[Analytical Perspectives]
[Economic and Accounting Analyses]
[2. Stewardship: Toward a Federal Balance Sheet]
[From the U.S. Government Publishing Office, www.gpo.gov]



[[Page 17]]

 
             2. STEWARDSHIP: TOWARD A FEDERAL BALANCE SHEET

                               Introduction

  A full evaluation of the Government's financial condition must 
consider a broader range of data than would usually be shown on a 
business balance sheet. A balanced assessment of the Government's 
financial condition requires several complementary perspectives. This 
chapter presents a framework for such analysis. No single table in this 
chapter is ``the balance sheet'' of the Federal Government. Rather, the 
chapter taken as a whole provides an overview of the Government's 
financial resources, the current and future claims on them, and what the 
taxpayer gets in exchange for these resources. This is the kind of 
assessment for which a financial analyst would turn to a business 
balance sheet, but this chapter is expanded to take into account the 
Government's unique roles and circumstances.
  Because of the differences between Government and business, and 
because there are serious limitations in the available data, this 
chapter's findings should be interpreted with caution. The conclusions 
are tentative and subject to revision.
  The presentation consists of three parts:
    The first part reports on what the Federal Government owns 
          and what it owes. Table 2-1 summarizes this information. The 
          assets and liabilities in this table are a useful starting 
          point for analysis, but they are only a partial reflection of 
          the full range of Government resources and responsibilities. 
          Only those items actually owned by the Government are included 
          in the table, but its resources extend beyond the assets 
          defined in this narrow way. Government can also rely on taxes 
          and other measures to meet future obligations. Similarly, 
          while the table's liabilities include all of the binding 
          commitments resulting from prior Government action, 
          Government's responsibilities are much broader than this.
    The second part presents possible paths for the Federal 
          budget extending well into the next century, beginning with an 
          extension of the 2000 Budget. Table 2-2 summarizes this 
          information. This part offers the clearest indication of the 
          long-run financial demands that the Government faces and the 
          resources that will be available to meet them. Some future 
          claims on the Government deserve special emphasis because of 
          their importance to individuals' retirement plans. Table 2-3 
          summarizes the condition of the Social Security and Medicare 
          trust funds and how that condition has changed since 1997.
    The third part of the presentation features information on 
          economic and social conditions which the Government affects by 
          its actions. Table 2-4 presents summary data for national 
          wealth while highlighting the Federal investments that have 
          contributed to that wealth. Table 2-5 presents a small sample 
          of economic and social indicators.

                   Relationship with FASAB Objectives

  The framework presented here meets the stewardship objective \1\ for 
Federal financial reporting recommended by the Federal Accounting 
Standards Advisory Board and adopted for use by the Federal Government 
in September 1993.
---------------------------------------------------------------------------
  \1\ Objectives of Federal Financial Reporting, Statement of Federal 
Financial Accounting Concepts Number 1, September 2, 1993. The other 
objectives relate to budgetary integrity, operating performance, and 
systems and controls.

          Federal financial reporting should assist report users in 
     assessing the impact on the country of the Government's operations 
          and investments for the period and how, as a result, the 
    Government's and the Nation's financial conditions have changed and 
    may change in the future. Federal financial reporting should provide 
---------------------------------------------------------------------------
               information that helps the reader to determine:

         3a. Whether the Government's financial position improved or 
                        deteriorated over the period.

       3b. Whether future budgetary resources will likely be sufficient 
    to sustain public services and to meet obligations as they come due.

      3c. Whether Government operations have contributed to the Nation's 
                       current and future well-being.

  The presentation here explores an experimental approach for meeting 
this objective at the Government-wide level.

            What Can Be Learned from a Balance Sheet Approach

  The budget is an essential tool for allocating resources within the 
Federal Government and between the public and private sectors; but the 
standard budget presentation, with its focus on annual outlays, 
receipts, and the surplus/deficit, does not provide all the information 
needed for a full analysis of the Government's financial and investment 
decisions. A business may ultimately be judged by the bottom line in its 
balance sheet, but for the National Government, the ultimate test is how 
its actions affect the country.

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     QUESTIONS AND ANSWERS ABOUT THE GOVERNMENT'S ``BALANCE SHEET''
 
 
------------------------------------------------------------------------
1.   According to Table 2-1, the Government's liabilities exceed its
 assets. No business could operate in such a fashion. Why does the
 Government not manage its finances more like a business?
 
               Because the Federal Government is not a business. It has
                fundamentally different objectives, and so must operate
                in different ways. The primary goal of every business is
                to earn a profit. But in our free market system, the
                Federal Government leaves almost all activities at which
                a profit could be earned to the private sector. In fact,
                the vast bulk of the Federal Government's operations are
                such that it would be difficult or impossible to charge
                prices for them--let alone prices that would cover
                expenses. The Government undertakes these activities not
                to improve its own balance sheet, but to benefit the
                Nation--to foster not only monetary but also nonmonetary
                values. No business would--or should--sacrifice its own
                balance sheet to bolster that of the rest of the
                country.
 
               To illustrate, one of the Federal Government's most
                valuable assets is its holdings of gold. The price of
                gold generally fluctuates counter to the state of the
                economy--if inflation is rapid and out of control, the
                price of gold rises; but when inflation slows and
                steadies, the price of gold falls. One source of the
                deterioration of the Federal Government's balance sheet
                since the early 1980s has been a decline in the relative
                price of gold, which has reduced the real value of the
                Government's gold holdings. But that price decline--and
                the resulting deterioration of the Government's balance
                sheet--began as a direct consequence of Federal policies
                to reduce inflation, for the benefit of the people and
                businesses of the United States. No business would
                undertake such a policy of worsening its own balance
                sheet.
 
               Similarly, the Federal Government invests in education
                and research. The Government earns no direct return from
                these investments; but the Nation and its people are
                made richer. A business's motives for investment are
                quite different; business invests to earn a profit for
                itself, not others. Because the Federal Government's
                objectives are different, its balance sheet behaves
                differently, and should be interpreted differently.
 
2.  But Table 2-1 seems to imply that the Government is insolvent. Is
 it?
 
               No. Just as the Federal Government's responsibilities are
                of a different nature than those of a private business,
                so are its resources. Government solvency must be
                evaluated in different terms.
 
               What the table shows is that those Federal obligations
                that are most comparable to the liabilities of a
                business corporation exceed the estimated value of the
                assets the Federal Government actually owns. However,
                the Government has access to other resources through its
                sovereign powers, which include taxation. These powers
                give the Government the ability to meet present
                obligations and those that are anticipated from future
                operations.
 
               The financial markets clearly recognize this reality. The
                Federal Government's implicit credit rating is the best
                in the United States; lenders are willing to lend it
                money at interest rates substantially below those
                charged to private borrowers. This would not be true if
                the Government were really insolvent or likely to become
                so. In countries where governments totter on the brink
                of insolvency, lenders are either unwilling to lend them
                money, or do so only in return for a substantial
                interest premium.
 
               However, the Federal Government's balance sheet was
                clearly worsened by the budget policies of the 1980s.
                Under President Clinton, the deterioration in the
                balance sheet has been halted, and as the budget has
                moved from deficit to surplus, the excess of Government
                liabilities over assets has leveled off and begun to
                shrink relative to the size of the economy.

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    QUESTIONS AND ANSWERS ABOUT THE GOVERNMENT'S ``BALANCE SHEET''--
                                Continued
 
 
------------------------------------------------------------------------
 
3.  The Government does not comply with the accounting requirements
 
               Because the Government is not a business, and its primary
                goal is not to earn profits or to enhance its own
                wealth. Accounting standards designed to illuminate how
                much a business earns and how much equity it has would
                not provide useful information if applied to the
                Government, and might even be misleading. In recent
                years, the Federal Accounting Standards Advisory Board
                has developed, and the Federal Government has adopted, a
                conceptual accounting framework that reflects the
                Government's functions and answers the questions for
                which Government should be accountable. This framework
                addresses budgetary integrity, operating performance,
                stewardship, and systems and controls. The Board has
                also developed, and the Government has adopted, a full
                set of accounting standards. Federal agencies are
                issuing audited financial reports that follow these
                standards; an audited Government-wide consolidated
                financial report was issued last year.
 
               This chapter addresses the ``stewardship objective''--
                assessing the interrelated condition of the Federal
                Government and of the Nation. The data in this chapter
                are intended to illuminate the trade-offs and
                connections between making the Federal Government
                ``better off'' and making the Nation ``better off.''
                There is no ``bottom line'' for the Government
                comparable to the net worth of a business corporation.
                Some analysts may find the absence of a bottom line to
                be frustrating. But pretending that there is such a
                number--when there clearly is not--does not advance the
                understanding of Government finances.
 
4.  Why is Social Security not shown as a liability in Table 2-1?
 
               Formally, construing Social Security as a liability would
                entail several conceptual contradictions. There are
                other Federal programs that are very similar to Social
                Security in the promises they make--Medicare, Medicaid,
                Veterans pensions, and Food Stamps, to name a few.
                Should the future benefits expected from these programs
                also be treated as liabilities? It would be difficult to
                justify a different accounting treatment for them if
                Social Security were classified as a liability of the
                Government. There is no bright dividing line separating
                Social Security from other income-maintenance programs.
 
               Furthermore, if future Social Security benefits were to
                be treated as liabilities, logic would suggest that
                future Social Security payroll tax receipts that are
                earmarked to finance those benefits ought to be
                considered assets. However, other tax receipts are not
                counted as assets; and drawing a line between Social
                Security taxes and other taxes would be questionable.

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    QUESTIONS AND ANSWERS ABOUT THE GOVERNMENT'S ``BALANCE SHEET''--
                                Continued
 
 
------------------------------------------------------------------------
 
5.  It is all very well to run a budget surplus now, but can this be
 
               The aging of the U.S. population, which will become
                dramatically evident when the baby-boomers retire, poses
                serious long-term problems for the Federal budget and
                its major entitlement programs. However, the surplus in
                the budget means the country is better prepared to
                address these problems. If current projections prove
                correct and the surplus is preserved for some time to
                come, then there will be a significant decline in
                Federal net interest payments because of the decline in
                Federal debt resulting from the surpluses. This is a key
                step towards keeping the budget in balance when the baby-
                boomers retire.
 
               The second part of this chapter and the charts that
                accompany it show how the budget is likely to fare under
                various possible alternative scenarios.
 
6.  Would it be sensible for the Government to borrow to finance needed
 capital--permitting a deficit in the budget--so long as it was no
 larger than the amount spent on Federal investments?
 
               First of all, the Government consumes capital each year
                in the process of providing goods and services to the
                public. The rationale for using Federal borrowing to
                finance investment really only applies to net
                investment, after depreciation is subtracted, because
                only net investment augments the Government's assets and
                offsets the increase in liabilities that result from
                borrowing. If the Government financed all new capital by
                borrowing, it should pay off the debt as the capital
                acquired in this way loses value. As discussed in
                Chapter 6 of Analytical Perspectives, net investment in
                physical capital owned by the Federal Government is
                estimated to have been negative in 1998 and to remain
                negative in 1999 and 2000, so no deficit spending would
                actually be justified by this borrowing-for-investment
                criterion.
 
               The Federal Government also funds substantial amounts of
                physical capital that it does not own, such as highways
                and research facilities, and it funds investment in
                intangible ``capital'' such as education and training
                and the conduct of research and development. A private
                business would never borrow to spend on assets that
                would be owned by someone else. However, such spending
                is a principal function of Government. Chapter 6 shows
                that when these investments are also included, net
                investment is estimated to be slightly positive in 1999
                and 2000. It is not clear whether this type of capital
                investment would satisfy the borrowing-for-investment
                criterion. Certainly, these investments do not create
                Federally owned assets, even though they are part of
                national wealth.
 
               There is another hitch in the logic of borrowing to
                invest. Businesses expect investments to earn a profit
                from which to repay the financing costs. In contrast,
                the Federal Government does not generally expect to
                receive a direct payoff (in the form of higher tax
                receipts) from its investments, whether or not it owns
                them. In this sense, Government investments are no
                different from other Government expenditures, and the
                fact that they provide services over a longer period is
                no justification for excluding them when calculating the
                surplus/deficit.
 
