Federal Fiscal Trends: Fiscal Years 1971-1995 (Staff Study, 11/01/96,
GAO/AIMD-97-3).

GAO studied the fiscal components of the budget, focusing on revenue and
outlay trends, and the underlying factors contributing to those trends.

GAO noted that: (1) although federal revenues have more than doubled in
constant dollars over the last 25 years, they have maintained a
generally consistent share of the gross domestic product (GDP) during
this period; (2) all revenue sources, except excise taxes, have shown
real growth over the last 25 years, but only social insurance taxes have
increased as a share of total revenues; (3) tax expenditures increased
significantly in constant dollars and as a share of revenues until the
Tax Reform Act of 1986, but since 1989 they have resumed their upward
climb, constituting 32 percent of revenues in 1994; (4) collections
which arise from business-type transactions with the public have doubled
in constant dollars since 1971; (5) these receipts have generally been
the third largest revenue source during this period and, since 1981,
have annually exceeded the combined shares of corporate and excise taxes
as a percent of total federal revenues; (6) a few large entitlement
programs, such as Social Security, Medicare and Medicaid, and interest
payments have accounted for over three-quarters of the total outlay
growth since 1971; (7) overall spending for entitlement and other
mandatory programs arising outside of the annual appropriations process
grew more than four times faster in real terms than appropriated
spending; (8) within discretionary spending, defense and domestic outlay
patterns have varied during this period, showing both periods of growth
and decline; (9) during the last 25 years, changes in outlay patterns
have also documented shifts in the mission priorities of the federal
government; and (10) although overall levels differ, the United States
has generally allotted a smaller share of its GDP to government
activities than most other governments.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-97-3
     TITLE:  Federal Fiscal Trends: Fiscal Years 1971-1995
      DATE:  11/01/96
   SUBJECT:  Deficit reduction
             Fiscal policies
             Economic analysis
             Budget deficit
             Budget outlays
             Offsetting collections
             Tax expenditures
             Mission budgeting
             Foreign governments
IDENTIFIER:  Social Security Program
             Medicaid Program
             Medicare Program
             Canada
             France
             Germany
             Italy
             Japan
             United Kingdom
             
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Cover
================================================================ COVER


Staff Study

November 1996

FEDERAL FISCAL TRENDS - FISCAL
YEARS 1971-1995

GAO/AIMD-97-3

Federal Fiscal Trends

(935219)


Abbreviations
=============================================================== ABBREV

  CBO - Congressional Budget Office
  GAO - General Accounting Office
  GDP - gross domestic product
  GNP - gross national product
  JCT - Joint Committee on Taxation
  OECD - Organization for Economic Cooperation and Development
  OMB - Office of Management and Budget

PREFACE
============================================================ Chapter 0

While federal budgeting is an inherently forward-looking activity,
current debates can be informed by analysis of historical trends.  In
recent years, GAO has addressed a variety of cross-cutting patterns
and trends regarding many aspects of federal budget structures,
processes, and reporting mechanisms.\1 In this study, we focus on the
fiscal components of the budget--revenue and outlay trends, and the
underlying factors contributing to those trends. 

This study is based on data derived primarily from the Historical
Tables, Fiscal Year 1997, published by the Office of Management and
Budget (OMB) as part of the President's fiscal year 1997 budget
submission.\2 To facilitate understanding, trend data are presented
in graphic formats accompanied by brief narrative descriptions.  The
trend analyses presented in this study cover fiscal years 1971
through 1995, unless otherwise noted.  Trend data are presented in
the following formats. 

  -- In constant dollars, using 1995 as the base year:  This
     statistic describes in absolute terms the magnitude of change
     over a period of time, exclusive of the effects of inflation. 

  -- As a percent of gross domestic product (GDP):  GDP is the value
     of all final goods and services produced within the borders of a
     nation in a given period of time.  Expressing fiscal year data
     as a percent of fiscal year GDP provides a meaningful context
     for assessing trends.  In effect, this ratio recognizes that a
     nation's economy is a principal driver of its public sector
     revenues and outlays.  Thus, a change over time in the ratio of
     revenues (or outlays) as a percent of GDP provides greater
     insight for interpreting trends than changes in absolute levels
     alone. 

  -- As a share of totals:  This statistic is useful for describing
     relative shifts by component, for example, shares of total
     outlays by type of spending. 

Appendix I provides additional details on our scope and methodology. 


--------------------
\1 Examples include previous and ongoing work regarding capital,
investment, and performance budgeting; the budgetary treatment of
credit and insurance programs; budget process reforms, such as
balanced and biennial budget requirements; and the budget account
structure and the linkages between budgeting and accounting.  These
products, and other work relating to structural or trend matters, are
listed in the "Related GAO Products" section of this study. 

\2 This study reflects current concepts and treatments applicable to
federal budget presentations, as discussed in OMB's Budget Systems
and Concepts, Fiscal Year 1997.  The Federal Accounting Standards
Advisory Board has recently developed accounting standards which
address how many of the issues discussed in this study are treated
and presented in financial statements.  Starting with fiscal year
1996, all departments and agencies covered by the Chief Financial
Officers Act will be required to obtain annual audits of their
financial statements, which will include coverage of budgetary
information. 


   OVERVIEW OF TRENDS
---------------------------------------------------------- Chapter 0:1

The federal government's spending and tax policies constitute its
fiscal policy.  When outlays exceed revenues, deficits occur.  In the
200 years since 1795, deficits have been a common feature of federal
fiscal policy, occurring in 100 of these 200 fiscal years.  As shown
in figure 1, prior to World War II, deficits occurred primarily in
times of war or economic downturn and generally were followed by
periods of surplus.  In fact, between 1795 and 1945, annual surpluses
were the dominant result of federal fiscal policy, occurring in 92 of
the 150 fiscal years.  However in the last 50 years, the federal
government has run a surplus only eight times and not at all since
1969. 

   Figure 1:  Federal Surpluses
   and Deficits, Fiscal Years
   1795-1995

   (See figure in printed
   edition.)

Figure 1 also indicates that deficit reduction efforts in the
1990s--notably the Budget Enforcement Act of 1990 as revised and
extended by the Omnibus Budget Reconciliation Act of 1993--appear to
be achieving intended results.  Deficits have declined every year
since 1992, and in fiscal year 1995, the deficit as a percent of GDP
reached the lowest level since 1979.\3 Despite these recent gains,
the Congressional Budget Office (CBO) projects that, unless further
action is taken, the deficit will rise gradually beginning in 1997. 
CBO's and GAO's long-term models suggest that the deficit will
increase more rapidly when the baby boom generation begins to retire
around 2010.  Thus, additional measures to reduce the deficit will be
needed just to sustain recent progress.\4 These discussions and
related topics are briefly summarized in chapter 1. 

Underlying this modern pattern of deficits are significant changes
affecting both revenues and outlays.  Principal revenue trends
discussed in chapter 2 include the following. 

  -- Although federal revenues have more than doubled in constant
     dollars over the last 25 years, they have maintained a generally
     consistent share of GDP during this period. 

  -- Significant changes have occurred in the composition of federal
     revenues.  Although all revenue sources, except excise taxes,
     have shown real growth over the last 25 years, only social
     insurance taxes have increased as a share of total revenues, and
     only social insurance and individual income tax receipts have
     grown faster than overall economic growth.  (See figures 2.2 and
     2.3.)

  -- Tax expenditures--provisions of the tax code addressing a
     variety of economic and social policies but which constitute
     revenue forgone for the federal government--increased
     significantly in constant dollars and as a share of revenues
     until the 1986 Tax Reform Act, but since 1989 have resumed their
     upward climb--constituting 32 percent of revenues in 1994.  (See
     figure 2.4.)

