    [Analytical Perspectives]
    [Dimensions of the Budget]
    [23. Off-Budget Federal Entities and Non-Budgetary Activities]
    [From the U.S. Government Printing Office, www.gpo.gov]

    [[Page 377]]

          23.  OFF-BUDGET FEDERAL ENTITIES AND NON-BUDGETARY ACTIVITIES

      The unified budget of the Federal Government is divided by law between
    on-budget and off-budget entities. The off-budget Federal entities
    conduct programs that result in the same kind of spending and receipts
    as on-budget entities. Despite its off-budget classification, this
    spending channels economic resources toward particular uses in the same
    way as on-budget spending. Off-budget spending and receipts are
    discussed in the following section on off-budget Federal entities.
      The budget is a financial plan for proposing, deciding, and
    controlling the allocation of resources by the Federal Government. It
    does not include activities that are related to the Federal Government
    but that are non-budgetary by their inherent nature. In some cases this
    is because the activities are not conducted by the Government, such as
    the financial intermediation provided by the Government-sponsored
    enterprises; or because they involve funds that are privately owned,
    such as the deposit funds owned by Indian tribes and managed on their
    behalf by the Government in a fiduciary capacity. In other cases this is
    because the activities are not costs to the Government itself, such as
    regulation. Nevertheless, some of these activities are important
    instruments of Federal policy. Some are discussed in the budget
    documents, and in certain cases the amounts involved are presented in
    conjunction with budget data. They are discussed in the section of this
    chapter on non-budgetary activities.

                                          TABLE 23-1.  COMPARISON OF TOTAL, ON-BUDGET, AND OFF-BUDGET TRANSACTIONS \1\
                                                                    (In billions of dollars)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Receipts                        Outlays                   Surplus or deficit (-)
                                                            ------------------------------------------------------------------------------------------------
                         Fiscal Year                                                Off-                             Off-                             Off-
                                                              Total   On-budget    budget     Total    On-budget    budget     Total    On-budget    budget
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    1975...................................................    279.1      216.6       62.5      332.3      270.8       61.6      -53.2      -54.1        0.9
    1976...................................................    298.1      231.7       66.4      371.8      301.1       70.7      -73.7      -69.4       -4.3
    TQ.....................................................     81.2       63.2       18.0       96.0       77.3       18.7      -14.7      -14.1       -0.7
    1977...................................................    355.6      278.7       76.8      409.2      328.7       80.5      -53.7      -49.9       -3.7
    1978...................................................    399.6      314.2       85.4      458.7      369.6       89.2      -59.2      -55.4       -3.8
    1979...................................................    463.3      365.3       98.0      504.0      404.9       99.1      -40.7      -39.6       -1.1

    1980...................................................    517.1      403.9      113.2      590.9      477.0      113.9      -73.8      -73.1       -0.7
    1981...................................................    599.3      469.1      130.2      678.2      543.0      135.3      -79.0      -73.9       -5.1
    1982...................................................    617.8      474.3      143.5      745.7      594.9      150.9     -128.0     -120.6       -7.4
    1983...................................................    600.6      453.2      147.3      808.4      660.9      147.4     -207.8     -207.7       -0.1
    1984...................................................    666.5      500.4      166.1      851.9      685.7      166.2     -185.4     -185.3       -0.1

    1985...................................................    734.1      547.9      186.2      946.4      769.4      176.9     -212.3     -221.5        9.2
    1986...................................................    769.2      569.0      200.2      990.4      806.9      183.5     -221.2     -237.9       16.7
    1987...................................................    854.4      641.0      213.4    1,004.1      809.3      194.8     -149.7     -168.4       18.6
    1988...................................................    909.3      667.8      241.5    1,064.5      860.1      204.4     -155.2     -192.3       37.1
    1989...................................................    991.2      727.5      263.7    1,143.8      932.9      210.9     -152.6     -205.4       52.8

    1990...................................................  1,032.0      750.3      281.7    1,253.1    1,028.1      225.1     -221.1     -277.7       56.6
    1991...................................................  1,055.0      761.2      293.9    1,324.3    1,082.6      241.7     -269.3     -321.5       52.2
    1992...................................................  1,091.3      788.9      302.4    1,381.6    1,129.3      252.3     -290.3     -340.4       50.1
    1993...................................................  1,154.4      842.5      311.9    1,409.5    1,142.9      266.6     -255.1     -300.4       45.3
    1994...................................................  1,258.6      923.6      335.0    1,461.9    1,182.5      279.4     -203.2     -258.9       55.7