               Finally, the Federal Government must pursue policies that
                support the overall financial and economic well-being of
                the Nation. In this broader context, the Government may
                need to manage its fiscal policy to run a surplus, so as
                to augment private saving and investment, even if this
                means paying for its own investments from current
                revenues, instead of borrowing in the credit market and
                crowding out private investment. Other considerations
                than the size of Federal investment need to be weighed
                in choosing the appropriate level of the surplus or
                deficit.

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    QUESTIONS AND ANSWERS ABOUT THE GOVERNMENT'S ``BALANCE SHEET''--
                                Continued
 
 
------------------------------------------------------------------------
 
7.   Is it misleading to include the Social Security surplus when
 
               For many years, experts have said that the Federal budget
                has three purposes: to plan the Government's fiscal
                program; to impose financial discipline on the
                Government's activities; and to measure the Government's
                effect on the economy. It should not be surprising that,
                with more than one purpose, the budget is routinely
                presented in more than one way. For years, there have
                been several alternative measures of the budget, each
                with its appropriate use. None of these measures is
                always right, or always wrong; it depends upon the
                purpose to which the budget is put.
 
               For the purpose of measuring the Government's effect on
                the economy, it would be misleading to omit any part of
                the budget; doing so would simply miss part of what we
                were trying to measure. For example, we would need to
                know all of the Federal Government's receipts and
                outlays to know whether it will have the wherewithal to
                meet its future obligations--such as Social Security.
                And for purposes of fiscal discipline, leaving out
                particular Government activities could be dangerous. In
                fact, the principle of a ``unified,'' all-inclusive
                budget was established by President Johnson's Commission
                on Budget Concepts largely to forestall a trend toward
                moving favored programs off-budget--which had been done
                explicitly to shield those programs from scrutiny and
                funding discipline.
 
               To plan the Government's program, however, alternative
                perspectives can sometimes be useful. In particular, the
                Congress has moved Social Security off-budget. The
                purpose was to stress the need to provide independent,
                sustainable funding of Social Security in the long term;
                and to show the extent to which the rest of budget had
                relied on annual Social Security surpluses to make up
                for its own shortfalls.
 
               Policy under this Administration has been consistent with
                these goals. The non-Social Security deficit has been
                virtually eliminated--falling consistently from its
                record $340 billion in 1992 to only $30 billion, the
                lowest in more than a quarter of a century, in 1998. We
                anticipate that the non- Social Security budget will
                move solidly into surplus within the time horizon of
                this budget. And the President has made long-term Social
                Security soundness a key priority for this year.
 
               In sum, the budget is like a toolbox that contains
                different tools to perform different functions. There is
                a right tool for each task, but no one tool is right for
                every task. If we choose the right tool for the job at
                hand, we can achieve our objectives.
 
8.  What good does it do for the Federal Government to run a budget
 surplus, if the surplus is only used to retire Government debt? Is this
 just another way of pouring the money down the drain?
 
               When the Government retires its debt, it is not pouring
                money down the drain. The Government contributes to the
                accumulation of national wealth by using a budget
                surplus to repay Government debt. Because of the large
                budget deficits of the 1980s, Federal debt measured
                relative to the size of the economy has risen to levels
                not seen since the early 1960s. Reducing this
                accumulated debt will have several desirable economic
                effects. It will help to hold down real interest rates,
                which is good for investment and home ownership.
                Lowering the debt will give the Government more
                flexibility should it face an unexpected need to borrow
                in the future. When the Government uses a budget surplus
                to reduce its debt, it adds to national saving. Even
                though the Government is simply repaying its debt, the
                resources represented by the surplus are available for
                private investment in new plant and equipment, new
                homes, and other durable assets.

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  The data needed to judge its performance go beyond a simple measure of 
net assets. Consider, for example, Federal investments in education or 
infrastructure whose returns flow mainly to the private sector and which 
are often owned by households, private businesses or other levels of 
government. From the standpoint of the Federal Government's ``bottom 
line,'' these investments might appear to be unnecessary or even 
wasteful; but they make a real contribution to the economy and to 
people's lives. A framework for evaluating Federal finances needs to 
take Federal investments into account, even when the return they earn 
accrues to someone other than the Federal Government.
  A good starting point to evaluate the Government's finances is to 
examine its assets and liabilities. An illustrative tabulation of net 
assets is presented below in Table 2-1, based on data from a variety of 
public and private sources. It has sometimes been suggested that the 
Federal Government's assets, if fully accounted for, would exceed its 
debts. Table 2-1 clearly shows that this is not correct. The Federal 
Government's assets are less than its debts; the deficits in the 1980s 
caused Government debts to increase far more than Government assets.
  But that is not the end of the story. The Federal Government has 
resources that go beyond the assets that normally appear on a 
conventional balance sheet, including the Government's sovereign powers 
to tax, regulate commerce, and set monetary policy. However, these 
powers call for special treatment in financial analysis. The best way to 
incorporate them is to make a long-run projection of the Federal budget 
(as is done in the second part of this chapter). The budget provides a 
comprehensive measure of the Government's annual cash flows. Projecting 
it forward shows how the Government's sovereign powers are expected to 
generate cash flows in the future.
  On the other side of the ledger are the Government's binding 
obligations such as Treasury debt, and the present discounted value of 
Federal obligations to pay pension benefits to Government retirees and 
current employees when they retire. These obligations have counterparts 
in the business world, and would appear on a business balance sheet. 
Accrued obligations for government insurance policies and the estimated 
present value of failed loan guarantees and deposit insurance claims are 
also analogous to private liabilities, and are included with the other 
Government liabilities. These formal obligations, however, form only a 
subset of the Government's financial responsibilities.
  The Government has established a broad range of programs that dispense 
cash and other benefits to individual recipients. The Government is not 
constitutionally obligated to continue payments under these programs; 
the benefits can be modified or even ended at any time, subject to the 
decisions of the elected representatives in Congress. Such changes are a 
regular part of the legislative cycle. Allowing for such changes, 
however, it is likely that many of these programs will remain Federal 
obligations in some form for the foreseeable future. Again, the best way 
to see how future responsibilities line up with future resources is to 
project the Federal budget forward far enough in time to capture the 
long-run effects of current and past decisions. Projections of this sort 
are presented below.
  The budget, even when projected far into the future, does not show 
whether the public is receiving value for its tax dollars. Information 
on that point requires performance measures for government programs 
supplemented by appropriate information about conditions in the U.S. 
economy and society. Such data are currently available, but much more 
need to be developed to obtain a full picture. Examples of what might be 
done are also shown below. (Performance measures are discussed more 
fully in Section VI of this year's Budget.)
  The presentation that follows consists of a series of tables and 
charts. All of them taken together function as a Federal balance sheet. 
The schematic diagram, Chart 2.1, shows how they fit together. The 
tables and charts should be viewed as an ensemble, the main elements of 
which can be grouped together in two broad categories--assets/resources 
and liabilities/responsibilities.
     Reading down the left-hand side of the diagram shows the 
          range of Federal resources, including assets the Government 
          owns, tax receipts it can expect to collect, and national 
          wealth that provides the base for Government revenues.
     Reading down the right-hand side reveals the full range of 
          Federal obligations and responsibilities, beginning with 
          Government's acknowledged liabilities based on past actions, 
          such as the debt held by the public, and going on to include 
          future budget outlays. This column ends with a set of 
          indicators highlighting areas where Government activity 
          affects society or the economy. 

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[[Page 24]]

          
          
         PART I--THE FEDERAL GOVERNMENT'S ASSETS AND LIABILITIES

  Table 2-1 summarizes what the Government owes as a result of its past 
operations along with the value of what it owns, for a number of years 
beginning in 1960. The values of assets and liabilities are measured in 
terms of constant FY 1998 dollars. For most of this period, Government 
liabilities have exceeded the value of assets, but until the early 1980s 
the disparity was relatively small, and it was growing slowly (see chart 
2-2).
  In the late 1970s, a speculative run-up in the prices of oil, gold, 
and other real assets temporarily boosted the value of Federal holdings, 
but since then those prices have declined.\2\ Currently, the total real 
value of Federal assets is estimated to be only about 12 percent greater 
than it was in 1960. Meanwhile, Federal liabilities have increased by 
167 percent in real terms. The sharp decline in the Federal net asset 
position was principally due to large Federal budget deficits along with 
a drop in certain asset values. Currently, the net excess of liabilities 
over assets is about $3.2 trillion, or $12,000 per capita.
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  \2\ This temportary improvement highlights the importance of the othr 
tables in this presentation. What is good for the Federal Government as 
an asset holder is not necessary favorable to the economy. The decline 
in inflation in the early 1980s reversed the speculative runnup in gold 
and other commodity prices. This reduced the balance of Federal net 
assets, but it was good for the economy and the nation as a whole.
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Assets

  The assets in Table 2-1 are a comprehensive list of the financial and 
physical resources owned by the Federal Government. The list corresponds 
to items that would appear on a typical balance sheet.
  Financial Assets: According to the Federal Reserve Board's Flow-of-
Funds accounts, the Federal Government's holdings of financial assets 
amounted to about $0.2 trillion at the end of FY 1998. Government-held 
mortgages and other loans (measured in constant dollars) reached a peak 
in the mid-1980s. Since then, the value of Federal loans has declined. 
The holdings of mortgages, in particular, have declined sharply as 
holdings acquired from failed savings and loan institutions have been 
liquidated.
  The face value of mortgages and other loans overstates their economic 
worth. OMB estimates that the discounted present value of future losses 
and interest subsidies on these loans is $45 billion as of 1998. These 
estimated losses are subtracted from the face value of outstanding loans 
to obtain a better estimate of their economic worth.
  Over time, variations in the price of gold have accounted for major 
swings in this category. Since the end of FY 1980, gold prices have 
fallen and the real value of U.S. gold and foreign exchange holdings has 
dropped by 58 percent.
  Reproducible Capital: The Federal Government is a major investor in 
physical capital. Government-owned stocks of fixed capital amounted to 
about $1.0 trillion in 1998 (OMB estimate). About two-thirds of this 
capital took the form of defense equipment or structures.
  Non-reproducible Capital: The Government owns significant amounts of 
land and mineral deposits. There are no official estimates of the market 
value of these holdings (and of course, in a realistic sense, much of 
this land could or would never be sold). Researchers in the private 
sector have estimated what they are worth, and these estimates are 
extrapolated in Table 2-1. Private land values fell sharply in the early 
1990s, although they have risen somewhat since 1993. It is assumed here 
that federal land shared in the decline and the subsequent recovery. Oil 
prices have declined sharply in recent years and are now lower in 
nominal terms than at any time since the late 1980s, reducing the value 
of Federal mineral deposits. (The estimates omit other types of valuable 
assets owned by the Government, such as works of art or historical 
artefacts, simply because the valuation of such assets would have little 
realistic basis in fact, and because most of these objects would never 
be sold.)
  Total Assets: The total real value of Government assets is lower now 
than at the end of the 1980s, principally because of declines in the 
real value of gold, land, and minerals. Even so, the Government's 
holdings are vast. At the end of 1998, the value of Government assets is 
estimated to have been about $2.3 trillion.

