Spec

ANALYTICAL
PERSPECTIVES
BUDGET OF THE UNITED STATES GOVERNMENT
Fiscal Year 2008

THE BUDGET DOCUMENTS
Budget of the United States Government, Fiscal Year 2008 propriation accounts than any of the other budget documents. It
contains the Budget Message of the President, information on the includes for each agency: the proposed text of appropriations lan-
President’s priorities, and budget overviews organized by agency. guage; budget schedules for each account; legislative proposals; expla-
nations of the work to be performed and the funds needed; and
Analytical Perspectives, Budget of the United States Govern- proposed general provisions applicable to the appropriations of entire
ment, Fiscal Year 2008 contains analyses that are designed to high- agencies or group of agencies. Information is also provided on certain
light specified subject areas or provide other significant presentations activities whose outlays are not part of the budget totals.
of budget data that place the budget in perspective. This volume
includes economic and accounting analyses; information on Federal
receipts and collections; analyses of Federal spending; information AUTOMATED SOURCES OF BUDGET INFORMATION
on Federal borrowing and debt; baseline or current services estimates;
and other technical presentations. The information contained in these documents is available in
electronic format from the following sources:
The Analytical Perspectives volume also contains a CD-ROM with
several detailed tables, including tables showing the budget by agency Budget CD-ROM. The CD-ROM contains all of the budget docu-
and account and by function, subfunction, and program. ments in fully indexed PDF format along with the software required
for viewing the documents. The CD-ROM has many of the budget
Historical Tables, Budget of the United States Government, tables in spreadsheet format. The budget CD-ROM also contains the
Fiscal Year 2008 provides data on budget receipts, outlays, sur- material on the separate Analytical Perspectives CD-ROM.
pluses or deficits, Federal debt, and Federal employment over an Internet. All budget documents, including documents that are
extended time period, generally from 1940 or earlier to 2008 or 2012. released at a future date, will be available for downloading in several
To the extent feasible, the data have been adjusted to provide consist- formats from the Internet. To access these documents use the
ency with the 2008 Budget and to provide comparability over time. following address:
www.budget.gov/budget
Appendix, Budget of the United States Government, Fiscal
Year 2008 contains detailed information on the various appropria- For more information on access to electronic versions of the budget
tions and funds that constitute the budget and is designed primarily documents (except CD-ROMs), call (202) 512–1530 in the D.C. area
for the use of the Appropriations Committees. The Appendix contains or toll-free (888) 293–6498. To purchase the budget CD-ROM or print-
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GENERAL NOTES
1. All years referred to are fiscal years, unless otherwise noted.

2. Detail in this document may not add to the totals due to rounding.
3. At the time of this writing, only two of the appropriations bills for 2007 had been enacted; therefore, the programs provided
for in the remaining 2007 appropriations bills were operating under a continuing resolution (P.L. 109–289, Division B, as
amended). For these programs, references to 2007 spending in the text and tables reflect the levels provided by the con-
tinuing resolution.
U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON 2007
For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800
Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001
ISBN 978-0-16-077507-9
TABLE OF CONTENTS
Page
List of Charts and Tables ............................................................................................. v
Introduction
1. Introduction ....................................................................................................... 3
Performance and Management Assessments
2. Budget and Performance Integration .............................................................. 9
Crosscutting Programs
3. Homeland Security Funding Analysis ............................................................. 19
4. Strengthening Federal Statistics ..................................................................... 37
5. Research and Development .............................................................................. 45
6. Federal Investment ........................................................................................... 55
7. Credit and Insurance ........................................................................................ 67
8. Aid to State and Local Governments ............................................................... 101
9. Integrating Services with Information Technology ........................................ 153
10. Federal Drug Control Funding ......................................................................... 159
11. California-Federal Bay-Delta Program Budget Crosscut (CALFED) ............ 161
Economic Assumptions and Analyses
12. Economic Assumptions ...................................................................................... 165
13. Stewardship ....................................................................................................... 175
14. National Income and Product Accounts .......................................................... 203
Budget Reform Proposals
15. Budget Reform Proposals .................................................................................. 211
Federal Borrowing and Debt
16. Federal Borrowing and Debt ............................................................................ 223
i
ii
TABLE OF CONTENTS—Continued
Page
Federal Receipts and Collections
17. Federal Receipts ................................................................................................ 239
18. User Charges and Other Collections ............................................................... 271
19. Tax Expenditures .............................................................................................. 285
Dimensions of the Budget
20. Comparison of Actual to Estimated Totals ..................................................... 331
21. Outlays to the Public, Gross and Net .............................................................. 339
22. Trust Funds and Federal Funds ...................................................................... 341
23. Off-Budget Federal Entities and Non-Budgetary Activities .......................... 357
24. Federal Employment and Compensation ........................................................ 361
Current Services Estimates
25. Current Services Estimates .............................................................................. 371
The Budget System and Concepts
26. The Budget System and Concepts ................................................................... 391
Detailed Functional Tables
27. Budget Authority and Outlays by Function, Category, and Program .......... CD–ROM
Federal Programs by Agency and Account
28. Federal Programs by Agency and Account ...................................................... CD–ROM

LIST OF CHARTS AND TABLES
iii
LIST OF CHARTS AND TABLES
LIST OF CHARTS
Page
2–1. Program Ratings are Improving ........................................................................................................ 15

4–1. ICSP Statistical Quality and Program Performance Dimensions ................................................... 38
4–2. Most Recent PART Summary Ratings for Statistical Programs ..................................................... 40
5–1. Research in the American Competitiveness Initiative ..................................................................... 45
5–2. Scores of R&D PART Assessments .................................................................................................... 47
7–1. Fannie Mae and Freddie Mac Combined Retained Mortgage Portfolios Year-End 2005 ............. 74
7–2. Face Value of Federal Credit Outstanding ....................................................................................... 87
13–1. The Financial Condition of the Federal Government and the Nation ............................................ 177
13–2. Net Federal Liabilities ........................................................................................................................ 180
13–3. Health Care Cost Alternatives ........................................................................................................... 185
13–4. Effect of Entitlement Savings ............................................................................................................ 186
13–5. Alternative Receipts Projections ........................................................................................................ 186
13–6. Alternative Productivity Assumptions .............................................................................................. 187
13–7. Alternative Fertility Assumptions ..................................................................................................... 187
13–8. Alternative Immigration Assumptions .............................................................................................. 188
13–9. Alternative Mortality Assumptions ................................................................................................... 188
13–10. Sources of the Gross Tax Gap ............................................................................................................ 194
17–1. Major Provisions of the Tax Code Under the 2001, 2003, 2004 and 2006 Enacted Tax Relief .... 240
20–1. Illustrative Range of Budget Outcomes ............................................................................................ 337
24–1. Post Cold War End Strength and Spending ..................................................................................... 362
24–2. DoD Direct Compensation Costs ........................................................................................................ 363
26–1. Relationship of Budget Authority to Outlays for 2008 .................................................................... 402
LIST OF TABLES
Page
Crosscutting Programs
Homeland Security Funding Analysis:
3–1. Homeland Security Funding by Agency .................................................................................. 20
3–2. Homeland Security Funding by National Strategy Mission Area ......................................... 21
3–3. Intelligence and Warning Funding .......................................................................................... 22
3–4. Border and Transportation Security Funding ........................................................................ 23
3–5. Domestic Counterterrorism Funding ....................................................................................... 25
3–6. Protecting Critical Infrastructure and Key Assets Funding ................................................. 26
3–7. Defending Against Catastrophic Threats Funding ................................................................ 28
3–8. Emergency Preparedness and Response Funding .................................................................. 29
3–9. Discretionary Fee-Funded Homeland Security Activities by Agency ................................... 32
3–10. Mandatory Homeland Security Funding by Agency .............................................................. 32
3–11. Baseline Estimates—Total Homeland Security Funding by Agency .................................... 33
3–12. Homeland Security Funding by Budget Function .................................................................. 34
3–13. Baseline Estimates—Homeland Security Funding by Budget Function .............................. 35
Appendix—Homeland Security Mission Funding by Agency and Budget Account ............. CD–ROM
v
vi ANALYTICAL PERSPECTIVES
LIST OF TABLES—Continued
Page
Strengthening Federal Statistics:

4–1. 2006–2008 Budget Authority for Principal Statistical Agencies ........................................... 43
Research and Development:
5–1. Federal Research and Development ........................................................................................ 51
5–2. Federal Science and Technology Budget ................................................................................. 53
5–3. Agency Detail of Selected Interagency R&D Efforts .............................................................. 54
Federal Investment:
6–1. Composition of Federal Investment Outlays .......................................................................... 57
6–2. Federal Investment Budget Authority and Outlays: Grant and Direct Federal Programs 58
6–3. Summary of PART Ratings and Scores for Direct Federal Investment Programs .............. 61
6–4. Net Stock of Federally Financed Physical Capital ................................................................. 64
6–5. Net Stock of Federally Financed Research and Development ............................................... 65
6–6. Net Stock of Federally Financed Education Capital .............................................................. 66
Credit and Insurance:
Text Tables:
Summary of PART Scores ..................................................................................................... 69
Largest Ten Claims Against the PBGC’s Single-Employer Insurance Program,
1975–2006 .............................................................................................................................. 83
7–1. Estimated Future Cost of Outstanding Federal Credit Programs ........................................ 87
7–2. Reestimates of Credit Subsidies on Loans Disbursed Between 1992–2006 ......................... 89
7–3. Direct Loan Subsidy Rates, Budget Authority, and Loan Levels, 2006–2008 ..................... 91
7–4. Loan Guarantee Subsidy Rates, Budget Authority, and Loan Levels, 2006–2008 .............. 92
7–5. Summary of Federal Direct Loans and Loan Guarantees ..................................................... 93
7–6. Direct Loan Writeoffs and Guaranteed Loan Terminations for Defaults ............................. 94
7–7. Appropriations Acts Limitations on Credit Loan Levels ....................................................... 96
7–8. Face Value of Government-Sponsored Lending ...................................................................... 98
7–9. Lending and Borrowing By Government-Sponsored Enterprises (GSEs) ............................ 99
7–10. Direct Loan Transactions of the Federal Government ........................................................... CD–ROM
7–11. Guaranteed Loan Transactions of the Federal Government ................................................. CD–ROM
Aid to State and Local Governments:
8–1. Federal Grant Outlays by Agency ........................................................................................... 101
8–2. Summary of PART Ratings and Scores for Grants to State and Local Governments ........ 105
8–3. Trends in Federal Grants to State and Local Governments ................................................. 107
8–4. Federal Grants to State and Local Governments—Budget Authority and Outlays ............ 110
8–5. Summary of Programs by Agency, Bureau, and Program ..................................................... 119
8–6. Summary of Programs by State ............................................................................................... 120
8–7. School Breakfast Program ........................................................................................................ 121
8–8. National School Lunch Program .............................................................................................. 122
8–9. Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) ......... 123
8–10. Child and Adult Care Food Program ....................................................................................... 124
8–11. State Administrative Matching Grants for Food Stamp Program ........................................ 125
8–12. Title I Grants to Local Educational Agencies ......................................................................... 126
8–13. Improving Teacher Quality State Grants ............................................................................... 127
8–14. Special Education—Grants to States ...................................................................................... 128
8–15. Rehabilitation Services—Vocational Rehabilitation Grants to States .................................. 129
8–16. State Children’s Health Insurance Program .......................................................................... 130
8–17. Grants to States for Medicaid .................................................................................................. 131
8–18. Temporary Assistance for Needy Families (TANF)—Family Assistance Grants ................ 132
8–19. Child Support Enforcement—Federal Share of State and Local Administrative Costs
and Incentives ........................................................................................................................ 133
8–20. Low Income Home Energy Assistance Program ..................................................................... 134
LIST OF CHARTS AND TABLES vii
Page
8–21. Child Care and Development Block Grant ............................................................................. 135

8–22. Child Care and Development Fund—Mandatory ................................................................... 136
8–23. Child Care and Development Fund—Matching ...................................................................... 137
8–24. Head Start ................................................................................................................................. 138
8–25. Foster Care—Title IV–E ........................................................................................................... 139
8–26. Adoption Assistance .................................................................................................................. 140
8–27. Social Services Block Grant ..................................................................................................... 141
8–28. Homeland Security Grant Program ......................................................................................... 142
8–29. Disaster Grants—Public Assistance (Presidentially Declared Disasters) ............................ 143
8–30. Public Housing Operating Fund .............................................................................................. 144
8–31. Section 8 Housing Choice Vouchers ........................................................................................ 145
8–32. Public Housing Capital Fund ................................................................................................... 146
8–33. Community Development Block Grants .................................................................................. 147
8–34. Mineral Leasing and Associated Payments ............................................................................ 148
8–35. Airport Improvement Program ................................................................................................ 149
8–36. Highway Planning and Construction ...................................................................................... 150
8–37. Capital Investment Grants—Fixed Guideway Modernization .............................................. 151
8–38. Federal Transit Formula Grants and Research ..................................................................... 152
Integrating Services with Information Technology:
9–1. Effectiveness of Agency’s IT Management and E-Gov Processes .......................................... CD–ROM
9–2. Management Guidance ............................................................................................................. CD–ROM
9–3. Agencies with IT Investments on the Management Watch List ........................................... CD–ROM
9–4. Status of the Presidential E-Government Initiatives ............................................................. CD–ROM
9–5. Lines of Business (LoB) Update ............................................................................................... CD–ROM
Federal Drug Control Funding:
10–1. Federal Drug Control Funding, FY 2006–2008 ...................................................................... 159
California-Federal Bay-Delta Program Budget Crosscut (CALFED):
Text Table:
CALFED-Related Federal Funding Budget Crosscut ..................................................... 161
CALFED FY 1998–2008 Budget Crosscut Methodology ........................................................ CD–ROM
CALFED Federal Agency Funding—Summary by Category and Agency Breakout ........... CD–ROM
CALFED Project Descriptions .................................................................................................. CD–ROM
CALFED Fiscal Years 2005–2006 Federal Funding .............................................................. CD–ROM
CALFED Fiscal Years 2007–2008 Funding Under New and Old Authority ........................ CD–ROM
CALFED State Agency Funding .............................................................................................. CD–ROM
Department of the Interior Certification of Budget Numbers ............................................... CD–ROM
Economic Assumptions and Analyses
Economic Assumptions:
12–1. Economic Assumptions ............................................................................................................. 168
12–2. Comparison of Economic Assumptions .................................................................................... 170
12–3. Comparison of Economic Assumptions in the 2007 and 2008 Budgets ................................ 171
12–4. Adjusted Structural Balance .................................................................................................... 171
12–5. Sensitivity of the Budget to Economic Assumptions .............................................................. 173
Stewardship:
13–1. Government Assets and Liabilities .......................................................................................... 181
13–2. Long-Run Budget Projections ................................................................................................... 184
13–3. Benefits in Excess of Future Taxes and Premiums—Actuarial Present Values ................. 192
13–4. Sources of the Tax Gap from Income Underreporting ........................................................... 194
13–5. National Wealth ........................................................................................................................ 196
13–6. Trends in National Wealth ....................................................................................................... 197
13–7. Economic and Social Indicators ............................................................................................... 198
viii ANALYTICAL PERSPECTIVES
Page
National Income and Product Accounts:

14–1. Federal Transactions in the National Income and Product Accounts, 1997–2008 .............. 205
14–2. Relationship of the Budget to the Federal Sector, NIPA’s .................................................... 207
Budget Reform Proposals:
15–1. Mandatory Proposals Subject to PAYGO ................................................................................ 211
15–2. Discretionary Caps and Adjustments ...................................................................................... 213
15–3. Program Integrity Base and Cap Adjustments ...................................................................... 214
15–4. Direct Savings Estimated from 2008 Program Integrity Funding ........................................ 215
15–5. Transportation Category for Highways and Mass Transit Spending ................................... 216
Federal Borrowing and Debt
Federal Borrowing and Debt:
16–1. Trends in Federal Debt Held by the Public ............................................................................ 223
16–2. Federal Government Financing and Debt ............................................................................... 225
16–3. Agency Debt ............................................................................................................................... 228
16–4. Debt Held by Government Accounts ....................................................................................... 230
16–5. Federal Funds Financing and Change in Debt Subject to Statutory Limit ......................... 234
16–6. Foreign Holdings of Federal Debt ............................................................................................ 235
Federal Receipts and Collections
Federal Receipts:
17–1. Receipts by Source—Summary ................................................................................................ 239
17–2. Effect on Receipts of Changes in the Social Security Taxable Earnings Base .................... 239
17–3. Effect of Proposals on Receipts ................................................................................................ 266
17–4. Receipts by Source .................................................................................................................... 269
User Charges and Other Collections:
18–1. Gross Outlays, User Charges, Other Offsetting Collections and Receipts from the Public,
and Net Outlays .................................................................................................................... 271
18–2. Total User Charge Collections ................................................................................................. 274
18–3. User Fee and Other User Charge Proposals .......................................................................... 276
18–4. Offsetting Collections and Receipts from the Public .............................................................. 281
18–5. Offsetting Receipts by Type ..................................................................................................... 282
Tax Expenditures:
19–1. Estimates of Total Income Tax Expenditures ......................................................................... 287
19–2. Estimates of Tax Expenditures for the Corporate and Individual Income Taxes ............... 291
19–3. Income Tax Expenditures Ranked by Total 2008–2012 Projected Revenue Effect ............. 296
19–4. Present Value of Selected Tax Expenditures for Activity in Calendar Year 2006 .............. 299
Appendix A: Treasury Review of the Tax Expenditure Presentation ...................................................... 313
Appendix Tables:
1. Comparison of Current Tax Expenditures with Those Implied by a Comprehensive
Income Tax ............................................................................................................................. 322
2. Comparison of Current Tax Expenditures with Those Implied by a Comprehensive
Consumption Tax ................................................................................................................... 323
3. Revised Tax Expendixture Estimates ..................................................................................... 323
Appendix B: Performance Measures and the Economic Effects of Tax Expenditures ............................ 324
Dimensions of the Budget
Comparison of Actual to Estimated Totals:
20–1. Comparison of Actual 2006 Receipts with the Initial Current Services Estimates ............. 331
20–2. Comparison of Actual 2006 Outlays with the Initial Current Services Estimates ............. 332
20–3. Comparison of the Actual 2006 Deficit with the Initial Current Services Estimate ........... 333
LIST OF CHARTS AND TABLES ix
Page
20–4.Comparison of Actual and Estimated Outlays for Mandatory and Related Programs
Under Current Law ............................................................................................................... 334
20–5. Reconciliation of Final Amounts for 2006 ............................................................................... 335
20–6. Comparison of Estimated and Actual Surpluses or Deficits Since 1982 .............................. 336
20–7. Differences Between Estimated and Actual Surpluses or Deficits for Five-Year Budget
Estimates Since 1982 ............................................................................................................ 337
Outlays to Public, Gross and Net:
21–1. Total Outlays, Gross and Net of Offsetting Collections and Receipts from the Public, by
Agency, 2006–2008 ................................................................................................................ 339
Trust Funds and Federal Funds:
22–1. Receipts, Outlays, and Surplus or Deficit by Fund Group .................................................... 342
22–2. Income, Outgo, and Balances of Trust Funds Group ............................................................. 343
22–3. Relationship of Total Federal Fund and Trust Fund Receipts to Unified Budget Re-
ceipts, Fiscal Year 2006 ........................................................................................................ 344
22–4. Income, Outgo, and Balances of Major Trust Funds .............................................................. 346
22–5. Income, Outgo, and Balances of Selected Federal Funds ...................................................... 353
Off–Budget Federal Entities and Non-Budgetary Activities:
23–1. Comparison of Total, On-Budget, and Off-Budget Transactions ........................................... 358
Federal Employment and Compensation:
Text Table:
Overseas Staffing Under Chief of Mission Authority ......................................................... 363
24–1. Federal Civilian Employment in the Executive Branch ........................................................ 364
24–2. Total Federal Employment (As measured by total positions filled) ...................................... 365
24–3. Total Federal Employment (As measured by Full-Time Equivalents) ................................. 366
24–4. Personnel Compensation and Benefits .................................................................................... 367
Current Services Estimates
Current Services Estimates:
25–1. Baseline Category Totals .......................................................................................................... 371
25–2. Impact of Budget Policy ............................................................................................................ 372
25–3. Alternative Baseline Assumptions ........................................................................................... 374
25–4. Summary of Economic Assumptions ....................................................................................... 374
25–5. Beneficiary Projections for Major Benefit Programs .............................................................. 375
25–6. Impact of Regulations, Expiring Authorizations, and Other Assumptions in the Baseline 376
25–7. Baseline Receipts by Source ..................................................................................................... 382
25–8. Change in Baseline Outlay Estimates by Category ............................................................... 383
25–9. Current Services Outlays by Function .................................................................................... 384
25–10. Current Services Outlays by Agency ....................................................................................... 385
25–11. Current Services Budget Authority by Function .................................................................... 386
25–12. Current Services Budget Authority by Agency ....................................................................... 387
25–13. Current Services Budget Authority by Function, Category and Program ........................... CD–ROM
25–14. Current Services Outlays by Function, Category and Program ............................................ CD–ROM
The Budget System and Concepts
The Budget System and Concepts:
26–1. Totals for the Budget and the Federal Government .............................................................. 395
Detailed Functional Tables
Detailed Functional Tables:
27–1. Budget Authority and Outlays by Function, Category and Program ................................... CD–ROM
Federal Programs by Agency and Account
Federal Programs by Agency and Account:
28–1. Federal Programs by Agency and Account ............................................................................. CD–ROM
INTRODUCTION
1
1. INTRODUCTION
Purpose of This Volume on each of the assessments can be found at

The Analytical Perspectives volume presents analyses www.ExpectMore.gov.
that highlight specific subject areas or provide other Crosscutting Programs
significant data that place the budget in context. This
3. Homeland Security Funding Analysis. This chapter
volume presents crosscutting analyses of Government
discusses homeland security funding and provides infor-
programs and activities from several perspectives.
mation on homeland security program requirements,
Presidential budgets have included separate analyt-
performance, and priorities. Additional detailed infor-
ical presentations of this kind for many years. The 1947
mation is available on the enclosed Analytical Perspec-
Budget and subsequent budgets included a separate
tives CD–ROM.
section entitled ‘‘Special Analyses and Tables’’ that cov-
ered four or more topics. For the 1952 Budget, the 4. Strengthening Federal Statistics. This chapter dis-
section was expanded to ten analyses, including many cusses the development of standards that principal sta-
subjects still covered today, such as receipts, invest- tistical programs can use to assess their performance
ment, credit programs, and aid to State and local gov- and presents highlights of the related 2008 Budget pro-
ernments. With the 1967 Budget this material became posals.
a separate volume entitled ‘‘Special Analyses,’’ and in- 5. Research and Development. This chapter presents
cluded 13 chapters. The material has remained a sepa- a crosscutting review of research and development
rate volume since then, with the exception of the Budg- funding in the Budget, including discussions about pri-
ets for 1991–1994, when all of the budget material was orities, performance, and coordination across agencies.
included in one large volume. Beginning with the 1995 6. Federal Investment. This chapter discusses spend-
Budget, the volume has been named Analytical Perspec- ing across Federal agencies that yields long-term bene-
tives. fits, and presents information on physical capital, re-
The Analytical Perspectives volume this year con- search and development, and education and training.
tinues to reflect an interest in publishing more informa- Also included in this chapter is material on the PART
tion on program performance, so that Executive agen- assessments related to direct Federal investment spend-
cies, the Congress, and the public will become increasing. There is also a section on capital stocks.
ingly informed about how well programs are per- 7. Credit and Insurance. This chapter provides cross-
forming. Increased performance information can help cutting analyses of the roles, risks, and performance
managers improve program effectiveness, and can help of Federal credit and insurance programs and Govern-
Executive and Congressional policymakers improve the ment-sponsored enterprises (GSEs). It covers the cat-
allocation of public resources. The performance assess- egories of Federal credit (housing, education, business
ment information is summarized in Chapter 2, ‘‘Budget including farm operations, and international) and insur-
and Performance Integration,’’ and is discussed in many ance programs (deposit insurance, pension guarantees,
other chapters, especially those in the section, ‘‘Cross- disaster insurance, and insurance against security-re-
cutting Programs.’’ One-page summaries of each pro- lated risks). Two detailed tables, ‘‘Table 7–10. Direct
gram assessment are available at www.ExpectMore.gov. Loan Transactions of the Federal Government’’ and
Again this year, several large tables are included as ‘‘Table 7–11. Guaranteed Loan Transactions of the Fed-
part of the Budget on the enclosed Analytical Perspec- eral Government,’’ are on the enclosed Analytical Per-
tives CD–ROM. A list of the items on the CD–ROM spectives CD–ROM.
is in the Table of Contents of this volume. 8. Aid to State and Local Governments. This chapter
presents crosscutting information on Federal grants to
Overview of the Chapters State and local governments, including highlights of
Administration proposals. This chapter also includes
Introduction material on the PART assessments related to grants.
1. Introduction. This chapter discusses each of the An Appendix to this chapter includes State-by-State
subsequent chapters briefly and highlights the empha- spending estimates of major grant programs.
sis on performance in a crosscutting context. 9. Integrating Services with Information Technology.
This chapter presents a crosscutting look at invest-
Performance and Management Assessments ments in information technology (IT). It describes var-
2. Budget and Performance Integration. This chapter ious aspects of the Administration’s information tech-
summarizes the performance and management assess- nology agenda, with special emphasis on the perform-
ments that have been completed to date using the Pro- ance, efficiency, and effectiveness of the Government’s
gram Assessment Rating Tool (PART). One-page sum- IT investments. Five detailed tables: ‘‘Table 9–1. Effec-
maries of the program evaluations, as well as detail tiveness of Agency’s IT Management and E-Gov Proc-
3
4 ANALYTICAL PERSPECTIVES
esses,’’ ‘‘Table 9–2. Management Guidance,’’ ‘‘Table 9–3. Federal Receipts and Collections
Agencies with IT Investments on the Management 17. Federal Receipts. This chapter presents informa-
Watch List,’’ ‘‘Table 9–4. Status of Presidential E-Gov- tion on receipts estimates, enacted tax legislation, and
ernment Initiatives,’’ and ‘‘Table 9–5. Lines of Business the receipts proposals in the Budget.
(LoB) Update’’ are on the enclosed Analytical Perspec- 18. User Charges and Other Collections. This chapter
tives CD–ROM. presents information on receipts from regulatory fees
10. Federal Drug Control Funding. This chapter pre- and on collections from market-oriented activities, such
sents estimated drug control funding for Federal de- as the sale of stamps by the Postal Service, which are
partments and agencies. recorded as offsets to outlays rather than as Federal
11. California-Federal Bay-Delta Program Budget receipts.
Crosscut (CALFED). This chapter presents information 19. Tax Expenditures. This chapter describes and pre-
on Federal and State funding for the California-Federal sents estimates of tax expenditures, which are defined
Bay-Delta Program, in fulfillment of the reporting re- as revenue losses from special exemptions, credits, or
quirements for this program. Detailed tables on funding other preferences in the tax code. An appendix dis-
and project descriptions are on the enclosed Analytical cusses possible alternatives to the current tax expendi-
Perspectives CD–ROM. ture baselines.
Economic Assumptions and Analyses Dimensions of the Budget
12. Economic Assumptions. This chapter reviews re- 20. Comparison of Actual to Estimated Totals. This
cent economic developments; presents the Administra- chapter compares the actual receipts, outlays, and def-
tion’s assessment of the economic situation and outlook, icit for 2006 with the estimates for that year published
including the effects of macroeconomic policies; and two years ago in the 2006 Budget. It also includes
compares the economic assumptions on which the Budg- a historical comparison of the differences between re-
et is based with the assumptions for last year’s budget ceipts, outlays, and the deficit as originally proposed
and those of other forecasters. This chapter also covers with final outcomes.
topics related to the effects on the budget of changes 21. Outlays to the Public, Gross and Net. This chapter
in economic conditions and assumptions. provides information on outlays gross and net of offset-
13. Stewardship. This chapter assesses the Govern- ting collections and offsetting receipts by agency. Out-
ment’s financial condition and sustainability in an inte- lays are a measure of Government spending. Offsetting
grated framework that includes Federal assets and li- collections and offsetting receipts are netted against
abilities; 75-year projections of the Federal budget gross outlays and result primarily from the Govern-
under alternative assumptions for discretionary spend- ment’s business-like activities, such as the sale of
ing, health costs, productivity, and demographics; actu- stamps by the Postal Service.
arial estimates for the shortfalls in Social Security and 22. Trust Funds and Federal Funds. This chapter
Medicare; a discussion of tax compliance; a national provides summary information on Federal funds and
balance sheet that shows the Federal contribution to trust funds, which comprise the entire budget. For trust
national wealth; and a table of economic and social funds the information includes income, outgo, and bal-
indicators. Together these elements serve similar ana- ances.
lytical functions to a business’s accounting statements. 23. Off-Budget Federal Entities and Non-Budgetary
14. National Income and Product Accounts. This Activities. This chapter discusses off-budget Federal en-
chapter discusses how Federal receipts and outlays fit tities (Social Security and Postal Service) and non-budg-
into the framework of the National Income and Product etary activities (such as cash flows for credit programs,
Accounts (NIPAs) prepared by the Department of Com- deposit funds, and regulation).
merce. The NIPA measures are the basis for reporting 24. Federal Employment and Compensation. This
Federal transactions in the gross domestic product chapter provides summary data on the level and recent
(GDP) and for analyzing the effect of the budget on trends in civilian and military employment, personnel
aggregate economic activity. compensation and benefits, overseas staffing, and the
full compensation of military personnel.
15. Budget Reform Proposals. This chapter includes Current Services Estimates
a brief description of the Administration’s budget re- 25. Current Services Estimates. This chapter presents
form agenda for addressing the need for responsible estimates, based on rules similar to those contained
budgeting and other reforms. in the Budget Enforcement Act (BEA), of what receipts,
outlays, and the deficit would be if no changes were
Federal Borrowing and Debt made to laws already enacted. It discusses the concep-
16. Federal Borrowing and Debt. This chapter ana- tual framework for these estimates and describes dif-
lyzes Federal borrowing and debt and explains the ferences with the BEA requirements. Two detailed ta-
budget estimates. It includes sections on special topics bles, ‘‘Table 25–13. Current Services Budget Authority
such as the trends in debt, agency debt, investment by Function, Category, and Program’’ and ‘‘Table 25–14.
by Government accounts, and the debt limit. Current Services Outlays by Function, Category, and
1. INTRODUCTION 5
Program,’’ are on the enclosed Analytical Perspectives Other

CD–ROM. The following material appears only on the enclosed
Budget System and Concepts Analytical Perspectives CD–ROM:
• Detailed Functional Tables. Table 27–1. ‘‘Budget
26. The Budget System and Concepts. This chapter Authority and Outlays by Function, Category, and
includes a basic reference to the budget process, con- Program’’.
cepts, laws, and terminology, and includes a glossary • Federal Programs by Agency and Account. Table
of budget terms. 28–1. ‘‘Federal Programs by Agency and Account’’.
PERFORMANCE AND MANAGEMENT ASSESSMENTS
7
2. BUDGET AND PERFORMANCE INTEGRATION
I. INTRODUCTION
Good Government—a government fiscally responsible and thus fewer resources to be allocated to each
to the people—must have as one of its core purposes funded program. These scarce resources need to
the achievement of results for the taxpayers. Taxpayers be allocated to programs that benefit the Nation
expect the Federal Government to implement programs most effectively and efficiently. Though perform-
that will ensure the Nation’s security and provide crit- ance is not the only factor used to decide the size
ical services. Taxpayers want their money spent wisely of a program’s budget, Congress and the President
and used to gain maximum benefit. Taxpayers have can utilize information about a program’s effec-
the right to hold the Federal Government accountable tiveness and efficiency in decision-making so that
for its actions. To exercise this right, the taxpayers taxpayer dollars are invested in programs that
must have clear, candid, and up-to-date information provide the greatest return to the Nation. If poor
about each program’s successes and failures. For the performing programs are unable to demonstrate
second straight year, the Administration is providing improved results, then their resources may be re-
this type of information to all Americans on allocated to programs that can demonstrate great-
ExpectMore.gov, a user-friendly government website er success and returns to the taxpayer.
that describes which programs are performing, which Currently, the BPI Initiative is showing great
ones are not, and in both situations, what is being progress toward the first goal. Programs are becoming
done to improve them. (Greater detail about more efficient and more effective through implementa-
ExpectMore.gov will be provided in a subsequent section of meaningful improvement plans.
tion.)
Many programs are demonstrating improved results.
The Administration is making the Federal Govern-
For example:
ment increasingly effective by making program budget
• The Social Security Administration increased
decisions based on program performance. The objective
agency productivity by 13.1 percent since 2001
of the President’s Budget and Performance Integration
(BPI) Initiative is to ensure that Federal dollars through increased use of information technology
produce the greatest results. Under the BPI Initiative, and improved business processes. SSA would have
agencies and OMB identify which programs work well, required $800 million more in 2006 to process the
which are deficient, and what can be done to improve same work if productivity improvements had not
performance of each program. In some cases, the Ad- been realized.
ministration may find it necessary to reallocate funding • In 2005, the Bureau of Prisons reduced the con-
from less effective programs to more effective ones. The struction cost per bed in high security facilities,
final decisions about the scope of programs and the saving an estimated $54 million.
size of program budgets are ultimately made jointly • The Federal Transit Administration implemented
by the Congress and the President. The BPI Initiative its plan to process Formula Grants faster. In the
provides information on program performance to help past, the highest reported processing time for
the Executive and Legislative branches make better, processing grants was 90 days. FTA now expects
more informed decisions. Information about program to process such grants within only 36 days.
performance is now readily available and accessible to Agencies are identifying additional actions to improve
the public on ExpectMore.gov. the performance of each of their programs. All agencies,
The BPI Initiative measures a program’s success in regardless of whether their programs perform poorly
two principal ways: or well, strive for increased program performance each
• Improved Program Performance: The initiative re- year.
quires each agency to identify opportunities to im- Progress toward the second goal of improving re-
prove program management and design, and then source allocation has been slow, but this year, the ad-
develop and implement clear, aggressive plans to ministration had greater success. We have been suc-
get more for tax dollars every year. Agencies have cessful in terminating some low-performing programs
ready access to program performance information and better at targeting resources to well-performing
by using the results of the Program Assessment programs. In 2006, seven programs were terminated,
Rating Tool (PART) assessments of each program, saving $230 million. Four programs were reduced, sav-
program evaluations, investigations, audits, and ing $300 million. Though no decision is based purely
analyses from a variety of sources. on performance, overall, high performing programs re-
• Greater Investment in Successful Programs: Over- ceived larger funding increases than those that did not
all, there are now more program-funding needs perform as well.
9
II. HOW THE BUDGET AND PERFORMANCE INTEGRATION INITIATIVE WORKS
Several aspects of the Budget Performance Integra- Federal agencies to identify both annual and long-term
tion (BPI) Initiative are designed to maximize program goals and collect and report performance data. For the
performance. They include: first time, agencies were required to explicitly identify
• Assessment of performance with the PART (Pro- measures and goals for judging the performance of each
gram Assessment Rating Tool); of their programs and to collect information on an an-
• Publishing a Scorecard to hold agencies account- nual basis in order to determine if they were meeting
able for managing for results, addressing PART those goals.
findings, and implementing follow-up actions; This Administration built upon GPRA requirements
• Broadcasting results to the public on by creating the PART (Program Assessment Rating
ExpectMore.gov; and Tools), an objective, evidence-based and easy-to-under-
• Facilitating program improvement through inter- stand questionnaire about program design, planning,
agency collaboration and cooperation. management, and performance. Objectivity is para-
Comprehensive Assessment with the Program mount to a PART rating. For example, when the devel-
Assessment Rating Tool (PART) opment of the PART began in 2002, the first draft
included a question relating to whether a particular
How do we ensure that Federal programs are improv-
program served an appropriate federal role. Because
ing every year? First, we assess their current perform-
many people believed that the answer to that question
ance. In order to improve a program’s outcomes, it is
would vary depending on the reviewer’s philosophical
critical to have a good understanding of how the pro-
gram is currently performing. To date, we have as- outlook, the question was removed.
sessed the performance of nearly 1,000 programs, com- Public and private sector entities have reviewed the
prising 96 percent of all Federal programs, using the PART. Private sector reviewers have praised the PART
PART. assessment process for its transparency and objectivity
and have also raised concerns that OMB has striven
History of the PART to address. For instance, some reviewers found assess-
The Federal Government spends trillions of dollars ments of different programs lack consistency in the an-
on programs annually, but until the advent of the swers to the same questions. OMB now audits all draft
PART, there was not a uniform basis for assessing how assessments to correct any obvious inconsistencies. Re-
well these programs actually work. For example, were viewers also found that agencies did not always agree
the billions of taxpayer dollars the Federal Government with the final assessment of their programs. Agencies
spent on foster care actually preventing the maltreat- can now appeal to a high level subcommittee of the
ment and abuse of children? Are Federal efforts to re- President’s Management Council to dispute answers
duce air pollution successful? Previous administrations with which they disagree. To address concerns that
from President Johnson to President Clinton and Con- OMB and agencies were not doing enough to involve
gress have grappled with this problem. Each prior ad- Congress in the assessment process, agencies are now
ministration has tried to come up with means by which required to brief and consult their Congressional appro-
government programs are measured for results. The priators, authorizers, and overseers before the annual
most significant advance in bringing accountability to assessments begin.
government programs was the Government Perform- The accompanying timeline provides a history of the
ance and Results Act of 1993 (GPRA). This law requires development of the PART.
2. BUDGET AND PERFORMANCE INTEGRATION 11
Draft PART Tested on 67 Programs

April 2002
Public Input Requested
External Review of PART -

May 2002
NAPA/PCIE/PMAC*
PMC Approves Final PART/First List of Programs

July 2002
to be Assessed*
Aug. 2002 PART Assessments Conducted with Agencies**
First Congressional Hearing Held

Sept. 2002
PMAC Met
First Interagency Review Panel Conducted

Nov. 2002
Consistency Audit & Appeals Review
Feb. 2003 Published First Set of PARTs
June 2003 Established Annual OMB Consistency Check
*NAPA = National Academy Jan. 2004 GAO Conducted Latest Review of PART
of Public Administration
PCIE = President's Council

PART received Harvard's Innovations in American
on Integrity and Efficiency
July 2005 Government Award
Online Tool - PARTWeb Launched
PMAC = Performance
Measurement Advisory
Council Established Formal Annual Appeals
Aug. 2005
Process
PMC = President's
Management Council
Feb. 2006 Online Tool - ExpectMore.gov Launched
**20% of Programs Assessed Established Annual Consultation with Congress
in each Spring/Summer
2002 - 2006
What is the PART and How is it Used?
The PART helps assess the management and performance of individual programs. With the PART, agencies and OMB evaluate
a program’s purpose, design, planning, management, results, and accountability to determine its overall effectiveness. Agencies
then identify and complete follow-up actions to improve program results.
To reflect the fact that Federal programs deliver goods and services using different mechanisms, the PART is customized by
program type. The seven PART types are: Direct Federal, Competitive Grant, Block/Formula Grant, Research and Development,
Capital Assets and Service Acquisition, Credit, and Regulatory. The PART types apply to both discretionary and mandatory pro-
grams. ExpectMore.gov also classifies each program by its specific program area (such as environment, transportation, edu-
cation, etc.) to facilitate comparison so we can accelerate the improved performance of programs with similar missions.
Each PART includes 25 basic questions and there are additional questions tailored to the different program types. The questions
are divided into four sections. The first section of questions gauges whether a program has a clear purpose and is well de-
signed to achieve its objectives. The second section evaluates strategic planning, and weighs whether the agency establishes
outcome-oriented annual and long-term goals for its programs. The third section rates the management of an agency’s program,
including the quality of efforts to improve efficiency. The fourth section assesses the results programs can report with accuracy
and consistency.
The answers to questions in each of the four sections result in a numerical score for each section from 0 to 100 (100 being the
best score). Because reporting a single weighted numerical rating could suggest false precision, or draw attention away from the
very areas most in need of improvement, numerical scores are combined and translated into qualitative ratings. The bands and
associated ratings are as follows:
Rating Range
Effective ................................................................... 85–100

Moderately Effective ............................................... 70–84
Adequate ................................................................. 50–69
Ineffective ................................................................ 0–49
Regardless of overall score, programs that do not have acceptable performance measures or have not yet collected perform-
ance data generally receive a rating of ‘‘Results Not Demonstrated.’’ This rating suggests that not enough information and data
are available to make an informed determination about whether a program is achieving results.
PART ratings do not result in automatic decisions about funding. Clearly, over time, funding should be targeted to programs that
can prove they achieve measurable results. In some cases, a PART rating of ‘‘Ineffective’’ or ‘‘Results Not Demonstrated’’ may
suggest that greater funding is necessary to overcome identified shortcomings, while a funding decrease may be proposed for a
program rated ‘‘Effective’’ if it is not a priority or has completed its mission. However, most of the time, an ‘‘Effective’’ rating is
an indication that the program is using its funding well and that major changes are not needed.
Publish a Scorecard To Hold Agencies • Demonstrate that senior agency managers meet
Accountable at least quarterly to examine reports that inte-
Agencies are achieving greater results with the help grate financial and performance information that
of the habits and disciplines established through the covers all major responsibilities of the Depart-
BPI Initiative. These agencies recognize that the PART ment;
can be a useful tool to drive improvement in the per- • Have strategic plans that contain a limited num-
formance of their programs. ber of outcome-oriented goals and objectives. An-
Agency success is judged by clear, Government-wide nual budget and performance documents incor-
goals or standards for Budget and Performance Integra- porate measures identified in the PART and focus
tion. Agencies have developed and are implementing on the information used in the senior management
detailed, aggressive action plans to achieve these goals. report described in the first criterion;
Most importantly, agencies are held publicly account- • Report the full cost of achieving performance goals
able for adopting these disciplines. To meet the Stand- accurately in budget and performance documents
ards for Success for the BPI Initiative, an agency must: and accurately estimate the marginal cost of
changing performance goals;
• Have at least one efficiency measure for all PART- grams. Although a scorecard rating is not directly
ed programs; linked to any specific consequences, it is quickly under-
• Use PART evaluations to direct program improve- stood at the highest levels of the Administration as
ments and hold managers accountable for those an indicator of an agency’s strength or weakness.
improvements, and PART findings and perform- The Government-wide scorecard reporting on indi-
ance information are used consistently to justify vidual agency progress is published quarterly at
funding requests, management actions, and legis- www.results.gov/agenda/scorecard.html.
lative proposals; and
• Have less than 10 percent of agency programs Broadcast Results on ExpectMore.gov
receive a Results Not Demonstrated rating for two ExpectMore.gov provides Americans with candid in-
years in a row. formation about which programs work, which do not,
Each quarter, agencies receive two ratings. First, and what all programs are doing to get better every
they are rated on their status in achieving the overall year.
goals for each initiative. They are then given a green, Up until the launch of ExpectMore.gov last year,
yellow or red rating to clearly announce their perform- Americans had limited access to information on how
ance. Green status is for success in achieving each of well the Federal Government performed. Now, every
the criteria listed earlier; yellow is for an intermediate American can see for themselves how their government
level of performance; and red is for unsatisfactory per- is performing. In many cases, the Federal Government
formance. performs well. In some cases, it performs better than
Second, agency progress toward reaching the Budget the private sector.
and Performance Integration standards is assessed sep- ExpectMore.gov contains PART summaries for all pro-
arately. This is reviewed on a case-by-case basis against grams that have been assessed to date. The site pro-
the work plan and related time lines established for vides the program information that a concerned citizen
each agency. Progress is also given a color rating. Green would need to assess a program’s performance. Each
is given when implementation is proceeding according assessment includes a brief description of the program’s
to plans agreed upon with the agencies; Yellow for purpose, its overall rating, some highlights about its
when some slippage or other issues require adjustment performance and the steps it will take to improve in
by the agency in order to achieve the initiative objec- the future. For individuals interested in more informa-
tives on a timely basis; and Red when the Initiative tion, the site also provides links to the detailed program
is in serious jeopardy. In this case, it is unlikely to assessment, as well as that program’s website and the
realize objectives absent significant management inter- assessment summaries of other similar programs. The
vention. detailed PART assessment includes the answer to each
As of December 31, 2006, fifteen agencies achieved PART question with an explanation and supporting evi-
green status on the Budget and Performance Integra- dence. It also includes the performance measures for
tion Initiative Scorecard. The agencies at green are: the program along with current performance informa-
1. Department of Agriculture
tion. In addition, there is an update on the status of
2. Department of Commerce
follow-up actions to improve program performance.
3. Department of Education
A visitor to the site may find, at least initially, pro-
4. Department of Energy
grams are not performing as well as they should or
5. Department of Justice
program improvement plans are not sufficiently ambi-
6. Department of Labor
tious. We expect this site to help change that. The
7. Department of Transportation
website has a variety of benefits, including:
8. Department of State
• Increased public attention to performance;
9. General Services Administration
• Greater scrutiny of agency action (or inaction) to
10. National Aeronautics and Space Administration
improve program results:
11. National Science Foundation
—Improvement plans will be transparent
12. Small Business Administration
—Statements about goals and achievements will
13. Smithsonian
be clearer; and
14. Social Security Administration
• Demand for better quality and more timely per-
15. U.S. Agency for International Development
formance data.
The Scorecard is an effective accountability tool to
ensure agencies manage the performance of their pro-
Implement Inter-Agency Program Improvement which the programs have undergone independent, ex-
The Administration continues to look for new ways ternal evaluation based on sound, scientific principles
to improve the performance of programs with similar and have quantitative evidence of achieving their goals;
purposes or designs by using the PART to analyze per- and identify better ways to measure and evaluate these
formance across agencies (i.e., cross-cutting analysis) programs and efficiently integrate and coordinate Fed-
and State and local levels. Cross-cutting analysis can eral spending on Science, Technology, Engineering, and
improve coordination and communication by getting Mathematics (STEM) education programs.
managers from multiple agencies to agree to a common The ACC first identified 109 STEM education pro-
set of goals and placing the focus on quantifiable re- grams funded in 2006 for a total of $3.13 billion. Within
sults. This type of analysis breaks down barriers across that total, elementary and secondary programs received
the Federal, State, and local levels so that all entities approximately $640 million (20 percent of the total),
work toward the same goal. Only topics that are ex- postsecondary programs, including graduate and
pected to yield meaningful results are selected for cross- postdoctoral programs, nearly $2.4 billion (76 percent)
cutting analyses. This past year the Administration and informal education and outreach programs close
completed cross-cutting analysis of the government’s to $103 million (4 percent). The group agreed on com-
math and science programs as part of the ACC (Aca- mon goals for the programs, but found that few had
demic Competitiveness Council). been rigorously evaluated and determined to be effec-
Academic Competitiveness Council. The ACC set out tive. These programs, like many managed by the Fed-
to identify all Federal education programs with a eral Government, must do more to gather and report
science, technology, engineering, and math focus; clarify evidence of what activities are most effective at achiev-
the goals of these programs; identify the extent to ing common goals.
III. RESULTS
As mentioned above, the BPI Initiative measures its ways to measure their efficiency so they can figure
success according to two measures: out how to achieve more with Americans’ tax dollars.
• Improved Program Performance; and This marks the fifth year that the PART was used
• Greater Investment in Successful Programs to (1) assess program performance, (2) take steps to
There has been greater success in achieving the goals improve program performance, and (3) help link per-
of the first measure. The BPI Initiative has caused formance to budget decisions. To date, the Administra-
agencies to think more systematically about how they tion has assessed nearly 1000 programs, representing
measure and improve program performance. Though approximately 96 percent of the Federal budget. Over
there are many factors that impact program perform- the next year, the Administration will use the PART
ance, it is clear that the BPI Initiative has framed to assess the performance and management of most
the discussion around results. Agencies have developed of the remaining Federal programs.
With the help of the PART, we have improved pro- quate’’. This increase came from both re-assessments
gram performance and transparency. There has been and newly PARTed programs. The chart below shows
a substantial increase in the total number of programs the percentage of programs by ratings category.
rated either ‘‘Effective’’, ‘‘Moderately Effective’’, or ‘‘Ade-
Chart 2-1. Program Ratings are Improving

Cumulative Program Results by Ratings Category
100%
6% 11% 15% 15% 17%
24%
26%
26% 29% 30%
80%
15%
60% 20%
26%
5% 28%
28%
50%
40% 5%
38%
4%
29% 4%
3%
20% 24%
22%
0%
2002 (234) 2003 (407) 2004 (607) 2005 (793) 2006 (977)
Effective Adequate Ineffective Results not Demonstrated

Moderately Effective
These results demonstrate that the BPI Initiative has the Congress are aware of the PART. This topic was
been very successful in focusing Agencies’ attention on discussed extensively in a Government Accountability
program performance. For example, approximately: Office (GAO) report issued last year.
• 14 percent of programs improved their perform- GAO recommends that OMB select PART reassess-
ance rating overall; ments and crosscutting reviews based on factors that
• 80 percent of programs have acceptable perform- include the relative priorities, costs, and risks associ-
ance measures; ated with clusters of related programs, and reflect con-
• 74 percent have achieved their long-term goals gressional input. Additionally, GAO recommended OMB
and 80 percent have achieved their annual goals; solicit congressional views on the performance issues
and and program areas most in need of review; the most
• 90 percent of programs have efficiency measures useful performance data and the presentation of those
and about half of them have achieved their effi- data. As mentioned above, OMB is using the PART
ciency targets. to improve the performance of similar programs in
Unfortunately, there has not been a similar level of areas that are expected to yield meaningful results.
accomplishment in the second measure: Greater Invest- OMB and agencies are also actively soliciting the views
ment in Successful Programs. Though congressional use of the Congress in PART assessments, on improvement
of performance information has been limited, most in plans, and oversight efforts.
IV. NEXT STEPS
The BPI Initiative has identified several activities implementation of these plans must be tracked and
to improve its effectiveness over the coming year: reported.
Ensure Plans are Aggressive and Result in Improved Expand Cross-Cutting Analyses.—Use the PART to
Performance.—Rigorous follow-up on recommendations facilitate cross-cutting analysis where there is a higher
from the PART will accelerate improvements in the return than approaching programs individually. The
performance of Federal programs. This will ensure that goal of these efforts is to increase efficiency and save
the hard work done through the PART produces per- dollars, building on the success of previous cross-cutting
formance and management improvements. Additionally, analyses. Congressional guidance will be a factor in
choosing topics for the next group of cross-cutting anal- Note.—A table with summary information for all pro-
yses. grams that have been reviewed using the Program As-
Maximize ExpectMore.gov Impact.—The Federal Gov- sessment Rating Tool (PART) is available at:
ernment should be accountable to the public for its www.whitehouse.gov/omb/budget/fy2008/sheets/
performance. This web-based tool provides candid infor- part.pdf. This table provides program ratings, section
mation on how programs are performing and what they scores, funding levels, and other information. Addition-
are doing to improve. The BPI Initiative will work to ally, a complete data file and data model of all assess-
increase the reach and impact of this valuable informa- ments on ExpectMore.gov is available at:
tion to improve program performance and account- www.whitehouse.gov/omb/expectmore/whatsnew.htm.
ability for results. This is a comma-separated values file that academics
and researchers can use to analyze performance data.
CROSSCUTTING PROGRAMS
17
3. HOMELAND SECURITY FUNDING ANALYSIS
Since the terrorist attacks of September 11, 2001, tion in this chapter is augmented by a detailed appen-
the Federal Government, with State, local and private dix of account-level funding estimates, which is avail-
sector partners, has engaged in a broad, determined able on the Analytical Perspectives CD–ROM.
effort to thwart terrorism, identify and pursue terrorists To compile this data, agencies report information
abroad and implement an array of measures to secure using standardized definitions for homeland security. 2
our citizens and resources at home. The Administration The data provided by the agencies are developed at
has worked with the Congress to reorganize the Federal the ‘‘activity level,’’ which is a set of like programs
Government; acquire countermeasures to chemical, bio- or projects, at a level of detail sufficient to consolidate
logical, radiological, and nuclear (CBRN) weapons; en- the information to determine total Governmental spend-
hance the security of our borders, transportation modes ing on homeland security.
and critical infrastructure; and strengthen America’s To the extent possible, this analysis maintains pro-
preparedness and response capabilities in our cities and grammatic and funding consistency with previous esti-
local communities. Elements of our national homeland mates. Some discrepancies from data reported in earlier
security strategy—to prevent terrorist attacks within years arise due to agencies’ improved ability to extract
the United States, reduce America’s vulnerability to ter- homeland security-related activities from host programs
rorism, and minimize the damage from attacks that and refine their characterizations. As in the Budget,
may occur—involve every level of government as well where appropriate, the data is also updated to reflect
as the private sector and individual citizens. Since Sep- agency activities, Congressional action, and technical
tember 11th, homeland security has continued to be re-estimates. In addition, the Administration may re-
a major policy focus for all levels of government, and fine definitions or mission area estimates over time
one of the President’s highest priorities. based on additional analysis or changes in the way
Underscoring the importance of homeland security as specific activities are characterized, aggregated, or
a crosscutting Government-wide function, section 889 disaggregated.
of the Homeland Security Act of 2002 requires a home-
land security funding analysis to be incorporated in Federal Expenditures
the President’s Budget. This analysis addresses that Total funding for homeland security has grown sig-
legislative requirement. This analysis covers the home- nificantly since the attacks of September 11, 2001. For
land security funding and activities of all Federal agen- 2008, the President’s Budget includes $61.1 billion of
cies, not only those carried out by the Department of gross budget authority for homeland security activities,
Homeland Security (DHS), but also addresses State, a $4.7 billion (8.4 percent) increase over the 2007 esti-
local, and private sector expenditures. Since not all ac- mated level. 3 Not including the Department of De-
tivities carried out by DHS constitute homeland secu- fense’s (DOD) funding, the gross non-defense 2008 re-
rity funding (e.g., response to natural disasters, Coast quest for homeland spending is $43.6 billion, or a $3.8
Guard search and rescue activities), DHS estimates in billion (9.5 percent) increase over the 2007 estimated
this section do not represent the entire DHS budget. level. Excluding mandatory spending, fees, and the
DOD’s homeland security budget, the 2008 Budget pro-
Data Collection Methodology and Adjustments poses a net, non-Defense discretionary increase of $3.4
The Federal spending estimates in this analysis uti- billion (10.3 percent) over the 2007 level (see Table
lize funding and programmatic information collected on 3–1).
the Executive Branch’s homeland security efforts. 1 The 2008 Budget proposes homeland security funding
Throughout the budget formulation process, the Office for a total of 31 agencies. Of those, five agencies—
of Management and Budget (OMB) collects three-year the Departments of Homeland Security, Defense,
funding estimates and associated programmatic infor- Health and Human Services (HHS), Justice (DOJ) and
mation from all Federal agencies with homeland secu- Energy (DOE)—account for approximately 93 percent
rity responsibilities. These estimates do not include the of total Government-wide homeland security funding in
efforts of the Legislative or Judicial branches. Informa- 2008.
1 All data in the Federal expenditures section are based on the President’s policy for its territories if they support domestically-based systems or activities (e.g., visa processing
the 2008 Budget. Additional policy and baseline data is presented in the ‘‘Additional Tables’’ or pre-screening high-risk cargo at overseas ports). Such activities include efforts to detect,
section. Due to rounding, data in this section may not add to totals in other Budget deter, protect against, and, if needed, respond to terrorist attacks.’’
volumes. 3 Aside from DHS and DOD, all other agencies’ 2007 funding is at the estimated full-
2 Federal homeland security activities are currently defined by OMB in Circular A-11 year Continuing Resolution levels. Further, the FY07 gross homeland security funding ex-
as, ‘‘activities that focus on combating and protecting against terrorism, and that occur cludes supplemental and emergency funding received in 2007 ($1.7 billion) and the Depart-
within the United States and its territories (this includes Critical Infrastructure Protection ment of Commerce’s mandatory borrowing authority for emergency communications inter-
(CIP) and Continuity of Operations (COOP) data), or outside of the United States and operability grants ($1 billion).
19
Table 3–1. HOMELAND SECURITY FUNDING BY AGENCY

(Budget authority, in millions of dollars)
2006 2007
2006 2007 2008
Budget Authority Supplemental/ Supplemental/ Request 2
Actual Enacted/CR
Emergency Emergency 1
Department of Agriculture ....................................................................................................................... 597.4 ........................ 522.5 ........................ 718.5

Department of Commerce 3 ..................................................................................................................... 181.1 ........................ 194.1 ........................ 217.7
Department of Defense ........................................................................................................................... 16,479.3 1,030.5 16,538.3 ........................ 17,461.2
Department of Education ........................................................................................................................ 24.7 ........................ 24.0 ........................ 23.2
Department of Energy ............................................................................................................................. 1,702.1 ........................ 1,696.6 ........................ 1,833.9
Department of Health and Human Services .......................................................................................... 4,351.8 0.1 4,313.2 ........................ 4,424.1
Department of Homeland Security .......................................................................................................... 25,154.9 1,416.1 26,872.2 1,816.4 29,666.5
Department of Housing and Urban Development .................................................................................. 1.9 ........................ 1.9 ........................ 3.4
Department of the Interior ....................................................................................................................... 59.5 ........................ 46.8 ........................ 48.4
Department of Justice ............................................................................................................................. 2,995.4 30.3 3,089.3 96.0 3,330.5
Department of Labor ............................................................................................................................... 48.3 ........................ 49.4 ........................ 51.8
Department of State ................................................................................................................................ 1,107.9 ........................ 1,239.6 ........................ 1,405.7
Department of Transportation ................................................................................................................. 181.0 ........................ 178.6 ........................ 200.0
Department of the Treasury .................................................................................................................... 113.5 1.3 108.8 3.0 118.0
Department of Veterans Affairs .............................................................................................................. 297.8 ........................ 243.6 ........................ 270.0
Corps of Engineers ................................................................................................................................. 72.0 ........................ 43.0 ........................ 42.0
Environmental Protection Agency ........................................................................................................... 129.4 ........................ 132.9 ........................ 152.4
Executive Office of the President ........................................................................................................... 20.8 ........................ 20.8 ........................ 20.8
General Services Administration ............................................................................................................. 98.6 0.1 73.7 ........................ 42.3
National Aeronautics and Space Administration .................................................................................... 212.6 ........................ 199.2 ........................ 193.9
National Science Foundation .................................................................................................................. 344.2 ........................ 344.2 ........................ 375.4
Office of Personnel Management ........................................................................................................... 2.7 ........................ 2.8 ........................ 2.3
Social Security Administration ................................................................................................................. 176.4 ........................ 194.0 ........................ 217.1
District of Columbia ................................................................................................................................. 13.5 ........................ 8.0 ........................ 3.0
Federal Communications Commission ................................................................................................... 2.3 ........................ 2.3 ........................ 3.6
Intelligence Community Management Account ...................................................................................... 56.0 ........................ 56.0 ........................ 58.0
National Archives and Records Administration ...................................................................................... 18.2 ........................ 18.2 ........................ 18.1
Nuclear Regulatory Commission ............................................................................................................. 79.3 ........................ 66.0 ........................ 68.9
Securities and Exchange Commission ................................................................................................... 5.0 ........................ 14.3 ........................ 18.3
Smithsonian Institution ............................................................................................................................ 83.7 ........................ 80.6 ........................ 92.8
United States Holocaust Memorial Museum .......................................................................................... 7.8 ........................ 7.8 ........................ 8.4
Corporation for National and Community Service ................................................................................. 20.4 ........................ 20.4 ........................ 14.9
Total, Homeland Security Budget Authority ...................................................................................... 54,639.4 2,478.4 56,403.0 1,915.4 61,104.9
Less Department of Defense .............................................................................................................. –16,479.3 –1,030.5 –16,538.3 ........................ –17,461.2
Non-Defense Homeland Security Budget Authority, excluding Mandatory Interoperability

Communications Grants 4 ................................................................................................................ 38,160.1 1,447.9 39,864.7 1,915.4 43,643.7
Less Fee-Funded Homeland Security Programs ............................................................................... –3,512.9 ........................ –4,396.4 ........................ –4,986.2
Less Mandatory Homeland Security Programs ................................................................................. –2,256.9 ........................ –2,487.7 ........................ –2,291.0
Net Non-Defense Discretionary Homeland Security Budget Authority, excluding Mandatory

Interoperability Communications Grants 4 ..................................................................................... 32,390.3 1,447.9 32,980.6 1,915.4 36,366.5
Plus Mandatory Interoperability Communications Grants .................................................................. .................... ........................ 1,000.0 ........................ ....................
Net Non-Defense, Discretionary Homeland Security Budget Authority, including Mandatory

Interoperability Communications Grants 4 ..................................................................................... 32,390.3 1,447.9 33,980.6 1,915.4 36,366.5
Obligations Limitations
Department of Transportation Obligations Limitation ............................................................................. 121.0 ........................ 121.0 ........................ 121.3
1 The 2007 supplemental and emergency funding levels for the Departments of Homeland Security (DHS), Justice (DOJ), and Treasury include both enacted and requested sup-
plemental funding. In the 2007 Global War on Terror (GWOT) supplemental request, DHS, DOJ, and Treasury request $120 million, $96 million, and $3 million, respectively, for
additional 2007 budget authority.
2 The 2008 request levels for DHS and DOJ does not include additional budget authorities for 2008 requested in the 2007 GWOT supplemental request. Specifically, DHS and
DOJ request $225 million and $85 million, respectively, in additional budget authority for 2008 to be provided in the 2007 GWOT supplemental appropriation bill.
3 DOC’s 2007 gross Continuing Resolution full-year estimate for homeland security excludes $1 billion in mandatory borrowing authority to provide Federal grants to public safe-
ty agencies for communications interoperability purposes. Although technically scored in 2007, this funding will be made available from proceeds of the Federal Communications
Commission’s 2008 auction of returned television spectrum.
4 The Deficit Reduction Act of 2005 appropriated $1 billion from anticipated spectrum auction receipts for the Department of Commerce, in consultation with the Department of
Homeland Security, to make grants to public safety agencies for communications interoperability purposes.
The growth in Federal homeland security funding is is a wide range of potential threats and risks from
indicative of the efforts that have been initiated to se- terrorism. To optimize limited resources and minimize
cure our Nation. However, it should be recognized that the potential social costs to our free and open society,
fully developing the strategic capacity to protect Amer- homeland security activities should be prioritized based
ica is a complex effort with many challenges. There on the highest threats and risks. Homeland security
3. HOMELAND SECURITY FUNDING ANALYSIS 21
represents a partnership between the Federal govern- Plan for the Global War on Terrorism and attendant
ment and its State and local counterparts, the private performance measures that address homeland security.
sector, and individual citizens, each with a unique role Funding presented in this report is analyzed in the
in protecting our Nation. context of major ‘‘mission areas.’’ Activities in many
The National Strategy for Homeland Security pro- of the mission areas are closely related and certain
vides a framework for addressing these challenges. It capabilities highlighted by a single mission area also
guides the highest priority requirements for securing enhance capabilities captured by other mission areas.
the Nation. As demonstrated below, the Federal govern- For example, information gleaned from activities in the
ment has used the National Strategy to guide its home- intelligence and warning category may be utilized to
land security efforts. For this analysis, agencies cat- inform law enforcement activities in the domestic
egorize their funding data based on the critical mission counterterrorism category. Augmentation of pharma-
areas defined in the National Strategy: intelligence and ceutical stockpiles, categorized as emergency prepared-
warning, border and transportation security, domestic ness and response, may also address agents that rep-
counterterrorism, protecting critical infrastructures and resent catastrophic threats. However, for the purposes
key assets, defending against catastrophic threats, and of segmenting Federal homeland security funding by
emergency preparedness and response. mission areas, discussions of cross-cutting activities
The National Strategy is a dynamic document being have also been separated by mission areas.
implemented through a robust interagency planning Furthermore, there are a small number of notable
and coordination process. It includes actions that agen- cross-cutting activities that are not specifically high-
cies use and must build upon to measure progress. In lighted in any of the mission areas. For example, al-
some cases, progress may be easily measured. In others, though pandemic influenza preparedness is considered
Federal agencies, along with State and local govern- an essential homeland security activity, it does not nec-
ments and the private sector, are working together to essarily fit into a single mission area, and general bio-
develop measurable goals. Finally, in some areas, Fed- defense and preparedness activities of the Federal gov-
eral agencies and partners must continue to develop ernment encompass it. Nevertheless, the preparations
a better understanding of changing risks and threats— we are making for pandemic influenza have a direct
such as the biological agents most likely to be used impact on our ability to defend against and respond
by a terrorist group or the highest-risk critical infra- to terrorist Weapons of Mass Destruction (WMD)
structure targets—in order to develop benchmarks that threats.
suit the needs of the moment and at the same time The following table summarizes funding levels by the
align to long-term goals. For example, a major inter- National Strategy’s mission areas; more detailed anal-
agency effort currently occurring at the Federal level yses are provided in subsequent mission-specific anal-
is the development of the National Implementation ysis sections.
Table 3–2. HOMELAND SECURITY FUNDING BY NATIONAL STRATEGY MISSION AREA

2007
2006 2006 2007 2008
Agency Supplemental/
Actual Supplemental Enacted/CR Request
Emergency
Intelligence and Warning ........................................ 443.0 6.3 500.3 13.0 647.9

Border and Transportation Security ....................... 18,042.3 1,335.8 19,528.1 1,816.4 22,403.8
Domestic Counterterrorism ..................................... 4,535.6 89.8 4,980.3 83.0 4,889.4
Protecting Critical Infrastructure and Key Assets .. 17,933.2 862.4 17,919.7 3.0 19,096.1
Defending Against Catastrophic Threats ............... 8,573.7 122.4 8,460.6 ....................... 8,828.9
Emergency Preparedness and Response ............. 4,992.3 61.6 4,935.9 ....................... 5,022.0
Other ........................................................................ 119.3 ...................... 78.1 ....................... 216.8
Total, Homeland Security Budget Authority ..... 54,639.4 2,478.4 56,403.0 1,915.4 61,104.9
Plus Mandatory Interoperability Communica-
tions Grants .................................................... .................... ...................... 1,000.0 ....................... ....................
Total Homeland Security Budget Authority

plus Mandatory Interoperability Communica-
tions Grants ....................................................... 54,639.4 2,478.4 57,403.0 1,915.4 61,104.9
National Strategy Mission Area: Intelligence and include most foreign intelligence collection—although
Warning the resulting intelligence may inform homeland security
The intelligence and warning mission area covers ac- activities—nor does it fully capture classified intel-
ligence activities. In 2008, funding for intelligence and
tivities to detect terrorist threats and disseminate ter-
warning is distributed between DHS (60 percent), pri-
rorist-threat information. This category includes intel-
marily in the Office of Intelligence and Analysis (I&A);
ligence collection, risk analysis, and threat-vulnerability DOJ (27 percent), primarily in the Federal Bureau of
integration activities for preventing terrorist attacks. Investigation (FBI); and other Intelligence Community
It also includes information sharing activities among members (9 percent). The 2008 funding for intelligence
Federal, State, and local governments, relevant private and warning activities is 29.5 percent above the 2007
sector entities, and the public at large. It does not level.
Table 3–3. INTELLIGENCE AND WARNING FUNDING

2007
2006 2006 2007 2008
Agency Actual Supplemental Enacted/CR Supplemental/ Request
Emergency
Department of Agriculture ....................................... 5.2 ...................... 5.2 ....................... 22.3

Department of Commerce ...................................... .................... ...................... 1.8 ....................... 1.8
Department of Homeland Security ......................... 337.7 ...................... 380.1 ....................... 388.4
Department of Justice ............................................. 41.7 5.0 54.8 10.0 173.8
Department of the Treasury ................................... 2.4 1.3 2.4 3.0 3.6
Intelligence Community Management Account ...... 56.0 ...................... 56.0 ....................... 58.0
Total, Intelligence and Warning .......................... 443.0 6.3 500.3 13.0 647.9
The major requirements addressed in the intelligence Guidelines in accordance with a Presidential directive
and warning mission area include: in December, 2005, which outlined new guidelines and
• Unifying and enhancing intelligence and analyt- protocols for improving information sharing between
ical capabilities to ensure officials have the infor- Federal, State, local, and foreign governments and the
mation they need to prevent attacks; and private sector. The President has extended work on
• Implementing information sharing and warning the ISE for another two years and fully supports the
mechanisms, such as the Homeland Security Advi- plan going forward to complete the ISE mandate as
sory System, to allow Federal, State, local, and outlined in IRTPA.
private authorities to take action to prevent at- The National Counterterrorism Center (NCTC) is spe-
tacks and protect potential targets. cifically chartered to centralize U.S. Government ter-
As established by the Intelligence Reform and Ter- rorism threat analysis and ensure that all agencies re-
rorism Prevention Act (IRTPA) of 2004, the Director ceive relevant analysis and information. NCTC serves
of National Intelligence (DNI) ensures that this office as the primary organization in the U.S. Government
is setting collection and analysis priorities that are con- for analyzing and integrating all intelligence pertaining
sistent with the National Intelligence Strategy. This to terrorism and counterterrorism (except purely domes-
strategy calls for the integration of both the domestic tic terrorism) and the central and shared knowledge
and foreign dimensions of U.S. intelligence so that there bank on known and suspected terrorists and inter-
are no gaps in our understanding of threats to the national terror groups. It also ensures that agencies,
homeland. as appropriate, have access to and receive the all-source
In accordance with the IRTPA’s requirements for the intelligence support needed to execute their
Information Sharing Environment (ISE), the DNI is counterterrorism plans or perform independent, alter-
also ensuring that information sharing takes place in native analysis. NCTC is tasked with coordinating
an environment where access to terrorism information counterterrorism operational planning on a global basis
is matched to the roles, responsibilities, and missions and developing strategic, operational plans for the Glob-
of all the organizations across the intelligence commu- al War on Terrorism. The NCTC, with guidance from
nity. These changes allow the intelligence community the National Security Council and the HSC, has created
to ‘‘connect the dots’’ more effectively, develop a better the first National Implementation Plan for the Global
integrated system for identifying and analyzing ter- War on Terrorism, which will further consolidate the
rorist threats, and issue warnings more rapidly. The U.S. Government’s efforts on the Global War on Ter-
DNI, in conjunction with the Homeland Security Coun- rorism.
cil (HSC) and relevant Federal agencies, has estab- The DNI and the NCTC work to utilize the unique
lished the ISE Implementation Plan and ISE Privacy assets and capabilities of other Government agencies
and interagency groups—some of which are reorga- As a result of the Department of Homeland Security’s
nizing to improve these capabilities and better interface 2006 re-organization (Second Stage Review), a new Of-
with the new intelligence structure. As such, the NCTC fice of Intelligence and Analysis was established to
allocates requirements to the agencies with the assets strengthen intelligence functions and information shar-
and capabilities to address them. In addition, NCTC ing within DHS. I&A gathers information to analyze
has formed a new core staff of analysts drawn from terrorist threats to critical infrastructure, transpor-
multiple intelligence agencies. This variety ensures that tation systems, or other targets inside the homeland.
NCTC can access the Intelligence Community’s full Led by the DHS Chief Intelligence Officer reporting
breadth of knowledge and complement the activities directly to the Secretary, this office not only relies on
of individual agencies. Despite the addition of this new personnel from the former Information Analysis and
permanent planning staff, NCTC will not undertake Infrastructure Protection Directorate, but also draws
direct operations but will continue to leave mission exe- on the expertise of other DHS components with infor-
cution with the appropriate agencies. This separation mation collection and analytical capabilities. For exam-
ensures that agencies’ chains of command remain intact ple, improved coordination and information sharing be-
and prevent potentially excessive micromanagement of tween border agents, air marshals, and intelligence an-
counterterrorism missions. Taken together, the creation alysts deepens the Department’s understanding of ter-
of the NCTC and recent legislation and executive orders rorist threats. By maintaining and expanding its part-
will ensure counterterrorism intelligence and warning nership with the NCTC, DHS will better coordinate
assets are better allocated and more tightly coordi- its activities with other members within the Intel-
nated, leading to improved intelligence for homeland ligence Community and the DNI.
security. I&A also serves as the focal point for disseminating
The 2008 budget request for the FBI supports im- homeland security information to State and local enti-
provements in its national security investigations and ties. For example, I&A is connected to homeland secu-
intelligence analysis, as well as technical and tactical rity directors of States, counties, and territories through
support programs. Many of the improvements are tar- the Homeland Security Information Network (HSIN)
geted at FBI’s National Security Branch, which inte- and it is deploying the Homeland Security Data Net-
grates the Intelligence Directorate, Counterterrorism work (HSDN) to them as well. All fifty States and
Division and Counterintelligence Division. major urban areas are connected to HSIN, and HSIN
Over the past five years, the FBI has developed its is being rolled out to major counties as well. Further-
intelligence capabilities and improved its ability to pro- more, in recognition of the limitations of virtual inter-
tect the American people from threats to national secu- actions through electronic communications networks,
rity. It has built on its established capacity to collect beginning in late 2006, I&A has begun deploying liai-
information and enhanced its ability to analyze, dis- sons and intelligence analysts to State and Local Intel-
seminate and utilize intelligence. The President’s 2008 ligence Fusion Centers across the nation to improve
Budget supports the FBI’s priorities and its continuing the flow and quality of homeland security information
transformation by providing the resources needed to to State, local and private sector partners and ensure
enhance its national security capabilities and improve a more accurate situational awareness for DHS and
supporting information technology and infrastructure. its Federal partners.
These initiatives will increase the number of agents
and specialists working national security cases; enhance National Strategy Mission Area: Border and
intelligence collection, systems, and training; improve Transportation Security
IT systems that reduce paperwork and facilitate infor- This mission area covers activities to protect border
mation sharing; and upgrade biometric identification and transportation systems, such as screening airport
systems to improve the identification of terrorists. passengers, detecting dangerous materials at ports
Table 3–4. BORDER AND TRANSPORTATION SECURITY FUNDING