  -- Collections which arise from business-type transactions with the
     public, rather than through the government's exercise of its
     sovereign tax powers, and which offset or reduce outlays for a
     variety of federal activities, have doubled in constant dollars
     since 1971.  In terms of total government collections, these
     receipts have generally been the third largest revenue source
     during this period and, since 1981, have annually exceeded the
     combined shares of corporate and excise taxes as a percent of
     total federal revenues.  (See figure 2.5.)

The major outlay trends discussed in chapter 3 include the following. 

  -- As with revenues, the trend in total outlays depends on the
     measure.  In constant dollars, outlays have shown a consistent
     growth pattern over this period, doubling from over $740 billion
     to over $1.5 trillion.  However, as a percent of GDP, outlays
     grew between 1971 and 1983 but have gradually fallen thereafter,
     with 1995 outlays (21.7 percent of GDP) the lowest since 1979. 
     (See figure 3.1b and table 3.1.)

  -- Outlay patterns have changed significantly during this period. 
     A few large entitlement programs--Social Security, Medicare and
     Medicaid--and interest payments have accounted for over
     three-quarters of the total outlay growth since 1971.  Overall,
     spending for entitlement and other mandatory programs arising
     outside of the annual appropriations process grew more than four
     times faster in real terms than appropriated (i.e.,
     discretionary) spending.  One result of these different growth
     rates has been a shift in the composition of federal outlays
     from about 35 percent mandatory in 1971 to about 50 percent
     mandatory in 1995.  (See figures 3.2 and 3.3.)

  -- Within discretionary spending, defense and domestic outlay
     patterns have varied during this period, showing both periods of
     growth and decline.  Overall, discretionary spending has
     declined as a percent of GDP, with most of the recent decline
     associated with defense spending.  (See figure 3.4.)

  -- During the last 25 years, changes in outlay patterns have also
     documented shifts in the mission priorities of the federal
     government.  For example, as a share of total spending, only
     outlays for human services and interest payments grew during
     this period; outlays for defense, economic affairs, natural
     resources, and central government operations all declined as
     shares of overall spending.  Also, outlay patterns disclose a
     change in federal government activity from principally providing
     goods or services (directly or via contract) to principally
     providing payments to individuals.  (See figures 3.5 through
     3.8.)

Lastly, federal fiscal trends can be compared to the fiscal patterns
of other governments.  For example, federal domestic spending
increased sharply in the early 1970s compared to state and local
government spending and has generally maintained that gap throughout
this trend period.  (See figure 4.1.) Total United States government
spending also can be compared to other industrialized nations; this
analysis indicates that, although overall levels differ, the United
States has generally allotted a smaller share of its GDP to
government activities than most other governments.  (See figures 4.2
through 4.4.)

Copies of this study are being provided to GAO staff members and to
others upon request.  If there are any questions, I can be reached at
(202) 512-9573.  Major contributors to this staff study were Michael
J.  Curro and John W.  Mingus, Jr. 

Paul L.  Posner
Director, Budget Issues


--------------------
\3 Although detailed data are not yet available, the Department of
the Treasury reported on October 28, 1996, that the fiscal year 1996
deficit was $107 billion, as a percent of GDP the lowest level since
1974. 

\4 The Deficit and the Economy:  An Update of Long-Term Simulations
(GAO/AIMD/OCE-95-119, April 26, 1995).  This study updated Budget
Policy:  Prompt Action Necessary to Avert Long-Term Damage to the
Economy (GAO/OCG-92-2, June 5, 1992).  See also chapter 4 of The
Economic and Budget Outlook:  Fiscal Years 1997-2006, Congressional
Budget Office (May 1996).  See also Federal Debt:  Answers to
Frequently Asked Questions (GAO/AIMD-97-12, November 27, 1996). 


FEDERAL DEFICITS:  PATTERNS AND
IMPLICATIONS
============================================================ Chapter 1

As indicated by figures 1.1a and 1.1b, the occurrence of deficits has
become a stubborn and persistent feature of federal fiscal policy
although the size of deficits in constant dollars and their
relationship to overall U.S.  economic performance measured as a
percent of GDP have varied widely during the post-World War II
period.  Figure 1.1b also indicates a conspicuous shift that has
occurred during this period.  Deficits as a percent of GDP
intensified during the period 1971-1991 compared to the earlier
period 1950-1970.  Figure 1.1b illustrates this point; trend lines
were fitted to each data series and the sharply steeper trend line
for 1971-1991 indicates a worsening of federal deficits relative to
national economic output.  This period since 1971, and associated
underlying factors, will be the focus for the more detailed
examination of revenue and outlay trends in subsequent chapters of
this report. 

Figures 1.1a and 1.1b also indicate that deficit reduction efforts in
the 1990s--notably the Budget Enforcement Act of 1990 as revised and
extended by the Omnibus Budget Reconciliation Act of 1993--appear to
be achieving results.  Deficits have declined every year since 1992,
and in fiscal year 1995, the deficit as a percent of GDP reached the
lowest level (2.3 percent) since 1979.  Despite these recent gains,
both GAO and the Congressional Budget Office have expressed concern
over the long-term outlook.\1 In our 1995 study on the long-term
economic impact of persistent deficits, we noted that continuing
current fiscal policies would lead to sharply escalating deficits,
rising to over 23 percent of GDP by 2025, which would prompt
significant declines in investment and capital stock, rising federal
interest costs and, inevitably, a declining economy.  Increased
spending pressures arising from an aging population, rising health
care costs and growing interest on the debt will combine to create
unsustainable fiscal pressures.  We concluded that a fiscal policy of
balance or surplus would yield a stronger economy in the long term. 

   Figure 1.1:  Federal Surpluses
   and Deficits, Fiscal Years
   1950-1995

   (See figure in printed
   edition.)


--------------------
\1 See GAO/AIMD/OCE-95-119, April 26, 1995; and GAO/OCG-92-2, June 5,
1992.  See also chapter 4 of The Economic and Budget Outlook:  Fiscal
Years 1997-2006, Congressional Budget Office (May 1996). 


   THE STRUCTURAL AND CYCLICAL
   COMPONENTS OF THE DEFICIT
---------------------------------------------------------- Chapter 1:1

Not all of the growth in the deficit has been due to the tax and
spending policies of the government.  The deficit is also responsive
to changing economic conditions; for example, a stagnant economy can
depress wages and profits, with a corresponding effect on tax
revenues, or can lead to higher levels of unemployment, resulting in
greater outlays.  That part of the deficit resulting from economic
conditions is referred to as the cyclical deficit; that part due to
the effects of fiscal (i.e., tax and spending) policy, and other
noncyclical factors such as demographics, is referred to as the
structural deficit. 

Figure 1.2 shows the combined cyclical and structural deficits since
1971.  The heavy line represents the structural deficit as a percent
of GDP.  The darkly shaded area in this figure indicates that portion
of the total federal deficit resulting from cyclical factors; in
effect, it shows the contribution of economic conditions to the
annual deficit, shown by the heavy dotted line.  Since 1981, although
the federal deficit predominantly resulted from structural factors,
economic conditions typically worsened the situation.  Of course, the
opposite effect is also possible, and the lightly shaded areas
(1972-74, 1978-79, and 1995) indicate a lowering of the reported
deficit due to economic factors.\2

   Figure 1.2:  Structural and
   Cyclical Components of the
   Deficit

   (See figure in printed
   edition.)