Liabilities

  Table 2-1 includes only those liabilities that would appear on a 
business balance sheet. These include various forms of Federal debt, 
Federal pension obligations to civilian and military employees, and 
liabilities for Federal insurance and loan guarantee programs.
  Financial Liabilities: Financial liabilities amounted to about $3.9 
trillion at the end of 1998. The largest component was Federal debt held 
by the public, amounting to around $3.3 trillion. This measure of 
Federal debt is net of the holdings of the Federal Reserve System (about 
$0.4 trillion at the end of FY 1998). Although independent in its policy 
deliberations, the Federal Reserve is part of the Federal Government, 
and its assets and liabilities are included here in the Federal totals. 
In addition to debt held by the public, the Government's financial 
liabilities include approximately $0.5 trillion in currency and bank 
reserves, which are mainly obligations of the Federal Reserve System, 
and about $0.1 trillion in miscellaneous liabilities.
  Guarantees and Insurance Liabilities: The Federal Government has 
contingent liabilities arising from loan guarantees and insurance 
programs. When the Government guarantees a loan or offers insurance, 
cash disbursements may initially be small or, if a fee is charged, the 
Government may even collect money; but the risk of future cash payments 
associated with such commitments can be very large. The figures reported 
in Table 2-1 are prospective estimates showing the current discounted 
value of expected future losses. The 

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                                                                         Table 2-1.  GOVERNMENT ASSETS AND LIABILITIES *
                                                                 (As of the end of the fiscal year, in billions of 1998 dollars)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       1960    1965     1970     1975     1980     1985     1990     1991     1992      1993      1994      1995      1996      1997      1998
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 
ASSETS
 
Financial Assets:
  Gold and Foreign Exchange.........................     103      72       61      136      336      161      202      181       178       178       178       185       170       142       140
  Other Monetary Assets.............................      39      55       33       15       39       25       32       23        41        41        32        32        44        45        46
  Mortgages and Other Loans.........................     127     163      211      211      290      356      289      293       270       240       225       213       202       200       211
    less Expected Loan and Losses...................      -1      -3       -4       -9      -17      -17      -19      -21       -23       -25       -27       -23       -23       -41       -45
  Other Financial Assets............................      61      81       65       66       82      106      159      190       222       201       188       186       187       185       179
                                                     -------------------------------------------------------------------------------------------------------------------------------------------
    Subtotal........................................     329     370      365      419      731      631      663      665       688       636       596       592       580       530       531
 
Physical Assets:
  Fixed Reproducible Capital:
    Defense.........................................     932     911      887      724      628      789      818      831       828       815       803       779       754       712       695
    Nondefense......................................     138     212      249      273      296      319      337      340       342       343       346       351       352       345       348
  Inventories.......................................     264     228      212      189      230      263      229      208       202       186       177       158       141       130       121
  Nonreproducible Capital:..........................
    Land............................................      91     126      157      243      309      332      328      299       267       251       247       248       251       261       277
    Mineral Rights..................................     329     304      250      348      632      712      476      451       425       404       374       351       398       418       351
                                                     -------------------------------------------------------------------------------------------------------------------------------------------
      Subtotal......................................   1,753   1,782    1,755    1,776    2,095    2,415    2,188    2,129     2,065     2,000     1,948     1,887     1,895     1,867     1,792
                                                     ===========================================================================================================================================
        Total Assets................................   2,082   2,152    2,120    2,196    2,826    3,047    2,851    2,795     2,753     2,636     2,544     2,479     2,475     2,397     2,323
 
LIABILITIES
 
Financial Liabilities:
  Currency and Bank Reserves........................     230     253      279      284      285      302      360      365       383       413       439       447       458       478       514
  Debt held by the Public...........................     999     986      836      822    1,063    1,887    2,590    2,793     3,050     3,201     3,287     3,381     3,438     3,390     3,274
  Miscellaneous.....................................      26      28       30       43       67       93      139      127       119       118       115       111       112       105       106
                                                     -------------------------------------------------------------------------------------------------------------------------------------------
    Subtotal........................................   1,254   1,265    1,145    1,149    1,415    2,283    3,089    3,286     3,552     3,732     3,840     3,940     4,008     3,974     3,894
 
Insurance Liabilities:
  Deposit Insurance.................................       0       0        0        0        2        9       69       76        39        13         9         5         2         1         1
  Pension Benefit Guarantee \1\.....................       0       0        0       43       31       43       42       46        51        66        32        20        54        30        40
  Loan Guarantees...................................       0       0        2        6       12       10       15       24        27        30        32        28        32        30        22
  Other Insurance...................................      31      28       22       20       27       17       19       19        19        18        17        17        16        16        16
                                                     -------------------------------------------------------------------------------------------------------------------------------------------
    Subtotal........................................      31      29       24       70       72       79      146      165       135       127        90        69       105        77        78
 
Federal Pension Liabilities.........................     794   1,006    1,194    1,355    1,781    1,766    1,694    1,683     1,694     1,629     1,603     1,619     1,579     1,588     1,587
 
Total Liabilities...................................   2,080   3,301    2,363    2,574    3,269    4,127    4,929    5,133     5,381     5,488     5,534     5,628     5,691     5,640     5,559
 
Balance.............................................       2    -149     -243     -378     -443   -1,080   -2,077   -2,339    -2,629    -2,851    -2,989    -3,149    -3,216    -3,243    -3,235
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½
Addenda:
 
Balance Per Capita (in 1998 dollars)................      12    -766   -1,184   -1,752   -1,938   -4,519   -8,288   -9,231   -10,262   -11,016   -11,438   -11,936   -12,081   -12,077   -11,947
 
Ratio to GDP (in percent)...........................     0.1    -4.6     -6.3     -8.7     -8.5    -17.8    -30.1    -33.9     -37.0     -39.2     -39.7     -41.0     -40.3     -39.1     -37.7
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* This table shows assets and liabilites for the Government as a whole, including the Federal Reserve System. Therefore, it does not break out separately the assets held in Government
  accounts, such as Social Security, that are the obligation of specific Government agencies. Estimates for FY 1998 are extrapolated in some cases.
 
\1\ The model and data used to calculate this liability were revised for 1996-1997.


[[Page 26]]


[[Page 26]]



present value of all such losses taken together is about $0.1 trillion. 
The resolution of the many failures in the savings and loan and banking 
industries has helped to reduce the liabilities in this category by more 
than half since 1990.
  Federal Pension Liabilities: The Federal Government owes pension 
benefits to its retired workers and to current employees who will 
eventually retire. The amount of these liabilities is large. The 
discounted present value of the benefits is estimated to have been 
around $1.6 trillion at the end of FY 1998.\3\
---------------------------------------------------------------------------
  \3\ These pension liabilities are expressed as the actuarial present 
value of benefits accrued-to-date based on past and projected salaries. 
The cost of retiree health benefits is not included. The 1998 liability 
is extrapolated from recent trends.
---------------------------------------------------------------------------

The Balance of Net Liabilities

  Because of its sovereign powers, the Government need not maintain a 
positive balance of net assets, and the rapid buildup in liabilities 
since 1980 has not damaged Federal creditworthiness. However, from 1980 
to 1992, the balance between Federal liabilities and Federal assets did 
deteriorate at a very rapid rate. In 1980, the negative balance was less 
than 10 percent of GDP; by 1995 it was 41 percent of GDP. Since then, 
the net balance as a percentage of GDP has improved for three straight 
years. If a budget surplus is maintained, the net balance will continue 
to improve.

         PART II--THE BALANCE OF RESOURCES AND RESPONSIBILITIES

  As noted in the preceding section, a business-type accounting of 
assets and liabilities misses the role of the Government's unique 
sovereign powers, including taxation. Therefore, the best way to examine 
the balance between future Government obligations and resources is by 
projecting the budget over the long run. The budget offers a 
comprehensive measure of the Government's annual financial burdens and 
resources. By projecting annual receipts and outlays, it is possible to 
examine whether there will be sufficient resources to support all of the 
Government's ongoing obligations.
  This part of the presentation describes long-run projections of the 
Federal budget extending beyond the normal budget horizon. Forecasting 
the economy and the budget over such a long period is highly uncertain. 
Future budget outcomes depend on a host of unknowns--constantly changing 
economic conditions, unforeseen international developments, unexpected 
demographic shifts, the unpredictable forces of technological advance, 
and evolving political preferences. Those uncertainties increase the 
further into the future the projections are pushed. Even so, long-run 
budget projections are needed to assess the full implications of cur

[[Page 27]]

rent action or inaction, and to sound warnings about future problems 
that could be avoided by timely action. The Federal Government's 
responsibilities extend well beyond the next decade. There is no time 
limit on Government's constitutional responsibilities, and programs like 
Social Security are intended to continue indefinitely.
  It is evident even now that there will be mounting challenges to the 
budget early in the next century. By 2008, the first of the huge baby-
boom generation born after World War II will become eligible for early 
retirement under Social Security. In the years that follow there will be 
serious strains on the budget because of increased expenditures for 
Social Security, Medicare, and Medicaid. Long-range projections can help 
indicate how serious these strains might become and what is needed to 
withstand them.
  The retirement of the baby-boomers dictates the timing of the problem, 
but the underlying cause is deeper. The growth of the U.S. population 
has been slowing down, and because of that and because people are living 
longer, a change is inevitably coming in the ratio of retirees to 
workers given current retirement patterns. The budgetary pressure from 
these trends is temporarily in abeyance. In the 1990s, the large baby-
boom cohort has been moving into its prime earning years, while the 
retirement of the much smaller cohort born during the Great Depression 
has been holding down the rate of growth in the retired population. The 
suppressed budgetary pressures are likely to burst forth when the baby-
boomers begin to retire. However, even after the baby-boomers have 
passed from the scene later in the century, a higher ratio of retirees 
to workers is expected to persist because of the underlying pattern of 
low fertility and improving longevity, with concomitant problems for the 
retirement programs. These same problems are gripping other developed 
nations, even those that never experienced a baby-boom; in fact, those 
nations that did not have baby-booms are facing their demographic 
pressures already.

  The Improvement in the Long-Range Outlook.--Since this Administration 
first took office, there have been major changes in the long-run budget 
outlook. In January 1993, the deficit was clearly on an unstable 
trajectory. Had the policies then in place continued unchanged, the 
deficit would have steadily mounted not only in dollar terms, but 
relative to the size of the economy.\4\ At that time, the deficit was 
projected to rise to over 10 percent of GDP by 2010--a level 
unprecedented for peacetime--and to continue sharply upward thereafter. 
This would have driven Federal debt held by the public to unsustainable 
levels.
---------------------------------------------------------------------------
  \4\ Over long periods when the rate of inflation is positive, 
comparisons of dollar values are meaningless. Even the low rate of 
inflation assumed in this budget will reduce the value of a 1998 dollar 
by 50 percent by 2030, and by almost 70 percent by the year 2050. For 
long-run comparisons, it is much more useful to examine the ratio of the 
deficit and other budget categories to the expected size of the economy 
as measured by GDP.
---------------------------------------------------------------------------
  The Omnibus Budget Reconciliation Act of 1993 (OBRA) changed that. Not 
only did it reduce the near-term deficit, but, aided by the strong 
economy that it helped to create, it also reduced the long-term deficit. 
Prior to enactment of the Balanced Budget Agreement in 1997, however, 
the deficit was expected to persist, though at a more moderate level. In 
the absence of further policy changes, it was projected to remain at 
around 1.5 percent of GDP through 2010, and afterwards to begin an 
unsustainable rise that would eventually exceed 20 percent of GDP.
  The Balanced Budget Agreement (BBA) took the next major step. With the 
strength of the economy over the last three years, the budget reached 
balance ahead of schedule; and thanks to the BBA, it is now projected to 
remain in surplus throughout the next decade. Extending the policies in 
this budget beyond the usual budget window, a surplus may be sustained 
for many years, although a deficit is projected to reemerge in the long 
run absent further policy changes. How long the surplus can be preserved 
depends on certain key factors, some of the most important of which are 
illustrated in Chart 2-3.
  Fiscal discipline is crucial for long-run budget stability. The rate 
of growth in discretionary spending helps determine the margin of 
resources available to devote to other purposes, such as debt reduction. 
Chart 2-3 illustrates how the surplus varies depending on assumptions 
about future growth in discretionary spending. Another key factor is the 
expected growth of Federal health care costs. The usual forecasting 
convention in past budgets was to adopt the long-range projections of 
the Medicare actuaries. Those projections include a slowdown in the rate 
of growth in real per capita spending under Medicare beginning in about 
15 years. More rapid growth of Medicare, closer to the historical trend 
for the program, would result in a faster return to deficits, as shown 
in Chart 2-3.
  Under most reasonable alternatives, the long-run budget outlook 
contrasts favorably with the generally prevailing opinion among budget 
experts just a few years back. Then, it was held that the long-run 
outlook for the deficit was necessarily bleak. For some time, there has 
been a general consensus among demographers and economists that 
population trends in the next century will put strains on the budget, 
and it was thought that these strains must inevitably lead to large 
deficits. For example, the 1994 report of the Bipartisan Commission on 
Entitlement and Tax Reform found that there is a ``long-term imbalance 
between the government's entitlement promises and the funds it will have 
available to pay for them.'' The Congressional Budget Office (CBO) has 
observed: ``If the budgetary pressure from both demography and health 
care spending is not relieved by reducing the growth of expenditures or 
increasing taxes, deficits will mount and seriously erode future 
economic growth.''\5\ On a narrower front, the annual Trustees' reports 
for both Social Security and Medicare have for some time projected long-
run actuarial deficiencies.
---------------------------------------------------------------------------
  \5\ Long-Term Budgetary Pressures and Policy Options, March 1997.
---------------------------------------------------------------------------
  One sign that the consensus may have shifted somewhat as a result of 
recent policy actions is provided

