includes entitlements--such 
         as Social Security, Medicare, veterans'


[[Page 19]]

         benefits, and Food Stamps-through which individuals receive 
         benefits because they are eligible based on their age, income, 
         or other criteria. It also includes interest on the national 
         debt, which the Government pays to individuals and institutions 
         that hold Treasury bonds and other Government securities. The 
         President and Congress can change the law in order to change 
         the spending on entitlements and other mandatory programs--but 
         they don't have to.

Think of it this way: For discretionary programs, Congress and the 
President must act each year to provide spending authority. For mandatory 
programs, they may act in order to change the spending that current laws 
require.

Currently, the law imposes a limit, or ``cap,'' through 2002 on total 
annual discretionary spending. Within the cap, however, the President 
and Congress can, and often do, change the spending levels from year to 
year for the thousands of individual Federal spending programs.

In addition, the law requires that legislation that would raise mandatory 
spending or lower revenues-compared to existing law-be offset by 
spending cuts or revenue increases. This requirement, called 
``pay-as-you-go,'' is designed to prevent new legislation from 
increasing the deficit.

Once Congress passes the budget resolution, it turns its attention to 
passing the 13 annual appropriations bills and, if it chooses, 
``authorizing'' bills to change the laws governing mandatory spending 
and revenues.

Congress begins by examining the President's budget in detail. Scores 
of committees and subcommittees hold hearings on proposals under 
their jurisdiction. The House and Senate Armed Services Authorizing 
Committees, and the Defense and Military Construction Subcommittees of 
the Appropriations Committees, for instance, hold hearings on the 
President's defense plan. If the President's budget proposed changes 
in taxes, the House Ways and Means and the Senate Finance Committees 
would hold hearings. The Budget Director, Cabinet officers, and other 
Administration officials work with Congress as it accepts some of the 
President's proposals, rejects others, and changes still others. 
Congressional rules require that these committees and subcommittees 
take actions that reflect the budget resolution.

If you read through the President's budget, the budget resolution, 
or the appropriations or authorizing bills that Congress drafts, you 
will notice that the Government measures spending in two ways ``budget 
authority'' and ``outlays.''


[[Page 20]]

Budget authority (or BA) is what the law authorizes the Federal 
Government to spend for certain programs, projects, or activities. What 
the Government actually spends in a particular year, however, is an 
outlay. To see theï¿½20difference, consider what happens when the Government 
decides to build a space exploration system.

The President and Congress may agree to spend $1 billion for the 
space system. Congress appropriates $1 billion in BA. But the system 
may take 10 years to build. Thus, the Government may spend $100 
million in outlays in the first year to begin construction and the 
remaining $900 million over the next nine years as construction continues.

Monitoring the Budget

Once the President and Congress approve spending, the Government 
monitors the budget through:

 agency program managers and budget officials, including 
         the Inspectors General, or IGs, who report only to the 
         agency head;

 OMB;

 congressional committees; and

 the General Accounting Office, an auditing arm of Congress.

This oversight is designed to:

 ensure that agencies comply with legal limits on spending, 
         and that they use budget authority only for the purposes 
         intended;

 see that programs are operating consistently with legal 
         requirements and existing policy; and, finally,

 ensure that programs are well managed and achieving the 
         intended results.

The Government has paid more attention to good management of 
late, through the work of Vice President Gore's National Performance 
Review and implementation of the 1993 Government Performance and 
Results Act. This law is designed to improve Government programs by 
using better measurements of their results in order to evaluate 
their effectiveness.




[[Page 21]]

 
4. The Budget Surplus and Fiscal Discipline

In 1998 the Federal budget reported a surplus of $69 billion, the 
first surplus since 1969, and reduced Federal debt held by the public 
by over $50 billion. With continued prudent fiscal policies, the budget 
can remain in surplus for many years. The turnaround from deficit to 
surplus can be attributed to fiscal discipline and strong economic 
growth. The change from deficit to surplus is an important milestone.