2007
2006 2006 2007 2008
Emergency

Department of Commerce ...................................... .................... ...................... 1.5 ....................... 1.6
Department of Energy ............................................ .................... ...................... .................... ....................... 7.1
Department of Homeland Security ......................... 16,732.1 1,335.8 18,086.3 1,816.4 20,812.8
Department of Justice ............................................. 30.4 ...................... 25.4 ....................... 4.6
Department of State ............................................... 1,056.6 ...................... 1,188.3 ....................... 1,346.0
Department of Transportation ................................. 17.7 ...................... 16.4 ....................... 10.0
Total, Border and Transportation Security ....... 18,042.3 1,335.8 19,528.1 1,816.4 22,403.8
overseas and at U.S. ports-of-entry, and patrolling our of 28,450 detention beds across the country to house
coasts and the land between ports-of-entry. The major- illegal aliens apprehended by DHS.
ity of funding in this mission area ($20.9 billion, or To improve coordination and provide assistance to
93 percent, in 2008) is in DHS, largely for the U.S. State and local law enforcement officials, the Budget
Customs and Border Protection (CBP), the Transpor- will expand a successful Federal, State and local part-
tation Security Administration (TSA), and the U.S nership—the 287(g) program, which provides State/local
Coast Guard. Other DHS bureaus and other Federal law enforcement officials with guidance and training
Departments, such as the Departments of State and in immigration law, subject to the direction of the Sec-
Justice, also play significant roles. The President’s 2008 retary of Homeland Security. The 2008 Budget includes
request would increase funding for border and transpor- an increase of $26 million for the 287(g) program and
tation security activities by 6.7 percent over the 2007 the Law Enforcement Support Center, including the
level. training of 250 State and local law enforcement officers,
Securing our borders and transportation systems is detention beds for apprehended illegal aliens, and per-
a complex task. Security enhancements in one area may sonnel to assist State and local law enforcement when
make another avenue more attractive to terrorists. they encounter aliens. The Budget also includes an in-
Therefore, our border and transportation security strat- crease of $29 million to identify criminal aliens in Fed-
egy aims to make the U.S. borders ‘‘smarter’’—targeting eral, State, and local prison facilities and remove those
layered resources toward the highest risks and sharing aliens from the United States, $13 million for inves-
information so that frontline personnel can stay ahead tigating smuggling and border criminal activity and $5
of potential adversaries—while facilitating the flow of million for identifying, apprehending, prosecuting and
legitimate visitors and commerce. The creation of DHS removing aliens involved in gang activities.
allowed for unification of the Federal Government’s Key to the Federal Government’s screening of inter-
major border and transportation security resources, national visitors is the US-VISIT program, which is
which facilitates the integration of risk targeting sys- designed to expedite the clearance of legitimate trav-
tems, and ensures greater accountability in border and elers while identifying and denying clearance to those
transportation security. Rather than having separate who may intend harm. US-VISIT currently collects two
systems for managing goods, people, and agricultural digital fingerprints and a digital photograph of all for-
products, one agency is now accountable for ensuring eign visitors entering the United States. The ability
that there is one cohesive border management system. to screen foreign visitors against criminal and terrorist
The 2008 Budget provides approximately $8.8 billion databases as well as confirming the identity of travelers
for the Border Patrol (an increase of 36 percent over has improved border security. However, in the future,
2007) including funding for 3,000 new agents. The to improve accuracy in the identification of visitors,
President has committed to doubling the size of the first-time visitors to the United States will be enrolled
Border Patrol to over 18,000 agents before he leaves in the program by submitting ten fingerprints, allowing
office. At the start of the President’s Administration, for improved accuracy in identifying foreign visitors and
there were 9,096 Border Patrol agents. This Budget preventing the entry of known terrorists and criminals
will bring the total number of agents to 17,819, and to the United States. DHS, in conjunction with the
the next one will meet the President’s goal. To gain Departments of State and Justice, will implement this
control of our borders, the Budget also continues fund- multiyear project to improve screening, and the 2008
ing for fencing technology and other infrastructure Budget includes $462 million for US-VISIT, of which
along the border. For example, in September of 2006, $228 million is for 10-print deployment and interoper-
DHS awarded a contract to implement the technological ability with the FBI’s fingerprint system, the Integrated
and infrastructure component of its Secure Border Ini- Automated Fingerprint Identification System.
tiative effort, SBInet. SBInet will concentrate on using In the area of aviation security, the Administration
proven technology to significantly improve the avail- continues to enhance the multiple levels of security im-
ability of information and tools to Border Patrol agents plemented in the wake of the September 11th attacks.
so they can better detect, identify, classify and confront The Transportation Security Administration has made
illegal border activity by those who pose a threat to significant improvements in aviation security since Sep-
the United States. The Budget includes $1 billion for tember 11th by implementing a layered, risk-based secu-
this priority. This investment will support smarter and rity approach. These advances include hardened cockpit
more secure borders. doors, a greatly expanded Federal Air Marshals pro-
The Administration has effectively ended the practice gram, arming some pilots through the Federal Flight
of ‘‘catch and release’’ along the northern and southern Deck Officers program, offering voluntary self defense
borders. Non-Mexican illegal aliens apprehended at the training to crew members, and screening 100 percent
border are now detained and then returned to their of passenger and checked baggage. TSA will further
home countries as quickly as possible and all non-crimi- strengthen these efforts in 2008 by requesting $4 billion
nal Mexicans apprehended for crossing the border ille- for aviation screening operations. TSA will also commit
gally are returned to Mexico immediately. The 2008 $729 million to the purchase, installation, and mainte-
Budget includes $2.2 billion in detention and removal nance of baggage screening devices, including inline
resources to continue this success and supports a total systems that will increase baggage throughput up to
250 percent. The Budget also provides more than $82 ity to make a visa determination. When the visitor
million for emerging technology at passenger check- arrives in the United States, US-VISIT procedures
points. This technology will enhance the detection of allow DHS to determine whether the person applying
prohibited items, especially firearms and explosives, for entry is the same person who was issued the visa
through the use of additional sensors such as whole by the Department of State. This and additional watch
body imaging, liquid bottle scanners, automated explo- list checks improve the ability of DHS to make admissi-
sive sampling, and cast and prosthesis scanners. bility decisions.
Safeguarding our seaports is critical since terrorists In addition, the Department of State will also lead
may seek to use them to enter the country or introduce the implementation of the Western Hemisphere Travel
weapons or other dangerous materials. With 95 percent Initiative in 2008, which mandates that all persons
of all U.S. cargo passing through the Nation’s 361 ports, travelling internationally within the Western Hemi-
a terrorist attack on a major seaport could slow the sphere travel with a passport or other authorized docu-
movement of goods and be economically devastating to ment by 2009. Under this initiative, United States citi-
the nation. The Maritime Transportation Security Act zens and foreign visitors traveling to and from the Car-
(MTSA) and its implementing regulations, issued by ibbean, Bermuda, Panama, Canada or Mexico will be
DHS in October 2003, require ports, vessels, and facili- required to have a passport or standardized travel card
ties to conduct security assessments. In 2008, the Coast that establishes the bearer’s identity and nationality
Guard will continue to ensure compliance with MTSA to enter or re-enter the United States. The initiative
port and vessel security standards and regulations. The will improve security at our borders by standardizing
2008 Budget provides nearly $3 billion for port security entry and exit information and increasing the ability
across DHS, primarily for Coast Guard port security of Government agencies to work together.
activities such as Maritime Safety and Security Teams
and harbor patrols. In addition, the Coast Guard’s National Strategy Mission Area: Domestic
budget funds operations to strengthen intelligence col- Counterterrorism
lection and surveillance capabilities in the maritime
environment, both of which contribute to the broader Funding in the domestic counterterrorism mission
Coast Guard effort to enhance Maritime Domain area covers Federal and Federally-supported efforts to
Awareness. In 2007, Congress passed P.L. 109–347, the identify, thwart, and prosecute terrorists in the United
SAFE Port Act, which requires enhanced screening of States. The largest contributors to the domestic
cargo bound for the Unites States, among other port counterterrorism mission are law enforcement organiza-
security measures. In addition, port operators are eligi- tions: within DOJ (largely the FBI) and DHS (largely
ble for grants to fund security enhancements under ICE), which account for 53.3 and 45 percent of total
DHS’ Infrastructure Protection Program (IPP) which funding for 2008, respectively.
falls under the Infrastructure Protection mission area. Since the attacks of September 11th, preventing and
The State Department Bureau of Consular Affairs interdicting terrorist activity within the United States
is the second largest contributor to border and transpor- has become a priority for law enforcement at all levels
tation security. The State Border Security program in- of government. The major requirements addressed in
cludes visa, passport, American Citizen Services and the domestic counterterrorism mission area include:
International Adoption programs. In 2008, the State • Developing a proactive law enforcement capability
Department will continue working with interagency to prevent terrorist attacks;
partners to enable the transition of the US-VISIT pro- • Apprehending potential terrorists; and
gram to a ten fingerprint system. For visitors that re- • Improving law enforcement cooperation and infor-
quire a visa, the Department of State collects the visi- mation sharing to enhance domestic
tor’s biometric and biographic data, which is then counterterrorism efforts across all levels of govern-
checked against watch lists, thereby improving the abil- ment.
Table 3–5. DOMESTIC COUNTERRORISM FUNDING

2007
2006 2006 2007 2008
Emergency
Department of Homeland Security ......................... 2,127.0 65.0 2,482.8 ....................... 2,201.0

Department of Interior ............................................. 0.3 ...................... 0.3 ....................... 0.3
Department of Justice ............................................. 2,325.3 24.8 2,418.2 83.0 2,604.0
Department of the Treasury ................................... 60.7 ...................... 57.6 ....................... 61.7
Social Security Administration ................................ 1.4 ...................... 1.4 ....................... 1.4
Total, Domestic Counterterrorism ...................... 4,535.6 89.8 4,980.3 83.0 4,889.4

The President’s 2008 Budget supports the FBI’s top report the largest share of funding in this category
strategic priority: to protect the United States from ter- for 2008 ($12 billion, or 62.8 percent), which includes
rorist attacks. FBI continues to build its programs focusing on physical security and improving
counterterrorism capabilities post-September 11th. Over the military’s ability to prevent or mitigate the con-
the past six years, FBI has shifted resources to sequences of attacks against departmental personnel
counterterrorism from lower priority programs, hired and facilities. Nevertheless, DHS has overall responsi-
and trained additional field investigators, enhanced bility for prioritizing and executing infrastructure pro-
science and technology capabilities, and strengthened tection activities at the national level and accounts for
headquarters oversight of the counterterrorism pro- $3 billion (16 percent) of 2008 funding. In addition,
gram. In addition, FBI has integrated its a total of 25 other agencies report funding to protect
counterterrorism, counterintelligence, and intelligence their own assets and work with States, localities, and
functions by establishing the National Security Branch the private sector to reduce vulnerabilities in their
to oversee all three programs. More recently, the FBI areas of expertise. The President’s 2008 request in-
has created a Weapons of Mass Destruction Directorate creases funding for activities to protect critical infra-
to coordinate all investigative and analytical efforts di- structure and key assets by $1.2 billion (6.6 percent)
rected at WMD issues. Overall, FBI resources in the over the 2007 level.
domestic counterterrorism category have increased from Securing America’s critical infrastructure and key as-
$0.9 billion in 2002 to $2 billion in 2008. Among the sets is a complex task. The major requirements include:
largest 2008 initiatives for enhancing counterterrorism • Unifying disparate efforts to protect critical infra-
capabilities are $38 million to improve FBI’s data inter- structure across the Federal Government, and
cept and access program, $26 million to fund additional with State, local, and private stakeholders;
counterterrorism agents, and $19 million to expand the • Building and maintaining an accurate assessment
WMD Directorate. of America’s critical infrastructure and key assets
Within DHS, ICE focuses on a broad array of national and prioritizing protective action based on risk;
security, financial, and smuggling violations, including • Enabling effective partnerships to protect critical
illegal arms exports, financial crimes, commercial fraud, infrastructure; and
and human trafficking. The 2008 Budget provides $2 • Reducing threats and vulnerabilities in cyber-
billion for these enforcement activities. space.
Homeland Security Policy Directive 7 (HSPD-7),
National Strategy Mission Area: Protecting Crit- signed in December 2003, established a national policy
ical Infrastructure and Key Assets to protect critical infrastructure and key resources from
Funding in the protecting critical infrastructure and attack, to ensure the delivery of essential goods and
key assets mission area captures the efforts of the U.S. services, and to maintain public safety and security.
Government to secure the Nation’s infrastructure, in- Under HSPD-7, DHS is responsible for coordinating
cluding information infrastructure, from terrorist at- Federal critical infrastructure programs and working
tacks. Protecting the Nation’s key assets is a complex closely with State and local governments and the pri-
challenge for two reasons: (1) the diversity of infrastruc- vate sector to align protection efforts. To provide the
ture and (2) the high level of private ownership (85 overall framework to integrate various critical infra-
percent) of the Nation’s key assets. DOD continues to structure protection activities, DHS developed the Na-
Table 3–6. PROTECTING CRITICAL INFRASTRUCTURE AND KEY ASSETS FUNDING

2007
2006 2006 2007 2008
Emergency

Department of Defense .......................................... 11,150.5 862.3 11,254.0 ....................... 11,966.2
Department of Energy ............................................ 1,520.6 ...................... 1,515.1 ....................... 1,607.1
Department of Health and Human Services .......... 181.7 ...................... 184.8 ....................... 180.2
Department of Homeland Security ......................... 2,698.3 ...................... 2,779.6 ....................... 3,035.5
Department of Justice ............................................. 541.1 ...................... 531.2 3.0 494.3
Department of Veterans Affairs .............................. 262.5 ...................... 208.3 ....................... 221.9
National Aeronautics and Space Administration .... 212.6 ...................... 199.2 ....................... 193.9
National Science Foundation .................................. 317.2 ...................... 317.2 ....................... 350.4
Social Security Administration ................................ 174.6 ...................... 191.9 ....................... 215.0
Other Agencies ....................................................... 651.7 0.1 575.4 ....................... 601.6
Total, Protecting Critical Infrastructure and Key

Assets ................................................................. 17,933.2 862.4 17,919.7 3.0 19,096.1
tional Infrastructure Protection Plan (NIPP). The plan’s narios. IP also conducts site visits and assessments
risk-management approach provides the framework for each year, and has used this information to develop
government and industry to work together on common site security guidelines for nuclear power plants and
protective goals, while focusing resources where they chemical facilities. The 2008 Budget provides $240 mil-
are needed the most. lion for these activities. In conjunction with funding
Recognizing that each infrastructure sector possesses for the Office of Infrastructure Protection, the Adminis-
it own unique characteristics, HSPD-7 also designated tration supports the Infrastructure Protection Program,
sector-specific agencies to coordinate infrastructure pro- which consists of five grant programs funding security
tection efforts within each sector. This approach enables enhancement projects in and around transportation as-
agencies to rely on specialized expertise and long-stand- sets and other critical infrastructure sites. Awarded
ing relationships with industry in conducting infra- through the Office of Grant Programs, IPP grants sup-
structure protection activities. There are 17 critical in- plement State and local infrastructure security efforts,
frastructure sectors and 9 sector-specific agencies, in- especially detection and prevention investments.
cluding DHS. In December of 2006, DHS received the Cyberspace security is a key element of infrastructure
first set of sector-specific plans that address how each protection because the Internet and other computer sys-
critical infrastructure sector will work together to col- tems link infrastructure sectors. The consequences of
lect infrastructure information, prioritize assets and a cyber attack could cascade across the economy, imper-
protective programs, and develop metrics to inform fu- iling public safety and national security. To address
ture initiatives. this threat, DHS established the National Cyber Secu-
Although these efforts aimed at protecting critical in- rity Division (NCSD) in 2003—in response to the Presi-
frastructure and key assets nationwide are in motion, dent’s National Strategy to Secure Cyberspace—in order
the Administration has also been focusing on a select to identify, analyze and reduce cyber threats and
number of high-priority areas in parallel with NIPP vulnerabilities, coordinate incident response, and pro-
implementation. For example, the 2008 Budget provides vide technical assistance. NCSD, now part of NPPD,
$25 million to DHS to focus on chemical security regu- works collaboratively with public, private, and inter-
lation enforcement activities, such as requiring security national entities to secure cyberspace and America’s
vulnerability assessments and facility security plans cyber assets. NCSD has also established the U.S. Com-
and inspecting chemical facilities for compliance. The puter Emergency Response Team (US-CERT), which op-
budget for the Environmental Protection Agency in- erates a cyber watch, warning, and incident response
cludes $22 million in 2008 to begin testing the last center. US-CERT supports a watch and warning capa-
of its pilot systems for the Water Security Initiative. bility responsible for tracking incident and trend data,
The program develops pilot systems for cost effective, ranking associated severity, and generating real-time
early warning of disease, pest, or poisonous agents in alerts.
drinking water systems and offers subsequent con- NCSD also operates a Control Systems Security Pro-
sequence management. The Department of Agriculture gram. Today, many critical infrastructures such as pipe-
also has completed extensive physical security assess- lines, water and pumping stations, and pharmaceutical
ments to make sure that agricultural physical security production are run by computerized control systems.
issues throughout the United States are in line with These systems make our critical infrastructure assets
the latest best practices. Many other departments and more automated, more productive, more efficient, and
agencies have critical infrastructure protection pro- more innovative, but they also may expose those phys-
grams underway that support the mission of the NIPP ical assets to cyber-related threats. NCSD works to ad-
and will benefit from the NIPP process. dress these weaknesses and enhance control systems
DHS recently reorganized and combined its prepared- security. To evaluate readiness and response programs
ness and response functions to fulfill requirements of such as the National Response Plan, NCSD has con-
the 2007 Homeland Security Appropriations Act. DHS ducted national cyber exercises such as Cyber Storm
also created the National Protection and Programs Di- with public and private sector entities. These exercises
rectorate (NPPD), which includes offices that were test our capabilities and improve our ability to respond
omitted from the transfer to FEMA by statute. These to an incident. To support these critical preparedness
offices, which focus on physical and cyber infrastructure activities, the Budget includes $98 million for the
protection, communications, as well as other major se- NCSD in 2008.
curity initiatives, will be part of the newly created
NPPD. National Strategy Mission Area: Defending
The Office of Infrastructure Protection (IP), located Against Catastrophic Threats
within this new directorate, is responsible for managing The defending against catastrophic threats mission
and prioritizing infrastructure protection at the na- area covers activities including research, development,
tional level. The Office operates the national asset data- and deployment of technologies, systems, and medical
base, which aggregates infrastructure data from across measures to detect and counter the threat of chemical,
the nation. The database supports DHS in developing biological, radiological, and nuclear weapons. The agen-
a risk-based strategy for protection and can be used cies with the most significant resources to help develop
to identify critical infrastructure under certain sce- and field technologies to counter CBRN threats are:
(1) DOD ($5 billion, or 57.6 percent, of the 2008 total); of the 2008 total). The President’s 2008 request would
(2) HHS, largely for research at the National Institutes increase funding for activities to defend against cata-
of Health (NIH) ($1.9 billion, or 22.1 percent, of the strophic threats by $368 million (4 percent) over the
2008 total); and (3) DHS ($1.3 billion, or 14.5 percent, 2007 level.
Table 3–7. DEFENDING AGAINST CATASTROPHIC THREATS FUNDING

2007
2006 2006 2007 2008
Emergency

Department of Commerce ...................................... 80.6 ...................... 88.7 ....................... 90.7
Department of Defense .......................................... 4,988.5 122.0 4,889.8 ....................... 5,007.9
Department of Energy ............................................ 62.1 ...................... 62.1 ....................... 63.2
Department of Health and Human Services .......... 1,806.0 ...................... 1,848.5 ....................... 1,954.2
Department of Justice ............................................. 37.4 0.5 40.0 ....................... 43.9
Department of the Treasury ................................... .................... ...................... .................... ....................... 1.8
National Science Foundation .................................. 27.0 ...................... 27.0 ....................... 25.0
Nuclear Regulatory Commission ............................ 27.8 ...................... 23.4 ....................... 21.9
Total, Defending Against Catastrophic Threats 8,573.7 122.4 8,460.6 ....................... 8,828.9
The major requirements addressed in this mission country. An additional $30 million will be used to im-
area include: prove the detection of radiological and nuclear mate-
• Preventing terrorist use of CBRN weapons rials in and around the Nation’s major urban areas
through detection systems and procedures, and under a program called Securing the Cities. Together
improving decontamination techniques; and with overseas non-proliferation efforts led by the De-
• Developing countermeasures, such as vaccines and partment of State, and overseas detection capabilities
other drugs to protect the public from the threat managed by the Department of Energy, these programs
of a CBRN attack or other public health emer- seek to create a seamless approach toward preventing
gency. terrorists anywhere in the world from acquiring, trans-
To protect against a nuclear or radiological weapon porting, or introducing these materials into the United
entering the country, the Domestic Nuclear Detection States.
Office (DNDO) was created in 2005 within DHS to co- To counter the threat of CBRN weapons, the Budget
ordinate the Nation’s nuclear detection efforts. DNDO, continues to invest in efforts to decrease the time be-
together with the Departments of State, Energy, De- tween an attack and implementation of Federal, State
fense, and Justice, is responsible for developing and and local response protocols. Unlike an attack with con-
deploying a comprehensive system to detect and report ventional weapons, a CBRN attack may not be imme-
any attempt to import a nuclear explosive device or diately apparent. Working to ensure earlier detection
radiological material into the United States. DNDO is and characterization of an attack helps protect and save
also responsible for establishing response protocols to lives. DHS will therefore continue to support efforts
ensure that the detection of a nuclear explosive device such as the BioWatch environmental monitoring pro-
or radiological material leads to timely and effective gram, which samples and analyzes air in over 30 metro-
action by military, law enforcement, emergency re- politan areas to continually check for dangerous biologi-
sponse, and other appropriate Government assets. The cal agents. The program is designed to provide early
2008 Budget includes $562 million for DNDO, a 17 warning of a large-scale biological weapon attack, there-
percent increase from the 2007 level. by allowing the distribution of life-saving treatment and
In 2008, DNDO will invest $100 million in trans- preventative measures before the development of seri-
formational research and development aimed at en- ous and widespread illnesses. Beginning in 2008, DHS
hancing our ability to detect, identify, and attribute bio-defense programs such as BioWatch and biosurveil-
nuclear and radiological materials. This research looks lance will be consolidated in the newly established Of-
beyond current capabilities and seeks to find new sci- fice of Health Affairs. However, on-going research and
entific tools and methodologies that may prove useful development into next-generation bio-sensors that are
in broad efforts to focus the Nation’s resources toward able to better detect biological pathogens will continue
countering the threat of nuclear and radiological de- in DHS’s Science and Technology Directorate.
vices. DNDO’s budget also includes $178 million for A key element in defending against catastrophic
the deployment of both fixed and mobile radiation por- threats is developing and maintaining adequate coun-
tal monitors at strategic points of entry throughout the termeasures for a CBRN attack. This not only means
stockpiling countermeasures that are currently avail- CBRN or other terrorist attack against a military base
able, but developing new countermeasures for agents or installment. Finally, the U.S. Northern Command,
that currently have none, and next-generation counter- the military command responsible for DOD’s homeland
measures that are safer and more effective than those defense activities, is included in this category.
that presently exist. The Budget continues HHS’s in-
vestment in developing medical countermeasures to National Strategy Mission Area: Emergency Pre-
CBRN threats with $1.9 billion in funding, which is paredness and Response
more than $1.8 billion over the level prior to September The Emergency Preparedness and Response mission
11th (this includes funding for programs focused on area covers agency efforts to prepare for and minimize
chemical and radiological and nuclear countermeasures the damage from major incidents and disasters, particu-
referenced below). For 2008, the Budget includes nearly
larly terrorist attacks that endanger lives and property
$190 million for the advanced development of medical
or disrupt Government operations. The mission area
countermeasures against threats of bioterrorism. Large
encompasses a broad range of agency incident manage-
investments in basic research of medical counter-
ment activities, as well as grants and other assistance
measures at HHS have helped create multiple prom-
ising products to protect the public against the threat to States and localities. Response to natural disasters,
of a terrorist attack. These investments will accelerate including catastrophic natural events such as Hurricane
the development of these products to help Project Bio- Katrina, does not directly fall within the definition of
Shield acquire them more quickly for inclusion in the a homeland security activity for funding purposes, as
Strategic National Stockpile. defined by Section 889 of the Homeland Security Act
HHS will also continue to improve human health sur- of 2002. However, in preparing for terrorism-related
veillance with $88 million dedicated to biosurveilance threats, many of the activities within this mission area
activities, including the BioSense program (allowing also support preparedness for catastrophic natural dis-
local, State, and national public health authorities to asters. Additionally, lessons learned from the response
monitor ‘‘real-time’’ trends in data from hospitals, emer- to Hurricane Katrina will help to revise and strengthen
gency departments, and laboratories to identify and catastrophic response planning.
characterize potential human health threats), increas- HHS, the largest participant in this mission area
ing laboratory capacity, and augmenting the number ($2.3 billion, or 48.4 percent, in 2008), assists States,
and quality of border health and quarantine stations. localities and hospitals to upgrade public health capac-
The Food and Drug Administration and the Department ity and maintains a national stockpile of medicines and
of Agriculture will also conduct surveillance to ensure vaccines for use following an event. DHS maintains
the security of the food supply. Information collected the second largest share of funding in this category
from these programs will be disseminated to the Na- ($1.5 billion, or 30.7 percent, for 2008), mainly for pre-
tional Biosurveillance Integration Center at DHS. paredness grant assistance to State and local first re-
DOD defends the nation against catastrophic threats sponders. A total of 23 other agencies include emer-
by undertaking long-term research on chemical and bio- gency preparedness and response funding. A number
logical threats and by developing strategies to counter of agencies maintain specialized response assets that
the risk of such attacks. DOD’s efforts in maritime may be called upon in select circumstances, and others
defense and interdiction provide early detection and re- report only funding for their agency’s internal prepared-
sponse to possible CBRN threats. DOD also conducts ness capability. The major requirements addressed in
anti-terrorism planning to defend against a potential this mission area include:
Table 3–8. EMERGENCY PREPAREDNESS AND RESPONSE FUNDING

2007
2006 2006 2007 2008
Emergency
Department of Defense .......................................... 340.4 46.2 394.5 ....................... 487.1

Department of Health and Human Services .......... 2,364.2 0.1 2,279.9 ....................... 2,289.7
Department of Homeland Security ......................... 1,842.9 15.3 1,821.6 ....................... 1,755.6
Other Agencies ....................................................... 325.4 ...................... 320.5 ....................... 333.3
Total, Emergency Preparedness and Response ... 4,992.3 61.6 4,935.9 ....................... 5,022.0
Plus Mandatory Communications Interoper-
ability Grants .................................................. .................... ...................... 1,000.0 ....................... ....................
Total, Emergency Preparedness and Re-

sponse, including Mandatory Communica-
tions Interoperability Grants ........................... 4,992.3 61.6 5,935.9 ....................... 5,022.0
• Establishing measurable goals for national pre- tional Exercise Program and the Center for Domestic
paredness and ensuring that Federal funding sup- Preparedness. In addition to these programs, DHS will
ports these goals; provide grant funding to State and local agencies to
• Ensuring that Federal programs to train and support approximately 1,200 all-hazards preparedness
equip States and localities meet national pre- exercises annually in 2007 and in 2008. The 2008 Budg-
paredness goals in a coordinated and complemen- et also provides grants which support coordinated ter-
tary manner; rorism preparedness training and equipment for State
• Encouraging standardization and interoperability and local responders across the various responder agen-
of first responder equipment, especially for com- cies. The 2008 request includes over $1.5 billion for
munications; terrorism preparedness grants to be administered by
• Building a national training, exercise, and evalua- the Office of Grant Programs within DHS, and proposes
tion system; to continue current progress on the grant allocation
• Implementing the National Incident Management process to better address threats and needs. In addi-
System; tion, to supplement assistance for public safety commu-
• Preparing health care providers for a mass cas- nications projects available through the DHS grants,
ualty event; and the Department of Commerce, in consultation with
• Augmenting America’s pharmaceutical and vac- DHS, will be awarding $1 billion in additional grants
cine stockpiles. for first responder communications interoperability to
Many of the key elements of the national emergency qualified applicants from anticipated spectrum auction
response system are already in place. During 2004, sep- receipts. The full outlay and impact of these funds will
arate Federal response plans were integrated into a begin to be realized in FY 2008. The Budget also sup-
single all-hazards National Response Plan. The Na- ports a range of Federal response capabilities, including
tional Incident Management System was simulta- providing $110 million for the Department of Energy’s
neously developed to integrate a standardized Incident Nuclear Emergency Support Team, $20 million within
Command System throughout Federal, State and local DHS for the Federal Emergency Management Agency’s
response agencies and organizations. Additionally, the Urban Search and Rescue teams, $53 million for the
release of a unified National Preparedness Goal will National Disaster Medical System, and other emer-
provide a new framework for guiding Federal, State, gency response, management, and operations assets.
and local investments. In order to ensure that these The capabilities of these teams range from providing
investments translate into improvements in prepared- radiological assistance in support of State and local
ness, we must continue to identify capability gaps and agencies to responding to major incidents worldwide.
improve response and recovery efforts at all levels of In order to ensure that the nation is prepared for
government. A related challenge is ensuring that in- dealing with a biological attack, including pandemic in-
vestments in State and local preparedness are focused fluenza, the Administration continues to make signifi-
on building and enhancing response capabilities, and cant investments in medical countermeasures through
not simply supplanting normal operating expenses. Project BioShield. 4 While the stockpiling of medical
DHS is leading an interagency effort to better match countermeasures is the primary goal, BioShield is also
Federal resources with achieving national preparedness designed to stimulate the development of the next gen-
goals. eration of countermeasures by allowing the Federal
From 2001 through 2007, the Federal Government Government to buy critically needed vaccines and medi-
has allocated over $16 billion in State and local ter- cations for biodefense as soon as experts agree that
rorism preparedness funding from the Departments of they are safe and effective enough to be added to the
Homeland Security, Health and Human Services, and Strategic National Stockpile. As a result, this program
Justice, increasing spending from an annual level of also provides an incentive for the development and
approximately $350 million in 2001 to $2.9 billion in manufacturing of advanced countermeasures, ensuring
the 2008 request. The funding growth has been directed that new and improved countermeasures will be avail-
to Federal programs and grant assistance which sup- able in the future. The Budget includes $581 million
port State and local preparedness and response activi- to maintain and augment this supply of vaccines and
ties, including equipping, training and exercising first other countermeasures that can be made available
responders, and preparing the public health infrastruc- within 12 hours in the event of a terrorist attack or
ture, for a range of terrorist threats. The Federal Gov- other public health emergency. This includes funding
ernment has taken steps to rationalize and simplify for storage and maintenance of products purchased
the distribution of State and local assistance; better through BioShield.
target funds based on risk and effectiveness; and de- Finally, HHS has the lead role in preparing public
velop and implement the seven national priorities and health providers for catastrophic terrorism. In addition
37 target capabilities identified in the National Pre- to providing additional funding to expand HHS’s public
paredness Goal. health and medical response capabilities, including dis-
The 2008 Budget provides over $100 million for DHS aster medical assistance, the 2008 Budget also provides
programs which train and exercise first responders in 4 BioShield is a shared responsibility, joining the intelligence capabilities of DHS with
preparation for catastrophic events including the Na- the medical expertise of HHS.
nearly $414 million to continue improvements for hos- supplemented funds provided by States and the Federal
pital infrastructure and $698 million for upgrades to Government. However, the same survey revealed that
State and local public health capacity. This investment 54 percent of counties had not used any of their own
will bring the total assistance provided by HHS to funds. 6
States, local governments and health care providers There is also a diversity of responses in the busi-
since 2001 to over $9 billion. nesses community. A 2003 survey conducted by the
Conference Board showed that just over half of the
Non-Federal Expenditures 5 companies reported that they had permanently in-
creased security spending post-September 11, 2001.
State and local governments and private-sector firms
About 15 percent of the companies surveyed had in-
also have devoted resources of their own to the task
creased their security spending by 20 percent or more.
of defending against terrorist threats. Some of the addi-
Large increases in spending were especially evident in
tional spending has been of a one-time nature, such
critical industries, such as transportation, energy, fi-
as investment in new security equipment and infra- nancial services, media and telecommunications, infor-
structure; some additional spending has been ongoing, mation technology, and healthcare. However, about one-
such as hiring more personnel, and increasing overtime third of the surveyed companies reported that they had
for existing security personnel. In many cases, own- not increased their security spending after September
source spending has supplemented the resources pro- 11th. 7 Given the difficulty of obtaining survey results
vided by the Federal Government. that are representative of the entire universe of States,
Many governments and businesses continue to place localities, and businesses, it is expected that there will
a high priority on and provide additional resources for be a wide range of estimates on non-Federal security
security. On the other hand, many entities have not spending for critical infrastructure protection.
increased their spending. A 2004 survey conducted by
the National Association of Counties found that as a Additional Tables
result of the homeland security process of intergovern- The tables in the Federal expenditures section above
mental planning and funding, three out of four counties present data based on the President’s policy for the
believed they were better prepared to respond to ter- 2008 Budget. The tables below present additional policy
rorist threats. Moreover, almost 40 percent of the sur- and baseline data, as directed by the Homeland Secu-
veyed counties had appropriated their own funds to rity Act of 2002.
assist with homeland security. Own-source resources
6 Source: National Association of Counties, ‘‘Homeland Security Funding—2003 State
5 OMB does not collect detailed homeland security expenditure data from State, local, Homeland Security Grants Programs I and II.’’
or private entities directly. 7 Source: Conference Board, ‘‘Corporate Security Management’’ 2003.
Estimates by Agency:
Table 3–9. DISCRETIONARY FEE-FUNDED HOMELAND SECURITY ACTIVITIES BY AGENCY

2007
2006 2006 2007 2008
Emergency

Department of State ............................................... 815.0 ...................... 1,166.7 ....................... 1,323.1
General Services Administration ............................ 91.8 ...................... 66.9 ....................... 34.3
Social Security Administration 1 .............................. 175.0 ...................... 193.3 ....................... 215.7
Federal Communications Commission ................... 2.3 ...................... 2.3 ....................... 3.6
Nuclear Regulatory Commission ............................ .................... ...................... 66.0 ....................... 68.9
Securities and Exchange Commission ................... 5.0 ...................... 14.3 ....................... 18.3
Total, Discretionary Homeland Security Fee-

Funded Activities .............................................. 3,512.9 ...................... 4,396.4 ....................... 4,986.2
1 SocialSecurity physical and computer security measures are financed by amounts from the Social Security trust funds and
payroll taxes.
Table 3–10. MANDATORY HOMELAND SECURITY FUNDING BY AGENCY

2007
2006 2006 2007 2008
Emergency
Department of Agriculture ............................................ 177.4 ...................... 182.0 ....................... 194.5

Department of Commerce ............................................ 14.1 ...................... 16.3 ....................... 18.3
Department of Energy .................................................. 12.0 ...................... 12.0 ....................... 13.0
Department of Health and Human Services ............... 16.6 ...................... 15.9 ....................... 14.3
Department of Homeland Security .............................. 2,032.8 ...................... 2,257.5 ....................... 2,042.2
Department of Labor .................................................... 3.9 ...................... 3.9 ....................... 8.8
Total, Homeland Security Mandatory Programs .... 2,256.9 ...................... 2,487.7 ....................... 2,291.0
Plus Mandatory Communications Interoperability
Grants .................................................................. .................... ...................... 1,000.0 ....................... ....................
Total, Homeland Security Mandatory Programs

including Mandatory Communications Inter-
operability Grants .................................................. 2,256.9 ...................... 3,487.7 ....................... 2,291.0
Table 3–11. BASELINE ESTIMATES—TOTAL HOMELAND SECURITY FUNDING BY AGENCY

2007 Baseline
Agency Enacted/
CR 1 2008 2009 2010 2011 2012
Department of Agriculture .............................................................................................................................. 523 545 559 574 587 602

Department of Commerce 2 ............................................................................................................................ 193 200 205 210 215 222
Department of Defense .................................................................................................................................. 16,538 17,064 17,569 18,077 18,591 19,110
Department of Education ............................................................................................................................... 24 25 25 26 26 27
Department of Energy .................................................................................................................................... 1,695 1,738 1,777 1,817 1,856 1,896
Department of Health and Human Services ................................................................................................. 4,313 4,422 4,532 4,640 4,752 4,853
Department of Homeland Security ................................................................................................................. 28,572 29,562 30,549 31,508 32,480 33,466
Department of Housing and Urban Development ......................................................................................... 2 2 2 2 2 3
Department of the Interior .............................................................................................................................. 45 46 48 50 53 55
Department of Justice .................................................................................................................................... 3,090 3,210 3,327 3,446 3,566 3,694
Department of Labor ...................................................................................................................................... 49 54 51 52 52 53
Department of State ....................................................................................................................................... 1,239 1,268 1,299 1,327 1,354 1,380
Department of Transportation ........................................................................................................................ 179 187 193 202 210 219
Department of the Treasury ........................................................................................................................... 109 113 116 120 123 127
Department of Veterans Affairs ..................................................................................................................... 245 252 259 268 276 282
Corps of Engineers ......................................................................................................................................... 43 44 45 46 47 48
Environmental Protection Agency .................................................................................................................. 133 137 141 145 148 153
Executive Office of the President .................................................................................................................. 20 20 21 21 22 23
General Services Administration .................................................................................................................... 74 75 78 79 80 81
National Aeronautics and Space Administration ........................................................................................... 199 203 208 213 217 222
National Science Foundation ......................................................................................................................... 344 352 360 368 376 384
Office of Personnel Management .................................................................................................................. 3 3 3 3 3 3
Social Security Administration ........................................................................................................................ 194 217 186 190 192 196
District of Columbia ........................................................................................................................................ 8 8 8 9 9 9
Federal Communications Commission ........................................................................................................... 2 2 2 2 2 2
Intelligence Community Management Account ............................................................................................. 56 57 59 60 61 62
National Archives and Records Administration ............................................................................................. 18 18 19 19 20 20
Nuclear Regulatory Commission .................................................................................................................... 66 69 71 74 75 78
Securities and Exchange Commission .......................................................................................................... 14 18 18 19 19 20
Smithsonian Institution .................................................................................................................................... 80 84 88 92 96 100
United States Holocaust Memorial Museum ................................................................................................. 8 8 8 8 9 9
Corporation for National and Community Service ......................................................................................... 20 20 21 21 21 22
Total, Homeland Security Budget Authority ............................................................................................. 58,098 60,023 61,847 63,688 65,540 67,421
Less Department of Defense ..................................................................................................................... –16,538 –17,064 –17,569 –18,077 –18,591 –19,110
Non-Defense Homeland Security Budget Authority, excluding Mandatory Interoperability

Communications Grants and BioShield 3 ............................................................................................. 41,560 42,959 44,278 45,611 46,949 48,311
Less Fee-Funded Homeland Security Programs ...................................................................................... –4,397 –4,833 –4,909 –5,020 –5,124 –5,228
Less Mandatory Homeland Security Programs ........................................................................................ –2,489 –2,290 –2,426 –2,531 –2,631 –2,735
Net Non-Defense, Discretionary Homeland Security Budget Authority, excluding Mandatory

Interoperability Communications Grants and Bioshield 3 .................................................................. 34,674 35,836 36,943 38,060 39,194 40,348
Plus Mandatory Communications Interoperability Grants ......................................................................... 1,000 ................ ................ ................ ................ ................
Plus BioShield ............................................................................................................................................ ................ ................ 2,175 ................ ................ ................

Interoperability Communications Grants and BioShield 3 .................................................................. 35,674 35,836 39,118 38,060 39,194 40,348
Department of Transportation Obligations Limitation ................................................................................ 121 124 126 130 133 135
1 2007 levels include enacted supplemental appropriations ($1,696 million in DHS) but exclude GWOT supplemental requests in DHS, DOJ, and Treasury totaling $219 million.
2 DOC’s 2007 gross Continuing Resolution full-year estimate for homeland security excludes $1 billion in mandatory borrowing authority to provide Federal grants to public safe-
ty agencies for communications interoperability purposes. Although technically scored in 2007, this funding will be made available from proceeds of the Federal Communications
Estimates by Budget Function:
Table 3–12. HOMELAND SECURITY FUNDING BY BUDGET FUNCTION

(budget authority, in millions of dollars)
2007
2006 2008
Agency Enacted/
Actual 1 CR 2 Request 3
National Defense ........................................................................................................... 22,056 20,463 21,359

International Affairs ........................................................................................................ 1,107 1,239 1,406
General Science Space and Technology ..................................................................... 616 602 635
Energy ............................................................................................................................ 124 106 122
Natural Resources and the Environment ...................................................................... 288 264 292
Agriculture ...................................................................................................................... 581 506 679
Commerce and Housing Credit4 ................................................................................... 149 154 180
Transportation ................................................................................................................ 8,186 9,161 9,453
Community and Regional Development ....................................................................... 2,212 2,257 2,010
Education, Training, Employment and Social Services ................................................ 177 174 179
Health ............................................................................................................................. 4,393 4,317 4,451
Medicare ......................................................................................................................... 12 15 14
Income Security ............................................................................................................. 8 8 14
Social Security ............................................................................................................... 175 193 216
Veterans Benefits and Services .................................................................................... 299 245 270
Administration of Justice ............................................................................................... 15,917 17,792 18,941
General Government ..................................................................................................... 816 821 890
Total, Homeland Security Budget Authority ............................................................ 57,116 58,317 61,111

Less National Defense, DoD .................................................................................... –17,508 –16,538 –17,465
Non-Defense Homeland Security Budget Authority, excluding Mandatory

Interoperability Communications Grants 4 ........................................................... 39,608 41,779 43,646
Less Fee-Funded Homeland Security Programs ..................................................... –3,509 –4,317 –4,899
Less Mandatory Homeland Security Programs ........................................................ –2,257 –2,489 –2,290
Net Non-Defense, Discretionary Homeland Security Budget Authority,

excluding Mandatory Interoperability Communications Grants 4 ..................... 33,842 34,973 36,457
Plus Mandatory Interoperability Communications Grants ........................................ ................ 1,000 ................
Net Non-Defense, Discretionary Homeland Security Budget Authority,

including Mandatory Interoperability Communications Grants 4 ...................... 33,842 35,973 36,457
1 2006 actual levels include enacted supplemental appropriations.
2 For2007, only DOD and DHS have enacted appropriations; all other agencies’ funding levels are based on their full-
year CR rates. 2007 funding levels also include enacted supplemental appropriations ($1,696 million) and requested
2007 supplemental budget authority ($219 million) in the GWOT supplemental request.
3 DOC’s 2007 gross Continuing Resolution full-year estimate for homeland security excludes $1 billion in mandatory
borrowing authority to provide Federal grants to public safety agencies for communications interoperability purposes. Al-
though technically scored in 2007, this funding will be made available from proceeds of the Federal Communications
4 The Deficit Reduction Act of 2005 appropriated $1 billion from anticipated spectrum auction receipts for the Depart-
ment of Commerce, in consultation with the Department of Homeland Security, to make grants to public safety agencies
for communications interoperability purposes.
Table 3–13. BASELINE ESTIMATES—HOMELAND SECURITY FUNDING BY BUDGET FUNCTION

2007 Baseline
Budget Authority Enacted/
CR1 2008 2009 2010 2011 2012
National Defense ............................................................................................................................................ 20,264 20,897 21,508 22,120 22,738 23,364

International Affairs ......................................................................................................................................... 1,239 1,268 1,299 1,327 1,354 1,380
General Science Space and Technology ...................................................................................................... 602 616 630 644 657 672
Energy ............................................................................................................................................................. 106 111 112 116 117 121
Natural Resources and the Environment ...................................................................................................... 264 271 279 287 295 304
Agriculture ....................................................................................................................................................... 506 528 541 555 568 583
Commerce and Housing Credit 2 ................................................................................................................... 154 164 167 172 175 181
Transportation ................................................................................................................................................. 9,161 9,537 9,832 10,132 10,438 10,745
Community and Regional Development ........................................................................................................ 2,257 2,312 2,367 2,418 2,469 2,523
Education, Training, Employment and Social Services ................................................................................ 174 179 186 192 197 204
Health .............................................................................................................................................................. 4,317 4,425 4,536 4,644 4,755 4,855
Medicare ......................................................................................................................................................... 15 16 16 17 18 19
Income Security .............................................................................................................................................. 8 13 8 8 8 9
Social Security ................................................................................................................................................ 193 216 185 189 191 195
Veterans Benefits and Services ..................................................................................................................... 245 252 259 268 276 282
Administration of Justice ................................................................................................................................ 17,775 18,379 19,057 19,712 20,375 21,053
General Government ...................................................................................................................................... 818 839 865 887 909 931
Total, Homeland Security Budget Authority ............................................................................................. 58,098 60,023 61,847 63,688 65,540 67,421
Less National Defense, DoD ..................................................................................................................... –16,538 –17,064 –17,569 –18,077 –18,591 –19,110
Non-Defense, Discretionary Homeland Security Budget Authority, excluding Mandatory

Less Fee-Funded Homeland Security Programs ...................................................................................... –4,397 –4,833 –4,909 –5,020 –5,124 –5,228
Less Mandatory Homeland Security Programs ........................................................................................ –2,489 –2,290 –2,426 –2,531 –2,631 –2,735
Net Non-Defense, Discretionary Homeland Security Budget Authority, excluding Mandatory

Plus Mandatory Communications Interoperability Grants ......................................................................... 1,000 ................ ................ ................ ................ ................
Plus BioShield ............................................................................................................................................ ................ ................ 2,175 ................ ................ ................

Interoperability Communications Grants and BioShield 3 .................................................................. 35,674 35,836 39,118 38,060 39,194 40,348
Department of Transportation Obligations Limitation ................................................................................ 199 203 208 213 217 222
1 2007levels include enacted supplemental appropriations ($1,696 million in DHS) but exclude GWOT supplemental requests in DHS, DOJ, and Treasury totaling $219 million.
2 DOC’s 2007 gross full-year CR estimate for homeland security excludes $1 billion in mandatory borrowing authority to provide Federal grants to public safety agencies for
communications interoperability purposes. Although technically scored in 2007, this funding will be made available from proceeds of the Federal Communications Commission’s
2008 auction of returned television spectrum.
Detailed Estimates by Budget Account:

An appendix of account-level funding estimates, orga-
nized by National Strategy mission area, is available
on the Analytical Perspectives CD–ROM.
4. STRENGTHENING FEDERAL STATISTICS
Federal statistical programs produce key information most comprehensive source of nationwide data on the
to inform public and private decision makers about a transportation of goods (BTS and Census Bureau); in-
range of topics of interest, including the economy, the troduced new interactive web-based tools to facilitate
population, agriculture, crime, education, energy, the access to, and use of, health statistics information
environment, health, science, and transportation. The (NCHS); expanded internet data collection systems to
ability of governments, businesses, and citizens to make securely process energy survey data more quickly and
appropriate decisions about budgets, employment, in- obtain better quality data (EIA); provided Internet ac-
vestments, taxes, and a host of other important matters cess to forecasts of current year farm income (ERS);
depends critically on the ready availability of relevant, offered podcasts of farm broadcast news stories (NASS);
accurate, and timely Federal statistics. and continued the modernization and reengineering of
The Federal statistical community remains on alert the decennial census to improve its accuracy and use-
for opportunities to strengthen these measures of our fulness while containing costs (Census Bureau).
Nation’s performance. For example, during 2006, Fed- For Federal statistical programs to effectively benefit
eral statistical agencies improved their measures of the their wide range of users, the underlying data systems
knowledge economy by releasing a preliminary Re- must be viewed as credible. In order to foster this credi-
search and Development Satellite Account that esti- bility, Federal statistical programs seek to adhere to
mates the effect of investment in research and develop- high quality standards and to maintain integrity and
ment on U.S. economic growth (BEA and NSF); pub- efficiency in the production of data. As the collectors
lished, for the first time, estimates of households expe- and providers of these basic statistics, the responsible
riencing identity theft victimization and its con- agencies act as data stewards—balancing public and
sequences (BJS); developed procedures to ease the re- private decision makers’ needs for information with
porting burden of the 2007 Economic Census by en- legal and ethical obligations to minimize reporting bur-
hanced electronic reporting, and to collect product data den, respect respondents’ privacy, and protect the con-
from all 350 service industries, up from 80 in the last fidentiality of the data provided to the Government.
census (Census Bureau); published data on the labor This chapter discusses the development of standards
force status of persons who evacuated their homes due that principal statistical programs use to assess their
to Hurricane Katrina (BLS); developed and tested qual- performance and presents highlights of their 2008
ity improvements to the Commodity Flow Survey, the budget proposals.
Performance Standards
Statistical programs maintain the quality of their evance, also an accepted measure of quality, can be
data or information products as well as their credibility either a qualitative description of the usefulness of
by setting high performance standards for their activi- products or a quantitative measure such as a customer
ties. The statistical agencies and statistical units rep- satisfaction score. Relevance is more difficult to meas-
resented on the Interagency Council on Statistical Pol- ure, and the indicators that do exist are more varied.
icy (ICSP) have collaborated on developing an initial Program performance standards form the basis for
set of common performance standards for use under evaluating effectiveness. They address questions such
the Government Performance and Results Act and in as: Are taxpayer dollars spent most effectively? Are
completing the Administration’s Program Assessment products made available to those who need them? Are
Rating Tool (PART). Federal statistical agencies have agencies meeting their mission requirements or making
agreed that there are six conceptual dimensions within it possible for other agencies to meet their missions?
two general areas of focus that are key to measuring The indicators available to measure program perform-
and monitoring statistical programs. The first area of ance for statistical activities currently are less well de-
focus is Product Quality, encompassing the traditional veloped.
dimensions of relevance, accuracy, and timeliness. The Product quality and program performance standards
second area of focus is Program Performance, encom- are designed to serve as indicators when answering
passing the dimensions of cost, dissemination, and mis- specific questions in the Administration’s PART proc-
sion achievement. ess. Chart 4–1 presents each principal Federal statis-
Statistical agencies historically have focused on meas- tical agency’s assessment of the status of its current
uring performance in the area of product quality, espe- and planned use of indicators on the six dimensions.
cially dimensions of accuracy and timeliness that are With the exception of cost indicators, where three agen-
most amenable to quantitative measurement. Rel- cies (ERS, NCES, and NCHS) are still planning their
37
Chart 4-1. ICSP Statistical Quality and

Program Performance Dimensions
Dimension BEA BJS BLS BTS Census EIA ERS NASS NCES NCHS ORES SOI SRS
Product Quality
Relevance
Accuracy
Timeliness
Program Performance
Cost P P P
Dissemination
Mission
Achievement
Indicator Available P Indicator Planned
Description of Dimensions
Product Quality
Relevance: Qualitative or quantitative descriptions of the degree to which products and services are useful to users and responsive to users’ needs.
Accuracy: Qualitative or quantitative measure of important features of correctness, validity, and reliability of data and information products measured as degree of closeness
to target values.
Timeliness: Qualitative or quantitative measure of the timing of information releases.
Program Performance
Cost: Quantitative measure of the dollar amount used to produce data products and services.
Dissemination: Qualitative or quantitative information on the availability, accessibility, and distribution of products and services.
Mission Achievement: Qualitative or quantitative information about the effect of, or satisfaction with, statistical programs.
Key to Statistical Agencies

BEA = Bureau of Economic Analysis, Department of Commerce
BJS = Bureau of Justice Statistics, Department of Justice
BLS = Bureau of Labor Statistics, Department of Labor
BTS = Bureau of Transportation Statistics, Department of Transportation
Census = Census Bureau, Department of Commerce
EIA = Energy Information Administration, Department of Energy
ERS = Economic Research Service, Department of Agriculture
NASS = National Agricultural Statistics Service, Department of Agriculture
NCES = National Center for Education Statistics, Department of Education
NCHS = National Center for Health Statistics, Department of Health and Human Services
ORES = Office of Research, Evaluation, and Statistics, Social Security Administration
SOI = Statistics of Income, Internal Revenue Service, Department of the Treasury
SRS = Science Resources Statistics Division, National Science Foundation
measures, the ICSP agencies have now developed per- ing, its performance goals. The examples below illus-
formance measures for all six dimensions. Use of the trate different ways agencies track their performance
indicators may be for internal management, strategic on each dimension.
planning, or annual performance reporting. The dimen-
sions shown in the chart reflect an overall set of indica- Product Quality: Statistical agencies agree that
tors for statistical activities, but the specific measures product quality encompasses many attributes, including
vary among the individual programs depending on their (but not limited to) relevance, accuracy, and timeliness.
unique characteristics and requirements. Annual per- The basic measures in this group relate to the quality
of specific products, thereby providing actionable infor-
formance reports and PARTs provide these specific
mation to managers. These are ‘‘outcome-oriented’’
measures, as well as additional information about per-
measures and are key to the usability of information
formance goals and targets and whether a program is products. Statistical agencies or units establish targets
meeting, or making measurable progress toward meet- and monitor how well targets are met. In some sense,
4. STRENGTHENING FEDERAL STATISTICS 39
relevance relates to ‘‘doing the right things,’’ while accu- tion involves making sure customers receive the infor-
racy and timeliness relate to ‘‘doing things right.’’ mation they need via the most appropriate mechanisms.
Relevance: Qualitative or quantitative descriptions Mission achievement means that the information pro-
of the degree to which products and services are gram makes a difference. Hence, three key dimensions
useful and responsive to users’ needs. Relevance are being used to indicate program performance: cost
of data products and analytic reports may be mon- (input), dissemination (output), and mission achieve-
itored through a professional review process and ment (outcome).
ongoing contacts with data users. Product rel- Cost: Quantitative measure of the dollar amount
evance may be indicated by customer satisfaction to produce data products or services. The develop-
with product content, information from customers ment and use of financial performance measures
about product use, demonstration of product im- within the Federal Government is an established
provements, comparability with other data series, goal; the intent of such measures is to determine
agency responses to customer suggestions for im- the ‘‘true costs’’ of various programs or alternative
provement, new or customized products or serv- modes of operation at the Federal level. Examples
ices, frequency of use, or responses to data re- of cost data include full costs of products or pro-
quests from users (including policy makers). grams, return on investment, dollar value of effi-
Through a variety of professional review activities, ciencies, and ratios of cost to products distributed.
agencies maintain the relevance and validity of
their products, and encourage data users and Dissemination: Qualitative or quantitative infor-
other stakeholders to contribute to the agencies’ mation on the availability, accessibility, and dis-
data collection and dissemination programs. Striv- tribution of products and services. Most agencies
ing for relevance requires monitoring to ensure have goals to improve product accessibility, par-
that information systems anticipate change and ticularly through the Internet. Typical measures
evolve to appropriately measure our dynamic soci- include: on-demand requests fulfilled, product
ety and economy. downloads, degree of accessibility, customer satis-
faction with ease of use, number of participants
Accuracy: Qualitative or quantitative measures of at user conferences, citations of agency data in
important features of correctness, validity, and re- the media, number of Internet user sessions, num-
liability of data and information products meas- ber of formats in which data are available, amount
ured as degree of closeness to target values. For of technical support provided to data users, exhib-
statistical data, accuracy may be defined as the its to inform the public about information prod-
degree of closeness to the target value and meas- ucts, issuance of newsletters describing products,
ured as sampling error and various aspects of non- usability testing of web sites, and assessing com-
sampling error (e.g., response rates, size of revi- pliance with Section 508 of the Rehabilitation Act,
sions, coverage, edit performance). For analysis which requires Federal agencies to make their
products, accuracy may be the quality of the rea- electronic and information technology accessible to
soning, reasonableness of assumptions, and clarity people with disabilities.
of the exposition, typically measured and mon-
itored through review processes. In addition, accu- Mission Achievement: Qualitative or quantitative
racy is assessed and improved by internal reviews, information about the effect of, or satisfaction
comparisons of data among different surveys, link- with, statistical programs. For Government statis-
ages of survey data to administrative records, re- tical programs, this dimension responds to the
designs of surveys, or expansions of sample sizes. question—have we achieved our objectives and
met the expectations of our stakeholders? Under
Timeliness: Qualitative or quantitative measure of this dimension, statistical programs document
timing of information releases. Timeliness may be their contributions to the goals and missions of
measured as time from the close of the reference parent departments and other agencies, the Ad-
period to the release of information, or customer ministration, the Congress, and information users
satisfaction with timeliness. Timeliness may also in the private sector and the general public. For
be measured as how well agencies meet scheduled statistical programs, this broad dimension involves
and publicized release dates, expressed as a per- meeting recognized societal information needs; it
cent of release dates met. also addresses the linkage between statistical out-
puts and programmatic outcomes.
Program Performance: Statistical agencies agree
that program performance encompasses balancing the However, identifying this linkage is far from
dimensions of cost, dissemination, and mission accom- straightforward. It is frequently difficult to trace
plishment for the agency as a whole; operating effi- the effects of information products on the public
ciently and effectively; ensuring that customers receive good. Such products often are necessary inter-
the information they need; and serving the information mediate inputs in the creation of high visibility
needs of the Nation. Costs of products or programs information whose societal benefit is clearly recog-
may be used to develop efficiency measures. Dissemina- nized. For example, the economic statistics pro-
duced by a variety of agencies are directly used Of the 14 principal Federal statistical agencies or
by the Bureau of Economic Analysis in the cal- units that are members of the ICSP, eleven agencies
culation of the Gross Domestic Product (GDP), have programs that have been assessed using the PART
which analysts universally use to assess changes process. All but one of these agencies’ programs have
in the level of domestic economic activity. Simi- received PART summary ratings of Effective or Mod-
larly, statistics from specific surveys are directly erately Effective, as shown in Chart 4–2. While recog-
used by the Bureau of Labor Statistics in the cal- nizing the strength of the Energy Information Adminis-
culation of the Consumer Price Index (CPI), which tration’s purpose and management, in 2004 EIA re-
is widely used in diverse applications, such as in- ceived an initial rating of ‘‘Results Not Demonstrated’’
dexing pensions for retirees. As a result, a number for two key reasons, both of which have since been
of statistical agencies can claim credit for contrib- rectified. At the time of the evaluation, EIA had re-
uting to the GDP and/or the CPI and to the many cently adopted new performance measures and lacked
uses of these information products. In addition, the necessary historical baselines and future targets;
statistics produced by Federal agencies are used these now exist for all measures. EIA was also critiqued
to track the performance of programs managed for having no recurring independent evaluation of its
by their parent or other organizations related to entire program. EIA recruited an energy expert from
topics such as crime, education, energy, the envi- the Massachusetts Institute of Technology to select and
ronment, health, science, and transportation. lead a team to conduct such an evaluation, and the
Moreover, beyond the direct and focused uses of team completed its report in 2006. EIA management
statistical products, the statistical agencies and will evaluate the team’s recommendations as part of
their programs serve a diverse and dispersed set its strategic planning process in 2007. As additional
of data users working on a broad range of applica- ICSP agencies have an opportunity to undergo the
tions. Users include government policy makers at PART process, the agencies plan to continue to use
the Federal, State, and local levels, business lead- the results of the collaborative performance standards
ers, households, academic researchers, analysts at development effort to help maintain and extend their
public policy institutes and trade groups, market- generally favorable assessments.
ers and planners in the private sector, and many Chart 4–2. MOST RECENT PART SUMMARY RATINGS FOR STATISTICAL
others. Information produced by statistical agen- PROGRAMS
cies often is combined with other information for
use in the decision-making process. Thus, the rela- Summary Rating
tionship between program outputs and their bene- Bureau of Economic Analysis Effective
ficial uses and outcomes is often complex and dif-
Bureau of Justice Statistics
ficult to track. Consequently, agencies use both
Criminal Justice Statistics Program Effective
qualitative and quantitative indicators to make
National Criminal History Improvement Moderately Effective
this linkage as explicit as feasible. Program
In the absence of preferred quantitative indicators, Bureau of Labor Statistics Effective
qualitative narratives can indicate how statistical Bureau of Transportation Statistics Moderately Effective
agency products contribute to and evaluate Census Bureau
progress toward important goals established for Current Demographic Statistics Effective
government or private programs. In particular, Decennial Census Moderately Effective
narratives can highlight how statistical agencies Intercensal Demographic Estimates Moderately Effective
measure the Nation’s social and economic struc- Survey Sample Redesign Effective
ture, and how the availability of the information Economic Census Effective
influences changes in policies and programs. Current Economic Statistics Moderately Effective
These narratives contribute to demonstrating mis- /Census of Governments
sion accomplishment, particularly in response to Economic Research Service Effective
questions in Section I of the PART, ‘‘program pur-
Energy Information Administration Results Not Demonstrated
pose and design.’’ Narratives may describe statis-
tical information’s effects on measuring agency National Agricultural Statistics Service Moderately Effective
policy or change of policy, supporting research fo- National Center for Education Statistics
cused on policy issues, informing debate on policy Statistics Effective
issues, or providing in-house consulting support. Assessment Effective
National Center for Health Statistics Moderately Effective
In addition to narratives, quantitative measures
Science Resources Statistics Division,
may be used to reflect mission achievement. For
NSF
example, customer satisfaction with the statistical
NSF’s Infrastructure and Instrumenta- Effective
agency or unit indicates if the agency or unit has tion component
met the expectations of its stakeholders.
Highlights of 2008 Program Budget Proposals
The programs that provide essential statistical infor- Price Indexes (IPP); and (3) the publication, for the
mation for use by governments, businesses, researchers, first time, of local area Employment Cost Index (ECI)
and the public are carried out by more than 70 agencies and Employer Costs for Employee Compensation (ECEC)
spread across every department and several inde- series as deemed feasible as a result of testing com-
pendent agencies. Approximately 40 percent of the pleted in 2007.
funding for these programs provides resources for 13
agencies or units that have statistical activities as their Bureau of Transportation Statistics: Funding is
principal mission. (Please see Table 4–1.) The remain- requested to: (1) conduct the Commodity Flow Survey,
ing funding supports work in 60-plus agencies or units a major national benchmark survey of shippers; (2) re-
that carry out statistical activities in conjunction with lease monthly statistics on the commodities and mode
other missions such as providing services or enforcing of transportation used in trading with our largest part-
regulations. More comprehensive budget and program ners; (3) produce a core set of economic data and indica-
information about the Federal statistical system will tors, including the Government Transportation Finan-
be available in OMB’s annual report, Statistical Pro- cial Statistics Report, multi-factor productivity meas-
grams of the United States Government, Fiscal Year ures, the State Transit Expenditure Survey, and the
2008, when it is published later this year. The following Air Travel Price Index; (4) produce and release the
highlights elaborate on the Administration’s proposals National Transportation Atlas Data Base, a compen-
to strengthen the programs of the principal Federal dium of national geospatial transportation data; and
statistical agencies. (5) conduct the biennial Census of Ferry Operations
in the U.S.
Bureau of Economic Analysis: Funding is re-
quested to: (1) extend the prototype Research & Devel- Census Bureau: Funding is requested for the Cen-
opment satellite account, funded by the National sus Bureau’s ongoing economic and demographic pro-
Science Foundation in 2006 and 2007, with annual up- grams and for a re-engineered 2010 Census. For the
dates and extensions to BEA’s Gross Domestic Product Census Bureau’s economic and demographic programs,
and other estimates between 2008 and 2012, and full funding is requested to: (1) collect and process economic
incorporation into the economic accounts in 2013; (2) census returns for the 2007 Economic Census; (2) create
complete BEA’s five-year program to improve the accu- the universe frame and develop organizational informa-
racy and timeliness of the Nation’s economic accounts tion for the 2007 Census of Governments, as well as
by addressing data gaps and measurement problems, collect and process data for the employment phase, and
expanding integration with other accounts, and improv- collect and process data from States and other sources
ing consistency with international standards; and (3) for the finance phase; (3) undertake an initiative to
continue to improve the accuracy of statistics on serv- close the current gap in service sector coverage; and
ices, profits, compensation, international trade in serv- (4) continue reengineering the Survey of Income and
ices, and off-shoring. Program Participation. For the 2010 Census program,
funding is requested to continue to: (1) conduct plan-
Bureau of Justice Statistics: Funding is requested ning, testing, and development activities to support a
to provide for BJS’s core statistical programs and for re-engineered 2010 Census, including the 2008 Census
two initiatives: (1) a redesign of the National Crime Dress Rehearsal and early operations for the 2010 Cen-
Victimization Survey based on anticipated recommenda- sus; (2) improve the accuracy of map feature locations
tions from the Committee on National Statistics of the for the remaining 367 counties of the total of 3,232
National Research Council; and (2) development of a counties; and (3) continue to conduct the American
national recidivism statistical series, which will provide Community Survey to provide socio-economic data on
baseline data, as well as representative data every 3 an ongoing basis rather than only once-a-decade.
years, on the rates of rearrest, reconviction, and re-
incarceration among released State and Federal pris- Economic Research Service: Funding is requested
oners to provide a quantitative basis for evaluating the to: (1) strengthen and enhance the ERS market anal-
effectiveness of reentry programs, post-custody surveil- ysis and outlook program to provide timely analysis
lance, and State policies related to parole revocation. of global agricultural product markets; and (2) strength-
en ERS’s research and modeling capacity in the area
Bureau of Labor Statistics: Funding is requested of bio-energy with particular emphasis given to the
to support the production, dissemination, and improve- changing economics of livestock feeding and the role
ment of BLS economic measures, including: (1) the in- of ethanol byproducts.
troduction of continuous updating to the housing and
geographic area samples in the Consumer Price Index Energy Information Administration: Funding is
(CPI), which will improve the accuracy and timeliness requested to continue ongoing operations to: (1) main-
of the CPI; (2) the continuation of efforts to modernize tain critical energy data coverage, analysis, and fore-
the computing systems for monthly processing of the casting; (2) improve data reliability and statistical accu-
Producer Price Index (PPI) and U.S. Import and Export racy through redesigning key petroleum and natural
gas surveys; (3) initiate monthly ethanol and biofuels that address the health care delivery system; and (4)
data collections on a national and regional basis as work collaboratively with States and other agencies on
mandated in Section 1508 of the Energy Policy Act of upgrading the technology for collecting data from State
2005; (4) strengthen global oil and gas data and mod- birth and death certificates.
eling capabilities; and (5) improve the ability to assess
and forecast supply, demand, and technology trends af- Office of Research, Evaluation, and Statistics,
fecting U.S. and world energy markets. SSA: Funding is requested to: (1) continue strategic
planning to modernize ORES’s processes for developing
National Agricultural Statistics Service: Funding and disseminating data from the Social Security Ad-
is requested to support printing, postage and handling ministration’s major administrative data files for statis-
of questionnaire packages, logging returned question- tical purposes; (2) support outside surveys and linkage
naires, capturing reported data, and conducting tele- of SSA administrative data to surveys; (3) create a new
phone and personal follow-up interviews with non- public use file of administrative data on earnings his-
respondents for the quinquennial Census of Agriculture tories and benefits for a sample of Social Security num-
via questionnaires that are scheduled to be mailed to bers; and 4) evaluate the analytic validity of a synthetic
the Nation’s agricultural producers in December 2007. data file based on data from the 1990–1993 and 1996
National Center for Education Statistics: Fund- Survey of Income and Program Participation (SIPP)
ing is requested to: (1) conduct the National Assessment panels matched to SSA and IRS administrative data.
of Educational Progress, including 12th grade reading
Science Resources Statistics Division, NSF: Fund-
and mathematics assessments in 2009; (2) plan for a
ing is requested to: (1) implement ongoing programs
new high school longitudinal study that will begin with
on the science and engineering enterprise; (2) continue
a cohort of 9th graders in 2009 and follow them through
postsecondary education and into the workforce; (3) to implement redesign and improvement activities for
analyze data from international studies such as the a broad range of surveys, particularly the suite of
2007 Trends in International Mathematics and Science research and development (R&D) surveys; (3) support
Study and plan for new international assessments; (4) the NSF/SBE initiative on the Science of Science and
undertake a pilot study on the development of postsec- Innovation Policy to develop the data, tools, and knowl-
ondary unit records, an essential restructuring of sev- edge needed for a new science of science policy by en-
eral components of the Integrated Postsecondary Edu- hancing the comparability, scope and availability of
cation Data System; (5) carry out the 2007–08 Schools international data; and (4) develop data on innovation
and Staffing Survey to obtain information on public and R&D conducted or funded by nonprofit organiza-
and private schools, principals, and teachers; and (6) tions.
conduct the Beginning Postsecondary Student Longitu-
dinal Survey, which provides information on the Statistics of Income Division, IRS: Funding is re-
progress of postsecondary students, as well as the 2008 quested to: (1) maintain and modernize tax data collec-
National Postsecondary Student Aid Survey. tion systems, including developing interfaces with mod-
ern electronic tax return filing systems; (2) implement
National Center for Health Statistics: Funding a databank repository for SOI and IRS population file
is requested to: (1) continue data collection, analysis, data to more efficiently build longitudinal databases
and dissemination for key national health data systems, and enable sub-national estimates; (3) examine means
including the National Vital Statistics System, National to more effectively mask individual records to minimize
Health Interview Survey, National Health and Nutri- the possibility of identification in the Individual Public
tion Examination Survey, and National Health Care Use Sample files; and (4) modernize and expedite dis-
Survey; (2) continue gains in timeliness by imple- semination of data and publications, including enhance-
menting systems improvements in data collection and ment of products and features on the www.irs.gov/
processing; (3) continue efforts to develop survey data taxstats website.
Table 4–1. 2006–2008 BUDGET AUTHORITY FOR PRINCIPAL STATISTICAL AGENCIES1

(In millions of dollars)
Estimate
2006
Actual 2007 2008
Bureau of Economic Analysis ...................................................................... 75 75 81

Bureau of Justice Statistics 2 ........................................................................ 50 50 62
Bureau of Labor Statistics ............................................................................ 537 537 573
Bureau of Transportation Statistics .............................................................. 27 27 27
Census Bureau 3 ........................................................................................... 822 817 1250
Salaries and Expenses 3 ........................................................................... 216 210 223
Periodic Censuses and Programs ............................................................ 606 607 1027
Economic Research Service 4 ....................................................................... 75 75 83
Energy Information Administration ................................................................ 85 85 105
National Agricultural Statistics Service 5 ....................................................... 139 140 168
National Center for Education Statistics ....................................................... 183 183 236
Statistics .................................................................................................... 90 90 119
Assessment ............................................................................................... 88 88 111
National Assessment Governing Board ................................................... 5 5 6
National Center for Health Statistics 6 .......................................................... 109 109 110
Office of Research, Evaluation, and Statistics, SSA ................................... 16 18 15
Science Resources Statistics Division, NSF ................................................ 33 33 37
Statistics of Income Division, IRS ................................................................ 38 41 41
1 Reflects any recissions.