--------------------
\2 In figure 1.2, the area under the heavy line is analogous to the
"standardized-employment deficit," a measure used by the
Congressional Budget Office (CBO) to remove the effects of the
business cycle from the total deficit.  CBO uses this measure to
estimate whether fiscal policy is stimulative (rising relative to
potential GDP) or restrictive (falling relative to potential GDP). 
For a full discussion of this measure, see The Economic and Budget
Outlook:  Fiscal Years 1997 - 2006, Congressional Budget Office, May
1996. 


   THE FEDERAL AND TRUST FUND
   COMPONENTS OF THE DEFICIT
---------------------------------------------------------- Chapter 1:2

The federal budget consists of two major groups of funds:  federal
funds and trust funds.  The latter is composed of revenues dedicated
or earmarked for specific activities designated by law, including,
for example, payroll taxes dedicated to the Social Security Trust
Funds or gasoline excise taxes dedicated to the Highway Trust Fund. 
The federal funds group is financed by nondedicated revenues, such as
the income tax or general Treasury borrowing and is used to carry out
the general operations of the government. 

Since 1969, the government's fiscal policy has been presented in
terms of the "unified budget," which combines the revenues and
outlays of federal and trust funds to achieve a comprehensive
statement of governmental transactions with the public.\3 Figure 1.3
shows trends for the federal and trust fund components within the
unified budget.  The federal funds deficit, as a percent of GDP, is
indicated by the line at the top of the figure; the heavy line
represents the unified (or actual) budget deficit.  The darkly shaded
area indicates the trust fund surplus, which in the context of the
unified budget presentation offsets a portion of the federal funds
deficit.  The trust fund surpluses of recent years are a result of
policy changes intentionally designed to build large reserves,
principally in retirement programs such as Social Security and
federal employee pension plans. 

   Figure 1.3:  Federal Fund and
   Trust Fund Components of the
   Deficit

   (See figure in printed
   edition.)


--------------------
\3 The unified budget typically measures governmental transactions
with the public in its sovereign capacity, netting all business-type
and interfund collections.  In this study, interfund transactions are
included to properly allocate the cost of federal activities to the
fund group giving rise to the cost.  For further discussion of
business-type collections, see chapter 2. 


FEDERAL REVENUES:  FISCAL YEARS
1971-1995
============================================================ Chapter 2

Federal revenues have more than doubled in constant dollars over the
last 25 years, but have risen only slightly as a share of GDP. 
Revenue flows to the federal government are sensitive to economic
conditions.  As shown in figure 2.1a, federal revenue trends have
experienced overall growth during this period, with downturns
associated with a declining economy, as in 1975-76, 1981-82 and
1991-92.  The fall-off in revenues after 1981 was also associated
with the Economic Recovery Tax Act, which, among other policy changes
discussed below, enacted broad rate decreases affecting corporate and
individual income taxes. 

Figure 2.1b depicts federal revenues as a percent of GDP, adding
perspective on the size of federal revenues relative to the
performance of the U.S.  economy.  Using this measure, revenues have
risen slightly throughout this period from 17.8 to 19.3 percent of
GDP.  (See also table 2.1.) The increase indicated between 1976 and
1981 reflects the influence of high inflation rates, which, before
the indexing of tax rates, moved taxpayers into higher income tax
brackets. 

   Figure 2.1:  Federal Revenue
   Trends

   (See figure in printed
   edition.)


   THE COMPOSITION OF FEDERAL
   REVENUES
---------------------------------------------------------- Chapter 2:1

The relatively modest growth of revenues as a percent of GDP masks
major shifts in composition.  Revenues are commonly disaggregated
into five sources:  individual income tax receipts, corporate income
tax receipts, social insurance tax receipts, excise tax receipts, and
all other sources, such as custom duties, estate and gift taxes, and
miscellaneous receipts.  As indicated in figures 2.2a and 2.2b and
table 2.1, although all sources except excise taxes have shown real
growth during the last 25 years, only individual income taxes and
social insurance taxes have increased as a percent of GDP.  Social
insurance taxes have shown the greatest real average annual growth
and account for nearly half of the observed growth in revenues during
this period; in fact, the growth of social insurance tax receipts has
been so significant that all other revenue sources have declined as a
share of total revenue. 

The decline in corporate tax receipts as a percent of GDP in part
reflects the contraction of corporate profits as a share of national
income.  Several other factors have been advanced as explanations for
this drop in the corporate tax base, including rising interest rates
and, more recently, increasing debt-to-equity ratios which reduced
corporate profits.  Rate reductions and increased business investment
tax preferences enacted in 1981 also contributed to the relative
decline in revenue from the corporate profit tax, although corporate
taxes were increased in 1986.\1



                                    Table 2.1
                     
                        Share and Growth Rates, by Revenue
                          Source, Fiscal Years 1971-1995


                                                          Share of       Average
                                                          observed   annual real
                                                           growth:       growth:
Federal revenue                                          1971-1995     1971-1995
source                  1971    1995    1971    1995     (percent)     (percent)
--------------------  ------  ------  ------  ------  ------------  ------------
Individual income        8.2     8.4    46.1    43.6          41.1          2.79
 tax receipts
Corporate income tax     2.5     2.2    14.3    11.6           9.0          2.13
 receipts
Social insurance tax     4.5     6.9    25.3    35.7          45.7          4.53
 receipts
Excise tax receipts      1.6     0.8     8.9     4.2          -0.2         -0.09
Other receipts           1.0     0.9     5.4     4.9           4.3          2.56
================================================================================
Total revenues          17.8    19.3     100     100           100          3.03
--------------------------------------------------------------------------------
   Figure 2.2:  Federal Revenues
   by Source

   (See figure in printed
   edition.)

As previously noted, social insurance tax receipts grew faster than
any other revenue source since 1971--both in constant dollars from
$167 billion to $484 billion, and from 4.5 percent to 6.9 percent of
GDP (see figure 2.3a)--principally due to increasing payroll tax
rates for Social Security and Medicare.\2 Social Security remains the
largest component of social insurance tax receipts, but Medicare is
the fastest growing, increasing since its inception in 1965 to almost
20 percent of social insurance tax receipts. 

Excise tax receipts have remained rather stable in constant
dollars--$57 billion in 1995 compared to $59 billion in 1971--but
have declined significantly since 1971 as a percent of GDP.  (See
figure 2.3b and table 2.1, above.) Excise taxes tend to be set at a
fixed dollar amount--not tied to the changing price of taxed
products--which accounts for some of the reported decline.  Also, as
shown in figure 2.3b, "other excise taxes" have experienced
substantial volatility during this period.  Many of these taxes,
which are individually small but in the aggregate represent a major
share of the total for this source, were created during this period. 
A few of these taxes were also eliminated during this period.  For
example, the large spike in 1981 was principally due to the "windfall
profits" tax imposed on domestic oil producers to capture some of the
profits arising from decontrol of domestic crude oil prices and price
increases by other oil producing nations.  This excise tax generated
substantial revenue in the early 1980s, but declined sharply as oil
prices dropped; ultimately, it was repealed in 1988. 

   Figure 2.3:  Composition of
   Social Insurance and Excise
   Taxes

   (See figure in printed
   edition.)


--------------------
\1 See C.  Eugene Steuerle, The Tax Decade:  How Taxes Came To
Dominate the Public Agenda (Washington, D.C.:  The Urban Institute
Press 1992); James M.  Poterba, "Why Didn't the Tax Reform Act of
1986 Raise Corporate Taxes?," National Bureau of Economic Research,
Inc., Working Paper No.  3940, December 1991; and The Shortfall in
Corporate Tax Receipts Since the Tax Reform Act of 1986,
Congressional Budget Office (May 1992). 