   Put simply, a surplus occurs when revenues exceeds spending in any 
    year--just as a deficit occurs when spending exceed revenues. 
    Generally, to finance



Chart 4-1.  Past and Future Budget Deficits or Surplus




Deficits began increasing dramatically in the 1980s, but have 
now been reversed.



[[Page 22]]

past deficits, the Treasury has borrowed money. With certain 
exceptions, the debt is the sum total of our deficits minus our 
surplus, over the years.

The Government incurred its first deficit in 1792, and it generated 
70 annual deficits between 1900 and 1997.

Chart 4-1 provides the history of budget surplus and deficits since 1940.

For most of the Nation's history, deficits were the result of either 
wars or recessions. Wars necessitated major increases in military 
spending, while recessions reduced Federal tax revenues from businesses 
and individuals.

The Government generated deficits during the War of 1812, the recession 
of 1837, the Civil War, the depression of the 1890s, and World War I. 
Once the war ended or the economy began to grow, the Government followed 
its deficits with budget surplus, with which it paid down the debt.

Deficits returned in 1931 and remained for the rest of the decade--due 
to the Great Depression and the spending associated with President 
Roosevelt's New Deal. Then, World War II forced the Nation to spend 
unprecedented amounts on defense and to incur unprecedented deficits.


Chart 4-2.  Outlays as a Percent of GDP



Between 1965 and 1998, spending on Social Security, Medicare and 
Medicaid, and interest as a percentage of GDP grew, while spending 
on defense fell.



[[Page 23]]

Since then--with Democratic and Republican Presidents, Democratic and 
Republican Congresses--the Government has balanced its books only 
nine times, most recently last year.

Nevertheless, the deficits before 1981 paled in comparison to what 
followed. That year, the Government cut income tax rates and greatly 
increased defense spending, but it did not cut non-defense programs 
enough to make up the difference. Also, the recession of the early 
1980s reduced Federal revenues, increased Federal outlays for 
unemployment insurance and similar programs that are closely tied 
to economic conditions, and forced the Government to pay interest 
on more national debt at a time when interest rates were high. As 
a result, the deficit soared.


Why have we been able to move from deficit to surplus? Because 
spending growth has been restrained. Outlays are growing slower 
and revenues are holding steady.


Revenues have stayed relatively constant, at around 17 to 21 percent 
of GDP, since the 1960s. In that time, however, outlays have grown 
from about 17 percent of GDP in 1965 to up to nearly 24 percent in 
1983 before falling below 20 percent today.

Since 1983, spending had been reduced or held constant as percent 
of GDP across a wide variety of programs. The most significant 
reduction has occurred in discretionary spending, which has fallen 
from 10.3 percent to 6.6 percent of GDP. Combined spending on social 
security and net interest has remained roughly constant at about 
7-1/2 percent of GDP since 1983. A similar path has been followed in 
the rest of mandatory spending in total, but only because the growth 
in Medicare and Medicaid has been offset by declines in other 
mandatory spending (see Chart 4-2).


Why a Budget Surplus is Important

As Chart 4-3 illustrates, this Nation has a good record when compared 
to the recent history of six other major developed economies. (To make 
accurate comparisons with the governments of other nations, the U.S. 
data include the activities of State and local governments.)


Should we worry about the possibility of a return to budget deficits?


The 2000 Budget forecasts surplus for decades to come, if we maintain 
the policy of fiscal discipline and strategic investments in the 
American people.


[[Page 24]]

          Chart 4-3.  Total Government Surplus or Deficit as a Percent
                                    of GDP



    Of the seven nations shown above, only the United States and Canada eliminated their total Government budget deficits in 1997.


We must do all we can to keep the days of deficits in the past. 
Budget deficits force the Government to borrow money in the private 
capital markets. That borrowing competes with (1) borrowing by 
businesses that want to build factories and machines that make 
workers more productive and raise incomes, and (2) borrowing by 
families who hope to buy new homes, cars, and other goods. The 
competition for funds tends to produce higher interest rates.