2 Includes funds for management and administrative costs of $11, $11, and $17 million in 2006, 2007, 2008, re-
spectively that were previously displayed separately.
3 Includes Mandatory Appropriations of $20 million for each year for the Survey of Program Dynamics and collection
of data related to the allocation to States of State Children’s Health Insurance Program funds.
4 2007 funding assumes the reallocation of $350,000 provided in 2006 for a comprehensive report on the economic
development and current status of the sheep industry in the United States. Funding for that purpose will not be need-
ed in 2007.
5 Includes funds for the periodic Census of Agriculture of $29, $29, and $54 million in 2006, 2007, and 2008, re-
spectively. The FY 2008 Budget includes an increase of $24.7 million due to cyclical activities.
6 All funds from the Public Health Service Evaluation Fund. Administrative costs for NCHS that previously were dis-
played as part of the NCHS budget line are now reflected in two consolidated CDC-wide budget lines for management
and administrative costs.
5. RESEARCH AND DEVELOPMENT
The U.S. economy is the largest in the world, and Economic payoffs from research come in the form of
has been growing faster than any other G-7 industri- process and product innovations that reduce the costs
alized nation. In large measure, the U.S. economy owes of production, lower product prices, and result in new
its strength to its willingness to build innovation capac- and better products and services. Consumers ultimately
ity through the creation and growth of a world-class benefit from less expensive, higher quality and more
science and technology research enterprise and a high- useful products and services, and of course, from earn-
quality scientific and technical education infrastructure. ings accruing to innovative companies. Today’s trans-
The relationship between support for science and eco- forming technologies and most popular consumer items
nomic growth is well documented. Investments in basic have deep roots in basic and applied research.
research lead to knowledge breakthroughs that fuel in- To sustain the Nation’s economic competitiveness, the
novation, drive productivity, grow the economy, and im- President, in last year’s State of the Union address,
prove our understanding of the world. Economists esti- called for a long-term vision to strengthen Federal sup-
mate that as much as half of post-World War II eco- port for the Nation’s innovation enterprise in an inte-
nomic growth is directly due to technological progress grated package of investments and policies called the
fueled by research and development (R&D). American Competitiveness Initiative (ACI).
I. THE AMERICAN COMPETITIVENESS INITIATIVE
The President’s 2008 Budget maintains a strong com- the Department of Commerce’s National Institute of
mitment, through the ACI, to invest in basic research Science and Technology (NIST) laboratories.
areas that advance knowledge and technologies used In 2008, the second year of the American Competi-
by scientists in nearly every field. Through the ACI, tiveness Initiative, President Bush proposes $11.4 bil-
the President plans to double, over 10 years, invest- lion total for NSF, DOE’s Office of Science, and NIST
ment in innovation-enabling research at three Federal laboratories, an overall funding increase of $764 mil-
agencies—the National Science Foundation (NSF), the lion, or 7.2 percent, above his 2007 Budget of $10.7
Department of Energy’s (DOE’s) Office of Science, and billion. To reach doubling within ten years, overall an-
nual increases will average roughly seven percent.
45
Research Agencies in the American Competitiveness Initiative
The National Science Foundation is the primary source of support for academic research in the physical sciences,
funding basic research in areas such as nanotechnology, advanced networking and information technology, phys-
ics, chemistry, materials science, mathematics, and engineering. It also is well regarded for funding nearly all of
its research through a competitive, peer-reviewed process. The increase in NSF funding will support many more
researchers, students, post-doctoral fellows and technicians contributing to the innovation enterprise.
The Department of Energy’s Office of Science supports grants and infrastructure for a wide range of basic re-
search related to economically significant innovations including nanotechnology, biotechnology, high-end com-
puting and advanced networking, and energy technologies. The 2008 Budget increases funding for both research
and cutting edge facilities in these critical mission areas, such as an expansion in the number of bio-energy re-
search centers, major growth in the United States’ contribution to the international fusion energy project known
as ITER, expanded supercomputing facilities and related research, and design or construction activities for world-
leading next generation light sources.
The Department of Commerce’s National Institute of Standards and Technology invests in technological innova-
tion through research and standards development. These investments will improve nanotechnology manufacturing
capabilities; expand NIST’s neutron facility to aid in characterizing novel materials in high-growth research fields;
construct new, high-performance laboratories at NIST’s Boulder, Colorado facility; and improve our understanding
of quantum information science that has the potential to dramatically improve computer processing speeds and
enable more secure communications.
II. IMPROVING THE PERFORMANCE OF R&D PROGRAMS
R&D is critically important for keeping our Nation ment and demonstration programs, by addressing three
economically competitive, and it will help solve the fundamental aspects of R&D:
challenges we face in health, defense, energy, and the • Relevance—Programs must be able to articulate
environment. Therefore, every Federal R&D dollar must why they are important, relevant, and appropriate
be invested as effectively as possible. for Federal investment;
• Quality—Programs must justify how funds will be
R&D Investment Criteria allocated to ensure quality; and
• Performance—Programs must be able to monitor
The Administration continues to improve the effec-
and document how well the investments are per-
tiveness of the Federal Government’s investments in forming.
R&D by applying transparent investment criteria in In addition, R&D projects and programs relevant to
analyses that inform recommendations for program industry are expected to apply criteria to determine
funding and management. R&D performance assess- the appropriateness of the public investment, enable
ment must be done with care. Research often leads comparisons of proposed and demonstrated benefits,
scientists and engineers down unpredictable pathways and provide meaningful decision points for completing
with unpredictable results. This outcome can require or transitioning the activity to the private sector.
special consideration when measuring an R&D pro- As part of the President’s Management Agenda’s
gram’s performance against its initial goals. Budget and Performance Integration initiative, the Ad-
With this in mind, the Administration is improving ministration uses the Program Assessment Rating Tool
methods for setting priorities based on expected results, (PART) to consistently assess the effectiveness of pro-
and is asking agencies to apply specific criteria that grams. A section of the PART specifically addresses
programs or projects must meet to be started or contin- the assessment of R&D program management and per-
ued and supply clear milestones for gauging progress formance and is aligned with the R&D Investment cri-
and improved metrics for assessing results. teria. In the last five years, agencies completed 977
As directed by the President’s Management Agenda, PART assessments, of which 121 were for R&D pro-
the R&D Investment Criteria accommodate the wide grams. The results of these PART assessments may
range of R&D activities, from basic research to develop- be found on the web at www.expectmore.gov.
5. RESEARCH AND DEVELOPMENT 47
Performance assessments help policy makers identify relate to specific funding levels. For instance, a program
those programs that are the most effective and worthy rated Effective that has achieved what it set out to
of funding; however, the Administration does not allo- do may have its funding reduced. On the other hand,
cate funding levels and initiate management reforms a program rated Ineffective might receive more money
strictly by formula or based solely on PART results. to correct a deficiency that would help it become more
While programs rated Effective are typically favored effective. The PART provides information that leads to
for additional funding over related programs that do more informed decisions.
not perform as well, PART ratings do not automatically
Chart 5-2. Scores of R&D PART Assessments

Cumulative Number of R&D PARTs
125 121 Total

35
102 Total
100 29
49
75
41
50
21
16
25
3 3
13 13
0
2007 2008
Effective Adequate Ineffective Results Not
Demonstrated
Moderately Effective
Research Earmarks Chronicle of Higher Education has reported that this

is not the main role earmarks play. Often only a minor
President Bush has called on Congress to reform the
portion of academic earmark funding goes to the states
earmark process, proposing a series of reforms that in-
with the smallest shares of Federal research funds.
clude full disclosure for each earmark and cutting the
Some proponents of earmarking assert that earmarks
number and cost of all earmarks by at least half. Con- provide a means of funding unique projects that would
sistent with this effort, the Administration is continuing not be recognized by the conventional peer-review proc-
its strong support for awarding research funds based ess. To address this concern, a number of research
on merit review through a competitive process refereed agencies have procedures and programs to reward ‘‘out-
by scientists themselves. Such a system has the best of-the-box’’ thinking. For example, the Defense Ad-
prospects for ensuring that the top research is sup- vanced Research Projects Agency, within the Depart-
ported. Research earmarks—in general the assignment ment of Defense (DOD), seeks out high-risk, high-payoff
of money during the legislative process for use by a scientific proposals, the National Institutes of Health
specific organization or project—are counter to a merit- has established a similarly focused ‘‘Pioneer Award,’’
based competitive selection process. Earmarks signal and program managers at the NSF set aside a share
to potential investigators that there is an acceptable of funding for higher-risk projects in which they see
alternative to creating quality research proposals for high potential.
merit-based consideration. Such an alternative can be Earmarks that are outside of an agency’s mission
an ineffective use of taxpayer funds. can detract from an efficient and effective Federal effort
Unfortunately, the practice of earmarking funds to on behalf of taxpayers. For instance, the Congress di-
colleges, universities, and other entities for specific re- rected DOD to fund research on a wide range of dis-
search projects has expanded dramatically in recent eases including diabetes, neurofibromatosis (a genetic
years. Some argue that earmarks help spread the re- disorder of the nervous system), and childhood cancer.
search money to states or institutions that would re- Congressional adds in DOD’s budget for medical re-
ceive less research funding through other means. The search projects totals about $500 million in 2007 alone.
While research on these diseases is very important, have a significant detrimental impact on funding the
these diseases are generally not unique to the U.S. most important and promising research.
military and the research can be better selected, carried Earmarks that divert funding from a merit-based
out and coordinated within civil medical research agen- process undermine America’s research productivity. The
cies, without disruption to the military mission. At the Administration commends Congress for taking meas-
same time, intrusion of earmarks into the peer-review ures to protect NSF and the National Institutes of
processes of civilian medical research agencies would Health from this practice, which is an approach that
should be followed throughout the R&D programs.
III. PRIORITIES FOR FEDERAL RESEARCH AND DEVELOPMENT
The 2008 Budget requests $143 billion for Federal borders against other entries; improving the capabilities
R&D funding, and targets key research investments and implementation planning of biometric systems; ini-
within agencies, in particular, the three ACI agencies: tiating the 2008–2012 R&D plan for high-consequence
NSF, the DOE’s Office of Science, and the NIST labora- foreign animal diseases; and focusing on critical medical
tories. (Table 5–1 provides details by agency). countermeasures that do not have a pre-existing market
to stimulate their development.
Multi-Agency R&D Priorities Networking and Information Technology R&D:
The 2008 Budget continues to target important re- The Budget provides $3 billion for the multi-agency
search investments that must be coordinated across Networking and Information Technology Research and
multiple agencies. The Administration will continue to Development (NITRD) Program, which plans and co-
analyze other areas of critical need that could benefit ordinates agency research efforts in high-end computing
in the future from improved focus and coordination systems, cyber security, large-scale networking, soft-
among agencies. ware development, high-confidence systems, informa-
Combating Terrorism R&D: A robust R&D effort tion management, and other information technologies.
continues to be a key asset in advancing technologies The agencies involved in this program coordinate efforts
in support of the President’s national strategy for home- to accelerate research advancement in information tech-
land security. Though there have been numerous nology, upon which every economic sector now depends.
achievements over the past four years, many challenges In 2006, agencies participating in high-end computing
remain. A number of these challenges are being ad- R&D continued to make significant progress in imple-
dressed through multi-agency research efforts that are menting the recommendations contained in the Federal
coordinated through the National Science and Tech- Plan for High-End Computing. The 2008 Budget con-
nology Council (NSTC) and other inter-agency forums. tinues the path toward the development of petascale
In 2006, key multi-agency R&D efforts made signifi- systems for science by both DOE and NSF. Relevant
cant progress towards improving the Nation’s agencies will continue to conduct research in highly
counterterrorism capability. Using the 2006 Adminis- scalable systems software and applications to ensure
tration R&D budget priorities memorandum as a guide, that Federal investments in high-end computing
agencies, for example: achieve maximal impact.
• improved radiation portal monitors with the abil- Participating agencies also completed and published
ity to discern threatening sources of radiation
the Federal Plan for Cyber Security and Information
from non-threatening sources;
Assurance R&D in 2006, and are now undertaking the
• advanced technology to meet new international
electronic passport standards that enables biomet- development of the roadmap for addressing any identi-
ric screening of individuals entering the country; fied R&D gaps as recommended in the Plan.
• developed standards for technologies that enable In 2007, participating agencies will undertake the
the detection and interception of nuclear and ra- development of a Federal Plan for Advanced Net-
dioactive material before it enters the U.S.; working R&D, analogous to the recent Plans for High-
• developed and established standard methodologies End Computing and for Cyber Security and Information
and practices for the sampling and detection of Assurance R&D. The Federal Plan for Advanced Net-
biological agents; and working R&D will provide a strategy for addressing
• developed rapid diagnostics and next generation current and future networking needs of the Federal
vaccines. government in support of science and national security
The 2008 Budget provides continued support for these missions, and provide a process for developing a more
and many other R&D related to combating terrorism, detailed roadmap to guide future multi-agency invest-
including: pursuing stand-off detection and imaging ca- ments in advancing networking R&D. Reports and gen-
pabilities to locate and identify nuclear threat materials eral information about NITRD are available at
at a distance; advancing cargo screening capabilities www.nitrd.gov/.
to recognize and expedite safe cargo while securing the
Nanotechnology R&D: The Budget provides $1 bil- Plan, and a preliminary assessment of progress made
lion for the multi-agency National Nanotechnology Ini- toward the program’s goals. The CCSP will continue
tiative (NNI). The NNI focuses on R&D that creates to track deliverables and milestones for each of its pro-
materials, devices, and systems that exploit the fun- grams in order to assess overall performance. Addi-
damentally distinct properties of matter as it is manip- tional detail on individual agency activities will be pro-
ulated at the atomic and molecular levels. The results vided in the Administration’s 2008 edition of Our
of NNI-supported R&D are already leading to break- Changing Planet. Reports and general information
throughs in disease detection and treatment, manufac- about the CCSP are available on the program’s website:
turing at the nanoscale level, environmental monitoring www.climatescience.gov/.
and protection, energy production and storage, and cre- The Climate Change Technology Program (CCTP)
ating electronic devices that have even greater capabili- continues to provide strategic direction, planning, and
ties than those available today. Research opportunities analysis to help coordinate and prioritize activities
cover a similarly broad spectrum. Advances that will within the portfolio of Federally funded climate change
be foundational for all aspects of nanotechnology R&D technology R&D consistent with the President’s Na-
in particular include: instrumentation for characterizing tional Climate Change Technology Initiative (NCCTI).
nanoscale materials in the laboratory, in the body, and In 2005, the CCTP published a Vision and Framework
in the environment; and computational research to for Strategy and Planning and released a draft Stra-
model and predict properties at the nanoscale, for de- tegic Plan for review by the scientific community and
signing novel materials, and for determining their be- the public. In 2006, the CCTP addressed the nearly
havior under various conditions and environments. 300 comments received and published a final Strategic
Guided by the NNI, participating agencies will con- Plan. The CCTP has also identified within its portfolio
tinue to support discovery, development and application a subset of NCCTI priority activities, defined as dis-
of nanotechnology through investigator-led fundamental crete R&D activities that address technological chal-
and applied research; multidisciplinary centers of excel- lenges, which, if solved, could advance technologies with
lence; education and training of nanotechnology re- the potential to dramatically reduce, avoid, or sequester
searchers, teachers, workers, and the public; and infra- greenhouse gas emissions. In 2008, CCTP’s focus will
structure development, including user facilities and net- be on implementing the Strategic Plan, which lays out
works that are broadly available to support research a series of next steps. Reports and general information
and innovation. In addition, agencies continue to main- about the CCTP are available on the program’s website:
tain a focus on the responsible development of www.climatetechnology.gov/.
nanotechnology, with attention to the human and envi- The CCSP and CCTP will continue to coordinate im-
ronmental health impacts, as well as ethical, legal, and plementation of relevant climate change provisions in
other societal issues. Reports and general information the 2005 Energy Policy Act as appropriate.
about the NNI are available at www.nano.gov/. Ocean Research: The 2008 Budget supports ocean
Climate Change R&D: The 2008 Budget for the and coastal research as outlined in the recently re-
Climate Change Science Program (CCSP) continues to leased report Charting the Course for Ocean Science
support the implementation of the CCSP Strategic in the United States for the Next Decade: An Ocean
Plan, which was released in July 2003. The 13 depart- Research Priorities Plan and Implementation Strategy.
ments and agencies that participate in the CCSP co- Developed by the National Science and Technology
ordinate preparation of the budget and program imple- Council’s Joint Subcommittee on Ocean Science and
mentation. During 2008, the CCSP will continue re- Technology, plan implementation will deploy key com-
search into important scientific uncertainties and prep- ponents of an ocean observing system that can better
aration of a series of Synthesis and Assessment reports. and more accurately describe actual conditions, enhance
Working within the overarching priorities defined in our understanding and capability to forecast ocean proc-
the Strategic Plan, the CCSP’s interagency coordination esses and phenomena, and provide scientific support
and integration efforts will give particular emphasis for ecosystem-based management. These three over-
in 2008 to the following activities: abrupt climate arching goals represent tremendous potential for ocean
change; integrated Earth system analysis; coping with science, as well as for maintaining U.S. leadership in
drought through research and regional partnerships; in- ocean technology and enhancing U.S. competitiveness.
tegration of water cycle observations, research and mod- These goals are supported by 20 separate national
eling; carbon cycle research integration; aerosol forcing ocean research priorities, established with extensive
and interactions with clouds and non-carbon dioxide community input and oriented around the most compel-
trace gases; impacts of climate variability and change ling issues of interaction between society and the ocean.
on ecosystem productivity and biodiversity; and inter- The Joint Subcommittee on Ocean Science and Tech-
actions on land use/land cover change and climate. nology will coordinate this multi-agency research into
The program expects to receive input from the Na- key aspects of the oceans, coasts and Great Lakes and
tional Research Council under the terms of a continuing work closely with the other coordinating bodies of the
advisory agreement. This advice will include findings President’s Ocean Action Plan.
and recommendations on the process for evaluating Hydrogen R&D: In 2006, the Hydrogen R&D Inter-
progress toward the five goals in the CCSP Strategic agency Task Force led coordination among nine agen-
cies in hydrogen-related manufacturing and innovation, ment that will be reviewed by the National Academy
safety, codes and standards, and fundamental research of Sciences. In addition to assessing the goals and plans
on fuel cells, hydrogen production, and hydrogen stor- for interagency biomass research, the Academy will be
age. The Task Force improved and updated its web tasked with considering economic and other impacts
portal (www.hydrogen.gov) for hydrogen and fuel cell of increased biomass utilization under various energy
information. Additionally, the Task Force works with price and policy scenarios. Additional information on
the International Partnership for the Hydrogen Econ- the Biomass R&D Board is available online at
omy, which coordinates hydrogen research among 15 www.biomass.govtools.us.
nations representing two thirds of global energy con-
sumption. Stimulating Private Investment
DOE will continue to lead the President’s Hydrogen
Fuel Initiative to accelerate the worldwide availability Along with direct spending on R&D, the Federal Gov-
and affordability of hydrogen-powered fuel cell vehicles ernment has sought to stimulate private R&D invest-
and the infrastructure to support them. The initiative ment through incentives in the Internal Revenue Code.
focuses on research to advance hydrogen production, A long-standing credit, which had provided a 20-percent
storage, conversion, and infrastructure technologies. tax credit for private research and experimentation ex-
The 2008 Budget completes the President’s five-year, penditures above a certain base amount, was extended
$1.2 billion commitment announced in his 2003 State for two years through the end of 2007 and enhanced
of the Union address, but work will continue on the through the Tax Relief and Health Care Act of 2006.
many technical challenges that remain. The Administration proposes making the enhanced Re-
Biomass R&D: The Biomass R&D Act of 2000 estab- search and Experimentation tax credit permanent start-
lished the Biomass R&D Board to guide interagency ing in 2008. The proposed extension will cost $42 billion
coordination and bring coherence to Federal strategic over the period from 2008 to 2012. In addition, a per-
planning on biomass-related issues. Since 2002, the De- manent tax provision lets companies deduct, up front,
partments of Agriculture and Energy have been pre- the costs of certain kinds of research and experimen-
paring joint annual reports on a subset of coordinated tation, rather than capitalize these costs. Also, equip-
biomass activities. In 2006, the Board began prepara- ment used for research benefits from relatively rapid
tion of an interagency coordination and planning docu- tax depreciation allowance.
IV. FEDERAL R&D DATA
Federal R&D Funding egory should include programs devoted to the purchase
R&D is the collection of efforts directed towards gain- or construction of R&D equipment.
ing greater knowledge or understanding and applying Research and development facilities include the
knowledge toward the production of useful materials, acquisition, design, and construction of, or major re-
devices, and methods. R&D investments can be charac- pairs or alterations to, all physical facilities for use
terized as basic research, applied research, develop- in R&D activities. Facilities include land, buildings, and
ment, R&D equipment, or R&D facilities, and the Office fixed capital equipment, regardless of whether the fa-
of Management and Budget has used those or similar cilities are to be used by the Government or by a pri-
categories in its collection of R&D data since 1949. vate organization, and regardless of where title to the
Basic research is systematic study directed toward property may rest. This category includes such fixed
a fuller knowledge or understanding of the fundamental facilities as reactors, wind tunnels, and particle accel-
aspects of phenomena and of observable facts without erators.
specific applications towards processes or products in There are over twenty Federal agencies that fund
mind. Basic research, however, may include activities R&D in the U.S. The nature of the R&D that these
with broad applications in mind. agencies fund depends on the mission of each agency
Applied research is systematic study to gain knowl- and on the role of R&D in accomplishing it. Table 5–1
edge or understanding necessary to determine the shows agency-by-agency spending on basic and applied
means by which a recognized and specific need may research, development, and R&D equipment and facili-
be met. ties.
Development is systematic application of knowledge The ‘‘Federal Science and Technology’’ (FS&T) budget
or understanding, directed toward the production of (shown in Table 5–2) highlights the creation of new
useful materials, devices, and systems or methods, in- knowledge and technologies more consistently and accu-
cluding design, development, and improvement of proto- rately than the overall R&D data. The FS&T budget
types and new processes to meet specific requirements. emphasizes research; does not count funding for defense
Research and development equipment includes development, testing, and evaluation; and totals less
acquisition or design and production of movable equip- than half of Federal R&D spending. The 2008 Budget
ment, such as spectrometers, research satellites, detec- requests $61 billion for FS&T.
tors, and other instruments. At a minimum, this cat-
Table 5–1. FEDERAL RESEARCH AND DEVELOPMENT

(Budget authority, dollar amounts in millions)
2006 2007 2008 Dollar Change: Percent Change:

Actual Estimate Proposed 2007 to 2008 2007 to 2008
By Agency
Defense ...................................................................................................................... 73,723 77,881 78,862 981 1%
Health and Human Services ..................................................................................... 28,531 28,743 29,027 284 1%
NASA ......................................................................................................................... 11,317 11,613 12,428 815 7%
Energy ........................................................................................................................ 8,596 8,389 9,224 835 10%
National Science Foundation .................................................................................... 4,227 4,232 4,880 648 15%
Agriculture .................................................................................................................. 2,438 2,316 2,010 –306 –13%
Commerce ................................................................................................................. 1,090 920 1,088 168 18%
Homeland Security .................................................................................................... 1,455 1,079 1,068 –11 –1%
Veteran Affairs ........................................................................................................... 824 818 822 4 0%
Transportation ............................................................................................................ 820 752 812 60 8%
Interior ........................................................................................................................ 639 636 621 –15 –2%
Environmental Protection Agency ............................................................................. 622 567 562 –5 –1%
Other .......................................................................................................................... 1,250 1,223 1,251 28 2%
Total .......................................................................................................................... 135,532 139,169 142,655 3,486 3%

Basic Research
Defense ...................................................................................................................... 1,457 1,565 1,428 –137 –9%
NASA ......................................................................................................................... 2,299 2,259 2,226 –33 –1%
Energy ........................................................................................................................ 2,930 2,957 3,409 452 15%
National Science Foundation .................................................................................... 3,520 3,499 3,993 494 14%
Agriculture .................................................................................................................. 853 799 771 –28 –4%
Commerce ................................................................................................................. 118 118 164 46 39%
Homeland Security .................................................................................................... 85 105 132 27 26%
Veteran Affairs ........................................................................................................... 343 328 330 2 1%
Transportation ............................................................................................................ ................ .................... .................... ...................... N/A
Interior ........................................................................................................................ 42 42 39 –3 –7%
Environmental Protection Agency ............................................................................. 105 94 94 ...................... ........................
Other .......................................................................................................................... 158 163 170 7 4%
Subtotal ................................................................................................................ 27,456 27,474 28,371 897 3%

Applied Research
Defense ...................................................................................................................... 4,948 5,330 4,357 –973 –18%
NASA ......................................................................................................................... 1,680 1,010 1,127 117 12%
Energy ........................................................................................................................ 2,700 2,707 2,869 162 6%
National Science Foundation .................................................................................... 286 281 380 99 35%
Agriculture .................................................................................................................. 1,149 1,117 984 –133 –12%
Commerce ................................................................................................................. 729 617 696 79 13%
Veteran Affairs ........................................................................................................... 435 442 444 2 0%
Transportation ............................................................................................................ 497 501 541 40 8%
Interior ........................................................................................................................ 546 534 525 –9 –2%
Environmental Protection Agency ............................................................................. 400 369 364 –5 –1%
Other .......................................................................................................................... 590 549 581 32 6%
Subtotal ................................................................................................................ 27,449 26,939 26,638 –301 –1%

Development
Defense ...................................................................................................................... 67,154 70,926 72,873 1,947 3%
Health and Human Services ..................................................................................... 22 22 22 ...................... ........................
NASA ......................................................................................................................... 5,141 6,451 6,707 256 4%
Energy ........................................................................................................................ 1,939 1,843 1,891 48 3%
National Science Foundation .................................................................................... ................ .................... .................... ...................... N/A
Agriculture .................................................................................................................. 164 158 156 –2 –1%
Commerce ................................................................................................................. 93 55 72 17 31%
Homeland Security .................................................................................................... 659 325 269 –56 –17%
Veteran Affairs ........................................................................................................... 46 48 48 ...................... ........................
Transportation ............................................................................................................ 305 232 252 20 9%
Interior ........................................................................................................................ 46 53 55 2 4%
Environmental Protection Agency ............................................................................. 117 104 104 ...................... ........................
Other .......................................................................................................................... 464 455 454 –1 0%
Subtotal ................................................................................................................ 76,150 80,672 82,903 2,231 3%

Facilities and Equipment
Defense ...................................................................................................................... 164 60 204 144 240%
Health and Human Services ..................................................................................... 136 212 153 –59 –28%
Table 5–1. FEDERAL RESEARCH AND DEVELOPMENT—Continued


Actual Estimate Proposed 2007 to 2008 2007 to 2008
NASA ......................................................................................................................... 2,197 1,893 2,368 475 25%

Energy ........................................................................................................................ 1,027 882 1,055 173 20%
Agriculture .................................................................................................................. 272 242 99 –143 –59%
Commerce ................................................................................................................. 150 130 156 26 20%
Veteran Affairs ........................................................................................................... ................ .................... .................... ...................... N/A
Transportation ............................................................................................................ 18 19 19 ...................... N/A
Interior ........................................................................................................................ 5 7 2 –5 –71%
Environmental Protection Agency ............................................................................. ................ .................... .................... ...................... N/A
Other .......................................................................................................................... 38 56 46 –10 –18%
Subtotal ................................................................................................................ 4,477 4,084 4,743 659 16%

Table 5–2. FEDERAL SCIENCE AND TECHNOLOGY BUDGET

Dollar Percent
2006 2007 2008 Change: Change:
Actual Estimate 1 Proposed 2007 to 2007 to
2008 2008
By Agency
National Institutes of Health 2 .......................................................................................................................................... 28,242 28,269 28,700 431 2%
NASA 3 ................................................................................................................................................................................. 7,670 7,173 7,124 –49 –1%
Science ............................................................................................................................................................................ 5,110 5,330 5,516 186 3%
Aeronautics ...................................................................................................................................................................... 893 724 554 –170 –23%
Exploration Systems 4 ..................................................................................................................................................... 1,452 921 856 –65 –7%
Innovative Partnerships ................................................................................................................................................... 215 198 198 ................ ................
Energy 5 ............................................................................................................................................................................... 5,625 6,186 6,906 720 12%
Science Programs ........................................................................................................................................................... 3,596 4,102 4,398 296 7%
Electricity Transmission & Distribution ........................................................................................................................... 136 96 86 –10 –10%
Nuclear Energy ................................................................................................................................................................ 416 560 811 251 45%
Energy Efficiency and Renewable Energy Resources 6 ................................................................................................ 896 963 1,047 84 9%
Fossil Energy R&D 7 ....................................................................................................................................................... 581 465 564 99 21%
National Science Foundation ........................................................................................................................................... 5,581 6,020 6,429 409 7%
Defense ............................................................................................................................................................................... 6,405 6,895 5,785 –1,110 –16%
Basic Research ............................................................................................................................................................... 1,457 1,565 1,428 –137 –9%
Applied Research ............................................................................................................................................................ 4,948 5,330 4,357 –973 –18%
Agriculture .......................................................................................................................................................................... 2,170 1,921 1,934 13 1%
CSREES Research and Education 8 .............................................................................................................................. 675 569 566 –3 –1%
Economic Research Service ........................................................................................................................................... 75 83 83 ................ ................
Agricultural Research Service 9 ...................................................................................................................................... 1,141 1,001 1,022 21 2%
Forest Service: Forest and Rangeland Research ......................................................................................................... 279 268 263 –5 –2%
Interior (USGS) ................................................................................................................................................................... 965 945 975 30 3%
Commerce ........................................................................................................................................................................... 939 869 944 75 9%
NOAA: Oceanic & Atmospheric Research ..................................................................................................................... 369 338 358 20 6%
NIST Intramural Research and Facilities ....................................................................................................................... 570 531 586 55 10%
Veterans Affairs 10 ............................................................................................................................................................. 769 765 822 57 7%
Environmental Protection Agency 11 ............................................................................................................................... 761 816 781 –35 –4%
Transportation .................................................................................................................................................................... 563 598 570 –28 –5%
Highway research: Federal Highway Administration ..................................................................................................... 426 468 430 –38 –8%
Federal Aviation Administration: Research, Engineering, and Development ............................................................... 137 130 140 10 8%
Education ............................................................................................................................................................................ 342 342 342 ................ ................
Special Education Research and Innovation ................................................................................................................. 72 72 72 ................ ................
National Institute on Disability and Rehabilitation Research ......................................................................................... 107 107 107 ................ ................
Research, Development, and Dissemination 12 ............................................................................................................. 163 163 163 ................ ................
Total ................................................................................................................................................................................ 60,032 60,799 61,312 513 1%

1 The amounts included as 2007 Estimates in this table reflect the 2007 Budget levels, with the exception of the numbers for the Department of Defense, which are the enacted levels.
2 In 2006, the Department of Health and Human Services allocated an additional $18 million to NIH for Pandemic Influenza research from the Department of Defense Emergency Supplemental Ap-
propriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006.
3 Due to recent changes in NASA’s approach to budgeting overhead costs, 2008 funding levels are not comparable to 2006 and 2007 levels.
4 Includes Exploration Technology Development, the Human Research Program, and the Lunar Precursor Robotic Program.
5 Data do not reflect actual transfers to Science Programs from other Department of Energy R&D programs to support the Small Business Innovation Research and the Small Business Technology
Transfer programs.
6 In 2006, Congress merged the Energy Supply and Energy Conservation accounts. The amount reported under the new Energy Efficiency and Renewable Energy Resources line within this account
reflects a combination of the former Energy Conservation line item (excluding Weatherization and State grants) and the Renewables line item.
7 Excludes funding for the Alaska Natural Gas Pipeline project.
8 Includes the appropriation of earnings from the Native American Endowment Fund, but not the appropriation to the Endowment’s principal.
9 Excludes building and facilities. Excludes $6 million transfer to the account in 2006.
10 Includes the medical care and prosthetic research appropriation and VA medical care support transfer to research.
11 Science and Technology, plus superfund transfer.
12 Does not include funding for Regional Educational Labs.
Table 5–3. AGENCY DETAIL OF SELECTED INTERAGENCY R&D EFFORTS


Actual Estimate 1 Proposed 2007 to 2008 2007 to 2008
Networking and Information Technology R&D 2

Defense ...................................................................................................................... 1,106 1,046 1,027 –19 –2%
Health and Human Services 3 ................................................................................... 486 541 463 –78 –14%
Energy ........................................................................................................................ 282 389 404 15 4%
National Aeronautics and Space Administration ...................................................... 78 82 85 3 4%
Commerce ................................................................................................................. 64 73 73 ...................... N/A
Environmental Protection Agency ............................................................................. 6 6 6 ...................... N/A
National Archives and Records Administration ........................................................ 4 4 5 1 25%
Total ...................................................................................................................... 2,838 3,045 3,057 12 0%

National Nanotechnology Initiative
Defense ...................................................................................................................... 424 417 375 –42 –10%
Energy ........................................................................................................................ 231 293 332 39 13%
Health and Human Services 4 ................................................................................... 196 175 208 33 19%
Commerce (NIST) ..................................................................................................... 78 89 97 8 9%
National Aeronautics and Space Administration ...................................................... 50 25 24 –1 –4%
Environmental Protection Agency ............................................................................. 5 9 10 1 11%
Agriculture .................................................................................................................. 6 7 8 1 14%
Justice ........................................................................................................................ ................ 1 1 ...................... N/A
Homeland Security .................................................................................................... 2 1 1 ...................... N/A
Total ...................................................................................................................... 1,353 1,391 1,447 56 4%

Climate Change Science Program
National Aeronautics and Space Administration 5 .................................................... 1,045 981 871 –110 –11%
Commerce (NOAA) ................................................................................................... 157 173 174 1 1%
Energy ........................................................................................................................ 130 126 130 4 3%
Agriculture .................................................................................................................. 61 60 59 –1 –2%
National Institutes of Health ...................................................................................... 50 57 50 –7 –12%
Interior (USGS) .......................................................................................................... 27 26 27 1 4%
Environmental Protection Agency ............................................................................. 19 18 18 ...................... N/A
Smithsonian ............................................................................................................... 6 6 6 ...................... N/A
U.S. Agency for International Development 6 ........................................................... 13 14 .................... N/A N/A
Total ...................................................................................................................... 1,706 1,667 1,544 –123 –7%

1 The amounts included as 2007 Estimates in these tables reflect the 2007 Budget levels, with the exception of the numbers for the Department of Defense and the De-
partment of Homeland Security, which are the enacted levels.
2 DHS NITRD funding information is not yet available.
3 Includes funds from offsetting collections for the Agency for Healthcare Research and Quality.
4 Includes funds from both the National Institutes of Health and National Institute of Occupational Safety and Health.
5 Beginning with the 2007 Estimate, NASA is no longer counting its Ground Network and Research Range within its CCSP totals.
6 USAID CCSP funding information for 2008 is not yet available.
6. FEDERAL INVESTMENT
Investment spending is spending that yields long- This chapter focuses solely on Federal and federally
term benefits. Its purpose may be to improve the effi- financed investment.
ciency of internal Federal agency operations or to in- In this chapter, investment is discussed in the fol-
crease the Nation’s overall stock of capital for economic lowing sections:
growth. The spending can be direct Federal spending • a description of the size and composition of Fed-
or grants to State and local governments. It can be eral investment spending;
for physical capital, which yields a stream of services • a discussion of the performance of selected Federal
over a period of years, or for research and development investment programs; and
or education and training, which are intangible but also • a presentation of trends in the stock of federally
increase income in the future or provide other long-
financed physical capital, research and develop-
term benefits.
ment, and education.
Most presentations in the Federal budget combine
investment spending with spending for current use.
PART I: DESCRIPTION OF FEDERAL INVESTMENT
For more than fifty years, the Federal budget has nal Federal agency operations, such as computer
included a chapter on Federal investment—defined as systems.
those outlays that yield long-term benefits—separately • A ‘‘social investment’’ perspective might broaden
from outlays for current use. In recent years the discus- the coverage of investment beyond what is in-
sion of the composition of investment has displayed cluded in this chapter to include programs such
estimates of budget authority as well as outlays. as childhood immunization, maternal health, cer-
The classification of spending between investment tain nutrition programs, and substance abuse
and current outlays is a matter of judgment. The budg- treatment, which are designed in part to prevent
et has historically employed a relatively broad classi- more costly health problems in future years.
fication, encompassing physical investment, research, The relatively broad definition of investment used
development, education, and training. The budget fur- in this section provides consistency over time—histor-
ther classifies investments into those that are grants ical figures on investment outlays back to 1940 can
to State and local governments, such as grants for high- be found in the separate Historical Tables volume.
ways or education, and all other investments, called Table 6–2 at the end of this section allows
‘‘direct Federal programs’’ in this analysis. This ‘‘direct disaggregation of the data to focus on those investment
Federal’’ category consists primarily of spending for as- outlays that best suit a particular purpose.
sets owned by the Federal Government, such as defense In addition to this basic issue of definition, there
weapons systems and general purpose office buildings, are two technical problems in the classification of in-
but also includes grants to private organizations and vestment data involving the treatment of grants to
individuals for investment, such as capital grants to State and local governments and the classification of
Amtrak or higher education loans directly to individ- spending that could be shown in more than one cat-
uals. egory.
Presentations for particular purposes could adopt dif- First, for some grants to State and local governments
ferent definitions of investment: it is the recipient jurisdiction, not the Federal Govern-
• To suit the purposes of a traditional balance sheet, ment, that ultimately determines whether the money
investment might include only those physical as- is used to finance investment or current purposes. This
sets owned by the Federal Government, excluding analysis classifies all of the outlays in the category
capital financed through grants and intangible as- where the recipient jurisdictions are expected to spend
sets such as research and education. most of the money. Hence, the community development
• Focusing on the role of investment in improving block grants are classified as physical investment, al-
national productivity and enhancing economic though some may be spent for current purposes. Gen-
growth would exclude items such as national de- eral purpose fiscal assistance is classified as current
fense assets, the direct benefits of which enhance spending, although some may be spent by recipient ju-
national security rather than economic growth. risdictions on physical investment.
• Concern with the efficiency of Federal operations Second, some spending could be classified in more
would confine the coverage to investments that than one category of investment. For example, outlays
reduce costs or improve the effectiveness of inter- for construction of research facilities finance the acqui-
55
sition of physical assets, but they also contribute to power, and natural resources projects of the Corps of
research and development. To avoid double counting, Engineers, the Bureau of Reclamation within the De-
the outlays are classified in the category that is most partment of the Interior, and the Tennessee Valley Au-
commonly recognized as investment. Consequently, out- thority; construction and rehabilitation of veterans hos-
lays for the conduct of research and development do pitals and Indian Health Service hospitals and clinics;
not include outlays for research facilities, because these facilities for space and science programs; Postal Service
outlays are included in the category for physical invest- facilities; construction for the administration of justice
ment. Similarly, spending for physical investment and programs (largely in the Department of Homeland Se-
research and development related to education and curity), construction of office buildings by the General
training is included in the categories of physical assets Services Administration, and construction for embassy
and the conduct of research and development. security. Outlays for the acquisition of major equipment
When direct loans and loan guarantees are used to are estimated to be $13.4 billion in 2008. The largest
fund investment, the subsidy value is included as in- amounts are for the air traffic control system; law en-
vestment. The subsidies are classified according to their forcement activities, largely in the Department of
program purpose, such as construction or education and Homeland Security and the Federal Bureau of Inves-
training. For more information about the treatment of tigation; and information systems in the Department
Federal credit programs, refer to Chapter 7, ‘‘Credit of Veterans Affairs.
and Insurance,’’ in this volume. Grants to State and local governments for physical
This section presents spending for gross investment, investment are estimated to be $71.8 billion in 2008.
without adjusting for depreciation. More than two-thirds of these outlays, or $51.6 billion,
Composition of Federal Investment Outlays are to assist States and localities with transportation
infrastructure, primarily highways. Other major grants
Major Federal Investment for physical investment fund sewage treatment plants,
community and regional development, and public hous-
The composition of major Federal investment outlays ing.
is summarized in Table 6–1. They include major public Conduct of research and development. Outlays for the
physical investment, the conduct of research and devel- conduct of research and development are estimated to
opment, and the conduct of education and training. De- be $127.0 billion in 2008. These outlays are devoted
fense and nondefense investment outlays were $430.4 to increasing basic scientific knowledge and promoting
billion in 2006. They are estimated to increase to $434.9 research and development. They increase the Nation’s
billion in 2007 and are projected to decline to $430.1 security, improve the productivity of capital and labor
billion in 2008. Major Federal investment outlays will for both public and private purposes, and enhance the
comprise an estimated 15 percent of total Federal out- quality of life. More than half of these outlays, an esti-
lays in 2008 and 3.0 percent of the Nation’s gross do- mated $72.9 billion, are for national defense. Physical
mestic product. Greater detail on Federal investment investment for research and development facilities and
is available in Table 6–2 at the end of this section. equipment is included in the physical investment cat-
That table includes both budget authority and outlays. egory.
Physical investment. Outlays for major public physical Nondefense outlays for the conduct of research and
capital investment (hereafter referred to as physical in- development are estimated to be $54.1 billion in 2008.
vestment outlays) are estimated to be $221.1 billion These are largely for the National Aeronautics and
in 2008. Physical investment outlays are for construc- Space Administration, the National Science Foundation,
tion and rehabilitation, the purchase of major equip- the National Institutes of Health, and research for nu-
ment, and the purchase or sale of land and structures. clear and non-nuclear energy programs.
Approximately two-thirds of these outlays are for direct A more complete and detailed discussion of research
physical investment by the Federal Government, with and development funding appears in Chapter 5, ‘‘Re-
the remainder being grants to State and local govern- search and Development,’’ in this volume.
ments for physical investment. Conduct of education and training. Outlays for the
Direct physical investment outlays by the Federal conduct of education and training are estimated to be
Government are primarily for national defense. Defense $82.1 billion in 2008. These outlays add to the stock
outlays for physical investment are estimated to be of human capital by developing a more skilled and pro-
$117.6 billion in 2008. Almost all of these outlays, or ductive labor force. Grants to State and local govern-
an estimated $107.8 billion, are for the procurement ments for this category are estimated to be $53.6 billion
of weapons and other defense equipment, and the rein 2008, more than three-fifths of the total. They in-
mainder is primarily for construction on military bases, clude education programs for the disadvantaged and
family housing for military personnel, and Department individuals with disabilities, other education programs,
of Energy defense facilities. training programs in the Department of Labor, and
Outlays for direct physical investment for nondefense Head Start. Direct Federal education and training out-
purposes are estimated to be $31.6 billion in 2008. lays are estimated to be $28.5 billion in 2008. Programs
These outlays include $18.3 billion for construction and in this category are primarily aid for higher education
rehabilitation. This amount includes funds for water, through student financial assistance, loan subsidies, the
6. FEDERAL INVESTMENT 57
Table 6–1. COMPOSITION OF FEDERAL INVESTMENT OUTLAYS

(In billions of dollars)
Estimate
2006
Actual 2007 2008
Major public physical capital investment:

Direct Federal:
National defense ................................................................................................... 97.3 113.3 117.6
Nondefense ........................................................................................................... 29.0 32.5 31.6
Subtotal, direct major public physical capital investment ............................... 126.3 145.8 149.2
Grants to State and local governments ................................................................... 64.1 69.2 71.8
Subtotal, major public physical capital investment .............................................. 190.4 215.0 221.1
Conduct of research and development:
National defense ........................................................................................................ 73.0 75.5 72.9
Nondefense ................................................................................................................ 49.8 52.7 54.1
Subtotal, conduct of research and development ................................................. 122.8 128.1 127.0

Conduct of education and training:
Grants to State and local governments ................................................................... 56.2 57.3 53.6
Direct Federal ............................................................................................................ 61.0 34.5 28.5
Subtotal, conduct of education and training ........................................................ 117.2 91.8 82.1
Total, major Federal investment outlays ..................................................... 430.4 434.9 430.1

MEMORANDUM
Major Federal investment outlays:
National defense ........................................................................................................ 170.3 188.7 190.6
Nondefense ................................................................................................................ 260.1 246.2 239.5
Total, major Federal investment outlays .............................................................. 430.4 434.9 430.1

Miscellaneous physical investment:
Commodity inventories .............................................................................................. –1.0 –0.2 0.2
Other physical investment (direct) ............................................................................ 3.1 3.2 3.4
Total, miscellaneous physical investment ............................................................ 2.1 3.0 3.6
Total, Federal investment outlays, including miscellaneous physical investment ....... 432.5 437.9 433.7
veterans GI bill, and health training programs. The Outlays for commodity inventories are primarily for
decline in spending from 2006 to 2007 reflects a signifi- the purchase or sale of agricultural products pursuant
cant decrease in estimates of Federal subsidies due to to farm price support programs. Purchases are esti-
reduced student loan consolidation activity. mated to exceed sales by $0.2 billion in 2008.
This category does not include outlays for education Outlays for other miscellaneous physical investment
and training of Federal civilian and military employees. are estimated to be $3.4 billion in 2008. This category
Outlays for education and training that are for physical includes primarily conservation programs. These are
investment and for research and development are in entirely direct Federal outlays.
the categories for physical investment and the conduct
of research and development. Detailed Table on Investment Spending
Miscellaneous Physical Investment The following table provides data on budget authority
In addition to the categories of major Federal invest- as well as outlays for major Federal investment divided
ment, several miscellaneous categories of investment according to grants to State and local governments and
outlays are shown at the bottom of Table 6–1. These direct Federal spending. Miscellaneous investment is
items, all for physical investment, are generally unre- not included because it is generally unrelated to im-
lated to improving Government operations or enhancing proving Government operations or enhancing economic
economic activity. activity.
Table 6–2. FEDERAL INVESTMENT BUDGET AUTHORITY AND OUTLAYS: GRANT AND DIRECT FEDERAL PROGRAMS
Budget Authority Outlays

Description 2006 2007 2008 2006 2007 2008
Actual Estimate Estimate Actual Estimate Estimate
GRANTS TO STATE AND LOCAL GOVERNMENTS

Major public physical investments:
Construction and rehabilitation:
Transportation:
Highways ............................................................................................................................. 36,357 37,555 39,943 33,975 34,914 37,621
Mass transportation ............................................................................................................ 9,768 8,738 9,273 8,430 10,048 10,276
Air transportation ................................................................................................................ 3,070 4,267 2,750 3,841 3,821 3,711
Subtotal, transportation .................................................................................................. 49,195 50,560 51,966 46,246 48,783 51,608
Other construction and rehabilitation:

Pollution control and abatement ........................................................................................ 1,878 1,961 1,748 1,740 1,685 1,546
Community and regional development .............................................................................. 22,054 5,173 3,535 6,310 9,147 9,231
Housing assistance ............................................................................................................. 6,169 6,127 5,525 7,750 7,566 7,563
Other construction .............................................................................................................. 579 311 289 553 533 379
Subtotal, other construction and rehabilitation .............................................................. 30,680 13,572 11,097 16,353 18,931 18,719
Subtotal, construction and rehabilitation ............................................................................ 79,875 64,132 63,063 62,599 67,714 70,327
Other physical assets .................................................................................................................. 1,423 1,372 1,299 1,515 1,494 1,507
Subtotal, major public physical capital ................................................................................... 81,298 65,504 64,362 64,114 69,208 71,834

Agriculture .................................................................................................................................... 266 275 229 270 284 276
Other ............................................................................................................................................ 169 165 164 171 130 130
Subtotal, conduct of research and development ................................................................... 435 440 393 441 414 406

Elementary, secondary, and vocational education ..................................................................... 38,295 36,230 36,936 37,984 38,258 35,467
Higher education ......................................................................................................................... 501 500 337 540 582 510
Research and general education aids ........................................................................................ 764 784 694 727 813 710
Training and employment ............................................................................................................ 4,965 5,157 4,803 4,801 4,749 4,543
Social services ............................................................................................................................. 10,109 10,239 9,567 10,015 10,255 9,873
Agriculture .................................................................................................................................... 456 456 436 423 443 496
Other ............................................................................................................................................ 1,700 2,216 1,997 1,682 2,189 1,979
Subtotal, conduct of education and training .......................................................................... 56,790 55,582 54,770 56,172 57,289 53,578
Subtotal, grants for investment .............................................................................................. 138,523 121,526 119,525 120,727 126,911 125,818
DIRECT FEDERAL PROGRAMS

Major public physical investment:
Construction and rehabilitation:
National defense:
Military construction and family housing ............................................................................ 9,500 9,407 11,527 6,439 8,870 9,426
Atomic energy defense activities and other ...................................................................... 668 628 489 654 577 504
Subtotal, national defense ............................................................................................. 10,168 10,035 12,016 7,093 9,447 9,930
Nondefense:
International affairs ............................................................................................................. 1,357 924 1,492 1,585 1,542 1,228
General science, space, and technology .......................................................................... 2,114 1,941 2,285 2,183 2,879 3,261
Water resources projects ................................................................................................... 4,815 2,823 2,746 3,161 4,289 3,000
Other natural resources and environment ......................................................................... 1,144 860 884 982 990 956
Energy ................................................................................................................................. 1,387 1,245 1,275 1,354 1,215 1,352
Postal Service ..................................................................................................................... 950 1,288 1,214 737 793 1,122
Transportation ..................................................................................................................... 130 136 64 91 218 123
Veterans hospitals and other health facilities .................................................................... 2,867 1,343 2,006 1,946 1,844 1,937
Administration of justice ..................................................................................................... 821 1,658 1,518 467 1,397 1,799
GSA real property activities ............................................................................................... 1,911 949 1,420 1,484 1,476 1,839
Table 6–2. FEDERAL INVESTMENT BUDGET AUTHORITY AND OUTLAYS: GRANT AND DIRECT FEDERAL PROGRAMS—Continued

Description 2006 2007 2008 2006 2007 2008
Other construction .............................................................................................................. 1,938 1,776 1,342 1,991 1,966 1,680
Subtotal, nondefense ..................................................................................................... 19,434 14,943 16,246 15,981 18,609 18,297
Subtotal, construction and rehabilitation ............................................................................ 29,602 24,978 28,262 23,074 28,056 28,227
Acquisition of major equipment:

National defense:
Department of Defense ...................................................................................................... 105,370 126,244 137,220 89,796 103,508 107,398
Atomic energy defense activities ....................................................................................... 510 490 383 444 344 354
Subtotal, national defense ............................................................................................. 105,880 126,734 137,603 90,240 103,852 107,752
Nondefense:
General science and basic research ................................................................................. 604 637 926 578 608 890
Space flight, research, and supporting activities ............................................................... 360 290 492 291 543 405
Postal Service ..................................................................................................................... 1,339 1,782 1,442 1,430 1,017 1,294
Air transportation ................................................................................................................ 3,310 3,333 860 2,615 2,737 1,817
Water transportation (Coast Guard) ................................................................................... 1,340 1,264 892 882 1,094 1,115
Other transportation (railroads) .......................................................................................... 1,293 1,114 900 1,257 1,188 900
Hospital and medical care for veterans ............................................................................. 1,132 236 770 784 633 604
Law enforcement activities ................................................................................................. 1,802 1,902 2,054 1,448 1,891 1,939
Department of the Treasury (fiscal operations) ................................................................. 237 251 331 261 214 278
Department of Commerce (NOAA) .................................................................................... 944 935 890 1,000 875 900
GSA general services funds .............................................................................................. 763 816 833 719 824 865
Other ................................................................................................................................... 2,038 1,767 2,544 1,473 1,952 2,425
Subtotal, nondefense ..................................................................................................... 15,162 14,327 12,934 12,738 13,576 13,432
Subtotal, acquisition of major equipment .......................................................................... 121,042 141,061 150,537 102,978 117,428 121,184
Purchase or sale of land and structures:

National defense ..................................................................................................................... –65 –39 –37 –65 –39 –37
Natural resources and environment ....................................................................................... 97 115 –323 145 129 –301
General government ............................................................................................................... 168 164 156 162 164 156
Other ........................................................................................................................................ 42 160 25 18 25 2
Subtotal, purchase or sale of land and structures ............................................................ 242 400 –179 260 279 –180
Subtotal, major public physical investment ............................................................................ 150,886 166,439 178,620 126,312 145,763 149,231

National defense:
Defense military ...................................................................................................................... 73,559 77,821 78,243 69,323 71,755 69,856
Atomic energy and other ........................................................................................................ 3,917 3,608 3,645 3,720 3,726 3,079
Subtotal, national defense .................................................................................................. 77,476 81,429 81,888 73,043 75,481 72,935
Nondefense:
International affairs .................................................................................................................. 255 255 255 258 258 258
General science, space, and technology:
NASA .................................................................................................................................. 8,227 9,131 9,330 6,807 8,438 9,445
National Science Foundation ............................................................................................. 3,806 3,780 4,373 3,707 3,943 3,894
Department of Energy ........................................................................................................ 2,914 2,943 3,394 2,966 3,013 3,192
Subtotal, general science, space, and technology ....................................................... 15,202 16,109 17,352 13,738 15,652 16,789
Energy ..................................................................................................................................... 1,219 1,364 1,409 1,156 1,241 1,409

Transportation:
Department of Transportation ............................................................................................ 792 729 788 563 576 499
NASA .................................................................................................................................. 893 589 730 722 736 669
Other ................................................................................................................................... 17 17 18 20 13 13
Subtotal, transportation .................................................................................................. 2,921 2,699 2,945 2,461 2,566 2,590
Health:
National Institutes of Health ............................................................................................... 27,524 27,641 27,956 26,695 26,974 27,580
Table 6–2. FEDERAL INVESTMENT BUDGET AUTHORITY AND OUTLAYS: GRANT AND DIRECT FEDERAL PROGRAMS—Continued

Description 2006 2007 2008 2006 2007 2008
All other health ................................................................................................................... 694 676 671 653 659 670
Subtotal, health .............................................................................................................. 28,218 28,317 28,627 27,348 27,633 28,250
Agriculture ............................................................................................................................... 1,588 1,485 1,397 1,509 1,511 1,458

Natural resources and environment ....................................................................................... 2,106 1,922 1,947 1,513 1,613 1,674
National Institute of Standards and Technology .................................................................... 366 319 398 398 378 409
Hospital and medical care for veterans ................................................................................. 824 818 822 799 809 799
All other research and development ...................................................................................... 1,919 1,547 1,728 1,545 2,084 1,701
Subtotal, nondefense .......................................................................................................... 53,144 53,216 55,216 49,311 52,246 53,670
Subtotal, conduct of research and development ................................................................... 130,620 134,645 137,104 122,354 127,727 126,605

Elementary, secondary, and vocational education ..................................................................... 1,355 1,326 1,080 1,656 1,634 1,343
Higher education ......................................................................................................................... 57,017 24,128 20,691 50,716 23,441 17,841
Research and general education aids ........................................................................................ 1,993 1,933 2,173 1,902 2,050 2,057
Training and employment ............................................................................................................ 359 359 364 469 549 534
Health ........................................................................................................................................... 1,353 1,351 994 1,334 1,311 1,222
Veterans education, training, and rehabilitation ......................................................................... 3,338 2,842 3,332 2,980 3,321 3,316
General science and basic research .......................................................................................... 889 886 945 902 909 992
National defense .......................................................................................................................... .................... ...................... ...................... 5 ...................... ......................
International affairs ...................................................................................................................... 485 474 515 448 462 499
Other ............................................................................................................................................ 655 555 611 595 826 672
Subtotal, conduct of education and training .......................................................................... 67,444 33,854 30,705 61,007 34,503 28,476
Subtotal, direct Federal investment ........................................................................................ 348,950 334,938 346,429 309,673 307,993 304,312
Total, Federal investment ............................................................................................................. 487,473 456,464 465,954 430,400 434,904 430,130
PART II: PERFORMANCE OF FEDERAL INVESTMENT
Introduction. In recent years there has been cent or more, Moderately Effective if the score is 70
increased emphasis on improving the performance of to 84 percent, Adequate if the score is 50 to 69 percent,
Government programs. This emphasis began with the and Inadequate if the score is 49 percent or lower.
Government Performance and Results Act of 1993, The program may receive a rating ‘‘Results Not Dem-
which requires agencies to prepare strategic plans and onstrated’’ if it does not have a good long-term and
annual performance plans, and then report on their annual performance measure or does not have data to
actual performance annually. report on its measures. Chapter 2 of this volume dis-
This Administration set out to ensure that agencies cusses the PART concepts in more detail.
worked to improve their performance, not just report This section summarizes the results of the PART for
on it. Beginning in the 2004 Budget, the Administration direct investment programs, defined to include capital
began to assess every Federal program by a method assets, research and development, and education and
known as the Program Assessment Rating Tool, or
training. Because an entire program is assessed, not
PART. The Administration set a target of assessing
just the investment portion of the program, the assess-
all Federal programs over five years. With this budget,
ments for some programs may cover more than just
the fifth year of using the PART, the Administration
has assessed nearly 1,000 programs, approximately 96 the investment spending. PART assessments of pro-
percent of the Federal budget. grams that are grants to State and local governments
The PART assesses each program in four components are not summarized in this chapter but are summarized
(purpose, planning, management, and results/account- in Chapter 8, ‘‘Aid to State and Local Governments,’’
ability) and gives a score for each of the components. in this volume.
The scores for each component are then weighted— This section summarizes 244 programs:
results/accountability carries the greatest weight—and • Programs for capital assets are essentially those
the program is given an overall score. A program is identified in the PART system as ‘‘capital assets
rated Effective if it receives an overall score of 85 per- and service acquisition’’ (92 programs);
• Programs for research and development are essen- Information on these and other programs assessed
tially those identified in the PART system as ‘‘re- by PART is at www.ExpectMore.gov.
search and development’’ (121 programs); and Summary of ratings. Table 6–3 shows that the aver-
• Programs for education and training (31 pro- age rating for the 244 investment programs that have
grams) are primarily programs in the Department been rated by PART was ‘‘Moderately Effective’’. Of
of Education (e.g., Federal Pell Grants) that are these programs:
not grants to State and local governments. This • 57 were rated Effective;
category also includes programs in other agencies, • 83 were rated Moderately Effective;
such as the Montgomery GI Bill in the Depart- • 55 were rated Adequate;
ment of Veterans Affairs, the Health Professions
• 8 were rated Ineffective; and
program in the Department of Health and Human
Services, and the Job Corps program in the De- • 41 were rated ‘‘Results Not Demonstrated’’.
partment of Labor.
Table 6–3. SUMMARY OF PART RATINGS AND SCORES FOR DIRECT FEDERAL INVESTMENT
PROGRAMS
(Excludes grants to State and local governments for investment)
Type of Investment
Criteria Physical Research and Education All investment
capital development and training programs
Average scores
Purpose .............................................................................................. 84% 92% 80% 88%

Planning .............................................................................................. 80% 83% 74% 81%
Management ....................................................................................... 83% 87% 72% 84%
Results/Accountability ........................................................................ 56% 60% 35% 55%
Weighted Average 1 ........................................................................... 69% 74% 55% 70%
Average Rating .................................................................................. Adequate Moderately Adequate Moderately
effective effective
Number of Programs
Ratings 2
Effective .............................................................................................. 20 35 2 57
Moderately effective ........................................................................... 31 49 3 83
Adequate ............................................................................................ 20 21 14 55
Ineffective ........................................................................................... 2 3 3 8
Results not demonstrated .................................................................. 19 13 9 41
Total number of investment programs rated .................................... 92 121 31 244

1 Weighted as follows: Purpose (20 percent), Planning (10 percent), Management (20 percent), Results/Accountability (50 per-
cent).
2 The rating of Effective indicates a score of 85 percent or more; Moderately Effective, 70–84 percent; Adequate, 50–69 per-
cent; and Ineffective, 49 percent or less.
Assessments of individual programs. The ratings of The Air Force acquisition system delivers equipment
ten of the largest physical capital and education and that generally meets its required performance goals and
training investment programs are summarized here. In- fulfills the warfighters’ needs. The acquisition system
formation on research and development is in Chapter does not include control mechanisms to effectively limit
5, ‘‘Research and Development’’ in this volume. factors which contribute to cost and schedule overruns.
While the acquisition system already includes a limited
Capital Assets
number of specific performance measures, additional
Department of Defense. Air Force Acquisition Sys- measures would help to better determine how well the
tems. ($31.8 billion in 2006). Rating: Moderately Effec- acquisition system is performing.
tive. This program acquires the equipment and other Department of Defense. Marine Corps/Expeditionary
materiel needed by the Air Force to enable it to fulfill Warfare. ($14.0 billion in 2006). Rating: Moderately Ef-
its mission of defeating enemy forces and protecting fective. Expeditionary warfare is the temporary use of
American troops. Marine Corps force in foreign countries. The expedi-
tionary warfare program consists of specific investment
programs for aviation assets, amphibious ships, weap- locally owned distributors, TVA provides power to near-
ons systems, equipment, vehicles, ammunition, and rely 8.5 million residents of the Tennessee Valley. Some
search and development. of TVA’s former performance measures such as cents/
The Department of Defense (DoD) has articulated a KWH are no longer tracked. It is unclear how some
limited number of long-term performance measures for of the new efficiency measures tracked by TVA relate
the expeditionary warfare program in response to an to program performance. The Tennessee Valley Author-
earlier assessment. DoD has identified goals related to ity committed to a debt reduction plan that will reduce
Joint and Coalition Proficiency, Operational Reach, its total debt $3 billion - $5 billion over a ten to twelve
Force Projection, Sustainability, and Operational and year period. TVA has since increased that debt reduc-
Organizational Adaptability for the expeditionary war- tion total to $7.8 billion by 2016.
fare capability. Department of Energy. Environmental Management
Department of Defense. Navy Shipbuilding ($13.4 bil- ($7.9 billion in 2006). Rating: Adequate. This program
lion in 2006). Rating: Adequate.This program buys new protects human health and the environment by cleaning
ships and overhauls existing ships. New ships are built up millions of gallons of radioactive waste, thousands
at six privately-owned shipyards. Overhauls of existing of tons of spent nuclear fuel and special nuclear mate-
ships are performed at both privately-owned and pub- rial, along with huge quantities of contaminated soil
licly-owned shipyards. The Navy currently has 281 and water.
ships in the fleet. Managers are implementing reforms that are improv-
The Navy has specific cost, schedule, and performing program performance. For example, the program
ance goals for each shipbuilding program. The Navy is renegotiating cleanup contracts to include perform-
conducts periodic reviews of programs at major mile- ance incentives. The program is also reorganizing oper-
stones of development and uses a structured reporting ations to focus on risk reduction. The program needs
regime to help monitor the status of ship cost, schedule, to develop annual cost and schedule performance meas-
and performance. The Navy has experienced cost in- ures. The Department of Energy Inspector General and
creases and schedule slips on some ship construction the Government Accountability Office have identified
programs, although overall performance is adequate. better performance measures as critical to assessing
Department of Defense (DoD). Air Combat Program
program achievements.
($13.4 billion in 2006). Rating: Moderately Effective. The
Department of Defense. Missile Defense ($7.7 billion
purpose of this program is to enable DoD to successfully
in 2006). Rating: Adequate. The mission of the Missile
wage war in the air by developing and producing a
Defense Agency (MDA) is to defend the United States,
variety of tactical fighter and strike aircraft.
deployed forces, and allies from ballistic missile attack.
DoD’s management of the overall air combat program
is currently based on the extensive system of regula- MDA is researching, developing and fielding a global,
tions governing how individual acquisition programs integrated and multi-layered Ballistic Missile Defense
are managed. Through these regulations DoD tracks System (BMDS), comprising multiple sensors, intercep-
the progress of individual programs and can hold man- tors and battle management capabilities.
agers accountable for their programs. DoD’s individual MDA’s strategic planning, resource allocation and
programs within the overall air combat program are management oversight activities are properly aligned
delivering aircraft at targeted rates, but in several to accomplish stated mission objectives. MDA budget
cases, such as the F/A–22, at greater cost than pro- requests and human resource management activities
jected. are explicitly tied to appropriate performance goals.
Department of Defense. Future Combat Systems/ MDA leaders regularly review and evaluate a wide
Modularity Land Warfare ($9.7 billion in 2006). Rating: array of performance data to inform and guide their
Moderately Effective. The Army’s complementary trans- decisionmaking.
formation initiatives, Modularity and the Future Com- Education
bat Systems, are designed to provide regional combat-
ant commanders and soldiers with a lighter, faster, Department of Education. Federal Pell Grants ($17.3
more survivable and rapidly deployable force with billion in 2006). Rating: Adequate. This program helps
which to fight and win the United States’ current and ensure access to postsecondary education for under-
future land conflicts. graduate students by providing need-based grants that,
Although the Future Combat Systems program is cur- in combination with other sources of student aid, help
rently on schedule and on cost, the program’s long meet education costs. The program also promotes life-
schedule, significant cost, and technological complexity long learning by encouraging low-income adults to re-
put Future Combat Systems at substantial risk of cost turn to school.
and schedule overruns as the program moves from re- The program has meaningful performance measures
search and development to acquisition. and outcome data on these measures such as the degree
Tennessee Valley Authority. Tennessee Valley Author- to which Pell Grants are targeted to low-income stu-
ity Power ($9.3 billion in 2006). Rating: Moderately Ef- dents. New measures such as enrollment and gradua-
fective. The Tennessee Valley Authority (TVA) is the tion rates among low-income and minority students
Nation’s largest public power company. Through 158 have also been added. The program has met its current
long-term performance goals and new measures will Overall, the assessment concluded that both this pro-
help track other key program goals. gram and the William D. Ford Direct Student Loan
Department of Education. Federal Family Education program fulfill their purpose of ensuring that low- and
Loan Program ($17.3 billion (subsidy cost) in 2006). middle-income students can afford the costs of postsec-
Rating: Adequate. This program provides default insur- ondary education. The two programs combined provide
ance and interest subsidies to encourage private lenders over $70 billion a year in new loans to students. While
to make postsecondary education loans to under- the PART found that the program had meaningful per-
graduate and graduate students. The program also pro- formance measures and outcome data, it also found
vides interest subsidies for eligible low-income students that it could be more cost efficient.
to cover interest accrued while in school.
PART III: FEDERALLY FINANCED CAPITAL STOCKS
Federal investment spending creates a ‘‘stock’’ of cap- created, even after adjusting for inflation, because the
ital that is available in the future for productive use. value of existing capital changes over time due to
Each year, Federal investment outlays add to this stock changing market conditions. However, alternative
of capital. At the same time, however, wear and tear methods for measuring asset value, such as direct sur-
and obsolescence reduces it. This section presents very veys of current market worth or indirect estimation
rough measures over time of three different kinds of based on an expected rate of return, are especially dif-
capital stocks financed by the Federal Government: ficult to apply to assets that do not have a private
public physical capital, research and development market, such as highways or weapons systems.
(R&D), and education. In contrast to physical and R&D stocks, the estimate
Federal spending for physical assets adds to the Na- of the education stock is based on the replacement cost
tion’s capital stock of tangible assets, such as roads, method. Data on the total years of education of the
buildings, and aircraft carriers. These assets deliver U.S. population are combined with data on the current
a flow of services over their lifetime. The capital depre- cost of education and the Federal share of education
ciates as the asset ages, wears out, is accidentally dam- spending to yield the cost of replacing the Federal share
aged, or becomes obsolete. of the Nation’s stock of education.
Federal spending for the conduct of R&D adds to It should be stressed that these estimates are rough
an ‘‘intangible’’ asset, the Nation’s stock of knowledge. approximations, and provide a basis only for making
Spending for education adds to the stock of human broad generalizations. Errors may arise from uncer-
capital by providing skills that help make people more tainty about the useful lives and depreciation rates of
productive. Although financed by the Federal Govern- different types of assets, incomplete data for historical
ment, the R&D or education can be carried out by Fed- outlays, and imprecision in the deflators used to ex-
eral or State government laboratories, universities and press costs in constant dollars. The methods used to
other nonprofit organizations, local governments, or pri- estimate capital stocks are discussed further in the
vate industry. R&D covers a wide range of activities, technical note at the end of Chapter 13, ‘‘Stewardship,’’
from the investigation of subatomic particles to the ex- in this volume. Additional detail about these methods
ploration of outer space; it can be ‘‘basic’’ research with- appeared in a methodological note in Chapter 7, ‘‘Fed-
out particular applications in mind, or it can have a eral Investment Spending and Capital Budgeting,’’ in
highly specific practical use. Similarly, education in- the Analytical Perspectives volume of the 2004 Budget.
cludes a wide variety of programs, assisting people of
all ages beginning with pre-school education and ex- The Stock of Physical Capital
tending through graduate studies and adult education. This section presents data on stocks of physical cap-
Like physical assets, the capital stocks of R&D and ital assets and estimates of the depreciation of these
education provide services over a number of years and assets.
depreciate as they become outdated. Trends. Table 6–4 shows the value of the net feder-
For this analysis, physical and R&D capital stocks ally financed physical capital stock since 1960, in con-
are estimated using the perpetual inventory method. stant fiscal year 2000 dollars. The total stock grew at
Each year’s Federal outlays are treated as gross invest- a 2.2 percent average annual rate from 1960 to 2006,
ment, adding to the capital stock; depreciation reduces with periods of faster growth during the late 1960s
the capital stock. Gross investment less depreciation and the 1980s. The stock amounted to $2,315 billion
is net investment. The estimates of the capital stock in 2006 and is estimated to increase to $2,454 billion
are equal to the sum of net investment in the current by 2008. In 2006, the national defense capital stock
and prior years. A limitation of the perpetual inventory accounted for $700 billion, or 30 percent of the total,
method is that the original investment spending may and nondefense stocks for $1,615 billion, or 70 percent
not accurately measure the current value of the asset of the total.
Table 6–4. NET STOCK OF FEDERALLY FINANCED PHYSICAL CAPITAL

(In billions of 2000 dollars)
Nondefense
Direct Federal Capital Capital Financed by Federal Grants

National
Fiscal Year Total Total
Defense Non- Water Community
Trans- Natural
defense Total and Other Total and Other
portation Resources
Power Regional
Five year intervals:

1960 .................................................... 849 608 242 95 59 36 146 89 27 21 10
1965 .................................................... 937 589 348 123 74 49 225 158 32 22 13
1970 .................................................... 1,101 630 470 146 88 58 324 230 47 26 21
1975 .................................................... 1,137 545 592 166 102 64 426 282 76 42 25
1980 .................................................... 1,258 494 763 195 123 72 568 342 121 79 27
1985 .................................................... 1,462 572 890 222 136 86 668 397 146 100 26
1990 .................................................... 1,740 722 1,018 256 147 109 762 462 158 113 28
1995 .................................................... 1,882 714 1,168 297 157 141 871 534 168 123 46
Annual data:
2000 .................................................... 1,979 635 1,345 337 160 178 1,007 618 183 131 75
2001 .................................................... 2,023 631 1,391 351 163 188 1,040 640 186 132 81
2002 .................................................... 2,078 636 1,442 366 165 201 1,076 666 189 134 87
2003 .................................................... 2,138 646 1,492 380 166 213 1,112 690 193 135 94
2004 .................................................... 2,198 662 1,536 391 168 223 1,146 714 196 136 100
2005 .................................................... 2,256 680 1,576 400 168 232 1,176 736 198 137 105
2006 .................................................... 2,315 700 1,615 410 169 240 1,205 758 200 138 109
2007 estimate ..................................... 2,387 729 1,658 421 171 250 1,236 781 203 139 114
2008 estimate ..................................... 2,454 756 1,697 431 172 259 1,267 804 207 139 117
Real stocks of defense and nondefense capital show capital, coupled with slower growth in direct Federal
very different trends. Nondefense stocks have grown investment for water resources, for example, shifted the
consistently since 1970, increasing from $470 billion composition of the stock substantially. In 2006, 25 per-
in 1970 to $1,615 billion in 2006. With the investments cent of the nondefense stock was owned by the Federal
proposed in the budget, nondefense stocks are esti- Government and 75 percent by State and local govern-
mated to grow to $1,697 billion in 2008. During the ments.
1970s, the nondefense capital stock grew at an average The growth in the stock of physical capital financed
annual rate of 5.0 percent. In the 1980s, however, the by grants has come in several areas. The growth in
growth rate slowed to 2.9 percent annually, with growth the stock for transportation is largely grants for high-
continuing at about that rate since then. ways, including the Interstate Highway System. The
Real national defense stocks began in 1970 at a rel- growth in community and regional development stocks
atively high level, and declined steadily throughout the occurred largely following the enactment of the commu-
decade as depreciation from investment in the Vietnam nity development block grant in the early 1970s. The
era exceeded new investment in military construction value of this capital stock has grown only slowly in
and weapons procurement. Starting in the early 1980s, the past few years. The growth in the natural resources
a large defense buildup began to increase the stock area occurred primarily because of construction grants
of defense capital. By 1987, the defense stock exceeded for sewage treatment facilities. The value of this feder-
its earlier Vietnam-era peak. In the early 1990s, how- ally financed stock has increased about 40 percent since
ever, depreciation on the increased stocks and a slower the mid-1980s.
pace of defense physical capital investment began to
reduce the stock from its previous levels. The increased The Stock of Research and Development Capital
defense investment in the last few years has reversed
this decline, increasing the stock from a low of $631 This section presents data on the stock of research
billion in 2001 to $756 billion in 2008. and development (R&D) capital, taking into account ad-
Another trend in the Federal physical capital stocks justments for its depreciation.
is the shift from direct Federal assets to grant-financed Trends. As shown in Table 6–5, the R&D capital
assets. In 1960, 39 percent of federally financed non- stock financed by Federal outlays is estimated to be
defense capital was owned by the Federal Government, $1,142 billion in 2006 in constant 2000 dollars. Roughly
and 61 percent was owned by State and local govern- half is the stock of basic research knowledge; the re-
ments but financed by Federal grants. Expansion in mainder is the stock of applied research and develop-
Federal grants for highways and other State and local ment.
The nondefense stock accounted for about three-fifths 1990 led to a more rapid growth of the R&D stock.
of the total federally financed R&D stock in 2006. Al- Subsequently, real defense R&D outlays tapered off,
though investment in defense R&D has exceeded that depreciation grew, and, as a result, the real net defense
of nondefense R&D in nearly every year since 1981, R&D stock stabilized at around $420 billion. Renewed
the nondefense R&D stock is actually the larger of the spending for defense R&D in recent years has begun
two, because of the different emphasis on basic research to increase the stock, and it is projected to increase
and applied research and development. Defense R&D to $468 billion in 2008.
spending is heavily concentrated in applied research The growth of the nondefense R&D stock slowed from
and development, which depreciates much more quickly the 1970s to the 1980s, from an annual rate of 3.8
than basic research. The stock of applied research and percent in the 1970s to a rate of 2.1 percent in the
development is assumed to depreciate at a ten percent 1980s. Gross investment in real terms fell during much
geometric rate, while basic research is assumed not of the 1980s, and about three-fourths of new outlays
to depreciate at all. went to replacing depreciated R&D. Since 1988, how-
The defense R&D stock rose slowly during the 1970s, ever, nondefense R&D outlays have been on an upward
as gross outlays for R&D trended down in constant trend while depreciation has edged down. As a result,
dollars and the stock created in the 1960s depreciated. the net nondefense R&D capital stock has grown more
Increased defense R&D spending from 1980 through rapidly.
Table 6–5. NET STOCK OF FEDERALLY FINANCED RESEARCH AND DEVELOPMENT 1

National Defense Nondefense Total Federal
Applied Applied Applied

Fiscal Year Basic Research Basic Research Basic Research
Total Total Total
Research and Research and Research and
Development Development Development

1970 .................................................................. 261 16 245 215 67 148 475 82 393
1975 .................................................................. 276 21 255 262 97 165 538 118 421
1980 .................................................................. 279 25 255 311 131 179 590 156 434
1985 .................................................................. 321 30 291 339 174 165 659 204 455
1990 .................................................................. 403 36 367 382 229 154 785 265 520
1995 .................................................................. 423 43 380 461 294 167 884 336 547
Annual data:
2000 .................................................................. 423 48 375 542 368 175 966 416 549
2001 .................................................................. 421 50 371 563 386 177 984 436 548
2002 .................................................................. 420 52 368 587 406 181 1,007 458 549
2003 .................................................................. 423 53 370 613 428 186 1,036 481 555
2004 .................................................................. 431 54 376 639 449 190 1,070 504 566
2005 .................................................................. 442 56 386 665 471 194 1,107 527 580
2006 .................................................................. 452 57 395 690 493 197 1,142 549 593
2007 estimate .................................................. 462 58 404 716 513 203 1,178 572 606
2008 estimate .................................................. 468 59 409 742 535 207 1,210 594 616
1 Excludes stock of physical capital for research and development, which is included in Table 6–4.
The Stock of Education Capital ments, and by students and their families themselves.
This section presents estimates of the stock of edu- This federally financed portion of the stock represents
cation capital financed by the Federal Government. about 3 percent of the Nation’s total education stock. 1
As shown in Table 6–6, the federally financed edu- Nearly three-quarters is for elementary and secondary
cation stock is estimated at $1,451 billion in 2006 in education, while the remainder is for higher education.
constant 2000 dollars. The vast majority of the Nation’s 1 For estimates of the total education stock, see table 13–5 in Chapter 13, ‘‘Stewardship.’’
education stock is financed by State and local govern-
The federally financed education stock has grown The expansion of the education stock is projected to
steadily in the last few decades, with an average an- continue under this budget, with the stock rising to
nual growth rate of 5.2 percent from 1970 to 2006. $1,557 billion in 2008.
Table 6–6. NET STOCK OF FEDERALLY FINANCED EDUCATION