\2 Payroll taxes are for the Hospital Insurance (HI) component of
Medicare.  Medicare Part B premiums are included in offsetting
receipts. 


   TAX EXPENDITURES
---------------------------------------------------------- Chapter 2:2

The federal tax code has long been used as a tool for accomplishing
objectives in addition to raising revenue.  "Tax expenditures" refer
to tax code provisions which, through deductions, exclusions,
credits, or preferences, seek to encourage certain types of economic
activity or provide relief to certain groups of taxpayers.  In
essence, tax expenditures, while pursuing these objectives, reduce
tax liabilities and constitute revenue forgone for the federal
government.  The size of the revenue loss depends on (1) the nature
of the deduction or preference, for example some eliminate whole
components of the tax base, and (2) the applicable tax rate,
generally the higher the rate, the greater the value of the
preference and the greater the revenue loss to the government.  Among
the largest tax expenditures are the net exclusion from income of
pension contributions and earnings, the exclusion of employer
contributions for health insurance premiums and medical care, and the
deductibility of state and local taxes and of mortgage interest for
owner-occupied housing. 

Although the Congressional Budget Act of 1974 requires OMB to list
tax expenditures in each annual budget, it does not specify the
provisions of tax law, and thus deciding whether tax provisions are
preferential exceptions is a matter of judgment.  Both the Congress'
Joint Committee on Taxation (JCT) and the Department of the
Treasury's Office of Tax Analysis annually compile a list of tax
expenditures and estimate the revenue loss from each.\3 However, the
estimated forgone revenue from a particular tax expenditure does not
necessarily equal revenues that could be gained if the special tax
provision was repealed.  Tax expenditures are frequently
interdependent, so that a change in one might have a countervailing
effect on another.  These interaction effects also mean that the sum
of the revenue losses from individual expenditures does not equal the
total revenue forgone from all tax expenditures.  Also, tax
expenditures can provide incentives for specific economic behavior;
if repealed, the behavior may be modified but not necessarily
eliminated, with corresponding effects on anticipated receipts. 

Nevertheless, many observers agree that aggregating estimated revenue
loss from tax expenditures can suggest an order of magnitude of
revenues forgone in a given year.  Figures 2.4a and 2.4b summarize
JCT's estimates and indicate that although revenue forgone through
tax expenditures has increased significantly in constant dollars it
represents about the same percentage of total revenues in 1994 as in
1974.  The sharp increase between 1979 and 1987 was reversed by the
Tax Reform Act of 1986, which lowered rates and scaled back many tax
expenditures.  Recent growth in tax expenditures is principally due
to demographic and economic factors, and changes in taxpayer
behavior. 

   Figure 2.4:  Estimated Revenue
   Forgone from Tax Expenditures

   (See figure in printed
   edition.)


--------------------
\3 A discussion of the methodological challenges presented by tax
expenditures is in chapter 5 of the Analytical Perspectives to the
Budget of the United States Government, Fiscal Year 1997.  For a
discussion of the growth of and alternatives to tax expenditures, see
Tax Policy:  Tax Expenditures Deserve More Scrutiny
(GAO/GGD/AIMD-94-122, June 3, 1994). 


   REVENUES FROM OFFSETTING
   COLLECTIONS
---------------------------------------------------------- Chapter 2:3

An important source of revenue for many federal activities is
offsetting collections from the public.  These collections differ
from the governmental receipts previously discussed in this chapter
in that they do not arise from the exercise of sovereign powers but
rather involve receipts from the public arising from business-type
activities or the payment of certain regulatory or other fees.  They
are referred to as offsetting collections because they are treated as
offsets to outlays and are not included in revenue totals.  In
effect, this treatment reduces the reported cost of certain
governmental activities, causing total federal transactions to be
understated, but produces budgetary receipt and outlay totals which
reflect net governmental, rather than market-based, activities.\4

Some offsetting collections, notably a wide variety of revolving
funds, are credited to and offset outlays from specific expenditure
accounts; these collections are generally available for obligation
with no further congressional action.  The remainder are referred to
as "offsetting receipts," and include collections for regulatory and
nonregulatory services, the sale of property and products, or rents
and royalties.  Offsetting receipts are not credited to expenditure
accounts, but rather to general, special, or trust fund receipt
accounts, and are not available for obligation without subsequent
appropriation, although a significant portion has been permanently
appropriated.  Offsetting receipts are generally recorded as
reductions against agency (rather than specific expenditure account)
outlays, or as undistributed offsets to total governmental outlays. 

In constant dollars, total collections from the public--offsetting
receipts and collections from the public--have about doubled since
1971 (see figure 2.5); since 1981, they have exceeded the combined
shares of corporate and excise taxes as a percent of total revenues. 
Figure 2.5 shows the volatility of these transactions.  Recent
fluctuations in collections from the public are largely due to
deposit insurance receipts.  The large increase in 1990-1991 in
offsetting receipts is largely the result of allied contributions for
Operation Desert Storm collected in the Department of Defense's
Defense Cooperation account.  Postal Service and farm credit program
collections have consistently been the largest sources of offsetting
collections credited to expenditure accounts.  Medicare premiums and
other health insurance charges--which collectively have quadrupled in
the last decade--and Foreign Military Sales proceeds are the largest
sources of offsetting receipts. 

   Figure 2.5:  Composition of
   Offsetting Collections From the
   Public

   (See figure in printed
   edition.)


--------------------
\4 Some argue that this treatment can distort budget decisions, as
activities funded through offsetting collections grow without
apparent increases in net outlays.  See, for example, John F.  Cogan
and Timothy J.  Muris, "Changes in Discretionary Domestic Spending
During the Reagan Years," The Budget Puzzle:  Understanding Federal
Spending, Stanford University Press, Stanford, California, 1994. 


FEDERAL OUTLAYS:  FISCAL YEARS
1971-1995
============================================================ Chapter 3

Outlays are a measure of what is more commonly called spending.\1 As
with revenues, total outlays have shown a consistent growth pattern
over this period, doubling from over $740 billion to over $1.5
trillion, in constant dollars (see figure 3.1a), with an average real
growth rate of 3 percent.  (See table 3.1.) For the most part, total
outlays were less sensitive to economic conditions than revenues. 
Most of the growth experienced over this period resulted from
structural policy decisions--the enactment, expansion, and growth of
a wide variety of spending programs. 

However, when measured as a percent of GDP to control for growth
associated with normal expansion of the nation's economy, outlay
growth is less dramatic and more sporadic.  (See figure 3.1b and
table 3.1.) For example, from a 1971 level of about 20 percent of
GDP, outlays peaked as a percent of GDP in 1983 (24.4 percent) and
have gradually fallen thereafter.  The 1995 level, 21.7 percent, is
the lowest since 1979. 