Deficits increase the Federal debt and, with it, the Government's 
obligation to pay interest. The more it must pay in interest, the 
less it has available to spend on education, law enforcement, and 
other important services, or the more it must collect in taxes--
forever after. As recently as 1997, the Government spent over 15 
percent of its budget to pay interest, in contrast to a projected 12 
percent for 2000. Continuing surplus will reduce these interest 
payments further in future years.


[[Page 25]]

In the end, the surplus is a decision about our future. We can 
provide a solid foundation for future generations, just as parents 
try to do within a family. For a Nation, this means a strong economy 
and low interest rates and debt. Alternatively, we can generate 
large deficits and debt for those who come after us.

Surplus and Debt

If the Government incurs a surplus, it generally repays debt held by 
the public.

Table 4-1 summarizes the relationship between the budget surplus or 
deficit and the repayment of Federal debt.

Federal borrowing involves the sale, to the public, of notes and 
bonds of varying sizes and time periods until maturity. The cumulative 
amount of borrowing from the public--i.e., the debt held by the 
public--is the most important measure of Federal debt because it 
is what the Government has borrowed in the private markets over the 
years, and it determines how much the Government pays in interest to 
the public.


Debt held by the public was $3.7 trillion at the end of 1998-roughly 
the net effect of deficits and surplus over the last 200 years. 
Debt held by the public does not include debt the Government owes 
itself--the total of all trust fund surplus and deficits over the years, 
like the Social Security surplus, which the law says must be invested 
in Federal securities.

Because of the progress in eliminating the budget deficit, the debt 
held by the public has been reduced for the first time in 29 years.


           Table 4-1. Federal Government Financing and Debt
                       (in billions of dollars)
----------------------------------------------------------------------------
                              1998                  Estimate
                                     -----------------------------------------
                                    Actual  1999  2000  2001  2002  2003  2004
------------------------------------------------------------------------------
Federal Government financing:
 Budget surplus..............           69    79   117   134   187   182   208
 Other means of financing....          -18   -29   -19   -17   -17   -16   -15
                                     -----------------------------------------  Repayment of debt held by the public    51    50    98   117   170   166   193
Federal Government debt:
 Debt held by the public............ 3,720 3,670 3,572 3,455 3,285 3,119 2,926
 Debt held by government
   accounts......................... 1,759 1,945 2,140 2,326 2,530 2,736 2,948
                                     -----------------------------------------
  Gross Federal debt.......          5,479 5,615 5,711 5,781 5,815 5,856 5,874
 Debt subject to legal limit........ 5,439 5,577 5,674 5,745 5,780 5,821 5,842
------------------------------------------------------------------------------
Note: Numbers may not add to the totals because of rounding.



[[Page 26]]



The sum of debt held by the public and debt the Government owes itself 
is called Gross Federal Debt. At the end of 1998, it totaled $5.5 trillion.

Another measure of Federal debt is debt subject to legal limit, which 
is similar to Gross Federal Debt. When the Government reaches the 
limit, it loses its authority to borrow more to finance its spending; 
then, the President and Congress must enact a law to increase the limit. 
Because the budget has returned to surplus and debt is being reduced, 
there will be no need to increase the statutory limit in 2000.

The Government's ability to finance its debt is tied to the size and 
strength of the economy, or GDP. Debt held by the public was 44 
percent of GDP at the end of 1998. As a percentage of GDP, debt held 
by the public was highest at the end of World War II, at 109 percent, 
then fell to 24 percent in 1974 before gradually rising to a peak 
of 50 percent in the middle 1990s.

That decline, from 109 to 24 percent, occurred because the economy 
grew faster than the debt accumulated; debt held by the public rose 
from $242 billion to $344 billion in those years, but the economy 
grew faster.

Individuals and institutions in the United States hold two-thirds 
of debt held by the public. The rest is held in foreign countries.

Returning the Budget to Surplus

Ever since the deficit soared in the early 1980s, successive Presidents 
and Congresses have tried to cut it. Until recently, they met with 
only limited success.