CAPITAL
Total Elementary Higher

Fiscal Year Education and Secondary Education
Stock Education

1960 ............................................................................... 71 51 20
1965 ............................................................................... 102 74 28
1970 ............................................................................... 234 184 50
1975 ............................................................................... 349 282 67
1980 ............................................................................... 482 379 103
1985 ............................................................................... 577 434 143
1990 ............................................................................... 736 549 188
1995 ............................................................................... 880 643 237
Annual data:
2000 ............................................................................... 1,133 825 308
2001 ............................................................................... 1,184 859 325
2002 ............................................................................... 1,227 890 336
2003 ............................................................................... 1,267 924 343
2004 ............................................................................... 1,328 961 367
2005 ............................................................................... 1,383 1,013 370
2006 ............................................................................... 1,451 1,057 394
2007 estimate ................................................................ 1,505 1,099 406
2008 estimate ................................................................ 1,557 1,141 415
7. CREDIT AND INSURANCE
Federal credit and insurance programs are alter- guaranteed. By law, GSE securities carry a disclaimer
natives to direct spending programs as means of achiev- of any U.S. obligation.
ing a variety of policy objectives. Federal credit pro- This chapter discusses the roles of these diverse pro-
grams offer direct loans and loan guarantees to support grams and assesses their effectiveness and efficiency.
a wide range of activities including housing, education, • The first section emphasizes the roles of Federal
business and community development, and exports. At credit and insurance programs in addressing mar-
the end of 2006, there were $251 billion in Federal ket imperfections that may prevent the private
direct loans outstanding and $1,120 billion in loan market from efficiently providing credit and insur-
guarantees. Through its insurance programs, the Fed- ance. Federal programs are more useful where
eral Government insures bank, thrift, and credit union market imperfections remain serious even though
deposits, guarantees private defined-benefit pensions,
the continued evolution and deepening of financial
and insures against other risks such as natural disas-
ters. markets may have in part corrected many of the
The Federal Government also permits certain pri- imperfections.
vately owned companies, called Government-Sponsored • The second section interprets the results of the
Enterprises (GSEs), to operate under Federal charters Program Assessment Rating Tool (PART) for cred-
for the purpose of enhancing credit availability for tar- it and insurance programs in relation to their dis-
geted sectors. GSEs increase liquidity by guaranteeing tinguishing features.
and securitizing loans, as well as by providing direct • The third section discusses individual credit pro-
loans. In return for advancing certain social goals and grams and GSEs intended to support four sectors:
possibly improving economic efficiency, GSEs enjoy var- housing, education, business and community de-
ious special privileges, such as possible borrowing from velopment, and exports. The discussion focuses on
Treasury at Treasury’s discretion, exemption from State program objectives, recent developments, perform-
and local income taxation, and favorable regulatory ance, and future plans for each program.
treatments of their securities. These privileges may • In a similar format, the final section reviews Fed-
leave observers with the impression that GSE securities eral deposit insurance, pension guarantees, dis-
are risk-free. GSEs, however, are not part of the Fed- aster insurance, and insurance against terrorism
eral Government, and GSE securities are not federally and other security-related risks.
I. FEDERAL PROGRAMS IN CHANGING FINANCIAL MARKETS
The Federal Role tions can cause inefficiencies, the presence of a market
In most cases, private lending and insurance compa- imperfection does not mean that Government interven-
nies efficiently meet economic demands by allocating tion will be always effective. To be effective, a credit
resources to their most productive uses. Market imper- or insurance program should be carefully designed to
fections, however, can cause inadequate provision of reduce inefficiencies in the targeted area without caus-
credit or insurance in some sectors. Federal credit and ing inefficiencies elsewhere.
insurance programs improve economic efficiency if they Insufficient Information. Financial intermediaries
effectively fill the gaps created by market imperfections. may fail to allocate credit to the most deserving bor-
On the other hand, Federal credit and insurance pro- rowers if there is little objective information about some
grams that do not effectively address market imperfec- of the borrowers. Some groups of borrowers, such as
tions can be unnecessary, or can even be counter-pro- start-up businesses and some families, have limited in-
ductive—they may simply do what the private sector comes and credit histories. Many creditworthy bor-
would have done in their absence, or interfere with rowers belonging to these groups may fail to obtain
what the private sector would have done better. Federal credit or be forced to pay excessively high interest. For
credit and insurance programs also help disadvantaged very irregular events, such as natural and man-made
groups. This role alone, however, may not be enough disasters, there may not be sufficient information to
to justify credit and insurance programs; to help dis- estimate the probability and magnitude of the loss. This
advantaged groups, direct subsidies are generally more pricing difficulty may prevent insurers from covering
effective and less distortionary. those risks at reasonable premiums.
Relevant market imperfections include insufficient in-
formation, limited ability to secure resources, imperfect Limited Ability to Secure Resources. The ability
competition, and externalities. Although these imperfec- of private entities to absorb losses is more limited than
67
that of the Federal Government, which has general tax- The need for the Federal government to address the
ing authority. For some events potentially involving a information problem has diminished steadily over the
very large loss concentrated in a short time period, years. Nowadays, lenders and insurers have easy access
therefore, Government insurance commanding more re- to large databases, powerful computing devices, and so-
sources can be more credible and effective. Such events phisticated analytical models. This advancement in
include massive bank failures and some natural and communication and information processing technology
man-made disasters that can threaten the solvency of enables lenders to evaluate risk more objectively and
private insurers. accurately. Also, potential borrowers tend to have ac-
cess to a much wider array of possible local, national,
Imperfect Competition. Competition can be imper- and global lenders. As a result, most borrowers can
fect in some markets because of barriers to entry or easily obtain credit at a fair interest rate reflecting
economies of scale. Imperfect competition may result their risk. The improvement, however, may be uneven
in higher prices of credit and insurance in those mar- across sectors. Credit scoring (an automated process
kets. that converts relevant borrower characteristics into a
numerical score indicating creditworthiness), for exam-
Externalities. Decisions at the individual level are ple, is considered as a breakthrough in borrower screen-
not socially optimal when individuals do not capture ing. While credit scoring is widely applied to home
the full benefit (positive externalities) or bear the full mortgages and consumer loans, it is applied to a limited
cost (negative externalities) of their activities. Edu- extent for small business loans and agricultural loans
cation, for example, generates positive externalities be- due to the difficulty of standardizing unique character-
cause the general public benefits from the high produc- istics of small businesses and farmers. It is also pos-
tivity and good citizenship of a well-educated person. sible that banking consolidation adversely affects those
Pollution, from which other people suffer, is clearly a borrowers with unique characteristics; small, local
negative externality. Without Government intervention, banks could serve those borrowers better if they had
people will engage less than socially optimal in activi- more borrower-specific information gained through
ties that generate positive externalities and more in long-term relations. With technological advances such
activities that generate negative externalities. as computer simulation, pricing catastrophe risks has
Effects of Changing Financial Markets become easier, but it remains much more difficult than
pricing more regular events such as automobile acci-
Financial markets have become much more efficient dents. It is still difficult for insurers to estimate with
through technological advances and financial services confidence the probability of a major natural disaster
deregulation. By facilitating the gathering and proc- occurring. The difficulty may be greater for man-made
essing of information and lowering transaction costs, disasters that lack scientific bases.
technological advances have significantly contributed to Financial evolution has also improved private insur-
improving the screening of credit and insurance appli- ers’ ability to deal with catastrophic losses. Using finan-
cants, enhancing liquidity, refining risk management, cial derivatives such as options, swaps, and futures,
and spurring competition. Deregulation, represented by private entities can manage and share various types
the Riegle-Neal Interstate Banking and Branching Act of risk such as price risk, interest rate risk, credit risk,
of 1997 and the Financial Services Modernization Act and even catastrophe-related risk. An insurer can dis-
of 1999, has increased competition and prompted effi- tribute the risk of a natural or man-made catastrophe
ciency-improving consolidation by removing geographic among a large number of investors through catas-
and industry barriers. trophe-related derivatives. However, the market for ca-
These changes have reduced market imperfections. tastrophe-related derivatives is still small, and it has
The private market now has more information and bet- not eliminated the difficulty of absorbing catastrophic
ter technology to process it; it has better means to losses yet. To address this difficulty, reinsurance may
secure resources; and it is more competitive. As a re- be preferred to direct provision of insurance because
sult, the private market is more willing and able to it involves less intervention.
serve a portion of the population traditionally targeted Imperfect competition is much less likely to justify
by Federal programs. The benefits of technological ad- Federal involvement than was the case only a few years
vances and deregulation, however, have been uneven ago due to financial deregulation and improved commu-
across sectors and populations. To remain effective, nication and financing technology. Financial deregula-
therefore, Federal credit and insurance programs need tion removed geographic and industry barriers to com-
to focus more narrowly on those sectors that have been petition. As a result, major financial holding companies
less affected by financial evolution and those popu- offer both banking and insurance products nationwide.
lations that still have difficulty in obtaining credit or Internet-based financial services have further lowered
insurance from private lenders. The Federal Govern- the cost of financial transactions and reduced the im-
ment also needs to pay more attention to new chal- portance of physical location. These developments have
lenges introduced by financial evolution and other eco- been especially beneficial to small and geographically
nomic developments. Even those changes that are bene- isolated customers who could not afford to bear large
ficial overall often bring new risks and challenges. transactions costs and otherwise had limited access to
7. CREDIT AND INSURANCE 69
financial services. In addition, there are more financing developments, however, are often accompanied by new
alternatives for both commercial and individual bor- risks. Federal agencies need to be vigilant to identify
rowers that used to rely heavily on banks. Venture and manage new risks to the economy and to the Budg-
capital, for example, has become a much more impor- et. For example, financial derivatives enable their users
tant financing source for small businesses. Finance either to decrease or to increase risk exposure. If some
companies have also become a prominent player both beneficiaries of Federal programs use financial deriva-
in business and consumer financing. tives to take more risk, the costs of Federal programs,
Problems related to externalities may persist because especially insurance programs, can rise sharply. The
the price mechanisms that drive the private market sheer size of some financial institutions has also created
by definition ignore the value of externalities. a new risk. While well-diversified institutions are gen-
Externalities, however, are a general market failure,
erally safer, even a single failure of a large private
rather than a financial market failure. Thus, credit and
institution or a GSE, such as Fannie Mae, Freddie Mac,
insurance programs are not necessarily the best means
to address externalities, and their effectiveness should and the Federal Home Loan Banks, could shake the
be compared with other forms of Government interven- entire financial market. A more visible risk to the
tion, such as tax incentives and grants. In particular, Budget today is posed by the Pension Benefit Guaranty
if a credit program was initially intended to address Corporation (PBGC). PBGC has a large shortfall in as-
multiple problems, including externalities, and those sets and projected earnings relative to the claims it
other problems have been alleviated, there may be a is already obligated to pay due to unfavorable develop-
better way to address any remaining externalities. ments in recent years and to flaws in program structure
Overall, the financial market has become more effi- that the Administration proposes to remedy.
cient and safer. Financial evolution and other economic
II. PERFORMANCE OF CREDIT AND INSURANCE PROGRAMS
The Program Assessment Rating Tool (PART) has Some key features distinguish credit and insurance
evaluated 977 Federal programs, including 34 credit programs from other programs. Credit and insurance
programs and seven insurance programs. The PART programs are intended to address imperfections in fi-
evaluates programs in four areas (program purpose and nancial markets. They also face various risks, such as
design, strategic planning, program management, and uncertain default rates and erratic claim rates. Inter-
program results) and assigns a numerical score (0 to preting PART results in relation to these features
100) to each category. The overall rating (effective, mod- should help to identify fundamental problems and to
erately effective, adequate, ineffective, or results not devise effective solutions.
demonstrated) is determined based on the numerical
scores and the availability of reliable data. Program Purpose and Design. To be effective,
The ratings for credit and insurance programs are credit and insurance programs should serve those who
clustered around the middle; 78 percent of credit and deserve to be served but are left out by the private
insurance programs (compared with 58 percent for market due to market imperfections. Extending credit
other programs) are rated ‘‘adequate’’ or ‘‘moderately to those who are not creditworthy, for example, would
effective,’’ while only seven percent (17 percent for other result in economic inefficiencies and large budget costs.
programs) are rated ‘‘effective.’’ These results suggest Lending to those who can obtain credit at a reasonable
that most credit and insurance programs meet basic rate in the private market would be unnecessary and
standards, but need to improve. In individual cat- might interfere with the market mechanism. To achieve
egories, credit and insurance programs have scored no- intended outcomes without causing unintended con-
ticeably low in program purpose and design and high sequences, therefore, credit and insurance programs
in program results relative to other programs. need to be carefully designed; they should target the
SUMMARY OF PART SCORES

Purpose Program
Strategic Program
and Manage-
Planning Results
Design ment
Credit and Insurance Programs

Average ......................................................... 78.5 74.2 86.0 55.7
Standard Deviation ........................................ 19.9 24.0 18.4 19.0
All Others Excluding Credit and Insurance
Programs
Average ......................................................... 87.1 75.0 82.2 48.2
Standard Deviation ........................................ 18.4 24.6 17.9 26.6
intended beneficiaries, and all parties in the transaction costs. However, some weaknesses are found in areas
should face the correct incentives. that are more critical for effective risk management,
The PART indicates that most credit and insurance such as collecting timely information and using sophis-
programs have clear purposes (not necessarily economi- ticated financial tools.
cally justifiable purposes) and address specific needs.
Many credit and insurance programs, however, fail to Program Results. The main difficulty in evaluating
score high in program design. Some are duplicative of program performance is measuring the net outcome of
other federal programs or private sources, and some the program (improvement in the intended outcome net
offer inadequate incentive structures. of what would have occurred in the absence of the
program). Suppose that an education program is in-
Strategic Planning. Financial markets have been tended to increase the number of college graduates.
evolving to serve target populations of Federal pro- Although it is straightforward to measure the number
grams better and increasingly apply advanced tech- of college graduates who were assisted by the program,
nologies to risk assessments. Credit and insurance pro- it is difficult to tell how many of those would not have
grams need to adapt to these new developments quick- obtained a college degree without the program’s assist-
ly. Falling behind, Federal programs can be left with ance. Credit and insurance programs face an additional
many beneficiaries who do not really need Government difficulty of estimating the program cost accurately. In
help and with those who post greater risk as private evaluating programs, the outcome must be weighed
entities attract better-risk beneficiaries away from Fed-
against the cost. In the above example, the ultimate
eral programs.
measure of effectiveness is not the net number of col-
In subcategories of strategic planning, while most
lege graduates produced by the program but the net
credit and insurance programs effectively execute short-
term strategies, they are less effective in pursuing long- number per Federal dollar spent on the program. Thus,
term goals that may be more critical in adapting to an inaccurate cost estimate would lead to incorrect pro-
new developments. Other weaknesses are found in con- gram evaluation—an underestimation (overestimation)
ducting stringent performance evaluation and tying of the cost would make the program appear unduly
budgets to performance outcomes. effective (ineffective). Results for credit and insurance
programs need to be interpreted in conjunction with
Program Management. Risk management is a crit- the accuracy of cost estimation.
ical element of credit and insurance programs. The Program results, the most important category of per-
cashflow is uncertain both for credit and insurance pro- formance, are generally weak for credit and insurance
grams. The default rate and the claim rate can turn programs despite a higher average score than that of
out to be significantly different than expected. Credit other programs. Many credit and insurance programs
programs also face prepayment and interest rate risks. have difficulty in achieving performance goals and lack
These risks must be carefully managed to ensure the objective evidences of program effectiveness. These
program cost stays within a reasonable range. problems may partly result from the difficulty of meas-
Credit and insurance programs show strengths in uring net outcomes. With reliable outcome measures,
basic financial and accounting practices, such as spend- it should be easier to set achievable goals and dem-
ing funds for intended purposes and controlling routine onstrate effectiveness.
III. CREDIT IN FOUR SECTORS
Housing Credit Programs and GSEs Mortgage Insurance (MMI) Fund. FHA mortgage insur-
Through housing credit programs, the Federal Gov- ance guarantees mortgage loans that provide access to
ernment promotes homeownership among various tar- homeownership for people who lack the traditional fi-
get groups, including low-income people, minorities, vet- nancial resources or credit history to qualify for a home
erans, and rural residents. Housing GSEs increase li- mortgage in the conventional marketplace. In 2006,
quidity in the mortgage market. FHA endorsed purchase and refinance mortgages for
more than 425,000 households. For purchase mort-
Federal Housing Administration gages, over 79 percent were for first-time homebuyers
In June 2002, the President issued America’s Home- and about 31 percent were for minority buyers. FHA
ownership Challenge to increase the number of first- also endorsed over 76,000 home equity conversion mort-
time minority homeowners by 5.5 million through 2010. gages for elderly homeowners.
During the first three and a quarter years since the While FHA has been a primary mortgage source for
goal was announced, nearly 2.5 million minority fami- first-time and minority buyers since the 1930s, its loan
lies have become homeowners. Through 2006, the De- volume has fallen precipitously in the past four years.
partment of Housing and Urban Development’s (HUD’s) This is due in part to lower interest rates that have
Federal Housing Administration (FHA) helped almost made uninsured mortgages affordable for more families.
542,000 of these first-time minority homebuyers Moreover, private lenders—aided by automated under-
through its loan insurance funds, mainly the Mutual writing tools that allow them to measure risks more
accurately—have expanded lending to people who pre- To remove two large barriers to homeownership—
viously would have had no option but FHA—those with having limited savings for a downpayment or impaired
few resources to pay for downpayments and/or weaker credit—the Administration again proposes new FHA
credit histories that the private sector considered too mortgage products. These products will replace the cur-
risky. The development of new products and under- rent flat premium structure with one that varies with
writing approaches has allowed private lenders to offer the risk of default as indicated by the percentage of
loans to more homebuyers. While this is a positive de- downpayment to the loan amount or borrower credit
velopment when the private sector is offering favorable quality. This will create more opportunities for poten-
terms, some borrowers either end up paying too much tial homeowners who may face limited mortgage op-
or receiving unfair terms. tions. For example, first-time buyers with a strong cred-
As private lenders have expanded their underwriting it record but little savings could finance a higher per-
to cover more borrowers, FHA’s business has changed. cent of the purchase than FHA currently allows. Alter-
First, the percentage of FHA-insured mortgages with natively, a borrower with a poor credit history could
initial loan-to-value (LTV) ratios of 95 percent or higher qualify for more favorable terms by accumulating sav-
has increased substantially, from 62.7 percent in 1995 ings for a larger downpayment.
to 78 percent in 2006. Second, the percentage of FHA This flexible premium structure, which is tiered risk-
loans with downpayment assistance from seller-fi- based pricing, is a way to more fairly price the FHA
nanced nonprofit organizations has grown rapidly, from
guarantee to individual borrowers. It creates incentives
0.3 percent in 1998 to nearly 33 percent in 2006. Recent
(lower premium payments) for borrowers to take steps
studies show that these loans are riskier than those
to improve their credit or save more for a downpay-
made to borrowers who received downpayment assist-
ment. At the same time it eliminates the current incen-
ance from other sources. In 2006, FHA’s cumulative
default claim rate for its core business is projected to tive for higher risk borrowers to use FHA because they
have risen from approximately 10 percent to 12 percent. are undercharged relative to the risk they pose. FHA
The FHA single-family mortgage program was as- proposes to base its mortgage insurance premiums upon
sessed in 2005 using the PART. The assessment found a borrower’s consumer credit score from Fair, Isaac,
that the program was meeting its statutory objective and Company (FICO), and on the amount and source
to serve underserved borrowers while maintaining an of downpayment (e.g., the borrower’s own resources, rel-
adequate capital reserve. However, the program lacked atives, employer, non-profit organization or public agen-
quantifiable annual and long-term performance goals cy). Mortgage insurance premiums will be based on
that would measure FHA’s ability to achieve its statu- FHA’s historical experience with similar borrowers.
tory mission. In addition, both the PART and subse- This change will decrease premiums for many of FHA’s
quent reports by the General Accountability Office and traditional borrowers, thereby increasing their access
the Inspector General noted that the program’s credit to homeownership.
model does not accurately predict losses to the insur- This price structure has many advantages. First,
ance fund, and that despite FHA efforts to deter fraud FHA will reflect a borrower’s risk via the mortgage
in the program, it has not demonstrated that these insurance premium, not through a higher interest rate
steps have reduced such fraud. as done in the subprime market. With mortgage insur-
In response to these findings, FHA measured its 2006 ance, borrowers will pay a market rate of interest, and,
performance against new goals, such as the percentage as a result, will incur lower monthly payments and
of FHA Single Family loans for first-time and minority lower total costs than if they paid a higher mortgage
homeowners, and exceeded its goals. FHA has also im- interest rate throughout the life of the loan. Second,
proved the accuracy of its annual actuarial review claim by using this pricing structure, FHA will promote price
and prepayment estimates. In 2007, it will continue transparency. Each borrower will know why they are
to develop performance goals for fraud detection and paying the premium that they are being charged and
prevention. will know how to lower their borrowing costs—i.e., by
Proposals for Program Reform raising their FICO score or their downpayment. Third,
risk-based pricing will allow FHA to review the per-
In order to enable FHA to fulfill its mission in today’s formance of its programs annually in conjunction with
changing marketplace, the Administration has intro- the preparation of its credit subsidy estimates and ad-
duced legislation that will give FHA the ability to re- just its premiums as necessary to assure the financial
spond to current challenges to homeownership among
soundness of the MMI Fund.
its traditional target borrowers: low and moderate-in-
A reformed FHA will adhere to sound management
come first-time homebuyers. FHA has already taken
practices that include a new framework of standards
steps, within its current authority, to streamline its
paperwork requirements and remove impediments to and incentives tied to principles of good credit program
its use by lenders and buyers. However, additional re- management. Further, the proposed reforms will better
forms will enable it to expand homeownership opportu- enable FHA to meet its objective of serving first-time
nities to its target borrowers on an actuarially sound and low-income home buyers by managing its risks
basis. more effectively.
VA Housing Program urban areas. Furthermore, financial markets have be-

The Department of Veterans Affairs (VA) assists vet- come more efficient and increased the reach of mort-
erans, members of the Selected Reserve, and active gage credit to lower credit qualities and incomes. While
duty personnel to purchase homes as recognition of some rural areas remain isolated from broad credit
their service to the Nation. The program substitutes availability, these areas are shrinking as broadband
the Federal guarantee for the borrower’s down pay- internet access and correspondent lending grow. There-
ment. In 2006, VA provided $23.5 billion in guarantees fore, relying on the private banking industry to provide
to assist 135,151 borrowers. this service, with a guarantee from the Federal govern-
Since the main purpose of this program is to help ment, is a more efficient way to deliver that assistance.
veterans, lending terms are more favorable than loans To replace the loss of assistance to the very low-
without a VA guarantee. In particular, VA guarantees to low-income rural borrowers still seeking assistance
zero downpayment loans. VA provided 90,399 zero for mortgage credit, the Administration expects to pro-
downpayment loans in 2006. pose legislation to authorize a subsidized guaranteed
To help veterans retain their homes and avoid the single-family housing program.
expense and damage to their credit resulting from fore- For the already established 502 guarantee programs
closure, VA intervenes aggressively to reduce the likeli- in 2008, RHS will increase the guarantee fee on new
hood of foreclosures when loans are referred to VA after loans to 3 percent from 2 percent. This allows the loans
missing three payments. VA’s successful actions re- to be less costly for the Government without a signifi-
sulted in 54 percent of such delinquent loans avoiding cant additional burden to the borrowers, given that
foreclosure in 2006. they can finance the fee as part of the loan. The guar-
antee fee for refinance loans remains 0.5 percent. Fund-
Rural Housing Service ing in 2008 is requested at an increased amount of
The U.S. Department of Agriculture’s Rural Housing $4.8 billion for purchase loans to compensate for no
Service (RHS) offers direct and guaranteed loans and funding for direct loans.
grants to help very low- to moderate-income rural resi- RHS also offers multifamily housing loans and guar-
dents buy and maintain adequate, affordable housing. antees to provide rural rental housing, including farm
The single-family guaranteed loan program guarantees labor housing. The farm labor housing combined grant
up to 90 percent of a private loan for low- to moderate- and loan level will provide $18 million in 2008 for new
income (115 percent of median income or less) rural construction as well as repair and rehabilitation. RHS
residents. In 2006, nearly $4.3 billion in assistance was also expects to be able to guarantee $200 million in
provided by RHS for homeownership loans and loan multifamily housing construction loans for 2008. RHS
guarantees; $3.07 billion in guarantees went to more will continue to propose funding and legislative changes
than 31,000 households, of which 30 percent went to to address the preservation issues surrounding the over
very low and low-income families (with income 80 per- 40-year old program. A long-term initiative has been
cent or less than median area income). developed to revitalize the 17,000-property portfolio.
Additionally in 2006, Hurricane Supplemental loans During 2008, $28 million will be directed to the revital-
and guarantees totaling $260 million allowed nearly ization initiative, primarily to assist existing residents
2,500 households to obtain homes. In addition, $19 mil- in properties leaving the program. No funds are re-
lion of low-interest loans and grants was used to repair quested for the direct rural rental housing program
more than 2,300 homes of families in need. In addition, because fixing the current portfolio is the first priority.
RHS granted moratoriums on payments, and sheltered RHS partnered with its multifamily program bor-
survivors in its inventory properties to provide relief. rowers and made available all the vacant units in the
Historically, RHS has offered both direct and guaran- loan portfolio to house evacuees from Hurricanes
teed homeownership loans. Beginning in 2008, RHS will Katrina and Rita. Costs were covered by an emergency
only offer guaranteed loans. The budget provides no allotment of rental assistance for a six-month period.
funding for the 502 direct single family housing loan Multifamily Programs instituted a number of waivers
program. The direction of Rural Development’s single- designed to ease the regulatory burden for housing
family housing mortgage assistance over the last two evacuees on an emergency basis. RHS housed over
decades has been towards guaranteed loans. The single- 3,000 families in RHS-financed housing
family housing guaranteed loan program was newly au-
thorized in 1990 at $100 million and has grown into Government-Sponsored Enterprises in the Hous-
a $3 billion plus loan program annually, equaling that ing Market
of the Veterans Affairs (VA) guaranteed housing loan Homeownership has long been recognized as an im-
program. Meanwhile the single-family direct loan pro- portant part of the American economy and part of the
gram has been stagnant at approximately a $1 billion American dream. However, it has not always been with-
loan level. in reach for the average American. During the Great
Solely utilizing guarantees for single-family housing Depression, housing markets were in turmoil. A typical
mortgage is consistent with the other Federal home- mortgage required a downpayment of around 50 percent
ownership programs. In fact, there are no Federal sin- and a balloon payment of principal within a few years.
gle family direct loan home ownership programs for Limitations in financial and communication technology
and restrictions on financial institutions made it dif- and pooling whole mortgages or by entering into
ficult for surplus funds in one part of the country to swap arrangements with mortgage originators.
be shifted to other parts of the country to finance resi- Over time these MBS held by the public have
dential housing. Starting in 1932, the Congress re- averaged about one-quarter of the U.S. mortgage
sponded by creating a series of entities and programs market.
that together promoted the development of long-term,
amortizing mortgages and facilitated the movement of 2. Mortgage Investment Business—Fannie Mae
capital to support housing finance. and Freddie Mac manage retained mortgage port-
A key element of this response was the creation of folios composed of their own MBS, MBS issued
the Federal Housing Administration in 1934. Another by others, and whole mortgages. As of June 30,
element was the establishment of several entities de- 2006, these retained mortgages totaled $1.4 tril-
signed to develop secondary mortgage markets and to lion. Given Fannie Mae and Freddie Mac’s serious
facilitate the movement of capital into housing finance. accounting, internal control, risk management,
These entities, known today as Government-Sponsored and systems problems, the growth of these port-
Enterprises (GSEs), were chartered by the Congress folios is temporarily constrained through consent
with a public mission, and endowed with certain bene- agreements with OFHEO.
fits that give them competitive advantages when com-
pared with fully private companies. The mission of the Federal Home Loan Bank System
The Federal Home Loan Bank System, created in is broadly defined as housing finance, and the System
1932, is comprised of twelve individual banks with also has specific requirements to support affordable
shared liabilities. Together they lend money to financial housing. The Federal Home Loan Banks have not
institutions—mainly banks and thrifts—that are in- grown mortgage asset portfolios as large as Fannie Mae
volved in mortgage financing to varying degrees, and or Freddie Mac. Their principal business remains lend-
they also finance some mortgages on their own balance ing to regulated depository institutions and insurance
sheets. The Federal National Mortgage Association, or companies engaged in residential mortgage finance to
Fannie Mae, created in 1938, and the Federal Home varying degrees.
Loan Mortgage Corporation, or Freddie Mac, created Risks That GSEs Face and Cause
in 1970, were established to support the stability and
liquidity of a secondary market for residential mortgage Like other financial institutions, the GSEs face a full
loans. Together these three GSEs currently are in- range of risks, including market (interest rate) risk,
volved, in one form or another, with nearly one half credit risk, and operational risk. Several of the Federal
of the $10-plus trillion residential mortgages out- Home Loan Banks and Fannie Mae have faced serious
standing in the U.S. today. Their market share peaked market risks due to inadequate hedging. More recently,
at 54 percent in 2003, after which management and Fannie Mae and Freddie Mac have faced serious oper-
internal control problems started to surface. ational risk. Due to earnings manipulation, poor ac-
As with other financial institutions, the Congress also counting systems, lack of proper controls, lack of proper
established regulatory regimes to ensure the safety and risk management, and misapplication of accounting
soundness of the housing GSEs. The Office of Federal principles, earnings at Fannie Mae were misstated by
Housing Enterprise Oversight (OFHEO), established in $6.3 billion through June of 2004, and at Freddie Mac
1992 as an independent agency within the Department by $5.0 billion through December of 2002.
of Housing and Urban Development, oversees Fannie The GSEs also pose risks to the financial system.
Mae and Freddie Mac. The Federal Housing Finance Systemic risk is the risk that unanticipated problems
Board (FHFB), established in 1989, oversees the Fed- at a financial institution or group of institutions could
eral Home Loan Bank system. Numerous reports and lead to problems more widely in the financial system
or economy—the risk that a small problem could mul-
studies have pointed to various shortcomings with the
tiply to a point where it could jeopardize the country’s
current regulatory structure for the housing GSEs. The
economic well-being. The particular systemic risk posed
Administration is proposing to strengthen this structure
by the GSEs is the risk that a miscalculation, failure
and combine OFHEO and FHFB into a new regulator.
of controls, or other unexpected event at one company
Mission could unsettle not only the mortgage and mortgage fi-
The mission of the housing GSEs is to support certain nance markets but other vital parts of the financial
aspects of the U.S. mortgage market. Fannie Mae and system and economy. To understand this risk, one must
Freddie Mac’s mission is to promote affordable housing, understand the interdependencies among the GSEs and
respond to private capital markets, and provide liquid- other market participants in the financial system and
ity and stability to the secondary mortgage market. the lack of market discipline imposed on the GSEs be-
Currently, they engage in two major lines of business. cause investors perceive that the GSEs are implicitly
backed by the U.S. Government.
1. Credit Guarantee Business—Fannie Mae and The GSEs are among the largest borrowers in the
Freddie Mac guarantee the timely payment of world. As of September 2006 their combined debt and
principal and interest on mortgage-backed securi- guaranteed MBS totaled $5.2 trillion, higher than the
ties (MBS). They create MBS by either buying total publicly held debt of the United States. The inves-
tors in GSE debt include thousands of banks, institu- Retained Asset Portfolios Have Significantly
tional investors such as insurance companies, pension Grown While Achieving Little for the GSEs’ Hous-
funds, and foreign governments, and millions of individ- ing Mission
uals through mutual funds and 401k investments.
Fannie Mae and Freddie Mac have used their funding
Based on the prices paid by these investors, they act
as if the Federal Government guarantees GSE debt. advantage to amass large retained asset portfolios. To-
In fact, there is no such guarantee or Federal backing gether these GSEs have more than $1.5 trillion in debt
of GSE debt. outstanding, almost entirely for the purpose of funding
Because investors act as if there is an ‘‘implicit guar- these portfolios. From 1990 through 2005, the GSEs’
antee’’ by the Federal Government to back GSE debt, competitive funding advantage enabled them to in-
investors on average lend their money to the GSEs crease their portfolios of mortgage assets ten-fold,
at interest rates roughly 30 to 40 basis points less which far exceeds the growth of the overall mortgage
($300–$400 less per year for every $100,000 borrowed) market. Due to the risks associated with the portfolios,
than to other highly rated privately held companies. the Administration is proposing that the new regulatory
In addition, investors do not demand the same financial structure empower the regulator to address and miti-
disclosures as for other privately owned companies. Nei- gate these risks.
ther Fannie Mae nor Freddie Mac currently file quar- As chart 7–1 shows, almost 54 percent of Fannie
terly earnings reports with the Securities and Exchange Mae and Freddie Mac’s combined retained mortgage
Commission, though Fannie Mae is required to and portfolio at the end of 2005 was comprised of holdings
Freddie Mac volunteered to. Yet there has been no sig- of their own guaranteed MBS, which could easily be
nificant impact on the pricing of GSE debt securities. sold.
This lack of market discipline facilitates the growth
of the GSE asset portfolios, thereby increasing systemic
risk.
Chart 7-1. Fannie Mae and Freddie Mac

Combined Retained Mortgage Portfolios
Year-End 2005
Mortgage
Revenue Bonds
2.1%
Whole
Mortgages
MBS-Others
21.9%
22.1%
MBS – Fannie Mae

and Freddie Mac
53.9%
Source: Office of Federal Housing Enterprise Oversight.
The function of these portfolio holdings is largely to that Fannie Mae and Freddie Mac have a mission to
increase profits, not facilitate affordable housing. In help more families achieve homeownership as well as
1992, the Congress broadened Fannie Mae and Freddie to expand rental opportunities, their retained portfolios
Mac’s mission to include promoting affordable housing. should be tied to that mission. However, currently only
To measure this performance, the Congress mandated about 30 percent of Fannie Mae and Freddie Mac’s
that HUD establish three affordable housing goal tar- retained portfolio holdings would be eligible to qualify
gets that Fannie Mae and Freddie Mac must meet each for any of the affordable housing goals. About half of
year. HUD has also implemented home purchase the MBS issued by others and whole loans qualify to-
subgoals to encourage homeownership opportunities for ward their affordable housing goals. Their performance
first-time homeowners and minority homeowners. Given under the housing goals over time indicate that Fannie
Mae and Freddie Mac should be doing more to help instruments has become dominant enough to cause in-
mission-targeted families achieve homeownership or ac- terest rate spikes in the event that a GSE needs to
quire affordable rental housing. make large and sudden adjustments to its hedging posi-
tion.
Debt Issuance Subject to Treasury Approval
Fannie Mae and Freddie Mac fund their portfolios New Activities and Technological Development
by issuing debt, and the U.S. Department of the Treas- Require Oversight
ury has the responsibility to review and approve these Over the last decade, Fannie Mae and Freddie Mac
GSEs’ debt-issuances. The Treasury Department’s debt have begun engaging in a wide range of new activities
approval authority is contained in Fannie Mae’s and that were not anticipated when their charters were
Freddie Mac’s Charter Acts, and the Department has written. To address these changes, HUD developed a
approved Fannie Mae and Freddie Mac’s debt on a new activity review initiative under its general regu-
regular basis. Treasury is developing a more formalized latory authority. HUD has reviewed a number of busi-
approach to their debt approval authority. As part of ness initiatives at Fannie Mae and Freddie Mac, includ-
that approach, Treasury is developing new debt ap- ing international activities; partnership offices; senior
proval procedures to enhance the clarity, transparency, housing; skilled nursing facilities; employer assisted
standardization, and documentation of Fannie Mae’s housing plans; third party real-estate-owned programs;
and Freddie Mac’s debt issuances. Commercial Mortgage-Backed Securities (CMBS);
Thin Capital Cushions Need Reform Asset-Backed Securities (ABS); multifamily variable-
rate bond certificates; and whole loan REMICs. HUD
The risks of the GSEs’ large portfolios are exacer- concluded that some of these activities were not author-
bated because they are not required to hold cushions ized. For example, HUD’s review of the GSEs’ Commer-
of capital against potential losses comparable to the
cial MBS programs resulted in OFHEO seeking Freddie
capital requirements for other large financial institu-
Mac’s divestiture of certain CMBS holdings, and HUD
tions. Where commercial banks that are part of a finan-
ordered Fannie Mae to end its third party Real-Estate-
cial holding company must hold a 5 percent capital-
Owned program based on its review. In 2007, HUD
to-total assets cushion, Fannie Mae and Freddie Mac’s
requirement is half that, while FHLB’s is 4 percent. will complete a Financial Activities Review that will
The risk-based capital requirements for the GSEs also provide a baseline of information on Fannie Mae’s and
differ dramatically from those applicable to commercial Freddie Mac’s business and program activities. As part
banks. This highlights an important shortcoming of the of this review, HUD will examine specific transactions
statutory framework governing Federal oversight of the to determine whether they are consistent with Fannie
GSEs. The minimum capital and risk-based capital Mae’s and Freddie Mac’s charter authorities. The Ad-
rules for the GSEs were written into law in 1992. Much ministration proposes to move this authority to the new
has changed since then with regard to financial risk regulator.
analysis, risk modeling, and capital requirements for Because of their enormous presence in the secondary
comparable financial institutions. The reforms proposed market, Fannie Mae and Freddie Mac are able to exert
by the Administration would repeal the statutory risk- significant leverage in the primary mortgage market.
based capital stress test, and would provide the new First, their unparalleled size in the residential mort-
GSE regulator with the authority and flexibility to es- gage market gives the GSEs a unique level of access
tablish new risk-based capital requirements for the to market information. The applicability of that infor-
GSEs to help ensure that they operate with sufficient mation to the management of mortgage risk gives them
capital and reserves to support the risks that arise a competitive edge in the development of new tech-
in the operations and management of each enterprise. nology that can change relationships between primary
A world-class regulator needs the flexibility and author- market participants as well as the distribution of eco-
ity to change both the risk-based and minimum capital nomic returns between the primary and secondary mar-
requirements without undue restriction in response to kets. Second, their funding advantage enables the GSEs
changing conditions. to borrow at reduced rates in order to make invest-
Although the GSEs’ mortgage investments are of rel- ments in new areas at below-market prices, thus dis-
atively low default risk, other types of risk in the GSEs’ couraging competition while gaining experience in those
asset portfolios are substantial. Mortgage portfolios areas.
carry considerable interest-rate risk, partly because of Through the development and delivery of new tech-
the risk that homeowners may prepay their mortgages nology to the industry and by leveraging their funding
through refinancing or home sales. This risk can be advantage, there is potential for the GSEs to expand
mitigated—for example, through purchase of interest- their business beyond the limitations of their Charter
rate hedges—but the GSEs protect themselves against Acts, which prohibits both Fannie Mae and Freddie
only some of the interest rate risk of their portfolios. Mac from originating mortgages. Loan origination is
Moreover, hedges are imperfect because predicting in- the central function of the primary mortgage market,
terest-rate movements and mortgage refinancing activ- and the GSEs’ charter acts clearly restrict them to the
ity is difficult. As GSE asset portfolios have grown in secondary mortgage market. However, technological ad-
size, the GSEs’ participation in the market for hedging vancements have blurred the line that defines where
the primary market ends and the secondary market ernment provides loan capital directly to nearly 1,100
begins. A new level of clarity is required to establish schools, which then disburse loan funds to students.
the permissible activities under the Enterprises’ charter The program offers a variety of flexible repayment
acts, including the development of intellectual property. plans including income-contingent repayment, under
which annual repayment amounts vary based on the
New Regulatory Authority
income of the borrower and payments can be made
The Administration continues to support broad re- over 25 years with any residual balances forgiven.
form of the GSE supervisory system. In particular, the In 2006, the Congress passed reconciliation legisla-
Administration supports establishing a new regulator tion reducing excess subsidies in the FFEL program
for all three of the housing GSEs that would combine and helping to make both programs more effective. The
safety and soundness authority with oversight of their reforms included a reduction in the percentage of Fed-
respective housing missions. The new regulator must eral guarantee provided against default in recognition
have enhanced powers comparable to those of other of the strong repayment record for student loans today
world-class financial regulators, including, among oth- and an elimination of unnecessary and costly loan sub-
ers, the ability to put a GSE into receivership should sidy provisions that allowed some loan holders to have
it fail, authority to establish and adjust appropriate exorbitant financial returns on loans funded through
capital standards, and new product authority. A new tax-exempt securities. In recognition of the fact that
regulator must also have clear authority to address and federal subsidies remain higher than necessary to en-
mitigate the risks posed by the GSEs’ retained port- sure that loans are available to students in this profit-
folios. Finally, a new regulatory structure must ensure able and competitive market, the 2008 Budget proposes
that the GSEs are adhering to their affordable housing to reduce interest subsidies paid to FFEL lenders by
mission. 50 basis points. The 2008 Budget also proposes to re-
duce default insurance from 97 percent to 95 percent,
Education Credit Programs and increase the origination fee lenders pay on consoli-
The Federal Government guarantees loans through dation loans. To rationalize federal subsidies to guar-
intermediary agencies and makes direct loans to stu- anty agencies, the Administration proposes to shift the
dents to encourage postsecondary education enrollment. basis of account maintenance fee payments from the
The Student Loan Marketing Association (Sallie Mae), balance of loans guaranteed to a cost-per-unit formula,
created in 1972 as a GSE to develop the secondary and reduce the amount guaranty agencies can retain
market for guaranteed student loans, was privatized on the defaulted loans they collect. These savings will
in 2004. be used to provide significant benefits to students such
The Department of Education helps finance student as raising the Pell Grant maximum award to $5,400,
loans through two major programs: the Federal Family increasing Academic Competitiveness Grant awards by
Education Loan (FFEL) program and the William D. 50 percent, and offering higher loan limits.
Ford Federal Direct Student Loan (Direct Loan) pro-
gram. Eligible institutions of higher education may par- Business and Rural Development Credit
ticipate in one or both programs. Loans are available Programs and GSEs
to students regardless of income. However, borrowers The Federal Government guarantees small business
with low family incomes are eligible for loans with addi- loans to promote entrepreneurship. The Government
tional interest subsidies. For low-income borrowers, the also offers direct loans and loan guarantees to farmers
Federal Government subsidizes loan interest costs who may have difficulty obtaining credit elsewhere and
while borrowers are in school, during a six-month grace to rural communities that need to develop and maintain
period after graduation, and during certain deferment infrastructure. Two GSEs, the Farm Credit System and
periods. the Federal Agricultural Mortgage Corporation, in-
The FFEL program provides loans through an admin- crease liquidity in the agricultural lending market.
istrative structure involving over 3,600 lenders, 35
State and private guaranty agencies, and over 5,000 Small Business Administration
participating schools. In the FFEL program, banks and The Small Business Administration (SBA) helps en-
other eligible lenders loan private capital to students trepreneurs start, sustain, and grow small businesses.
and parents, guaranty agencies insure the loans, and As a ‘‘gap lender‘‘ SBA works to supplement market
the Federal Government reinsures the loans against lending and provide access to credit where private lend-
borrower default. Lenders bear three percent of the de- ers are reluctant to do so without a Government guar-
fault risk, and the Federal Government is responsible antee. Additionally, SBA helps home and business-own-
for the remainder. The Department also makes admin- ers, as well as renters, cover the uninsured costs of
istrative payments to guaranty agencies and, at certain recovery from disasters through its direct loan program.
times, pays interest subsidies on behalf of borrowers The 2008 Budget requests $464 million, including ad-
to lenders. ministrative funds, for SBA to leverage more than $29
The William D. Ford Direct Student Loan program billion in financing for small businesses and disaster
was authorized by the Student Loan Reform Act of victims. The 7(a) General Business Loan program will
1993. Under the Direct Loan program, the Federal Gov- support $17.5 billion in guaranteed loans while the 504
Certified Development Company program will support identify areas that require management intervention
$7.5 billion in guaranteed loans for fixed-asset financ- or additional resources.
ing. SBA will supplement the capital of Small Business By 2008, SBA expects to implement an Internet-
Investment Companies (SBICs) with $3 billion in long- based loan application system that will facilitate the
term, guaranteed loans for venture capital investments collection of data from disaster victims and speed proc-
in small businesses. At the end of 2006, the outstanding essing. This investment complements investments that
balance of business loans totaled $67 billion. SBA made through 2006 in the Disaster Credit Man-
SBA seeks to target assistance more effectively to agement System.
credit-worthy borrowers who would not be well-served The Budget proposes to build upon the success of
by the commercial markets in the absence of a Govern- the zero-subsidy 7(a) program by making the Microloan
ment guarantee to cover defaults. SBA is actively en- program self-financing through modest increases to the
couraging financial institutions to increase lending to interest rate paid by program intermediaries. The Ad-
start-up firms, low-income entrepreneurs, and bor- ministration is also proposing authorizing legislation
rowers in search of financing below $150,000. SBA’s to enable the secondary market guarantee (SMG) pro-
outreach for the 7(a) program has been successful: Av- gram to charge nominal fees on lenders seeking to pool
erage loan size has decreased from about $230,000 in loans; fees are expected to be less than or comparable
2001 to $152,000 in 2006, while the annual number to fees in other secondary market programs and will
of new loans has grown from 43,000 to over 90,000 help stabilize the program from the need to make fre-
during the same time period. quent administrative changes.
During the past few years, SBA has implemented USDA Rural Infrastructure and Business Develop-
several initiatives to streamline operations by increas- ment Programs
ingly delegating responsibilities to lenders and central-
USDA provides grants, loans, and loan guarantees
izing operations while managing and mitigating risk.
to communities for constructing facilities such as
In 2003, SBA implemented a state-of-the-art Lender
health-care clinics, day-care centers, and water systems.
Loan Monitoring System (LLMS) under the newly
Direct loans are available at lower interest rates for
formed Office of Lender Oversight. This office uses
the poorest communities. These programs have very
LLMS to evaluate individual SBA lenders by tracking low default rates. The cost associated with them is due
the expected risk of SBA guaranteed loans in their primarily to subsidized interest rates that are below
portfolios relative to expected performance of those the prevailing Treasury rates.
loans. The office employs a variety of analytical tech- The program level for the Water and Wastewater
niques to ensure sound financial management by SBA (W&W) treatment facility loan and grant program in
and to hold lending partners accountable for perform- this Budget is $1.5 billion. These funds are available
ance. These techniques include portfolio performance to communities of 10,000 or fewer residents. The Budg-
analysis, selected lender risk reviews, credit scoring to et reflects a significant change in the method for deter-
compare lenders’ performance, and industry concentra- mining the interest rate charged on such loans, from
tion analysis. Starting in FY 2004, SBA began consoli- a three-tiered structure (poverty, intermediate, and
dating its loan making, servicing and liquidating func- market) depending on community income to an interest
tions from 69 District Offices into several combined cen- rate that is 60 percent of the market rate not to exceed
ters. Consolidation has reduced costs, increased timeli- five percent. This change is expected to reduce the loan
ness of processing, and standardized how loans are han- repayment costs substantially for most communities, at
dled. In 2006, SBA completed the elimination of its a lower loan to grant ratio. The Community Facility
several billion dollar backlog of loan liquidations result- Program is targeted to rural communities with fewer
ing from defaulted guarantees. In 2007, SBA is working than 20,000 residents. It will have a program level
with contractor support to identify additional processes of $512 million in 2008.
that could be reengineered to reduce costs, improve USDA also provides grants, direct loans, and loan
quality, and expedite processing. guarantees to assist rural businesses, including co-
To address major challenges in making and dis- operatives, and to increase employment and diversify
bursing loans resulting from the 2005 Gulf Coast hurri- the rural economy. In 2008, USDA proposes to provide
canes, SBA initiated the Accelerated Disaster Response $1 billion in loan guarantees to rural businesses that
Initiative to identify and implement process improve- serve communities of 50,000 or less. USDA also pro-
ments to quicken the delivery of disaster assistance. vides rural business loans through the Intermediary
As a result of customer feedback and analysis of best Relending Program (IRP), which provides loan funds
business practices, SBA piloted a case management ap- at a one percent interest rate to an intermediary, such
proach. Using case management, in which a team of as a State or local government agency that, in turn,
SBA staff work with a borrower from initial application provides funds for economic and community develop-
through loan disbursement, SBA can better serve dis- ment projects in rural areas. Overall, USDA expects
aster applicants and monitor the processing of loans. to retain or create 38,795 jobs in 2008 through its Busi-
SBA has also implemented numerous productivity ness and Industry guarantee and the IRP loan pro-
metrics to track the status of loans in processing and grams.
Electric and Telecommunications Loans ing. The majority of assistance provided in the oper-
USDA’s Rural Utilities Service (RUS) programs pro- ating loan program is to existing FSA farm borrowers.
vide loans for rural electrification, telecommunications, In the farm ownership program, new customers receive
distance learning, telemedicine, and broadband, and the bulk of the benefits furnished. In 2008, FSA pro-
also provide grants for distance learning and telemedi- poses to make $3.4 billion in direct and guaranteed
cine (DLT). loans through discretionary programs.
FSA uses the Farm Business Plan (FBP) to perform
The Budget includes $4.1 billion in direct electric
financial planning, analysis, and management of the
loans for distribution, transmission, and modification
loan portfolio. Several enhancements of the web equity
of existing generation facilities, $690 million in direct
FBP were put into service in 2006. These include a
telecommunications loans, $300 million in broadband
youth loan credit action and availability of additional
loans, and $25 million in DLT grants. reports. In 2007, the FBP will be modified to enable
Since 1992, RUS electric loans have been used pri- credit reports to be ordered on applicants to expedite
marily to finance transmission, distribution, and up- application processing. FSA is continuing its com-
grades to generation facilities. During this time, genera- prehensive project to streamline all farm loan program
tion has been deregulated and has become a more com- regulations, handbooks, and information collections.
mercial operation. With the increased needs for all as- This is a major effort to streamline the program and
pects of electricity provision and to ensure adequate reduce the burden for both applicants and the Agency,
funding for rural areas, RUS loans will continue to resulting in an improvement in loan processing effi-
focus on transmission, distribution, and upgrading gen- ciencies.
eration facilities. Construction of new generation facili-
ties should be financed through the commercial market. The Farm Credit System and Farmer Mac
The Rural Telephone Bank successfully dissolved in The Farm Credit System (FCS or System) and the
FY2006. All stock was redeemed during 2006. Loans Federal Agricultural Mortgage Corporation
approved in prior years, but not disbursed are still (FarmerMac) are Government-Sponsored Enterprises
available for borrowers. (GSEs) that enhance credit availability for the agricul-
Loans to Farmers tural sector. The FCS provides production, equipment,
and mortgage lending to farmers and ranchers, aquatic
The Farm Service Agency (FSA) assists low-income producers, their cooperatives, related businesses, and
family farmers in starting and maintaining viable farm- rural homeowners, while Farmer Mac provides a sec-
ing operations. Emphasis is placed on aiding beginning ondary market for agricultural real estate and rural
and socially disadvantaged farmers. FSA offers oper- housing mortgages.
ating loans and ownership loans, both of which may
be either direct or guaranteed loans. Operating loans The Farm Credit System
provide credit to farmers and ranchers for annual pro- The financial condition of the System’s banks and
duction expenses and purchases of livestock, machinery, associations remain sound. The ratio of capital to assets
and equipment. Farm ownership loans assist producers decreased to 15.7 percent as of September 30, 2006
in acquiring and developing their farming or ranching from 16.8 percent for the same period ended in 2005
operations. As a condition of eligibility for direct loans, as asset growth outpaced capital growth. As of Sep-
borrowers must be unable to obtain private credit at tember 30, 2006, capital consisted of $2.2 billion in
reasonable rates and terms. As FSA is the ‘‘lender of restricted capital held by the Farm Credit System In-
last resort,’’ default rates on FSA direct loans are gen- surance Corporation (FCSIC) and $22.0 billion of unre-
erally higher than those on private-sector loans. How- stricted capital—a record level. Nonperforming loans
ever, in recent years the loss rate has decreased to decreased, and earnings increased, although rising
2.9 percent in 2006, compared to 3.1 percent in 2005. short-term interest rates and competitive conditions
FSA-guaranteed farm loans are made to more credit- compressed interest margins. The examinations by the
worthy borrowers who have access to private credit Farm Credit Administration (FCA), the System’s Fed-
markets. Because the private loan originators must re- eral regulator, also show the strong financial condition
tain 10 percent of the risk, they exercise care in exam- of FCS institutions. As of September 2006, all FCS
ining the repayment ability of borrowers. As a result, institutions had one of the top two examination ratings
losses on guaranteed farm loans remain low with de- (1 or 2 in a 1–5 scale). Assets grew at a brisk pace
fault rates of 0.4 percent in 2006, as compared to 0.45 (9.5 percent annual rate) over the past four years, while
percent in 2005. The subsidy rates for these programs the number of FCS institutions decreased due to con-
have been fluctuating over the past several years. solidation. In September 2002, there were seven banks
These fluctuations are mainly due to the interest com- and 104 associations; by September 2006, there were
ponent of the subsidy rate. five banks and 96 associations.
In 2006, FSA provided loans and loan guarantees The FCSIC ensures the timely payment of principal
to approximately 27,730 family farmers totaling $3.15 and interest on FCS obligations. FCSIC manages the
billion. The number of loans provided by these pro- Insurance Fund which supplements the System’s cap-
grams has fluctuated over the past several years. The ital and the joint and several liability of the System
average size for farm ownership loans has been increas- banks. As of September 30, 2006, the assets in the
Insurance Fund totaled $2.243 billion. Of that amount those assets. Farmer Mac’s net income for first three
$40 million was allocated to the Allocated Insurance quarters of 2006 was $23.9 million, a decrease of 39
Reserve Accounts (AIRAs). As of September 30, 2006, percent from restated amounts for the same period in
the Insurance Fund as a percentage of adjusted insured 2005.
debt was 1.78 percent in the unallocated Insurance In November 2006, Farmer Mac restated its financial
Fund and 1.81 percent including the AIRAs. This was results for 2005 and other periods to remove the impact
below the Secure Base target of 2 percent. During 2006, of accounting for derivatives as hedges against interest
growth in System debt outpaced the capitalization of rate movements. As a result, there could be significant
the Insurance Fund that occurs through investment fluctuation in net income in future periods. However,
earnings and the accrual of premiums. Farmer Mac does not expect the accounting change to
Over the 12 month period, ending September 30, impact its ability to carry out its business plans or
2006, the System’s loans outstanding grew by $12.6 have any effect on its business model.
billion, or 12.3 percent, while over the past three years International Credit Programs
they grew by $24.6 billion, or 26.9 percent. As required
by law, borrowers are also stockholder owners of Sys- Seven Federal agencies—the Department of Agri-
tem banks and associations. As of September 30, 2006, culture (USDA), the Department of Defense, the De-
the System had 459,635 stockholders. Loans to young, partment of State, the Department of the Treasury,
beginning, and small farmers and ranchers represented the Agency for International Development (USAID), the
12.3, 19.4, and 29.2 percent, respectively, of the total Export-Import Bank, and the Overseas Private Invest-
dollar volume of farm loans outstanding at the end ment Corporation (OPIC)—provide direct loans, loan
of 2005. The percentage of loans to beginning farmers guarantees, and insurance to a variety of foreign pri-
increased in 2005, while percentages to young and vate and sovereign borrowers. These programs are in-
small farmers were slightly lower. Young, beginning, tended to level the playing field for U.S. exporters, de-
and small farmers are not mutually exclusive groups, liver robust support for U.S. manufactured goods, sta-
and thus, cannot be added across categories. Providing bilize international financial markets, and promote sus-
credit and related services to young, beginning, and tainable development.
small farmers and ranchers is a legislative mandate Leveling the Playing Field
and a high priority for the System. Federal export credit programs counter subsidies that
The System, while continuing to record strong earn- foreign governments, largely in Europe and Japan, pro-
ings and capital growth, remains exposed to a variety vide their exporters, usually through export credit agen-
of risks associated with its portfolio concentration on cies (ECAs). The U.S. Government has worked since
agriculture and rural America. While this sector is cur- the 1970’s to constrain official credit support through
rently healthy, it is subject to risk due to rapidly rising a multilateral agreement in the Organization for Eco-
farm real estate prices, volatile commodity prices and nomic Cooperation and Development (OECD). This
input costs, uncertainty regarding changes in govern- agreement has significantly constrained direct interest
ment farm policy and trade agreements, weather-re- rate subsidies and tied-aid grants. Further negotiations
lated catastrophes, animal and plant diseases, and off- resulted in a multilateral agreement that standardized
farm employment opportunities. the fees for sovereign lending across all ECAs beginning
Farmer Mac in April 1999. Fees for non-sovereign lending, however,
continue to vary widely across ECAs and markets,
Farmer Mac was established in 1988 to facilitate a thereby providing implicit subsidies.
secondary market for farm real estate and rural hous- The Export-Import Bank attempts to ‘‘level the play-
ing loans. The Farm Credit System Reform Act of 1996 ing field’’ strategically and to fill gaps in the availability
expanded Farmer Mac’s role from a guarantor of securi- of private export credit. The Export-Import Bank pro-
ties backed by loan pools to a direct purchaser of mort- vides export credits, in the form of direct loans or loan
gages, enabling it to form pools to securitize. This guarantees, to U.S. exporters who meet basic eligibility
change increased Farmer Mac’s ability to provide li- criteria and who request the Bank’s assistance. USDA’s
quidity to agricultural mortgage lenders. Export Credit Guarantee Programs (also known as
Farmer Mac continues to meet core capital and regu- GSM programs) similarly help to level the playing field.
latory risk-based capital requirements. Farmer Mac’s Like programs of other agricultural exporting nations,
total program activity (loans purchased and guaran- GSM programs guarantee payment from countries and
teed, AgVantage bond assets, and real estate owned) entities that want to import U.S. agricultural products
as of September 30, 2006, totaled $7.1 billion. That but cannot easily obtain credit.
volume represents an increase of 38 percent from pro-
gram activity at September 30, 2005. Of total program Stabilizing International Financial Markets
activity, $2.1 billion were on-balance sheet loans and In today’s global economy, the health and prosperity
agricultural mortgage-backed securities, and $5.0 bil- of the American economy depend importantly on the
lion were off-balance sheet obligations. Total assets stability of the global financial system and the economic
were $4.9 billion at the close of the third quarter, with health of our major trading partners. The United States
nonprogram investments accounting for $2.7 billion of can contribute to orderly exchange arrangements and
a stable system of exchange rates through the Inter- eventually encouraging the private sector to supplant
national Monetary Fund and through financial support OPIC finance in developing countries. OPIC has also
provided by the Exchange Stabilization Fund (ESF). created a number of investment funds that provide eq-
The ESF may provide ‘‘bridge loans’’ to other coun- uity to local companies with strong development poten-
tries in times of short-term liquidity problems and fi- tial.
nancial crises. A loan or credit may not be made for
more than six months in any 12-month period unless Ongoing Coordination
the President gives the Congress a written statement International credit programs are coordinated
that unique or emergency circumstances require the through two groups to ensure consistency in policy de-
loan or credit be for more than six months. sign and credit implementation. The Trade Promotion
Coordinating Committee (TPCC) works within the Ad-
Using Credit to Promote Sustainable Develop-
ministration to develop a National Export Strategy to
ment
make the delivery of trade promotion support more ef-
Credit is an important tool in U.S. bilateral assist- fective and convenient for U.S. exporters.
ance to promote sustainable development. USAID’s De- The Interagency Country Risk Assessment System
velopment Credit Authority (DCA) allows USAID to use (ICRAS) standardizes the way in which agencies budget
a variety of credit tools to support its development ac- for the cost associated with the risk of international
tivities abroad. DCA provides non-sovereign loan guar- lending. The cost of lending by the agencies is governed
antees in targeted cases where credit serves more effec- by proprietary U.S. Government ratings, which cor-
tively than traditional grant mechanisms to achieve respond to a set of default estimates over a given matu-
sustainable development. DCA is intended to mobilize rity. The methodology establishes assumptions about
host country private capital to finance sustainable de- default risks in international lending using averages
velopment in line with USAID’s strategic objectives. of international sovereign bond market data. The
Through the use of partial loan guarantees and risk strength of this method is its link to the market and
sharing with the private sector, DCA stimulates pri- an annual update that adjusts the default estimates
vate-sector lending for financially viable development to reflect the most recent risks observed in the market.
projects, thereby leveraging host-country capital and
strengthening sub-national capital markets in the de- Self-Sufficient Export-Import Bank
veloping world. While there is clear demand for DCA’s The Budget estimates that the Bank’s export credit
facilities in some emerging economies, the utilization support will total $18.7 billion, and will be funded en-
rate for these facilities is still very low. tirely by receipts collected from the Bank’s customers.
OPIC also supports a mix of development, employ- The Bank estimates it will collect $146 million in 2008
ment, and export goals by promoting U.S. direct invest- in excess of expected losses on transactions authorized
ment in developing countries. OPIC pursues these goals in 2008 and prior years. These amounts will be used
through political risk insurance, direct loans, and guar- to: (1) cover the estimated costs for that portion of
antee products, which provide finance, as well as associ- new authorizations where fees are insufficient to cover
ated skills and technology transfers. These programs expected losses; and (2) to cover administrative ex-
are intended to create more efficient financial markets, penses.
IV. INSURANCE PROGRAMS
Deposit Insurance duction Act of 2005) in February 2006. This package

Federal deposit insurance promotes stability in the of reforms had several effects: it consolidated the Fed-
eral Deposit Insurance Corporation’s (FDIC) insurance
U.S. financial system. Prior to the establishment of
Federal deposit insurance, failures of some depository funds (the Bank Insurance Fund and Savings Associa-
institutions often caused depositors to lose confidence tion Insurance Fund) into a new Deposit Insurance
in the banking system and rush to withdraw deposits. Fund, set new parameters on how the consolidated fund
would be managed, adjusted the way that premiums
Such sudden withdrawals caused serious disruption to
for deposit insurance were calculated to ensure that
the economy. In 1933, in the midst of the Depression,
the system of Federal deposit insurance was established all banks would pay premiums for Federal insurance
to protect small depositors and prevent bank failures on their insured deposits, and allowed for an increase
of the coverage limits for Federal deposit insurance.
from causing widespread disruption in financial mar-
kets. Since its creation, the system has undergone a These new authorities allow the FDIC to better manage
series of reforms, most recently in 2006. the Deposit Insurance Fund and help avoid strain on
While the deposit insurance system for banks and financial institutions by spreading the cost of deposit
insurance over time instead of having a potential for
thrifts today is generally sound and well managed, in-
sharp premium increases when the economy may be
herent weaknesses in the system prompted the Admin-
istration to propose, and the Congress to enact, the under stress. The FDIC issued several new regulations
Deposit Insurance Reform Act (part of the Deficit Re- during 2006 to implement the reforms in 2007.
The FDIC insures deposits in banks and savings as- rency (OCC), Office of Thrift Supervision (OTS), and
sociations (thrifts). The National Credit Union Adminis- FDIC, and industry analysts have been vocal in high-
tration (NCUA) insures deposits (shares) in most credit lighting the spread of non-traditional lending products,
unions (certain credit unions are privately insured). and warned lenders and borrowers about the additional
FDIC and NCUA insure deposits up to $100,000 per risks these products can pose if not properly managed.
account. Under the Deposit Insurance Reform Act of The regulators have raised these issues in testimony
2005, the deposit insurance ceiling for retirement ac- before Congress and in a variety of public forums, in-
counts will be increased to $250,000. In addition, begin- cluding guidance issued to the industry.
ning in 2010, and every five years thereafter, FDIC The Office of the Comptroller of the Currency has
and NCUA will have the authority to increase deposit reported that, as competition in lending has intensified,
insurance coverage limits for retirement and non-retire- banks have been easing their standards for extending
ment accounts based on inflation if the Boards of the loans to individuals and businesses. This has led to
FDIC and NCUA determine such an increase is war- concerns about maintaining credit quality in the na-
ranted. As of September 30, 2006, FDIC insured $4.1 tion’s lending markets. Separate, but related concerns
trillion of deposits at 8,743 commercial banks and have arisen in the area of ‘‘subprime’’ lending—loans
thrifts, and NCUA insured $529 billion of deposits to consumers with poor credit histories or who belong
(shares) at 8,462 credit unions. to groups that may not have previously had access to
financing. This segment of the market has seen sub-
Current Industry Conditions
stantial growth in recent years, providing greater op-
The banking and thrift sector has been in the midst portunity to these borrowers, but loans to subprime
of a sustained run of record profits and strong balance borrowers historically have higher rates of default. Al-
sheets. During calendar year 2006, insured banks and though lenders charge higher rates of interest to
thrifts continued to report record-high net earnings, subprime borrowers to compensate for the risk of de-
with the industry’s two highest-ever quarterly profits fault, with increased competition the spread (or addi-
reported in the second and third quarters of 2006. In tional interest charged) on subprime lending has fallen
2005 and 2006, no banks or thrifts failed—the longest and may not fully cover the potential risk.
period without a failure in the 73-year history of the In order to address some of these potential problems,
FDIC. As of September 30, 2006, the FDIC classified especially in non-traditional mortgages and easing lend-
47 institutions with $4 billion in assets as ‘‘problem ing standards, during 2006 the Federal banking regu-
institutions’’ (institutions with the highest risk ratings), lators (the Board of Governors of the Federal Reserve
a historical low both in the number of institutions and System, the FDIC, the OCC, and the OTS) issued guid-
dollar-value of assets thus classified. ance to banks and thrifts on managing exposure to
Despite these strong fundamentals, some risks re- non-traditional mortgages, and on the appropriate dis-
main. In particular, the residential real estate market closure to consumers of clear and balanced information
has been showing signs of significant weakness in re- about the risks of these products. The regulators also
cent months, with several regional markets experi- issued guidance on commercial real estate which sought
encing slower sales and stagnant or even falling prop- to mitigate potential problems with rising concentra-
erty prices. According to the National Association of tions of lending in commercial real estate, an issue
Realtors, U.S. median house prices stayed essentially of regulatory concern in a number of smaller and mid-
flat during the second half of 2006, after four and half sized community banks.
years when growth rates nationwide exceeded five per- Also worthy of note is the increasing consolidation
cent. In addition, after the steady series of interest of the U.S. banking industry in recent years. As banks
rate hikes by the Federal Reserve in 2005 and 2006, have merged or been acquired, the largest institutions
higher short-term interest rates are beginning to have accounted for a growing share of total assets—
squeeze the interest margins of many banks (The inter- whereas in 1984 depository institutions with over $10
est margin is the difference between the interest rates billion in assets accounted for 42 percent of total assets
the banks charge for loans and the interest rates that in the industry, by 2004 the share of those institutions
they pay to depositors). had risen to 73 percent. This has enabled larger banks
This tightening has begun to erode the proceeds from and other institutions to diversify more effectively and
banks’ core business. Not only are higher interest rates obtain financing from the capital markets, but it has
squeezing banks, they are also squeezing borrowers. also meant that the failure of a single large insured
During the past few years, banks have issued an in- institution could put a significant strain on the re-
creasing number of non-traditional mortgages, i.e., sources of the Federal deposit insurance funds.
loans that have adjustable payment terms that allow
borrowers to have lower initial payments, while their Recent Changes to Federal Deposit Insurance
overall debt burden stays constant or even increases. Funds
Studies have suggested that in the first half of 2006, Under the Deposit Insurance Reform Act of 2005,
as many as 30 percent of mortgages issued nationally the FDIC’s Bank Insurance Fund (BIF) and its Savings
were non-traditional. Federal regulators, including the Association Insurance Fund (SAIF) were merged into
Federal Reserve, Office of the Comptroller of the Cur- the new Deposit Insurance Fund (DIF) in June 2006.
At the end of September 2006, the DIF reserve ratio their credit risk capital requirements. The Basel II rule-
(ratio of insurance reserves to insured deposits) stood making would allow for greater sensitivity to risk in
at 1.22 percent—$1.2 billion below the level that would the portfolios banks hold. Rather than grouping assets
meet the target reserve ratio. Under new authority pro- into broad risk categories, capital requirements would
vided by the passage of the Deposit Insurance Reform be tied to banks’ internal assessments of the likelihood
Act, the FDIC Board voted to establish a new set of and severity of default losses from the assets they hold.
premiums for the industry to recapitalize the DIF. The The rules are also intended to allow capital require-
new premiums range from a minimum of five basis ments to more accurately account for the benefits or
points (five cents per $100 of assessable deposits) up risk-mitigation activities undertaken by banks. The
to as high as 43 basis points based on the assessed rulemaking would also require banks to hold capital
risk of an institution. The Deposit Insurance Reform to cover operational risk, which is not covered under
Act of 2005 provided depository institutions that had the existing (Basel I) requirements.
paid deposit insurance premiums prior to 1996 (the Implementation of the Basel II standard in Europe
last year the FDIC collected premiums) with $4.7 bil- is scheduled to begin during 2007, more than a year
lion in credits toward premiums, most of which will before U.S. implementation would likely begin, and this
likely be used by 2009. Taking these credits into consid- delay has led to concerns about a competitive imbalance
eration, the FDIC is expected to collect approximately between U.S. and foreign banks. There are also con-
$1.5 billion in new revenue during fiscal 2007 and 2008 cerns about competitive imbalance between U.S. banks,
combined. and for that reason, banks other than the ten largest
The National Credit Union Share Insurance Fund U.S. banks would be able to choose between adopting
(NCUSIF), the Federal fund for credit unions that is the ‘‘Basel II’’ standard, the current ‘‘Basel I’’ system,
analogous to the DIF for banks and thrifts, ended fiscal and an alternative ‘‘Basel 1A’’ standard.
year 2006 with assets of $6.7 billion and an equity The ‘‘Basel 1A’’ standard is intended to be more risk-
ratio of 1.29 percent, approaching the NCUA-set target sensitive than Basel I, but easier to implement than
ratio of 1.30 percent. Over the past five years, the Basel II. The ‘‘Basel 1A’’ standard would provide addi-
NCUSIF’s equity ratio has gradually risen from about tional risk-sensitivity through use of external credit rat-
1.27 percent, reflecting strong performance (and there- ings, and internal risk measures for some types of as-
fore few losses due to failures) in the credit union in- sets (i.e., loan-to-value ratios for mortgages). This new
dustry. standard would allow banks to potentially lower their
capital requirements and provide small- and mid-sized
Current Regulatory Issues banks a means to stay competitive with the larger
A number of major regulatory initiatives are cur- Basel II banks. The regulators are proposing to make
rently underway in the banking sector, which are likely the Basel 1A standard optional for banks, meaning that
to have a significant impact on the banking sector as no small or medium-sized bank would be required to
a whole and, by extension, on the Federal deposit insur- change its capital regime.
ance system. For example, the Federal banking regu- The proposed text of both rules has been released
lators (the Federal Reserve, FDIC, OCC and OTS) con- for public comment, and regulators hope to finalize
tinue to work on a rulemaking that would implement these rules in the near future.
the ‘‘International Convergence of Capital Measurement
and Capital Standards: A Revised Framework’’ (‘‘Basel Pension Guarantees
II’’). The Pension Benefit Guaranty Corporation (PBGC)
Since equity capital serves as a cushion against po- insures pension benefits of workers and retirees in cov-
tential losses, banks with riskier asset portfolios should ered defined-benefit pension plans sponsored by pri-
hold more equity capital. The original Basel Capital vate-sector employers. PBGC pays benefits, up to a
Accord (Basel I) adopted in 1989 is an international guaranteed level, when a company with an underfunded
accord among financial regulators establishing a uni- pension plan meets the legal criteria to transfer its
form capital standard for banks across nations. Under obligations to the pension insurance program. PBGC’s
Basel I, bank assets are grouped into a small number claims exposure is the amount by which qualified bene-
of broad risk categories. A bank’s regulatory capital fits exceed assets in insured plans. In the near term,
requirement is tied to the amount of its asset holdings the risk of loss stems from financially distressed firms
in each risk category. with underfunded plans. In the longer term, loss expo-
During 2006, the Federal banking regulators pro- sure results from the possibility that healthy firms be-
posed two separate but related rulemakings to imple- come distressed and well-funded plans become under-
ment the Revised Basel Capital Accord: the ‘‘Basel II’’ funded due to inadequate contributions, poor invest-
framework and an intermediate ‘‘Basel 1A’’ framework. ment results, or increased liabilities.
In the proposed Basel II rule, U.S. regulators are PBGC monitors companies with underfunded plans
considering requiring the ten or so largest banks (in- and acts to protect the interests of the pension insur-
cluding those that have major international operations, ance program’s stakeholders where possible. Under its
complex financial structures and expertise) to use an Early Warning Program, PBGC works with companies
advanced internal ratings-based approach to calculate to strengthen plan funding or otherwise protect the in-
surance program from avoidable losses. However, stantial losses from underfunded plan terminations in
PBGC’s authority to prevent undue risks to the insur- 2001 through 2006. The table below shows the ten larg-
ance program is limited. est plan termination losses in PBGC’s history. Nine
As a result of a flawed pension funding system and of the ten have come in the past five years. The pro-
exposure to losses from financially troubled plan spon- gram’s deficit at 2006 year-end stood at $18.1 billion 1
sors, PBGC’s single-employer program incurred sub- compared to a $9.7 billion surplus at 2000 year-end.
LARGEST TEN CLAIMS AGAINST THE PBGC’S SINGLE-EMPLOYER

INSURANCE PROGRAM, 1975–2006
Percent
Fiscal Years Claims of Total
Top 10 Firms of Plan (by firm) Claims
Terminations (1975–2005)
1. United Airlines .................. 2005 $7,484,348,482 22.90%

2. Bethlehem Steel ............... 2003 3,654,380,116 11.20%
3. US Airways ...................... 2003, 2005 2,690,222,805 8.20%
4. LTV Steel * ....................... 2002, 2003, 2004 2,136,698,831 6.50%
5. National Steel ................... 2003 1,275,628,286 3.90%
6. Pan American Air ............ 1991, 1992 841,082,434 2.60%
7. Weirton Steel ................... 2004 690,181,783 2.10%
8. Trans World Airlines ........ 2001 668,377,105 2.00%
9. Kaiser Aluminum .............. 2004 600,009,879 1.80%
10. Kemper Insurance ............ 2005 568,417,151 1.70%
Top Ten Total .............................. .............................. 20,609,346,871 63.20%

All Other Total ............................. .............................. 12,017,433,400 36.80%
TOTAL ..................................... .............................. $32,626,780,271 100.00%