    1995...................................................  1,351.8    1,000.8      351.1    1,515.8    1,227.2      288.7     -164.0     -226.4       62.4
    1996...................................................  1,453.1    1,085.6      367.5    1,560.5    1,259.6      300.9     -107.5     -174.1       66.6
    1997...................................................  1,579.3    1,187.3      392.0    1,601.2    1,290.6      310.6      -21.9     -103.3       81.4
    1998...................................................  1,721.8    1,306.0      415.8    1,652.6    1,336.0      316.6       69.2      -30.0       99.2
    1999...................................................  1,827.5    1,383.0      444.5    1,701.9    1,381.1      320.8      125.5        1.9      123.7

    2000...................................................  2,025.2    1,544.6      480.6    1,789.1    1,458.3      330.8      236.2       86.3      149.8
    2001...................................................  1,991.2    1,483.7      507.5    1,863.0    1,516.2      346.8      128.2      -32.5      160.7
    2002...................................................  1,853.2    1,337.9      515.3    2,011.0    1,655.3      355.7     -157.8     -317.5      159.7
    2003...................................................  1,782.3    1,258.5      523.8    2,159.9    1,796.9      363.0     -377.6     -538.4      160.8
    2004...................................................  1,880.1    1,345.3      534.7    2,292.2    1,912.7      379.5     -412.1     -567.4      155.2

    2005 estimate..........................................  2,052.8    1,491.5      561.4    2,479.4    2,080.0      399.4     -426.6     -588.5      162.0
    2006 estimate..........................................  2,177.6    1,584.4      593.2    2,567.6    2,144.3      423.3     -390.1     -559.9      169.9
    2007 estimate..........................................  2,344.2    1,715.0      629.2    2,656.3    2,221.4      434.9     -312.1     -506.4      194.3
    2008 estimate..........................................  2,507.0    1,842.5      664.6    2,757.8    2,308.1      449.8     -250.8     -465.6      214.8
    2009 estimate..........................................  2,650.0    1,949.3      700.7    2,882.9    2,412.3      470.6     -232.9     -463.0      230.1

    2010 estimate..........................................  2,820.9    2,077.7      743.2    3,028.2    2,537.3      490.9     -207.3     -459.6      252.3
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    \1\ Off-budget transactions consist of the social security trust funds and the Postal Service fund for all years.

    [[Page 378]]

                           Off-Budget Federal Entities

      The Federal Government has used the unified budget concept as the
    foundation for its budgetary analysis and presentation since the 1969
    budget. This concept was developed by the President's Commission on
    Budget Concepts in 1967. It calls for the budget to include all the
    Federal Government's programs and all the fiscal transactions of these
    programs with the public.
      Every year since 1971, however, at least one Federal entity has been
    off-budget. Off-budget Federal entities are federally owned and
    controlled, but their transactions are excluded from the on-budget
    totals by law. When a Federal entity is off-budget, its receipts,
    outlays, and surplus or deficit are not included in the on-budget
    receipts, outlays, and surplus or deficit; and its budget authority is
    not included in the total budget authority for the on-budget Federal
    entities. The Budget Enforcement Act of 1990 excluded off-budget
    entities from general enforcement provisions (except for the
    administrative expenses of Social Security), although it had special
    enforcement provisions for Social Security.
      The off-budget Federal entities conduct programs of the same type as
    the on-budget entities. Most of the tables in the budget documents
    include the on-budget and off-budget amounts both separately and in
    combination, or show them only as a total amount, in order to arrive at
    the unified budget totals that show Federal outlays and receipts
    comprehensively.
      The off-budget Federal entities currently consist of the two Social
    Security trust funds, old-age and survivors insurance and disability
    insurance, and the Postal Service fund. Social Security was classified
    off-budget as of 1986 and the much smaller Postal Service fund in 1989.
    A number of other entities were off-budget at different times before
    1986 but were classified on-budget by law in 1985 or earlier.
      The preceding table divides the total Federal Government receipts,
    outlays, and surplus or deficit between the on-budget and off-budget
    amounts. Within this table the Social Security and Postal Service
    transactions are classified as off-budget for all years, in order to
    provide consistent comparison over time. Entities that were off-budget
    at one time but are now on-budget are classified as on-budget for all
    years.
      The off-budget entities are a significant part of total Federal
    spending and receipts. In 2006, the off-budget receipts are an estimated
    27 percent of total receipts, and the off-budget outlays are a somewhat
    smaller percentage of the total. The estimated unified budget deficit in
    that year is $390 billion--a $560 billion on-budget deficit partly
    offset by a $170 billion off-budget surplus. The off-budget surplus is
    virtually the same as the Social Security surplus. Social Security had a
    deficit in the latter 1970s and early 1980s, but since the middle 1980s
    it has had a large and growing surplus. This surplus is expected to
    continue to grow throughout the period of this table and for some years
    thereafter. However, it is estimated to subsequently decline, turn into
    a deficit, and never reach balance again under present law. The long-
    term challenge of Social Security is addressed in a chapter of the main
    budget volume, ``The Nation's Fiscal Outlook,'' and in chapter 13 of
    this volume, ``Stewardship.''