In the early 1980s, President Reagan and Congress agreed on a large tax 
cut, but could not agree about cutting spending; the President wanted 
to cut domestic spending more than Congress, while Congress sought 
fewer defense funds than the President wanted. They wound up spending 
more on domestic programs than the President wanted, and more on 
defense than Congress wanted. At the same time, a recession led to 
more spending to aid those affected by the recession, and reductions 
in tax revenues due to lower incomes and corporate profits.

By 1985, both sides were ready for drastic measures. That year, they 
enacted the Balanced Budget and Emergency Deficit Control Act. It 
set annual deficit targets for five years, declining to a balanced 
budget in  1991. If necessary, GRH required across-the-board cuts in 
programs to comply with the deficit targets.



[[Page 27]]


Faced with the prospect of huge spending cuts in 1987, however, 
the President and Congress amended the law, postponing a balanced 
budget until 1993. The President and Congress never achieved those 
revised targets, in part because of the extraordinary costs of returning 
the Nation's savings and loan industry to a sound financial footing.

By 1990, President Bush and Congress enacted spending cuts and tax 
increases that were designed to cut the accumulated deficits by 
about $500 billion over five years. They also enacted the Budget 
Enforcement Act (BEA)--rather than set annual deficit targets. The 
BEA was designed to limit discretionary spending while ensuring 
that any new entitlement programs or tax cuts did not make the 
deficit worse.

First, the BEA set annual limits on total discretionary spending 
for defense, international affairs, and domestic programs. Second, 
it created ``pay-as-you-go'' rules for entitlements and taxes: those 
who proposed new spending on entitlements or lower taxes were forced 
to offset the costs by cutting other entitlements or raising other taxes.

For what it was designed to do, the law worked. It did, in fact, 
limit discretionary spending and force proponents of new entitlements 
and tax cuts to find ways to finance them. But the deficit, which 
Government and private experts said would fall, actually rose.

Why? Because the recession of the early 1990s reduced individual and 
corporate tax revenues and increased spending that is tied to 
economic fluctuations. Federal health care spending also continued 
to grow rapidly.

In 1993, President Clinton and the Congress made another effort to 
cut the deficit. They enacted a five-year deficit reduction package of 
spending cuts and higher revenues. The law was designed to cut the 
accumulated deficits from 1994 to 1998 by about $500 billion. The 
new law extended the limits on discretionary spending and the 
``pay-as-you-go'' rules.

Although the 1993 plan had exceeded all expectations in reducing the 
deficit, the task of reaching balance would require one final push. 
That would come with the historic 1997 Balanced Budget Act (BBA). 


Originally designed to balance the budget by 2002, the BBA provided 
for $247 billion in savings over five years. It also extended the 
solvency of Medicare's trust fund for at least 10 years while 
providing for the largest investment in higher education since 
the G.I. Bill in 1945, the largest investment in children's 
health care since the creation of Medicaid in 1965, and a 
$500-per-child tax credit for about 27 million working families.



[[Page 28]]


Clearly, the President's deficit reduction efforts have paid off. 
The deficit fell from $290 billion in 1992 to a surplus of $69 
billion in 1998.


The President is now proposing to reserve the surplus until Social 
Security is reformed. His plan for reform uses 62 percent of the 
projected unified budget surplus of the next 15 years to put the 
Social Security system on sound financial footing well into the next 
century. In 2000 the challenge for both the President and the Congress 
is to maintain fiscal discipline and reach comprehensive Social 
Security reform while continuing to invest in the American people. 
The next chapter describes the President's plans for achieving that goal.




[[Page 29]]

 
5. THE PRESIDENT'S 2000 BUDGET

The President's 2000 budget promises the third balanced budget of 
this Administration. With it, the Nation's fiscal house is in order 
and we are prepared to meet the challenges of the next century. 
It continues on the path the President has followed for the past 
six years of maintaining fiscal discipline and investing wisely 
in our Nation's priorities.