                                    Table 3.1
                     
                        Share and Growth Rates, by Outlay
                         Category, Fiscal Years 1971-1995


                                                          Share of       Average
                                                          observed   annual real
                                                           growth:       growth:
                                                         1971-1995     1971-1995
Outlay category         1971    1995    1971    1995     (percent)     (percent)
--------------------  ------  ------  ------  ------  ------------  ------------
Mandatory outlays        6.9    10.6    34.7    48.8          62.3           4.5
Social Security          3.3     4.8    16.7    21.9          27.0           4.2
Medicare                 0.6     2.2     2.9    10.3          17.4           8.5
Medicaid                 0.3     1.3     1.6     5.9           9.9           8.7
Other                    2.7     2.3    13.5    10.7           8.0           2.0
Discretionary           11.7     7.8    58.3    35.9          14.5           1.0
 outlays
Defense                  7.5     3.9    37.6    18.0          -0.8          -0.1
International            0.4     0.3     1.8     1.3           0.9           1.7
Domestic                 3.8     3.6    18.9    16.6          14.4           2.5
Interest outlays         1.4     3.3     7.0    15.3          23.2           6.4
================================================================================
Total Outlays           20.0    21.7   100.0   100.0         100.0           3.0
--------------------------------------------------------------------------------
   Figure 3.1:  Federal Outlay
   Trends

   (See figure in printed
   edition.)


--------------------
\1 In a given fiscal year, outlays can result from obligations
incurred in a prior year or in the current year.  Thus, outlays
reported for a specific fiscal year can flow from available balances
of unexpended prior year budgetary resources or from budgetary
resources provided in the year the money is spent. 


   THE MANDATORY AND DISCRETIONARY
   COMPONENTS OF SPENDING
---------------------------------------------------------- Chapter 3:1

The Budget Enforcement Act of 1990 and the Omnibus Budget
Reconciliation Act of 1993, which revised and extended the 1990 act,
sought to control federal spending by establishing different control
mechanisms for two types of outlays:  mandatory and discretionary
spending.  In general, the former is defined as spending for
entitlement programs, such as food stamps, Medicare, or veterans'
pensions; these outlays are not controlled through the appropriations
process but rather by authorizing laws which define eligibility or
set benefit or payment rules.  Discretionary spending is that which
arises from appropriations laws. 

Extending the mandatory and discretionary categories created in 1990
over the entire period of this analysis reveals a significant shift. 
While mandatory spending nearly tripled between 1971 and 1995 in
constant dollars, discretionary outlays grew by only about 25
percent.  (See figure 3.2a.) This disparate growth pattern is shown
in figure 3.2b.  Excluding interest costs, which have quadrupled in
constant dollars and doubled as a share of outlays during this
period, mandatory spending has increased as a share of total outlays
from 35 percent to almost 50 percent, while the discretionary outlay
share has declined significantly.  (See table 3.1, above.) Phrased
differently, spending for entitlement and other mandatory
programs--arising outside of the annual appropriations process--grew
four times faster in real terms than appropriated (i.e.,
discretionary) spending.  In effect, spending arising outside of the
annual appropriations process has become the principal driver of
federal outlays.\2

   Figure 3.2:  Outlay Trends by
   Spending Category

   (See figure in printed
   edition.)

Social Security has been consistently the largest program within the
mandatory spending category.  (See figure 3.3a.) However two health
programs begun in the mid-1960s, Medicare and Medicaid, are among the
fastest growing components.  Collectively, these three programs
account for more than half of the total observed outlay growth during
the last 25 years. 

As shown in figure 3.3b, there is wide variation in the average
annual growth rates in mandatory programs.  The principal factors
that contribute to the growth rates of mandatory programs include
changes in the numbers of beneficiaries and inflation.\3

Although average annual growth rates provide an indication of the
rate of change of a program, they do not necessarily capture large
constant dollar changes.  For example, the 11 percent average annual
real growth in other health programs represents a constant dollar
increase from $0.4 billion in 1971 to $4.3 billion in 1995.  On the
other hand, the smaller 4.2 percent growth in social security
represents an increase from $124.2 billion to $333.3 billion, in
constant dollars. 

   Figure 3.3:  Mandatory Spending

   (See figure in printed
   edition.)

Overall, discretionary spending declined relative to total spending
and GDP but did experience very modest average annual real growth
(1.0 percent) since 1971.  (See figure 3.4 and table 3.1, above.)
Defense discretionary outlays declined slightly in real terms (-0.1
percent) during this period, but fell sharply as a percent of GDP and
declined from two-thirds to one-half of total discretionary spending. 
This overall trend is somewhat misleading, masking three distinct
periods in defense spending:  decreases between 1971 and 1980, and
increases between 1980 and 1987 followed by declines thereafter
(except for the increase in 1991 due to Operation Desert Storm). 

Although domestic discretionary spending as a percent of GDP was
generally stable throughout this period, in real terms it increased
by 80 percent ($140 billion to $252 billion) between 1971 and 1995. 
As a share of total outlays, domestic discretionary spending
decreased from 18.9 to 16.6 percent between 1971 and 1995, but as a
share of total discretionary outlays grew from 32.4 to 46.2 percent. 
As with defense discretionary spending, three distinct spending
trends can be discerned.  Specifically, domestic discretionary
outlays grew by 67 percent, in real terms, between 1971 and 1980,
declined in the early 1980s, and then have grown fairly steadily
thereafter. 

   Figure 3.4:  Discretionary
   Spending

   (See figure in printed
   edition.)


--------------------
\2 A recent GAO report described the implication of this trend for
fiscal year 1995.  Using gross budgetary resources as the universe,
we noted that over 70 percent of total resources available in fiscal
year 1995 did not require congressional approval in that year. 
(Budget Account Structure:  A Descriptive Overview (GAO/AIMD-95-179,
Sept.  18, 1995). 

\3 For larger discussion of mandatory programs, see Budget Policy: 
Issues in Capping Mandatory Spending (GAO/AIMD-94-155, July 18,
1994). 


   OUTLAY TRENDS BY FEDERAL
   MISSION AREA
---------------------------------------------------------- Chapter 3:2

Within overall outlay trends, there has also been substantial
variation in spending by federal mission or priority.  One way to
observe this variation is to array outlays by budget function. 
Budget function presentations have existed for over 70 years.  The
current classification system can be traced to the Budget of the U.S. 
Government for Fiscal Year 1948, which revised earlier
classifications to provide a cross-cutting presentation of outlays
according to "the ultimate purpose which the .  .  .  programs are
designed to serve." Since then, budget functions have been revised
several times to reflect changing federal priorities but still
provide the most complete perspective on federal missions.\4 These
budget functions are also the categories used by the Congress in the
concurrent resolutions on the budget, pursuant to the Congressional
Budget and Impoundment Control Act. 

For this report, we have grouped the 18 budget functions and over 70
subfunctions into 6 broad mission areas:  central government
operations, economic affairs, human services, natural resources,
national security and international affairs, and interest payments.\5
As shown in figures 3.5a and 3.5b, there have been significant shifts
in federal spending by mission since 1971.  Outlays for human
services--principally Social Security and health-related
spending--and for interest payments grew as a share of the total,
while outlays for all other mission areas, some of which are
discussed next, declined in constant dollars and/or as shares of the
total. 

   Figure 3.5:  Outlay Trends by
   Mission Area

   (See figure in printed
   edition.)

Overall spending in the areas of economic affairs, natural resources,
and central government operations constitutes a very visible but
small and declining share of total spending.  Spending in these areas
has declined to 7.3 percent of total outlays from a 1971 level of
14.1 percent.  (See figures 3.6a and 3.6b.) Not surprisingly, these
overall trends conceal substantial variation within the separate
mission areas. 

  -- Economic affairs spending, for such activities as economic
     stabilization and development, nondefense research and
     development, and disaster relief, displayed the greatest
     variability over the trend period, ranging from 4 to 12 percent
     of total outlays.  The spikes seen in the spending patterns were
     largely due to agricultural income support and area and regional
     development programs in 1977-1979 and increased deposit
     insurance outlays in 1990-1991. 