                            Non-Budgetary Activities

      Federal credit: budgetary and non-budgetary transactions.--The Federal
    Credit Reform Act of 1990 refined budget concepts by distinguishing
    between the costs of credit programs, which are budgetary in nature, and
    the other transactions of credit programs, which are not. For 1992 and
    subsequent years, the costs of direct loans and loan guarantees are
    calculated as the present value of estimated cash outflows from the
    Government less the present value of estimated cash inflows to the
    Government. These costs are equivalent to the outlays of other Federal
    programs and are included in the budget as outlays of credit program
    accounts when the Federal Government makes a direct loan or guarantees a
    private loan.
      The complete cash transactions with the public--the disbursement and
    repayment of loans, the payment of default claims on guarantees, the
    collection of interest and fees, and so forth--are recorded in separate
    financing accounts. The financing accounts also receive payments from
    the credit program accounts for the costs of direct loans and loan
    guarantees. The net transactions of the financing accounts--i.e., the
    cash transactions with the public less the amounts received from the
    program accounts--are not costs to the Government. Therefore, the net
    transactions of the financing accounts are non-budgetary in concept, and
    the Act excludes them from the budget.\1\ Because they are non-budgetary
    in concept, they are not classified as off-budget Federal entities.
    Transactions in the financing accounts do affect the Government's
    borrowing requirement, as explained in chapter 16 of this volume,
    ``Federal Borrowing and Debt.''
    ---------------------------------------------------------------------------
      \1\ See sec. 505(b) of the Act.
    ---------------------------------------------------------------------------
      The budget outlays of credit programs thus measure the cost of
    Government credit decisions, and they record this cost when the credit
    assistance is provided. This enables the budget to more effectively
    fulfill its purpose of being a financial plan for allocating resources
    among alternative uses: comparing the cost of a program with its
    benefits, comparing the cost of credit programs with the cost of other
    spending programs, and comparing the cost of one type of credit
    assistance with the cost of another type.\2\
    ---------------------------------------------------------------------------
      \2\ For more explanation of the budget concepts for direct loans and
    loan guarantees, see the sections on Federal credit and credit financing
    accounts in chapter 26 of this volume, ``The Budget System and
    Concepts.'' The structure of credit reform is further explained in
    chapter VIII.A of the Budget of the United States Government, Fiscal
    Year 1992, Part Two, pp. 223-26. The implementation of credit reform
    through 1995 is reviewed in chapter 8, ``Underwriting Federal Credit and
    Insurance,'' Analytical Perspectives, Budget of the United States
    Government, Fiscal Year 1997, pp. 142-44. Refinements and
    simplifications enacted by the Balanced Budget Act of 1997 or provided
    by later OMB guidance are explained in chapter 9, ``Underwriting Federal
    Credit and Insurance,'' Analytical Perspectives, Budget of the United
    States Government, Fiscal Year 1999, p. 170.
    ---------------------------------------------------------------------------
      Credit programs are discussed in chapter 7 of this volume, ``Credit
    and Insurance.''