[[Page 28]]

by the most recent of a series of reports from the General Accounting 
Office (GAO) on the long-run budget outlook.\6\ GAO observes that, 
``Major progress has been made on deficit reduction ... While our 1995 
simulations showed deficits exceeding 20 percent of GDP by 2024 ..., our 
updated model results show that this point would not be reached until 
nearly 2050.'' GAO continues to find that unsustainable deficits emerge 
in the long run absent major entitlement reforms, but the date at which 
the deficit starts to rise has been postponed significantly as a result 
of recent actions.
---------------------------------------------------------------------------
  \6\  Analysis of Long-Term Fiscal Outlook, October 1997.
---------------------------------------------------------------------------
  Another sign is provided by CBO's projection last August of how the 
surplus would evolve under the policies in place at that time. CBO 
foresaw a rising budget surplus through 2008, reaching almost 2 percent 
of GDP.\7\ CBO's long-range projections envisioned continued surpluses 
that would bring debt held by the public close to zero by around 2020. 
Beyond that point, however, CBO projected a return of the deficit which 
would eventually drive up the level of Federal debt to unsustainable 
levels. The summary measure that CBO has used to indicate the magnitude 
of the long-run fiscal imbalance--the permanent change in taxes needed 
to stabilize the ratio of debt to GDP--declined to 1.2 percent of GDP 
from 5.4 percent of GDP in its original long-range projections from May 
1996.
---------------------------------------------------------------------------
  \7\ The Economic and Budget Outlook: An Update, August 1998.
---------------------------------------------------------------------------
  The main reason for this improvement in the outlook has been the 
unexpected increase in the near-term budget surplus. Using the surpluses 
to retire Federal debt, as was done in 1998, will dramatically reduce 
debt held by the public and Federal net interest payments. Last year, 
net interest amounted to almost 3 percent of GDP. Under current 
estimates that would be cut to under 1 percent of GDP in 2009, assuming 
future surpluses are actually realized. This means that when the 
demographic pressures on Social Security and the Federal health programs 
begin to mount after 2008, there will be more budgetary resources 
available to meet the problem, and that postpones the date on which the 
deficit in the unified budget returns.

  Economic and Demographic Assumptions.--Long-run budget projections 
require a long-run demographic and economic forecast even though any 
such forecast is highly uncertain and is likely to be at least partly 
wrong. The forecast used here extends the Administration's medium-term 
economic projections described in the first chapter of this volume, 
augmented by the long-run demographic projections from the most recent 
Social Security Trustees' Report.
    Inflation, unemployment and interest rates are assumed to 
          hold stable at their values in the last year of the 
          Administration budget projections, 2009: 2.3 percent per year 
          for CPI inflation, 5.3 

[[Page 29]]

          
          

    Productivity growth is assumed to continue at the same 
          constant rate as it averages in the Administration's medium-
          term projections: 1.3 percent per year.
    In line with the most recent projections of the Social 
          Security Trustees, population growth is expected to slow over 
          the next several decades. This is consistent with recent 
          trends in the birth rate. The slowdown is expected to lower 
          the rate of population growth from over 1 percent per year in 
          the early 1990s to about half that rate by 2025.
    Labor force participation is also expected to decline as the 
          population ages and the proportion of retirees in the 
          population increases. The Administration projects a higher 
          rate of labor force participation over the next decade than is 
          assumed in the latest Trustees' Report. That difference is 
          preserved in the long-run projections below.
    The projected rate of economic growth is determined in the 
          long run by growth of the labor force plus productivity 
          growth. Because labor force growth is expected to slow and 
          productivity growth is assumed to be constant, real GDP growth 
          is expected to decline from around 2.4 percent per year to an 
          average rate of 1.5 percent per year after 2020. This is a 
          logical implication of the other assumptions which are based 
          on reasonable forecasting conventions; however, it implies a 
          marked departure from the historical rate of growth in the 
          U.S. economy.
  The economic projections described above are set by assumption and do 
not automatically change in response to changes in the budget outlook. 
This is unrealistic, but it simplifies comparisons of alternative 
policies. A more responsive (or dynamic) set of assumptions would serve 
mainly to strengthen the same conclusions reached by the current 
approach. Both CBO and GAO in their investigations of the long-run 
outlook have explored such feedback effects and found that they 
accelerate the destabilizing effects of sustained budget deficits. 
Similarly, but in the opposite direction, budget surpluses would be 
expected to lead to higher national saving, lower real interest rates, 
and more economic growth which would increase Federal receipts and lower 
outlays, further augmenting projected surpluses.

  Alternative Budget Baselines.--Chart 2-3 shows four alternative budget 
projections: one based on the policies in place prior to enactment of 
OBRA; and three others showing current projections, including the 
mandatory spending proposals in this budget under alternative 
assumptions about discretionary spending and future Federal health care 
costs. The chart illustrates the dramatic improvement in the deficit 
that has already been achieved. Furthermore, it shows that if the budget 
remains in surplus throughout the next decade, as is now expected, it 
will substantially ease the task of maintaining fiscal stability when 
the demographic bulge begins to hit after 2008. Table 2-2 shows long-
range projections for the major categories of spending under the three 
alternatives based on the current budget and shown in Chart 2-3.
  The table shows that for all three alternatives the entitlement 
programs are expected to absorb an increasing share of budget resources.
     In all three alternatives, Social Security benefits, driven 
          by the retirement of the baby-boom generation, rise from 4.5 
          percent of GDP in 2000 to 7.0 percent in 2030. They continue 
          to rise after that but more gradually, eventually reaching 7.8 
          percent of GDP by 2075.
     In all three alternatives, Federal Medicaid spending goes 
          up from 1.3 percent of GDP in 2000 to 3.1 percent in 2030 and 
          almost 9 percent of GDP in 2075.
     Under the Medicare actuaries' long-range projections, 
          Medicare rises from 2.3 percent of GDP in 2000 to 4.4 percent 
          in 2030 and 5.0 percent by 2075. If the real per capita growth 
          rate in Medicare does not slow as much as the actuaries have 
          assumed, the program could expand even more rapidly. In the 
          alternative with faster spending growth, Medicare outlays 
          reach 5.1 percent of GDP in 2030, and 9.5 percent by 2075.
    Under current services assumptions, discretionary spending 
          falls as a share of GDP, from 6.5 percent in 2000 to 4.3 
          percent in 2030 and 3.0 percent of GDP in 2075. The programs 
          grow with inflation and Government wages keep pace with those 
          paid in the private sector, but they do not keep up with 
          population. Allowing discretionary spending to expand with 
          both inflation and population would moderate the decline in 
          spending as a share of GDP. Under this assumption, 
          discretionary spending is 4.7 percent of GDP in 2030, and 3.6 
          percent of GDP in 2075.
  The long-run budget outlook is much improved because of actions taken 
by this Administration in cooperation with the Congress. Eliminating the 
budget deficit has set the budget on a solid footing for many years to 
come. With a continuation of the Administration's economic assumptions, 
the budget could remain in surplus for several decades.
  However, although receipts are higher and net interest outlays are 
lower in these projections than they were before, the underlying 
demographic problems have not been eliminated, and rising health care 
costs are also likely to continue to put pressure on the budget. Under 
current services assumptions, a primary, or non-interest, deficit 
reappears in 2033, after the retirement of the baby-boom generation is 
virtually completed. Although the underlying imbalance is small, and the 
unified budget remains in surplus for many more years, a sustained 
primary deficit is sufficient to begin a slow but irreversible spiral. 
The recurrence of the unified deficit is inevitable once this happens 
unless there are future changes in policy.\8\ Under the alternative 
base- 

[[Page 30]]



                                              Table 2-2.  LONG-RUN BUDGET PROJECTIONS OF 2000 BUDGET POLICY
                                                                    (Percent of GDP)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   1995    2000    2005    2010    2020    2030    2040    2050    2060    2070    2075
--------------------------------------------------------------------------------------------------------------------------------------------------------
Current Services
  Receipts......................................................    18.8    20.7    20.0    20.1    20.6    20.9    21.2    21.4    21.5    21.6    21.6
  Outlays.......................................................    21.1    19.4    18.0    17.1    17.6    19.0    19.6    20.3    22.0    24.9    26.8
    Discretionary...............................................     7.6     6.5     5.6     5.1     4.6     4.3     3.9     3.6     3.4     3.1     3.0
    Mandatory...................................................    10.3    10.5    11.0    11.5    14.0    16.4    17.5    18.5    20.1    22.0    23.1
      Social Security...........................................     4.6     4.5     4.5     4.7     6.0     7.0     7.2     7.2     7.5     7.7     7.8
      Medicare..................................................     2.2     2.3     2.5     2.7     3.5     4.4     4.7     4.7     4.8     5.0     5.0
      Medicaid..................................................     1.2     1.3     1.5     1.7     2.4     3.1     4.0     5.0     6.3     7.9     8.9
      Other.....................................................     2.2     2.5     2.5     2.4     2.1     1.9     1.7     1.5     1.4     1.4     1.4
    Net Interest................................................     3.2     2.4     1.4     0.5    -1.0    -1.7    -1.9    -1.9    -1.5    -0.2     0.8
  Surplus(+)/Deficit(-).........................................    -2.3     1.3     2.0     3.1     2.9     1.9     1.6     1.1    -0.5    -3.3    -5.2
  Federal debt held by the public...............................    50.1    39.2    24.0     7.0   -21.8   -35.2   -38.3   -38.5   -29.3    -3.4    17.9
  Primary surplus/deficit (-)...................................     0.9     3.7     3.5     3.6     1.9     0.2    -0.3    -0.8    -2.0    -3.5    -4.4
 
Discretionary Grows with Population
  Receipts......................................................    18.8    20.7    20.0    20.1    20.6    20.9    21.2    21.4    21.5    21.6    21.6
  Outlays.......................................................    21.1    19.4    18.0    17.1    17.8    19.6    20.5    21.5    23.6    27.0    29.2
    Discretionary...............................................     7.6     6.5     5.6     5.1     4.8     4.7     4.4     4.2     3.9     3.7     3.6
    Mandatory...................................................    10.3    10.5    11.0    11.5    14.0    16.4    17.5    18.5    20.1    22.0    23.1
    Social Security.............................................     4.6     4.5     4.5     4.7     6.0     7.0     7.2     7.2     7.5     7.7     7.8
    Medicare....................................................     2.2     2.3     2.5     2.7     3.5     4.4     4.7     4.7     4.8     5.0     5.0
    Medicaid....................................................     1.2     1.3     1.5     1.7     2.4     3.1     4.0     5.0     6.3     7.9     8.9
    Other.......................................................     2.2     2.5     2.5     2.4     2.1     1.9     1.7     1.5     1.4     1.4     1.4
  Net Interest..................................................     3.2     2.4     1.4     0.5    -1.0    -1.5    -1.5    -1.2    -0.4     1.3     2.5
Surplus(+)/Deficit(-)...........................................    -2.3     1.3     2.0     3.1     2.8     1.4     0.7    -0.1    -2.1    -5.4    -7.6
Federal debt held...............................................    50.1    39.2    24.0     7.0   -21.3   -31.7   -29.7   -23.3    -6.0    29.3    55.8
Primary surplus/deficit(-)......................................     0.9     3.7     3.5     3.6     1.8    -0.1    -0.7    -1.3    -2.5    -4.1    -5.1
 