It invests in education and training so Americans can make the most 
of this economy's opportunities. It invests in health and the 
environment to improve our quality of life. It invests in our 
security at home and abroad, strengthens law enforcement and 
provides our Armed Forces with the resources they need to safeguard 
our national interests in the next century.

The President's budget makes these investments while maintaining the 
fiscal discipline that allowed the Federal Government to record its 
first surplus in a generation last year. The budget forecasts that 
the Government will produce a surplus again this year, and will 
continue to do so for decades to come. Our success in eliminating 
the budget deficit proves that we are capable of fulfilling great 
responsibilities, and there is now every reason for us to rise to 
the next challenge. The President believes it is now time to work 
together to save Social Security.


   Investing in the Future

In his State of the Union address, the President proposed a framework 
for a comprehensive, bipartisan solution to the long-term financing 
problems of Social Security. The President's plan proposes using 62 
percent of the unified budget surplus of the next 15 years to 
strengthen Social Security. It would tap the power of financial 
markets by investing roughly one-fifth of the surplus dedicated to 
Social Security in private financial instruments, including 
corporate equities. This proposal would substantially improve the 
program's fiscal position, strengthening it until the middle of the 
next century. Then, in a bipartisan effort envisioned by the national 
dialogue of the last year, the President is urging Congress to join 
him to make the difficult but achievable choices to save Social 
Security until 2075.


[[Page 30]]

Once Social Security is on sound financial footing, the President 
proposes saving and improving Medicare, the Federal program that 
finances health care for millions of seniors and disabled Americans. 
The President's framework will reserve 15 percent of the projected 
budget surplus of the nest 15 years for Medicare, ensuring that 
its trust fund is secure for 20 years.

The President is also committed to helping all Americans save and 
invest so that they will have additional sources of income in retirement. 
Dedicating just over 10 percent of the surplus of the next 15 years 
to Universal Savings Accounts will help Americans save for the future 
by allowing them to invest as they choose and receive matching 
contributions.


And looking ahead to the Nation's other vital needs that will arise in 
the future, the President's framework will reserve 11 percent of the 
projected surplus for military readiness, education, and other critical 
domestic priorities.


The President's budget builds on efforts to invest in the skills of 
the American people. It continues his policy of helping working 
families with their basic needs_raising their children, sending 
them to college, and expanding access to health care. It also invests 
in education and training, the environment,, science and technology, 
law enforcement, and other priorities to help raise the standard of 
living and quality of life of Americans.


In this budget, the President is proposing major initiatives that 
will continue his investments in high-priority areas_from helping 
working families with their child care expenses to allowing Americans 
from 55 to 65 to buy into Medicare; from helping States and school 
districts recruit and prepare thousands more teachers and build 
thousands more classrooms to making every effort to fight tobacco 
and its use among young people.


For six years, the President has sought to help working families 
balance the demands of work and family. In this budget he proposes 
a major effort to make child care more affordable, accessible and 
safe, by expanding tax credits for middle-income families and for 
businesses to expand their child care needs, and increasing funds with 
which the Child Care and Development Block Grant can help more poor 
and near poor children. The budget proposes and Early Learning Fund, 
which would provide grants to communities for activities that improve 
early childhood deduction and the quality of child care for those 
under age five.


The President has worked hard to expand health care coverage and 
improve the Nations' health. The budget  gives new insurance options 
to hundreds of thousands of Americans aged 55 to 65 and it advocates 
bipartisan national






[[Page 31]]
legislation that would reduce tobacco use among the young. The 
President's budget proposed initiatives to help patients, families, 
and care givers cope with the burdens of long-term care; and it 
helps reduce barriers to employment for individuals with 
disabilities. The budget also enables more Medicare beneficiaries 
to receive promising cancer treatments by participating more easily 
in clinical trials. And it improves the fiscal soundness of Medicare 
and Medicaid through new management proposals, including programs 
to combat waste, fraud, and abuse.