Due to rounding, percentages may not add up to 100 percent.
Data in this table have been calculated on a firm basis and include all plans of each
firm.
Values and distributions are subject to change as PBGC completes its reviews and es-
tablishes termination dates.
* Does not include 1986 termination of a Republic Steel plan sponsored by LTV.
Sources: PBGC Fiscal Year Closing File (9/30/06), PBGC Case Administration System,
and PBGC Participant System (PRISM).
In February 2005 the Administration proposed com- reform proposal that were not included in the DRA
prehensive reforms to address structural flaws in the or the PPA, including:
statutory plan funding requirements and in the design • Authorizing PBGC’s Board of Directors to set the
of the insurance program. The proposal sought to variable premium rate.
strengthen funding for workers’ defined-benefit pen- • Extending the variable rate premium to a plan’s
sions; provide more accurate information about pension non-vested as well as its vested liabilities.
liabilities and plan underfunding; and enable PBGC to These reforms will improve PBGC’s financial condi-
meet its obligations to participants in terminated pen- tion and safeguard the future benefits of American
sion plans. Many of the President’s reforms were incor- workers. The Administration is committed to pension
porated into the Deficit Reduction Act (DRA) of 2005, reform that will ultimately restore the PBGC to sol-
enacted in February 2006, and the Pension Protection vency.
Act of 2006 (PPA), enacted in August 2006. Disaster Insurance
The legislation made significant structural changes
to the retirement system. But while the PBGC has Flood Insurance
sufficient liquidity to meet its obligations for a number The Federal Government provides flood insurance
of years, neither the single-employer nor multiemployer through the National Flood Insurance Program (NFIP),
program has the resources to satisfy fully the agency’s which is administered by the Federal Emergency Man-
long-term obligations to plan participants. agement Agency of the Department of Homeland Secu-
Further reforms are needed to address the $19 billion rity (DHS). Flood insurance is available to homeowners
gap that still exists between PBGC’s liabilities and its and businesses in communities that have adopted and
assets. The Budget reproposes non-enacted premium re- enforced appropriate flood plain management measures.
forms from the Administration’s comprehensive pension Coverage is limited to buildings and their contents. By
1 The 2006 year-end single-employer program deficit of $18.1 billion was less than the which resulted in large plans previously classified as probable terminations being changed
$22.8 billion deficit at the end of 2005. The improvement in PBGC’s financial condition from the probable classification to the reasonably possible classification in FY 2006. This
was driven primarily by the airline relief provisions in the Pension Protection Act of 2006, credit was partially offset by $3.1 billion in financial losses.
the end of 2006, the program had over 5.3 million poli- The program’s reserve account, which is a cash fund,
cies in more than 20,200 communities with over $1 has sometimes had expenses greater than its revenue,
trillion of insurance in force. forcing the NFIP to borrow funds from the Treasury
Prior to the creation of the program in 1968, many in order to meet claims obligations. However, since the
factors made it cost prohibitive for private insurance program began in 1968 until 2005, the program has
companies alone to make affordable flood insurance repaid all borrowed funds with interest. However, hur-
available. In response, the NFIP was established to ricanes Katrina, Rita, and Wilma generated more flood
make affordable insurance coverage widely available. insurance claims than the cumulative number of claims
The NFIP requires building standards and other miti- from 1968 to 2004. These three storms resulted in over
gation efforts to reduce losses, and operates a flood 234,000 claims with total claims payments expected to
hazard mapping program to quantify the geographic be approximately $21 billion. As a result, the Adminis-
risk of flooding. These efforts have made substantial tration and the Congress have increased the borrowing
progress. However, structures built prior to flood map- authority to $20.8 billion to date in order to make cer-
ping and NFIP floodplain management requirements, tain that all claims could be paid.
which make up 26 percent of the total policies in force, The catastrophic nature of the 2005 hurricane season
pay less than fully actuarial rates. has also triggered an examination of the program, and
DHS is using three strategies to increase the number the Administration has worked with the Congress to
of flood insurance policies in force: lender compliance, improve the program, based on the following principles:
program simplification, and expanded marketing. DHS protecting the NFIP’s integrity by covering existing
is educating financial regulators about the mandatory commitments; phasing out subsidized premiums in
flood insurance requirement for properties that are lo- order to charge fair and actuarially sound premiums;
cated in floodplains and have mortgages from federally increasing program participation incentives and improv-
regulated lenders. These strategies have resulted in pol- ing enforcement of mandatory participation in the pro-
icy growth of nearly 14 percent in 2006 with nearly gram; increasing risk awareness by educating property
660,000 new policies. The most significant participation owners; and reducing future risks by implementing and
increases were in vulnerable coastal states, such as enhancing mitigation measures. Although flood insur-
ance reform was not achieved in 2006, the Administra-
Mississippi (58 percent, 25,371 policy increase), Texas
tion looks forward to continuing to work with the Con-
(30 percent, 140,834 policy increase), Louisiana (25 per-
gress to enact program reforms that further mitigate
cent, 98,096 policy increase), and Florida (11 percent,
the impact of flood damages and losses.
208,716 policy increase). However, the program has also
seen significant growth within some in-land states such Crop Insurance
as Idaho (24 percent, 1,357 policy increase), based on Subsidized Federal crop insurance administered by
greater awareness of the need for flood insurance pro- USDA’s Risk Management Agency (RMA) assists farm-
tection. ers in managing yield and revenue shortfalls due to
DHS also has a multi-pronged strategy for reducing bad weather or other natural disasters. The program
future flood damage. The NFIP offers flood mitigation is a cooperative effort between the Federal Government
assistance grants to assist flood victims to rebuild to and the private insurance industry. Private insurance
current building codes, including base flood elevations, companies sell and service crop insurance policies.
thereby reducing future flood damage costs. In addition, These companies rely on reinsurance provided by the
two grant programs targeted toward repetitive and se- Federal Government and also by the commercial rein-
vere repetitive loss properties not only help owners of surance market to manage their individual risk port-
high-risk property, but also reduce the disproportionate folio. The Federal Government reimburses private com-
drain on the National Flood Insurance Fund these prop- panies for a portion of the administrative expenses as-
erties cause through acquisition, relocation, or ele- sociated with providing crop insurance and reinsures
vation. As a result of the 2005 hurricane season, the the private companies for excess insurance losses on
number of repetitive and severe repetitive loss prop- all policies. The Federal Government also subsidizes
erties increased significantly, and the Budget proposes premiums for farmers.
to expand the severe repetitive loss grant program to The Budget includes a proposal to implement a par-
mitigate the future impact of these high-risk properties. ticipation fee in the Federal crop insurance program.
DHS is working to ensure that all of the flood mitiga- The proposed participation fee would initially be used
tion grant programs are closely integrated, resulting to fund modernization of the existing information tech-
in better coordination and communication with State nology (IT) system and would supplement the annual
and local governments. Further, through the Commu- appropriation provided by the Congress. Subsequently,
nity Rating System, DHS adjusts premium rates to en- the fee would be shifted to maintenance and would
courage community and State mitigation activities be- be expected to reduce the annual appropriation. The
yond those required by the NFIP. These efforts, in addi- participation fee would be charged to insurance compa-
tion to the minimum NFIP requirements for floodplain nies participating in the Federal crop insurance pro-
management, save over $1 billion annually in avoided gram; based on a rate of about one-half cent per dollar
flood damages. of premium sold, the fee is expected to be sufficient
to generate about $15 million annually beginning in discount programs for good experienced producers who
2009. The existing IT system is nearing the end of pose less risk.
its useful life and recent years have seen increases For more information and additional crop insurance
in ‘‘down-time’’ resulting from system failures. Over the program details, please reference RMA’s web site:
years, numerous changes have occurred in the Federal (www.rma.usda.gov).
crop insurance program; the development of revenue Insurance Against Security-Related Risks
and livestock insurance, for example, has greatly ex-
panded the program and taxed the IT system due to Terrorism Risk Insurance
new requirements, such as daily pricing, which were On November 26, 2002, President Bush signed into
not envisioned when the existing IT system was de- law the Terrorism Risk Insurance Act of 2002 (TRIA).
signed. These new requirements contribute to increased The Act was designed to address disruptions in eco-
maintenance costs and limit RMA’s ability to comply nomic activity caused by the withdrawal of many insur-
with Congressional mandates pertaining to data rec- ance companies from the marketplace for terrorism risk
onciliation with the Farm Service Agency. The partici- insurance in the aftermath of the terrorist attacks of
pation fee will alleviate these problems. September 11, 2001. Their withdrawal in the face of
There are various types of insurance programs. The great uncertainty as to their risk exposure to future
most basic type of coverage is catastrophic coverage terrorist attacks led to a moratorium on many new
(CAT), which compensates the farmer for losses in ex- construction projects, increasing business costs for the
cess of 50 percent of the individual’s average yield at insurance that was available, and substantially shifting
55 percent of the expected market price. The CAT pre- risk—from reinsurers to primary insurers, and from
mium is entirely subsidized, and farmers pay only an insurers to policyholders (e.g., investors, businesses,
administrative fee. Higher levels of coverage, called and property owners). Ultimately, these costs were
buy-up coverage, are also available. A premium is borne by American workers and communities through
charged for buy-up coverage. The premium is deter- decreased development and economic activity.
mined by the level of coverage selected and varies from The Act established a temporary, three-year Federal
crop to crop and county to county. For the 10 principal program that provided a system of shared public and
crops, which account for about 80 percent of total liabil- private compensation for insured commercial property
ity, the most recent data shows that over 75 percent and casualty losses arising from acts of terrorism (as
of eligible acres participated in the crop insurance pro- defined by the Act). Under the Act, insurance compa-
gram. nies offering commercial property and casualty insur-
RMA offers both yield and revenue-based insurance ance policies were required to make available to their
policyholders coverage for losses from acts of terrorism.
products. Revenue insurance programs protect against
In the event of a terrorist attack on private businesses
loss of revenue stemming from low prices, poor yields,
and others covered by this program, the Federal Gov-
or a combination of both. These programs extend tradi-
ernment would initially cover 90 percent of the insured
tional multi-peril or yield crop insurance by adding losses above each insurance company’s deductible (as
price variability to production history. specified in the Act). The Act also provided authority
USDA is continuously trying to develop new products for the Department of the Treasury to recoup any Fed-
or expand existing products in order to cover more eral payments via surcharges on policyholders in future
types of crops. In 2006, a Livestock Risk Protection years. In December 2005, the Congress passed and the
for Lamb pilot was introduced, and Adjusted Gross Rev- President signed the Terrorism Risk Insurance Exten-
enue-Lite was made available in five additional States. sion Act, which extended the program for two years,
In addition, two new Group Risk Protection risk man- through December 31, 2007, and substantially nar-
agement tools for pasture, rangeland, and forage protec- rowed the scope of the program.
tion were approved for the 2007 crop year. These inno- The 2005 Act significantly reduced taxpayers’ expo-
vative pilot programs are based on vegetation greenness sure by excluding certain lines of insurance from Fed-
and rainfall indices and were developed to provide live- eral coverage: commercial automobile, burglary and
stock producers the ability to purchase insurance pro- theft, surety, professional liability, and farm owners
tection for losses of forage produced for grazing or har- multiple peril insurance were removed from the pro-
vested for hay. RMA also expanded the Group Risk gram altogether. In addition, the 2005 Act increased
Income Protection plans for cotton, wheat, and grain insurers’ deductibles from 15 percent of direct earned
sorghum for the 2007 crop year. And, it is expected premiums for calendar year 2005 to 17.5 percent in
that the Livestock Gross Margin pilot program will be 2006 and 20 percent in 2007. The extension also de-
expanded to include cattle in 2007. RMA is also making creased the Federal co-payment for insured losses above
substantial improvements to the Florida Fruit Tree the insurers’ deductibles from 90 percent of insured
pilot program to enhance coverage and make it more losses in calendar year 2005 and 2006 to 85 percent
effective for loss due to hurricane. RMA continues to of insured losses in 2007.
pursue a number of avenues to increase program par- The new legislation also increased the trigger amount
ticipation among underserved States and commodities for Federal payments, from the original $5 million in
by working on declining yield issues and looking at aggregate insured losses from an act of terrorism to
$50 million in calendar year 2006 and $100 million same as that of the air carrier’s commercial coverage
in calendar year 2007. TRIA imposes a cap of $100 before September 11, 2001; and (iii) third party liabil-
billion on total insurer losses from terrorist attacks that ity, the limit generally being twice that of such cov-
the Federal program would cover. Under the statute, erage. The Secretary is also authorized to limit an air
the Congress would determine the procedures to govern carrier’s third party liability to $100 million, when the
any payments for losses beyond $100 billion in separate Secretary certifies that the loss is from an act of ter-
legislation. rorism.
In addition to the reforms to the scope of the pro- This program provides airlines with financial protec-
gram, the 2005 Act required the President’s Working tion from war risk occurrences, and thus allows airlines
Group on Financial Markets (PWG) to conduct a study to meet the basic requirement for ‘‘adequate liability
on the availability and affordability of terrorism risk coverage’’ found in most aircraft leases and in govern-
coverage under the program and to report the results ment regulation. Without such coverage, many airlines
to the Congress by September 30, 2006. The PWG re- might be grounded. Currently, aviation war risk insur-
port found that the program had achieved its goals ance coverage is generally available from private insur-
of supporting the insurance industry post September ers, but premiums are significantly higher in the pri-
11, 2001 and that the market for terrorism risk insur- vate market. Private insurance is also available for
ance (in terms of availability and affordability) has im- third-party liability and for occurrences involving weap-
proved since September 11, 2001. The TRIA program ons of mass destruction, albeit to a lesser extent.
was never intended to be permanent, but rather was Currently 75 air carriers are insured by the Depart-
intended to help stabilize the insurance industry during ment of Transportation. Coverage for individual carriers
a time of significant transition. It has been successful ranges from $80 million to $4 billion per carrier, with
in providing a temporary transition to allow for greater the median insurance coverage at approximately $1.8
market development. billion per occurrence. Premiums collected by the Gov-
ernment for these policies are deposited into the Avia-
Airline War Risk Insurance tion Insurance Revolving Fund. In 2006, the Fund
After the September 11, 2001 attacks, private insur- earned approximately $169 million in premiums for in-
ers cancelled third-party liability war risk coverage for surance provided by DOT, and it is anticipated that
airlines and dramatically increased the cost of other an additional $99 million in premiums will be earned
war risk insurance. In addition to a number of short in 2007. At the end of 2006, the balance in the Aviation
term responses, the Congress also passed the Homeland Insurance Revolving Fund available for payment of fu-
Security Act of 2002 (P.L. 107–296.) Among other provi- ture claims was $742 million. Although no claims have
sions, this Act required the Secretary to provide addi- been paid by the Fund since 2001, the balance in the
tional war risk insurance coverage to air carriers in- Fund would be inadequate to meet either the coverage
sured for Third-Party War Risk Liability as of June limits of the largest policies in force ($4 billion) or to
19, 2002, as authorized under existing law. The Con- meet a series of large claims in succession. The Federal
tinuing Appropriations Act for FY 2007, as amended Government would pay any claims by the airlines that
(P.L. 109–383) further extended the requirement to pro- exceed the balance in the Aviation Insurance Revolving
vide insurance coverage through the duration of the Fund. The Administration does not support a straight
resolution, February 15, 2007, and the program is ex- extension of this program, which crowds out private
pected to be continued through at least August 31, sector mechanisms for managing risk. The Administra-
2007. Acting on behalf of the Secretary, the FAA insur- tion is committed to working with the Congress to re-
ance policies made available under this Act cover: (i) form this program, and to ensure that air carriers more
hull losses at agreed value; (ii) death, injury, or prop- equitably share in the risks associated with this pro-
erty loss to passengers or crew, the limit being the gram.
Chart 7-2. Face Value of Federal

Credit Outstanding
Dollars in trillions
1.4
1.2 Loan Guarantees
1.0
0.8
0.6
0.4
Direct Loans
0.2
0
1970 1975 1980 1985 1990 1995 2000 2005
TABLE 7–1. ESTIMATED FUTURE COST OF OUTSTANDING FEDERAL CREDIT PROGRAMS

Estimated Estimated
Outstanding Future Costs Outstanding Future Costs
Program 2005 of 2005 2006 of 2006
Outstanding 1 Outstanding 1
Direct Loans: 2
Federal Student Loans ....................................................................... 113 11 116 16
Farm Service Agency (excl. CCC), Rural Development, Rural
Housing .......................................................................................... 43 9 43 10
Rural Utilities Service and Rural Telephone Bank ........................... 34 2 38 2
Housing and Urban Development ..................................................... 12 2 11 3
Export-Import Bank ............................................................................. 10 5 7 2
Public Law 480 ................................................................................... 9 4 8 4
Agency for International Development .............................................. 8 3 7 3
Commodity Credit Corporation .......................................................... 3 1 2 1
Disaster Assistance ............................................................................ 4 1 7 2
VA Mortgage ...................................................................................... 1 ........................ 1 ........................
Other Direct Loan Programs .............................................................. 11 3 12 4
Total Direct Loans .............................................................................. 247 41 251 47
Guaranteed Loans: 2
FHA Mutual Mortgage Insurance Fund ............................................. 336 2 317 3
VA Mortgage ...................................................................................... 206 3 211 3
Federal Student Loans ....................................................................... 289 31 325 52
FHA General/Special Risk Insurance Fund ...................................... 90 3 98 1
Small Business 3 ................................................................................. 73 2 67 2
Export-Import Bank ............................................................................. 36 2 36 2
International Assistance ..................................................................... 22 2 22 2
Farm Service Agency (excl. CCC), Rural Development, Rural
Housing .......................................................................................... 30 1 31 ........................
Commodity Credit Corporation .......................................................... 2 ........................ 3 ........................
Maritime Administration ...................................................................... 3 ........................ 3 ........................
Air Transportation Stabilization Program ........................................... 1 1 ........................ ........................
Government National Mortgage Association (GNMA) 3 .................... ........................ * ........................ *
Other Guaranteed Loan Programs .................................................... 8 1 6 1
TABLE 7–1. ESTIMATED FUTURE COST OF OUTSTANDING FEDERAL CREDIT PROGRAMS—

Continued
Estimated Estimated
Outstanding Future Costs Outstanding Future Costs
Program 2005 of 2005 2006 of 2006
Outstanding 1 Outstanding 1
Total Guaranteed Loans .................................................................... 1,096 48 1,120 66
Total Federal Credit ......................................................................... 1,343 89 1,371 113

* $500 million or less.
1 Direct loan future costs are the financing account allowance for subsidy cost and the liquidating account
allowance for estimated uncollectible principal and interest. Loan guarantee future costs are estimated liabilities for
loan guarantees.
2 Excludes loans and guarantees by deposit insurance agencies and programs not included under credit reform, such
as CCC commodity price supports. Defaulted guaranteed loans which become loans receivable are accounted for as direct loans.
3 GNMA data are excluded from the totals because they are secondary guarantees on loans guaranteed by FHA, VA and RHS. Cer-
tain SBA data are excluded from the totals because they are secondary guarantees on SBA’s own guaranteed loans.
Table 7–2. REESTIMATES OF CREDIT SUBSIDIES ON LOANS DISBURSED BETWEEN 1992–2006 1

(Budget authority and outlays, in millions of dollars)
Program 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
DIRECT LOANS:
Agriculture:
Agriculture credit insurance fund ................................. 2 –31 23 ............ 331 –656 921 10 –701 –147 –2 –14
Farm storage facility loans ........................................... ............ ............ ............ ............ ............ ............ –1 –7 –8 7 –1 ............
Apple loans ................................................................... ............ ............ ............ ............ ............ ............ –2 1 ............ * * *
Emergency boll weevil loan ......................................... ............ ............ ............ ............ ............ ............ ............ 1 * * 3 ............
Distance learning and telemedicine ............................. ............ ............ ............ ............ ............ ............ 1 –1 –1 1 7 ............
Rural electrification and telecommunications loans .... –37 84 ............ –39 ............ –17 –42 101 265 143 –197 ............
Rural telephone bank ................................................... ............ 10 ............ –9 ............ –1 ............ –3 –7 –6 –17 ............
Rural housing insurance fund ...................................... 46 –73 ............ 71 ............ 19 –29 –435 –64 –200 109 ............
Rural economic development loans ............................. ............ 1 ............ –1 * ............ –1 –1 ............ –2 * ............
Rural development loan program ................................. ............ ............ ............ –6 ............ ............ –1 –3 ............ –3 –2 ............
Rural community advancement program 2 ................... ............ 8 ............ 5 ............ 37 3 –1 –84 –34 –73 ............
P.L. 480 ........................................................................ –37 –1 ............ ............ ............ –23 65 –348 33 –43 –239 –26
P.L. 480 Title I food for progress credits .................... –38 ............ ............ ............ ............ ............ ............ –112 –44 ............ ............ ............
Commerce:
Fisheries finance ........................................................... ............ ............ ............ ............ ............ –19 –1 –3 ............ 1 –15 –12
Defense:
Military housing improvement fund .............................. ............ ............ ............ ............ ............ ............ ............ ............ ............ * –4 –1
Education:
Federal direct student loan program: 3
Volume reestimate ................................................... ............ ............ ............ 22 ............ –6 ............ 43 ............ ............ ............ ............
Other technical reestimate ....................................... 3 –83 172 –383 –2,158 560 ............ 3,678 1,999 855 2,827 2,674
College housing and academic facilities loans ........... ............ ............ ............ ............ ............ –1 ............ ............ ............ ............ ............ 11
Homeland Security:
Disaster assistance ....................................................... ............ ............ ............ ............ 47 36 –7 –6 * 4 * *
Interior:
Bureau of Reclamation loans ....................................... ............ ............ ............ ............ 3 3 –9 –14 ............ 17 1 *
Bureau of Indian Affairs direct loans ........................... ............ ............ ............ 1 5 –1 –1 2 * * * 1
Assistance to American Samoa ................................... ............ ............ ............ ............ ............ ............ ............ ............ * * ............ 2
State
Repatriation loans ......................................................... ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ –4
Transportation:
High priority corridor loans ........................................... ............ ............ –3 ............ ............ ............ ............ ............ ............ ............ ............ ............
Alameda corridor loan .................................................. ............ ............ ............ ............ –58 ............ ............ ............ –12 ............ ............ ............
Transportation infrastructure finance and innovation .. ............ ............ ............ ............ ............ 18 ............ ............ ............ 3 –11 7
Railroad rehabilitation and improvement program ...... ............ ............ ............ ............ ............ ............ ............ ............ –5 –14 –11 –1
Treasury:
Community development financial institutions fund .... ............ ............ ............ ............ 1 ............ ............ * –1 * –1 1
Veterans Affairs:
Veterans housing benefit program fund ...................... 76 –72 465 –111 –52 –107 –697 17 –178 987 –44 –76
Native American veteran housing ................................ ............ ............ ............ ............ ............ ............ ............ –3 * * * 1
Vocational Rehabilitation Loans ................................... ............ ............ ............ ............ ............ ............ ............ * * * –1 1
Environmental Protection Agency:
Abatement, control and compliance ............................. ............ ............ ............ ............ ............ 3 –1 * –3 * * *
International Assistance Programs:
Foreign military financing ............................................. ............ 13 4 1 152 –166 119 –397 –64 –41 –7 –6
U.S. Agency for International Development:
Micro and small enterprise development ................ ............ ............ ............ ............ ............ ............ * ............ * ............ ............ ............
Overseas Private Investment Corporation:
OPIC direct loans ..................................................... ............ ............ ............ ............ ............ ............ ............ –4 –21 3 –7 72
Debt reduction .............................................................. ............ ............ ............ ............ 36 –4 ............ * –47 –104 54 –3
Small Business Administration:
Business loans .............................................................. ............ ............ ............ ............ ............ 1 –2 1 25 ............ –16 –4
Disaster loans ............................................................... ............ ............ –193 246 –398 –282 –14 266 589 196 61 258
Other Independent Agencies:
Export-Import Bank direct loans ................................... 37 ............ ............ ............ –177 157 117 –640 –305 111 –257 –227
Federal Communications Commission ......................... ............ ............ 4,592 980 –1,501 –804 92 346 380 732 –24 11
LOAN GUARANTEES:
Agriculture:
Agriculture credit insurance fund ................................. 12 –51 96 ............ –31 205 40 –36 –33 –22 –162 20
Table 7–2. REESTIMATES OF CREDIT SUBSIDIES ON LOANS DISBURSED BETWEEN 1992–2006 1—Continued
(Budget authority and outlays, in millions of dollars)
Program 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Agriculture resource conservation demonstration ........ ............ ............ ............ ............ ............ 2 ............ 1 –1 * * ............
Commodity Credit Corporation export guarantees ...... –426 343 ............ ............ ............ –1,410 ............ –13 –230 –205 –366 –232
Rural development insurance fund .............................. ............ –3 ............ ............ ............ ............ ............ ............ ............ ............ 34 ............
Rural housing insurance fund ...................................... 7 –10 ............ 109 ............ 152 –56 32 50 66 44 ............
Rural community advancement program 2 ................... ............ –10 ............ 41 ............ 63 17 91 15 29 –64 ............
Commerce:
Fisheries finance ........................................................... ............ ............ –2 ............ ............ –3 –1 3 * 1 * 1
Emergency steel guaranteed loans ............................. ............ ............ ............ ............ ............ ............ ............ 50 * 3 –75 –13
Emergency oil and gas guaranteed loans ................... ............ ............ ............ ............ ............ * * * * * –1 *
Defense:
Military housing improvement fund .............................. ............ ............ ............ ............ ............ ............ ............ ............ –3 –1 –3 –5
Defense export loan guarantee ................................... ............ ............ ............ ............ ............ ............ ............ ............ ............ –5 ............ ............
Arms initiative guaranteed loan program ..................... ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ 20
Education:
Federal family education loan program: 3
Volume reestimate ........................................................ 535 99 ............ –13 –60 –42 ............ 277 ............ ............ ............ ............
Other technical reestimate ........................................... 60 ............ ............ –140 667 –3,484 ............ –2,483 –3,278 1,348 6,837 –3,399
Health and Human Services:
Heath center loan guarantees ..................................... ............ ............ ............ ............ 3 ............ * * ............ 1 * *
Health education assistance loans .............................. ............ ............ ............ ............ ............ ............ ............ –5 –37 –33 –18 –20
Housing and Urban Development:
Indian housing loan guarantee .................................... ............ ............ ............ ............ ............ –6 * –1 * –3 –1 *
Title VI Indian guarantees ............................................ ............ ............ ............ ............ ............ ............ ............ –1 1 4 * –4
Community development loan guarantees .................. ............ ............ ............ ............ ............ ............ ............ ............ 19 –10 –2 4
FHA-mutual mortgage insurance ................................. ............ –340 ............ 3,789 ............ 2,413 –1,308 1,100 5,947 1,979 2,842 636
FHA-general and special risk ....................................... –110 –25 743 79 ............ –217 –403 77 352 507 238 –1,254
Interior:
Bureau of Indian Affairs guaranteed loans .................. ............ 31 ............ ............ ............ –14 –1 –2 –2 * 15 5
Transportation:
Maritime guaranteed loans (Title XI) ........................... ............ ............ ............ –71 30 –15 187 27 –16 4 –76 –11
Minority business resource center ............................... ............ ............ ............ ............ ............ ............ 1 ............ * * ............ *
Treasury:
Air transportation stabilization program ....................... ............ ............ ............ ............ ............ ............ ............ 113 –199 292 –109 –38
Veterans Affairs:
Veterans housing benefit fund program ...................... 334 –706 38 492 229 –770 –163 –184 –1,515 –462 –842 –525
U.S. Agency for International Development:
Development credit authority ................................... ............ ............ ............ ............ ............ ............ –1 ............ 1 –3 –2 2
Micro and small enterprise development ................ ............ ............ ............ ............ ............ ............ ............ ............ 2 –2 ............ –3
Urban and environmental credit .............................. –7 ............ –14 ............ ............ ............ –4 –15 48 –2 –5 –11
Assistance to the new independent states of the
former Soviet Union ............................................. ............ ............ ............ ............ ............ ............ –34 ............ ............ ............ ............ ............
Loan Guarantees to Israel ....................................... ............ ............ ............ ............ ............ ............ ............ ............ –76 –111 188 34
Loan Guarantees to Egypt ....................................... ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ 7 14
Overseas Private Investment Corporation:
OPIC guaranteed loans ........................................... ............ ............ ............ ............ ............ ............ 5 77 60 –212 –21 –149
Business loans .............................................................. 257 –16 –279 –545 –235 –528 –226 304 1,750 1,034 –390 –268
Export-Import Bank guarantees ................................... 13 ............ ............ ............ –191 –1,520 –417 –2,042 –1,133 –655 –1,164 –579
Total .................................................................................. 727 –832 5,642 4,518 –3,641 –6,427 –1,854 –142 3,468 6,008 9,037 –3,111
* Less than $500,000.
1Excludes interest on reestimates. Additional information on credit reform subsidy rates is contained in the Federal Credit Supplement.
2Includes rural water and waste disposal, rural community facilities, and rural business and industry programs.
3Volume reestimates in mandatory programs represent a change in volume of loans disbursed in the prior years.
Table 7–3. DIRECT LOAN SUBSIDY RATES, BUDGET AUTHORITY, AND LOAN LEVELS, 2006-2008
2006 Actual 2007 Estimate 2008 Proposed
Agency and Program Subsidy Subsidy

Subsidy Subsidy
Loan Subsidy budget Loan Subsidy budget Loan
budget
rate 1 authority levels rate 1 authority levels rate 1 authority levels
Agriculture:
Agricultural credit insurance fund .................................................................................... 8.03 80 989 9.47 94 995 9.88 97 977
Farm storage facility loans .............................................................................................. –0.62 –1 111 0.25 .............. 74 1.12 1 93
Rural community advancement program ........................................................................ 5.90 83 1,406 9.00 90 1,009 .............. .............. ..............
Rural electrification and telecommunications loans ........................................................ –0.50 –31 6,080 –0.71 –38 5,377 –0.51 –24 4,790
Distance learning, telemedicine, and broadband program ............................................. 2.14 7 333 1.94 22 1,155 2.15 6 300
Rural water and waste disposal ...................................................................................... .............. .............. .............. .............. .............. .............. 14.20 153 1,080
Rural community facility ................................................................................................... .............. .............. .............. .............. .............. .............. 5.55 17 302
Rural housing assistance grants ..................................................................................... 46.76 2 4 47.82 4 8 .............. .............. ..............
Farm labor ........................................................................................................................ 44.59 9 20 47.95 5 10 43.26 6 14
Multifamily housing revitalization ..................................................................................... 46.76 1 2 47.82 1 2 .............. .............. ..............
Rural housing insurance fund .......................................................................................... 14.57 199 1,357 13.22 195 1,463 17.23 7 39
Rural development loan fund .......................................................................................... 43.02 15 34 44.07 15 33 42.89 14 34
Rural economic development loans ................................................................................ 19.97 5 25 21.84 5 23 22.59 7 33
Public law 480 title I direct credit and food for progress ............................................... 67.92 27 39 .............. .............. .............. .............. .............. ..............
Commerce:
Fisheries finance .............................................................................................................. –3.34 –4 138 –6.21 –5 75 –10.58 –1 8
Defense—Military:
Defense family housing improvement fund ..................................................................... 2.56 2 78 28.40 251 883 26.38 61 233
Education:
College housing and academic facilities loans ............................................................... .............. .............. 15 57.72 179 310 .............. .............. ..............
Federal direct student loan program ............................................................................... 4.98 1,807 36,305 2.43 474 19,503 2.35 509 21,636
State grants and demonstrations .................................................................................... 100.00 140 140 100.00 1 1 .............. .............. ..............
Homeland Security:
Disaster assistance direct loan ........................................................................................ 75.00 953 1,271 1.18 .............. 25 1.73 .............. 25
FHA-mutual mortgage insurance ..................................................................................... .............. .............. 3 .............. .............. 50 .............. .............. 50
State:
Repatriation loans ............................................................................................................ 64.99 1 1 60.14 1 1 60.22 1 1
Transportation:
Federal-aid highways ....................................................................................................... 8.50 4 42 5.05 121 2,400 5.00 79 1,581
Railroad rehabilitation and improvement program .......................................................... .............. .............. 155 .............. .............. 200 .............. .............. 600
Treasury:
Community development financial institutions fund ........................................................ 37.47 .............. 1 37.47 1 3 37.52 1 2
Veterans Affairs:
Housing ............................................................................................................................. 2.27 3 163 5.25 18 335 3.86 20 539
Native American veteran housing loan ........................................................................... –13.79 –1 4 –13.46 –1 4 –14.48 –1 4
General operating expenses ............................................................................................ 1.59 .............. 3 2.00 .............. 3 2.16 .............. 3
Debt restructuring ............................................................................................................. .............. 29 .............. .............. 84 .............. .............. 255 ..............
Overseas Private Investment Corporation ...................................................................... 3.63 7 193 2.74 10 350 3.22 16 500
Disaster loans .................................................................................................................. 14.64 1,286 8,785 17.73 471 2,659 16.27 173 1,064
Business loans ................................................................................................................. 7.17 1 20 10.21 1 10 .............. .............. 25
Export-Import Bank of the United States:
Export-Import Bank loans ................................................................................................ 1.79 1 56 34.00 17 50 33.01 17 50
Total ............................................................................................................................. N/A 4,625 57,773 N/A 2,016 37,011 N/A 1,414 33,983
1Additional information on credit subsidy rates is contained in the Federal Credit Supplement.
N/A = Not applicable.
Table 7–4. LOAN GUARANTEE SUBSIDY RATES, BUDGET AUTHORITY, AND LOAN LEVELS, 2006-2008
2006 Actual 2007 Estimate 2008 Proposed
Agency and Program Subsidy Subsidy

Subsidy Subsidy
Loan Subsidy budget Loan Subsidy budget Loan
budget
rate 1 authority levels rate 1 authority levels rate 1 authority levels
Agriculture:
Agricultural credit insurance fund .................................................................................... 3.12 67 2,147 2.39 65 2,624 2.54 62 2,450
Commodity Credit Corporation export loans ................................................................... 4.88 71 1,453 3.00 61 1,990 2.63 63 2,440
Rural community advancement program ........................................................................ 3.99 38 933 4.02 48 1,197 .............. .............. ..............
Rural water and waste disposal ...................................................................................... .............. .............. .............. .............. .............. .............. –0.82 –1 75
Rural community facility ................................................................................................... .............. .............. .............. .............. .............. .............. 3.68 8 210
Rural housing insurance fund .......................................................................................... 1.29 41 3,173 1.26 62 4,998 0.57 29 5,049
Rural business and industry ............................................................................................ .............. .............. .............. .............. .............. .............. 4.32 43 1,000
Rural business investment ............................................................................................... 7.72 2 24 .............. .............. .............. .............. .............. ..............
Renewable energy ........................................................................................................... 6.45 2 24 6.49 10 154 9.69 19 195
Education:
Federal family education loan ......................................................................................... 12.74 17,274 135,576 6.65 5,860 88,062 3.88 3,861 99,481
Energy:
Title 17 innovative technology loan guarantee program ................................................ .............. .............. .............. .............. .............. .............. .............. .............. 9,000
Health resources and services ........................................................................................ 3.50 .............. 2 3.42 .............. 8 .............. .............. ..............
Indian housing loan guarantee fund ................................................................................ 2.42 5 190 2.35 5 251 2.42 6 367
Native Hawaiian Housing Loan Guarantee Fund ........................................................... .............. .............. .............. 2.35 1 43 2.42 1 41
Native American housing block grant ............................................................................. 12.26 2 13 11.99 2 17 12.12 2 17
Community development loan guarantees ...................................................................... 2.20 5 220 2.17 3 136 2.20 1 45
FHA-mutual mortgage insurance ..................................................................................... –1.70 –880 51,783 –0.37 –164 44,418 –0.83 –680 81,996
FHA-general and special risk .......................................................................................... –1.74 –504 28,702 –2.01 –413 20,499 –2.54 –242 9,514
Interior:
Indian guaranteed loan .................................................................................................... 4.75 5 117 6.45 5 87 6.52 5 86
Transportation:
Minority business resource center program .................................................................... 1.85 .............. 2 1.82 .............. 18 2.03 .............. 18
Federal-aid highways ....................................................................................................... .............. .............. .............. 3.90 8 200 5.90 12 200
Railroad rehabilitation and improvement program .......................................................... .............. .............. .............. .............. .............. .............. .............. .............. 100
Maritime guaranteed loan (title XI) .................................................................................. .............. .............. .............. 5.93 4 67 .............. .............. ..............
Veterans Affairs:
Housing ............................................................................................................................. –0.32 –73 23,500 –0.36 –102 28,260 –0.37 –108 29,104
Loan guarantees to Israel ................................................................................................ .............. .............. .............. .............. .............. 1,000 .............. .............. 1,000
Development credit authority ........................................................................................... 3.66 6 159 5.45 6 110 6.03 21 348
Overseas Private Investment Corporation ...................................................................... –1.96 –13 661 –1.22 –12 950 –0.78 –8 950
Business loans ................................................................................................................. .............. .............. 19,936 .............. .............. 28,000 .............. .............. 28,000
Export-Import Bank of the United States:
Export-Import Bank loans ................................................................................................ 1.16 141 12,094 0.06 10 15,860 –1.95 –367 18,714
Total ............................................................................................................................. N/A 16,189 280,709 N/A 5,459 238,949 N/A 2,727 290,400
ADDENDUM: SECONDARY GUARANTEED LOAN COMMITMENT LIMITATIONS

GNMA:
Guarantees of mortgage-backed securities loan guarantee .......................................... –0.23 –188 81,739 –0.21 –181 86,000 –0.27 –209 77,400
SBA:
Secondary market guarantee .......................................................................................... .............. .............. 3,633 .............. .............. 12,000 .............. .............. 12,000
Total, secondary guaranteed loan commitments .................................................. N/A –188 85,372 N/A –181 98,000 N/A –209 89,400
1Additional information on credit subsidy rates is contained in the Federal Credit Supplement.
N/A = Not applicable.
Table 7–5. SUMMARY OF FEDERAL DIRECT LOANS AND LOAN GUARANTEES

Actual Estimate
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Direct Loans:
Obligations .............................................................. 38.4 37.1 39.1 43.7 45.4 42.0 56.3 57.8 37.0 34.0
Disbursements ........................................................ 37.7 35.5 37.1 39.6 39.7 38.7 50.6 46.6 31.4 32.9
New subsidy budget authority ................................ 1.6 (0.4) 0.3 * 0.7 0.4 2.1 4.7 2.0 1.4
Reestimated subsidy budget authority 1 ................ 1.0 (4.4) (1.8) 0.5 2.9 2.6 3.8 3.1 3.6 ................
Total subsidy budget authority ............................... 2.6 (4.8) (1.5) 0.5 3.5 3.0 6.0 7.8 5.5 1.4
Loan guarantees:
Commitments 2 ........................................................ 252.4 192.6 256.4 303.7 345.9 300.6 248.5 280.7 239.0 290.4
Lender disbursements 2 .......................................... 224.7 180.8 212.9 271.4 331.3 279.9 221.6 256.0 210.1 256.0
New subsidy budget authority ................................ * 3.6 2.3 2.9 3.8 7.3 10.1 17.2 5.2 2.4
Reestimated subsidy budget authority 1 ................ 4.3 0.3 (7.1) (2.4) (3.5) 2.0 3.5 7.0 (6.8) ................
Total subsidy budget authority ............................... 4.3 3.9 (4.8) 0.5 0.3 9.3 13.6 24.2 (1.6) 2.4
* Less than $50 million.
1 Includes interest on reestimate.
2 To avoid double-counting, totals exclude GNMA secondary guarantees of loans that are guaranteed by FHA, VA, and RHS, and SBA’s guarantee of 7(a) loans sold in the
secondary market.
Table 7–6. DIRECT LOAN WRITEOFFS AND GUARANTEED LOAN TERMINATIONS FOR DEFAULTS
In millions of dollars As a percentage of outstanding
loans 1
Agency and Program 2006 2007 2008 2006 2007 2008
DIRECT LOAN WRITEOFFS

Agriculture:
Agricultural credit insurance fund .............................................................................................................. 45 78 70 0.67 1.21 1.15
Commodity Credit Corporation fund .......................................................................................................... .................. .............. –1 .................. ................ –0.05
Rural community advancement program ................................................................................................... 9 4 4 0.10 0.04 0.03
Rural electrification and telecommunications loans .................................................................................. 9 .............. .............. 0.02 ................ ................
Rural development insurance fund ............................................................................................................ 1 1 1 0.05 0.05 0.06
Rural housing insurance fund .................................................................................................................... 90 99 112 0.36 0.40 0.45
Rural development loan fund .................................................................................................................... 3 2 1 0.69 0.45 0.21
Debt restructuring ....................................................................................................................................... 130 .............. .............. 24.95 ................ ................
Commerce:
Economic development revolving fund ...................................................................................................... 1 1 .............. 10.00 14.28 ................
Education:
Student financial assistance ...................................................................................................................... 14 14 .............. 4.33 4.34 ................
Perkins loan assets .................................................................................................................................... .................. .............. 54 .................. ................ ................
Revolving fund (liquidating programs) ....................................................................................................... .................. 1 1 .................. 16.66 25.00
Guarantees of mortgage-backed securities ............................................................................................... 4 24 20 40.00 342.85 285.71
Interior:
Indian direct loan ........................................................................................................................................ .................. 1 1 .................. 4.34 5.00
Labor:
Pension benefit guaranty corporation fund ............................................................................................... 87 93 93 .................. ................ ................
Veterans Affairs:
Veterans housing benefit program ............................................................................................................ 31 3 3 3.07 0.33 0.25
Debt restructuring ....................................................................................................................................... .................. 2 29 .................. 0.81 12.03
Overseas Private Investment Corporation ................................................................................................ 15 6 15 2.41 0.82 1.78
Disaster loans ............................................................................................................................................. 107 33 61 2.93 0.48 0.85
Business loans ........................................................................................................................................... 2 2 2 1.09 1.11 1.28
Debt reduction (ExIm Bank) ...................................................................................................................... 776 58 107 73.34 19.07 42.29
Export-Import Bank .................................................................................................................................... 1,112 36 36 12.43 0.58 0.67
Spectrum auction program ......................................................................................................................... .................. 50 150 .................. 11.70 41.89
Tennessee Valley Authority fund ............................................................................................................... 1 1 1 2.08 1.92 1.72
Total, direct loan writeoffs ................................................................................................................. 2,437 509 760 1.11 0.22 0.32
GUARANTEED LOAN TERMINATIONS FOR DEFAULT

Agriculture:
Commodity Credit Corporation export loans ............................................................................................. 24 52 61 0.97 1.72 1.91
Rural community advancement program ................................................................................................... 115 135 158 2.44 3.01 3.41
Rural housing insurance fund .................................................................................................................... 249 107 242 1.69 0.68 1.52
Commerce:
Fisheries finance ........................................................................................................................................ 4 .............. .............. 12.50 ................ ................
Defense—Military:
Procurement of ammunition, Army ............................................................................................................ 11 15 .............. 42.30 78.94 ................
Family housing improvement fund ............................................................................................................ .................. 7 7 .................. 1.40 1.43
Education:
Federal family education loans .................................................................................................................. 5,614 6,962 7,671 1.94 2.14 2.12
Health education assistance loans ............................................................................................................ 16 24 21 0.93 1.74 1.92
Health center loan guarantees .................................................................................................................. .................. 1 .............. .................. 2.63 ................
Indian housing loan guarantee .................................................................................................................. 1 1 1 0.52 0.27 0.17
Native American housing block grant ....................................................................................................... .................. 2 2 .................. 2.40 2.17
FHA—Mutual mortgage insurance ............................................................................................................. 5,381 5,722 6,250 1.60 1.80 1.98
FHA—General and special risk ................................................................................................................. 1,034 1,535 1,767 1.15 1.57 1.78
Table 7–6. DIRECT LOAN WRITEOFFS AND GUARANTEED LOAN TERMINATIONS FOR DEFAULTS—Continued
In millions of dollars As a percentage of outstanding
loans 1
Agency and Program 2006 2007 2008 2006 2007 2008
Interior:
Indian guaranteed loans ............................................................................................................................ 1 5 5 0.31 1.57 1.47
Transportation:
Maritime guaranteed loans (Title XI) ......................................................................................................... .................. 35 32 .................. 1.19 1.16
Veterans Affairs:
Veterans housing benefit program ............................................................................................................ 2,207 5,792 5,382 1.07 2.74 2.36
Micro and small enterprise development .................................................................................................. 1 .............. 1 7.14 ................ 16.66
Urban and environmental credit program ................................................................................................. 32 11 12 1.93 0.72 0.86
Development credit authority ..................................................................................................................... .................. 2 2 .................. 0.98 0.73
Business loans ........................................................................................................................................... 1,200 1,141 1,151 1.63 1.69 1.60
Export-Import Bank .................................................................................................................................... 217 225 225 0.60 0.61 0.58
Total, guaranteed loan terminations for default .............................................................................. 16,262 22,022 23,093 1.07 1.43 1.44
Total, direct loan writeoffs and guaranteed loan terminations ..................................................... 18,699 22,531 23,853 1.08 1.28 1.30
ADDENDUM: WRITEOFFS OF DEFAULTED GUARANTEED LOANS THAT RESULT IN LOANS

RECEIVABLE
Agriculture:
Commerce:
Fisheries finance ........................................................................................................................................ 5 .............. .............. 13.88 ................ ................
Education:
Federal family education loans .................................................................................................................. 990 1,121 1,185 4.40 4.57 4.70
FHA—Mutual mortgage insurance ............................................................................................................. .................. 9 1 .................. 2.25 1.69
FHA—General and special risk ................................................................................................................. 276 25 22 6.23 0.51 0.35
Interior:
Indian guaranteed loans ............................................................................................................................ 1 2 2 7.69 11.11 10.00
Treasury:
Air transportation stabilization guaranteed loans ...................................................................................... 39 54 .............. 31.20 72.00 ................
Business loans ........................................................................................................................................... 1,012 281 279 19.04 5.52 5.35
Pollution control equipment ........................................................................................................................ 8 .............. .............. 40.00 ................ ................
Export-Import Bank .................................................................................................................................... 4 .............. .............. 3.41 ................ ................
Total, writeoffs of loans receivable ................................................................................................... 2,339 1,505 1,507 6.18 3.85 3.72
1 Average of loans outstanding for the year.
Table 7–7. APPROPRIATIONS ACTS LIMITATIONS ON CREDIT LOAN LEVELS 1

2006 2007 2008

Agency and Program Actual Estimate Estimate
DIRECT LOAN OBLIGATIONS

Agriculture:
Agricultural credit insurance fund ................................................................................................................................................................ 936 933 917
P.L. 480 ........................................................................................................................................................................................................ 39 ...................... .....................
Commerce:
Fisheries finance .......................................................................................................................................................................................... 138 75 8
Education:
Historically black college and university capital financing .......................................................................................................................... 208 216 .....................
Homeland Security:
Disaster assistance ...................................................................................................................................................................................... 1,270 25 25
FHA-general and special risk ...................................................................................................................................................................... 50 50 50
FHA-mutual mortgage insurance ................................................................................................................................................................. 50 50 50
State:
Repatriation loans ........................................................................................................................................................................................ 1 1 1
Transportation:
Railroad rehabilitation and improvement direct loans ................................................................................................................................ .................. ...................... 600
Treasury:
Community development financial institutions fund .................................................................................................................................... 11 8 6
Veterans Affairs:
Vocational rehabilitation ............................................................................................................................................................................... 3 3 3
Native American loans ................................................................................................................................................................................. 30 30 .....................
Business loans ............................................................................................................................................................................................. 20 10 25
Total, limitations on direct loan obligations ..................................................................................................................................... 2,756 1,401 1,685
LOAN GUARANTEE COMMITMENTS

Agriculture:
Agricultural credit insurance fund ................................................................................................................................................................ 2,147 2,622 2,450
Energy:
Title 17 innovative technology loan guarantees ......................................................................................................................................... .................. ...................... 9,000
Indian housing loan guarantee fund ........................................................................................................................................................... 116 158 367
Title VI Indian Federal guarantees ............................................................................................................................................................. 17 17 17
Native Hawaiian Housing Loan Guarantee Fund ....................................................................................................................................... 36 36 41
Community development loan guarantees ................................................................................................................................................. 135 136 .....................
FHA-general and special risk ...................................................................................................................................................................... 35,000 35,000 35,000
FHA-mutual mortgage insurance ................................................................................................................................................................. 185,000 185,000 185,000
Interior:
Indian guaranteed and insured loans ......................................................................................................................................................... 117 87 86
Transportation:
Minority business resource center .............................................................................................................................................................. 18 18 18
Railroad rehabilitation and improvement loan guarantees ......................................................................................................................... .................. ...................... 100
Development credit authority ....................................................................................................................................................................... 700 ...................... 700
Business loans ............................................................................................................................................................................................. 19,936 28,000 28,000
Total, limitations on loan guarantee commitments .......................................................................................................................... 243,222 251,074 260,779
ADDENDUM: SECONDARY GUARANTEED LOAN COMMITMENT LIMITATIONS

Guarantees of mortgage-backed securities ................................................................................................................................................ 200,000 100,000 100,000
Secondary market guarantees .................................................................................................................................................................... 12,000 12,000 12,000
Table 7–7. APPROPRIATIONS ACTS LIMITATIONS ON CREDIT LOAN LEVELS 1—Continued

2006 2007 2008

Agency and Program Actual Estimate Estimate
Total, limitations on secondary guaranteed loan commitments .................................................................................................... 212,000 112,000 112,000
1 Data represents loan level limitations enacted or proposed to be enacted in appropriation acts. For information on actual and estimated loan levels supportable by new subsidy
budget authority requested, see Tables 7–3 and 7–4.
Table 7–8. FACE VALUE OF GOVERNMENT-SPONSORED LENDING 1

Outstanding
2005 2006
Government Sponsored Enterprises

Fannie Mae 2 .................................................................................................... N/A N/A
Freddie Mac 3 ................................................................................................... N/A N/A
Federal Home Loan Banks ............................................................................. 574 621
Farm Credit System ......................................................................................... 92 105
Total ................................................................................................................. N/A N/A

N/A = Not available.
1 Net of purchases of federally guaranteed loans.
2 Financial data for Fannie Mae is not presented here because following a restatement of fi-
nancial data for 2001–2004, audited financial results for 2005 and 2006 have not been re-
leased.
3 Financial data for Freddie Mac is not presented here because following the release of pre-
vious earnings restatements, audited financial statements for 2005 and 2006 have not been re-
leased.
Table 7–9. LENDING AND BORROWING BY GOVERNMENT-

SPONSORED ENTERPRISES (GSEs) 1
Enterprise 2006
LENDING
Federal National Mortgage Association: 2
Portfolio programs:
Net change .............................................................................................. N/A
Outstandings ............................................................................................ N/A
Mortgage-backed securities:
Net change .............................................................................................. N/A
Outstandings ............................................................................................ N/A
Federal Home Loan Mortgage Corporation: 3
Portfolio programs:
Net change .............................................................................................. N/A
Outstandings ............................................................................................ N/A
Net change .............................................................................................. N/A
Outstandings ............................................................................................ N/A
Farm Credit System:
Agricultural credit bank:
Net change .............................................................................................. 3,642
Outstandings ............................................................................................ 28,763
Farm credit banks:
Net change .............................................................................................. 9,383
Outstandings ............................................................................................ 76,185
Federal Agricultural Mortgage Corporation:
Net change .............................................................................................. 1,933
Outstandings ............................................................................................ 7,059
Federal Home Loan Banks: 4
Net change .................................................................................................. 21,302
Outstandings ................................................................................................ 743,855
Less guaranteed loans purchased by:
Net change .............................................................................................. N/A
Outstandings ............................................................................................ N/A
Other:
Net change .............................................................................................. N/A
Outstandings ............................................................................................ N/A
BORROWING
Portfolio programs:
Net change .............................................................................................. N/A
Outstandings ............................................................................................ N/A
Net change .............................................................................................. N/A
Outstandings ............................................................................................ N/A
Federal Home Loan Mortgage Corporation: 3
Portfolio programs:
Net change .............................................................................................. N/A
Outstandings ............................................................................................ N/A
Net change .............................................................................................. N/A
Outstandings ............................................................................................ N/A
Farm Credit System:
Agricultural credit bank:
Net change .............................................................................................. 4,381
Outstandings ............................................................................................ 32,847
Farm credit banks:
Net change .............................................................................................. 13,015
Outstandings ............................................................................................ 94,376
Federal Agricultural Mortgage Corporation:
Net change .............................................................................................. 623
Outstandings ............................................................................................ 4,554
Federal Home Loan Banks: 4
Net change .................................................................................................. 39,094
Outstandings ................................................................................................ 944,039
Table 7–9. LENDING AND BORROWING BY GOVERNMENT-

SPONSORED ENTERPRISES (GSEs) 1—Continued
Enterprise 2006
DEDUCTIONS 5
Less borrowing from other GSEs: 5
Net change .................................................................................................. N/A
Outstandings ................................................................................................ N/A
Less purchase of Federal debt securities: 5
Net change .................................................................................................. N/A
Outstandings ................................................................................................ N/A
Net change .................................................................................................. N/A
Outstandings ................................................................................................ N/A
Other: 5
Net change .................................................................................................. N/A
Outstandings ................................................................................................ N/A
1 The estimates of borrowing and lending were developed by the GSEs based on cer-
tain assumptions that are subject to periodic review and revision and do not represent
official GSE forecasts of future activity, nor are they reviewed by the President. The data
for all years include programs of mortgage-backed securities. In cases where a GSE
owns securities issued by the same GSE, including mortgage-backed securities, the bor-
rowing and lending data for that GSE are adjusted to remove double-counting.
2 Financial data for Fannie Mae is not presented here because following a restate-
ment of financial data for 2001–2004, audited financial results for 2006 have not been
released.
3 Financial data for Freddie Mac is not presented here because following the release
of previous earnings restatements, audited financial statements for 2006 have not been
released.
4 The net change in borrowings is derived from the difference in borrowings between
2006 and the Federal Home Loan Banks’ audited financial statements of 2005.
5 Totals and subtotals have not been calculated because a substantial portion of the
total is unavailable as described above.
8. AID TO STATE AND LOCAL GOVERNMENTS 1
State and local governments have a vital constitu- This chapter also includes information on the per-
tional responsibility to provide government services. formance of selected grant programs based on the Pro-
They have the major role in providing domestic public gram Assessment Rating Tool. An Appendix to this
services, such as public education, law enforcement, chapter includes State-by-State estimates of major
roads, water supply, and sewage treatment. The Fed- grant programs.
eral Government contributes to that role by promoting
a healthy economy. It also provides grants, loans, and Table 8–1. FEDERAL GRANT OUTLAYS BY AGENCY
tax subsidies to State and local governments. (In billions of dollars)
Federal grants help State and local governments fi-
2006 2007 2008
nance programs covering most areas of domestic public Agency Actual Estimate Proposed
spending, including income support, infrastructure, edu-
cation, and social services. Federal grant outlays were Department of Agriculture .................................................. 25.9 27.0 27.0
Department of Commerce ................................................. 0.5 0.5 0.4
$434.1 billion in 2006 and are estimated to be $448.8
Department of Education ................................................... 41.2 41.8 38.8
billion in 2007 and $454.0 billion in 2008. Department of Energy ........................................................ 0.3 0.2 0.2
Grant outlays to State and local governments for pay- Department of Health and Human Services ..................... 245.0 257.5 265.5
ments to individuals, such as Medicaid payments, are Department of Homeland Security .................................... 15.3 10.1 7.7
estimated to be 65 percent of total grants in 2008; Department of Housing and Urban Development ............ 33.2 36.2 37.3
grant outlays for physical capital investment, 16 per- Department of the Interior ................................................. 4.4 4.3 4.3
cent; and grant outlays for all other purposes, largely Department of Justice ........................................................ 4.3 3.7 3.1
education, training, and social services, 19 percent. Department of Labor .......................................................... 8.6 8.8 8.5
Department of Transportation ............................................ 46.7 49.6 52.5
Some tax expenditures also constitute Federal aid
Department of the Treasury .............................................. 0.5 0.5 0.6
to State and local governments. Tax expenditures stem Department of Veterans Affairs ......................................... 0.6 0.6 0.7
from special exclusions, exemptions, deductions, credits, Environmental Protection Agency ...................................... 4.0 3.7 3.5
deferrals, or tax rates in the Federal tax laws. Other agencies ................................................................... 3.7 4.2 3.9
The deductibility of State and local personal income
and property taxes from gross income for Federal in- Total ............................................................................... 434.1 448.8 454.0
come tax purposes and the exclusion of interest on
State and local bonds from Federal taxation comprise Table 8–1 shows the distribution of grants by agency.
the two largest categories of tax expenditures benefiting Grant outlays by the Department of Health and Human
State and local governments. In 2008, these provisions Services are estimated to be $265.5 billion in 2008,
are estimated to be worth $80.1 billion. Chapter 19, almost 60 percent of total grant outlays. Most of the
‘‘Tax Expenditures,’’ of this volume provides a detailed remaining grant spending is in the Departments of Ag-
discussion of the measurement and definition of tax riculture, Education, Housing and Urban Development,
expenditures and a complete list of the estimated costs and Transportation, which account for another 34 per-
of specific tax expenditures. Tax expenditures that espe- cent of grant outlays.
cially aid State and local governments are displayed
separately at the end of Tables 19–1 and 19–2.
HIGHLIGHTS OF THE FEDERAL AID PROGRAM
Several proposals in this budget affect Federal aid Program Assessment Rating Tool (PART), as discussed
to State and local governments and the important rela- in a later section of this chapter.
tionships between the levels of government. In addition Highlights of proposals affecting grants to State and
to the proposals relating to specific grant programs dis- local governments are presented below. For additional
cussed below, the Administration intends to work with information on these proposals, see discussions in the
State and local governments to make the Federal sys- main Budget volume.
tem more efficient and effective and to improve the
Homeland Security
design, administration, and financial management of
Federal grant programs through reducing improper Since 2001, this Administration has provided nearly
payments and assessing performance of grants with the $37.5 billion to State, local, and tribal government’s
to enhance first responder preparedness. Of this
1 Federal aid to State and local governments is defined as the provision of resources to the public. The two forms of aid are grants and tax expenditures, and grants include
by the Federal Government to support a State or local program of governmental service both outright grants and the value of loan subsidies.
101
amount, $22 billion was allocated through Department and local governments for transportation, mostly for
of Homeland Security (DHS) grant programs. highways, are estimated to be $52.5 billion in 2008.
To improve coordination and provide assistance to This Budget requests $100 million to issue capital
State and local law enforcement officials, the Budget matching grants to States for intercity passenger rail
will expand a successful Federal/State and local part- projects. This new program would give local commu-
nership—the 287(g) program, which provides State and nities resources to direct investment in facilities that
local law enforcement officials with guidance and train- reflect their top rail transportation priorities.
ing in immigration law, subject to the direction of the
Community and Regional Development
Secretary of Homeland Security. The 2008 Budget in-
cludes an increase of $26 million for the 287(g) program Grant outlays for community and regional develop-
and the Law Enforcement Support Center, including ment programs are estimated to be $16.5 billion in
the training of an additional 250 State and local law 2008.
enforcement officers, providing information technology This Budget provides over $3 billion for the Commu-
connections to participating agencies, detention beds for nity Development Block Grant Program (CDBG) and
apprehended illegal aliens, and additional personnel to advances a reform agenda that will distribute resources
assist State and local law enforcement when they en- more equitably and promote efficiency. The current
counter aliens. It also includes an increase of $29 mil- CDBG formula allocates a disproportionate amount of
lion to identify criminal aliens in Federal, State, and resources to areas with relatively few critical develop-
local prison facilities and remove those aliens from the ment needs while other, needier areas go underserved.
United States. Additionally, HUD continues to work with State and
local authorities in the stewardship of $16.7 billion in
Natural Resources and Environment supplemental Community Development Block Grant
Grant outlays for natural resources and environment (CDBG) disaster funds to assist in the long-term recov-
programs are estimated to be $5.6 billion in 2008. ery and rebuilding of the Gulf Coast.
Through the Environmental Protection Agency (EPA),
Education
the 2008 Budget provides $842 million in new capital-
ization for the Drinking Water State Revolving Fund. Grant outlays for elementary, secondary, and voca-
States use their capitalization grants, along with tional education is estimated to be $35.4 billion in 2008.
matching funds, to make loans to localities. The funds Leaving No Child Behind. The central goal of the
‘‘revolve’’ as States use loan repayments to make new 2001 No Child Left Behind Act (NCLB) is for all stu-
loans. Included in the President’s Budget is a proposal dents to read and do math at grade level or above
to exempt private activity bonds (PABs) used to finance by 2014. NCLB refocused Federal education programs
drinking water and wastewater infrastructure from the on the principles of stronger accountability for results,
overall private activity bond cap. PABs are tax-exempt more choices for parents and students, greater flexi-
bonds issued by a State or local government, the pro- bility for States and school districts, and the use of
ceeds of which are used by another entity for a public proven instructional methods. In 2007 the President
purpose. This exemption will ensure all States and com- will work with Congress to reauthorize NCLB. High-
munities have access to PABs to help finance their lights of the President’s plan include the following:
water infrastructure needs. The proposal also will facili- • Reforming high schools and improving college
tate public-private partnerships and require full-cost readiness. For 2008, this Budget provides $13.8
pricing for services, helping drinking water and waste- billion for Title I, a $1.1 billion increase, sufficient
water systems become self-sustaining. to devote new funds to high schools, in proportion
The Tax Relief and Health Care Act, passed by Con- to the number of low-income students they edu-
gress in December 2006, converted abandoned mine cate, while also increasing funding for elementary
land (AML) reclamation grants to States from discre- schools. In addition, the Administration proposes
tionary to mandatory funding. Uncertified States (those to add two new high school tests, including an
with high-priority reclamation work) will receive man- assessment of college readiness. Together with the
datory AML grants from the Abandoned Mine Reclama- existing tests in reading and math in grades 3–8,
tion Fund to continue their projects. Certified States these assessments will help parents and teachers
(those that have already addressed high-priority rec- know how their schools are performing across the
lamation work) will no longer be eligible for AML K-12 spectrum. The Budget provides $412 million
grants. The Act also created a new set of mandatory for these State assessments.
payments from the Treasury to States in amounts • Ensuring future competitiveness. To remain com-
equivalent to the amount allocated to States from coal petitive in the global economy, every high school
fees in the AML Trust Fund under the existing AML graduate needs strong analytical skills from a rig-
grant formula. orous mathematics and science curriculum. In
support of this objective, this Budget provides a
Transportation $365 million increase for math and science edu-
Grants support State and local programs for high- cation programs as part of the American Competi-
ways, mass transit, and airports. Grant outlays to State tiveness Initiative (ACI).
• Helping schools in need of improvement. The 2008 Social Services

Budget provides $500 million, along with over Grant outlays for social service programs are esti-
$500 million reserved from Title I, to help improve mated to be $14.4 billion in 2008.
schools that have not met their NCLB goals for
at least two years, with a particular focus on Head Start. In the Department of Health and
schools that have been low-performing for five Human Services (HHS), the Budget supports reauthor-
years or more. This significant increase will en- ization of Head Start and provides $6.8 billion in budg-
sure that States and school districts have the ca- et authority for 2008, enough to serve more than
pacity to turn around the schools that need the 900,000 children.
most help.
• Enhancing opportunities for parental choice. While Child Welfare Program Option. The Budget seeks
the Administration expects most schools in need legislation to introduce an option for all States so they
of improvement to turn around and meet the goals can choose an alternative system for foster care. Flexi-
of NCLB, some schools will not be able to do so ble financing will allow States to design programs with
quickly. The 2008 Budget includes a new $300 a stronger emphasis on child-abuse prevention, family
million program, Scholarships for Students in Re- support, and increased flexibility in providing services.
structuring Schools, which will enable States to Health
offer low-income students in these chronically low-
performing schools educational alternatives. These Grant outlays for health-related programs are esti-
students will be eligible for scholarships to cover mated to be $219.0 billion in 2008.
some of the cost of attending the private school Medicaid and the State Children’s Health Insur-
of their choice or a public school in a neighboring ance Program (SCHIP). In 2008, Department of
district or receive intensive supplemental services, Health and Human Service’s (HHS) Federal Medicaid
such as tutoring. outlays are estimated to be $201.9 billion. Medicaid
is an open-ended means-tested entitlement program
Training and Employment
that is financed jointly by the Federal Government and
Grant outlays for training and employment are esti- States. Medicaid provides health coverage and services
mated to be $5.5 billion in 2008. to low-income children, pregnant women, elderly per-
The 2008 Budget again proposes job training reforms sons, and disabled individuals during the year.
in the Department of Labor that will give States more SCHIP was established in 1997 to provide $40 billion
flexibility to deliver workforce services tailored to their over 10 years to States for health care coverage to
unique needs and focus resources on training workers low-income, uninsured children whose income levels
instead of supporting bureaucracy. The reforms will were higher than Medicaid eligibility levels. The au-
consolidate several similar programs, cut Federal red thorization for SCHIP expires at the end of 2007.
tape, limit amounts spent on overhead, and create Ca- • SCHIP. The 2008 Budget proposes reauthorizing
reer Advancement Accounts (CAAs). CAAs are worker- SCHIP for five years. The goal is to maintain cur-
directed accounts that give workers the resources nec- rent enrollment levels for targeted low-income
essary to increase their skills and better compete for children over the next few years through increas-
21st Century jobs. The President’s job training reform ing the SCHIP allotments by approximately $5
proposal will triple the number of workers receiving billion over five years. The 2008 Budget proposes
training while saving taxpayer dollars. to re-focus SCHIP on low-income, uninsured chil-
Over the last several years the Administration has dren below 200 percent of the Federal poverty
worked to make the Nation’s workforce investment sys- level as the program was originally intended. The
tem more responsive to the needs of workers and em- Budget will also seek the authority to target
ployers. The 2008 Budget continues these initiatives. SCHIP funds more efficiently to States with the
The President’s Budget requests $150 million for the most need.
Community-Based Job Training Grants program, which • Transitional Medical Assistance. This program
helps community colleges and related organizations ex- provides coverage for former welfare recipients en-
pand their capacity to train workers for jobs that are tering the workforce, and the Administration pro-
in demand in local economies. Since 2005 the program poses extending the provision through 2008.
has provided grants of almost $250 million—funds that • Qualified Individuals. The 2008 Budget proposes
will be used to train an estimated 100,000 workers. an extension of the Qualified Individuals (QI) pro-
The High Growth Job Training Grants Initiative provision, which reimburses States for Part B pre-
vides funds to partnerships of training providers, em- miums at 100 percent. Under current law, States
ployers, and the public workforce investment system receive 100 percent Federal funding to pay Medi-
who commit to training workers for jobs in high growth care Part B premiums for beneficiaries between
industries. Since its inception the program has trained 120 and 135 percent of the Federal Poverty Level.
approximately 51,000 workers, and a total of 128,000 This program’s authorization expires at the end
are expected to be trained by 2008. of 2007.
• Health Insurance Portability and Accountability Ending Chronic Homelessness. The 2008 Budget con-
Act (HIPAA). Since enacted in 1996, HIPAA has tinues the Administration’s commitment to end chronic
increased the continuity, portability, and accessi- homelessness by creating new supportive housing op-
bility of health insurance. To ensure that Medicaid tions for these individuals. The approximately 150,000
and SCHIP beneficiaries receive the benefits of chronically homeless persons identified as the target
HIPAA coverage, the Administration proposes two of this effort include those who have been on the street
legislative changes: 1) Eligibility for a Medicaid/ for long periods and have an addiction and/or suffer
SCHIP Employer-Sponsored Insurance (ESI) Pro- from a disabling physical or mental condition. Across
gram would be a qualifying event allowing fami- the country, local leaders have embraced this goal with
lies to enroll in ESI immediately through special over 225 jurisdictions committing to 10-year plans to
enrollment; and 2) Require SCHIP programs to end chronic homelessness. A number of the jurisdictions
issue certificates of creditable coverage promoting that have implemented their plans—including New
portable health coverage by verifying the period York, Minneapolis and Columbus—are seeing steady
of time an individual was covered by a specific decreases in the number of chronic homeless individ-
health insurance policy. uals on their streets and in shelters. This Budget pro-
Expanding Access to Recovery (ATR). The 2008 Budg- poses a $50 million increase, to $1.6 billion, for Housing
et includes $98 million for 20 grants to States and and Urban Development’s (HUD) Homeless Assistance
Native American Tribes to provide services to more Grants, which received an Effective rating in last year’s
than 55,000 individuals annually. ATR expands access Program Assessment Rating Tool (PART) assessment
to treatment and recovery support services, increases due to its capable program design and strong perform-
clinical treatment and recovery support providers, and ance measures. Up to $50 million will be available for
enhances accountability through mandatory reporting the Samaritan Initiative within the Homeless Assist-
on outcome measures. ance Grants annual competition, to provide the chron-
ically homeless with housing assistance coupled with
Income Support case management to access other essential services.
Grant outlays for income security programs are esti- Administration of Justice
mated to be $92.5 billion in 2008.
Grant outlays for the administration of justice pro-
Food and Nutrition Assistance. As part of its di- grams are estimated to be $3.8 billion in 2008.
verse array of programs, the United States Department The 2008 Budget includes $1.2 billion in assistance
of Agriculture (USDA) delivers programs that help to State and local partners. The Budget proposes to
those in need. create a new Violent Crime Reduction Partnership Ini-
The Special Supplemental Nutrition Program for tiative to target resources to those communities with
Women, Infants and Children (WIC) serves the nutri- the greatest crime problems. This Budget also proposes
tional needs of low-income pregnant and post partum to consolidate numerous small grant programs to better
women, infants and children up to their fifth birthday. target resources to the Nation’s most critical needs and
This Budget provides $5.4 billion for WIC services, increase the efficiency and effectiveness of the grant
which is funding for the estimated 8 million eligible programs.
beneficiaries. To address the rising the costs of WIC The 2008 Budget also provides $345 million in fund-
administration, the 2008 Budget proposes to cap nutri- ing for criminal justice needs, including drug-related
tion services and administration funding at 2006 levels. priorities, through the new, consolidated Byrne Public
In keeping with the Administration’s promotion of Safety and Protection Grants. In addition to funding
childhood wellness and fitness, the department is other law enforcement priorities, the Byrne grants will
issuing updated WIC food packages that reduce max- provide competitive funding to States and localities that
imum allowances of certain foods and increase the in- can be used to establish Drug Courts and Prescription
take of fresh fruits and vegetables. Drug Monitoring Programs, as well as provide assist-
ance with cannabis eradication and cleanup of toxic
Housing Assistance. Grant outlays for housing as- methamphetamine labs, and the successful re-entry of
sistance are estimated to be $29.0 billion in 2008. prisoners into communities.
PERFORMANCE OF GRANTS TO STATE AND LOCAL GOVERNMENTS
The Administration is committed to measuring and year period using the Program Assessment Rating Tool,
improving the performance of Government programs. or PART. With this budget, the fifth year of using the
The Congress mandated in the Government Perform- PART, the Administration has evaluated about 96 per-
ance and Results Act of 1993 that performance plans cent of the Budget.
be developed and that the agencies report annual The PART assesses each program on four components
progress against these plans. (purpose, planning, management, and results/account-
In addition, this Administration began in the 2004 ability) and gives a score for each of the components.
Budget to assess every Federal program over a five The scores for each component are then weighted—
results/accountability carries the greatest weigh—and rating. The higher percent of grants that have this
the program is given an overall score. A program is rating might be explained in part because of the
rated effective if it receives an overall score of 85 per- breadth of purpose of some grants, lack of agreement
cent or more, moderately effective if the score is 70 among grantees and Federal parties on the purpose
to 84 percent, adequate if the score is 50 to 69 percent, and performance measures, and therefore lack of fo-
and inadequate if the score is 49 percent or lower. cused planning to achieve common goals.
The program is given a rating ‘‘Results Not Dem- Table 8–2 also shows that the average rating for the
onstrated’’ if the program does not have good perform- 257 grant programs was ‘‘adequate.’’
ance measures or lacks data for existing measures. • Thirteen were rated effective;
Chapter 2 of this volume discusses the PART in more • Sixty-one were rated moderately effective;
detail.
• Seventy-four were rated adequate; and
As shown in Table 8–2, 257 of the programs that
have been assessed are primarily grants to State and • Fifteen were rated ineffective.
local governments. Of these 257, 94 programs, or 47 • Ninety-four were rated ‘‘results not demonstrated;’’
percent of all grant programs assessed, received a rat- If the 94 programs rated ‘‘Results Not Demonstrated’’
ing of ‘‘Results Not Demonstrated’’. This is higher than are excluded, the average rating was ‘‘adequate;’’ the
for all programs, in which 34 percent were given this same as the rating for all 257 grants.
Table 8–2. SUMMARY OF PART RATINGS AND SCORES FOR GRANTS TO

STATE AND LOCAL GOVERNMENTS
Average Scores
Programs
Component All grant excluding grants
programs rated ‘‘results not
(257 programs) demonstrated’’
(163 programs)
Purpose .............................................................................................. 84% 87%

Planning .............................................................................................. 64% 79%
Management ....................................................................................... 77% 82%
Results/Accountability ........................................................................ 34% 47%
Average rating 1 .................................................................................. Adequate Adequate
Rating 1 Number of grant

programs
Effective .............................................................................................. 13
Moderately effective ........................................................................... 61
Adequate ............................................................................................ 74
Ineffective ........................................................................................... 15
Results not demonstrated .................................................................. 94
Total number of grant programs rated .............................................. 257

1 Weighted as follows: Purpose (20%), Planning (10%), Management (20%), Results/Accountability (50%).
The rating of effective indicates a score of 85 percent or more; moderately effective, 70–85 percent; ade-
quate, 50–70 percent; and ineffective, 49 percent or less.
The ratings of the largest five of these 257 grant project cost and schedule performance. It also does
programs are summarized here. More complete sum- not hold program managers or States accountable
maries of these and other programs can be found at for cost, schedule, or performance results because
www.ExpectMore.gov. oversight of State management of Federal high-
• Department of Transportation: Highway Infra- way dollars is lacking. The Administration is pre-
structure ($34.2 billion in 2006). Rating: Mod- paring a plan for improving program and project
erately Effective. This program has been successful oversight of States, directing more resources to
in improving highway safety and maintaining mo- comprehensive evaluation activities (particularly
bility — traffic-related fatalities per 100 million at the State project level), and devising efficiency
vehicle miles traveled have decreased from 1.51 measures to show that program delivery is cost-
in 2001 to an estimated 1.43 in 2005. But the effective.
program does not have adequate measures to dem- • Department of Health and Human Services: Tem-
onstrate improved efficiency or cost effectiveness. porary Assistance for Needy Families (TANF)
For example, the program does not measure ($17.1 billion in 2006). Rating: Moderately Effec-
tive. This program provides time-limited cash as- • Department of Education: IDEA Special Education
sistance to needy families with children while Grants to States ($10.6 billion for 2006). Rating:
working toward achieving the goals of ending de- Adequate. The program has made some progress
pendence by promoting work and marriage, pre- in improving student achievements. Between 2000
vent out-of-wedlock births, and encouraging the and 2005, the percentage of students with disabil-
formation and maintenance of two-parent families. ities scoring at or above Basic on the National
The program has produced modest, but statis- Assessment of Educational Progress (the Nation’s
tically significant increases in employment and Report Card) grew from 22% to 33% for 4th grade
earnings among welfare recipients as well as re- reading and from 20% to 31% for 8th grade math-
duced caseloads, poverty, and welfare dependency. ematics. Also, more students with disabilities are
It is inconclusive whether the program has pro- staying in school. The percentage of students with
moted marriage or reduced the incidence of out- disabilities who graduate from high school with
of-wedlock births. The program does not require a regular high school diploma increased from 46%
States to report or demonstrate progress on pro- in 2000 to 54% in 2004 and the percentage who
moting marriage. drop out of school decreased from 42% in 2000
• Department of Housing and Urban Development to 31% in 2004. An independent evaluation is
(HUD): Housing Vouchers ($14.1 billion in 2006).
needed to provide information on the relationship
Rating: Moderately Effective. The Housing Choice
between outcomes for children with disabilities
Voucher Program assists two million low-income
and the program. While performance on the Na-
households across the country to afford housing.
The program purpose is to help these families af- tion’s Report Card has improved, drop-out rates
ford decent, safe and sanitary housing. Tenants, have declined, and graduation rates have in-
who would otherwise pay over 50% of their income creased, there is little information on the pro-
to rent an apartment on the private market, pay gram’s role in relation to these outcomes.
30% of their income under this program. A variety Block Grants. One of the most common tools used
of studies show housing vouchers to be a cost-
by the Federal Government is the block grant, particu-
effective means of delivering decent, safe and sani-
larly in the social services area where States and local-
tary housing for low-income families. Housing sub-
ities are the service providers. Block grants are em-
sidies provide access in most cases to better hous-
braced for their flexibility to meet local needs and criti-
ing, often in better neighborhoods. The new fund-
ing structure simplifies the program and allocates cized because accountability for results can be difficult
tenant-based assistance on a budget, rather than when funds are allocated based on formulas and popu-
unit basis, assuring that programs for housing as- lation counts rather than achievements or needs. In
sistance are fully utilized. The Administration will addition, block grants pose performance measurement
continue to work with Congress to streamline the challenges precisely because they can be used for a
program, giving more flexibility to Public Housing wide range of activities. The obstacles to measuring
Agencies to administer the program to better ad- and achieving results through block grants are reflected
dress local needs and market conditions. in PART scores: they receive the second lowest average
• Department of Education: Title I Grants to Local score of the seven PART types, 15 percent of block
Educational Agencies ($12.7 billion for 2006). Rat- grant programs assessed to date were rated ineffective,
ing: Moderately Effective. This program provides and 37 percent were rated ‘‘results not demonstrated.’’
supplemental education funding, especially in Nonetheless, the PART shows that some Federal
high-poverty areas, for local activities that help block grant programs are achieving results better than
improve the performance of low-achieving students others, effectively combining the flexibility that local-
or, in the case of school-wide programs, to help ities need with the results that taxpayers deserve. In
all students in high-poverty schools to meet chal- the coming year, the Administration will apply the les-
lenging State academic standards. The program sons learned from the effective block grants to several
has developed meaningful long-term performance of those performing inadequately. This project will iden-
measures, established baselines, and set annual tify the methods used to manage highly rated block
targets required to meet ambitious statutory aca- grant programs and adapt and implement those prac-
demic proficiency goals. First-year data show a tices in large, low-scoring programs. Each of the pro-
rate of progress consistent with meeting annual grams targeted for improvement will develop an action
performance targets. The Department of Edu- plan and implementation timeline that will be tracked
cation has expanded and strengthened its moni- quarterly. The targeted programs will be re-analyzed
toring of State and local program implementation, through the PART in one to two years to assess wheth-
including compliance with statutory requirements er implementing the block grant ‘‘best practices’’ results
and fiscal management practices. in improved performance.
The 2008 Budget also enhances accountability and Abuse, Prevention, and Treatment Block Grant Pro-
improves performance outcomes by encouraging the grams to report on established National Outcome Meas-
Community Mental Health Services and Substance ures.
HISTORICAL PERSPECTIVES
In recent decades, Federal aid to State and local gov- come security and other social welfare needs. However,
ernments has become a major factor in the financing Federal grants did not become a significant factor in
of certain government functions. The rudiments of the Federal Government expenditures until after World
present system date back to the Civil War. The Morrill War II.
Act, passed in 1862, established the land grant colleges Table 8–3 displays trends in Federal grants to State
and instituted certain federally-required standards for and local governments since 1960. Section A shows Fed-
States that received the grants, as is characteristic of eral grants by function. Functions with a substantial
the present grant programs. Federal aid was later initi- amount of grants are shown separately. Grants for the
ated for agriculture, highways, vocational education and national defense, energy, social security, and the vet-
rehabilitation, forestry, and public health. In the de- erans benefits and services functions are combined in
pression years, Federal aid was extended to meet in- the ‘‘other functions’’ line in the table.
Table 8–3. TRENDS IN FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS
(Outlays; in billions of dollars)
Actual Estimate
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2006 2007 2008
A. Distribution of grants by function:

Natural resources and
environment .............................................................................................. 0.1 0.2 0.4 2.4 5.4 4.1 3.7 4.0 4.6 5.9 6.1 5.9 5.6
Agriculture ..................................................................................................... 0.2 0.5 0.6 0.4 0.6 2.4 1.3 0.8 0.7 0.9 0.7 0.8 0.8
Transportation ............................................................................................... 3.0 4.1 4.6 5.9 13.0 17.0 19.2 25.8 32.2 43.4 46.7 49.6 52.5
Community and regional
development ............................................................................................. 0.1 0.6 1.8 2.8 6.5 5.2 5.0 7.2 8.7 20.2 21.3 18.9 16.5
Education, training,
employment, and social services ............................................................ 0.5 1.1 6.4 12.1 21.9 17.1 21.8 30.9 36.7 57.2 60.5 61.6 56.7
Health ............................................................................................................ 0.2 0.6 3.8 8.8 15.8 24.5 43.9 93.6 124.8 197.8 197.3 208.9 219.0
Income security ............................................................................................ 2.6 3.5 5.8 9.4 18.5 27.9 36.8 58.4 68.7 90.9 89.8 91.8 92.5
Administration of Justice .............................................................................. ............ ............ * 0.7 0.5 0.1 0.6 1.2 5.3 4.8 5.0 4.3 3.8
General government ..................................................................................... 0.2 0.2 0.5 7.1 8.6 6.8 2.3 2.3 2.1 4.4 3.9 3.7 3.5
Other ............................................................................................................. * 0.1 0.1 0.2 0.7 0.8 0.8 0.8 2.1 2.6 2.8 3.3 3.1
Total .......................................................................................................... 7.0 10.9 24.1 49.8 91.4 105.9 135.3 225.0 285.9 428.0 434.1 448.8 454.0
B. Distribution of grants by BEA category:
Discretionary ............................................................................................. N/A 2.9 10.2 21.0 53.3 55.5 63.3 94.0 116.7 181.7 186.1 185.8 182.2
Mandatory ................................................................................................. N/A 8.0 13.9 28.8 38.1 50.4 72.0 131.0 169.2 246.3 248.0 263.0 271.8
Total ..................................................................................................... 7.0 10.9 24.1 49.8 91.4 105.9 135.3 225.0 285.9 428.0 434.1 448.8 454.0
C. Composition:
Payments for individuals 1 ....................................................................... 2.5 3.7 8.7 16.8 32.6 50.1 77.3 144.4 182.6 273.9 272.6 285.2 296.7
Physical capital 1 ...................................................................................... 3.3 5.0 7.1 10.9 22.6 24.9 27.2 39.6 48.7 60.8 64.1 69.2 71.8
Other grants ............................................................................................. 1.2 2.2 8.3 22.2 36.2 30.9 30.9 41.0 54.6 93.3 97.4 94.4 85.4
Total ..................................................................................................... 7.0 10.9 24.1 49.8 91.4 105.9 135.3 225.0 285.9 428.0 434.1 448.8 454.0
D. Total grants as a percent of:

Federal outlays:
Total .......................................................................................................... 7.6% 9.2% 12.3% 15.0% 15.5% 11.2% 10.8% 14.8% 16.0% 17.3% 16.3% 16.1% 15.6%
Domestic programs 2 ................................................................................ 18.0% 18.3% 23.2% 21.7% 22.2% 18.2% 17.1% 21.6% 22.0% 23.4% 22.4% 22.2% 21.8%
State and local expenditures ....................................................................... 14.8% 15.5% 20.1% 24.0% 27.4% 22.0% 18.9% 22.8% 22.2% 24.3% 23.3% N/A N/A
Gross domestic product ............................................................................... 1.4% 1.6% 2.4% 3.2% 3.4% 2.6% 2.4% 3.1% 2.9% 3.5% 3.3% 3.3% 3.1%
E. As a share of total State and local gross investments:
Federal capital grants ................................................................................... 24.6% 25.5% 25.4% 26.0% 35.4% 30.2% 21.9% 26.0% 21.9% 21.5% 20.9% N/A N/A
State and local own-source financing ......................................................... 75.4% 74.5% 74.6% 74.0% 64.6% 69.8% 78.1% 74.0% 78.1% 78.5% 79.1% N/A N/A
Total ..................................................................................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% N/A N/A
N/A: Not available.
* 50 million or less.
1 Grants that are both payments for individuals and capital investment are shown under capital investment.
2 Excludes national defense, international affairs, net interest, and undistributed offsetting receipts
Federal grants for transportation increased to $3.0 separately. For more information on the Budget En-
billion, or 43 percent of all Federal grants, in 1960 forcement Act and these categories, see Chapter 26,
after initiation of aid to States to build the Interstate ‘‘The Budget System and Concepts’’ in this volume.
Highway System in the late 1950s. Section C of Table 8–3 shows the composition of
By 1970 there had been significant increases in the grants divided into three major categories: payments
relative amounts for education, training, employment, for individuals, grants for physical capital, and other
social services, and health (largely Medicaid). grants.2 Grant outlays for payments for individuals,
In the early and mid-1970s, major new grants were which are mainly entitlement programs in which the
created for natural resources and environment (con- Federal Government and the States share the costs,
struction of sewage treatment plants), community and have grown significantly as a percent of total grants.
regional development (community development block They increased from about a third of the total in 1960
grants), and general government (general revenue shar- to slightly less than two-thirds in the mid-1990s, and
ing). have remained about that proportion since then.
Since the late 1970s changes in the relative amounts These grants are distributed through State or local
among functions reflect steady growth of grants for governments to provide cash or in-kind benefits that
health (Medicaid) and income security. The functions constitute income transfers to individuals or families.
with the largest amount of grants are health; income The major grant in this category is Medicaid. Tem-
security; education, training, employment, and social porary assistance for needy families, child nutrition pro-
services; and transportation, with combined estimated grams, and housing assistance are also large grants
grant outlays of $394.4 billion, or more than 90 percent in this category.
of total grant outlays in 2006. Grants for physical capital assist States and localities
The increase in total outlays for grants overall since with construction and other physical capital activities.
1990 has been driven by increases in grants for health, The major capital grants are for highways, but there
which have increased more than four-fold from $43.9 are also grants for airports, mass transit, sewage treat-
billion in 1990 to $197.3 billion in 2006. The income ment plant construction, community development, and
security; education, training, employment, and social other facilities. Grants for physical capital were almost
services; and transportation functions also increased half of total grants in 1960, shortly after grants began
substantially, but at a slower rate than the increase for construction of the Interstate Highway System. The
for health. relative share of these outlays has declined, as pay-
Section B of the Table shows the distribution of ments for individuals have grown. In 2006, grants for
grants divided into mandatory and discretionary spend- physical capital were $64.1 billion, 15 percent of total
ing. grants.
Funding for grant programs classified as mandatory The other grants are primarily for education, train-
is determined in authorizing legislation. Funding levels ing, employment, and social services. These grants were
for mandatory programs can only be changed by chang- 22 percent of total grants in 2006.
ing eligibility criteria or benefit formulas established Section D of this table shows grants as a percentage
in law and are usually not limited by the annual appro- of Federal outlays, State and local expenditures, and
priations process. Outlays for mandatory grant pro- gross domestic product. Grants have increased as a per-
grams were $248.0 billion in 2006. The three largest centage of total Federal outlays from 11 percent in 1990
mandatory grant programs are Medicaid, with outlays to 16 percent in 2006. Grants as a percentage of domes-
of $180.6 billion in 2006, Temporary Assistance for tic programs were 22 percent in 2006. As a percentage
Needy Families, $16.9 billion, and child nutrition pro- of total State and local expenditures, grants have in-
grams, $12.3 billion. creased from 19 percent in 1990 to 23 percent in 2006.
The funding level for discretionary grant programs Section E shows the relative contribution of physical
is determined annually through appropriations acts. capital grants in assisting States and localities with
Outlays for discretionary grant programs were $186.1 gross investment. Federal capital grants are estimated
billion in 2006. Table 8–4 at the end of this chapter to be 21 percent of State and local gross investment
identifies discretionary and mandatory grant programs in 2006.
OTHER INFORMATION ON FEDERAL AID TO STATE AND LOCAL GOVERNMENTS
Additional information regarding aid to State and ments are identified in Chapter 6, ‘‘Federal Invest-
local governments can be found elsewhere in this budg- ment.’’
et and in other documents. Data for summary and detailed grants to State and
Major public physical capital investment programs local governments can be found in many sections of
providing Federal grants to State and local govern- a separate budget volume entitled Historical Tables.
Section 12 of that document is devoted exclusively to
2 Certain housing grants are classified in the budget as both payments for individuals
and physical capital spending. In the text and tables in this section, these grants are
included in the category for physical capital spending.
grants to State and local governments. Additional infor- • The Federal Audit Clearinghouse maintains an
mation on grants can be found in Section 6 (Composi- on-line database (harvester.census.gov/sac) that
tion of Federal Government Outlays); Section 9 (Federal provides access to summary information about au-
Government Outlays for Investment: Major Physical dits conducted under OMB Circular A-133, ‘‘Audits
Capital, Research and Development, and Education and to States, Local Governments, and Non-Profit Or-
Training); Section 11 (Federal Government Payments ganizations.’’ Information is available for each au-
for Individuals); and Section 15 (Total (Federal and dited entity, including the amount of Federal
State and Local) Government Finances). money expended by program and whether there
In addition to these sources, a number of other were audit findings.
sources of information are available that use slightly The Bureau of Economic Analysis, also in the Depart-
different concepts of grants, provide State-by-State in- ment of Commerce, publishes the monthly Survey of
formation, provide information on how to apply for Fed-
Current Business, which provides data on the national
eral aid, or display information about audits.
income and product accounts (NIPA), a broad statistical
The Bureau of the Census in the Department of Com-
merce provides data on public finances, including Fed- concept encompassing the entire economy. These ac-
eral aid to State and local governments. The Bureau’s counts include data on Federal grants to State and
major reports and databases on grant-making include: local governments. Data using the NIPA concepts ap-
• Federal Aid to States, a report on Federal spend- pear in this volume in Chapter 14, ‘‘National Income
ing by State for grants for the most recently com- and Product Accounts.’’
pleted fiscal year. The Catalog of Federal Domestic Assistance is a pri-
• The Consolidated Federal Funds Report is an an- mary reference source for communities wishing to apply
nual document that shows the distribution of Fed- for grants and other domestic assistance. The Catalog
eral spending by State and county areas and by is prepared by the General Services Administration
local governmental jurisdictions. with data collected by the Office of Management and
• The Federal Assistance Awards Data System Budget. It contains a detailed listing of grant and other
(FAADS) provides computerized information about assistance programs; discussions of eligibility criteria,
current grant funding. Data on all direct assist- application procedures, and estimated obligations; and
ance awards are provided quarterly to the States related information. The Catalog is available on the
and to the Congress. Internet at www.cfda.gov.
DETAILED FEDERAL AID TABLE
Table 8–4, ‘‘Federal Grants to State and Local Gov- cluding proposed legislation. This table displays discre-
ernments-Budget Authority and Outlays,’’ provides de- tionary and mandatory grant programs separately.
tailed budget authority and outlay data for grants, in-
Table 8–4. FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS—BUDGET AUTHORITY AND OUTLAYS

Function, Category, Agency and Program 2006 2007 2008 2006 2007 2008
NATIONAL DEFENSE
Discretionary:
Department of Defense—Military:
Research, development, test, and evaluation, Army ........................................................ 2 2 2 2 2 2
ENERGY
Discretionary:
Department of Energy:
Energy Programs:
Energy conservation ........................................................................................................... .................... ...................... ...................... 150 ...................... ......................
Energy supply and conservation ........................................................................................ 279 213 179 125 215 200
Total, discretionary ........................................................................................................... 279 213 179 275 215 200
Mandatory:
Tennessee Valley Authority fund ................................................................................................ 376 439 449 376 439 449
Total, energy .......................................................................................................................... 655 652 628 651 654 649
NATURAL RESOURCES AND ENVIRONMENT

Discretionary:
Department of Agriculture:
Farm Service Agency:
Grassroots source water protection program .................................................................... 4 4 ...................... 4 4 ......................
Natural Resources Conservation Service:
Watershed rehabilitation program ...................................................................................... 5 5 ...................... 2 2 2
Resource conservation and development .......................................................................... .................... ...................... ...................... 1 1 1
Watershed and flood prevention operations ...................................................................... 164 15 ...................... 133 141 81
Forest Service:
State and private forestry ................................................................................................... 303 216 183 339 326 290
Management of national forest lands for subsistence uses ............................................. 5 5 5 5 7 5
Department of Commerce:
National Oceanic and Atmospheric Administration:
Operations, research, and facilities .................................................................................... 91 77 93 35 31 40
Pacific coastal salmon recovery ......................................................................................... 67 20 67 80 65 67
Procurement, acquisition and construction ........................................................................ 89 1 16 61 1 11
Department of the Interior:
Office of Surface Mining Reclamation and Enforcement:
Regulation and technology ................................................................................................. 59 59 62 58 59 60
Abandoned mine reclamation fund .................................................................................... 167 163 33 186 157 156
United States Fish and Wildlife Service:
State and tribal wildlife grants ........................................................................................... 67 50 69 74 66 81
Cooperative endangered species conservation fund ........................................................ 80 80 80 38 80 80
Landowner incentive program ............................................................................................ 22 15 ...................... 14 21 22
National Park Service:
Urban park and recreation fund ......................................................................................... .................... ...................... ...................... 14 9 3
National recreation and preservation ................................................................................. 54 47 49 59 52 50
Land acquisition and State assistance .............................................................................. 30 2 ...................... 107 83 60
Historic preservation fund ................................................................................................... 115 59 64 66 77 79
State and tribal assistance grants ..................................................................................... 3,141 3,009 2,739 3,874 3,634 3,381
Hazardous substance superfund ........................................................................................ 45 33 29 38 25 25
Leaking underground storage tank trust fund ................................................................... 70 56 60 54 53 54
Total, discretionary ........................................................................................................... 4,578 3,916 3,549 5,242 4,894 4,548
Mandatory:
Bureau of Land Management:
Miscellaneous permanent payment accounts .................................................................... 139 40 49 138 46 49
Minerals Management Service:
National forests fund, Payment to States .......................................................................... 9 6 7 9 6 8
Leases of lands acquired for flood control, navigation, and allied purposes .................. 5 3 3 5 3 3
Coastal impact assistance .................................................................................................. .................... 250 250 .................... 250 250
Office of Surface Mining Reclamation and Enforcement:
Abandoned mine reclamation fund .................................................................................... .................... ...................... 94 .................... ...................... 25
Table 8–4. FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS—BUDGET AUTHORITY AND OUTLAYS—Continued

Bureau of Reclamation:
Bureau of Reclamation loan subsidy ................................................................................. 2 4 ...................... 2 4 ......................
Federal aid in wildlife restoration ....................................................................................... 265 293 300 257 251 264
Cooperative endangered species conservation fund ........................................................ 39 46 48 39 46 48
Sport fish restoration .......................................................................................................... 364 432 452 365 376 410
Department of the Treasury:
Financial Management Service:
Payment to terrestrial wildlife habitat restoration trust fund ............................................. 5 5 5 5 5 5
Total, mandatory ............................................................................................................... 828 1,079 1,208 820 987 1,062
Total, natural resources and environment ............................................................... 5,406 4,995 4,757 6,062 5,881 5,610
AGRICULTURE
Discretionary:
Cooperative State Research, Education, and Extension Service:
Extension activities ............................................................................................................. 456 456 436 423 443 496
Outreach for socially disadvantaged farmers .................................................................... 6 6 7 6 6 7
Research and education activities ..................................................................................... 241 249 223 241 256 249
Integrated activities ............................................................................................................. 25 25 5 23 27 26
Agricultural Marketing Service:
Payments to States and possessions ............................................................................... 11 1 1 5 1 1
State mediation grants ....................................................................................................... 4 4 4 4 4 5
Mandatory:
Office of the Secretary:
Fund for rural America ....................................................................................................... .................... ...................... ...................... 1 ...................... ......................
Commodity Credit Corporation fund .................................................................................. 46 41 40 46 41 40
Total, mandatory ............................................................................................................... 46 41 40 47 41 40
Total, agriculture .......................................................................................................... 789 782 716 749 778 824
COMMERCE AND HOUSING CREDIT

Mandatory:
National Oceanic and Atmospheric Administration:
Promote and develop fishery products and research pertaining to American fisheries .. 12 6 6 12 9 6
Federal Communications Commission:
Universal service fund ........................................................................................................ 1,462 1,977 1,760 1,462 1,977 1,760
Total, commerce and housing credit ........................................................................ 1,474 1,983 1,766 1,474 1,986 1,766
TRANSPORTATION
Discretionary:
Department of Transportation:
Federal Aviation Administration:
Grants-in-aid for airports (Airport and airway trust fund) .................................................. .................... ...................... ...................... 3,841 3,821 3,711
Federal Highway Administration:
Emergency relief program .................................................................................................. 3,452 ...................... ...................... 849 1,438 586
State infrastructure banks .................................................................................................. .................... ...................... ...................... 1 1 1
Appalachian development highway system ....................................................................... 20 82 ...................... 95 139 127
Federal-aid highways .......................................................................................................... .................... ...................... ...................... 32,703 33,083 36,857
Miscellaneous appropriations ............................................................................................. .................... ...................... –149 187 116 41
Miscellaneous highway trust funds .................................................................................... .................... ...................... –260 145 140 11
Federal Motor Carrier Safety Administration:
Motor Carrier Safety Grants ............................................................................................... 279 291 300 74 271 284
National Highway Traffic Safety Administration:
Highway traffic safety grants .............................................................................................. 558 566 581 263 534 580

Federal Railroad Administration:

Alaska railroad rehabilitation .............................................................................................. 10 10 ...................... 20 11 6
Federal Transit Administration:
Job access and reverse commute grants ......................................................................... .................... ...................... ...................... 95 103 65
Interstate transfer grants-transit ......................................................................................... .................... ...................... ...................... –19 2 2
Washington Metropolitan Area Transit Authority ............................................................... .................... ...................... ...................... 4 2 1
Formula grants .................................................................................................................... 144 ...................... ...................... 3,376 2,464 1,504
Capital investment grants ................................................................................................... 1,487 1,548 1,400 3,073 3,350 2,905
Discretionary grants (Highway trust fund, mass transit account) ..................................... .................... ...................... ...................... 92 53 40
Formula and bus grants ..................................................................................................... 8,281 7,190 7,873 1,863 4,074 5,759
Pipeline and Hazardous Materials Safety Administration:
Pipeline safety .................................................................................................................... 19 20 24 19 23 24
United States-Canada Alaska Rail Commission:
Contribution to United States-Canada Alaska Rail Commission ...................................... .................... ...................... ...................... 2 ...................... ......................
Mandatory:
Department of Transportation:
Federal Aviation Administration:
Grants-in-aid for airports (Airport and airway trust fund) .................................................. 3,070 4,267 2,750 .................... ...................... ......................
Federal Highway Administration:
Federal-aid highways .......................................................................................................... 32,916 37,498 40,381 .................... ...................... ......................
Total, mandatory ............................................................................................................... 35,986 41,765 43,131 .................... ...................... ......................
Total, transportation .................................................................................................... 50,236 51,472 52,900 46,683 49,625 52,504
COMMUNITY AND REGIONAL DEVELOPMENT

Discretionary:
Rural Development:
Rural community advancement program ........................................................................... 735 553 ...................... 773 726 ......................
Rural Utilities Service:
Distance learning, telemedicine, and broadband program ............................................... 16 16 16 14 13 15
Rural water and waste disposal subsidy ........................................................................... .................... ...................... 502 .................... ...................... 485
Rural Housing Service:
Rural community facility subsidy ........................................................................................ .................... ...................... 22 .................... ...................... 74
Rural Business—Cooperative Service:
Rural business and industry subsidy ................................................................................. .................... ...................... 38 .................... ...................... 71
Economic development assistance programs ........................................................................ 250 231 170 284 314 295
Department of Homeland Security:
Federal Emergency Management Agency:
State and local programs ................................................................................................... 2,318 2,367 1,633 2,601 1,956 2,128
Firefighter assistance grants .............................................................................................. 648 662 300 228 565 639
Mitigation grants ................................................................................................................. .................... ...................... ...................... 34 98 ......................
Disaster Relief .................................................................................................................... –17,423 2,909 1,409 11,868 6,895 4,302
Department of Housing and Urban Development:
Community Planning and Development:
Community development fund ............................................................................................ 20,851 4,215 2,681 5,012 7,828 7,999
Urban development action grants ...................................................................................... .................... ...................... ...................... .................... 2 2
Community development loan guarantees subsidy ........................................................... 4 3 ...................... 8 8 5
Brownfields redevelopment ................................................................................................ .................... ...................... ...................... 18 22 28
Empowerment zones/enterprise communities/renewal communities ................................ .................... ...................... ...................... 39 35 30
Office of Lead Hazard Control and Healthy Homes:
Lead hazard reduction ........................................................................................................ 150 150 116 120 141 154
Bureau of Indian Affairs and Bureau of Indian Education:
Operation of Indian programs ............................................................................................ 149 150 150 148 146 147
Indian guaranteed loan subsidy ......................................................................................... 26 20 6 24 20 6
Appalachian Regional Commission ............................................................................................ 56 27 57 63 65 66
Delta regional authority ............................................................................................................... 12 5 4 6 5 7
Denali Commission ...................................................................................................................... 49 8 2 42 44 70

Mandatory:
Community development loan guarantees subsidy ........................................................... 3 8 ...................... 3 8 ......................
Total, community and regional development ........................................................... 7,844 11,324 7,106 21,285 18,891 16,523
EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES

Discretionary:
National Telecommunications and Information Administration:
Public telecommunications facilities, planning and construction ....................................... 22 20 ...................... 24 33 25
Information infrastructure grants ........................................................................................ .................... ...................... ...................... 11 7 4
Department of Education:
Office of Elementary and Secondary Education:
Reading excellence ............................................................................................................ .................... ...................... ...................... 1 6 ......................
Indian education ................................................................................................................. 115 115 115 114 116 113
Impact aid ........................................................................................................................... 1,224 1,253 1,224 1,138 1,456 1,224
Education reform ................................................................................................................ .................... ...................... ...................... 15 4 ......................
Education for the disadvantaged ....................................................................................... 14,434 14,434 16,641 14,604 14,716 14,478
School improvement programs .......................................................................................... 5,110 5,120 4,635 5,589 5,439 5,107
Office of Innovation and Improvement:
Innovation and improvement .............................................................................................. 643 549 778 451 893 625
Office of Safe and Drug-Free Schools:
Safe schools and citizenship education ............................................................................ 688 685 290 717 730 685
Office of English Language Acquisition:
English language acquisition .............................................................................................. 629 631 631 551 795 585
Office of Special Education and Rehabilitative Services:
Special education ............................................................................................................... 11,439 11,346 10,505 11,582 11,267 10,581
Rehabilitation services and disability research .................................................................. 127 127 56 140 172 80
American Printing House for the Blind .............................................................................. 18 18 18 19 20 18
Office of Vocational and Adult Education:
Career, technical and adult education ............................................................................... 1,972 1,970 1,960 1,958 2,034 1,910
Office of Postsecondary Education:
Higher education ................................................................................................................. 403 403 302 439 478 424
Office of Federal Student Aid:
Student financial assistance ............................................................................................... 65 64 ...................... 68 71 51
Institute of education sciences ............................................................................................... 25 49 49 4 38 39
Hurricane education recovery ................................................................................................. 1,885 ...................... ...................... 1,140 743 ......................
Department of Health and Human Services:
Administration for Children and Families:
Promoting safe and stable families ................................................................................... 82 82 82 82 82 82
Children and families services programs .......................................................................... 8,560 8,507 7,869 8,492 8,466 8,104
Administration on Aging:
Aging services programs .................................................................................................... 1,345 1,349 1,318 1,358 1,327 1,323
Bureau of Indian Affairs and Bureau of Indian Education:
Operation of Indian programs ............................................................................................ 116 116 116 114 111 112
Department of Labor:
Employment and Training Administration:
Training and employment services .................................................................................... 4,706 4,897 4,543 4,566 4,489 4,283
Community service employment for older Americans ....................................................... 94 94 76 88 94 76
State unemployment insurance and employment service operations .............................. 124 120 17 155 123 130
Unemployment trust fund ................................................................................................... 726 952 256 803 1,055 797
Corporation for National and Community Service:
Domestic volunteer service programs, operating expenses ............................................. 105 105 ...................... 142 133 79
National and community service programs, operating expenses ..................................... 265 265 255 255 224 200
Corporation for Public Broadcasting ........................................................................................... 460 464 350 460 464 350
District of Columbia:
District of Columbia General and Special Payments:
Federal payment for resident tuition support .................................................................... 33 33 35 33 33 35
Federal payment for school improvement ......................................................................... 40 40 41 40 40 41
National Endowment for the Arts: grants and administration .................................................... 41 40 41 37 38 39

Institute of Museum and Library Services:

Office of Museum and Library Services: grants and administration ................................ 238 231 254 226 273 282
Mandatory:
Department of Education:
Office of Special Education and Rehabilitative Services:
Rehabilitation services and disability research .................................................................. 2,720 2,837 2,874 2,679 2,848 2,858
Promoting safe and stable families ................................................................................... 364 364 364 334 361 357
Social services block grant ................................................................................................ 2,250 1,700 1,200 1,848 2,155 1,306
Federal unemployment benefits and allowances .............................................................. 259 260 260 235 260 260
Foreign labor certification processing ................................................................................ .................... ...................... 5 .................... ...................... 5
Total, mandatory ............................................................................................................... 5,593 5,161 4,703 5,096 5,624 4,786
Total, education, training, employment, and social services ................................ 61,327 59,240 57,160 60,512 61,594 56,668
HEALTH
Discretionary:
Food Safety and Inspection Service:
Salaries and expenses ....................................................................................................... 43 43 46 38 45 44
Health Resources and Services Administration ..................................................................... 3,298 3,302 2,847 3,340 3,183 3,110
Centers for Disease Control and Prevention:
Disease control, research, and training ............................................................................. 4,052 3,926 3,926 3,039 3,832 3,969
Substance Abuse and Mental Health Services Administration ............................................. 3,204 2,308 2,196 3,183 2,308 2,294
Departmental Management:
Public health and social services emergency fund ........................................................... 436 242 436 184 158 321
General departmental management ................................................................................... 102 110 106 109 77 80
Occupational Safety and Health Administration:
Mine Safety and Health Administration:
Mandatory:
Centers for Medicare and Medicaid Services:
Grants to States for medicaid ............................................................................................ 215,471 168,290 204,944 180,625 191,876 201,944
State children’s health insurance fund .............................................................................. 4,365 5,040 5,040 5,451 5,647 6,644
State grants and demonstrations ....................................................................................... 2,566 707 764 1,269 1,679 496
Total, mandatory ............................................................................................................... 222,402 174,037 210,748 187,345 199,202 209,084
Total, health .................................................................................................................. 233,646 184,067 220,404 197,347 208,914 219,007
INCOME SECURITY
Discretionary:
Food and Nutrition Service:
Commodity assistance program ......................................................................................... 187 177 70 182 180 79
Special supplemental nutrition program for women, infants, and children (WIC) ........... 5,172 5,169 5,387 5,056 5,172 5,320
Low income home energy assistance ............................................................................... 3,160 2,161 1,782 2,637 2,635 1,874
Refugee and entrant assistance ........................................................................................ 387 370 473 425 421 479
Payments to States for the child care and development block grant .............................. 2,055 2,056 2,056 2,185 2,017 2,046


Emergency food and shelter .............................................................................................. 151 151 140 151 151 140
Public and Indian Housing Programs:
Public housing operating fund ........................................................................................... 3,564 3,564 4,000 3,496 3,614 3,891
Drug elimination grants for low-income housing ............................................................... –3 ...................... ...................... 1 2 1
Revitalization of severely distressed public housing (HOPE VI) ...................................... 99 183 –99 567 560 535
Native Hawaiian Housing Block Grant .............................................................................. 9 ...................... 6 .................... 2 3
Tenant based rental assistance ......................................................................................... 14,401 15,081 16,000 12,966 15,321 15,986
Project-based rental assistance ......................................................................................... 205 221 221 210 222 200
Public housing capital fund ................................................................................................ 2,420 2,208 2,024 3,161 3,082 3,075
Prevention of resident displacement .................................................................................. .................... ...................... ...................... 71 1 ......................
Native American housing block grant ................................................................................ 624 624 627 585 584 579
Housing certificate fund ...................................................................................................... .................... ...................... ...................... 2,188 ...................... ......................
Homeless assistance grants .............................................................................................. 1,327 1,353 1,586 1,346 1,378 1,395
Home investment partnership program .............................................................................. 1,757 1,805 1,967 1,812 1,870 1,901
Housing opportunities for persons with AIDS ................................................................... 286 296 300 309 309 309
Rural housing and economic development ....................................................................... 17 24 ...................... 21 22 27
Housing Programs:
Homeownership and opportunity for people everywhere grants (HOPE grants) ............. .................... ...................... ...................... 1 1 1
Housing for persons with disabilities ................................................................................. 231 240 125 301 260 259
Housing for the elderly ....................................................................................................... 726 747 575 922 875 874
Unemployment trust fund ................................................................................................... 2,514 2,653 2,654 2,668 2,668 2,795
Mandatory:
Agricultural Marketing Service:
Funds for strengthening markets, income, and supply (section 32) ................................ 1,133 1,177 1,087 1,281 1,024 1,087
Food and Nutrition Service:
Food stamp program .......................................................................................................... 4,579 4,636 4,832 4,608 4,638 4,812
Commodity assistance program ......................................................................................... 15 15 15 15 15 15
Child nutrition programs ..................................................................................................... 12,534 13,033 13,739 12,263 13,482 13,669
Payments to States for child support enforcement and family support programs .......... 3,322 4,399 3,957 4,001 4,519 4,085
Contingency fund ................................................................................................................ .................... ...................... ...................... 77 103 91
Payments to States for foster care and adoption assistance .......................................... 6,620 6,941 6,892 6,353 6,533 6,834
Child care entitlement to States ........................................................................................ 1,926 2,917 2,917 3,060 2,828 2,800
Temporary assistance for needy families .......................................................................... 11,988 17,059 17,059 16,897 17,318 17,296
Total, mandatory ............................................................................................................... 42,117 50,177 50,498 48,555 50,460 50,689
Total, income security ................................................................................................. 81,406 89,260 90,392 89,816 91,807 92,458
SOCIAL SECURITY
Mandatory:
Social Security Administration:
Federal disability insurance trust fund ............................................................................... 32 54 60 9 50 57
VETERANS BENEFITS AND SERVICES

Discretionary:
Department of Veterans Affairs:
Veterans Health Administration:
Medical services ................................................................................................................. 466 501 563 466 501 563
Departmental Administration:
Grants for construction of State extended care facilities .................................................. 85 85 85 122 92 86
Grants for the construction of State veterans cemeteries ................................................ 32 18 32 37 15 21
Total, veterans benefits and services ....................................................................... 583 604 680 625 608 670

ADMINISTRATION OF JUSTICE
Discretionary:
State and local programs ................................................................................................... 411 364 263 292 255 334
Fair Housing and Equal Opportunity:
Fair housing activities ......................................................................................................... 46 45 45 47 46 45
Department of Justice:
Legal Activities and U.S. Marshals:
Assets forfeiture fund ......................................................................................................... 17 17 21 16 15 16
Office of Justice Programs:
Justice assistance ............................................................................................................... 151 87 100 256 139 166
State and local law enforcement assistance ..................................................................... 1,115 1,042 390 1,711 1,272 1,037
Juvenile justice programs ................................................................................................... 270 263 226 366 403 377
Community oriented policing services ............................................................................... 385 428 –55 708 634 293
Violence against women prevention and prosecution programs ...................................... 368 401 356 367 297 347
Equal Employment Opportunity Commission:
Federal Drug Control Programs:
High-intensity drug trafficking areas program .................................................................... 200 225 220 172 170 218
State Justice Institute:
State Justice Institute: salaries and expenses .................................................................. 4 ...................... ...................... 5 ...................... ......................
Mandatory:
Legal Activities and U.S. Marshals:
Assets forfeiture fund ......................................................................................................... 383 282 375 342 377 270
Office of Justice Programs:
Crime victims fund .............................................................................................................. 585 537 589 561 582 570
Departmental Offices:
Treasury forfeiture fund ...................................................................................................... 84 80 80 89 80 80
Total, mandatory ............................................................................................................... 1,052 899 1,044 992 1,039 920
Total, administration of justice .................................................................................. 4,052 3,799 2,638 4,961 4,313 3,795
GENERAL GOVERNMENT
Discretionary:
Disabled voter services ...................................................................................................... .................... ...................... ...................... 3 5 2
National wildlife refuge fund ............................................................................................... 14 14 11 14 14 13
Insular Affairs:
Assistance to territories ...................................................................................................... 48 47 47 58 53 52
Trust Territory of the Pacific Islands ................................................................................. .................... ...................... ...................... .................... ...................... 1
Department-Wide Programs:
Payments in lieu of taxes .................................................................................................. 233 233 190 232 233 190
District of Columbia:
District of Columbia Courts:
Federal payment to the District of Columbia courts ......................................................... 217 220 214 182 220 214
Defender services in District of Columbia courts .............................................................. 45 37 43 37 37 42
District of Columbia General and Special Payments:
Federal support for economic development and management reforms in the District ... 52 13 38 52 13 38
Election Assistance Commission:
Election reform programs ................................................................................................... .................... ...................... ...................... 58 ...................... ......................


Mandatory:
Forest Service:
Forest Service permanent appropriations .......................................................................... 582 364 130 425 409 130
Department of Energy:
Energy Programs:
Payments to States under Federal Power Act .................................................................. 3 3 3 3 3 3
Security, Enforcement, and Investigations:
Refunds, transfers, and expenses of operation, Puerto Rico .......................................... 106 111 117 101 142 117
Bureau of Land Management:
Miscellaneous permanent payment accounts .................................................................... 109 103 4 109 103 9
Minerals Management Service:
Mineral leasing and associated payments ........................................................................ 2,113 1,875 1,995 2,113 1,875 1,995
Geothermal lease revenues, payment to counties ............................................................ 4 3 ...................... 4 3 ......................
National wildlife refuge fund ............................................................................................... 12 9 7 12 9 6
Insular Affairs:
Assistance to territories ...................................................................................................... 28 31 28 29 36 34
Payments to the United States territories, fiscal assistance ............................................ 131 119 119 131 119 119
Alcohol and Tobacco Tax and Trade Bureau:
Internal revenue collections for Puerto Rico ..................................................................... 360 448 484 360 448 484
Corps of Engineers-Civil Works:
Permanent appropriations .................................................................................................. .................... 4 4 .................... 4 4
Total, mandatory ............................................................................................................... 3,448 3,070 2,891 3,287 3,151 2,901
Total, general government .......................................................................................... 4,057 3,634 3,434 3,923 3,726 3,453
Total, Grants ............................................................................................................. 451,509 411,868 442,643 434,099 448,829 453,986

Discretionary .......................................................................................................... 138,152 133,155 126,105 186,095 185,842 182,232
Mandatory .............................................................................................................. 313,357 278,713 316,538 248,004 262,987 271,754
APPENDIX: SELECTED GRANT DATA BY STATE
This Appendix displays State-by-State spending for • The budget account number from which the pro-
the selected grant programs to State and local gram is funded.
governments shown in the following table, ‘‘Summary • Actual 2006 obligations by State, Federal terri-
of Programs by Agency and Bureau.’’ The programs tory, and Indian tribes in thousands of dollars.
selected here cover more than 80 percent of total grant Undistributed obligations shown at the bottom of
spending. each page are generally project funds that are not
The first summary table shows the obligations for distributed by formula, or programs for which
each program. The second summary table, ‘‘Summary State-by-State data are not available.
of Programs by State,’’ shows the amounts for each • Estimates of 2007 obligations by State from pre-
State for these programs. The individual program ta- vious budget authority, from new budget author-
bles display obligations for each program on a State- ity, and total obligations.
by-State basis, consistent with the estimates in this • Estimates of 2008 obligations by State, which are
budget. Each table reports the following information: also based on the 2008 Budget request, unless
• The Federal agency that administers the program. otherwise noted.
• The program title and number as contained in • The percentage share of 2008 estimated program
the Catalog of Federal Domestic Assistance. funds distributed to each State.
Table 8–5. SUMMARY OF PROGRAMS BY AGENCY, BUREAU, AND PROGRAM

(Obligations in millions of dollars)
Estimated FY 2007 obligations

from:
FY 2006 FY 2008
Agency, Bureau, and Program (actual) (estimated)
Previous New Total
authority authority
Department of Agriculture, Food and Nutrition Service

School Breakfast Program (10.553) ............................................................................................................................. 2,086 .................. 2,241 2,241 2,390
National School Lunch Program (10.555) .................................................................................................................... 7,570 63 7,792 7,855 8,181
Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) (10.557) .................................... 5,363 295 5,168 5,463 5,477
Child and Adult Care Food Program (10.558) ............................................................................................................. 2,141 .................. 2,172 2,172 2,289
State Administrative Matching Grants for Food Stamp Program (10.561) ................................................................. 2,455 .................. 2,551 2,551 2,662
Department of Education, Office of Elementary and Secondary Education
Title I Grants to Local Educational Agencies (84.010) ................................................................................................ 12,713 .................. 12,713 12,713 13,910
Improving Teacher Quality State Grants (84.367) ....................................................................................................... 2,887 .................. 2,887 2,887 2,787
Department of Education, Office of Special Education and Rehabilitative Services
Special Education—Grants to States (84.027) ............................................................................................................. 10,583 .................. 10,492 10,492 10,492
Rehabilitation Services—Vocational Rehabilitation Grants to States (84.126) ........................................................... 2,720 .................. 2,837 2,837 2,837
Department of Health and Human Services, Centers for Medicare and Medicaid Services
State Children’s Health Insurance Program (93.767) .................................................................................................. 4,365 .................. 5,040 5,040 5,040
Grants to States for Medicaid (93.778) ........................................................................................................................ 201,842 .................. 195,191 195,191 206,886
Department of Health and Human Services, Administration for Children and Families
Temporary Assistance for Needy Families (TANF)—Family Assistance Grants (93.558) ......................................... 17,140 .................. 17,059 17,059 17,059
Child Support Enforcement—Federal Share of State and Local Administrative Costs and Incentives (93.563) ...... 4,197 .................. 4,415 4,415 3,963
Low Income Home Energy Assistance Program (93.568) .......................................................................................... 2,480 .................. 1,980 1,980 1,500
Child Care and Development Block Grant (93.575) .................................................................................................... 2,061 .................. 2,062 2,062 2,062
Child Care and Development Fund—Mandatory (93.596a) ......................................................................................... 1,240 .................. 1,240 1,240 1,240
Child Care and Development Fund—Matching (93.596b) ........................................................................................... 1,680 .................. 1,677 1,677 1,677
Head Start (93.600) ....................................................................................................................................................... 6,851 .................. 6,789 6,789 6,789
Foster Care—Title IV–E (93.658) ................................................................................................................................. 4,325 .................. 4,475 4,475 4,593
Adoption Assistance (93.659) ....................................................................................................................................... 1,791 .................. 2,027 2,027 2,159
Social Services Block Grant (93.667) ........................................................................................................................... 2,250 .................. 1,700 1,700 1,200
Department of Homeland Security, Departmental Management
Homeland Security Grant Program (97.067) ................................................................................................................ 2,033 .................. 788 788 265
Department of Homeland Security, Federal Emergency Management Agency
Disaster Grants—Public Assistance (Presidentially Declared Disasters) (97.036) ..................................................... 8,147 .................. .................. .................. ..................
Department of Housing and Urban Development, Public and Indian Housing Programs
Public Housing Operating Fund (14.850) ..................................................................................................................... 3,564 1 3,564 3,565 4,000
Section 8 Housing Choice Vouchers (14.871) ............................................................................................................. 13,797 724 15,081 15,805 16,000
Public Housing Capital Fund (14.872) .......................................................................................................................... 2,409 335 2,208 2,543 2,024
Department of Housing and Urban Development, Community Planning and Development
Community Development Block Grants (14.218) ......................................................................................................... 3,823 467 3,888 4,355 2,619
Department of the Interior, Minerals Management Service
Mineral Leasing and Associated Payments ................................................................................................................. 2,113 .................. 1,875 1,875 1,995
Department of Transportation, Federal Aviation Administration
Airport Improvement Program (20.106) ........................................................................................................................ 3,709 .................. 3,514 3,514 2,750
Department of Transportation, Federal Highway Administration
Highway Planning and Construction (20.205) .............................................................................................................. 33,128 .................. 35,672 35,672 39,585
Department of Transportation, Federal Transit Administration
Capital Investment Grants—Fixed Guideway Modernization (Section 5309) (20.500) ............................................... 1,407 197 1,036 1,233 1,701
Federal Transit Formula Grants and Research (20.507) ............................................................................................ 5,534 1,566 3,645 5,211 6,568
Total .................................................................................................................................................................................... 378,403 3,649 363,779 367,428 382,699

Table 8–6. Summary of Programs by State

(Obligations in millions of dollars)
Programs distributed in all years FY 2008

All programs Percentage
Estimated FY 2007 obligations from:
State or Territory FY 2006 of
FY 2006 FY 2008
(actual) distributed
(actual) Previous New (estimated)
Total total
authority authority
Alabama ..................................................................................................................... 5,326 5,326 36 5,104 5,140 5,239 1.40

Alaska ......................................................................................................................... 1,754 1,754 8 1,741 1,749 1,789 0.48
Arizona ....................................................................................................................... 6,977 6,977 48 7,264 7,311 7,830 2.10
Arkansas ..................................................................................................................... 3,857 3,857 12 3,868 3,881 4,160 1.12
California .................................................................................................................... 44,287 44,287 465 42,429 42,895 44,570 11.95
Colorado ..................................................................................................................... 3,590 3,590 17 3,604 3,620 3,788 1.02
Connecticut ................................................................................................................. 4,244 4,244 105 4,179 4,285 4,365 1.17
Delaware .................................................................................................................... 998 998 4 984 988 1,055 0.28
District of Columbia ................................................................................................... 1,998 1,998 43 1,981 2,024 2,151 0.58
Florida ......................................................................................................................... 18,461 18,461 244 15,921 16,165 16,638 4.46
Georgia ....................................................................................................................... 9,432 9,432 105 9,090 9,195 9,799 2.63
Hawaii ......................................................................................................................... 1,456 1,456 10 1,348 1,358 1,394 0.37
Idaho ........................................................................................................................... 1,454 1,454 7 1,473 1,480 1,579 0.42
Illinois .......................................................................................................................... 12,937 12,937 100 12,421 12,521 13,273 3.56
Indiana ........................................................................................................................ 6,533 6,533 41 6,726 6,767 7,059 1.89
Iowa ............................................................................................................................ 3,097 3,097 11 3,024 3,034 3,191 0.86
Kansas ........................................................................................................................ 2,656 2,656 19 2,544 2,563 2,639 0.71
Kentucky ..................................................................................................................... 5,613 5,613 22 5,544 5,566 5,800 1.56
Louisiana .................................................................................................................... 10,060 10,060 58 6,321 6,379 6,740 1.81
Maine .......................................................................................................................... 2,212 2,212 6 1,807 1,812 1,865 0.50
Maryland ..................................................................................................................... 5,534 5,534 60 5,505 5,565 5,833 1.56
Massachusetts ............................................................................................................ 8,946 8,946 140 9,573 9,714 9,821 2.63
Michigan ..................................................................................................................... 10,327 10,327 37 10,339 10,376 10,421 2.79
Minnesota ................................................................................................................... 5,495 5,495 51 5,503 5,554 6,049 1.62
Mississippi .................................................................................................................. 7,116 7,116 23 4,454 4,477 4,786 1.28
Missouri ...................................................................................................................... 7,037 7,037 33 7,189 7,222 7,604 2.04
Montana ...................................................................................................................... 1,317 1,317 6 1,224 1,230 1,287 0.35
Nebraska .................................................................................................................... 1,994 1,994 7 1,806 1,813 1,892 0.51
Nevada ....................................................................................................................... 1,767 1,767 19 1,601 1,620 1,634 0.44
New Hampshire ......................................................................................................... 1,235 1,235 7 1,203 1,211 1,261 0.34
New Jersey ................................................................................................................ 9,391 9,391 82 9,280 9,362 9,781 2.62
New Mexico ............................................................................................................... 3,719 3,719 17 3,690 3,706 3,885 1.04
New York ................................................................................................................... 38,888 38,888 647 39,090 39,737 39,940 10.71
North Carolina ............................................................................................................ 10,192 10,192 64 10,449 10,514 11,954 3.21
North Dakota .............................................................................................................. 832 832 –11 758 747 815 0.22
Ohio ............................................................................................................................ 14,007 14,007 76 14,502 14,578 14,926 4.00
Oklahoma ................................................................................................................... 4,169 4,169 18 4,520 4,538 4,687 1.26
Oregon ........................................................................................................................ 3,886 3,886 14 3,870 3,885 4,119 1.10
Pennsylvania .............................................................................................................. 15,985 15,985 165 15,964 16,129 16,757 4.49
Rhode Island .............................................................................................................. 1,830 1,830 18 1,743 1,762 1,858 0.50
South Carolina ........................................................................................................... 4,909 4,909 25 4,733 4,759 4,769 1.28
South Dakota ............................................................................................................. 1,077 1,077 6 1,017 1,023 1,053 0.28
Tennessee .................................................................................................................. 7,563 7,563 29 7,228 7,257 7,381 1.98
Texas .......................................................................................................................... 23,293 23,293 225 23,349 23,574 24,268 6.51
Utah ............................................................................................................................ 3,202 3,202 37 3,188 3,225 3,370 0.90
Vermont ...................................................................................................................... 1,065 1,065 3 1,029 1,032 1,087 0.29
Virginia ........................................................................................................................ 5,317 5,317 53 5,539 5,592 5,901 1.58
Washington ................................................................................................................. 6,359 6,359 65 6,119 6,184 6,370 1.71
West Virginia .............................................................................................................. 3,121 3,121 16 3,126 3,142 3,313 0.89
Wisconsin ................................................................................................................... 5,379 5,379 24 5,456 5,480 5,615 1.51
Wyoming ..................................................................................................................... 1,861 1,861 7 1,744 1,751 1,853 0.50
American Samoa ....................................................................................................... 62 62 2 59 61 61 0.02
Guam .......................................................................................................................... 132 132 4 135 139 135 0.04
Northern Mariana Islands .......................................................................................... 66 66 2 62 64 57 0.02
Puerto Rico ................................................................................................................ 2,347 2,347 62 2,377 2,439 2,488 0.67
Freely Associated States ........................................................................................... 7 7 .................... 7 7 7 *
Virgin Islands ............................................................................................................. 146 146 4 140 144 146 0.04
Indian Tribes .............................................................................................................. 761 761 3 777 780 807 0.22
Total, programs distributed by State in all years ........................................... 367,278 367,278 3,403 355,721 359,124 372,917 100.00
MEMORANDUM:.
Not distributed by State in all years 1 ................................................................... 11,125 11,125 245 8,059 8,304 9,782 N/A
Total, including undistributed ................................................................................ 378,403 378,403 3,649 363,779 367,428 382,699 N/A
* $500,000 or less or 0.005 percent or less.
1 The sum of programs not distributed by State in all years.
Department of Agriculture, Food and Nutrition Service 12–3539–0–1–605
Table 8-7. School Breakfast Program (10.553)

(Obligations in thousands of dollars)
Estimated FY 2007 obligations from: FY 2008

Percentage
FY 2006 FY 2008
State or Territory of
Actual Previous New (estimated)
Total distributed
authority authority total
Alabama ........................................................................................... 39,539 ........................ 43,632 43,632 46,529 1.95

Alaska .............................................................................................. 4,986 ........................ 5,502 5,502 5,867 0.25
Arizona ............................................................................................. 41,125 ........................ 45,382 45,382 48,395 2.02
Arkansas .......................................................................................... 29,311 ........................ 32,345 32,345 34,493 1.44
California .......................................................................................... 244,215 ........................ 269,500 269,500 287,386 12.02
Colorado .......................................................................................... 17,157 ........................ 18,933 18,933 20,190 0.84
Connecticut ...................................................................................... 12,828 ........................ 14,156 14,156 15,096 0.63
Delaware .......................................................................................... 4,899 ........................ 5,406 5,406 5,765 0.24
District of Columbia ......................................................................... 4,117 ........................ 4,543 4,543 4,845 0.20
Florida .............................................................................................. 119,072 ........................ 131,399 131,399 140,121 5.86
Georgia ............................................................................................ 102,069 ........................ 112,635 112,635 120,113 5.03
Hawaii .............................................................................................. 7,321 ........................ 8,079 8,079 8,615 0.36
Idaho ................................................................................................ 10,408 ........................ 11,485 11,485 12,248 0.51
Illinois ............................................................................................... 57,686 ........................ 63,658 63,658 67,884 2.84
Indiana ............................................................................................. 33,279 ........................ 36,724 36,724 39,162 1.64
Iowa ................................................................................................. 13,470 ........................ 14,864 14,864 15,851 0.66
Kansas ............................................................................................. 15,434 ........................ 17,032 17,032 18,162 0.76
Kentucky .......................................................................................... 42,329 ........................ 46,711 46,711 49,812 2.08
Louisiana ......................................................................................... 45,828 ........................ 50,572 50,572 53,929 2.26
Maine ............................................................................................... 6,033 ........................ 6,658 6,658 7,099 0.30
Maryland .......................................................................................... 23,746 ........................ 26,204 26,204 27,944 1.17
Massachusetts ................................................................................. 26,919 ........................ 29,706 29,706 31,678 1.33
Michigan .......................................................................................... 46,487 ........................ 51,299 51,299 54,705 2.29
Minnesota ........................................................................................ 21,505 ........................ 23,731 23,731 25,307 1.06
Mississippi ....................................................................................... 42,730 ........................ 47,154 47,154 50,284 2.10
Missouri ........................................................................................... 40,822 ........................ 45,048 45,048 48,038 2.01
Montana ........................................................................................... 4,495 ........................ 4,960 4,960 5,290 0.22
Nebraska ......................................................................................... 8,713 ........................ 9,615 9,615 10,253 0.43
Nevada ............................................................................................ 11,783 ........................ 13,003 13,003 13,866 0.58
New Hampshire ............................................................................... 3,069 ........................ 3,387 3,387 3,612 0.15
New Jersey ...................................................................................... 34,067 ........................ 37,594 37,594 40,089 1.68
New Mexico ..................................................................................... 26,354 ........................ 29,082 29,082 31,013 1.30
New York ......................................................................................... 111,431 ........................ 122,967 122,967 131,129 5.49
North Carolina ................................................................................. 73,581 ........................ 81,198 81,198 86,588 3.62
North Dakota ................................................................................... 2,808 ........................ 3,099 3,099 3,304 0.14
Ohio ................................................................................................. 56,991 ........................ 62,891 62,891 67,066 2.81
Oklahoma ........................................................................................ 36,521 ........................ 40,302 40,302 42,977 1.80
Oregon ............................................................................................. 25,748 ........................ 28,413 28,413 30,300 1.27
Pennsylvania ................................................................................... 50,475 ........................ 55,700 55,700 59,398 2.49
Rhode Island ................................................................................... 5,160 ........................ 5,694 5,694 6,072 0.25
South Carolina ................................................................................. 46,550 ........................ 51,369 51,369 54,779 2.29
South Dakota ................................................................................... 4,852 ........................ 5,354 5,354 5,710 0.24
Tennessee ....................................................................................... 48,591 ........................ 53,621 53,621 57,181 2.39
Texas ............................................................................................... 277,837 ........................ 306,599 306,599 326,952 13.68
Utah ................................................................................................. 11,292 ........................ 12,461 12,461 13,288 0.56
Vermont ........................................................................................... 3,184 ........................ 3,514 3,514 3,747 0.16
Virginia ............................................................................................. 38,462 ........................ 42,444 42,444 45,261 1.89
Washington ...................................................................................... 30,440 ........................ 33,591 33,591 35,821 1.50
West Virginia ................................................................................... 17,048 ........................ 18,813 18,813 20,062 0.84
Wisconsin ........................................................................................ 16,933 ........................ 18,686 18,686 19,926 0.83
Wyoming .......................................................................................... 2,202 ........................ 2,430 2,430 2,591 0.11
American Samoa ............................................................................. ...................... ........................ ...................... ...................... ...................... ....................
Guam ............................................................................................... 1,753 ........................ 1,934 1,934 2,063 0.09
Northern Mariana Islands ................................................................ ...................... ........................ ...................... ...................... ...................... ....................
Puerto Rico ...................................................................................... 26,392 ........................ 29,124 29,124 31,058 1.30
Freely Associated States ................................................................ ...................... ........................ ...................... ...................... ...................... ....................
Virgin Islands ................................................................................... 883 ........................ 974 974 1,039 0.04
Indian Tribes .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Undistributed .................................................................................... 55,138 ........................ ...................... ...................... ...................... ....................
DOD/AF/USMC/Navy ...................................................................... 30 ........................ 33 33 35 *
Total ................................................................................................. 2,086,098 ........................ 2,241,210 2,241,210 2,389,988 1 100.00
* $500 or less or 0.005 percent or less.

1 Excludes undistributed obligations.
121
Table 8-8. National School Lunch Program (10.555)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 140,626 1,210 149,087 150,297 156,532 1.91

Alaska .............................................................................................. 23,222 200 24,619 24,819 25,849 0.32
Arizona ............................................................................................. 163,074 1,403 172,886 174,289 181,519 2.22
Arkansas .......................................................................................... 88,703 763 94,040 94,803 98,736 1.21
California .......................................................................................... 960,948 8,264 1,018,766 1,027,030 1,069,640 13.07
Colorado .......................................................................................... 77,686 668 82,360 83,028 86,473 1.06
Connecticut ...................................................................................... 59,462 512 63,040 63,552 66,188 0.81
Delaware .......................................................................................... 16,666 143 17,669 17,812 18,551 0.23
District of Columbia ......................................................................... 14,649 126 15,530 15,656 16,306 0.20
Florida .............................................................................................. 404,115 3,477 428,430 431,907 449,824 5.50
Georgia ............................................................................................ 310,125 2,668 328,785 331,453 345,203 4.22
Hawaii .............................................................................................. 28,354 244 30,060 30,304 31,561 0.39
Idaho ................................................................................................ 33,922 292 35,963 36,255 37,759 0.46
Illinois ............................................................................................... 284,408 2,447 301,520 303,967 316,577 3.87
Indiana ............................................................................................. 138,480 1,191 146,812 148,003 154,143 1.88
Iowa ................................................................................................. 62,924 541 66,710 67,251 70,041 0.86
Kansas ............................................................................................. 62,606 539 66,373 66,912 69,687 0.85
Kentucky .......................................................................................... 122,667 1,055 130,048 131,103 136,542 1.67
Louisiana ......................................................................................... 151,869 1,307 161,007 162,314 169,047 2.07
Maine ............................................................................................... 22,453 193 23,804 23,997 24,993 0.31
Maryland .......................................................................................... 91,658 789 97,173 97,962 102,025 1.25
Massachusetts ................................................................................. 102,191 879 108,340 109,219 113,750 1.39
Michigan .......................................................................................... 184,249 1,585 195,335 196,920 205,089 2.51
Minnesota ........................................................................................ 94,387 812 100,066 100,878 105,063 1.28
Mississippi ....................................................................................... 126,244 1,086 133,840 134,926 140,523 1.72
Missouri ........................................................................................... 134,630 1,158 142,730 143,888 149,858 1.83
Montana ........................................................................................... 17,621 152 18,681 18,833 19,614 0.24
Nebraska ......................................................................................... 40,006 344 42,413 42,757 44,531 0.54
Nevada ............................................................................................ 48,854 420 51,793 52,213 54,380 0.66
New Hampshire ............................................................................... 15,765 136 16,714 16,850 17,548 0.21
New Jersey ...................................................................................... 145,162 1,249 153,896 155,145 161,581 1.98
New Mexico ..................................................................................... 64,259 553 68,125 68,678 71,527 0.87
New York ......................................................................................... 463,599 3,988 491,493 495,481 516,036 6.31
North Carolina ................................................................................. 236,140 2,031 250,348 252,379 262,849 3.21
North Dakota ................................................................................... 12,135 104 12,865 12,969 13,508 0.17
Ohio ................................................................................................. 219,989 1,893 233,225 235,118 244,872 2.99
Oklahoma ........................................................................................ 106,373 915 112,773 113,688 118,405 1.45
Oregon ............................................................................................. 72,946 628 77,335 77,963 81,197 0.99
Pennsylvania ................................................................................... 225,243 1,938 238,795 240,733 250,720 3.06
Rhode Island ................................................................................... 20,103 173 21,313 21,486 22,377 0.27
South Carolina ................................................................................. 130,187 1,120 138,020 139,140 144,912 1.77
South Dakota ................................................................................... 19,154 165 20,306 20,471 21,320 0.26
Tennessee ....................................................................................... 161,539 1,390 171,258 172,648 179,810 2.20
Texas ............................................................................................... 846,828 7,285 897,780 905,065 942,612 11.52
Utah ................................................................................................. 57,542 495 61,004 61,499 64,050 0.78
Vermont ........................................................................................... 9,612 83 10,190 10,273 10,699 0.13
Virginia ............................................................................................. 140,682 1,210 149,147 150,357 156,594 1.91
Washington ...................................................................................... 119,857 1,031 127,069 128,100 133,414 1.63
West Virginia ................................................................................... 46,223 398 49,004 49,402 51,451 0.63
Wisconsin ........................................................................................ 100,393 864 106,433 107,297 111,748 1.37
Wyoming .......................................................................................... 9,322 80 9,883 9,963 10,376 0.13
American Samoa ............................................................................. ...................... ........................ ...................... ...................... ...................... ....................
Guam ............................................................................................... 5,610 48 5,948 5,996 6,245 0.08
Puerto Rico ...................................................................................... 104,369 898 110,649 111,547 116,174 1.42
Virgin Islands ................................................................................... 4,506 39 4,777 4,816 5,016 0.06
Indian Tribes .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Undistributed .................................................................................... 220,130 ........................ ...................... ...................... ...................... ....................
DOD/AF/USMC/Navy ...................................................................... 5,290 46 5,608 5,654 5,888 0.07
Total ................................................................................................. 7,569,757 63,228 7,791,838 7,855,066 8,180,933 1 100.00
122
Table 8-9. Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) (10.557)

Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 87,836 4,877 84,604 89,481 90,045 1.65

Alaska .............................................................................................. 22,813 1,267 21,974 23,241 23,387 0.43
Arizona ............................................................................................. 95,434 5,298 91,922 97,220 97,834 1.80
Arkansas .......................................................................................... 55,944 3,106 53,885 56,991 57,351 1.05
California .......................................................................................... 891,953 49,519 859,130 908,649 914,380 16.78
Colorado .......................................................................................... 53,928 2,994 51,944 54,938 55,284 1.01
Connecticut ...................................................................................... 37,059 2,057 35,695 37,752 37,991 0.70
Delaware .......................................................................................... 12,506 694 12,046 12,740 12,821 0.24
Florida .............................................................................................. 253,231 14,059 243,913 257,972 259,599 4.76
Georgia ............................................................................................ 174,247 9,674 167,835 177,509 178,629 3.28
Hawaii .............................................................................................. 29,836 1,656 28,738 30,394 30,586 0.56
Idaho ................................................................................................ 21,077 1,170 20,301 21,471 21,607 0.40
Illinois ............................................................................................... 193,217 10,727 186,107 196,834 198,076 3.64
Indiana ............................................................................................. 79,808 4,431 76,871 81,302 81,815 1.50
Iowa ................................................................................................. 39,774 2,208 38,310 40,518 40,774 0.75
Kansas ............................................................................................. 38,076 2,114 36,675 38,789 39,034 0.72
Kentucky .......................................................................................... 83,488 4,635 80,416 85,051 85,588 1.57
Louisiana ......................................................................................... 100,807 5,597 97,098 102,695 103,342 1.90
Maine ............................................................................................... 14,828 823 14,282 15,105 15,201 0.28
Maryland .......................................................................................... 69,093 3,836 66,551 70,387 70,831 1.30
Massachusetts ................................................................................. 75,840 4,211 73,049 77,260 77,747 1.43
Michigan .......................................................................................... 146,696 8,144 141,298 149,442 150,385 2.76
Minnesota ........................................................................................ 77,642 4,311 74,785 79,096 79,595 1.46
Mississippi ....................................................................................... 67,537 3,750 65,052 68,802 69,235 1.27
Missouri ........................................................................................... 80,188 4,452 77,237 81,689 82,205 1.51
Montana ........................................................................................... 13,088 727 12,606 13,333 13,417 0.25
Nebraska ......................................................................................... 25,542 1,418 24,602 26,020 26,184 0.48
Nevada ............................................................................................ 29,027 1,612 27,959 29,571 29,757 0.55
New Hampshire ............................................................................... 13,165 731 12,681 13,412 13,496 0.25
New Jersey ...................................................................................... 98,738 5,482 95,105 100,587 101,221 1.86
New Mexico ..................................................................................... 38,206 2,121 36,800 38,921 39,167 0.72
New York ......................................................................................... 350,694 19,470 337,789 357,259 359,513 6.60
North Carolina ................................................................................. 146,997 8,161 141,588 149,749 150,694 2.77
North Dakota ................................................................................... 9,440 524 9,093 9,617 9,677 0.18
Ohio ................................................................................................. 165,805 9,205 159,704 168,909 169,975 3.12
Oklahoma ........................................................................................ 56,573 3,141 54,491 57,632 57,996 1.06
Oregon ............................................................................................. 63,983 3,552 61,629 65,181 65,592 1.20
Pennsylvania ................................................................................... 141,741 7,869 136,525 144,394 145,306 2.67
Rhode Island ................................................................................... 16,335 907 15,734 16,641 16,746 0.31
South Carolina ................................................................................. 72,970 4,051 70,285 74,336 74,805 1.37
South Dakota ................................................................................... 12,259 681 11,808 12,489 12,567 0.23
Tennessee ....................................................................................... 108,469 6,022 104,478 110,500 111,197 2.04
Texas ............................................................................................... 498,446 27,673 480,104 507,777 510,981 9.38
Utah ................................................................................................. 34,826 1,933 33,544 35,477 35,702 0.66
Vermont ........................................................................................... 11,918 662 11,479 12,141 12,218 0.22
Virginia ............................................................................................. 95,059 5,278 91,561 96,839 97,450 1.79
Washington ...................................................................................... 111,441 6,187 107,340 113,527 114,244 2.10
West Virginia ................................................................................... 32,286 1,792 31,098 32,890 33,098 0.61
Wisconsin ........................................................................................ 72,010 3,998 69,360 73,358 73,821 1.35
Wyoming .......................................................................................... 7,067 392 6,807 7,199 7,245 0.13
American Samoa ............................................................................. 6,903 383 6,649 7,032 7,077 0.13
Guam ............................................................................................... 7,023 390 6,765 7,155 7,200 0.13
Northern Mariana Islands ................................................................ 4,636 257 4,465 4,722 4,753 0.09
Puerto Rico ...................................................................................... 199,223 11,061 191,892 202,953 204,233 3.75
Virgin Islands ................................................................................... 5,521 307 5,318 5,625 5,660 0.10
Indian Tribes .................................................................................... 49,982 2,775 48,143 50,918 51,239 0.94
Undistributed .................................................................................... 47,706 ........................ 48,510 48,510 28,710 ....................
Total ................................................................................................. 5,362,827 295,088 5,168,046 5,463,134 5,477,497 1 100.00
123
Table 8-10. Child and Adult Care Food Program (10.558)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 33,900 ........................ 35,409 35,409 37,306 1.63

Alaska .............................................................................................. 7,186 ........................ 7,506 7,506 7,908 0.35
Arizona ............................................................................................. 42,853 ........................ 44,761 44,761 47,159 2.06
Arkansas .......................................................................................... 28,448 ........................ 29,715 29,715 31,306 1.37
California .......................................................................................... 241,873 ........................ 252,641 252,641 266,176 11.63
Colorado .......................................................................................... 18,856 ........................ 19,696 19,696 20,751 0.91
Connecticut ...................................................................................... 10,695 ........................ 11,171 11,171 11,770 0.51
Delaware .......................................................................................... 10,350 ........................ 10,811 10,811 11,390 0.50
Florida .............................................................................................. 111,034 ........................ 115,978 115,978 122,191 5.34
Georgia ............................................................................................ 81,193 ........................ 84,808 84,808 89,351 3.90
Hawaii .............................................................................................. 4,791 ........................ 5,004 5,004 5,272 0.23
Idaho ................................................................................................ 5,103 ........................ 5,330 5,330 5,616 0.25
Illinois ............................................................................................... 97,786 ........................ 102,140 102,140 107,612 4.70
Indiana ............................................................................................. 30,736 ........................ 32,105 32,105 33,824 1.48
Iowa ................................................................................................. 20,628 ........................ 21,546 21,546 22,701 0.99
Kansas ............................................................................................. 30,047 ........................ 31,385 31,385 33,066 1.44
Kentucky .......................................................................................... 24,717 ........................ 25,818 25,818 27,201 1.19
Louisiana ......................................................................................... 46,106 ........................ 48,159 48,159 50,739 2.22
Maine ............................................................................................... 9,228 ........................ 9,639 9,639 10,155 0.44
Maryland .......................................................................................... 33,230 ........................ 34,710 34,710 36,569 1.60
Massachusetts ................................................................................. 43,298 ........................ 45,226 45,226 47,649 2.08
Michigan .......................................................................................... 51,046 ........................ 53,319 53,319 56,175 2.45
Minnesota ........................................................................................ 54,276 ........................ 56,693 56,693 59,730 2.61
Mississippi ....................................................................................... 27,274 ........................ 28,488 28,488 30,015 1.31
Missouri ........................................................................................... 39,093 ........................ 40,834 40,834 43,021 1.88
Montana ........................................................................................... 9,101 ........................ 9,506 9,506 10,015 0.44
Nebraska ......................................................................................... 23,079 ........................ 24,107 24,107 25,398 1.11
Nevada ............................................................................................ 4,033 ........................ 4,213 4,213 4,438 0.19
New Hampshire ............................................................................... 2,844 ........................ 2,971 2,971 3,130 0.14
New Jersey ...................................................................................... 50,258 ........................ 52,496 52,496 55,308 2.42
New Mexico ..................................................................................... 34,496 ........................ 36,032 36,032 37,962 1.66
New York ......................................................................................... 149,995 ........................ 156,674 156,674 165,067 7.21
North Carolina ................................................................................. 72,377 ........................ 75,600 75,600 79,650 3.48
North Dakota ................................................................................... 9,107 ........................ 9,513 9,513 10,022 0.44
Ohio ................................................................................................. 63,168 ........................ 65,981 65,981 69,515 3.04
Oklahoma ........................................................................................ 48,927 ........................ 51,106 51,106 53,843 2.35
Oregon ............................................................................................. 22,757 ........................ 23,770 23,770 25,044 1.09
Pennsylvania ................................................................................... 57,680 ........................ 60,248 60,248 63,476 2.77
Rhode Island ................................................................................... 7,168 ........................ 7,487 7,487 7,888 0.34
South Carolina ................................................................................. 23,274 ........................ 24,310 24,310 25,613 1.12
South Dakota ................................................................................... 6,627 ........................ 6,922 6,922 7,293 0.32
Tennessee ....................................................................................... 39,977 ........................ 41,757 41,757 43,994 1.92
Texas ............................................................................................... 181,695 ........................ 189,785 189,785 199,952 8.74
Utah ................................................................................................. 19,162 ........................ 20,015 20,015 21,087 0.92
Vermont ........................................................................................... 3,912 ........................ 4,086 4,086 4,305 0.19
Virginia ............................................................................................. 28,391 ........................ 29,655 29,655 31,244 1.37
Washington ...................................................................................... 37,874 ........................ 39,560 39,560 41,680 1.82
West Virginia ................................................................................... 14,741 ........................ 15,397 15,397 16,222 0.71
Wisconsin ........................................................................................ 34,508 ........................ 36,045 36,045 37,975 1.66
Wyoming .......................................................................................... 4,844 ........................ 5,060 5,060 5,331 0.23
American Samoa ............................................................................. ...................... ........................ ...................... ...................... ...................... ....................
Guam ............................................................................................... 53 ........................ 55 55 58 *
Puerto Rico ...................................................................................... 21,786 ........................ 22,756 22,756 23,975 1.05
Virgin Islands ................................................................................... 654 ........................ 683 683 720 0.03
Indian Tribes .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Undistributed .................................................................................... 61,236 ........................ ...................... ...................... ...................... ....................
Total ................................................................................................. 2,141,088 ........................ 2,172,460 2,172,460 2,288,838 1 100.00

124
Table 8-11. State Administrative Matching Grants for Food Stamp Program (10.561)

Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 30,789 ........................ 30,616 30,616 31,948 1.20

Alaska .............................................................................................. 9,742 ........................ 9,687 9,687 10,109 0.38
Arizona ............................................................................................. 32,769 ........................ 32,585 32,585 34,002 1.28
Arkansas .......................................................................................... 24,277 ........................ 24,140 24,140 25,191 0.95
California .......................................................................................... 435,360 ........................ 432,909 432,909 451,744 16.97
Colorado .......................................................................................... 23,694 ........................ 23,560 23,560 24,585 0.92
Connecticut ...................................................................................... 21,748 ........................ 21,625 21,625 22,566 0.85
Delaware .......................................................................................... 8,664 ........................ 8,615 8,615 8,990 0.34
Florida .............................................................................................. 72,355 ........................ 71,947 71,947 75,078 2.82
Georgia ............................................................................................ 59,420 ........................ 59,085 59,085 61,656 2.32
Hawaii .............................................................................................. 10,917 ........................ 10,855 10,855 11,328 0.43
Idaho ................................................................................................ 8,537 ........................ 8,489 8,489 8,858 0.33
Illinois ............................................................................................... 91,040 ........................ 90,528 90,528 94,467 3.55
Indiana ............................................................................................. 37,385 ........................ 37,175 37,175 38,792 1.46
Iowa ................................................................................................. 16,632 ........................ 16,538 16,538 17,258 0.65
Kansas ............................................................................................. 17,303 ........................ 17,206 17,206 17,954 0.67
Kentucky .......................................................................................... 30,079 ........................ 29,909 29,909 31,211 1.17
Louisiana ......................................................................................... 47,744 ........................ 47,475 47,475 49,541 1.86
Maine ............................................................................................... 8,270 ........................ 8,224 8,224 8,582 0.32
Maryland .......................................................................................... 34,940 ........................ 34,743 34,743 36,255 1.36
Massachusetts ................................................................................. 39,858 ........................ 39,634 39,634 41,359 1.55
Michigan .......................................................................................... 93,105 ........................ 92,581 92,581 96,609 3.63
Minnesota ........................................................................................ 41,159 ........................ 40,928 40,928 42,708 1.60
Mississippi ....................................................................................... 26,503 ........................ 26,353 26,353 27,500 1.03
Missouri ........................................................................................... 35,284 ........................ 35,085 35,085 36,612 1.38
Montana ........................................................................................... 8,211 ........................ 8,165 8,165 8,520 0.32
Nebraska ......................................................................................... 14,673 ........................ 14,591 14,591 15,226 0.57
Nevada ............................................................................................ 12,692 ........................ 12,620 12,620 13,170 0.49
New Hampshire ............................................................................... 5,354 ........................ 5,324 5,324 5,556 0.21
New Jersey ...................................................................................... 89,092 ........................ 88,591 88,591 92,446 3.47
New Mexico ..................................................................................... 18,424 ........................ 18,321 18,321 19,118 0.72
New York ......................................................................................... 276,857 ........................ 275,299 275,299 287,277 10.79
North Carolina ................................................................................. 66,199 ........................ 65,826 65,826 68,690 2.58
North Dakota ................................................................................... 6,669 ........................ 6,631 6,631 6,920 0.26
Ohio ................................................................................................. 100,137 ........................ 99,573 99,573 103,906 3.90
Oklahoma ........................................................................................ 42,224 ........................ 41,987 41,987 43,814 1.65
Oregon ............................................................................................. 45,328 ........................ 45,073 45,073 47,034 1.77
Pennsylvania ................................................................................... 136,979 ........................ 136,208 136,208 142,135 5.34
Rhode Island ................................................................................... 7,733 ........................ 7,690 7,690 8,024 0.30
South Carolina ................................................................................. 21,274 ........................ 21,154 21,154 22,074 0.83
South Dakota ................................................................................... 7,221 ........................ 7,180 7,180 7,493 0.28
Tennessee ....................................................................................... 42,800 ........................ 42,560 42,560 44,411 1.67
Texas ............................................................................................... 179,510 ........................ 178,500 178,500 186,267 7.00
Utah ................................................................................................. 20,024 ........................ 19,911 19,911 20,778 0.78
Vermont ........................................................................................... 5,862 ........................ 5,829 5,829 6,083 0.23
Virginia ............................................................................................. 79,531 ........................ 79,083 79,083 82,524 3.10
Washington ...................................................................................... 48,976 ........................ 48,701 48,701 50,820 1.91
West Virginia ................................................................................... 13,746 ........................ 13,668 13,668 14,263 0.54
Wisconsin ........................................................................................ 34,291 ........................ 34,098 34,098 35,582 1.34
Wyoming .......................................................................................... 3,951 ........................ 3,929 3,929 4,100 0.15
American Samoa ............................................................................. ...................... ........................ ...................... ...................... ...................... ....................
Guam ............................................................................................... 2,517 ........................ 2,503 2,503 2,612 0.10
Puerto Rico ...................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Virgin Islands ................................................................................... 4,141 ........................ 4,118 4,118 4,297 0.16
Indian Tribes .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Undistributed .................................................................................... ¥110,543 ........................ ...................... ...................... ...................... ....................
Total ................................................................................................. 2,454,896 ........................ 2,551,000 2,551,000 2,662,000 1 100.00
125
Department of Education, Office of Elementary and Secondary Education 91–0900–0–1–501
Table 8-12. Title I Grants to Local Educational Agencies (84.010)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 199,115 ........................ 192,920 192,920 209,039 1.50