Continued Rapid Medicare Growth
  Receipts......................................................    18.8    20.7    20.0    20.1    20.6    20.9    21.2    21.4    21.5    21.6    21.6
  Outlays.......................................................    21.1    19.4    18.0    17.1    17.8    20.0    21.8    24.2    28.3    34.3    38.2
    Discretionary...............................................     7.6     6.5     5.6     5.1     4.6     4.3     3.9     3.6     3.4     3.1     3.0
    Mandatory...................................................    10.3    10.5    11.0    11.5    14.2    17.2    19.0    20.6    23.0    25.9    27.5
      Social Security...........................................     4.6     4.5     4.5     4.7     6.0     7.0     7.2     7.2     7.5     7.7     7.8
      Medicare..................................................     2.2     2.3     2.5     2.7     3.7     5.1     6.1     6.8     7.8     8.9     9.5
      Medicaid..................................................     1.2     1.3     1.5     1.7     2.4     3.1     4.0     5.0     6.3     7.9     8.9
      Other.....................................................     2.2     2.5     2.5     2.4     2.1     1.9     1.7     1.5     1.4     1.4     1.4
    Net Interest................................................     3.2     2.4     1.4     0.5    -1.0    -1.4    -1.0    -0.1     1.9     5.3     7.6
  Surplus(+)/Deficit(-).........................................    -2.3     1.3     2.0     3.1     2.7     0.9    -0.7    -2.9    -6.8   -12.7   -16.6
  Federal debt held by the public...............................    50.1    39.2    24.0     7.0   -21.2   -29.4   -19.8     1.9    44.1   117.5   168.9
  Primary surplus/deficit(-)....................................     0.9     3.7     3.5     3.6     1.7    -0.5    -1.7    -2.9    -4.9    -7.5    -8.9
--------------------------------------------------------------------------------------------------------------------------------------------------------

lines shown in Chart 2-3 and Table 2-2, the primary deficit reappears 
even sooner. When discretionary spending grows with both population and 
inflation, the primary deficit reappears in 2030, and when Medicare 
grows more rapidly, it recurs in 2028. In all cases, a unified deficit 
reappears before the end of the 75 year forecast period.
---------------------------------------------------------------------------
  \8\ The primary or non-interest surplus is the difference between all 
outlays, excluding interest, and total receipts. It can be positive even 
when the total budget is in deficit. A relatively small primary surplus 
can stabilize the budget even when the total budget is in deficit, and 
similarly, even a small primary deficit can destabilize a budget. The 
mathematics are inexorable.
---------------------------------------------------------------------------

  The Effects of Alternative Economic and Technical Assumptions. The 
results discussed above are highly sensitive to changes in underlying 
economic and technical assumptions. The three alternatives in Table 2-2 
illustrate the impact of some of the key variables, but other scenarios 
are possible as well. There are also other policy choices that would 
make a large difference in the outlook. While the budget could remain 
under control for several decades before underlying problems reemerge, 
other assumptions can produce more pessimistic or more optimistic 
outcomes. Some of the most important of these alternative economic and 
technical assumptions and their effects on the budget outlook are 
described below. Each highlights one of the key uncertainties in the 
outlook. Generally, the negative possibilities receive more attention 
than the positive ones, because the dangers are greater in this 
direction.
  1. Discretionary Spending. By convention, the current services 
estimates of discretionary spending are assumed to rise with the rate of 
inflation. This assumption, or any other, is essentially arbitrary, 
because discretionary spending is always determined annually through the 
legislative process, and no formula can dictate future spending in the 
absence of legislation. The current services assumption implies that the 
physical quantity of Federal services is unchanging over time. This 
requires, for example, that the Nation's future defense needs do not 
vary systematically from their current projected levels.
  One alternative to this assumption has already been presented in Chart 
2-3 and Table 2-2. The second alternative considered there allowed 
discretionary spending to increase with both population and inflation 
after

[[Page 31]]

2014. This might be the appropriate assumption for such domestic 
activities as those of the FBI or the Social Security Administration 
which are sensitive to population trends.
  Some budget analysts have assumed alternatively that discretionary 
spending rises in proportion to GDP in the long run; this requires it to 
increase in real terms whenever there is positive real economic growth. 
That is a more generous assumption for Government spending than the 
assumption of constant real per capita spending. It might be argued that 
with rising real per capita incomes, the public demand for Government 
services--more national parks, better transportation, additional Federal 
support for scientific research--would increase as well. However, some 
of these demands might be met within fixed real spending limits through 
increased productivity in the Federal sector, such as has accompanied 
recent reductions of the Federal workforce. The assumption that 
discretionary spending will rise proportionately with GDP also flies in 
the face of recent experience; since its peak in 1968, the discretionary 
spending share of GDP has been cut in half--from 13.6 percent to 6.6 
percent in 1998.
  Thus, there are arguments on both sides. Chart 2-4 compares the 
baseline alternatives with a scenario in which discretionary spending 
rises in step with nominal GDP after 2014.
  2. Health Spending: Some of the most volatile and unpredictable 
elements in recent budgets have been Medicare and Medicaid. Expenditures 
for these programs have grown much faster than those of other 
entitlements, including Social Security. After the last year of the 
standard budget estimates in 2009, real per capita growth rates for 
Medicare benefits are based on the actuarial projections in the latest 
report of the Medicare Trustees, which slow down markedly in the long 
run. Eventually, spending for Medicare is assumed to grow at 
approximately the same rate as GDP. Such a slowdown may occur, and 
eventually, the ever-rising trend in health care costs for both 
Government and the private sector will have to end, but it is hard to 
know when and how that will happen. Improved health and increased 
longevity are highly valued, and society may be willing to spend even 
more on them than it does now. As an alternative, one of the current 
policy baselines allows real per capita Medicare benefits to rise at an 
annual rate of 2.2 percent per year in the long run. This is about twice 
as fast as the actuarial assumption, and implies a rapidly rising level 
of Medicare spending for many years to come. Eventually, Medicare would 
exceed 10 percent of GDP on this assumption (see Table 2-2).
  3. Taxes: In the absence of policy changes, the ratio of taxes to GDP 
is not assumed to vary much in these long-range projections. There is a 
tendency for individual income taxes to rise relative to income, because 
the assumed rate of real income growth implies some ``real bracket 
creep.'' The tax code is indexed for inflation, but not for increases in 
real income. Eventually, a larger percentage of taxpayers will be in 
higher tax brackets and this will raise the ratio of taxes to income. 
However, other Federal taxes tend to decline in real 

[[Page 32]]




terms in the absence of policy changes. Many excise taxes are set in 
nominal terms, so collections decline as a share of GDP when there is 
inflation. Overall, Federal receipts are projected to rise by about 1 
percentage point of GDP in the very long run.
  The starting point for these projections is the current ratio of 
Federal receipts to GDP. That ratio reached 20.5 percent in 1998, the 
highest level since World War II. This was not the result of new Federal 
taxes. Tax rates have been essentially unchanged since 1994, when the 
changes enacted in OBRA took effect. Since then, however, tax 
collections as a share of GDP have risen by two percentage points. The 
reasons for this increase are not yet fully understood. The rapid rise 
in the stock market, which has generated large capital gains for 
investors and made possible lucrative stock options and bonuses for 
executives, is generally believed to be a major factor. This Budget 
assumes that there will be some moderation in the ratio of receipts to 
GDP over the next few years. The share of revenues in the medium term is 
below the peak levels recently experienced. Even so, receipts are 
projected to remain above their historical average relative to the 
economy. Should this assumption prove overoptimistic, it would have a 
strong effect on the long-range budget projections.
  In Chart 2-5, the current services baseline is compared with two 
alternatives for receipts. In one, the share of receipts is assumed to 
return to the level posted in 1996, 19.2 percent of GDP; in the other, 
to the level in 1994, 18.4 percent of GDP. The return to these earlier 
levels is completed by 2001. Afterwards, taxes grow at the rates 
projected under current policies. The difference in the starting point 
for taxes can alter the outlook for the surplus/deficit quite 
dramatically. This is another example of how small differences in the 
primary surplus can eventually produce large effects on the total 
surplus/deficit because of mounting or falling interest expense.
  4. What To Do With the Budget Surpluses. The current projections show 
the budget in surplus for several decades under a wide range of 
assumptions. These surpluses dramatically reduce debt held by the 
public, and therefore net interest outlays, which augments the surplus. 
In a sense, a budget surplus that is used to reduce debt feeds on itself 
by reducing future interest outlays. Thus, if these surpluses were 
limited by increased spending or reduced taxes, it would change the 
outlook. Chart 2-6 shows the budget's path if it were held exactly in 
balance rather than being allowed to run surpluses. This would require 
policy changes to increase spending or reduce taxes. These changes could 
take two general forms. The spending or tax changes made possible by the 
surpluses could be purely temporary. This would be the case for tax 
rebates or one-time grants. If such changes were made, program spending 
and receipts would eventually return to their original baseline paths, 
although interest spending would be permanently higher. Alternatively, 
the spending increases or tax reductions could be permanently built into 
the budget. This would be the case if they took the form of tax rate 
cuts or increases in entitlements. Such changes are assumed to alter the 
baselines for 

[[Page 33]]




outlays or receipts permanently, and have a larger long-run effect on 
the projected surplus. In both cases, the deficit returns sooner than it 
would if the surplus were used to reduce debt.
  5. What Happens to the Debt? A surplus means the Government takes in 
more receipts from the public than it pays out in the form of Government 
outlays. The extra receipts are used to retire debt. This is not unlike 
a family paying off its mortgage, and like a family with a mortgage, the 
Government may eventually be free from debt. This has only happened once 
before in the history of the United States, and then only briefly a 
century and a half ago, but with the current level of projected 
surpluses, such an eventuality has become a possibility. When the budget 
window closes in 2009, the Administration projects that debt held by the 
public will have fallen to around 10 percent of GDP, lower than at any 
time since before U.S. entry into World War I.
  With surpluses running at around 2\1/2\ percent to 3 percent of GDP in 
the Administration's projections, it is obvious where the trend is 
headed. At this rate, within a few years after 2009, the entire debt 
held by the public would be repaid. At that point, further surpluses 
would no longer be used to retire Federal debt; instead, they would be 
accumulated in the form of Federal assets. As the Government accumulated 
financial reserves, these reserves would earn interest which would add 
to the surplus, further adding to the assets. In the long-run budget 
projections, the asset continues to build up until shifts in the 
underlying budgetary position cause the surplus gradually to unwind. 
Eventually, a deficit reappears and the asset is drawn down; ultimately, 
Federal debt is issued again. It is a measure of the severity of the 
impending demographic pressures that the national asset does not grow 
into the indefinite future--which it could, just as easily as did the 
national debt in the adverse projections of just a few years ago.
  Such an outcome is unlikely to happen--certainly in the simple form 
sketched here--but it stems from a reasonable desire to avoid making 
policy judgments. The projections imply that with sufficient discipline, 
the Federal debt could be repaid under an extension of current budget 
policies. It would require a change in policy to avoid that outcome. 
Chart 2-7 compares the current services baseline with a scenario in 
which spending is permanently increased or taxes permanently cut when 
Federal debt held by the public reaches zero. Without the national 
asset, the deficit reappears much sooner. The interest earned by the 
asset is no longer available to fill the budgetary hole when the drain 
of future entitlement claims begins to mount.
  6. Productivity: Productivity growth in the U.S. economy slowed down 
after 1973. This slowdown is responsible for the slower rise in U.S. 
real incomes since that time. Productivity growth is affected by changes 
in the budget surplus/deficit which influence national saving, but many 
other factors influence it as well. The surplus/deficit in turn is 
affected by changes in productivity growth which affect the size of the 
economy, and hence future receipts. Two alternative scenarios illustrate 