  -- Natural resources spending fell off sharply in 1973 and 1974
     largely due to an increase in oil and gas royalties on the outer
     continental shelf, which as offsetting receipts reduced the
     apparent spending in this area.  Spending in this area rebounded
     in the late 1970s due to the effects of the energy crisis and
     changing environmental policies, notably grants associated with
     wastewater treatment.  Throughout the period, natural resources
     missions drove a small share (0.1 to 4 percent) of total
     spending. 

  -- Central government operations, covering such diverse areas as
     legislative operations, central support services for financial
     and property management, and all justice and law enforcement
     activities, represents a consistently small (less than 3
     percent) and generally declining share of federal outlays. 
     Recent increases were generally associated with spending on law
     enforcement activities. 

   Figure 3.6:  Outlay Trends for
   Selected Federal Missions

   (See figure in printed
   edition.)


--------------------
\4 While this classification system provides complete coverage of the
federal budget, with generally exclusive categories, there are
limitations arising from data reporting procedures.  For a discussion
on this point, see Budget Function Classification:  Agency Spending
and Personnel Levels for Fiscal Years 1994 and 1995
(GAO/AIMD-95-115FS, April 11, 1995). 

\5 For a description of the crosswalk between functions/subfunctions
and the macrofunctions used in this report, see appendix I, Scope and
Methodology. 


   FEDERAL INVESTMENT OUTLAYS
---------------------------------------------------------- Chapter 3:3

The shift in spending among federal missions has directly affected
federal investment outlays--spending intended to foster long-term
economic growth.\6 Included in this category of spending are
nondefense outlays for physical capital, such as highways and
airports; research and development; and education and training. 
Although in recent years investment spending has increased in real
terms, investment spending as a percent of GDP has remained
essentially constant since 1983.  (See figure 3.7a.) Overall,
investment-related outlays were a generally consistent share (about
13 percent) of total spending during the 1970s, then fell to and
maintained a lower share (about 8 percent) until recent upturns. 
(See figure 3.7b.) Research and development outlays declined from
1971 through 1987 and increased slightly thereafter.  Outlays for
physical capital and for education and training increased during the
1970s but declined thereafter. 

   Figure 3.7:  Outlay Trends by
   Investment Category

   (See figure in printed
   edition.)


--------------------
\6 For this analysis, we have used OMB definitions regarding
investment outlays.  For a discussion of GAO views on this subject,
see Budget Structure:  Providing an Investment Focus in the Federal
Budget (GAO/T-AIMD-95-178, June 29, 1995). 


   OUTLAY TRENDS DISCLOSE CHANGE
   IN GOVERNMENTAL ACTIVITIES
---------------------------------------------------------- Chapter 3:4

As federal missions and priorities have changed, so has the approach
or method of governmental activities.  Two different trend series
help to disclose how the federal government's activities have shifted
over the last 25 years--from a "do-er" or direct service provider to
a distributer of cash benefits and vouchers for other benefits to
individuals.\7

Figure 3.8a depicts shares of total outlays for payments to
individuals--either as cash payments (e.g., Social Security) or
entitlements to other benefits (i.e., medical care or housing
assistance)--apart from outlays for all other federal programs.  In
effect, this figure portrays the shift in governmental activity
toward principally dispensing cash or vouchers for in-kind benefits
to individuals, and away from providing other goods or services
directly or through contracts or grants. 

The shift in how the federal government conducts its activities can
also be seen by classifying spending according to the items of
expense--that is, the articles or objects procured, rather than the
service or result achieved.\8 As figure 3.8b shows, a clear shift in
federal spending has occurred, toward "transfer payments" (i.e.,
grants, subsidies, and insurance) and interest costs, and away from
what could be called the "operating expenses" of government.  In this
analysis, "operating expenses" are the direct costs of government
associated with personal services and benefits (i.e., federal
employee compensation and benefits), contractual services and
supplies, and capital asset acquisition (i.e., the three segments on
the bottom of figure 3.8b).  Collectively, spending for these
"operating expenses" of the federal government has declined as a
share of total spending over the last 25 years, while spending for
"transfer payments" and interest costs have steadily increased. 

   Figure 3.8:  Trends by Nature
   and by Item of Expense

   (See figure in printed
   edition.)


--------------------
\7 As discussed in chapter 2, governmental collections arising from
business-type transactions, which often involve direct services to
the public, are offset from federal outlays and are thus excluded
from this discussion. 

\8 This classification of federal spending uses gross obligations
rather than outlays and is sometimes referred to as an object class
analysis.  For a full discussion of this budget presentation
approach, see Budget Trends:  Obligations by Item of Expense, Fiscal
Years 1971 - 1994 (GAO/AIMD-95-227, Sept.  12, 1995). 


   FEDERAL OUTLAY AND EMPLOYMENT
   TRENDS
---------------------------------------------------------- Chapter 3:5

Over the last 25 years, total federal employment has declined
relative to federal outlays and the overall U.  S.  population.\9
(See figures 3.9a and 3.9b.) In recent years, the sharp decline has
resulted from the downsizing of the Department of Defense, and the
associated reduction in uniformed military employees, and from the
Federal Workforce Restructuring Act of 1994 (Public Law 103-226),
which mandated over 272,000 reductions in federal employment through
fiscal year 1999. 

   Figure 3.9:  Federal Employment
   Trends

   (See figure in printed
   edition.)

Note:  These figures exclude Postal Service employees and outlays. 


--------------------
\9 This figure includes all legislative, executive (civilian and
uniformed military) and judicial branch employees but excludes
outlays and employees of the Postal Service. 


COMPARISON WITH OTHER GOVERNMENTS
============================================================ Chapter 4


   FEDERAL OUTLAYS COMPARED TO
   STATE AND LOCAL GOVERNMENT
   SPENDING
---------------------------------------------------------- Chapter 4:1

It can also be informative to compare federal government spending
trends to those of other governments.  For example, within the United
States, federal government spending trends can be compared to the
combined totals for state and local governments, the partners in our
federal system.\1 As shown in figures 4.1a and 4.1b, both federal
government domestic spending and state-local spending have grown in
constant dollars and as a percent of GDP over the trend period, but
at varying rates.  The gap between federal domestic and state-local
spending expanded in the early 1970s following enactment of general
revenue sharing and increases in social security benefit payments. 
Although the gap narrowed in the late 1980s, it has remained
relatively constant since 1990, with state-local spending being about
25 percent less than federal domestic spending. 

   Figure 4.1:  Federal Domestic
   Outlays Compared to State and
   Local Outlays

   (See figure in printed
   edition.)


--------------------
\1 State and local data reflect spending from own-source revenues,
exclusive of federal grants, as reported in OMB's Historical Tables. 
These data are collected by the Bureau of the Census and Bureau of
Economic Analysis within the Department of Commerce. 


   COMPARING UNITED STATES AND
   FOREIGN GOVERNMENT FISCAL
   TRENDS
---------------------------------------------------------- Chapter 4:2

The experience and trends of the United States can also be compared
to those of other industrialized nations.  Cross-country comparisons
present unique measurement challenges due to differences in the form
(federal versus unitary) of various nations' governments, but such
comparisons can provide useful insight into a nation's fiscal
condition relative to its economic output.  One way to minimize these
challenges and make meaningful comparisons of the size of the
government relative to the economy is to examine the combined totals
for all levels of government.  Thus, for the United States, federal
government data can be combined with that from state and local
governments to determine United States government totals.  Figures
4.2 and 4.3 compare United States government revenues and outlays for
1973, 1983, and 1993\2 to those of six other industrialized
countries:  Canada, France, Germany, Italy, Japan, and the United
Kingdom.  As these figures show, although overall levels as a percent
of GDP in each country differ, the United States allotted a smaller
share of its GDP to government activities in each of these years than
all nations except Japan. 