The President's efforts have also enhanced access to, and the 
quality of, education and training. The budget takes the next 
steps by continuing to help States and school districts reduce class 
size by recruiting and preparing thousands more teachers and 
building thousands more new classrooms. The President's budget 
proposes improving school accountability by funding monetary awards 
to the highest performing schools that serve low-income students, 
providing resources to States to help them identify and change the 
least successful schools, and ending social promotion by funding 
additional education hours through programs like the 21st Century 
Community Learning Centers. The budget also proposes further 
increases in the maximum Pell Grant to help low-income undergraduates 
complete their college education and more funding for universal 
reemployment services to help train or find jobs for all dislocated 
workers who need help.


The budget proposes a historic inter-agency Lands Legacy initiative 
to both preserve the Nation's Great Places, and advance preservation 
of open spaces in every community. This initiative will give State 
and local governments the loots for orderly growth while protecting 
and enhancing green spaces, clean water, wildlife habitat and 
outdoor recreation. The Administration also proposes a Livability 
Initiative with a new financing mechanism, Better America Bonds, 
to create more open spaces in urban and suburban areas, improve 
water quality, and clean up abandoned industrial sites. In 
addition, the budget would restore and rehabilitate national 
parks, forests, and public lands and facilities; expand efforts to 
restore and protect the water quality of rivers and lakes; and 
better protect endangered species.


The President had worked to bring peace to troubled parts of the 
world, and has played a leadership role in Northern Ireland, Bosnia, 
and most recently in the Wye River Memorandum on the Middle East. 
The budget reinforces America's commitment to peace in the Middle 
East by providing for an economic and military assistance package 
arising for the Wye River Memorandum. The work of diplomacy, 
advancing peace and United States interests, has inherent dangers, 
as the death toll from the terrorist attacks on two U.S. Embassies 
in Africa last year reminds us. The budget proposes







[[Page 32]]

increased funding to ensure the continued protection of American 
embassies, consulates and other facilities, and the valuable employees 
who work there. It supports significant increases in funding for 
State Department programs to address the threats posed by weapons 
of mass destruction. The budget also increases programs that support 
U.S. manufacturing exports and continues our long standing policy of 
opening foreign markets.


The mission of our Armed Forces has changed in this post-Cold War 
era, and in many ways it is more complex. Today, the U.S. military 
must guard against major threats to the Nation's security, including 
regional dangers like cross-border aggression, the proliferation of 
the technology of weapons of mass destruction, transnational dangers 
like the spread of drugs and terrorism, and direct attacks on the 
U.S. homeland from intercontinental ballistic missiles or other 
weapons of mass destruction. The U.S. Armed Forces are well prepared 
to meet this mission. Military readiness_the ability to engage where 
and when necessary_is razor sharp, and this budget provides resources 
to make sure that it stays that way for years to come. The budget 
provides a long term, sustained increase in defense spending to 
enhance the military's ability to respond to crises, build for the 
future through programs for weapons modernization, and take care 
of military personnel and their families by enhancing the quality 
of life, thereby increasing retention and recruitment.








              Improving Performance Through Better Management


A key element in the Administration's ability to making these 
investments, while balancing the budget, is the reinvention of 
overnment_doing more with less. Efforts led by Vice President 
Gore's National Partnership for Reinvention have streamlined 
Government, reduced its work force, and focused on performance 
in improve operations and delivery of service. And these efforts, 
by reducing the cost of Government operations, have improved 
the bottom line and contributed to our strong economy.


Since 1993, the Administration, working with the Congress, has 
eliminated and reduced hundreds of unnecessary programs and projects. 
The size of Government, that is, the actual total of Government 
spending, has equaled a smaller share of GDP than in any year of 
the previous two Administrations, and in 2000 will drop to 19.4 
percent of GDP, its lowest level since the early 1970s. Finally, 
the Administration has cut the size of the Federal civilian work 
force by 365,000, creating the smallest work force in 36 years 
and, as a share of total civilian employment, the smallest since 
1933 (see Chart 5ï¿½091).