[[Page 34]]






  
[[Page 35]]




what would happen to the budget deficit if productivity growth were 
either higher or lower than assumed. A higher rate of growth would make 
the task of preserving a balanced budget much easier; indeed, it would 
permit expanded spending or reduced taxes without threatening to drive 
the budget back into deficit. A lower productivity growth rate would 
have the opposite effect. Chart 2-8 shows how the surplus/deficit varies 
with changes of one-half percentage point of average productivity growth 
in either direction.
  7. Population: In the long run, shifting demographic patterns are the 
main source of change in these projections. The changing rate of 
population growth feeds into real economic growth through its effect on 
labor supply and employment. Changing demographic patterns also affect 
entitlement spending, contributing to the surge of spending expected for 
Social Security, Medicare, and Medicaid. The key assumptions underlying 
these demographic projections concern future fertility, mortality and 
immigration.
    The main reason for the projected slowdown in population 
          growth is the expected continuation of a low fertility rate. 
          Since 1990, the number of births per woman in the United 
          States has averaged between 2.0 and 2.1--slightly below the 
          replacement rate needed to maintain a constant population. The 
          fertility rate was even lower than this in the 1970s and 
          1980s. The demographic projections assume that fertility will 
          average around 1.9 births per woman in the future. Fertility 
          is hard to predict. Both the baby boom in the 1940s and 1950s 
          and the baby bust in the 1960s and 1970s surprised 
          demographers. A return to higher fertility rates is possible, 
          but so is another drop in fertility. The U.S. fertility rate 
          has never fallen below 1.7, but such low rates have been 
          observed recently in some European countries. Chart 2-9 shows 
          the effects of alternative fertility assumptions on the 
          surplus/deficit; higher fertility contributes to a larger 
          labor force, increased aggregate incomes, and revenues; and 
          hence increases the projected surplus. Lower fertility has the 
          opposite effect.
     The increasing proportion of the elderly in the U.S. 
          population is due to both lower fertility, which reduces the 
          number of children per adult, and longer lifespans. Since 
          1970, the average lifespan for U.S. women has increased from 
          74.9 years to 79.4 years, and it is projected to rise to 80.4 
          years by 2010. Men do not live as long as women on average, 
          but their lifespan has also increased, from 67.1 years in 1970 
          to 73.1 years in 1995, and it is expected to reach 74.9 years 
          by 2010. Longer lifespans mean that more people will live to 
          receive Social Security and Medicare benefits, and will 
          receive them for a longer time. If, on the other hand, the 
          U.S. population were to experience no further reductions in 
          mortality from current levels, the shorter lifespans would 
          help to improve the surplus/deficit. Conversely, if the 
          population lives longer than now expected, the 

[[Page 36]]

          
          

          
          
outlook for the surplus/deficit would worsen. This is illustrated in 
Chart 2-10.
     A final factor influencing long-run projections is the rate 
          of immigration. The United States is an open society. In the 
          19th century, a huge wave of immigration helped build the 
          country; the last two decades of the 20th century have 
          witnessed another burst of immigration. The net flow of legal 
          immigrants has been averaging around 850,000 per year since 
          1992, while illegal immigration adds to these figures. This is 
          the highest absolute rate in U.S. history, but as a percentage 
          of population it is only about a third as high as immigration 
          was in 1901-1910. Chart 2-11 presents alternatives in which 
          future immigration is held to zero and allowed to rise 50 
          percent above and 50 percent below the intermediate actuarial 
          assumption in the Social Security Trustees' Report.

  Conclusion.--Under President Clinton, the long-run budget outlook has 
improved significantly. When this Administration took office, the 
deficit was projected to spiral out of control early in the next 
century, reaching levels never seen before except temporarily during 
major wars. The outlook now is drastically different. Under current 
policy assumptions, last year's surplus marks the beginning of a period 
of sustained budget surpluses. Eventually, without further reforms to 
the entitlement programs, a return to budget deficits is projected. How 
soon that will occur is difficult to estimate. Avoiding a quick return 
to deficits will require budget discipline. Both Social Security and 
Medicare continue to confront long-run deficits in their respective 
Trust Funds, which must be addressed regardless of the prospects for the 
unified surplus. But the favorable outlook for the unified budget should 
make it easier to solve these difficult problems.

    Actuarial Balance in the Social Security and Medicare Trust Funds

  The Trustees for the Social Security and Hospital Insurance Trust 
Funds issue annual reports that include projections of income and outgo 
for these funds over a 75-year period. These projections are based on 
different methods and assumptions than the long-run budget projections 
presented above, although the projections do rely on a common set of 
assumptions for population growth and labor force growth after the year 
2009. Even with these differences, the message is similar: the 
retirement of the baby-boom generation coupled with expected high rates 
of growth in per capita health care costs will exhaust the Trust Funds 
unless further remedial action is taken.
  The Trustees' reports feature the 75-year actuarial balance of the 
Trust Funds as a summary measure of their financial status. For each 
Trust Fund, the balance is calculated as the change in receipts or 
program benefits (expressed as a percentage of taxable payroll)

[[Page 37]]

that would be needed to preserve a small positive balance in the Trust 
Fund at the end of 75 years.
  Table 2-3 shows the changes in the 75-year actuarial balances of the 
Social Security and Medicare Trust Funds from 1997 to 1998. There were 
only relatively small changes in the projected balances last year for 
the OASDI Trust Funds, but there was a large improvement in the HI Trust 
Fund balance. This change incorporates the expected effects of the 
Balanced Budget Agreement enacted in 1997, which made numerous changes 
in Medicare. The reforms in the Agreement have extended the projected 
solvency of the Trust Fund from 2001 until 2008. 



     Table 2-3.  CHANGE IN 75-YEAR ACTUARIAL BALANCE FOR OASDI AND HI TRUST FUNDS (INTERMEDIATE ASSUMPTIONS)
                                        (As a percent of taxable payroll)
----------------------------------------------------------------------------------------------------------------
                                                                            OASI       DI       OASDI      HI
----------------------------------------------------------------------------------------------------------------
 
Actuarial balance in 1997 Trustees' Report..............................     -1.84     -0.39     -2.23     -4.32
Changes in balance due to changes in:...................................
  Legislation...........................................................      0.00      0.00      0.00      2.10
  Valuation period......................................................     -0.07     -0.01     -0.08     -0.10
  Economic and demographic assumptions..................................      0.10      0.01      0.11     -0.08
  Technical and other assumptions.......................................      0.00      0.01      0.01      0.30
                                                                         ---------------------------------------
    Total changes.......................................................      0.03      0.01      0.04      2.22
 
Actuarial balance in 1998 Trustees' Report..............................     -1.81     -0.38     -2.19     -2.10
----------------------------------------------------------------------------------------------------------------


[[Page 38]]

                  PART III--NATIONAL WEALTH AND WELFARE

  Unlike a private corporation, the Federal Government routinely invests 
in ways that do not add directly to its assets. For example, Federal 
grants are frequently used to fund capital projects by State or local 
governments for highways and other purposes. Such investments are 
valuable to the public, which pays for them with taxes, but they are not 
owned by the Federal Government and would not show up on a conventional 
Federal balance sheet.
  The Federal Government also invests in education and research and 
development (R&D). These outlays contribute to future productivity and 
are analogous to an investment in physical capital. Indeed, economists 
have computed stocks of human and knowledge capital to reflect the 
accumulation of such investments. Nonetheless, such hypothetical capital 
stocks are obviously not owned by the Federal Government, nor would they 
appear on a balance sheet.
  To show the importance of these kinds of issues, Table 2-4 presents a 
national balance sheet. It includes estimates of national wealth 
classified into three categories: physical assets, education capital, 
and R&D capital. The Federal Government has made contributions to each 
of these categories of capital, and these contributions are shown 
separately in the table. Data in this table are especially uncertain, 
because of the strong assumptions needed to prepare the estimates.
  The conclusion of the table is that Federal investments are 
responsible for about 7\1/2\ percent of total national wealth. This may 
seem like a small fraction, but it represents a large volume of capital 
$4.8 trillion. The Federal contribution is down from around 9 percent in 
the mid-1980s, and from around 12 percent in 1960. Much of this reflects 
the shrinking size of the defense capital stocks, which have gone from 
12 percent of GDP to under 9 percent since the end of the Cold War.

Physical Assets:

  The physical assets in the table include stocks of plant and 
equipment, office buildings, residential structures, land, and 
government's physical assets such as military hardware, office 
buildings, and highways. Automobiles and consumer appliances are also 
included in this category. The total amount of such capital is vast, 
around $27 trillion in 1998; by comparison, GDP was only about $8.5 
trillion.
  The Federal Government's contribution to this stock of capital 
includes its own physical assets plus $1.0 trillion in accumulated 
grants to State and local governments for capital projects. The Federal 
Government has financed about one-fourth of the physical capital held by 
other levels of government.

Education Capital:

  Economists have developed the concept of human capital to reflect the 
notion that individuals and society invest in people as well as in 
physical assets. Investment in education is a good example of how human 
capital is accumulated.
  This table includes an estimate of the stock of capital represented by 
the Nation's investment in education. The estimate is based on the cost 
of replacing the years of schooling embodied in the U.S. population aged 
16 and over; in other words, the idea is to measure how much it would 
cost to reeducate the U.S. workforce at today's prices (rather than its 
original cost). This is more meaningful economically than the historical 
cost, and is comparable to the measures of physical capital presented 
earlier.
  Although this is a relatively crude measure, it does provide a rough 
order of magnitude of the current value of the investment in education. 
According to this measure, the stock of education capital amounted to 
$31 trillion in 1998, of which about 3 percent was financed by the 
Federal Government. It exceeds the total value of the Nation's privately 
owned stock of physical capital. The main investors in education capital 
have been State and local governments, parents, and students themselves 
(who forgo earning opportunities in order to acquire education).
  Even broader concepts of human capital have been suggested. Not all 
useful training occurs in a schoolroom or in formal training programs at 
work. Much informal learning occurs within families or on the job, but 
measuring its value is very difficult. However, labor compensation 
amounts to over two thirds of national income, and thinking of labor 
income as the product of human capital suggests that the total value of 
human capital might be two times the estimated value of physical 
capital. Thus, the estimates offered here are in a sense conservative, 
because they reflect only the costs of acquiring formal education and 
training.