Figure 4.4 shows United States government deficits compared to total
government deficits of the six other industrialized nations, as a
percent of GDP in each country.  Several of these countries embarked
on major deficit reduction efforts during and after the 1980s;
although results were mixed and some have slid back into worsening
deficits during the 1990s, all face overall better situations for
having taken action.\3

   Figure 4.2:  U.S.  Revenues
   Compared to Other
   Countries--1973, 1983, 1993

   (See figure in printed
   edition.)

   Figure 4.3:  U.S.  Outlays
   Compared to Other
   Countries--1973, 1983, 1993

   (See figure in printed
   edition.)

   Figure 4.4:  U.S.  Deficits
   Compared to Other
   Countries--1973, 1983, 1993

   (See figure in printed
   edition.)

Note:  Negative numbers represent deficits and positive numbers
represent surpluses. 


--------------------
\2 1993 is the most recent year for which the data is available for
all countries. 

\3 For a discussion of the actions taken by these countries to reduce
their deficits, see Deficit Reduction:  Experiences of Other Nations
(GAO/AIMD-95-30), December 13, 1994. 


SCOPE AND METHODOLOGY
=========================================================== Appendix I

The primary data source for this report was Historical Tables
published annually by OMB.  Historical Tables presents a wide variety
of information concerning federal deficits, revenues, outlays, and
employment.  Although much of this information is subject to
verification processes and edit checks by OMB as part of the
development of the President's annual budget submission, it is not
audited, and we did not independently verify the data.\1 Historical
Tables is annually updated and adjusted to reflect changes in budget
concepts and definitions.  The tabular presentations typically
provide budgetary information in both nominal and constant 1987
dollars, and as a percent of GDP.  For this report, we used deflator
levels included in Historical Tables to convert all data to constant
1995 dollars. 

In addition to Historical Tables, the following data sources were
used to develop specific presentations for this report. 

  -- Figure 1.2, which depicts the cyclical and structural components
     of the federal deficit, is based on data from the Congressional
     Budget Office's annual report, The Economic and Budget Outlook. 

  -- Figure 2.4, regarding estimated revenue forgone due to tax
     expenditures, was derived from reports prepared by the Joint
     Committee on Taxation of the U.  S.  Congress. 

  -- Figure 2.5, showing the impact of offsetting collections, was
     developed from information extracted from GAO's Budget Database. 
     This automated resource compiles into trend files budget data
     submitted by departments and agencies to OMB and subsequently
     used to prepare the President's annual budget submission.  This
     resource covers all fiscal years since 1971.  The figures in
     this report are consistent with the presentation in chapter 26
     of the fiscal year 1997 Analytical Perspectives and were
     developed by extracting and converting to constant 1995 dollars
     (1) offsetting collections from the public\2 and (2) offsetting
     receipts, including proprietary receipts from the public and
     offsetting governmental receipts.\3

  -- Figures 3.5a and 3.5b, which describe federal outlays in terms
     of primary mission, were developed by extracting budget
     subfunction data from the GAO Budget Database and then
     reconfiguring the data into six broad mission areas:  central
     government operations, economic affairs, human services, natural
     resources, national security and international affairs, and net
     interest.  To develop this presentation, we examined each
     subfunction category and then judgmentally assigned each to the
     mission area most closely related.  The following table
     summarizes these assignments. 



                                        Table I.1
                         
                         Crosswalk Between GAO Mission Areas and
                              Budget Functions/Subfunctions

GAO category        Function                      Subfunction
------------------  ----------------------------  ---------------------------------------
Human services      Commerce and Housing Credit   Mortgage Credit (371)
                    (370)

                    Education, Training,          Elementary, Secondary, and Vocational
                    Employment and Social         Education (501)
                    Services (500)

                                                  Higher Education (502)

                                                  Research and General Education Aids
                                                  (503)

                                                  Training and Employment (504)

                                                  Social Services (506)

                    Health (550)                  Health Care Services (551)

                                                  Health Research and Training (552)

                                                  Consumer and Occupational Health and
                                                  Safety (554)

                    Medicare (570)                Medicare (571)

                    Income Security (600)         General Retirement and Disability
                                                  (excluding Social Security) (601)

                                                  Federal Employee Retirement and
                                                  Disability (602)

                                                  Unemployment Compensation (603)

                                                  Housing Assistance (604)

                                                  Food and Nutrition Assistance (605)

                                                  Other Income Security (609)

                    Social Security (650)         Social Security (651)

                    Veterans Benefits and         Income Security for Veterans (701)
                    Services (700)

                                                  Veterans Education, Training, and
                                                  Rehabilitation (702)

                                                  Hospital and Medical Care For Veterans
                                                  (703)

                                                  Veterans Housing (704)

                                                  Other Veterans Benefits and Services
                                                  (705)

                    Undistributed Offsetting      Employer Share, employee retirement--
                    Receipts (950)                on budget (951)

                                                  Employer Share, employee retirement--
                                                  off budget (952)

Interest payments   Net Interest (900)            Interest on the Public Debt (901)

                                                  Interest Received by On-Budget Trust
                                                  Funds (902)

                                                  Interest Received by Off-Budget Trust
                                                  Funds (903)

                                                  Other Interest (908)

National security   National Defense (050)        Department of Defense--Military (051)
and international
affairs

                                                  Atomic Energy Defense Activities (053)

                                                  Defense-related Activities (054)

                    International Affairs (150)   International Development and
                                                  Humanitarian Assistance (151)

                                                  International Security Assistance (152)

                                                  Conduct of Foreign Affairs (153)

                                                  Foreign Information and Exchange
                                                  Activities (154)

                                                  International Financial Programs (155)

Natural resources   Energy (270)                  Energy Supply (271)

                                                  Energy Conservation (272)

                                                  Emergency Energy Preparedness (274)

                                                  Energy Information, Policy, and
                                                  Regulation (276)

                    Natural Resources and         Water Resources (301)
                    Environment (300)

                                                  Conservation and Land Management (302)

                                                  Recreational Resources (303)

                                                  Pollution Control and Abatement (304)

                                                  Other Natural Resources (306)

                    Undistributed Offsetting      Rents and Royalties on the Outer
                    Receipts (950)                Continental Shelf (953)

Central government
operations          Commerce and Housing Credit   Postal Service (372)
                    (370)

                    Administration of Justice     Federal Law Enforcement Activities
                    (750)                         (751)

                                                  Federal Litigative and Judicial
                                                  Activities (752)

                                                  Federal Correctional Activities (753)

                                                  Criminal Justice Assistance (754)

                    General Government (800)      Legislative Functions (801)

                                                  Executive Direction and Management
                                                  (802)

                                                  Central Fiscal Operations (803)

                                                  General Property and Records Management
                                                  (804)

                                                  Central Personnel Management (805)

                                                  Other General Government (808)

                                                  Deductions for Offsetting Receipts
                                                  (809)

                    Undistributed Offsetting      Proceeds from Asset Sales (954)
                    Receipts (950)

                                                  Other Undistributed Offsetting Receipts
                                                  (959)

Economic affairs    General Science, Space and    General Science and Basic Research
                    Technology (250)              (251)

                                                  Space Flight, Research, and Supporting
                                                  Activities (252)

                    Agriculture (350)             Farm Income Stabilization (351)

                                                  Agricultural Research and Services
                                                  (352)