[[Page 33]]

Chart 5-1.  Cuts in Civilian Employment




Note: In 1993, the President pledged to cut the Federal work force 
by 252,000 full-time equivalent (FTE) positions. Simply put, one 
full-time employee counts as one FTE, and two employees who work 
half-time also count as one FTE.

The Administration, however, is working to create not just a 
smaller Government, but a better one, a Government that best 
provides services and benefits to its ultimate customers_the 
American people. It has not just cut the Federal work force, it 
has streamlined layers of bureaucracy. It has not just reorganized 
headquarters and field offices, it has ensured that those closest 
to the customers can best serve them.

For 2000, the Administration once again is turning its efforts to 
the next stage of ``reinventing'' the Federal Government. It plans 
to dramatically overhaul 32 Federal agencies to improve performance 
in key services, such as expediting student loan processing and 
speeding aid to disaster victims. It also plans to continue tackling 
critical challenges, such as ensuring that Government computers 
can process the year 2000 date change and making more  Government 
services available electronically.


Under the 1993 Government Performance and Results Act, Cabinet 
departments and agencies have prepared individual performance 
plans that they will send to Congress with the performance goals 
they plan to meet in 2000. These plans provided the basis for the 
second Government-wide




[[Page 34]]

Performance Plan which is contained in the budget. In 2000, for the 
first time, agencies will submit to the President and the Congress 
annual reports for 1999 that compare actual and target performance 
levels and explain any difference between them.














[[Page 35]]

 
Glossary

  Appropriation

     An appropriation is an act of Congress that enables Federal 
     agencies to spend money for specific purposes.

  Authorization

     An authorization is an act of Congress that establishes or 
     continues a Federal program or agency, and sets forth the 
     guidelines to which it must adhere.

  Balanced Budget

     A balanced budget occurs when total revenues equal total 
     outlays for a fiscal year.

  Budget Authority (BA)

     Budget authority is what the law authorizes, or allows, the 
     Federal Government to spend for programs, projects, or activities.

  Budget Enforcement Act (BEA) of 1990

     The BEA is the law that was designed to limit discretionary 
     spending while ensuring that any new entitlement program or 
     tax cuts did not make the deficit worse. It set annual limits 
     on total discretionary spending and created ``pay-as-you-go'' 
     rules for any changes in entitlements and taxes. (See 
     ``pay-as-you-go.'')

  Balanced Budget and Emergency Deficit Control Act of 1985
  (Gramm-Rudman-Hollings, or GRH)

     The Balanced Budget and Emergency Deficit Control Act of 1985 
     was designed to end deficit spending. It set annual deficit 
     targets for five years, declining to a balanced budget in 1991. 
     If necessary, it required across-the-board cuts in programs to 
     comply with the deficit targets. It was never fully implemented.

  Budget Resolution

     The budget resolution is the annual framework within which 
     Congress makes its decisions about spending and taxes. This 
     framework includes targets for total spending, total revenues, 
     and the deficit, as well as



[[Page 36]]

 allocations, within the spending target, for discretionary and 
 mandatory spending.

``Cap''

 A ``cap'' is a legal limit on annual discretionary spending.

Deficit

 The deficit is the difference produced when spending exceeds 
 revenues in a fiscal year.

Discretionary Spending

 Discretionary spending is what the President and Congress must 
decide to spend for the next fiscal year through 13 annual 
appropriations bills. Examples include money for such activities 
as the FBI and the Coast Guard, housing and education, space 
exploration and highway construction, and defense and foreign aid.

Entitlement

 An entitlement is a program that legally obligates the Federal
 Government to make payments to any person who meets the legal
 criteria for eligibility. Examples include Social Security, 
 Medicare, and Medicaid.

Excise Taxes

 Excise taxes apply to various products, including alcohol, tobacco, 
 transportation fuels, and telephone service.

Federal Debt


 The gross Federal debt is divided into two categories: debt held by 
the public, and debt the Government owes itself. Another category is 
debt subject to legal limit.