Alaska .............................................................................................. 33,134 ........................ 33,536 33,536 37,170 0.27
Arizona ............................................................................................. 260,348 ........................ 261,506 261,506 285,534 2.05
Arkansas .......................................................................................... 125,531 ........................ 121,264 121,264 129,523 0.93
California .......................................................................................... 1,723,483 ........................ 1,614,040 1,614,040 1,767,658 12.71
Colorado .......................................................................................... 129,040 ........................ 123,166 123,166 133,331 0.96
Connecticut ...................................................................................... 100,364 ........................ 110,619 110,619 118,876 0.85
Delaware .......................................................................................... 33,835 ........................ 33,734 33,734 37,399 0.27
Florida .............................................................................................. 648,780 ........................ 585,698 585,698 639,516 4.60
Georgia ............................................................................................ 411,619 ........................ 407,228 407,228 443,327 3.19
Hawaii .............................................................................................. 45,972 ........................ 39,302 39,302 41,042 0.30
Idaho ................................................................................................ 42,377 ........................ 40,901 40,901 44,932 0.32
Illinois ............................................................................................... 539,610 ........................ 588,963 588,963 652,228 4.69
Indiana ............................................................................................. 184,340 ........................ 227,419 227,419 246,398 1.77
Iowa ................................................................................................. 64,917 ........................ 68,486 68,486 73,268 0.53
Kansas ............................................................................................. 81,640 ........................ 84,542 84,542 90,976 0.65
Kentucky .......................................................................................... 184,219 ........................ 182,269 182,269 196,261 1.41
Louisiana ......................................................................................... 283,726 ........................ 275,087 275,087 298,264 2.14
Maine ............................................................................................... 45,516 ........................ 43,353 43,353 47,250 0.34
Maryland .......................................................................................... 171,998 ........................ 186,326 186,326 206,301 1.48
Massachusetts ................................................................................. 207,264 ........................ 210,251 210,251 226,515 1.63
Michigan .......................................................................................... 426,805 ........................ 456,631 456,631 499,236 3.59
Minnesota ........................................................................................ 109,156 ........................ 114,399 114,399 123,385 0.89
Mississippi ....................................................................................... 170,367 ........................ 171,499 171,499 185,338 1.33
Missouri ........................................................................................... 188,075 ........................ 201,220 201,220 217,710 1.57
Montana ........................................................................................... 40,962 ........................ 38,273 38,273 41,722 0.30
Nebraska ......................................................................................... 50,562 ........................ 50,587 50,587 54,588 0.39
Nevada ............................................................................................ 76,712 ........................ 79,068 79,068 88,390 0.64
New Hampshire ............................................................................... 31,001 ........................ 34,313 34,313 37,977 0.27
New Jersey ...................................................................................... 265,388 ........................ 249,374 249,374 265,576 1.91
New Mexico ..................................................................................... 112,418 ........................ 103,003 103,003 107,860 0.78
New York ......................................................................................... 1,205,156 ........................ 1,197,913 1,197,913 1,335,800 9.60
North Carolina ................................................................................. 292,733 ........................ 298,503 298,503 325,485 2.34
North Dakota ................................................................................... 30,068 ........................ 29,515 29,515 32,712 0.24
Ohio ................................................................................................. 410,461 ........................ 445,977 445,977 484,906 3.49
Oklahoma ........................................................................................ 140,733 ........................ 126,946 126,946 132,886 0.96
Oregon ............................................................................................. 130,590 ........................ 121,175 121,175 129,518 0.93
Pennsylvania ................................................................................... 483,257 ........................ 513,126 513,126 561,163 4.03
Rhode Island ................................................................................... 47,136 ........................ 49,795 49,795 54,372 0.39
South Carolina ................................................................................. 177,541 ........................ 185,909 185,909 202,199 1.45
South Dakota ................................................................................... 36,392 ........................ 36,775 36,775 40,915 0.29
Tennessee ....................................................................................... 205,049 ........................ 204,431 204,431 222,890 1.60
Texas ............................................................................................... 1,186,021 ........................ 1,158,900 1,158,900 1,261,370 9.07
Utah ................................................................................................. 54,087 ........................ 57,543 57,543 62,767 0.45
Vermont ........................................................................................... 28,355 ........................ 26,896 26,896 29,788 0.21
Virginia ............................................................................................. 208,012 ........................ 203,783 203,783 220,745 1.59
Washington ...................................................................................... 175,975 ........................ 181,353 181,353 195,986 1.41
West Virginia ................................................................................... 99,180 ........................ 88,808 88,808 90,874 0.65
Wisconsin ........................................................................................ 154,633 ........................ 200,471 200,471 218,836 1.57
Wyoming .......................................................................................... 28,892 ........................ 27,643 27,643 30,684 0.22
American Samoa ............................................................................. 8,494 ........................ 8,436 8,436 9,406 0.07
Guam ............................................................................................... 10,290 ........................ 9,261 9,261 8,387 0.06
Northern Mariana Islands ................................................................ 3,477 ........................ 3,303 3,303 3,551 0.03
Puerto Rico ...................................................................................... 451,345 ........................ 452,318 452,318 536,485 3.86
Virgin Islands ................................................................................... 11,413 ........................ 11,336 11,336 12,639 0.09
Indian Tribes .................................................................................... 88,423 ........................ 89,762 89,762 100,076 0.72
Undistributed .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Census ............................................................................................. 3,437 ........................ 3,437 3,437 4,000 0.03
Pacific Regional Education Lab ...................................................... 5,000 ........................ 5,000 5,000 5,000 0.04
Total ................................................................................................. 12,713,125 ........................ 12,713,233 12,713,233 13,909,900 1 100.00
126
Department of Education, Office of Elementary and Secondary Education 91–1000–0–1–501
Table 8-13. Improving Teacher Quality State Grants (84.367)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 46,150 ........................ 46,151 46,151 44,496 1.60

Alaska .............................................................................................. 13,752 ........................ 13,752 13,752 13,259 0.48
Arizona ............................................................................................. 48,147 ........................ 48,148 48,148 45,973 1.66
Arkansas .......................................................................................... 28,203 ........................ 28,203 28,203 27,163 0.98
California .......................................................................................... 335,451 ........................ 335,457 335,457 322,115 11.61
Colorado .......................................................................................... 32,312 ........................ 32,313 32,313 31,117 1.12
Connecticut ...................................................................................... 26,179 ........................ 26,179 26,179 25,400 0.92
Delaware .......................................................................................... 13,752 ........................ 13,752 13,752 13,259 0.48
Florida .............................................................................................. 134,653 ........................ 134,655 134,655 129,262 4.66
Georgia ............................................................................................ 77,237 ........................ 77,239 77,239 74,165 2.67
Hawaii .............................................................................................. 13,752 ........................ 13,752 13,752 13,259 0.48
Idaho ................................................................................................ 13,752 ........................ 13,752 13,752 13,259 0.48
Illinois ............................................................................................... 116,334 ........................ 116,336 116,336 112,548 4.06
Indiana ............................................................................................. 47,998 ........................ 47,999 47,999 46,366 1.67
Iowa ................................................................................................. 21,617 ........................ 21,618 21,618 20,960 0.76
Kansas ............................................................................................. 22,209 ........................ 22,209 22,209 21,515 0.78
Kentucky .......................................................................................... 44,228 ........................ 44,229 44,229 42,819 1.54
Louisiana ......................................................................................... 64,350 ........................ 64,351 64,351 62,372 2.25
Maine ............................................................................................... 13,752 ........................ 13,752 13,752 13,259 0.48
Maryland .......................................................................................... 41,277 ........................ 41,278 41,278 39,938 1.44
Massachusetts ................................................................................. 50,505 ........................ 50,506 50,506 49,056 1.77
Michigan .......................................................................................... 108,504 ........................ 108,505 108,505 105,577 3.81
Minnesota ........................................................................................ 37,545 ........................ 37,545 37,545 36,445 1.31
Mississippi ....................................................................................... 41,918 ........................ 41,919 41,919 40,606 1.46
Missouri ........................................................................................... 49,119 ........................ 49,120 49,120 47,466 1.71
Montana ........................................................................................... 13,752 ........................ 13,752 13,752 13,259 0.48
Nebraska ......................................................................................... 14,029 ........................ 14,029 14,029 13,536 0.49
Nevada ............................................................................................ 15,208 ........................ 15,208 15,208 14,524 0.52
New Hampshire ............................................................................... 13,752 ........................ 13,752 13,752 13,259 0.48
New Jersey ...................................................................................... 64,457 ........................ 64,458 64,458 62,398 2.25
New Mexico ..................................................................................... 23,007 ........................ 23,007 23,007 22,186 0.80
New York ......................................................................................... 228,755 ........................ 228,758 228,758 222,219 8.01
North Carolina ................................................................................. 64,910 ........................ 64,912 64,912 62,230 2.24
North Dakota ................................................................................... 13,752 ........................ 13,752 13,752 13,259 0.48
Ohio ................................................................................................. 103,564 ........................ 103,566 103,566 100,485 3.62
Oklahoma ........................................................................................ 33,350 ........................ 33,350 33,350 32,147 1.16
Oregon ............................................................................................. 28,259 ........................ 28,260 28,260 27,220 0.98
Pennsylvania ................................................................................... 112,880 ........................ 112,881 112,881 109,650 3.95
Rhode Island ................................................................................... 13,752 ........................ 13,752 13,752 13,259 0.48
South Carolina ................................................................................. 36,834 ........................ 36,835 36,835 35,403 1.28
South Dakota ................................................................................... 13,752 ........................ 13,752 13,752 13,259 0.48
Tennessee ....................................................................................... 49,235 ........................ 49,236 49,236 47,408 1.71
Texas ............................................................................................... 239,613 ........................ 239,617 239,617 230,552 8.31
Utah ................................................................................................. 18,476 ........................ 18,476 18,476 17,818 0.64
Vermont ........................................................................................... 13,752 ........................ 13,752 13,752 13,259 0.48
Virginia ............................................................................................. 51,710 ........................ 51,711 51,711 49,857 1.80
Washington ...................................................................................... 47,045 ........................ 47,046 47,046 45,399 1.64
West Virginia ................................................................................... 23,520 ........................ 23,521 23,521 22,900 0.83
Wisconsin ........................................................................................ 44,988 ........................ 44,989 44,989 43,715 1.58
Wyoming .......................................................................................... 13,752 ........................ 13,752 13,752 13,259 0.48
American Samoa ............................................................................. 3,416 ........................ 3,416 3,416 3,281 0.12
Guam ............................................................................................... 5,057 ........................ 5,057 5,057 4,895 0.18
Puerto Rico ...................................................................................... 91,727 ........................ 91,729 91,729 88,438 3.19
Virgin Islands ................................................................................... 4,281 ........................ 4,281 4,281 4,141 0.15
Indian Tribes .................................................................................... 14,365 ........................ 14,365 14,365 13,868 0.50
Undistributed .................................................................................... 14,437 ........................ 14,437 14,437 13,937 ....................
Total ................................................................................................. 2,887,439 ........................ 2,887,488 2,887,488 2,787,488 1 100.00
127
Department of Education, Office of Special Education and Rehabilitative Services 91–0300–0–1–501
Table 8-14. Special Education—Grants to States (84.027)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 167,635 ........................ 166,195 166,195 166,195 1.58

Alaska .............................................................................................. 32,452 ........................ 32,157 32,157 32,157 0.31
Arizona ............................................................................................. 162,328 ........................ 160,852 160,852 160,852 1.53
Arkansas .......................................................................................... 103,400 ........................ 102,488 102,488 102,488 0.98
California .......................................................................................... 1,130,940 ........................ 1,120,726 1,120,726 1,120,726 10.68
Colorado .......................................................................................... 137,481 ........................ 136,232 136,232 136,232 1.30
Connecticut ...................................................................................... 122,567 ........................ 121,552 121,552 121,552 1.16
Delaware .......................................................................................... 29,742 ........................ 29,471 29,471 29,471 0.28
Florida .............................................................................................. 580,457 ........................ 575,467 575,467 575,467 5.48
Georgia ............................................................................................ 285,369 ........................ 282,776 282,776 282,776 2.70
Hawaii .............................................................................................. 36,801 ........................ 36,471 36,471 36,471 0.35
Idaho ................................................................................................ 50,036 ........................ 49,584 49,584 49,584 0.47
Illinois ............................................................................................... 466,850 ........................ 462,872 462,872 462,872 4.41
Indiana ............................................................................................. 235,740 ........................ 233,778 233,778 233,778 2.23
Iowa ................................................................................................. 112,542 ........................ 111,615 111,615 111,615 1.06
Kansas ............................................................................................. 98,509 ........................ 97,661 97,661 97,661 0.93
Kentucky .......................................................................................... 145,505 ........................ 144,269 144,269 144,269 1.38
Louisiana ......................................................................................... 174,506 ........................ 172,920 172,920 172,920 1.65
Maine ............................................................................................... 50,442 ........................ 50,027 50,027 50,027 0.48
Maryland .......................................................................................... 184,574 ........................ 183,007 183,007 183,007 1.74
Massachusetts ................................................................................. 261,681 ........................ 259,526 259,526 259,526 2.47
Michigan .......................................................................................... 369,262 ........................ 365,972 365,972 365,972 3.49
Minnesota ........................................................................................ 174,985 ........................ 173,502 173,502 173,502 1.65
Mississippi ....................................................................................... 109,703 ........................ 108,724 108,724 108,724 1.04
Missouri ........................................................................................... 209,400 ........................ 207,671 207,671 207,671 1.98
Montana ........................................................................................... 33,879 ........................ 33,574 33,574 33,574 0.32
Nebraska ......................................................................................... 68,834 ........................ 68,267 68,267 68,267 0.65
Nevada ............................................................................................ 61,046 ........................ 60,492 60,492 60,492 0.58
New Hampshire ............................................................................... 43,748 ........................ 43,387 43,387 43,387 0.41
New Jersey ...................................................................................... 333,206 ........................ 330,463 330,463 330,463 3.15
New Mexico ..................................................................................... 84,016 ........................ 83,315 83,315 83,315 0.79
New York ......................................................................................... 699,789 ........................ 693,935 693,935 693,935 6.61
North Carolina ................................................................................. 288,431 ........................ 285,889 285,889 285,889 2.72
North Dakota ................................................................................... 24,150 ........................ 23,930 23,930 23,930 0.23
Ohio ................................................................................................. 403,485 ........................ 399,918 399,918 399,918 3.81
Oklahoma ........................................................................................ 136,350 ........................ 135,170 135,170 135,170 1.29
Oregon ............................................................................................. 118,887 ........................ 117,857 117,857 117,857 1.12
Pennsylvania ................................................................................... 393,753 ........................ 390,290 390,290 390,290 3.72
Rhode Island ................................................................................... 40,312 ........................ 39,980 39,980 39,980 0.38
South Carolina ................................................................................. 161,465 ........................ 160,107 160,107 160,107 1.53
South Dakota ................................................................................... 28,769 ........................ 28,507 28,507 28,507 0.27
Tennessee ....................................................................................... 214,982 ........................ 213,139 213,139 213,139 2.03
Texas ............................................................................................... 888,269 ........................ 880,215 880,215 880,215 8.39
Utah ................................................................................................. 98,327 ........................ 97,444 97,444 97,444 0.93
Vermont ........................................................................................... 23,285 ........................ 23,074 23,074 23,074 0.22
Virginia ............................................................................................. 259,641 ........................ 257,403 257,403 257,403 2.45
Washington ...................................................................................... 204,037 ........................ 202,211 202,211 202,211 1.93
West Virginia ................................................................................... 70,009 ........................ 69,433 69,433 69,433 0.66
Wisconsin ........................................................................................ 191,909 ........................ 190,281 190,281 190,281 1.81
Wyoming .......................................................................................... 24,428 ........................ 24,206 24,206 24,206 0.23
American Samoa ............................................................................. 6,122 ........................ 6,110 6,110 6,110 0.06
Guam ............................................................................................... 13,575 ........................ 13,547 13,547 13,547 0.13
Puerto Rico ...................................................................................... 99,227 ........................ 98,325 98,325 98,325 0.94
Freely Associated States ................................................................ 6,579 ........................ 6,579 6,579 6,579 0.06
Virgin Islands ................................................................................... 8,628 ........................ 8,611 8,611 8,611 0.08
Indian Tribes .................................................................................... 86,306 ........................ 86,306 86,306 86,306 0.82
Undistributed .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Technical Assistance ....................................................................... 15,000 ........................ 15,000 15,000 15,000 0.14
Total ................................................................................................. 10,582,961 ........................ 10,491,941 10,491,941 10,491,941 1 100.00
128
Department of Education, Office of Special Education and Rehabilitative Services 91–0301–0–1–506
Table 8-15. Rehabilitation Services—Vocational Rehabilitation Grants to States (84.126)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 55,858 ........................ 56,445 56,445 55,155 1.94

Alaska .............................................................................................. 8,994 ........................ 9,342 9,342 9,342 0.33
Arizona ............................................................................................. 51,413 ........................ 56,407 56,407 57,084 2.01
Arkansas .......................................................................................... 34,986 ........................ 35,708 35,708 35,365 1.25
California .......................................................................................... 260,883 ........................ 271,453 271,453 271,762 9.58
Colorado .......................................................................................... 32,548 ........................ 34,105 34,105 35,528 1.25
Connecticut ...................................................................................... 19,462 ........................ 19,871 19,871 19,720 0.70
Delaware .......................................................................................... 9,004 ........................ 9,342 9,342 9,342 0.33
Florida .............................................................................................. 140,570 ........................ 154,109 154,109 150,676 5.31
Georgia ............................................................................................ 81,909 ........................ 86,685 86,685 91,012 3.21
Hawaii .............................................................................................. 10,749 ........................ 11,255 11,255 10,900 0.38
Idaho ................................................................................................ 14,723 ........................ 15,465 15,465 15,648 0.55
Illinois ............................................................................................... 100,712 ........................ 103,911 103,911 103,891 3.66
Indiana ............................................................................................. 63,749 ........................ 66,226 66,226 65,825 2.32
Iowa ................................................................................................. 30,428 ........................ 31,581 31,581 30,768 1.08
Kansas ............................................................................................. 25,966 ........................ 26,963 26,963 26,583 0.94
Kentucky .......................................................................................... 49,003 ........................ 50,877 50,877 51,115 1.80
Louisiana ......................................................................................... 54,442 ........................ 56,315 56,315 55,711 1.96
Maine ............................................................................................... 15,047 ........................ 14,885 14,885 14,854 0.52
Maryland .......................................................................................... 39,360 ........................ 39,069 39,069 37,646 1.33
Massachusetts ................................................................................. 44,839 ........................ 45,164 45,164 45,051 1.59
Michigan .......................................................................................... 92,608 ........................ 95,240 95,240 96,112 3.39
Minnesota ........................................................................................ 41,955 ........................ 43,338 43,338 42,601 1.50
Mississippi ....................................................................................... 40,552 ........................ 41,031 41,031 40,799 1.44
Missouri ........................................................................................... 59,109 ........................ 61,039 61,039 61,268 2.16
Montana ........................................................................................... 10,650 ........................ 10,907 10,907 10,624 0.37
Nebraska ......................................................................................... 17,112 ........................ 17,540 17,540 17,140 0.60
Nevada ............................................................................................ 16,598 ........................ 17,844 17,844 17,653 0.62
New Hampshire ............................................................................... 10,238 ........................ 10,574 10,574 10,605 0.37
New Jersey ...................................................................................... 52,405 ........................ 54,175 54,175 54,539 1.92
New Mexico ..................................................................................... 21,894 ........................ 22,360 22,360 22,386 0.79
New York ......................................................................................... 142,194 ........................ 146,134 146,134 145,603 5.13
North Carolina ................................................................................. 83,840 ........................ 90,329 90,329 91,614 3.23
North Dakota ................................................................................... 8,957 ........................ 9,342 9,342 9,342 0.33
Ohio ................................................................................................. 114,994 ........................ 118,397 118,397 118,931 4.19
Oklahoma ........................................................................................ 39,002 ........................ 40,565 40,565 40,118 1.41
Oregon ............................................................................................. 33,265 ........................ 34,855 34,855 34,701 1.22
Pennsylvania ................................................................................... 118,964 ........................ 121,735 121,735 119,677 4.22
Rhode Island ................................................................................... 9,972 ........................ 10,276 10,276 9,932 0.35
South Carolina ................................................................................. 47,937 ........................ 49,595 49,595 50,089 1.77
South Dakota ................................................................................... 9,018 ........................ 9,342 9,342 9,342 0.33
Tennessee ....................................................................................... 63,092 ........................ 64,866 64,866 64,763 2.28
Texas ............................................................................................... 201,770 ........................ 212,142 212,142 214,752 7.57
Utah ................................................................................................. 25,154 ........................ 26,821 26,821 27,637 0.97
Vermont ........................................................................................... 8,999 ........................ 9,342 9,342 9,342 0.33
Virginia ............................................................................................. 60,880 ........................ 62,457 62,457 61,302 2.16
Washington ...................................................................................... 46,907 ........................ 48,831 48,831 50,423 1.78
West Virginia ................................................................................... 25,011 ........................ 24,796 24,796 25,018 0.88
Wisconsin ........................................................................................ 52,854 ........................ 54,832 54,832 54,572 1.92
Wyoming .......................................................................................... 8,194 ........................ 9,342 9,342 9,342 0.33
American Samoa ............................................................................. 891 ........................ 924 924 916 0.03
Guam ............................................................................................... 1,289 ........................ 2,831 2,831 2,840 0.10
Puerto Rico ...................................................................................... 60,974 ........................ 70,460 70,460 70,167 2.47
Virgin Islands ................................................................................... 1,936 ........................ 1,965 1,965 1,951 0.07
Indian Tribes .................................................................................... 33,024 ........................ 34,444 34,444 34,444 1.21
Undistributed .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Total ................................................................................................. 2,720,192 ........................ 2,837,160 2,837,160 2,837,160 1 100.00
129
Department of Health and Human Services, Centers for Medicare and Medicaid Services 75–0515–0–1–551
Table 8-16. State Children’s Health Insurance Program (93.767)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 64,182 ........................ 74,295 74,295 74,295 1.47

Alaska .............................................................................................. 9,100 ........................ 11,535 11,535 11,535 0.23
Arizona ............................................................................................. 107,366 ........................ 127,859 127,859 127,859 2.54
Arkansas .......................................................................................... 43,796 ........................ 49,308 49,308 49,308 0.98
California .......................................................................................... 646,682 ........................ 790,789 790,789 790,789 15.69
Colorado .......................................................................................... 57,951 ........................ 71,545 71,545 71,545 1.42
Connecticut ...................................................................................... 34,535 ........................ 39,891 39,891 39,891 0.79
Delaware .......................................................................................... 9,045 ........................ 11,058 11,058 11,058 0.22
Florida .............................................................................................. 249,330 ........................ 296,067 296,067 296,067 5.87
Georgia ............................................................................................ 129,458 ........................ 165,874 165,874 165,874 3.29
Hawaii .............................................................................................. 12,404 ........................ 15,314 15,314 15,314 0.30
Idaho ................................................................................................ 20,611 ........................ 24,316 24,316 24,316 0.48
Illinois ............................................................................................... 225,395 ........................ 209,767 209,767 209,767 4.16
Indiana ............................................................................................. 73,000 ........................ 93,469 93,469 93,469 1.85
Iowa ................................................................................................. 33,096 ........................ 36,230 36,230 36,230 0.72
Kansas ............................................................................................. 27,490 ........................ 36,542 36,542 36,542 0.73
Kentucky .......................................................................................... 57,764 ........................ 70,115 70,115 70,115 1.39
Louisiana ......................................................................................... 77,133 ........................ 89,586 89,586 89,586 1.78
Maine ............................................................................................... 11,928 ........................ 15,172 15,172 15,172 0.30
Maryland .......................................................................................... 62,419 ........................ 66,961 66,961 66,961 1.33
Massachusetts ................................................................................. 81,306 ........................ 73,335 73,335 73,335 1.46
Michigan .......................................................................................... 117,165 ........................ 149,383 149,383 149,383 2.96
Minnesota ........................................................................................ 46,515 ........................ 48,613 48,613 48,613 0.96
Mississippi ....................................................................................... 123,498 ........................ 60,495 60,495 60,495 1.20
Missouri ........................................................................................... 64,245 ........................ 72,140 72,140 72,140 1.43
Montana ........................................................................................... 12,558 ........................ 15,736 15,736 15,736 0.31
Nebraska ......................................................................................... 32,591 ........................ 21,892 21,892 21,892 0.43
Nevada ............................................................................................ 41,896 ........................ 52,056 52,056 52,056 1.03
New Hampshire ............................................................................... 9,193 ........................ 10,779 10,779 10,779 0.21
New Jersey ...................................................................................... 139,970 ........................ 105,206 105,206 105,206 2.09
New Mexico ..................................................................................... 42,157 ........................ 52,045 52,045 52,045 1.03
New York ......................................................................................... 272,452 ........................ 340,807 340,807 340,807 6.76
North Carolina ................................................................................. 113,067 ........................ 136,117 136,117 136,117 2.70
North Dakota ................................................................................... 6,346 ........................ 7,738 7,738 7,738 0.15
Ohio ................................................................................................. 124,632 ........................ 157,997 157,997 157,997 3.13
Oklahoma ........................................................................................ 57,371 ........................ 70,828 70,828 70,828 1.41
Oregon ............................................................................................. 46,887 ........................ 56,734 56,734 56,734 1.13
Pennsylvania ................................................................................... 134,097 ........................ 173,554 173,554 173,554 3.44
Rhode Island ................................................................................... 33,619 ........................ 13,983 13,983 13,983 0.28
South Carolina ................................................................................. 55,545 ........................ 70,651 70,651 70,651 1.40
South Dakota ................................................................................... 8,372 ........................ 10,354 10,354 10,354 0.21
Tennessee ....................................................................................... 80,407 ........................ 97,460 97,460 97,460 1.93
Texas ............................................................................................... 454,742 ........................ 557,980 557,980 557,980 11.07
Utah ................................................................................................. 32,208 ........................ 40,486 40,486 40,486 0.80
Vermont ........................................................................................... 4,818 ........................ 5,753 5,753 5,753 0.11
Virginia ............................................................................................. 72,303 ........................ 94,070 94,070 94,070 1.87
Washington ...................................................................................... 64,706 ........................ 79,883 79,883 79,883 1.58
West Virginia ................................................................................... 23,350 ........................ 27,517 27,517 27,517 0.55
Wisconsin ........................................................................................ 55,764 ........................ 69,563 69,563 69,563 1.38
Wyoming .......................................................................................... 5,881 ........................ 6,942 6,942 6,942 0.14
American Samoa ............................................................................. 546 ........................ 630 630 630 0.01
Guam ............................................................................................... 1,592 ........................ 1,838 1,838 1,838 0.04
Northern Mariana Islands ................................................................ 501 ........................ 578 578 578 0.01
Puerto Rico ...................................................................................... 41,675 ........................ 48,090 48,090 48,090 0.95
Virgin Islands ................................................................................... 1,183 ........................ 1,365 1,365 1,365 0.03
Indian Tribes .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Undistributed .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Total ................................................................................................. 1 4,365,400 ........................ 5,040,000 5,040,000 2 5,040,000 3 100.00
1 Includes $283 million in shortfall funding from the Deficit Reduction Act.
2 Assumes program receives reauthorization.
130
Department of Health and Human Services, Centers for Medicare and Medicaid Services 75–0512–0–1–551
Table 8-17. Grants to States for Medicaid (93.778)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 2,811,355 ........................ 2,806,831 2,806,831 2,819,149 1.36

Alaska .............................................................................................. 733,492 ........................ 872,800 872,800 897,687 0.43
Arizona ............................................................................................. 4,436,368 ........................ 4,662,315 4,662,315 5,114,866 2.47
Arkansas .......................................................................................... 2,304,017 ........................ 2,444,471 2,444,471 2,661,730 1.29
California .......................................................................................... 21,931,980 ........................ 20,818,937 20,818,937 21,560,850 10.42
Colorado .......................................................................................... 1,532,446 ........................ 1,603,055 1,603,055 1,675,586 0.81
Connecticut ...................................................................................... 2,227,657 ........................ 2,224,734 2,224,734 2,285,441 1.10
Delaware .......................................................................................... 515,728 ........................ 545,539 545,539 592,470 0.29
District of Columbia ......................................................................... 1,062,487 ........................ 1,199,039 1,199,039 1,279,839 0.62
Florida .............................................................................................. 8,733,890 ........................ 8,715,628 8,715,628 9,121,444 4.41
Georgia ............................................................................................ 4,744,732 ........................ 4,541,194 4,541,194 4,955,788 2.40
Hawaii .............................................................................................. 728,625 ........................ 643,587 643,587 657,414 0.32
Idaho ................................................................................................ 777,351 ........................ 820,475 820,475 891,629 0.43
Illinois ............................................................................................... 5,993,277 ........................ 5,775,493 5,775,493 6,168,570 2.98
Indiana ............................................................................................. 3,696,015 ........................ 3,888,848 3,888,848 4,069,372 1.97
Iowa ................................................................................................. 1,754,671 ........................ 1,717,644 1,717,644 1,829,478 0.88
Kansas ............................................................................................. 1,320,586 ........................ 1,354,092 1,354,092 1,395,370 0.67
Kentucky .......................................................................................... 3,343,139 ........................ 3,306,988 3,306,988 3,461,452 1.67
Louisiana ......................................................................................... 3,631,368 ........................ 3,692,810 3,692,810 3,999,621 1.93
Maine ............................................................................................... 1,506,300 ........................ 1,157,172 1,157,172 1,194,973 0.58
Maryland .......................................................................................... 2,929,314 ........................ 2,952,992 2,952,992 3,116,243 1.51
Massachusetts ................................................................................. 5,150,675 ........................ 5,911,206 5,911,206 5,927,750 2.87
Michigan .......................................................................................... 5,206,747 ........................ 5,336,206 5,336,206 5,162,765 2.50
Minnesota ........................................................................................ 3,079,537 ........................ 3,168,233 3,168,233 3,577,872 1.73
Mississippi ....................................................................................... 2,810,880 ........................ 2,696,873 2,696,873 2,970,793 1.44
Missouri ........................................................................................... 4,208,911 ........................ 4,442,233 4,442,233 4,712,989 2.28
Montana ........................................................................................... 569,840 ........................ 546,316 546,316 563,911 0.27
Nebraska ......................................................................................... 1,050,601 ........................ 957,874 957,874 1,008,403 0.49
Nevada ............................................................................................ 719,691 ........................ 671,157 671,157 671,000 0.32
New Hampshire ............................................................................... 626,147 ........................ 650,051 650,051 694,608 0.34
New Jersey ...................................................................................... 5,047,720 ........................ 4,952,112 4,952,112 5,130,144 2.48
New Mexico ..................................................................................... 1,929,108 ........................ 1,997,852 1,997,852 2,103,655 1.02
New York ......................................................................................... 24,223,095 ........................ 25,020,102 25,020,102 24,961,924 12.07
North Carolina ................................................................................. 6,206,828 ........................ 6,528,916 6,528,916 7,831,399 3.79
North Dakota ................................................................................... 354,268 ........................ 366,542 366,542 386,256 0.19
Ohio ................................................................................................. 7,945,914 ........................ 8,543,294 8,543,294 8,687,791 4.20
Oklahoma ........................................................................................ 2,199,646 ........................ 2,662,883 2,662,883 2,732,840 1.32
Oregon ............................................................................................. 2,079,179 ........................ 2,158,554 2,158,554 2,316,595 1.12
Pennsylvania ................................................................................... 9,287,096 ........................ 9,469,818 9,469,818 9,928,379 4.80
Rhode Island ................................................................................... 1,004,539 ........................ 974,072 974,072 1,056,158 0.51
South Carolina ................................................................................. 2,986,972 ........................ 2,898,600 2,898,600 2,853,534 1.38
South Dakota ................................................................................... 430,904 ........................ 431,162 431,162 430,179 0.21
Tennessee ....................................................................................... 4,825,494 ........................ 4,594,265 4,594,265 4,629,530 2.24
Texas ............................................................................................... 11,431,765 ........................ 12,634,509 12,634,509 13,023,608 6.30
Utah ................................................................................................. 1,167,263 ........................ 1,119,241 1,119,241 1,192,293 0.58
Vermont ........................................................................................... 575,123 ........................ 591,582 591,582 625,536 0.30
Virginia ............................................................................................. 2,529,202 ........................ 2,726,856 2,726,856 2,943,719 1.42
Washington ...................................................................................... 3,240,127 ........................ 3,197,092 3,197,092 3,281,008 1.59
West Virginia ................................................................................... 1,658,639 ........................ 1,779,241 1,779,241 1,899,449 0.92
Wisconsin ........................................................................................ 2,880,647 ........................ 2,985,034 2,985,034 3,040,913 1.47
Wyoming .......................................................................................... 256,828 ........................ 265,055 265,055 274,265 0.13
American Samoa ............................................................................. 6,120 ........................ 8,496 8,496 8,496 *
Guam ............................................................................................... 9,390 ........................ 13,130 13,130 13,690 0.01
Northern Mariana Islands ................................................................ 3,467 ........................ 4,662 4,662 4,662 *
Puerto Rico ...................................................................................... 241,017 ........................ 286,222 286,222 286,222 0.14
Virgin Islands ................................................................................... 9,702 ........................ 13,295 13,295 13,815 0.01
Indian Tribes .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Undistributed .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Survey & Certification ..................................................................... 186,478 ........................ 256,900 256,900 262,000 0.13
Fraud Control Units ......................................................................... 161,600 ........................ 174,800 174,800 183,540 0.09
Vaccines for Children ...................................................................... 1,974,295 ........................ 2,905,330 2,905,330 2,761,957 1.34
Medicare Part B Transfer ............................................................... 264,230 ........................ 350,000 350,000 ...................... ....................
Incurred But Not Reported ............................................................. 6,829,757 ........................ 3,000,000 3,000,000 3,000,000 1.45
Adjustments ..................................................................................... ¥241,804 ........................ ¥7,843,497 ¥7,843,497 ¥4,016,947 ¥1.94
Total ................................................................................................. 201,842,436 ........................ 195,190,913 195,190,913 206,885,673 1 100.00

131
Department of Health and Human Services, Administration for Children and Families 75–1552–0–1–609
Table 8-18. Temporary Assistance for Needy Families (TANF)—Family Assistance Grants (93.558)

Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 123,072 ........................ 104,408 104,408 104,408 0.61

Alaska .............................................................................................. 54,837 ........................ 53,620 53,620 53,620 0.31
Arizona ............................................................................................. 226,449 ........................ 226,131 226,131 226,131 1.33
Arkansas .......................................................................................... 63,117 ........................ 62,951 62,951 62,951 0.37
California .......................................................................................... 3,669,879 ........................ 3,665,160 3,665,160 3,665,160 21.49
Colorado .......................................................................................... 150,126 ........................ 149,626 149,626 149,626 0.88
Connecticut ...................................................................................... 264,387 ........................ 266,788 266,788 266,788 1.56
Delaware .......................................................................................... 31,411 ........................ 32,291 32,291 32,291 0.19
Florida .............................................................................................. 624,265 ........................ 622,746 622,746 622,746 3.65
Georgia ............................................................................................ 374,208 ........................ 368,025 368,025 368,025 2.16
Hawaii .............................................................................................. 98,905 ........................ 98,905 98,905 98,905 0.58
Idaho ................................................................................................ 33,911 ........................ 33,911 33,911 33,911 0.20
Illinois ............................................................................................... 585,057 ........................ 585,057 585,057 585,057 3.43
Indiana ............................................................................................. 207,020 ........................ 206,799 206,799 206,799 1.21
Iowa ................................................................................................. 131,525 ........................ 130,994 130,994 130,994 0.77
Kansas ............................................................................................. 101,931 ........................ 101,931 101,931 101,931 0.60
Kentucky .......................................................................................... 181,288 ........................ 181,288 181,288 181,288 1.06
Louisiana ......................................................................................... 181,998 ........................ 180,999 180,999 180,999 1.06
Maine ............................................................................................... 78,121 ........................ 78,121 78,121 78,121 0.46
Maryland .......................................................................................... 228,194 ........................ 229,098 229,098 229,098 1.34
Massachusetts ................................................................................. 459,371 ........................ 459,371 459,371 459,371 2.69
Michigan .......................................................................................... 776,207 ........................ 775,353 775,353 775,353 4.55
Minnesota ........................................................................................ 263,548 ........................ 263,434 263,434 263,434 1.54
Mississippi ....................................................................................... 100,142 ........................ 95,803 95,803 95,803 0.56
Missouri ........................................................................................... 217,052 ........................ 217,052 217,052 217,052 1.27
Montana ........................................................................................... 39,172 ........................ 39,172 39,172 39,172 0.23
Nebraska ......................................................................................... 57,855 ........................ 57,769 57,769 57,769 0.34
Nevada ............................................................................................ 46,637 ........................ 47,641 47,641 47,641 0.28
New Hampshire ............................................................................... 38,521 ........................ 38,521 38,521 38,521 0.23
New Jersey ...................................................................................... 404,035 ........................ 404,035 404,035 404,035 2.37
New Mexico ..................................................................................... 117,131 ........................ 117,131 117,131 117,131 0.69
New York ......................................................................................... 2,443,135 ........................ 2,442,931 2,442,931 2,442,931 14.32
North Carolina ................................................................................. 338,350 ........................ 338,350 338,350 338,350 1.98
North Dakota ................................................................................... 26,400 ........................ 26,400 26,400 26,400 0.15
Ohio ................................................................................................. 727,968 ........................ 727,968 727,968 727,968 4.27
Oklahoma ........................................................................................ 147,594 ........................ 147,594 147,594 147,594 0.87
Oregon ............................................................................................. 166,799 ........................ 166,799 166,799 166,799 0.98
Pennsylvania ................................................................................... 719,499 ........................ 719,499 719,499 719,499 4.22
Rhode Island ................................................................................... 95,104 ........................ 95,022 95,022 95,022 0.56
South Carolina ................................................................................. 119,961 ........................ 99,968 99,968 99,968 0.59
South Dakota ................................................................................... 21,280 ........................ 21,280 21,280 21,280 0.12
Tennessee ....................................................................................... 251,394 ........................ 213,089 213,089 213,089 1.25
Texas ............................................................................................... 551,999 ........................ 538,965 538,965 538,965 3.16
Utah ................................................................................................. 84,349 ........................ 84,314 84,314 84,314 0.49
Vermont ........................................................................................... 47,353 ........................ 47,353 47,353 47,353 0.28
Virginia ............................................................................................. 158,442 ........................ 158,285 158,285 158,285 0.93
Washington ...................................................................................... 382,854 ........................ 382,854 382,854 382,854 2.24
West Virginia ................................................................................... 109,185 ........................ 110,176 110,176 110,176 0.65
Wisconsin ........................................................................................ 314,580 ........................ 314,499 314,499 314,499 1.84
Wyoming .......................................................................................... 18,430 ........................ 18,501 18,501 18,501 0.11
American Samoa ............................................................................. ...................... ........................ ...................... ...................... ...................... ....................
Guam ............................................................................................... 2,599 ........................ 3,465 3,465 3,465 0.02
Puerto Rico ...................................................................................... 71,562 ........................ 71,563 71,563 71,563 0.42
Virgin Islands ................................................................................... 2,890 ........................ 2,847 2,847 2,847 0.02
Indian Tribes .................................................................................... 160,573 ........................ 167,529 167,529 167,529 0.98
Undistributed .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Tribal New Program ........................................................................ 7,558 ........................ 7,633 7,633 7,633 0.04
Responsible Fatherhood ................................................................. 149,975 ........................ 150,000 150,000 150,000 0.88
Territories Matching Fund ............................................................... ...................... ........................ 15,000 15,000 15,000 0.09
Total 1 ............................................................................................... 2 17,139,710 ........................ 17,058,625 17,058,625 17,058,625 3 100.00
1 Unobligated contingency fund balances were $1,900 million in 2006 and are estimated to be $1,793 million in 2007 and $1,703 million in 2008.
2 Includes State Family Assistance Grants and Supplemental Population Growth Grants. For 2006, also includes $107 million in Contingency funds.
132
Table 8-19. Child Support Enforcement—Federal Share of State and Local Administrative Costs and Incentives (93.563)

Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 42,365 ........................ 44,452 44,452 39,637 1.00

Alaska .............................................................................................. 16,879 ........................ 17,711 17,711 15,792 0.40
Arizona ............................................................................................. 48,888 ........................ 51,296 51,296 45,739 1.15
Arkansas .......................................................................................... 31,758 ........................ 33,322 33,322 29,713 0.75
California .......................................................................................... 795,581 ........................ 834,765 834,765 744,340 18.78
Colorado .......................................................................................... 57,248 ........................ 60,068 60,068 53,561 1.35
Connecticut ...................................................................................... 42,267 ........................ 44,349 44,349 39,545 1.00
Delaware .......................................................................................... 20,373 ........................ 21,376 21,376 19,060 0.48
Florida .............................................................................................. 212,260 ........................ 222,714 222,714 198,589 5.01
Georgia ............................................................................................ 83,222 ........................ 87,321 87,321 77,862 1.96
Hawaii .............................................................................................. 14,539 ........................ 15,255 15,255 13,603 0.34
Idaho ................................................................................................ 20,349 ........................ 21,351 21,351 19,038 0.48
Illinois ............................................................................................... 116,701 ........................ 122,448 122,448 109,184 2.76
Indiana ............................................................................................. 46,365 ........................ 48,649 48,649 43,379 1.09
Iowa ................................................................................................. 41,034 ........................ 43,055 43,055 38,391 0.97
Kansas ............................................................................................. 37,582 ........................ 39,433 39,433 35,161 0.89
Kentucky .......................................................................................... 48,210 ........................ 50,584 50,584 45,105 1.14
Louisiana ......................................................................................... 54,608 ........................ 57,298 57,298 51,091 1.29
Maine ............................................................................................... 12,539 ........................ 13,157 13,157 11,732 0.30
Maryland .......................................................................................... 65,615 ........................ 68,847 68,847 61,389 1.55
Massachusetts ................................................................................. 68,874 ........................ 72,266 72,266 64,438 1.63
Michigan .......................................................................................... 199,793 ........................ 209,633 209,633 186,925 4.72
Minnesota ........................................................................................ 106,479 ........................ 111,723 111,723 99,621 2.51
Mississippi ....................................................................................... 18,695 ........................ 19,616 19,616 17,491 0.44
Missouri ........................................................................................... 69,953 ........................ 73,398 73,398 65,447 1.65
Montana ........................................................................................... 10,161 ........................ 10,661 10,661 9,507 0.24
Nebraska ......................................................................................... 34,168 ........................ 35,851 35,851 31,967 0.81
Nevada ............................................................................................ 29,869 ........................ 31,341 31,341 27,946 0.71
New Hampshire ............................................................................... 14,543 ........................ 15,259 15,259 13,606 0.34
New Jersey ...................................................................................... 172,482 ........................ 180,977 180,977 161,373 4.07
New Mexico ..................................................................................... 27,776 ........................ 29,144 29,144 25,987 0.66
New York ......................................................................................... 243,896 ........................ 255,908 255,908 228,187 5.76
North Carolina ................................................................................. 101,518 ........................ 106,518 106,518 94,980 2.40
North Dakota ................................................................................... 9,382 ........................ 9,844 9,844 8,778 0.22
Ohio ................................................................................................. 240,706 ........................ 252,561 252,561 225,203 5.68
Oklahoma ........................................................................................ 41,393 ........................ 43,431 43,431 38,727 0.98
Oregon ............................................................................................. 43,159 ........................ 45,285 45,285 40,379 1.02
Pennsylvania ................................................................................... 192,854 ........................ 202,352 202,352 180,433 4.55
Rhode Island ................................................................................... 8,004 ........................ 8,398 8,398 7,488 0.19
South Carolina ................................................................................. 29,500 ........................ 30,953 30,953 27,600 0.70
South Dakota ................................................................................... 6,903 ........................ 7,243 7,243 6,458 0.16
Tennessee ....................................................................................... 54,725 ........................ 57,420 57,420 51,200 1.29
Texas ............................................................................................... 226,374 ........................ 237,523 237,523 211,793 5.34
Utah ................................................................................................. 31,737 ........................ 33,300 33,300 29,693 0.75
Vermont ........................................................................................... 8,161 ........................ 8,563 8,563 7,635 0.19
Virginia ............................................................................................. 72,485 ........................ 76,055 76,055 67,816 1.71
Washington ...................................................................................... 109,443 ........................ 114,833 114,833 102,394 2.58
West Virginia ................................................................................... 23,103 ........................ 24,241 24,241 21,615 0.55
Wisconsin ........................................................................................ 99,816 ........................ 104,732 104,732 93,387 2.36
Wyoming .......................................................................................... 6,663 ........................ 6,992 6,992 6,234 0.16
American Samoa ............................................................................. ...................... ........................ ...................... ...................... ...................... ....................
Guam ............................................................................................... 4,271 ........................ 4,481 4,481 3,996 0.10
Puerto Rico ...................................................................................... 41,585 ........................ 43,633 43,633 38,907 0.98
Virgin Islands ................................................................................... 3,928 ........................ 4,121 4,121 3,675 0.09
Indian Tribes .................................................................................... 17,665 ........................ 30,000 30,000 53,000 1.34
Undistributed .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Total ................................................................................................. 4,196,528 ........................ 4,414,678 4,414,678 3,962,713 1 100.00
133
Table 8-20. Low Income Home Energy Assistance Program (93.568)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 31,129 ........................ 16,673 16,673 12,574 0.84

Alaska .............................................................................................. 8,738 ........................ 7,418 7,418 5,594 0.37
Arizona ............................................................................................. 13,994 ........................ 7,448 7,448 5,617 0.37
Arkansas .......................................................................................... 22,765 ........................ 12,796 12,796 9,650 0.64
California .......................................................................................... 152,030 ........................ 89,199 89,199 67,269 4.48
Colorado .......................................................................................... 31,704 ........................ 31,334 31,334 23,631 1.58
Connecticut ...................................................................................... 47,809 ........................ 40,920 40,920 30,860 2.06
Delaware .......................................................................................... 10,141 ........................ 5,431 5,431 4,096 0.27
Florida .............................................................................................. 49,529 ........................ 26,527 26,527 20,006 1.33
Georgia ............................................................................................ 39,170 ........................ 20,979 20,979 15,822 1.05
Hawaii .............................................................................................. 2,555 ........................ 2,113 2,113 1,593 0.11
Idaho ................................................................................................ 13,673 ........................ 11,642 11,642 8,780 0.59
Illinois ............................................................................................... 145,959 ........................ 113,259 113,259 85,415 5.69
Indiana ............................................................................................. 53,980 ........................ 51,272 51,272 38,667 2.58
Iowa ................................................................................................. 36,762 ........................ 36,343 36,343 27,409 1.83
Kansas ............................................................................................. 26,786 ........................ 16,675 16,675 12,576 0.84
Kentucky .......................................................................................... 44,347 ........................ 26,686 26,686 20,126 1.34
Louisiana ......................................................................................... 32,010 ........................ 17,144 17,144 12,929 0.86
Maine ............................................................................................... 25,835 ........................ 25,541 25,541 19,262 1.28
Maryland .......................................................................................... 58,499 ........................ 31,332 31,332 23,629 1.58
Massachusetts ................................................................................. 82,764 ........................ 81,820 81,820 61,706 4.11
Michigan .......................................................................................... 108,028 ........................ 106,543 106,543 80,351 5.36
Minnesota ........................................................................................ 78,363 ........................ 77,469 77,469 58,424 3.89
Mississippi ....................................................................................... 26,793 ........................ 14,350 14,350 10,822 0.72
Missouri ........................................................................................... 59,541 ........................ 45,240 45,240 34,118 2.27
Montana ........................................................................................... 14,224 ........................ 11,843 11,843 8,931 0.60
Nebraska ......................................................................................... 21,102 ........................ 17,961 17,961 13,546 0.90
Nevada ............................................................................................ 7,112 ........................ 3,809 3,809 2,873 0.19
New Hampshire ............................................................................... 18,197 ........................ 15,493 15,493 11,684 0.78
New Jersey ...................................................................................... 77,346 ........................ 75,798 75,798 57,164 3.81
New Mexico ..................................................................................... 11,031 ........................ 9,358 9,358 7,058 0.47
New York ......................................................................................... 250,543 ........................ 247,980 247,980 187,016 12.47
North Carolina ................................................................................. 67,810 ........................ 36,319 36,319 27,390 1.83
North Dakota ................................................................................... 14,298 ........................ 12,753 12,753 9,617 0.64
Ohio ................................................................................................. 122,259 ........................ 100,195 100,195 75,563 5.04
Oklahoma ........................................................................................ 26,228 ........................ 13,991 13,991 10,552 0.70
Oregon ............................................................................................. 24,059 ........................ 23,614 23,614 17,809 1.19
Pennsylvania ................................................................................... 134,810 ........................ 133,273 133,273 100,509 6.70
Rhode Island ................................................................................... 15,780 ........................ 13,435 13,435 10,132 0.68
South Carolina ................................................................................. 24,867 ........................ 13,318 13,318 10,044 0.67
South Dakota ................................................................................... 12,227 ........................ 10,410 10,410 7,851 0.52
Tennessee ....................................................................................... 46,363 ........................ 27,033 27,033 20,387 1.36
Texas ............................................................................................... 82,421 ........................ 44,144 44,144 33,292 2.22
Utah ................................................................................................. 16,806 ........................ 14,233 14,233 10,734 0.72
Vermont ........................................................................................... 13,639 ........................ 11,613 11,613 8,758 0.58
Virginia ............................................................................................. 71,259 ........................ 38,166 38,166 28,783 1.92
Washington ...................................................................................... 38,885 ........................ 38,355 38,355 28,925 1.93
West Virginia ................................................................................... 23,818 ........................ 17,660 17,660 13,319 0.89
Wisconsin ........................................................................................ 70,538 ........................ 69,733 69,733 52,590 3.51
Wyoming .......................................................................................... 6,644 ........................ 5,558 5,558 4,191 0.28
American Samoa ............................................................................. 55 ........................ 44 44 33 *
Guam ............................................................................................... 120 ........................ 95 95 72 *
Northern Mariana Islands ................................................................ 42 ........................ 33 33 25 *
Puerto Rico ...................................................................................... 2,990 ........................ 2,381 2,381 1,795 0.12
Virgin Islands ................................................................................... 114 ........................ 91 91 68 *
Indian Tribes .................................................................................... 26,135 ........................ 21,280 21,280 16,048 1.07
Undistributed .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Discretionary Funds ........................................................................ 26,953 ........................ 27,225 27,225 27,225 1.82
Technical Assistance ....................................................................... 294 ........................ 297 297 297 0.02
Total ................................................................................................. 2,479,725 ........................ 1,980,000 1,980,000 1,500,000 1 100.00

134
Table 8-21. Child Care and Development Block Grant (93.575)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 40,558 ........................ 40,166 40,166 40,166 1.95

Alaska .............................................................................................. 4,031 ........................ 4,037 4,037 4,037 0.20
Arizona ............................................................................................. 49,967 ........................ 50,263 50,263 50,263 2.44
Arkansas .......................................................................................... 24,681 ........................ 25,039 25,039 25,039 1.21
California .......................................................................................... 228,983 ........................ 230,818 230,818 230,818 11.19
Colorado .......................................................................................... 23,735 ........................ 23,885 23,885 23,885 1.16
Connecticut ...................................................................................... 14,304 ........................ 14,330 14,330 14,330 0.69
Delaware .......................................................................................... 4,526 ........................ 4,408 4,408 4,408 0.21
Florida .............................................................................................. 114,828 ........................ 114,080 114,080 114,080 5.53
Georgia ............................................................................................ 75,686 ........................ 77,908 77,908 77,908 3.78
Hawaii .............................................................................................. 8,099 ........................ 7,737 7,737 7,737 0.38
Idaho ................................................................................................ 11,585 ........................ 11,574 11,574 11,574 0.56
Illinois ............................................................................................... 75,951 ........................ 76,663 76,663 76,663 3.72
Indiana ............................................................................................. 41,403 ........................ 41,684 41,684 41,684 2.02
Iowa ................................................................................................. 18,217 ........................ 17,763 17,763 17,763 0.86
Kansas ............................................................................................. 18,822 ........................ 18,656 18,656 18,656 0.90
Kentucky .......................................................................................... 35,437 ........................ 35,306 35,306 35,306 1.71
Louisiana ......................................................................................... 46,991 ........................ 45,956 45,956 45,956 2.23
Maine ............................................................................................... 6,852 ........................ 6,705 6,705 6,705 0.33
Maryland .......................................................................................... 26,266 ........................ 25,531 25,531 25,531 1.24
Massachusetts ................................................................................. 25,610 ........................ 25,589 25,589 25,589 1.24
Michigan .......................................................................................... 58,711 ........................ 58,069 58,069 58,069 2.82
Minnesota ........................................................................................ 25,797 ........................ 25,584 25,584 25,584 1.24
Mississippi ....................................................................................... 32,277 ........................ 31,879 31,879 31,879 1.55
Missouri ........................................................................................... 38,877 ........................ 38,680 38,680 38,680 1.88
Montana ........................................................................................... 5,699 ........................ 5,650 5,650 5,650 0.27
Nebraska ......................................................................................... 11,885 ........................ 11,506 11,506 11,506 0.56
Nevada ............................................................................................ 13,529 ........................ 14,087 14,087 14,087 0.68
New Hampshire ............................................................................... 4,722 ........................ 4,714 4,714 4,714 0.23
New Jersey ...................................................................................... 36,865 ........................ 36,730 36,730 36,730 1.78
New Mexico ..................................................................................... 18,519 ........................ 18,306 18,306 18,306 0.89
New York ......................................................................................... 107,464 ........................ 107,664 107,664 107,664 5.22
North Carolina ................................................................................. 65,036 ........................ 66,549 66,549 66,549 3.23
North Dakota ................................................................................... 3,832 ........................ 3,645 3,645 3,645 0.18
Ohio ................................................................................................. 67,666 ........................ 67,281 67,281 67,281 3.26
Oklahoma ........................................................................................ 31,231 ........................ 31,057 31,057 31,057 1.51
Oregon ............................................................................................. 22,319 ........................ 22,465 22,465 22,465 1.09
Pennsylvania ................................................................................... 62,745 ........................ 62,629 62,629 62,629 3.04
Rhode Island ................................................................................... 5,809 ........................ 5,497 5,497 5,497 0.27
South Carolina ................................................................................. 37,046 ........................ 36,946 36,946 36,946 1.79
South Dakota ................................................................................... 5,724 ........................ 5,416 5,416 5,416 0.26
Tennessee ....................................................................................... 45,097 ........................ 44,427 44,427 44,427 2.15
Texas ............................................................................................... 210,925 ........................ 216,109 216,109 216,109 10.48
Utah ................................................................................................. 22,353 ........................ 22,349 22,349 22,349 1.08
Vermont ........................................................................................... 2,946 ........................ 2,898 2,898 2,898 0.14
Virginia ............................................................................................. 39,823 ........................ 38,903 38,903 38,903 1.89
Washington ...................................................................................... 32,997 ........................ 33,070 33,070 33,070 1.60
West Virginia ................................................................................... 13,678 ........................ 13,550 13,550 13,550 0.66
Wisconsin ........................................................................................ 29,774 ........................ 29,631 29,631 29,631 1.44
Wyoming .......................................................................................... 2,803 ........................ 2,694 2,694 2,694 0.13
American Samoa ............................................................................. 2,681 ........................ 2,679 2,679 2,679 0.13
Guam ............................................................................................... 4,064 ........................ 4,061 4,061 4,061 0.20
Puerto Rico ...................................................................................... 38,244 ........................ 35,432 35,432 35,432 1.72
Virgin Islands ................................................................................... 1,866 ........................ 1,847 1,847 1,847 0.09
Indian Tribes .................................................................................... 41,242 ........................ 41,242 41,242 41,242 2.00
Undistributed .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Research Set-Aside ........................................................................ 9,521 ........................ 9,821 9,821 9,821 0.48
Child Care Aware ............................................................................ 982 ........................ 982 982 982 0.05
Total ................................................................................................. 2,060,664 ........................ 2,062,081 2,062,081 2,062,081 1 100.00
135
Table 8-22. Child Care and Development Fund—Mandatory (93.596a)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 16,442 ........................ 16,442 16,442 16,442 1.33

Alaska .............................................................................................. 3,545 ........................ 3,545 3,545 3,545 0.29
Arizona ............................................................................................. 19,827 ........................ 19,827 19,827 19,827 1.60
Arkansas .......................................................................................... 5,300 ........................ 5,300 5,300 5,300 0.43
California .......................................................................................... 85,590 ........................ 85,590 85,590 85,590 6.90
Colorado .......................................................................................... 10,174 ........................ 10,174 10,174 10,174 0.82
Connecticut ...................................................................................... 18,738 ........................ 18,738 18,738 18,738 1.51
Delaware .......................................................................................... 5,179 ........................ 5,179 5,179 5,179 0.42
Florida .............................................................................................. 43,027 ........................ 43,027 43,027 43,027 3.47
Georgia ............................................................................................ 36,548 ........................ 36,548 36,548 36,548 2.95
Hawaii .............................................................................................. 4,972 ........................ 4,972 4,972 4,972 0.40
Idaho ................................................................................................ 2,868 ........................ 2,868 2,868 2,868 0.23
Illinois ............................................................................................... 56,874 ........................ 56,874 56,874 56,874 4.59
Indiana ............................................................................................. 26,182 ........................ 26,182 26,182 26,182 2.11
Iowa ................................................................................................. 8,508 ........................ 8,508 8,508 8,508 0.69
Kansas ............................................................................................. 9,812 ........................ 9,812 9,812 9,812 0.79
Kentucky .......................................................................................... 16,702 ........................ 16,702 16,702 16,702 1.35
Louisiana ......................................................................................... 13,865 ........................ 13,865 13,865 13,865 1.12
Maine ............................................................................................... 3,019 ........................ 3,019 3,019 3,019 0.24
Maryland .......................................................................................... 23,301 ........................ 23,301 23,301 23,301 1.88
Massachusetts ................................................................................. 44,973 ........................ 44,973 44,973 44,973 3.63
Michigan .......................................................................................... 32,082 ........................ 32,082 32,082 32,082 2.59
Minnesota ........................................................................................ 23,368 ........................ 23,368 23,368 23,368 1.89
Mississippi ....................................................................................... 6,293 ........................ 6,293 6,293 6,293 0.51
Missouri ........................................................................................... 24,669 ........................ 24,669 24,669 24,669 1.99
Montana ........................................................................................... 3,191 ........................ 3,191 3,191 3,191 0.26
Nebraska ......................................................................................... 10,595 ........................ 10,595 10,595 10,595 0.85
Nevada ............................................................................................ 2,580 ........................ 2,580 2,580 2,580 0.21
New Hampshire ............................................................................... 4,582 ........................ 4,582 4,582 4,582 0.37
New Jersey ...................................................................................... 26,374 ........................ 26,374 26,374 26,374 2.13
New Mexico ..................................................................................... 8,308 ........................ 8,308 8,308 8,308 0.67
New York ......................................................................................... 101,984 ........................ 101,984 101,984 101,984 8.23
North Carolina ................................................................................. 69,639 ........................ 69,639 69,639 69,639 5.62
North Dakota ................................................................................... 2,506 ........................ 2,506 2,506 2,506 0.20
Ohio ................................................................................................. 70,125 ........................ 70,125 70,125 70,125 5.66
Oklahoma ........................................................................................ 24,910 ........................ 24,910 24,910 24,910 2.01
Oregon ............................................................................................. 19,409 ........................ 19,409 19,409 19,409 1.57
Pennsylvania ................................................................................... 55,337 ........................ 55,337 55,337 55,337 4.46
Rhode Island ................................................................................... 6,634 ........................ 6,634 6,634 6,634 0.54
South Carolina ................................................................................. 9,867 ........................ 9,867 9,867 9,867 0.80
South Dakota ................................................................................... 1,711 ........................ 1,711 1,711 1,711 0.14
Tennessee ....................................................................................... 37,702 ........................ 37,702 37,702 37,702 3.04
Texas ............................................................................................... 59,844 ........................ 59,844 59,844 59,844 4.83
Utah ................................................................................................. 12,592 ........................ 12,592 12,592 12,592 1.02
Vermont ........................................................................................... 3,945 ........................ 3,945 3,945 3,945 0.32
Virginia ............................................................................................. 21,329 ........................ 21,329 21,329 21,329 1.72
Washington ...................................................................................... 41,883 ........................ 41,883 41,883 41,883 3.38
West Virginia ................................................................................... 8,727 ........................ 8,727 8,727 8,727 0.70
Wisconsin ........................................................................................ 24,511 ........................ 24,511 24,511 24,511 1.98
Wyoming .......................................................................................... 2,815 ........................ 2,815 2,815 2,815 0.23
American Samoa ............................................................................. ...................... ........................ ...................... ...................... ...................... ....................
Guam ............................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Puerto Rico ...................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Virgin Islands ................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Indian Tribes .................................................................................... 58,340 ........................ 58,340 58,340 58,340 4.71
Undistributed .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Total ................................................................................................. 1,239,657 ........................ 1,239,657 1,239,657 1,239,657 1 100.00
136
Table 8-23. Child Care and Development Fund—Matching (93.596b)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 24,871 ........................ 24,871 24,871 24,871 1.48

Alaska .............................................................................................. 4,204 ........................ 4,196 4,196 4,196 0.25
Arizona ............................................................................................. 36,239 ........................ 36,179 36,179 36,179 2.16
Arkansas .......................................................................................... 15,462 ........................ 15,435 15,435 15,435 0.92
California .......................................................................................... 221,412 ........................ 221,032 221,032 221,032 13.18
Colorado .......................................................................................... 27,340 ........................ 27,294 27,294 27,294 1.63
Connecticut ...................................................................................... 18,943 ........................ 18,908 18,908 18,908 1.13
Delaware .......................................................................................... 4,420 ........................ 4,413 4,413 4,413 0.26
Florida .............................................................................................. 91,116 ........................ 90,962 90,962 90,962 5.42
Georgia ............................................................................................ 54,242 ........................ 54,150 54,150 54,150 3.23
Hawaii .............................................................................................. 6,918 ........................ 6,906 6,906 6,906 0.41
Idaho ................................................................................................ 8,522 ........................ 8,507 8,507 8,507 0.51
Illinois ............................................................................................... 74,674 ........................ 74,544 74,544 74,544 4.44
Indiana ............................................................................................. 36,702 ........................ 36,639 36,639 36,639 2.18
Iowa ................................................................................................. 15,328 ........................ 15,300 15,300 15,300 0.91
Kansas ............................................................................................. 15,603 ........................ 15,576 15,576 15,576 0.93
Kentucky .......................................................................................... 22,416 ........................ 22,416 22,416 22,416 1.34
Louisiana ......................................................................................... 26,556 ........................ 26,556 26,556 26,556 1.58
Maine ............................................................................................... 6,100 ........................ 6,089 6,089 6,089 0.36
Maryland .......................................................................................... 31,566 ........................ 31,566 31,566 31,566 1.88
Massachusetts ................................................................................. 33,274 ........................ 33,216 33,216 33,216 1.98
Michigan .......................................................................................... 57,026 ........................ 56,925 56,925 56,925 3.39
Minnesota ........................................................................................ 27,941 ........................ 27,892 27,892 27,892 1.66
Mississippi ....................................................................................... 17,173 ........................ 17,143 17,143 17,143 1.02
Missouri ........................................................................................... 31,311 ........................ 31,256 31,256 31,256 1.86
Montana ........................................................................................... 4,548 ........................ 4,539 4,539 4,539 0.27
Nebraska ......................................................................................... 9,917 ........................ 9,900 9,900 9,900 0.59
Nevada ............................................................................................ 14,146 ........................ 14,123 14,123 14,123 0.84
New Hampshire ............................................................................... 6,685 ........................ 6,673 6,673 6,673 0.40
New Jersey ...................................................................................... 49,429 ........................ 49,344 49,344 49,344 2.94
New Mexico ..................................................................................... 11,122 ........................ 11,102 11,102 11,102 0.66
New York ......................................................................................... 104,303 ........................ 104,120 104,120 104,120 6.21
North Carolina ................................................................................. 49,039 ........................ 48,955 48,955 48,955 2.92
North Dakota ................................................................................... 3,072 ........................ 3,066 3,066 3,066 0.18
Ohio ................................................................................................. 62,884 ........................ 62,770 62,770 62,770 3.74
Oklahoma ........................................................................................ 19,718 ........................ 19,683 19,683 19,683 1.17
Oregon ............................................................................................. 19,355 ........................ 19,321 19,321 19,321 1.15
Pennsylvania ................................................................................... 63,075 ........................ 62,964 62,964 62,964 3.75
Rhode Island ................................................................................... 5,467 ........................ 5,458 5,458 5,458 0.33
South Carolina ................................................................................. 23,271 ........................ 23,232 23,232 23,232 1.39
South Dakota ................................................................................... 4,289 ........................ 4,282 4,282 4,282 0.26
Tennessee ....................................................................................... 31,862 ........................ 31,806 31,806 31,806 1.90
Texas ............................................................................................... 146,569 ........................ 146,323 146,323 146,323 8.72
Utah ................................................................................................. 17,634 ........................ 17,634 17,634 17,634 1.05
Vermont ........................................................................................... 2,885 ........................ 2,880 2,880 2,880 0.17
Virginia ............................................................................................. 41,312 ........................ 41,242 41,242 41,242 2.46
Washington ...................................................................................... 33,507 ........................ 33,507 33,507 33,507 2.00
West Virginia ................................................................................... 8,648 ........................ 8,633 8,633 8,633 0.51
Wisconsin ........................................................................................ 29,166 ........................ 29,114 29,114 29,114 1.74
Wyoming .......................................................................................... 2,578 ........................ 2,578 2,578 2,578 0.15
American Samoa ............................................................................. ...................... ........................ ...................... ...................... ...................... ....................
Guam ............................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Puerto Rico ...................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Virgin Islands ................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Indian Tribes .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Undistributed .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Total ................................................................................................. 1 1,679,968 ........................ 1,677,343 1,677,343 1,677,343 2 100.00
1 Includes reappropriated funds from prior year.

137
Table 8-24. Head Start (93.600)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 105,468 ........................ 105,468 105,468 105,468 1.55

Alaska .............................................................................................. 12,337 ........................ 12,337 12,337 12,337 0.18
Arizona ............................................................................................. 102,373 ........................ 102,373 102,373 102,373 1.51
Arkansas .......................................................................................... 63,824 ........................ 63,824 63,824 63,824 0.94
California .......................................................................................... 822,591 ........................ 822,591 822,591 822,591 12.12
Colorado .......................................................................................... 67,594 ........................ 67,594 67,594 67,594 1.00
Connecticut ...................................................................................... 51,333 ........................ 51,333 51,333 51,333 0.76
Delaware .......................................................................................... 13,092 ........................ 13,092 13,092 13,092 0.19
Florida .............................................................................................. 260,267 ........................ 260,267 260,267 260,267 3.83
Georgia ............................................................................................ 166,672 ........................ 166,672 166,672 166,672 2.46
Hawaii .............................................................................................. 22,637 ........................ 22,637 22,637 22,637 0.33
Idaho ................................................................................................ 22,565 ........................ 22,565 22,565 22,565 0.33
Illinois ............................................................................................... 267,812 ........................ 267,812 267,812 267,812 3.95
Indiana ............................................................................................. 95,151 ........................ 95,151 95,151 95,151 1.40
Iowa ................................................................................................. 50,988 ........................ 50,988 50,988 50,988 0.75
Kansas ............................................................................................. 50,372 ........................ 50,372 50,372 50,372 0.74
Kentucky .......................................................................................... 106,670 ........................ 106,670 106,670 106,670 1.57
Louisiana ......................................................................................... 144,312 ........................ 144,312 144,312 144,312 2.13
Maine ............................................................................................... 27,310 ........................ 27,310 27,310 27,310 0.40
Maryland .......................................................................................... 77,184 ........................ 77,184 77,184 77,184 1.14
Massachusetts ................................................................................. 107,169 ........................ 107,169 107,169 107,169 1.58
Michigan .......................................................................................... 231,993 ........................ 231,993 231,993 231,993 3.42
Minnesota ........................................................................................ 71,219 ........................ 71,219 71,219 71,219 1.05
Mississippi ....................................................................................... 159,927 ........................ 159,927 159,927 159,927 2.36
Missouri ........................................................................................... 117,695 ........................ 117,695 117,695 117,695 1.73
Montana ........................................................................................... 20,721 ........................ 20,721 20,721 20,721 0.31
Nebraska ......................................................................................... 35,665 ........................ 35,665 35,665 35,665 0.53
Nevada ............................................................................................ 24,015 ........................ 24,015 24,015 24,015 0.35
New Hampshire ............................................................................... 13,240 ........................ 13,240 13,240 13,240 0.20
New Jersey ...................................................................................... 127,607 ........................ 127,607 127,607 127,607 1.88
New Mexico ..................................................................................... 51,730 ........................ 51,730 51,730 51,730 0.76
New York ......................................................................................... 428,470 ........................ 428,470 428,470 428,470 6.31
North Carolina ................................................................................. 139,735 ........................ 139,735 139,735 139,735 2.06
North Dakota ................................................................................... 16,988 ........................ 16,988 16,988 16,988 0.25
Ohio ................................................................................................. 244,205 ........................ 244,205 244,205 244,205 3.60
Oklahoma ........................................................................................ 80,166 ........................ 80,166 80,166 80,166 1.18
Oregon ............................................................................................. 58,821 ........................ 58,821 58,821 58,821 0.87
Pennsylvania ................................................................................... 225,685 ........................ 225,685 225,685 225,685 3.32
Rhode Island ................................................................................... 21,775 ........................ 21,775 21,775 21,775 0.32
South Carolina ................................................................................. 81,603 ........................ 81,603 81,603 81,603 1.20
South Dakota ................................................................................... 18,620 ........................ 18,620 18,620 18,620 0.27
Tennessee ....................................................................................... 118,039 ........................ 118,039 118,039 118,039 1.74
Texas ............................................................................................... 473,492 ........................ 473,492 473,492 473,492 6.97
Utah ................................................................................................. 37,353 ........................ 37,353 37,353 37,353 0.55
Vermont ........................................................................................... 13,412 ........................ 13,412 13,412 13,412 0.20
Virginia ............................................................................................. 98,018 ........................ 98,018 98,018 98,018 1.44
Washington ...................................................................................... 99,268 ........................ 99,268 99,268 99,268 1.46
West Virginia ................................................................................... 50,091 ........................ 50,091 50,091 50,091 0.74
Wisconsin ........................................................................................ 89,887 ........................ 89,887 89,887 89,887 1.32
Wyoming .......................................................................................... 12,236 ........................ 12,236 12,236 12,236 0.18
American Samoa ............................................................................. 2,127 ........................ 2,127 2,127 2,127 0.03
Guam ............................................................................................... 2,140 ........................ 2,140 2,140 2,140 0.03
Puerto Rico ...................................................................................... 246,599 ........................ 246,599 246,599 246,599 3.63
Virgin Islands ................................................................................... 7,910 ........................ 7,910 7,910 7,910 0.12
Indian Tribes .................................................................................... 185,394 ........................ 185,394 185,394 185,394 2.73
Undistributed .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Palau ................................................................................................ 1,319 ........................ 1,319 1,319 1,319 0.02
Migrant Program .............................................................................. 283,371 ........................ 283,371 283,371 283,371 4.17
Unallocated Expansion .................................................................... ...................... ........................ 70,629 70,629 70,629 1.04
Research, Development, & Education ........................................... 19,788 ........................ 19,800 19,800 19,800 0.29
Program Support ............................................................................. 38,202 ........................ 38,590 38,590 38,590 0.57
Hurricane Relief ............................................................................... 73,999 ........................ ...................... ...................... ...................... ....................
Total ................................................................................................. 6,850,783 ........................ 6,788,571 6,788,571 6,788,571 1 100.00
138
Table 8-25. Foster Care—Title IV–E (93.658)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 18,616 ........................ 19,252 19,252 19,703 0.43

Alaska .............................................................................................. 16,010 ........................ 16,557 16,557 16,945 0.37
Arizona ............................................................................................. 94,357 ........................ 97,580 97,580 99,867 2.17
Arkansas .......................................................................................... 31,578 ........................ 32,657 32,657 33,422 0.73
California .......................................................................................... 1,183,911 ........................ 1,224,363 1,224,363 1,253,059 27.28
Colorado .......................................................................................... 61,416 ........................ 63,514 63,514 65,003 1.42
Connecticut ...................................................................................... 82,984 ........................ 85,820 85,820 87,831 1.91
Delaware .......................................................................................... 6,157 ........................ 6,367 6,367 6,516 0.14
Florida .............................................................................................. 144,204 ........................ 149,131 149,131 152,626 3.32
Georgia ............................................................................................ 31,631 ........................ 32,712 32,712 33,478 0.73
Hawaii .............................................................................................. 23,637 ........................ 24,445 24,445 25,018 0.54
Idaho ................................................................................................ 8,907 ........................ 9,212 9,212 9,428 0.21
Illinois ............................................................................................... 213,896 ........................ 221,204 221,204 226,388 4.93
Indiana ............................................................................................. 99,023 ........................ 102,406 102,406 104,806 2.28
Iowa ................................................................................................. 26,704 ........................ 27,617 27,617 28,264 0.62
Kansas ............................................................................................. 29,911 ........................ 30,933 30,933 31,658 0.69
Kentucky .......................................................................................... 54,155 ........................ 56,005 56,005 57,318 1.25
Louisiana ......................................................................................... 55,643 ........................ 57,544 57,544 58,893 1.28
Maine ............................................................................................... 8,149 ........................ 8,427 8,427 8,624 0.19
Maryland .......................................................................................... 121,066 ........................ 125,202 125,202 128,136 2.79
Massachusetts ................................................................................. 68,972 ........................ 71,329 71,329 73,000 1.59
Michigan .......................................................................................... 91,435 ........................ 94,559 94,559 96,775 2.11
Minnesota ........................................................................................ 58,689 ........................ 60,694 60,694 62,116 1.35
Mississippi ....................................................................................... 7,925 ........................ 8,196 8,196 8,388 0.18
Missouri ........................................................................................... 57,235 ........................ 59,191 59,191 60,578 1.32
Montana ........................................................................................... 12,864 ........................ 13,303 13,303 13,615 0.30
Nebraska ......................................................................................... 14,470 ........................ 14,964 14,964 15,315 0.33
Nevada ............................................................................................ 21,183 ........................ 21,907 21,907 22,420 0.49
New Hampshire ............................................................................... 16,913 ........................ 17,491 17,491 17,901 0.39
New Jersey ...................................................................................... 54,992 ........................ 56,870 56,870 58,203 1.27
New Mexico ..................................................................................... 20,872 ........................ 21,585 21,585 22,091 0.48
New York ......................................................................................... 342,991 ........................ 354,710 354,710 363,022 7.90
North Carolina ................................................................................. 84,336 ........................ 87,218 87,218 89,262 1.94
North Dakota ................................................................................... 9,751 ........................ 10,084 10,084 10,320 0.22
Ohio ................................................................................................. 201,789 ........................ 208,683 208,683 213,574 4.65
Oklahoma ........................................................................................ 42,358 ........................ 43,805 43,805 44,832 0.98
Oregon ............................................................................................. 55,539 ........................ 57,437 57,437 58,783 1.28
Pennsylvania ................................................................................... 220,820 ........................ 228,365 228,365 233,717 5.09
Rhode Island ................................................................................... 13,014 ........................ 13,459 13,459 13,774 0.30
South Carolina ................................................................................. 10,622 ........................ 10,985 10,985 11,243 0.24
South Dakota ................................................................................... 5,592 ........................ 5,783 5,783 5,918 0.13
Tennessee ....................................................................................... 40,841 ........................ 42,236 42,236 43,226 0.94
Texas ............................................................................................... 212,079 ........................ 219,325 219,325 224,466 4.89
Utah ................................................................................................. 23,033 ........................ 23,820 23,820 24,378 0.53
Vermont ........................................................................................... 11,452 ........................ 11,843 11,843 12,121 0.26
Virginia ............................................................................................. 78,547 ........................ 81,231 81,231 83,135 1.81
Washington ...................................................................................... 78,829 ........................ 81,522 81,522 83,432 1.82
West Virginia ................................................................................... 12,715 ........................ 13,149 13,149 13,457 0.29
Wisconsin ........................................................................................ 84,861 ........................ 87,761 87,761 89,818 1.96
Wyoming .......................................................................................... 3,080 ........................ 3,185 3,185 3,260 0.07
American Samoa ............................................................................. ...................... ........................ ...................... ...................... ...................... ....................
Guam ............................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Puerto Rico ...................................................................................... 37,195 ........................ 38,466 38,466 39,367 0.86
Virgin Islands ................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Indian Tribes .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Undistributed .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
New Program Option ...................................................................... ...................... ........................ ...................... ...................... 9,000 0.20
Total ................................................................................................. 4,325,363 ........................ 1 4,475,000 4,475,000 4,593,000 2 100.00
1 Assumes a lapse of $282 million.