Research and Development Capital:

  Research and Development can also be thought of as an investment, 
because R&D represents a current expenditure that is made in the 
expectation of earning a future return. After adjusting for 
depreciation, the flow of R&D investment can be added up to provide an 
estimate of the current R&D stock.\10\ That stock is estimated to have 
been about $2 trillion in 1998. Although this is a large amount of 
research, it is a relatively small portion of total National wealth. Of 
this stock, 43 percent was funded by the Federal Government.
---------------------------------------------------------------------------
  \10\ R&D depreciates in the sense that the economic value of applied 
research and development tends to decline with the passage of time, as 
still newer ideas move the technological frontier.
---------------------------------------------------------------------------

Liabilities:

  When considering how much the United States owes as a Nation, the 
debts that Americans owe to one another cancel out. This means they do 
not belong in Table 2-4, but it does not mean they are unimportant. (An 
unwise buildup in debt, most of which was owed to other Americans, was 
partly responsible for the recession of 1990-1991 and the sluggishness 
of the early stages of the recovery that followed.) The only debt 

[[Page 39]]



                                                               Table 2-4.  NATIONAL WEALTH
                                            (As of the end of the fiscal year, in trillions of 1998 dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   1960    1965    1970    1975    1980    1985    1990    1995    1996    1997    1998
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
ASSETS
 
Publicly Owned Physical Assets:
  Structures and Equipment
    Publicly Owned Physical Assets:
      Structures and Equipment..................................     2.1     2.4     2.9     3.5     3.7     3.9     4.2     4.6     4.7     4.8     4.8
      Federally Owned or Financed...............................     1.2     1.3     1.5     1.5     1.5     1.8     1.9     2.0     2.0     2.0     2.0
      Federally Owned...........................................     1.1     1.1     1.1     1.0     0.9     1.1     1.2     1.1     1.1     1.1     1.0
      Grants to State and Local Government......................     0.1     0.2     0.3     0.5     0.6     0.7     0.8     0.9     0.9     1.0     1.0
      Funded by State and Local Governments.....................     0.9     1.1     1.5     2.0     2.1     2.1     2.3     2.6     2.7     2.8     2.8
  Other Federal Assets..........................................     0.8     0.7     0.7     0.9     1.5     1.5     1.2     0.9     1.0     1.0     0.9
                                                                 ---------------------------------------------------------------------------------------
        Subtotal................................................     2.9     3.2     3.6     4.4     5.2     5.4     5.5     5.5     5.7     5.7     5.7
 
Privately Owned Physical Assets:
  Reproducible Assets...........................................     6.8     7.8     9.6    12.2    15.7    16.5    18.5    20.0    20.5    21.1    21.9
    Residential Structures......................................     2.6     3.0     3.6     4.6     6.2     6.5     7.3     8.1     8.3     8.6     8.9
    Nonresidential Plant and Equipment..........................     2.7     3.1     3.9     5.1     6.4     7.1     7.7     8.2     8.4     8.7     9.1
    Inventories.................................................     0.6     0.7     0.9     1.1     1.3     1.2     1.3     1.3     1.3     1.4     1.4
    Consumer Durables...........................................     0.8     0.9     1.2     1.4     1.6     1.8     2.2     2.4     2.4     2.5     2.6
  Land..........................................................     2.0     2.4     2.8     3.8     5.6     6.2     6.0     4.7     4.7     5.0     5.3
                                                                 ---------------------------------------------------------------------------------------
      Subtotal..................................................     8.8    10.2    12.4    16.0    21.2    22.7    24.5    24.7    25.3    26.1    27.2
 
Education Capital:
  Federally Financed............................................     0.1     0.1     0.2     0.3     0.4     0.6     0.7     0.8     0.8     0.9     0.9
  Financed from Other Sources...................................     6.0     7.7    10.3    12.7    16.4    19.6    24.9    27.1    28.0    29.1    30.5
                                                                 ---------------------------------------------------------------------------------------
    Subtotal....................................................     6.1     7.8    10.6    13.0    16.8    20.2    25.6    27.9    28.9    29.9    31.4
 
Research and Development Capital:
  Federally Financed R&D........................................     0.2     0.3     0.5     0.5     0.6     0.7     0.8     0.9     0.9     0.9     0.9
  R&D Financed from Other Sources...............................     0.1     0.2     0.3     0.4     0.5     0.6     0.8     1.0     1.1     1.2     1.2
                                                                 ---------------------------------------------------------------------------------------
    Subtotal....................................................     0.3     0.5     0.8     0.9     1.0     1.3     1.6     1.9     2.0     2.1     2.1
                                                                 =======================================================================================
      Total Assets..............................................    18.0    21.7    27.3    34.3    44.2    49.6    57.1    60.0    61.8    63.9    66.5
 
Net Claims of Foreigners on U.S.................................    -0.1    -0.2    -0.2    -0.1    -0.3     0.0     0.7     1.3     1.7     2.0     2.3
 
      Balance...................................................    18.2    21.8    27.5    34.4    44.6    49.6    56.4    58.7    60.0    61.9    64.2
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½
ADDENDA:
 
Per Capita (thousands of dollars)...............................   100.5   112.4   134.0   159.2   195.2   207.3   225.1   222.4   225.5   230.5   237.0
 
Ratio to GDP (percent)..........................................   709.1   673.0   714.0   786.7   856.0   816.3   817.8   763.6   753.1   746.2   748.1
Total Federally Funded Capital (trillions of 1998 dollars)......     0.5     0.6     0.8     1.2     2.2     3.2     3.9     4.4     4.6     4.7     4.8
Percent of National Wealth......................................    12.3    11.5    10.3     9.5     9.1     9.1     8.3     7.9     7.9     7.7     7.4
--------------------------------------------------------------------------------------------------------------------------------------------------------

that appears in Table 2-4 is the debt that Americans owe to foreign 
investors. America's foreign debt has been increasing rapidly in recent 
years, because of the continuing deficit in the U.S. current account, 
but even so the size of this debt remains small compared with the total 
stock of U.S. assets. It amounted to 3.6 percent of net national wealth 
in 1998.
  Most Federal debt does not appear in Table 2-4 because it is held by 
Americans; only that portion of the Federal debt held by foreigners is 
included. However, comparing the Federal Government's net liabilities 
with total national wealth gives another indication of the relative 
magnitude of the imbalance in the Government's accounts. Currently, the 
Federal net asset imbalance, as estimated in Table 2-1, amounts to 5.0 
percent of total U.S. wealth as shown in Table 2-4.

                        Trends in National Wealth

  The inflation-adjusted net stock of wealth in the United States at the 
end of 1998 was about $64 trillion. Since 1980, it has increased in real 
terms at an average annual rate of 2.0 percent per year--less than half 
the 4.6 percent real growth rate it averaged from 1960 to 1980. Public 
physical capital formation slowed down even more between the two 
periods. Since 1980, public physical capital has increased at an annual 
rate of only 0.6 percent, compared with 3.0 percent over the previous 20 
years.
  The net stock of private nonresidential plant and equipment grew 1.9 
percent per year from 1980 to 1998, compared with 4.4 percent in the 
1960s and 1970s; and the stock of business inventories increased less 
than 0.2 percent per year. However, private nonresidential fixed capital 
has increased more rapidly since

[[Page 40]]

1992--2.8 percent per year--reflecting the recent investment boom.
  The accumulation of education capital, as measured here, has also 
slowed down since 1980, but not as much. It grew at an average rate of 
5.2 percent per year in the 1960s and 1970s, about 3/4 percentage point 
faster than the average rate of growth in private physical capital 
during the same period. Since 1980, education capital has grown at a 3.5 
percent annual rate. This reflects the extra resources devoted to 
schooling in this period, and the fact that such resources were 
increasing in economic value. R&D stocks have grown at about 4.1 percent 
per year since 1980, the fastest growth rate for any major category of 
investment over this period, but slower than the growth of R&D in the 
1960s and 1970s.

               Other Federal Influences on Economic Growth

  Federal policies contributed to the slowdown in capital formation that 
occurred after 1980. Federal investment decisions, as reflected in Table 
2-4, obviously were important, but the Federal Government also 
contributes to wealth in ways that cannot be easily captured in a formal 
presentation. Monetary policy affects the rate and direction of capital 
formation in the short run, and regulatory and tax policies also affect 
how capital is invested, as do the Federal Government's policies on 
credit assistance and insurance.
  One important channel of influence is the Federal budget surplus/
deficit, which determines the size of Federal saving when it is positive 
or the Federal borrowing requirement when it is negative. Had deficits 
been smaller in the 1980s, there would have been a much smaller gap 
between Federal liabilities and assets than is shown in Table 2-1. It is 
also likely that, had the more than $3 trillion in added Federal debt 
since 1980 been avoided, a significant share of these funds would have 
gone into private investment. National wealth might have been 2 to 4 
percent larger in 1998 had fiscal policy avoided the buildup in the 
debt.

                            Social Indicators

  There are certain broad responsibilities that are unique to the 
Federal Government. Especially important are fostering healthy economic 
conditions, promoting health and social welfare, and protecting the 
environment. Table 2-5 offers a rough cut of information that can be 
useful in assessing how well the Federal Government has been doing in 
promoting these general objectives.
  The indicators shown here are a limited subset drawn from the vast 
array of available data on conditions in the United States. In choosing 
indicators for this table, priority was given to measures that were 
consistently available over an extended period. Such indicators make it 
easier to draw valid comparisons and evaluate trends. In some cases, 
however, this meant choosing indicators with significant limitations.
  The individual measures in this table are influenced to varying 
degrees by many Government policies and programs, as well as by external 
factors beyond the Government's control. They do not measure the 
outcomes of Government policies, because they do not show the direct 
results of Government activities, but they do provide a quantitative 
measure of the progress or lack of progress in reaching some of the 
ultimate values that government policy is intended to promote.
  Such a table can serve two functions. First, it highlights areas where 
the Federal Government might need to modify its current practices or 
consider new approaches. Where there are clear signs of deteriorating 
conditions, corrective action might be appropriate. Second, the table 
provides a context for evaluating other data on Government activities. 
For example, Government actions that weaken its own financial position 
may be appropriate when they promote a broader social objective.
  An example of this occurs during economic recessions, when reductions 
in tax collections lead to increased government borrowing that adds to 
Federal liabilities. This decline in Federal net assets, however, 
provides an automatic stabilizer for the private sector. State and local 
governments and private budgets are strengthened by allowing the Federal 
budget to go into deficit. More stringent Federal budgetary controls 
could be used to hold down Federal borrowing during such periods, but 
only at the risk of aggravating the downturn and weakening the other 
sectors.
  The Government cannot avoid making such trade-offs because of its size 
and the broad ranging effects of its actions. Monitoring these effects 
and incorporating them in the Government's policy making is a major 
challenge.

                   An Interactive Analytical Framework

  No single framework can encompass all of the factors that affect the 
financial condition of the Federal Government. Nor can any framework 
serve as a substitute for actual analysis. Nevertheless, the framework 
presented here offers a useful way to examine the financial aspects of 
Federal policies. Increased Federal support for investment, the 
promotion of national saving through fiscal policy, and other 
Administration policies to enhance economic growth are expected to 
promote national wealth and improve the future financial condition of 
the Federal Government. As that occurs, the efforts will be revealed in 
these tables.

[[Page 41]]