                    Commerce and Housing Credit   Deposit Insurance (373)
                    (370)

                                                  Other Advancement Of Commerce (376)

                    Transportation (400)          Ground Transportation (401)

                                                  Air Transportation (402)

                                                  Water Transportation (403)

                                                  Other Transportation (407)

                    Community and Regional        Community Development (451)
                    Development (450)

                                                  Area and Regional Development (452)

                                                  Disaster Relief and Insurance (453)

                    Education, Training,          Other Labor Services (505)
                    Employment, and Social
                    Services (500)

                    General Government (800)      General Purpose Fiscal Assistance (806)
-----------------------------------------------------------------------------------------
  -- Figure 3.8b, showing obligations by item of expense, was
     developed by extracting budget object class data from the GAO
     Budget Database and summarizing this data by object series.  The
     object classification system, unique among budget presentations
     in that it deals with obligations rather than budget authority
     or outlays, summarizes spending according to the item or object
     procured.  This data presentation is required for all
     expenditure accounts, except credit financing accounts.  OMB
     prescribes definitions for and instructions on recording
     obligations by object series and class in Circular A-11,
     "Preparation and Submission of Budget Estimates."

  -- Figures 4.2, 4.3, and 4.4, comparing United States government
     revenues, outlays, and deficits to those of several foreign
     countries, were compiled from data published by the Organization
     for Economic Cooperation and Development (OECD).  OECD uses a
     variety of techniques to standardize data across countries and
     is widely considered the best source for cross-country
     comparisons. 




--------------------
\1 Some recent GAO work has indicated significant problems in the
accounting information underlying certain revenue and expenditure
presentations in the budget.  See, for example, Financial Audit: 
Examination of IRS' Fiscal Year 1995 Financial Statements
(GAO/AIMD-96-101, July 11, 1996). 

\2 For fiscal years 1971-1989, offsetting collections from the public
were reported on line 14.00 of the program and financing schedules
included in the President's Budget Appendix; line 88.40 for fiscal
years 1990-1993; and lines 88.40 and 88.45 for fiscal years
1994-1995. 

\3 Proprietary receipts are defined as line types "P" and "UP" and
offsetting governmental receipts are line type "OG" in the receipts
schedule. 


RELATED GAO PRODUCTS
============================================================ Chapter 1

Federal Debt:  Answers to Frequently Asked Questions (GAO/AIMD-97-12,
November 27, 1996). 

Budget Process:  Evolution and Challenges (GAO/T-AIMD-96-129, July
11, 1996). 

Financial Audit:  Examination of IRS' Fiscal Year 1995 Financial
Statements (GAO/AIMD-96-101, July 11, 1996). 

Budget Issues:  Inventory of Accounts With Spending Authority and
Permanent Appropriations, 1996 (GAO/AIMD-96-79, May 31, 1996). 

Budget Issues:  Deficit Reduction and the Long Term
(GAO/T-AIMD-96-66, March 13, 1996). 

Deficit Reduction:  Better Targeting Can Reduce Spending and Improve
Programs and Services (GAO/AIMD-96-14, January 16, 1996). 

Budget Issues:  Privatization/Divestiture Practices in Other Nations
(GAO/AIMD-96-23, December 15, 1995). 

Budget Account Structure:  A Descriptive Overview (GAO/AIMD-95-179,
September 18, 1995). 

Budget Trends:  Obligations by Item of Expense, Fiscal Years
1971-1994 (GAO/AIMD-95-227, September 12, 1995). 

Block Grants:  Issues in Designing Accountability Provisions
(GAO/AIMD-95-226, September 1, 1995). 

Budget Issues:  Earmarking in the Federal Government
(GAO/AIMD-95-216FS, August 1, 1995). 

Budget Structure:  Providing an Investment Focus in the Federal
Budget (GAO/T-AIMD-95-178, June 29, 1995). 

Government Restructuring:  Identifying Potential Duplication in
Federal Missions and Approaches (GAO/T-AIMD-95-161, June 7, 1995). 

Program Consolidation:  Budgetary Implications and Other Issues
(GAO/T-AIMD-95-145, May 23, 1995). 

Budget Function Classification:  Agency Spending by Subfunction and
Object Category, Fiscal Year 1994 (GAO/AIMD-95-116FS, May 10, 1995). 

The Deficit and the Economy:  An Update of Long-Term Simulations
(GAO/AIMD/OCE-95-119, April 26, 1995). 

Budget Function Classification:  Agency Spending and Personnel Levels
for Fiscal Years 1994 and 1995 (GAO/AIMD-95-115FS, April 11, 1995). 

Budget Issues:  The Role of Depreciation in Budgeting for Certain
Federal Investments (GAO/AIMD-95-34, February, 1995). 

Budget Function Classification:  Relating Agency Spending and
Personnel Levels to Budget Functions (GAO/AIMD/GGD-95-69FS, January
30, 1995). 

Deficit Reduction:  Experiences of Other Nations (GAO/AIMD-95-30,
December 13, 1994). 

Budget Process:  Issues Concerning the 1990 Reconciliation Act
(GAO/AIMD-95-3, October 7, 1994). 

Credit Reform:  Appropriation of Negative Subsidy Receipts Raises
Questions (GAO/AIMD-94-58, September 26, 1994). 

Budget Issues:  Budget Scorekeeping for Acquisition of Federal
Buildings (GAO/T-AIMD-94-189, September 20, 1994). 

Budget Object Classification:  Origins and Recent Trends
(GAO/AIMD-94-147, September 13, 1994). 

Credit Reform:  Case-by-Case Assessment Advisable in Evaluating
Coverage, Compliance (GAO/AIMD-94-57, July 28, 1994). 

Budget Policy:  Issues in Capping Mandatory Spending
(GAO/AIMD-94-155, July 18, 1994). 

Tax Policy:  Tax Expenditures Deserve More Scrutiny
(GAO/GGD/AIMD-94-122, June 3, 1994). 

Working Capital Funds:  Three Agency Perspectives (GAO/AIMD-94-121,
May 20, 1994). 

Budget Issues:  GDP Analysis Broadens Budget Debate (GAO/AIMD-94-41,
April 27, 1994). 

Budget Process:  Biennial Budgeting for the Federal Government
(GAO/T-AIMD-94-112, April 28, 1994). 

Credit Reform:  Speculative Savings Used to Offset Current Spending
Increase Budget Uncertainty (GAO/AIMD-94-46, March 18, 1994). 

Budget Issues:  Incorporating an Investment Component in the Federal
Budget (GAO/AIMD-94-40, November 9, 1993). 

Budget Policy:  Investment Budgeting for the Federal Government
(GAO/T-AIMD-94-54, November 9, 1993). 

Federal Budget:  Choosing Public Investment Programs (GAO/AIMD-93-25,
July 23, 1993). 

Budget Issues:  Financial Reporting to Better Support Decision-making
(GAO/AFMD-93-22, June 1993). 

Budget Policy:  Federal Capital Budgeting (GAO/T-AFMD-93-7, May 26,
1993). 

Balanced Budget Requirements:  State Experiences and Implications for
the Federal Government (GAO/AFMD-93-58BR, March 26, 1993). 

Budget Process:  Use and Impact of Rescission Procedures
(GAO/T-OCG-93-5, March 10, 1993). 

Performance Budgeting:  State Experiences and Implications for the
Federal Government (GAO/AFMD-93-41, February 17, 1993). 

Budget Policy:  Budgetary Treatment of Investment Programs
(GAO/T-AFMD-92-15, July 23, 1992). 


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