 Debt Held by the Public

  Debt held by the public is the total of all Federal deficits, minus 
  surpluses, over the years. This is the cumulative amount of money 
  the Federal Government has borrowed from the public, through the 
  sale of notes and bonds of varying sizes and time periods.

 Debt the Government Owes Itself

  Debt the Government owes itself is the total of all trust fund 
  surpluses over the years, like the Social Security surpluses, that 
  the law says must be invested in Federal securities.



[[Page 37]]


 Debt Subject to Legal Limit

  Debt subject to legal limit, which is roughly the same as gross 
  Federal debt, is the maximum amount of Federal securities that 
  may be legally outstanding at any time. When the limit is reached, 
  the President and Congress must enact a law to increase it.

Fiscal Year

 The fiscal year is the Government's accounting period. It begins 
 October 1 and ends on September 30. For example, fiscal 1999 ends 
 September 30, 1999.

Gramm-Rudman-Hollings

 See Balanced Budget and Emergency Deficit Control Act of 1985.

Gross Domestic Product (GDP)

 GDP is the standard measurement of the size of the economy. It is 
 the total production of goods and services within the United States.

Mandatory Spending

 Mandatory spending is authorized by permanent law. An example is 
 Social Security. The President and Congress can change the law to 
 change the level of spending on mandatory programs--but they don't 
 have to.

``Off-Budget''

 By law, the Government must distinguish ``off-budget'' programs 
 separate from the budget totals. Social Security and the Postal 
 Service are ``off-budget.''

Outlays 

 Outlays are the amount of money the Government actually spends in 
 a given fiscal year.

``Pay-As-You-Go''

 Set forth by the BEA, ``pay-as-you-go'' refers to requirements that 
 new spending proposals on entitlements or tax cuts must be offset by 
 cuts in other entitlements or by other tax increases, to ensure that 
 the deficit does not rise. (See BEA.)

Revenue

Revenue is money collected by the Government.



[[Page 38]]


Social Insurance Payroll Taxes

 This tax category includes Social Security taxes, Medicare taxes, 
 unemployment insurance taxes, and Federal employee retirement 
 payments.

Surplus

 A surplus is the amount by which revenues exceed outlays.

Trust Funds

 Trust funds are Government accounts, set forth by law as trust 
 funds, for revenues and spending designated for specific purposes.

Unified Federal Budget

 The unified budget, the most useful display of the Government's 
 finances, is the presentation of the Federal budget in which 
 revenues from all sources and outlays to all activities are consolidated.




[[Page 39]]

 
List of Charts and Tables

   List of Charts                                                    Page
     What Is the Budget?
      1-1 Government Spending as a Share of GDP, 1998................   2
      1-2 Total Government Outlays as a Percent of GDP...............   3
     Where the Money Comes From--and Where It Goes
      2-1 Family Budgeting...........................................   5
      2-2 National Budgeting.........................................   6
      2-3 The Federal Government Dollar--Where It Comes From.........   7
      2-4 Composition of Revenues....................................   9
      2-5 Revenues as a Percent of GDP--Comparison With Other
          Countries..................................................   9
      2-6 The Federal Government Dollar--Where It Goes...............  10
      2-7 On- and Off-Budget Deficit Projections.....................  15
     How Does the Government Create a Budget?
      3-1 Major Steps in the Budget Process..........................  18
     Deficits and the Debt
      4-1 Past and Future Budget Deficits or Surpluses...............  21
      4-2 Outlays as a Percent of GDP................................  22
      4-3 Total Government Surplus or Deficit as a Percent of GDP....  24
     The President's 1999 Budget
      5-1 Cuts in Civilian Employment................................  33



[[Page 40]]

   List of Tables                                                    Page

     Where the Money Comes From--and Where It Goes
      2-1 Revenues by Source--Summary.................................   8
      2-2 Spending Summary............................................  12
      2-3 Spending by Function........................................  13
      2-4 Spending by Agency..........................................  14
     Deficits and the Debt
      4-1 Federal Government Financing and Debt.......................  25