                                                                           Table 2-5.  ECONOMIC AND SOCIAL INDICATORS
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
       General categories                              Specific measures                         1960     1965     1970     1975     1980     1985     1990     1995     1996     1997     1998
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Economic:
  Living Standards..............  Real GDP per person (1992 dollars).........................   12,516   14,828   16,566   17,935   20,268   22,321   24,545   25,690   26,336   27,136   27,915
                                    average annual percent change............................      0.3      5.1     -1.1     -1.4     -1.5      2.7      0.2      1.3      2.5      3.0      2.9
                                  Median Income (1997 dollars):..............................
                                  All Households.............................................       NA       NA   33,942   33,699   34,538   35,229   36,770   35,887   36,306   37,005       NA
                                  Married Couple Families....................................   29,274   34,095   40,867   42,458   45,129   46,390   48,991   49,563   50,848   51,591       NA
                                  Female Householder, No Spouse Present......................   14,794   16,576   19,792   19,546   20,297   20,376   20,793   20,738   20,368   21,023       NA
                                  Income Share of Lower Three Quintiles (percent)............     34.8     35.2     35.2     35.2     34.5     32.7     32.0     30.3     30.0     29.8       NA
                                  Poverty Rate (percent) \1\.................................     22.2     17.3     12.6     12.3     13.0     14.0     13.5     13.8     13.7     13.3       NA
  Economic Security.............  Civilian Unemployment (percent)............................      5.5      4.5      4.9      8.5      7.1      7.2      5.5      5.6      5.4      5.0      4.5
                                  CPI-U (percent Change).....................................      1.7      1.6      5.8      9.1     13.5      3.5      5.4      2.8      2.9      2.3      1.6
  Employment Prospects..........  Increase in Total Payroll Employment (millions)............     -0.5      2.9     -0.5      0.4      0.2      2.5      0.3      2.2      2.8      3.4      2.9
                                  Managerial or Professional Jobs (percent of total).........       NA       NA       NA       NA       NA     24.1     25.8     28.3     28.8     29.1     29.6
  Wealth Creation...............  Net National Saving Rate (percent of GDP)..................     10.8     12.6      8.7      6.7      7.5      6.2      4.4      5.3      5.8      6.6      6.6
  Innovation....................  Patents Issued to U.S. Residents (thousands)...............     42.1     53.9     49.8     40.2     40.5     43.2     52.6     64.2     69.2     69.7       NA
                                  Multifactor Productivity (average annual percent change)...      1.0      3.1      1.0      1.2      0.7      0.6      0.2      0.2      0.6       NA       NA
Social:
  Families......................  Children Living with Female Householder, No Spouse Present
                                   (percent of all children).................................        9       10       12       16       19       20       22       24       23       23       NA
  Safe Communities..............  Violent Crime Rate (per 100,000 population) \2\............      160      199      364      482      597      557      732      685      634      611       NA
                                  Murder Rate (per 100,000 population) \2\...................        5        5        8       10       10        8        9        8        7        7       NA
                                  Juvenile Crime (murders and nonnegligent manslaughter per
                                   100,000 persons age 14 to 17).............................       NA       NA       NA       11       13       10       24       24       20       NA       NA
  Health and Illness............  Infant Mortality (per 1000 Live Births)....................     26.0     24.7     20.0     16.1     12.6     10.6      9.2      7.6      7.3       NA       NA
                                  Low Birthweight [<2,500 gms] Babies (percent)..............      7.7      8.3      7.9      7.4      6.8      6.8      7.0      7.3      7.4       NA       NA
                                  Life Expectancy at birth (years)...........................     69.7     70.2     70.8     72.6     73.7     74.7     75.4     75.8     76.1       NA       NA
                                  Cigarette Smokers (percent population 18 and older)........       NA     42.4     39.5     36.4     33.2     30.1     25.5     24.7       NA       NA       NA
                                  Bed Disability Days (average days per person)..............      6.0      6.2      6.1      6.6      7.0      6.1      6.2      6.1       NA       NA       NA
  Learning......................  High School Graduates (persent of population 25 and older).     44.6     49.0     55.2     62.5     68.6     73.9     77.6     81.7     81.7     82.1       NA
                                  College Graduates (percent of population 25 and older).....      8.4      9.4     11.0     13.9     17.0     19.4     21.3     23.0     23.6     23.9       NA
                                  National Assessment of Educational Progress \3\............
                                    Mathematics High School Seniors..........................       NA       NA       NA      302      300      301      305      307      307       NA       NA
                                    Science High School Seniors..............................       NA       NA      305      293      286      288      290      295      296       NA       NA
  Participation.................  Voting for President (percent eligible population).........     62.8       NA       NA       NA     52.8       NA       NA       NA     49.0       NA       NA
                                  Voting for Congress (percent eligible population)..........     58.5       NA     43.5       NA     47.6       NA     33.1       NA     45.8       NA     33.4
                                  Individual Charitable Giving per Capita (1997 dollars).....      213      255      306      325      354      373      455      456      470       NA       NA
Environment:
  Air Quality...................  Nitrogen Oxide Emissions (thousand short tons).............   14,140   17,424   21,369   23,151   24,875   23,488   23,436   23,768   23,391   23,576       NA
                                  Sulfur Dioxide Emissions (thousand short tons).............   22,245   26,380   31,161   28,011   25,905   23,230   23,678   19,189   19,836       NA       NA
                                  Lead Emissions (thousand short tons).......................       NA       NA      221      160       74       23        5        4        4        4       NA
  Water Quality.................  Population Served by Secondary Treatment or Better
                                   (millions)................................................       NA       NA       NA       NA       NA      134      155      166      165       NA       NA
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The poverty rate does not reflect noncash government transfers such as Medicaid or food stamps.
 
\2\ Not all crimes are reported, and the fraction that go unreported may have varied over time.
 
\3\ Some data from the national educational assessments have been interpolated.

        TECHNICAL NOTE: SOURCES OF DATA AND METHOD OF ESTIMATING

                 Federally Owned Assets and Liabilities

Assets:

  Financial Assets: The source of data is the Federal Reserve Board's 
Flow-of-Funds Accounts. Two adjustments were made to these data. First, 
U.S. Government holdings of financial assets were consolidated with the 
holdings of the monetary authority, i.e., the Federal Reserve System. 
Second, the gold stock was revalued using the market value for gold.
  Physical Assets:
  Fixed Reproducible Capital: Estimates were developed from the OMB 
historical data base for physical capital outlays. The data base extends 
back to 1940 and was supplemented by data from other selected sources 
for 1915-1939. The source data are in current dollars. To estimate 
investment flows in constant dollars, it is necessary to deflate the 
nominal investment series. This was done using price deflators for 
Federal purchases of durables and structures from the National Income 
and Product Accounts.
  Fixed Nonreproducible Capital: Historical estimates for 1960-1985 were 
based on estimates in Michael J. Boskin, Marc S. Robinson, and Alan M. 
Huber, ``Government Saving, Capital Formation and Wealth in the United 
States, 1947-1985,'' published in The Measurement of Saving, Investment, 
and Wealth, edited by Robert E. Lipsey and Helen Stone Tice (The 
University of Chicago Press, 1989).
  Estimates were updated using changes in the value of private land from 
the Flow-of-Funds Balance Sheets and in the Producer Price Index for 
Crude Energy Materials.

[[Page 42]]

Liabilities:

  Financial Liabilities: The principal source of data is the Federal 
Reserve's Flow-of-Funds Accounts.
  Insurance Liabilities: Sources of data are the OMB Deposit Insurance 
Model and the OMB Pension Guarantee Model. Historical data on 
liabilities for deposit insurance were also drawn from the CBO's study, 
The Economic Effects of the Savings and Loan Crisis, issued January 
1992.
  Pension Liabilities: For 1979-1997, the estimates are the actuarial 
accrued liabilities as reported in the annual reports for the Civil 
Service Retirement System, the Federal Employees Retirement System, and 
the Military Retirement System (adjusted for inflation). Estimates for 
the years before 1979 are extrapolations. The estimate for 1998 is a 
projection.

                       Long-Run Budget Projections

  The long-run budget projections are based on long-run demographic and 
economic projections. A simplified model of the Federal budget developed 
at OMB computes the budgetary implications of this forecast.
  Demographic and Economic Projections: For the years 1999-2009, the 
assumptions are identical to those used in the budget. These budget 
assumptions reflect the President's policy proposals. The long-run 
projections extend these budget assumptions by holding constant 
inflation, interest rates, and unemployment at the levels assumed in the 
final year of the budget. Population growth and labor force growth are 
extended using the intermediate assumptions from the 1998 Social 
Security Trustees' report. The projected rate of growth for real GDP is 
built up from the labor force assumptions and an assumed rate of 
productivity growth. The assumed rate of productivity growth is held 
constant at the average rate of growth implied by the budget's economic 
assumptions.
  Budget Projections: For the budget period through 2009, the 
projections follow the budget. Beyond the budget horizon, receipts are 
projected using simple rules of thumb linking income taxes, payroll 
taxes, excise taxes, and other receipts to projected tax bases derived 
from the economic forecast. Outlays are computed in different ways. 
Discretionary spending is projected according to current services 
assumptions in which it grows at the rate of inflation. As an 
alternative, discretionary spending is also projected to grow at the 
rate of inflation plus population. Social Security, Medicare, and 
Federal pensions are projected using the most recent actuarial forecasts 
available at the time the budget was prepared. These projections are 
repriced using Administration inflation assumptions. Other entitlement 
programs are projected based on rules of thumb linking program spending 
to elements of the economic and demographic forecast such as the poverty 
rate.

                       National Balance Sheet Data

  Publicly Owned Physical Assets: Basic sources of data for the 
federally owned or financed stocks of capital are the investment flows 
described in Chapter 6. Federal grants for State and local government 
capital were added, together with adjustments for inflation and 
depreciation in the same way as described above for direct Federal 
investment. Data for total State and local government capital come from 
the revised capital stock data prepared by the Bureau of Economic 
Analysis.
  Privately Owned Physical Assets: Data are from the Flow-of-Funds 
national balance sheets and from the private net capital stock estimates 
prepared by the Bureau of Economic Analysis. Values for 1998 were 
extrapolated using investment data from the National Income and Product 
Accounts.
  Education Capital: The stock of education capital is computed by 
valuing the cost of replacing the total years of education embodied in 
the U.S. population 16 years of age and older at the current cost of 
providing schooling. The estimated cost includes both direct 
expenditures in the private and public sectors and an estimate of 
students' forgone earnings, i.e., it reflects the opportunity cost of 
education.
  The historical estimates of education capital presented in this 
section differ from previously published estimates because of the 
incorporation of revised estimates of students' forgone earnings. These 
are now based on the year-round, full-time earnings of 18-24 year olds 
with selected educational attainment levels. These year-round earnings 
are reduced by 25 percent because students are usually out of school 
three months of the year. For high school students, these adjusted 
earnings are further reduced by the unemployment rate for 16-17 year 
olds; for college students, by the unemployment rate for 20-24 year 
olds. Yearly earnings by age and educational attainment are from Money 
Income in the United States, series P60, published by the Bureau of the 
Census.
  For this presentation, Federal investment in education capital is a 
portion of the Federal outlays included in the conduct of education and 
training. This portion includes direct Federal outlays and grants for 
elementary, secondary, and vocational education and for higher 
education. The data exclude Federal outlays for physical capital at 
educational institutions and for research and development conducted at 
colleges and universities because these outlays are classified elsewhere 
as investment in physical capital and investment in R&D capital. The 
data also exclude outlays under the GI Bill; outlays for graduate and 
post-graduate education spending in HHS, Defense and Agriculture; and 
most outlays for vocational training.
  Data on investment in education financed from other sources come from 
educational institution reports on the sources of their funds, published 
in U.S. Department of Education, Digest of Education Statistics. Nominal 
expenditures were deflated by the GDP chain-weighted price index to 
convert them to constant dollar values. Education capital is assumed not 
to depreciate, but to be retired when a person dies. An education 
capital stock computed using this method with different source data can 
be found in Walter McMahon, ``Relative Returns To Human and Physical 
Capital in the U.S.

[[Page 43]]

and Efficient Investment Strategies,'' Economics of Education Review, 
Vol. 10, No. 4, 1991. The method is described in detail in Walter 
McMahon, Investment in Higher Education, Lexington Books, 1974.
  Research and Development Capital: The stock of R&D capital financed by 
the Federal Government was developed from a data base that measures the 
conduct of R&D. The data exclude Federal outlays for physical capital 
used in R&D because such outlays are classified elsewhere as investment 
in federally financed physical capital. Nominal outlays were deflated 
using the GDP deflator to convert them to constant dollar values.
  Federally funded capital stock estimates were prepared using the 
perpetual inventory method in which annual investment flows are 
cumulated to arrive at a capital stock. This stock was adjusted for 
depreciation by assuming an annual rate of depreciation of 10 percent on 
the outstanding balance for applied research and development. Basic 
research is assumed not to depreciate. The 1993 Budget contains 
additional details on the estimates of the total federally financed R&D 
stock, as well as its national defense and nondefense components (see 
Budget for Fiscal Year 1993, January 1992, Part Three, pages 39-40).
  A similar method was used to estimate the stock of R&D capital 
financed from sources other than the Federal Government. The component 
financed by universities, colleges, and other nonprofit organizations is 
estimated based on data from the National Science Foundation, Surveys of 
Science Resources. The industry-financed R&D stock component is 
estimated from that source and from the U.S. Department of Labor, The 
Impact of Research and Development on Productivity Growth, Bulletin 
2331, September 1989.
  Experimental estimates of R&D capital stocks have recently been 
prepared by BEA. The results are described in ``A Satellite Account for 
Research and Development,'' Survey of Current Business, November 1994. 
These BEA estimates are lower than those presented here primarily 
because BEA assumes that the stock of basic research depreciates, while 
the estimates in Table 2-4 assume that basic research does not 
depreciate. BEA also assumes a slightly higher rate of depreciation for 
applied research and development, 11 percent, compared with the 10 
percent rate used here.

                            Social Indicators

  The main sources for the data in this table are the Government 
statistical agencies. Generally, the data are publicly available in the 
annual Economic Report of the President and the Statistical Abstract of 
the United States.