      Deposit funds.--Deposit funds are non-budgetary accounts that record
    amounts held by the Government

    [[Page 379]]

    temporarily until ownership is determined (such as earnest money paid by
    bidders for mineral leases) or held by the Government as an agent for
    others (such as state income taxes withheld from Federal employees'
    salaries and not yet paid to the states). The largest deposit fund is
    the Thrift Savings Fund, which holds stocks and bonds as an agent for
    Federal employees who participate in the Thrift Savings Plan, a defined
    contribution retirement plan. Because these assets are the property of
    the employees and are held by the Government in a fiduciary capacity,
    the transactions of the fund are not transactions of the Government
    itself and therefore are non-budgetary in concept. The administrative
    costs and the transactions of budgetary accounts with the fund are
    included in the budget. For similar reasons, the budget excludes funds
    that are owned by Indian tribes and held and managed by the Government
    in a fiduciary capacity on the tribes' behalf. Deposit funds are further
    discussed in a section of chapter 26 of this volume, ``The Budget System
    and Concepts.''
      Taxation and tax expenditures.--Taxation provides the Government with
    income, which is included in the budget as ``receipts,'' and which
    withdraws purchasing power from the private sector to finance Government
    expenditures. In addition to this primary economic effect, taxation has
    important effects on the incentives that affect the allocation of
    resources among private uses and the distribution of income among
    individuals. These effects depend on the composition of the Federal tax
    system and the rates and other structural characteristics of each
    Federal tax. The latter effects of taxation on resource allocation and
    income distribution are in many ways analogous to the effects of
    outlays, but these effects are not recorded as budget outlays nor are
    they measured by budget receipts.
      Some of the effects of taxes on resource allocation and income
    distribution, but not all, arise from special exclusions, exemptions,
    deductions, and similar provisions that are identified by comparing the
    tax law with a baseline. Revenue losses caused by these special
    provisions are defined as ``tax expenditures'' and are discussed in
    chapter 19 of this volume, ``Tax Expenditures.'' The chapter includes
    tables with estimates for tax expenditures associated with the
    individual and corporation income taxes. The chapter also compares tax
    expenditures with spending programs and regulation as alternative
    methods for achieving policy objectives, and it provides an illustrative
    overview of performance measures that might be used to evaluate tax
    expenditures.
      The baseline concepts used to identify and measure tax expenditures in
    chapter 19 have important ambiguities. Although partly patterned on a
    comprehensive income tax, they are subjective, as explained in the tax
    expenditure chapter in recent years, and are open to question in a
    number of respects. The Treasury Department has therefore begun to
    review the tax expenditure presentation. The appendix to chapter 19
    provides a review, focusing on three issues: (1) using a comprehensive
    income tax as a baseline, (2) using a comprehensive consumption tax as a
    baseline, and (3) defining negative tax expenditures (i.e., provisions
    that cause people to pay more tax than they would under a baseline--such
    as the failure to adjust interest, capital gains, and depreciation for
    inflation in comparison to a comprehensive income tax).

      Government-sponsored enterprises.--The Federal Government has
    established several Government-sponsored enterprises, such as Fannie
    Mae, Freddie Mac, and the Farm Credit Banks, to provide financial
    intermediation for specified public purposes. They are excluded from the
    budget because they are privately owned and controlled. However,
    primarily because they were established by the Federal Government for
    public-policy purposes, estimates of their activities are reported in a
    separate chapter of the budget Appendix, and their activities are
    analyzed in chapter 7 of this volume, ``Credit and Insurance.''
      Regulation.--Some types of regulation have economic effects that are
    similar to budget outlays or tax expenditures by requiring the private
    sector to make expenditures for specified purposes, such as safety and
    pollution control. The regulatory planning process is described annually
    in The Regulatory Plan and the Unified Agenda of Federal Regulatory and
    Deregulatory Actions.\3\
    ---------------------------------------------------------------------------
      \3\ The most recent publication was issued by the Regulatory
    Information Service Center in December 2004 and printed in the Federal
    Register of December 13, 2004 (vol. 69, no. 238).
    ---------------------------------------------------------------------------
      The Office of Management and Budget began to publish a report on the
    costs and benefits of Federal regulation in 1997. The latest report,
    Progress in Regulatory Reform, was released in December 2004 and also
    includes a report on unfunded mandates.\4\ The report estimates the
    total costs and benefits of major Federal regulations reviewed by OMB
    from October 1993 through September 2003 and the impact of Federal
    regulation on state, local, and tribal governments. It also reviews the
    international literature on the effects of regulation on national
    economic growth and performance, reviews the economic literature on the
    impacts of regulation on manufacturing, and summarizes the
    Administration's regulatory reform accomplishments. The draft of the
    2005 report will be published in February 2005 for public comment.
    ---------------------------------------------------------------------------
      \4\ Office of Information and Regulatory Affairs, Office of Management
    and Budget, Progress in Regulatory Reform: 2003 Report to Congress on
    the Costs and Benefits of Federal Regulations and Unfunded Mandates on
    State, Local, and Tribal Entities (2004).