139
Table 8-26. Adoption Assistance (93.659)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 7,812 ........................ 8,839 8,839 9,414 0.44

Alaska .............................................................................................. 7,283 ........................ 8,241 8,241 8,778 0.41
Arizona ............................................................................................. 37,146 ........................ 42,030 42,030 44,767 2.07
Arkansas .......................................................................................... 10,132 ........................ 11,464 11,464 12,210 0.57
California .......................................................................................... 313,126 ........................ 354,296 354,296 377,372 17.48
Colorado .......................................................................................... 19,941 ........................ 22,563 22,563 24,032 1.11
Connecticut ...................................................................................... 24,854 ........................ 28,122 28,122 29,953 1.39
Delaware .......................................................................................... 1,605 ........................ 1,816 1,816 1,934 0.09
Florida .............................................................................................. 60,960 ........................ 68,975 68,975 73,467 3.40
Georgia ............................................................................................ 34,751 ........................ 39,320 39,320 41,880 1.94
Hawaii .............................................................................................. 11,221 ........................ 12,697 12,697 13,524 0.63
Idaho ................................................................................................ 3,369 ........................ 3,812 3,812 4,060 0.19
Illinois ............................................................................................... 88,696 ........................ 100,357 100,357 106,893 4.95
Indiana ............................................................................................. 36,956 ........................ 41,815 41,815 44,538 2.06
Iowa ................................................................................................. 21,852 ........................ 24,725 24,725 26,335 1.22
Kansas ............................................................................................. 13,084 ........................ 14,804 14,804 15,769 0.73
Kentucky .......................................................................................... 24,766 ........................ 28,022 28,022 29,847 1.38
Louisiana ......................................................................................... 13,507 ........................ 15,283 15,283 16,278 0.75
Maine ............................................................................................... 8,318 ........................ 9,412 9,412 10,024 0.46
Maryland .......................................................................................... 19,671 ........................ 22,257 22,257 23,706 1.10
Massachusetts ................................................................................. 28,982 ........................ 32,793 32,793 34,928 1.62
Michigan .......................................................................................... 113,110 ........................ 127,982 127,982 136,316 6.31
Minnesota ........................................................................................ 22,009 ........................ 24,903 24,903 26,525 1.23
Mississippi ....................................................................................... 4,284 ........................ 4,847 4,847 5,163 0.24
Missouri ........................................................................................... 36,222 ........................ 40,984 40,984 43,653 2.02
Montana ........................................................................................... 7,437 ........................ 8,415 8,415 8,963 0.42
Nebraska ......................................................................................... 7,035 ........................ 7,960 7,960 8,479 0.39
Nevada ............................................................................................ 6,573 ........................ 7,437 7,437 7,922 0.37
New Hampshire ............................................................................... 3,571 ........................ 4,041 4,041 4,304 0.20
New Jersey ...................................................................................... 31,676 ........................ 35,840 35,840 38,174 1.77
New Mexico ..................................................................................... 11,677 ........................ 13,212 13,212 14,072 0.65
New York ......................................................................................... 211,357 ........................ 239,146 239,146 254,719 11.80
North Carolina ................................................................................. 28,654 ........................ 32,422 32,422 34,533 1.60
North Dakota ................................................................................... 3,397 ........................ 3,843 3,843 4,094 0.19
Ohio ................................................................................................. 146,037 ........................ 165,238 165,238 175,998 8.15
Oklahoma ........................................................................................ 28,611 ........................ 32,373 32,373 34,481 1.60
Oregon ............................................................................................. 30,402 ........................ 34,399 34,399 36,639 1.70
Pennsylvania ................................................................................... 73,207 ........................ 82,832 82,832 88,226 4.09
Rhode Island ................................................................................... 9,409 ........................ 10,646 10,646 11,339 0.53
South Carolina ................................................................................. 13,004 ........................ 14,714 14,714 15,672 0.73
South Dakota ................................................................................... 2,706 ........................ 3,062 3,062 3,261 0.15
Tennessee ....................................................................................... 29,991 ........................ 33,934 33,934 36,144 1.67
Texas ............................................................................................... 58,296 ........................ 65,960 65,960 70,256 3.25
Utah ................................................................................................. 6,826 ........................ 7,724 7,724 8,226 0.38
Vermont ........................................................................................... 5,678 ........................ 6,425 6,425 6,843 0.32
Virginia ............................................................................................. 14,197 ........................ 16,064 16,064 17,110 0.79
Washington ...................................................................................... 34,314 ........................ 38,825 38,825 41,353 1.92
West Virginia ................................................................................... 10,741 ........................ 12,153 12,153 12,945 0.60
Wisconsin ........................................................................................ 39,670 ........................ 44,885 44,885 47,808 2.21
Wyoming .......................................................................................... 850 ........................ 962 962 1,025 0.05
American Samoa ............................................................................. ...................... ........................ ...................... ...................... ...................... ....................
Guam ............................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Puerto Rico ...................................................................................... 866 ........................ 980 980 1,043 0.05
Virgin Islands ................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Indian Tribes .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Undistributed .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Total ................................................................................................. 1,791,460 ........................ 1 2,027,000 2,027,000 2,159,000 2 100.00
1 Assumes a lapse of $17 million.

140
Table 8-27. Social Services Block Grant (93.667)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 26,163 ........................ 26,163 26,163 18,468 1.54

Alaska .............................................................................................. 3,772 ........................ 3,772 3,772 2,662 0.22
Arizona ............................................................................................. 32,442 ........................ 32,442 32,442 22,900 1.91
Arkansas .......................................................................................... 15,845 ........................ 15,845 15,845 11,185 0.93
California .......................................................................................... 206,275 ........................ 206,275 206,275 145,607 12.13
Colorado .......................................................................................... 26,454 ........................ 26,454 26,454 18,673 1.56
Connecticut ...................................................................................... 20,249 ........................ 20,249 20,249 14,294 1.19
Delaware .......................................................................................... 4,752 ........................ 4,752 4,752 3,354 0.28
Florida .............................................................................................. 98,934 ........................ 98,934 98,934 69,836 5.82
Georgia ............................................................................................ 50,485 ........................ 50,485 50,485 35,637 2.97
Hawaii .............................................................................................. 7,311 ........................ 7,311 7,311 5,160 0.43
Idaho ................................................................................................ 7,943 ........................ 7,943 7,943 5,607 0.47
Illinois ............................................................................................... 73,557 ........................ 73,557 73,557 51,922 4.33
Indiana ............................................................................................. 36,016 ........................ 36,016 36,016 25,423 2.12
Iowa ................................................................................................. 17,114 ........................ 17,114 17,114 12,081 1.01
Kansas ............................................................................................. 15,832 ........................ 15,832 15,832 11,176 0.93
Kentucky .......................................................................................... 23,937 ........................ 23,937 23,937 16,897 1.41
Louisiana ......................................................................................... 26,138 ........................ 26,138 26,138 18,450 1.54
Maine ............................................................................................... 7,590 ........................ 7,590 7,590 5,358 0.45
Maryland .......................................................................................... 32,024 ........................ 32,024 32,024 22,605 1.88
Massachusetts ................................................................................. 37,398 ........................ 37,398 37,398 26,399 2.20
Michigan .......................................................................................... 58,596 ........................ 58,596 58,596 41,362 3.45
Minnesota ........................................................................................ 29,411 ........................ 29,411 29,411 20,761 1.73
Mississippi ....................................................................................... 16,749 ........................ 16,749 16,749 11,823 0.99
Missouri ........................................................................................... 33,161 ........................ 33,161 33,161 23,408 1.95
Montana ........................................................................................... 5,334 ........................ 5,334 5,334 3,765 0.31
Nebraska ......................................................................................... 10,111 ........................ 10,111 10,111 7,137 0.59
Nevada ............................................................................................ 13,028 ........................ 13,028 13,028 9,196 0.77
New Hampshire ............................................................................... 7,485 ........................ 7,485 7,485 5,284 0.44
New Jersey ...................................................................................... 50,216 ........................ 50,216 50,216 35,447 2.95
New Mexico ..................................................................................... 10,897 ........................ 10,897 10,897 7,692 0.64
New York ......................................................................................... 111,555 ........................ 111,555 111,555 78,744 6.56
North Carolina ................................................................................. 48,872 ........................ 48,872 48,872 34,498 2.87
North Dakota ................................................................................... 3,685 ........................ 3,685 3,685 2,601 0.22
Ohio ................................................................................................. 66,478 ........................ 66,478 66,478 46,925 3.91
Oklahoma ........................................................................................ 20,413 ........................ 20,413 20,413 14,409 1.20
Oregon ............................................................................................. 20,692 ........................ 20,692 20,692 14,606 1.22
Pennsylvania ................................................................................... 71,882 ........................ 71,882 71,882 50,740 4.23
Rhode Island ................................................................................... 6,256 ........................ 6,256 6,256 4,416 0.37
South Carolina ................................................................................. 24,108 ........................ 24,108 24,108 17,017 1.42
South Dakota ................................................................................... 4,443 ........................ 4,443 4,443 3,136 0.26
Tennessee ....................................................................................... 33,959 ........................ 33,959 33,959 23,971 2.00
Texas ............................................................................................... 128,578 ........................ 128,578 128,578 90,761 7.56
Utah ................................................................................................. 13,669 ........................ 13,669 13,669 9,649 0.80
Vermont ........................................................................................... 3,599 ........................ 3,599 3,599 2,540 0.21
Virginia ............................................................................................. 42,938 ........................ 42,938 42,938 30,309 2.53
Washington ...................................................................................... 35,643 ........................ 35,643 35,643 25,160 2.10
West Virginia ................................................................................... 10,524 ........................ 10,524 10,524 7,429 0.62
Wisconsin ........................................................................................ 31,811 ........................ 31,811 31,811 22,455 1.87
Wyoming .......................................................................................... 2,914 ........................ 2,914 2,914 2,057 0.17
American Samoa ............................................................................. 49 ........................ 49 49 34 *
Guam ............................................................................................... 293 ........................ 293 293 207 0.02
Northern Mariana Islands ................................................................ 59 ........................ 59 59 41 *
Puerto Rico ...................................................................................... 8,793 ........................ 8,793 8,793 6,207 0.52
Virgin Islands ................................................................................... 293 ........................ 293 293 207 0.02
Indian Tribes .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Undistributed .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Hurricane Relief ............................................................................... 550,000 ........................ ...................... ...................... ...................... ....................
Total ................................................................................................. 2,250,000 ........................ 1,700,000 1,700,000 1,200,000 1 100.00

141
Department of Homeland Security, Departmental Management 70–0560–0–1–453
Table 8-28. Homeland Security Grant Program (97.067)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 18,916 ........................ 11,824 11,824 4,495 1.70

Alaska .............................................................................................. 11,047 ........................ 9,252 9,252 2,923 1.10
Arizona ............................................................................................. 24,351 ........................ 13,557 13,557 4,892 1.85
Arkansas .......................................................................................... 11,036 ........................ 10,101 10,101 3,768 1.42
California .......................................................................................... 271,002 ........................ 54,027 54,027 17,029 6.42
Colorado .......................................................................................... 25,386 ........................ 10,807 10,807 4,503 1.70
Connecticut ...................................................................................... 16,297 ........................ 10,449 10,449 4,075 1.54
Delaware .......................................................................................... 12,108 ........................ 8,802 8,802 2,990 1.13
Florida .............................................................................................. 111,003 ........................ 19,376 19,376 9,498 3.58
Georgia ............................................................................................ 51,572 ........................ 16,688 16,688 6,162 2.32
Hawaii .............................................................................................. 14,957 ........................ 9,283 9,283 3,169 1.20
Idaho ................................................................................................ 13,765 ........................ 9,067 9,067 3,208 1.21
Illinois ............................................................................................... 110,894 ........................ 28,116 28,116 7,815 2.95
Indiana ............................................................................................. 25,264 ........................ 12,599 12,599 5,180 1.95
Iowa ................................................................................................. 16,066 ........................ 9,811 9,811 3,861 1.46
Kansas ............................................................................................. 16,969 ........................ 10,167 10,167 3,771 1.42
Kentucky .......................................................................................... 27,503 ........................ 11,333 11,333 4,334 1.63
Louisiana ......................................................................................... 36,320 ........................ 14,457 14,457 4,494 1.70
Maine ............................................................................................... 9,774 ........................ 8,853 8,853 3,189 1.20
Maryland .......................................................................................... 28,360 ........................ 11,466 11,466 4,893 1.85
Massachusetts ................................................................................. 58,046 ........................ 28,197 28,197 5,290 2.00
Michigan .......................................................................................... 54,702 ........................ 14,321 14,321 6,772 2.55
Minnesota ........................................................................................ 17,631 ........................ 11,729 11,729 4,713 1.78
Mississippi ....................................................................................... 11,091 ........................ 9,784 9,784 3,834 1.45
Missouri ........................................................................................... 48,163 ........................ 12,200 12,200 4,981 1.88
Montana ........................................................................................... 9,779 ........................ 8,689 8,689 3,031 1.14
Nebraska ......................................................................................... 23,893 ........................ 9,747 9,747 3,367 1.27
Nevada ............................................................................................ 23,917 ........................ 9,684 9,684 3,549 1.34
New Hampshire ............................................................................... 9,869 ........................ 9,296 9,296 3,181 1.20
New Jersey ...................................................................................... 57,947 ........................ 13,828 13,828 6,175 2.33
New Mexico ..................................................................................... 10,463 ........................ 9,159 9,159 3,418 1.29
New York ......................................................................................... 252,532 ........................ 84,520 84,520 10,499 3.96
North Carolina ................................................................................. 35,216 ........................ 13,637 13,637 6,064 2.29
North Dakota ................................................................................... 12,848 ........................ 8,379 8,379 2,919 1.10
Ohio ................................................................................................. 49,537 ........................ 16,834 16,834 7,333 2.77
Oklahoma ........................................................................................ 22,285 ........................ 10,500 10,500 4,089 1.54
Oregon ............................................................................................. 21,704 ........................ 10,063 10,063 4,100 1.55
Pennsylvania ................................................................................... 67,203 ........................ 25,240 25,240 7,707 2.91
Rhode Island ................................................................................... 9,745 ........................ 9,515 9,515 3,097 1.17
South Carolina ................................................................................. 18,258 ........................ 10,890 10,890 4,340 1.64
South Dakota ................................................................................... 9,840 ........................ 8,433 8,433 2,971 1.12
Tennessee ....................................................................................... 18,144 ........................ 13,463 13,463 5,031 1.90
Texas ............................................................................................... 102,194 ........................ 24,182 24,182 11,571 4.36
Utah ................................................................................................. 10,821 ........................ 9,935 9,935 3,607 1.36
Vermont ........................................................................................... 12,651 ........................ 8,371 8,371 2,912 1.10
Virginia ............................................................................................. 21,814 ........................ 13,777 13,777 5,644 2.13
Washington ...................................................................................... 40,445 ........................ 14,452 14,452 5,143 1.94
West Virginia ................................................................................... 15,467 ........................ 9,376 9,376 3,397 1.28
Wisconsin ........................................................................................ 27,927 ........................ 11,330 11,330 4,886 1.84
Wyoming .......................................................................................... 9,373 ........................ 8,514 8,514 2,863 1.08
American Samoa ............................................................................. 5,159 ........................ 2,727 2,727 1,685 0.64
Guam ............................................................................................... 3,337 ........................ 2,882 2,882 1,842 0.69
Puerto Rico ...................................................................................... 10,645 ........................ 9,946 9,946 4,238 1.60
Freely Associated States ................................................................ 102 ........................ 150 150 115 0.04
Virgin Islands ................................................................................... 3,579 ........................ 2,929 2,929 1,892 0.71
Indian Tribes .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Undistributed .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Total ................................................................................................. 2,032,541 ........................ 787,530 1 787,530 1 265,100 2 100.00
1 FY 2007-2008 amounts do not include funds subject to risk and threat analysis.
142
Department of Homeland Security, Federal Emergency Management Agency 70–0702–0–1–453
Table 8-29. Disaster Grants—Public Assistance (Presidentially Declared Disasters) (97.036)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 111,839 ........................ ...................... ...................... ...................... ....................

Alaska .............................................................................................. 16,846 ........................ ...................... ...................... ...................... ....................
Arizona ............................................................................................. 7,164 ........................ ...................... ...................... ...................... ....................
Arkansas .......................................................................................... 45,375 ........................ ...................... ...................... ...................... ....................
California .......................................................................................... 173,937 ........................ ...................... ...................... ...................... ....................
Colorado .......................................................................................... 12,123 ........................ ...................... ...................... ...................... ....................
Connecticut ...................................................................................... 14,707 ........................ ...................... ...................... ...................... ....................
Delaware .......................................................................................... 6,942 ........................ ...................... ...................... ...................... ....................
District of Columbia ......................................................................... 1,772 ........................ ...................... ...................... ...................... ....................
Florida .............................................................................................. 1,822,569 ........................ ...................... ...................... ...................... ....................
Georgia ............................................................................................ 17,262 ........................ ...................... ...................... ...................... ....................
Hawaii .............................................................................................. 25,386 ........................ ...................... ...................... ...................... ....................
Idaho ................................................................................................ 2,370 ........................ ...................... ...................... ...................... ....................
Illinois ............................................................................................... 13,546 ........................ ...................... ...................... ...................... ....................
Indiana ............................................................................................. 4,691 ........................ ...................... ...................... ...................... ....................
Iowa ................................................................................................. 1,284 ........................ ...................... ...................... ...................... ....................
Kansas ............................................................................................. 48,095 ........................ ...................... ...................... ...................... ....................
Kentucky .......................................................................................... 4,878 ........................ ...................... ...................... ...................... ....................
Louisiana ......................................................................................... 2,988,611 ........................ ...................... ...................... ...................... ....................
Maine ............................................................................................... 5,416 ........................ ...................... ...................... ...................... ....................
Maryland .......................................................................................... 10,194 ........................ ...................... ...................... ...................... ....................
Massachusetts ................................................................................. 25,969 ........................ ...................... ...................... ...................... ....................
Michigan .......................................................................................... 1,481 ........................ ...................... ...................... ...................... ....................
Minnesota ........................................................................................ 17,595 ........................ ...................... ...................... ...................... ....................
Mississippi ....................................................................................... 1,548,706 ........................ ...................... ...................... ...................... ....................
Missouri ........................................................................................... 16,793 ........................ ...................... ...................... ...................... ....................
Montana ........................................................................................... 397 ........................ ...................... ...................... ...................... ....................
Nebraska ......................................................................................... 6,619 ........................ ...................... ...................... ...................... ....................
Nevada ............................................................................................ 9,990 ........................ ...................... ...................... ...................... ....................
New Hampshire ............................................................................... 24,278 ........................ ...................... ...................... ...................... ....................
New Jersey ...................................................................................... 2,794 ........................ ...................... ...................... ...................... ....................
New Mexico ..................................................................................... 1,628 ........................ ...................... ...................... ...................... ....................
New York ......................................................................................... 59,622 ........................ ...................... ...................... ...................... ....................
North Carolina ................................................................................. 27,300 ........................ ...................... ...................... ...................... ....................
North Dakota ................................................................................... 16,854 ........................ ...................... ...................... ...................... ....................
Ohio ................................................................................................. 5,305 ........................ ...................... ...................... ...................... ....................
Oklahoma ........................................................................................ 16,859 ........................ ...................... ...................... ...................... ....................
Oregon ............................................................................................. 8,414 ........................ ...................... ...................... ...................... ....................
Pennsylvania ................................................................................... 42,947 ........................ ...................... ...................... ...................... ....................
Rhode Island ................................................................................... 1,110 ........................ ...................... ...................... ...................... ....................
South Carolina ................................................................................. 14,643 ........................ ...................... ...................... ...................... ....................
South Dakota ................................................................................... 25,019 ........................ ...................... ...................... ...................... ....................
Tennessee ....................................................................................... 44,599 ........................ ...................... ...................... ...................... ....................
Texas ............................................................................................... 851,540 ........................ ...................... ...................... ...................... ....................
Utah ................................................................................................. 3,234 ........................ ...................... ...................... ...................... ....................
Vermont ........................................................................................... 61 ........................ ...................... ...................... ...................... ....................
Virginia ............................................................................................. 11,525 ........................ ...................... ...................... ...................... ....................
Washington ...................................................................................... 6,854 ........................ ...................... ...................... ...................... ....................
West Virginia ................................................................................... 1,240 ........................ ...................... ...................... ...................... ....................
Wisconsin ........................................................................................ 1,149 ........................ ...................... ...................... ...................... ....................
Wyoming .......................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
American Samoa ............................................................................. 1,659 ........................ ...................... ...................... ...................... ....................
Guam ............................................................................................... 276 ........................ ...................... ...................... ...................... ....................
Northern Mariana Islands ................................................................ 1,333 ........................ ...................... ...................... ...................... ....................
Puerto Rico ...................................................................................... 14,539 ........................ ...................... ...................... ...................... ....................
Virgin Islands ................................................................................... ¥862 ........................ ...................... ...................... ...................... ....................
Indian Tribes .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Undistributed .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Micronesia ....................................................................................... 852 ........................ ...................... ...................... ...................... ....................
Total ................................................................................................. 8,147,330 ........................ ...................... 1 1 ....................
1 Grants
are funded as needed through the Disaster Relief Fund, and are not awarded unless a state has significant damage from a declared major disaster.
There are no estimates for 2007 and 2008 since disaster-related damages have not yet occurred.
143
Department of Housing and Urban Development, Public and Indian Housing Programs 86–0163–0–1–604
Table 8-30. Public Housing Operating Fund (14.850)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 105,777 36 105,780 105,816 118,720 2.97

Alaska .............................................................................................. 7,953 3 7,954 7,957 8,927 0.22
Arizona ............................................................................................. 15,290 5 15,291 15,296 17,162 0.43
Arkansas .......................................................................................... 25,785 9 25,786 25,795 28,940 0.72
California .......................................................................................... 102,907 35 102,910 102,945 115,499 2.89
Colorado .......................................................................................... 20,605 7 20,606 20,613 23,127 0.58
Connecticut ...................................................................................... 56,203 19 56,205 56,224 63,081 1.58
Delaware .......................................................................................... 8,988 3 8,988 8,991 10,088 0.25
Florida .............................................................................................. 86,675 30 86,678 86,708 97,281 2.43
Georgia ............................................................................................ 108,382 37 108,385 108,422 121,645 3.04
Hawaii .............................................................................................. 10,417 4 10,416 10,420 11,692 0.29
Idaho ................................................................................................ 991 ........................ 991 991 1,112 0.03
Illinois ............................................................................................... 232,696 80 232,702 232,782 261,170 6.53
Indiana ............................................................................................. 39,265 13 39,266 39,279 44,069 1.10
Iowa ................................................................................................. 5,517 2 5,518 5,520 6,192 0.15
Kansas ............................................................................................. 15,957 5 15,957 15,962 17,910 0.45
Kentucky .......................................................................................... 52,913 18 52,915 52,933 59,388 1.48
Louisiana ......................................................................................... 60,189 21 60,191 60,212 67,554 1.69
Maine ............................................................................................... 9,949 3 9,950 9,953 11,167 0.28
Maryland .......................................................................................... 74,032 25 74,033 74,058 83,091 2.08
Massachusetts ................................................................................. 120,793 42 120,795 120,837 135,574 3.39
Michigan .......................................................................................... 49,838 17 49,840 49,857 55,937 1.40
Minnesota ........................................................................................ 44,941 15 44,942 44,957 50,440 1.26
Mississippi ....................................................................................... 28,014 10 28,015 28,025 31,442 0.79
Missouri ........................................................................................... 37,157 13 37,159 37,172 41,704 1.04
Montana ........................................................................................... 4,116 1 4,115 4,116 4,620 0.12
Nebraska ......................................................................................... 11,426 4 11,427 11,431 12,825 0.32
Nevada ............................................................................................ 14,499 5 14,500 14,505 16,274 0.41
New Hampshire ............................................................................... 7,785 3 7,785 7,788 8,738 0.22
New Jersey ...................................................................................... 168,489 58 168,493 168,551 189,107 4.73
New Mexico ..................................................................................... 8,187 3 8,188 8,191 9,189 0.23
New York ......................................................................................... 904,356 310 904,382 904,692 1,015,019 25.38
North Carolina ................................................................................. 96,267 33 96,270 96,303 108,047 2.70
North Dakota ................................................................................... 2,246 1 2,246 2,247 2,521 0.06
Ohio ................................................................................................. 173,629 60 173,634 173,694 194,875 4.87
Oklahoma ........................................................................................ 25,324 9 25,325 25,334 28,423 0.71
Oregon ............................................................................................. 15,255 5 15,255 15,260 17,121 0.43
Pennsylvania ................................................................................... 244,823 84 244,830 244,914 274,780 6.87
Rhode Island ................................................................................... 21,864 8 21,865 21,873 24,539 0.61
South Carolina ................................................................................. 29,223 10 29,224 29,234 32,799 0.82
South Dakota ................................................................................... 2,398 1 2,398 2,399 2,691 0.07
Tennessee ....................................................................................... 87,377 30 87,380 87,410 98,069 2.45
Texas ............................................................................................... 119,403 41 119,406 119,447 134,013 3.35
Utah ................................................................................................. 4,150 1 4,150 4,151 4,658 0.12
Vermont ........................................................................................... 2,545 1 2,545 2,546 2,857 0.07
Virginia ............................................................................................. 63,692 22 63,694 63,716 71,485 1.79
Washington ...................................................................................... 34,042 12 34,043 34,055 38,207 0.96
West Virginia ................................................................................... 16,766 6 16,766 16,772 18,817 0.47
Wisconsin ........................................................................................ 20,565 7 20,566 20,573 23,081 0.58
Wyoming .......................................................................................... 1,272 1 1,271 1,272 1,428 0.04
American Samoa ............................................................................. ...................... ........................ ...................... ...................... ...................... ....................
Guam ............................................................................................... 3,039 1 3,039 3,040 3,411 0.09
Puerto Rico ...................................................................................... 100,525 34 100,528 100,562 112,826 2.82
Virgin Islands ................................................................................... 18,539 6 18,539 18,545 20,806 0.52
Indian Tribes .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Undistributed .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Total ................................................................................................. 3,563,898 1,223 3,564,000 3,565,223 4,000,000 1 100.00
144
Table 8-31. Section 8 Housing Choice Vouchers (14.871)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 127,597 4,350 140,824 145,174 149,406 0.93

Alaska .............................................................................................. 25,208 859 27,821 28,681 29,517 0.18
Arizona ............................................................................................. 123,774 4,220 136,604 140,824 144,929 0.91
Arkansas .......................................................................................... 80,666 2,750 89,028 91,778 94,453 0.59
California .......................................................................................... 2,494,118 85,038 2,752,653 2,837,691 2,920,407 18.25
Colorado .......................................................................................... 188,818 6,438 208,391 214,829 221,091 1.38
Connecticut ...................................................................................... 268,159 9,143 295,956 305,099 313,992 1.96
Delaware .......................................................................................... 29,239 997 32,270 33,267 34,237 0.21
District of Columbia ......................................................................... 111,868 3,814 123,465 127,279 130,989 0.82
Florida .............................................................................................. 600,515 20,475 662,763 683,238 703,154 4.39
Georgia ............................................................................................ 351,497 11,984 387,933 399,917 411,574 2.57
Hawaii .............................................................................................. 76,922 2,623 84,896 87,518 90,069 0.56
Idaho ................................................................................................ 30,449 1,038 33,605 34,643 35,653 0.22
Illinois ............................................................................................... 682,461 23,269 753,204 776,472 799,106 4.99
Indiana ............................................................................................. 167,166 5,700 184,494 190,193 195,737 1.22
Iowa ................................................................................................. 78,936 2,691 87,119 89,810 92,428 0.58
Kansas ............................................................................................. 47,632 1,624 52,569 54,193 55,773 0.35
Kentucky .......................................................................................... 136,301 4,647 150,429 155,077 159,597 1.00
Louisiana ......................................................................................... 204,130 6,960 225,290 232,250 239,019 1.49
Maine ............................................................................................... 63,454 2,163 70,032 72,195 74,300 0.46
Maryland .......................................................................................... 305,871 10,429 337,578 348,006 358,150 2.24
Massachusetts ................................................................................. 679,638 23,173 750,088 773,261 795,801 4.97
Michigan .......................................................................................... 265,481 9,052 293,000 302,052 310,856 1.94
Minnesota ........................................................................................ 183,294 6,249 202,294 208,544 214,623 1.34
Mississippi ....................................................................................... 94,177 3,211 103,940 107,151 110,274 0.69
Missouri ........................................................................................... 186,318 6,353 205,631 211,984 218,163 1.36
Montana ........................................................................................... 24,364 831 26,889 27,720 28,528 0.18
Nebraska ......................................................................................... 51,180 1,745 56,485 58,230 59,928 0.37
Nevada ............................................................................................ 87,228 2,974 96,270 99,244 102,137 0.64
New Hampshire ............................................................................... 62,097 2,117 68,534 70,651 72,711 0.45
New Jersey ...................................................................................... 526,783 17,961 581,388 599,349 616,819 3.86
New Mexico ..................................................................................... 63,563 2,167 70,152 72,319 74,427 0.47
New York ......................................................................................... 1,595,757 54,408 1,761,170 1,815,578 1,868,501 11.68
North Carolina ................................................................................. 275,520 9,394 304,080 313,474 322,612 2.02
North Dakota ................................................................................... 25,766 878 28,437 29,315 30,170 0.19
Ohio ................................................................................................. 447,835 15,269 494,257 509,526 524,378 3.28
Oklahoma ........................................................................................ 107,139 3,653 118,245 121,898 125,451 0.78
Oregon ............................................................................................. 164,645 5,614 181,712 187,326 192,786 1.20
Pennsylvania ................................................................................... 432,950 14,762 477,829 492,591 506,949 3.17
Rhode Island ................................................................................... 141,099 4,811 155,725 160,536 165,215 1.03
South Carolina ................................................................................. 55,916 1,906 61,712 63,618 65,473 0.41
South Dakota ................................................................................... 107,206 3,655 118,319 121,974 125,530 0.78
Tennessee ....................................................................................... 22,616 771 24,960 25,731 26,481 0.17
Texas ............................................................................................... 151,665 5,171 167,387 172,558 177,588 1.11
Utah ................................................................................................. 860,784 29,349 950,011 979,360 1,007,907 6.30
Vermont ........................................................................................... 55,851 1,904 61,640 63,544 65,397 0.41
Virginia ............................................................................................. 34,542 1,178 38,122 39,300 40,446 0.25
Washington ...................................................................................... 267,173 9,109 294,868 303,977 312,838 1.96
West Virginia ................................................................................... 284,715 9,707 314,228 323,935 333,377 2.08
Wisconsin ........................................................................................ 51,357 1,751 56,681 58,432 60,135 0.38
Wyoming .......................................................................................... 120,411 4,105 132,893 136,998 140,992 0.88
American Samoa ............................................................................. 8,822 301 9,737 10,038 10,330 0.06
Guam ............................................................................................... 24,443 833 26,977 27,811 28,621 0.18
Northern Mariana Islands ................................................................ 2,011 69 2,219 2,288 2,355 0.01
Puerto Rico ...................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Virgin Islands ................................................................................... 7,364 251 8,127 8,378 8,623 0.05
Indian Tribes .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Undistributed .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Disaster Assistance ......................................................................... 132,297 258,003 ...................... 258,003 ...................... ....................
Total ................................................................................................. 13,796,790 723,899 15,080,930 15,804,830 16,000,000 1 100.00
145
Table 8-32. Public Housing Capital Fund (14.872)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 74,004 10,282 67,826 78,108 62,174 3.07

Alaska .............................................................................................. 2,684 373 2,460 2,833 2,255 0.11
Arizona ............................................................................................. 11,120 1,545 10,191 11,736 9,342 0.46
Arkansas .......................................................................................... 22,002 3,057 20,164 23,221 18,484 0.91
California .......................................................................................... 100,539 13,969 92,145 106,114 84,466 4.17
Colorado .......................................................................................... 15,451 2,147 14,160 16,307 12,980 0.64
Connecticut ...................................................................................... 33,286 4,625 30,506 35,131 27,964 1.38
Delaware .......................................................................................... 5,172 719 4,740 5,459 4,345 0.21
Florida .............................................................................................. 81,434 11,315 74,635 85,950 68,415 3.38
Georgia ............................................................................................ 90,927 12,634 83,335 95,969 76,390 3.77
Hawaii .............................................................................................. 13,756 1,911 12,608 14,519 11,557 0.57
Idaho ................................................................................................ 1,163 162 1,066 1,228 977 0.05
Illinois ............................................................................................... 174,966 24,310 160,357 184,667 146,994 7.26
Indiana ............................................................................................. 31,987 4,444 29,316 33,760 26,873 1.33
Iowa ................................................................................................. 5,958 828 5,461 6,289 5,006 0.25
Kansas ............................................................................................. 13,193 1,833 12,092 13,925 11,084 0.55
Kentucky .......................................................................................... 44,145 6,134 40,459 46,593 37,087 1.83
Louisiana ......................................................................................... 85,130 11,828 78,022 89,850 71,520 3.53
Maine ............................................................................................... 6,477 900 5,937 6,837 5,442 0.27
Maryland .......................................................................................... 46,050 6,398 42,204 48,602 38,687 1.91
Massachusetts ................................................................................. 66,694 9,267 61,125 70,392 56,031 2.77
Michigan .......................................................................................... 46,547 6,467 42,661 49,128 39,106 1.93
Minnesota ........................................................................................ 35,343 4,911 32,392 37,303 29,693 1.47
Mississippi ....................................................................................... 32,255 4,482 29,563 34,045 27,099 1.34
Missouri ........................................................................................... 39,839 5,535 36,513 42,048 33,470 1.65
Montana ........................................................................................... 3,418 475 3,132 3,607 2,871 0.14
Nebraska ......................................................................................... 9,927 1,379 9,098 10,477 8,340 0.41
Nevada ............................................................................................ 10,809 1,502 9,908 11,410 9,082 0.45
New Hampshire ............................................................................... 5,906 821 5,412 6,233 4,961 0.25
New Jersey ...................................................................................... 83,574 11,612 76,596 88,208 70,213 3.47
New Mexico ..................................................................................... 8,379 1,164 7,680 8,844 7,040 0.35
New York ......................................................................................... 407,605 56,634 373,571 430,205 342,440 16.92
North Carolina ................................................................................. 63,768 8,859 58,443 67,302 53,573 2.65
North Dakota ................................................................................... ¥89,446 ¥12,428 ¥81,977 ¥94,405 ¥75,146 ¥3.71
Ohio ................................................................................................. 103,676 14,405 95,019 109,424 87,101 4.30
Oklahoma ........................................................................................ 21,551 2,994 19,751 22,745 18,105 0.89
Oregon ............................................................................................. 11,436 1,589 10,480 12,069 9,607 0.47
Pennsylvania ................................................................................... 167,687 23,299 153,685 176,984 140,878 6.96
Rhode Island ................................................................................... 15,409 2,141 14,123 16,264 12,946 0.64
South Carolina ................................................................................. 26,877 3,734 24,634 28,368 22,581 1.12
South Dakota ................................................................................... 2,053 285 1,882 2,167 1,725 0.09
Tennessee ....................................................................................... 65,426 9,091 59,963 69,054 54,966 2.72
Texas ............................................................................................... 98,404 13,672 90,188 103,860 82,672 4.08
Utah ................................................................................................. 3,562 495 3,264 3,759 2,992 0.15
Vermont ........................................................................................... 2,902 403 2,660 3,063 2,438 0.12
Virginia ............................................................................................. 55,883 7,765 51,217 58,982 46,949 2.32
Washington ...................................................................................... 32,047 4,453 29,371 33,824 26,923 1.33
West Virginia ................................................................................... 10,650 1,480 9,760 11,240 8,947 0.44
Wisconsin ........................................................................................ 21,463 2,981 19,670 22,651 18,031 0.89
Wyoming .......................................................................................... 1,080 150 989 1,139 907 0.04
American Samoa ............................................................................. ...................... ........................ ...................... ...................... ...................... ....................
Guam ............................................................................................... 2,783 387 2,551 2,938 2,338 0.12
Puerto Rico ...................................................................................... 140,910 19,578 129,144 148,722 118,382 5.85
Virgin Islands ................................................................................... 8,308 1,154 7,615 8,769 6,980 0.34
Indian Tribes .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Undistributed .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Total ................................................................................................. 2,409,160 334,734 2,208,000 2,542,734 2,024,000 1 100.00
146
Department of Housing and Urban Development, Community Planning and Development 86–0162–0–1–451
Table 8-33. Community Development Block Grants (14.218)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 50,788 2,968 51,956 54,924 37,198 1.54

Alaska .............................................................................................. 4,749 ........................ 4,966 4,966 3,555 0.15
Arizona ............................................................................................. 55,309 ........................ 56,969 56,969 40,787 1.69
Arkansas .......................................................................................... 27,654 ........................ 28,958 28,958 20,733 0.86
California .......................................................................................... 480,027 71,904 492,314 564,218 352,475 14.57
Colorado .......................................................................................... 40,129 299 40,312 40,611 28,862 1.19
Connecticut ...................................................................................... 39,212 21,963 43,946 65,909 31,463 1.30
Delaware .......................................................................................... 7,265 ........................ 7,588 7,588 5,433 0.22
Florida .............................................................................................. 173,253 111,108 169,636 280,744 121,452 5.02
Georgia ............................................................................................ 83,164 ........................ 86,888 86,888 62,208 2.57
Hawaii .............................................................................................. 15,362 ........................ 16,034 16,034 11,480 0.47
Idaho ................................................................................................ 11,176 1,324 12,807 14,131 9,169 0.38
Illinois ............................................................................................... 184,134 25,499 184,729 210,228 132,258 5.47
Indiana ............................................................................................. 80,895 2,372 73,973 76,345 52,961 2.19
Iowa ................................................................................................. 41,419 ........................ 43,378 43,378 31,057 1.28
Kansas ............................................................................................. 25,586 2,485 29,402 31,887 21,050 0.87
Kentucky .......................................................................................... 46,705 ........................ 48,021 48,021 34,381 1.42
Louisiana ......................................................................................... 58,207 11,307 65,464 76,771 46,869 1.94
Maine ............................................................................................... 20,040 ........................ 20,828 20,828 14,912 0.62
Maryland .......................................................................................... 57,100 8,511 58,583 67,094 41,943 1.73
Massachusetts ................................................................................. 120,971 481 115,618 116,099 82,777 3.42
Michigan .......................................................................................... 138,796 ........................ 138,827 138,827 99,394 4.11
Minnesota ........................................................................................ 61,912 491 61,168 61,659 43,794 1.81
Mississippi ....................................................................................... 35,644 3,094 37,051 40,145 26,527 1.10
Missouri ........................................................................................... 67,950 769 71,029 71,798 50,854 2.10
Montana ........................................................................................... 9,236 ........................ 9,688 9,688 6,936 0.29
Nebraska ......................................................................................... 21,305 ........................ 20,440 20,440 14,634 0.61
Nevada ............................................................................................ 20,332 ........................ 21,316 21,316 15,261 0.63
New Hampshire ............................................................................... 13,278 ........................ 13,919 13,919 9,965 0.41
New Jersey ...................................................................................... 108,937 28,144 106,359 134,503 76,148 3.15
New Mexico ..................................................................................... 21,193 445 22,157 22,602 15,863 0.66
New York ......................................................................................... 374,643 22,905 368,230 391,135 263,636 10.90
North Carolina ................................................................................. 73,787 ........................ 74,998 74,998 53,695 2.22
North Dakota ................................................................................... 6,390 ........................ 6,693 6,693 4,792 0.20
Ohio ................................................................................................. 164,287 7,583 170,739 178,322 122,241 5.05
Oklahoma ........................................................................................ 31,032 4,616 31,883 36,499 22,827 0.94
Oregon ............................................................................................. 38,405 ........................ 38,602 38,602 27,637 1.14
Pennsylvania ................................................................................... 222,491 8,780 233,915 242,695 167,473 6.92
Rhode Island ................................................................................... 18,138 ........................ 18,067 18,067 12,935 0.53
South Carolina ................................................................................. 35,795 5,031 40,929 45,960 29,303 1.21
South Dakota ................................................................................... 8,024 ........................ 8,416 8,416 6,025 0.25
Tennessee ....................................................................................... 50,425 ........................ 52,727 52,727 37,750 1.56
Texas ............................................................................................... 265,035 95,902 268,828 364,730 192,469 7.96
Utah ................................................................................................. 20,446 3,171 21,689 24,860 15,528 0.64
Vermont ........................................................................................... 8,369 ........................ 8,789 8,789 6,293 0.26
Virginia ............................................................................................. 64,727 4,731 64,541 69,272 46,208 1.91
Washington ...................................................................................... 61,696 3,441 64,748 68,189 46,357 1.92
West Virginia ................................................................................... 25,166 112 26,452 26,564 18,938 0.78
Wisconsin ........................................................................................ 65,898 2,726 70,376 73,102 50,386 2.08
Wyoming .......................................................................................... 4,233 460 4,430 4,890 3,172 0.13
American Samoa ............................................................................. 1,020 1,018 1,028 2,046 1,028 0.04
Guam ............................................................................................... 2,757 2,751 2,779 5,530 2,779 0.11
Northern Mariana Islands ................................................................ 1,233 1,230 1,243 2,473 1,243 0.05
Puerto Rico ...................................................................................... 112,482 1,371 116,634 118,005 83,505 3.45
Virgin Islands ................................................................................... 1,934 1,930 1,950 3,880 1,950 0.08
Indian Tribes .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Undistributed .................................................................................... 21,541 ........................ ...................... ...................... 200,000 ....................
Brownfields ...................................................................................... ...................... ........................ 15,000 15,000 ...................... ....................
Economic Development Initiative Rescission ................................. ...................... ........................ ...................... ...................... ¥356,000 ¥14.72
Adjustments to Prior Year Funds ................................................... ...................... ¥12,777 ...................... ¥12,777 ...................... ....................
Total 1 ............................................................................................... 2 3,823,000 467,420 3,887,580 3 4,355,000 3 2,618,580 4 100.00
1 Includes Small Cities Program (CFDA 14.219), Special Purpose Grants/Insular Areas (CFDA 14.225), State’s Program (CFDA 14.228), and Brownfields Eco-
nomic Development Initiative (CFDA 14.246).
2 Excludes Disaster Supplementals.
3 Based on estimated budget authority.
147
Department of the Interior, Minerals Management Service 14–5003–0–1–301
Table 8-34. Mineral Leasing and Associated Payments (1)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 457 ........................ 406 406 432 0.02

Alaska .............................................................................................. 14,431 ........................ 12,811 12,811 13,626 0.68
Arizona ............................................................................................. 135 ........................ 120 120 127 0.01
Arkansas .......................................................................................... 3,030 ........................ 2,690 2,690 2,861 0.14
California .......................................................................................... 47,481 ........................ 42,151 42,151 44,833 2.25
Colorado .......................................................................................... 147,408 ........................ 130,861 130,861 139,187 6.98
Connecticut ...................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Delaware .......................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
District of Columbia ......................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Florida .............................................................................................. 142 ........................ 126 126 134 0.01
Georgia ............................................................................................ ...................... ........................ ...................... ...................... ...................... ....................
Hawaii .............................................................................................. ...................... ........................ ...................... ...................... ...................... ....................
Idaho ................................................................................................ 1,275 ........................ 1,132 1,132 1,204 0.06
Illinois ............................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Indiana ............................................................................................. ...................... ........................ ...................... ...................... ...................... ....................
Iowa ................................................................................................. ...................... ........................ ...................... ...................... ...................... ....................
Kansas ............................................................................................. 2,447 ........................ 2,172 2,172 2,311 0.12
Kentucky .......................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Louisiana ......................................................................................... 790 ........................ 701 701 746 0.04
Maine ............................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Maryland .......................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Massachusetts ................................................................................. ...................... ........................ ...................... ...................... ...................... ....................
Michigan .......................................................................................... 552 ........................ 490 490 521 0.03
Minnesota ........................................................................................ 1 ........................ 1 1 1 *
Mississippi ....................................................................................... 73 ........................ 65 65 69 *
Missouri ........................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Montana ........................................................................................... 38,273 ........................ 33,977 33,977 36,138 1.81
Nebraska ......................................................................................... 28 ........................ 24 24 26 *
Nevada ............................................................................................ 7,697 ........................ 6,833 6,833 7,268 0.36
New Hampshire ............................................................................... ...................... ........................ ...................... ...................... ...................... ....................
New Jersey ...................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
New Mexico ..................................................................................... 574,195 ........................ 509,741 509,741 542,171 27.18
New York ......................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
North Carolina ................................................................................. ...................... ........................ ...................... ...................... ...................... ....................
North Dakota ................................................................................... 15,244 ........................ 13,533 13,533 14,394 0.72
Ohio ................................................................................................. ...................... ........................ ...................... ...................... ...................... ....................
Oklahoma ........................................................................................ 4,598 ........................ 4,082 4,082 4,342 0.22
Oregon ............................................................................................. 657 ........................ 583 583 620 0.03
Pennsylvania ................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Rhode Island ................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
South Carolina ................................................................................. ...................... ........................ ...................... ...................... ...................... ....................
South Dakota ................................................................................... 850 ........................ 755 755 803 0.04
Tennessee ....................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Texas ............................................................................................... 5,355 ........................ 4,754 4,754 5,056 0.25
Utah ................................................................................................. 173,132 ........................ 153,698 153,698 163,476 8.20
Vermont ........................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Virginia ............................................................................................. ...................... ........................ ...................... ...................... ...................... ....................
Washington ...................................................................................... 1,082 ........................ 961 961 1,022 0.05
West Virginia ................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Wisconsin ........................................................................................ ...................... ........................ ...................... ...................... ...................... ....................
Wyoming .......................................................................................... 1,073,217 ........................ 952,746 952,746 1,013,361 50.80
American Samoa ............................................................................. ...................... ........................ ...................... ...................... ...................... ....................
Guam ............................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Puerto Rico ...................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Virgin Islands ................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Indian Tribes .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Undistributed .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Total 1 ............................................................................................... 2,112,550 ........................ 1,875,413 1,875,413 1,994,729 2 100.00

1 This program is not included in the Catalog of Federal Domestic Assistance.
148
Department of Transportation, Federal Aviation Administration 69–8106–7–402
Table 8-35. Airport Improvement Program (20.106)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 59,317 ........................ 56,132 56,132 43,285 1.64

Alaska .............................................................................................. 232,319 ........................ 219,842 219,842 169,528 6.42
Arizona ............................................................................................. 71,738 ........................ 67,885 67,885 52,349 1.98
Arkansas .......................................................................................... 35,625 ........................ 33,712 33,712 25,997 0.98
California .......................................................................................... 317,795 ........................ 300,728 300,728 231,902 8.78
Colorado .......................................................................................... 90,562 ........................ 85,699 85,699 66,085 2.50
Connecticut ...................................................................................... 11,106 ........................ 10,510 10,510 8,104 0.31
Delaware .......................................................................................... 6,322 ........................ 5,983 5,983 4,613 0.17
District of Columbia ......................................................................... 355 ........................ 336 336 259 0.01
Florida .............................................................................................. 1 172,084 ........................ 162,600 162,600 125,387 4.75
Georgia ............................................................................................ 96,322 ........................ 91,149 91,149 70,288 2.66
Hawaii .............................................................................................. 33,076 ........................ 31,300 31,300 24,136 0.91
Idaho ................................................................................................ 22,102 ........................ 20,915 20,915 16,128 0.61
Illinois ............................................................................................... 159,073 ........................ 150,530 150,530 116,079 4.40
Indiana ............................................................................................. 59,631 ........................ 56,429 56,429 43,514 1.65
Iowa ................................................................................................. 40,959 ........................ 38,759 38,759 29,889 1.13
Kansas ............................................................................................. 22,714 ........................ 21,494 21,494 16,575 0.63
Kentucky .......................................................................................... 86,935 ........................ 82,266 82,266 63,439 2.40
Louisiana ......................................................................................... 73,411 ........................ 69,469 69,469 53,570 2.03
Maine ............................................................................................... 18,975 ........................ 17,956 17,956 13,846 0.52
Maryland .......................................................................................... 37,672 ........................ 35,649 35,649 27,490 1.04
Massachusetts ................................................................................. 38,354 ........................ 36,294 36,294 27,988 1.06
Michigan .......................................................................................... 110,228 ........................ 104,308 104,308 80,436 3.05
Minnesota ........................................................................................ 65,442 ........................ 61,927 61,927 47,754 1.81
Mississippi ....................................................................................... 110,723 ........................ 104,776 104,776 80,797 3.06
Missouri ........................................................................................... 80,579 ........................ 76,251 76,251 58,800 2.23
Montana ........................................................................................... 32,695 ........................ 30,939 30,939 23,858 0.90
Nebraska ......................................................................................... 28,178 ........................ 26,665 26,665 20,562 0.78
Nevada ............................................................................................ 44,720 ........................ 42,319 42,319 32,633 1.24
New Hampshire ............................................................................... 36,333 ........................ 34,382 34,382 26,513 1.00
New Jersey ...................................................................................... 57,919 ........................ 54,808 54,808 42,265 1.60
New Mexico ..................................................................................... 24,819 ........................ 23,486 23,486 18,111 0.69
New York ......................................................................................... 155,910 ........................ 147,537 147,537 113,771 4.31
North Carolina ................................................................................. 65,624 ........................ 62,099 62,099 47,887 1.81
North Dakota ................................................................................... 19,499 ........................ 18,452 18,452 14,229 0.54
Ohio ................................................................................................. 87,114 ........................ 82,436 82,436 63,569 2.41
Oklahoma ........................................................................................ 45,615 ........................ 43,166 43,166 33,287 1.26
Oregon ............................................................................................. 34,879 ........................ 33,006 33,006 25,452 0.96
Pennsylvania ................................................................................... 120,634 ........................ 114,156 114,156 88,030 3.33
Rhode Island ................................................................................... 25,758 ........................ 24,375 24,375 18,796 0.71
South Carolina ................................................................................. 27,419 ........................ 25,947 25,947 20,009 0.76
South Dakota ................................................................................... 24,073 ........................ 22,780 22,780 17,567 0.67
Tennessee ....................................................................................... 68,291 ........................ 64,624 64,624 49,834 1.89
Texas ............................................................................................... 266,211 ........................ 251,914 251,914 194,260 7.36
Utah ................................................................................................. 46,630 ........................ 44,126 44,126 34,027 1.29
Vermont ........................................................................................... 7,350 ........................ 6,955 6,955 5,363 0.20
Virginia ............................................................................................. 84,730 ........................ 80,179 80,179 61,829 2.34
Washington ...................................................................................... 95,985 ........................ 90,830 90,830 70,042 2.65
West Virginia ................................................................................... 31,463 ........................ 29,773 29,773 22,959 0.87
Wisconsin ........................................................................................ 61,663 ........................ 58,351 58,351 44,997 1.70
Wyoming .......................................................................................... 17,701 ........................ 16,750 16,750 12,917 0.49
American Samoa ............................................................................. ...................... ........................ ...................... ...................... ...................... ....................
Guam ............................................................................................... 9,532 ........................ 9,020 9,020 6,956 0.26
Puerto Rico ...................................................................................... 11,440 ........................ 10,832 10,832 8,353 0.32
Virgin Islands ................................................................................... 3,299 ........................ 3,121 3,121 2,407 0.09
Indian Tribes .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Undistributed .................................................................................... 90,339 ........................ 90,185 90,185 109,388 ....................
Total ................................................................................................. 3,709,241 ........................ 3,514,500 3,514,500 2,750,000 2 100.00
1 Includes Emergency Response Grant funding.

149
Department of Transportation, Federal Highway Administration 69–8083–0–7–401
Table 8-36. Highway Planning and Construction (20.205)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 618,975 ........................ 548,700 548,700 654,118 1.99

Alaska .............................................................................................. 372,147 ........................ 250,267 250,267 297,346 0.91
Arizona ............................................................................................. 476,573 ........................ 538,529 538,529 607,839 1.85
Arkansas .......................................................................................... 433,870 ........................ 347,184 347,184 415,195 1.26
California .......................................................................................... 2,850,603 ........................ 2,408,038 2,408,038 3,156,772 9.61
Colorado .......................................................................................... 383,086 ........................ 360,141 360,141 445,235 1.36
Connecticut ...................................................................................... 431,712 ........................ 366,382 366,382 429,975 1.31
Delaware .......................................................................................... 140,484 ........................ 109,353 109,353 131,851 0.40
Florida .............................................................................................. 2,047,791 ........................ 1,406,291 1,406,291 1,569,233 4.78
Georgia ............................................................................................ 1,095,630 ........................ 969,692 969,692 1,156,480 3.52
Hawaii .............................................................................................. 110,882 ........................ 115,267 115,267 136,719 0.42
Idaho ................................................................................................ 228,981 ........................ 203,333 203,333 242,347 0.74
Illinois ............................................................................................... 1,023,014 ........................ 910,388 910,388 1,140,222 3.47
Indiana ............................................................................................. 753,457 ........................ 704,288 704,288 832,033 2.53
Iowa ................................................................................................. 339,701 ........................ 295,144 295,144 361,208 1.10
Kansas ............................................................................................. 390,821 ........................ 278,297 278,297 332,208 1.01
Kentucky .......................................................................................... 499,581 ........................ 472,047 472,047 564,936 1.72
Louisiana ......................................................................................... 1,241,933 ........................ 428,616 428,616 513,048 1.56
Maine ............................................................................................... 170,867 ........................ 122,527 122,527 150,249 0.46
Maryland .......................................................................................... 475,565 ........................ 441,365 441,365 514,730 1.57
Massachusetts ................................................................................. 572,088 ........................ 451,909 451,909 541,395 1.65
Michigan .......................................................................................... 976,091 ........................ 821,004 821,004 1,050,691 3.20
Minnesota ........................................................................................ 474,610 ........................ 437,258 437,258 567,992 1.73
Mississippi ....................................................................................... 1,262,560 ........................ 329,837 329,837 391,126 1.19
Missouri ........................................................................................... 676,453 ........................ 645,400 645,400 773,247 2.35
Montana ........................................................................................... 329,907 ........................ 262,635 262,635 312,985 0.95
Nebraska ......................................................................................... 266,371 ........................ 201,577 201,577 243,429 0.74
Nevada ............................................................................................ 274,778 ........................ 189,509 189,509 212,782 0.65
New Hampshire ............................................................................... 150,699 ........................ 124,655 124,655 147,376 0.45
New Jersey ...................................................................................... 724,937 ........................ 742,676 742,676 848,554 2.58
New Mexico ..................................................................................... 304,090 ........................ 263,313 263,313 314,681 0.96
New York ......................................................................................... 1,388,547 ........................ 1,235,368 1,235,368 1,463,313 4.45
North Carolina ................................................................................. 847,860 ........................ 790,658 790,658 938,729 2.86
North Dakota ................................................................................... 242,982 ........................ 170,821 170,821 205,828 0.63
Ohio ................................................................................................. 1,087,836 ........................ 1,003,336 1,003,336 1,215,672 3.70
Oklahoma ........................................................................................ 500,605 ........................ 417,431 417,431 503,858 1.53
Oregon ............................................................................................. 354,465 ........................ 312,843 312,843 376,965 1.15
Pennsylvania ................................................................................... 1,191,352 ........................ 1,231,575 1,231,575 1,453,084 4.42
Rhode Island ................................................................................... 184,152 ........................ 138,243 138,243 162,932 0.50
South Carolina ................................................................................. 528,297 ........................ 463,552 463,552 524,163 1.60
South Dakota ................................................................................... 227,132 ........................ 183,777 183,777 220,571 0.67
Tennessee ....................................................................................... 615,152 ........................ 608,526 608,526 707,799 2.15
Texas ............................................................................................... 2,584,506 ........................ 2,336,793 2,336,793 2,668,568 8.12
Utah ................................................................................................. 231,410 ........................ 198,305 198,305 235,490 0.72
Vermont ........................................................................................... 161,911 ........................ 116,196 116,196 143,266 0.44
Virginia ............................................................................................. 667,161 ........................ 752,517 752,517 867,826 2.64
Washington ...................................................................................... 693,629 ........................ 464,963 464,963 566,351 1.72
West Virginia ................................................................................... 427,069 ........................ 297,110 297,110 355,794 1.08
Wisconsin ........................................................................................ 608,062 ........................ 535,233 535,233 637,629 1.94
Wyoming .......................................................................................... 205,296 ........................ 187,340 187,340 225,021 0.69
American Samoa ............................................................................. 8,149 ........................ 5,529 5,529 6,452 0.02
Guam ............................................................................................... 13,611 ........................ 9,236 9,236 10,777 0.03
Puerto Rico ...................................................................................... 93,690 ........................ 110,025 110,025 137,895 0.42
Virgin Islands ................................................................................... 33,433 ........................ 22,686 22,686 26,471 0.08
Indian Tribes .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Undistributed .................................................................................... ...................... ........................ 8,219,992 8,219,992 6,738,016 ....................
Total ................................................................................................. 33,128,373 ........................ 35,672,019 35,672,019 39,585,079 1 100.00
150
Department of Transportation, Federal Transit Administration 69–1134–0–1–401
Table 8-37. Capital Investment Grants—Fixed Guideway Modernization (Section 5309) (20.500)

Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... ...................... ........................ ...................... ...................... ...................... ....................

Alaska .............................................................................................. 12,758 146 10,138 10,284 21,263 1.25
Arizona ............................................................................................. 2,288 1,327 2,062 3,389 3,734 0.22
Arkansas .......................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
California .......................................................................................... 135,963 24,133 130,612 154,745 232,484 13.67
Colorado .......................................................................................... 4,503 ........................ 2,677 2,677 5,340 0.31
Connecticut ...................................................................................... 43,825 22,730 32,925 55,655 50,358 2.96
Delaware .......................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Florida .............................................................................................. 21,251 7,036 16,645 23,681 30,827 1.81
Georgia ............................................................................................ 8,857 18,990 21,835 40,825 42,780 2.52
Hawaii .............................................................................................. 2,400 157 970 1,126 1,817 0.11
Idaho ................................................................................................ ...................... ........................ ...................... ...................... ...................... ....................
Illinois ............................................................................................... 168,374 1,371 110,702 112,074 174,055 10.23
Indiana ............................................................................................. 13,891 ........................ 7,192 7,192 11,591 0.68
Iowa ................................................................................................. ...................... ........................ ...................... ...................... ...................... ....................
Kansas ............................................................................................. ...................... ........................ ...................... ...................... ...................... ....................
Kentucky .......................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Louisiana ......................................................................................... 2,667 804 2,492 3,296 3,813 0.22
Maine ............................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Maryland .......................................................................................... 50,803 15,174 23,579 38,754 39,804 2.34
Massachusetts ................................................................................. 103,609 29,265 63,138 92,403 100,627 5.92
Michigan .......................................................................................... 1,224 ........................ 252 252 485 0.03
Minnesota ........................................................................................ 2,400 8,276 5,420 13,695 9,739 0.57
Mississippi ....................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Missouri ........................................................................................... 8,355 16 3,415 3,431 6,730 0.40
Montana ........................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Nebraska ......................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Nevada ............................................................................................ ...................... ........................ ...................... ...................... ...................... ....................
New Hampshire ............................................................................... ...................... ........................ ...................... ...................... ...................... ....................
New Jersey ...................................................................................... 93,563 3,150 86,183 89,333 133,509 7.85
New Mexico ..................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
New York ......................................................................................... 519,390 791 305,013 305,804 481,989 28.34
North Carolina ................................................................................. ...................... ........................ ...................... ...................... ...................... ....................
North Dakota ................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Ohio ................................................................................................. 22,659 1,699 14,407 16,106 22,927 1.35
Oklahoma ........................................................................................ ...................... ........................ ...................... ...................... ...................... ....................
Oregon ............................................................................................. 7,525 * 5,847 5,847 6,831 0.40
Pennsylvania ................................................................................... 28,834 45,089 81,264 126,353 124,611 7.33
Rhode Island ................................................................................... 525 1,378 59 1,437 107 0.01
South Carolina ................................................................................. ...................... ........................ ...................... ...................... ...................... ....................
South Dakota ................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Tennessee ....................................................................................... 89 210 342 552 524 0.03
Texas ............................................................................................... 29,616 7,462 11,596 19,058 21,239 1.25
Utah ................................................................................................. ...................... ........................ ...................... ...................... ...................... ....................
Vermont ........................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Virginia ............................................................................................. 9,645 ........................ 14,830 14,830 27,630 1.62
Washington ...................................................................................... 26,275 1,409 20,414 21,822 35,895 2.11
West Virginia ................................................................................... ...................... 1,025 855 1,880 1,599 0.09
Wisconsin ........................................................................................ 785 260 820 1,080 1,615 0.09
Wyoming .......................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
American Samoa ............................................................................. ...................... ........................ ...................... ...................... ...................... ....................
Guam ............................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Puerto Rico ...................................................................................... 877 2,070 1,641 3,711 3,358 0.20
Virgin Islands ................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Indian Tribes .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Undistributed .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Oversight ......................................................................................... 13,298 ........................ 13,298 13,298 18,854 1.11
Total 1 ............................................................................................... 1,406,611 196,980 1,036,142 1,233,122 1,700,923 2 100.00

1 Includes funding from the Formula and Bus Grants Program (69X8350).
151
Department of Transportation, Federal Transit Administration 69–8350–0–7–401
Table 8-38. Federal Transit Formula Grants and Research (20.507)


Percentage
FY 2006 FY 2008
Total distributed
Alabama ........................................................................................... 44,912 12,539 27,461 40,001 47,660 0.73

Alaska .............................................................................................. 23,818 5,020 21,857 26,877 38,650 0.59
Arizona ............................................................................................. 86,475 33,732 52,365 86,097 93,884 1.43
Arkansas .......................................................................................... 20,437 2,648 16,558 19,206 28,230 0.43
California .......................................................................................... 828,993 212,526 535,338 747,864 978,117 14.89
Colorado .......................................................................................... 72,793 4,132 50,443 54,575 87,656 1.33
Connecticut ...................................................................................... 71,059 44,329 54,261 98,590 98,542 1.50
Delaware .......................................................................................... 15,574 1,367 9,483 10,850 16,701 0.25
Florida .............................................................................................. 197,020 76,751 171,374 248,125 308,158 4.69
Georgia ............................................................................................ 124,679 48,743 75,660 124,402 135,123 2.06
Hawaii .............................................................................................. 22,381 3,209 21,672 24,881 42,018 0.64
Idaho ................................................................................................ 10,593 2,901 10,281 13,182 17,661 0.27
Illinois ............................................................................................... 322,588 12,161 197,699 209,860 360,150 5.48
Indiana ............................................................................................. 57,379 22,743 44,683 67,427 80,469 1.23
Iowa ................................................................................................. 28,286 4,452 20,841 25,293 36,310 0.55
Kansas ............................................................................................. 12,975 10,844 17,193 28,036 29,439 0.45
Kentucky .......................................................................................... 29,299 5,387 27,660 33,048 48,438 0.74
Louisiana ......................................................................................... 35,556 19,706 36,256 55,962 65,311 0.99
Maine ............................................................................................... 19,599 1,805 8,150 9,955 13,695 0.21
Maryland .......................................................................................... 83,713 14,882 84,699 99,581 154,311 2.35
Massachusetts ................................................................................. 117,962 72,869 134,291 207,161 251,367 3.83
Michigan .......................................................................................... 112,398 11,695 76,725 88,420 138,384 2.11
Minnesota ........................................................................................ 105,947 26,391 48,343 74,734 86,246 1.31
Mississippi ....................................................................................... 15,731 7,099 15,184 22,284 25,725 0.39
Missouri ........................................................................................... 80,944 14,739 45,616 60,355 80,769 1.23
Montana ........................................................................................... 7,010 4,146 8,590 12,736 14,272 0.22
Nebraska ......................................................................................... 16,073 2,063 12,858 14,921 21,867 0.33
Nevada ............................................................................................ 57,279 12,936 25,108 38,044 42,062 0.64
New Hampshire ............................................................................... 22,022 3,599 7,840 11,439 13,479 0.21
New Jersey ...................................................................................... 214,384 14,442 221,942 236,384 404,893 6.16
New Mexico ..................................................................................... 18,869 10,234 15,093 25,327 26,496 0.40
New York ......................................................................................... 759,866 488,464 503,768 992,232 924,181 14.07
North Carolina ................................................................................. 69,056 35,594 55,473 91,067 98,093 1.49
North Dakota ................................................................................... 8,912 237 6,296 6,533 10,627 0.16
Ohio ................................................................................................. 205,835 25,658 95,353 121,011 172,746 2.63
Oklahoma ........................................................................................ 33,855 2,387 22,137 24,525 38,997 0.59
Oregon ............................................................................................. 99,939 3,077 40,102 43,178 71,395 1.09
Pennsylvania ................................................................................... 504,096 63,651 147,579 211,230 269,748 4.11
Rhode Island ................................................................................... 18,856 8,956 15,146 24,102 27,227 0.41
South Carolina ................................................................................. 38,048 9,621 23,938 33,559 42,807 0.65
South Dakota ................................................................................... 9,570 1,049 6,468 7,517 10,737 0.16
Tennessee ....................................................................................... 61,228 11,683 39,394 51,078 68,858 1.05
Texas ............................................................................................... 281,590 67,939 207,119 275,059 379,558 5.78
Utah ................................................................................................. 43,440 1,209 28,753 29,963 52,435 0.80
Vermont ........................................................................................... 11,344 253 3,751 4,004 6,455 0.10
Virginia ............................................................................................. 101,462 32,771 60,082 92,853 107,821 1.64
Washington ...................................................................................... 84,624 38,867 92,268 131,135 164,920 2.51
West Virginia ................................................................................... 13,614 1,434 11,275 12,709 19,351 0.29
Wisconsin ........................................................................................ 66,401 11,835 46,497 58,331 83,621 1.27
Wyoming .......................................................................................... 4,381 1,725 5,187 6,912 8,414 0.13
American Samoa ............................................................................. ...................... 297 395 692 490 0.01
Guam ............................................................................................... 982 ........................ 669 669 1,071 0.02
Northern Mariana Islands ................................................................ 949 ........................ 739 739 1,373 0.02
Puerto Rico ...................................................................................... 76,769 27,113 49,111 76,224 75,081 1.14
Virgin Islands ................................................................................... 157 460 837 1,297 1,517 0.02
Indian Tribes .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Undistributed .................................................................................... ...................... ........................ ...................... ...................... ...................... ....................
Oversight ......................................................................................... 28,685 ........................ 31,542 31,542 41,966 0.64
Total 1 ............................................................................................... 5,533,669 1,566,024 3,644,980 5,211,004 6,567,831 2 100.00
1 Includes
Metropolitan Planning (CFDA 20.505), Formula Program for Non-Urbanized Areas (CFDA 20.509), Rural Transportation Assistance Program (CFDA
20.509), Elderly and Persons with Disabilities (CFDA 20.513), Job Access and Reverse Commute (CFDA 20.516), and New Freedom Initiative (CFDA 20.521).
152
9. INTEGRATING SERVICES WITH INFORMATION TECHNOLOGY
As one of the largest users and acquirers of data, nology (IT) and the associated support services. Depart-
information and supporting technology systems in the ments and agencies continue to build upon their suc-
world, the United States Government will continue its cesses including their efforts with portfolio management
efforts to strengthen its capabilities in managing tech- by applying the principles and methods of Earned
nology and information in order to be the world’s leader Value Management (EVM) to achieve greater savings,
in information technology. This year, the President pro- better results and improved customer service levels.
poses to spend about $65 billion for Information Tech-
ACHIEVING RESULTS FOR THE AMERICAN PEOPLE
The Federal government continues to make progress vestment. As of December 31, 2006, 81 percent of the
by maximizing its, IT investments to deliver program agencies (22 of 27) had all acceptable FY 2007 business
results through the adoption of electronic government cases. Thus, remaining on last year’s Management
management principles and best practices. Departments Watch list, there were 84 business cases valued in FY
and agencies continue to focus on: 07 at $4.3 billion from five agencies. This year, 346
• Improving service levels to citizens and govern- of the 840 FY 2008 major IT investments are on the
ment decision makers; ‘‘Management Watch List.’’ These investments still need
• Making better purchasing decisions; to address performance measures, implementation of
• Securing our systems and data; and earned value management, security or other issues be-
• Reducing duplication and related costs. fore obligating funding in Fiscal Year 2008. See Table
This Budget chapter and Table 9–1, ‘‘Effectiveness 9–3, ‘‘Agencies with IT Investments on the Management
of Agency’s IT Management and E-Gov Processes,’’ in- Watch List.’’
cluded on the CD–ROM, fulfill the statutory reporting The Report on Information Technology (IT) Spending
requirement of the Clinger-Cohen Act of 1996. Other for the Federal Government (Exhibit 53) will be pub-
management guidance provided to Federal departments lished in the spring of 2007 and is located at
and agencies is included on Table 9–2, ‘‘Management www.whitehouse.gov/OMB. It provides details of the
Guidance,’’ and is available at www.whitehouse.gov/ Administration’s proposed 2008 IT investments. Related
OMB/memoranda. documents on IT security and Electronic Government
Government Performance.—The Federal government (E-Government) are also available at
has shown improvement over the last year in achieving www.whitehouse.gov/OMB.
the goals specifically included in the President’s Man- Fiscal Year 2008 proposed IT investments were ana-
agement Agenda, the Expanded Electronic Government lyzed for trends and potential duplications across gov-
(E-Government) initiative. For example, each IT invest- ernment entities. At about $65 billion, the Fiscal Year
ment must have specific performance targets tied to 2008 Federal IT portfolio represents a 3 percent in-
a specific, significant, beneficial impact for our citizens. crease over Fiscal Year 2007 President’s Budget. The
Performance functions must be defined, valued and de- following represents the highlights:
liver measurable results.
Percent
The Federal departments and agencies continue to FY 2006 FY 2007 FY 2008 1 Change
improve in their efforts to guarantee the success and

results for the taxpayer. There were 263 major invest- Major IT Investments .......................... 1,087 857 840 –2%
Not Well Planned and Managed ........ 358 263 346 32%
ments representing about $10 billion on the ‘‘Manage- Well Planned and Managed ............... 682 594 494 –17%
ment Watch List,’’ i.e., those IT investment justifica- 1 Change from FY 2007 to FY 2008.
tions needing improvement in performance measure-
ment, earned value management or system security. The decreasing number of major IT investments is
Before the start of the fiscal year, agencies were di- attributed to departments and agencies better
rected to remediate the shortfalls identified prior to managing their Capital Planning and Investment Con-
expending additional funds. The agencies have worked trol (CPIC) process in conformance with their enterprise
to remediate the weaknesses or have put measures in architectures. The continued maturation of the CPIC
place to monitor the progress of the IT investment processes provide for greater oversight and evaluation
which could include multiple projects. If an investment of the investments achieving and/or addressing in-
is still on the ‘‘Management Watch List,’’ agencies must tended results by departments’ and agencies’ Chief In-
describe their plans to manage or mitigate risk before formation Officers. This oversight and understanding
undertaking or continuing activities related to that in- allows for changes in the IT portfolio to address mission
153
priorities, consolidation and elimination of redundant —Department of Justice

investments.
With the Administration’s focus on achieving program Accomplishments of this LoB and the remaining LoB
results, the department and agencies partner with initiatives as well as the next steps are included in
OMB to identify high-risk projects (those IT projects Table 9–5, ‘‘Lines of Business (LoB) Update.’’
requiring special attention from oversight authorities The Administration continues to leverage government
and/or the highest level of agency management) and buying power while reducing redundant purchases
report on the agreed upon list of projects quarterly through the SmartBUY program. Launched in June
to OMB. As a result, oversight authorities and agency 2003, the SmartBUY program continues to provide in-
management now have available quarterly data on the creased cost avoidance savings to federal agencies
progress of these projects to ensure improved execution through new and existing agreements with commercial
and performance. OMB is working with departments software providers. In FY 2006, the Federal Govern-
and agencies to implement corrective action plans in ment has achieved cost avoidance of over $300 million
cases where a project did not meet one or more of for the Oracle agreement alone. The SmartBUY Office
the four principle criteria. Additional information about located at the General Services Administration (GSA)
high-risk projects including agency performance for continues to manage a total of nine agreements. In
FY07Q1 can be found at: www.whitehouse.gov/omb/ December 2006, the Administration established an
egov/b-1-information.html#io. agreement with the first of several Antivirus software
When duplication across Federal agencies has been developers with projected cost avoidance of as much
identified, the Administration has an ongoing process as $18 million annually compared with the current best
to bring together the appropriate agencies and help pricing available on GSA schedule and projected agency
them to consider broad-based approaches to promote buying patterns. SmartBUY will continue to identify
inter-agency data sharing and cooperation in building and develop new agreements throughout the year. In
common solutions, rather than maintaining separate in- particular, SmartBUY will pursue a multiple award
vestments. Upon migration to common, government- agreement in support of OMB policy memorandum, M-
wide solutions, agencies will shut down existing sys- 06–16, ‘‘Protection of Sensitive Agency Information,’’
tems—which will not only save money but also free- which would include data at rest and remote access.
up resources for agencies to better focus on achieving Government IT Workforce.—With rapid advances in
their missions. These inter-agency taskforces focus on IT, improved program performance is first and foremost
the agency Lines of Business (LoB) rather than a spe- driven by the Federal employees who manage the IT
cific technology or investment. The following are the projects and portfolios. Qualified project managers and
current LoB initiatives underway: an IT workforce with the necessary skills and com-
• Case Management; petencies help ensure agency investments are well
• Federal Health Architecture; planned and managed. In 2005, agencies submitted
• Financial Management; plans to OMB for closing critical IT skill and com-
• Human Resources Management; petency gaps. Progress against these plans is measured
• Grants Management; and included in the President’s Management Agenda
• Information System Security; Human Capital Scorecard. As of September 30, 2006,
• Budget Formulation and Execution; out of the 26 scorecard agencies:
• IT Infrastructure; and • 17 agencies (65 percent) have met all planned skill
• Geospatial. or competency gap closure milestones; and
The inter-agency taskforces have driven significant • 15 agencies (58 percent) have met or are consist-
accomplishments for each LoB initiative. The Informa- ently meeting their IT hiring targets.
tion System Security (ISS) LoB evaluated agency pro- The table below provides a summary of agency
posals to become shared service centers in the areas progress toward hiring goals.
of security awareness training and Federal Information
Security Management Act (FISMA) reporting. On the Number of Va-
basis of the evaluation and recommendations, the fol- cant Positions
Fiscal Year Agencies
lowing agencies were selected to be the initial shared 2006—Total Planned to Fill
service centers: Number of by the End of
Current Fiscal Year
• Security Awareness Training: Job Area Positions 1 FY 2006
—Office of Personnel Management
IT Project Management ............................................................ 4,619 600
—Department of State/United States Agency for IT Security ................................................................................. 9,030 488
International Development IT Architecture (Enterprise) ...................................................... 1,169 180
—Department of Defense IT Architecture (Solutions) ........................................................ 942 148
• FISMA Reporting: Total ...................................................................................... 15,760 1,416
—Environmental Protection Agency 1 As of date agencies reported to OMB.

9. INTEGRATING SERVICES WITH INFORMATION TECHNOLOGY 155
(In Fiscal Years)
Agencies have also made progress in assignment of
project managers to major IT investments. As reported 2002 2003 2004 2005 2006
by agencies on their FY 2008 Exhibit 53 submissions,
Effective Security and Privacy Con-
83 percent of major IT investments have qualified trols (C&A) ...................................... 47% 62% 77% 85% 88%
project managers, an increase from approximately 70 Tested Contingency Plans .................. 35% 48% 57% 61% 88%
percent in agency FY 2007 submissions. Tested Security Controls .................... 60% 64% 76% 72% 77%
Total Systems Reported ..................... 7,957 7,998 8,623 10,289 10,600
Going forward, agencies are completing a new IT
Workforce Assessment Survey developed and adminis- The number of agencies where the IG has verified
tered by the Chief Information Officers (CIO) Council. the process exists to remediate IT security weaknesses
The survey collects information from Federal IT profes- (Plan of Actions & Milestones):
sionals about the types of work they perform, as well
as their level of proficiency in competencies and skills. FY 2002 ........................................................................ N/A (was not required in until FY
The survey also identifies top training needs; gathers 2003)
FY 2003 ........................................................................ 12
information on the types of certifications owned by em- FY 2004 ........................................................................ 18
ployees; and provides key demographic data. Using the FY 2005 ........................................................................ 19
survey results, agencies will prepare a gap analysis FY 2006 ........................................................................ 18
report and improvement plan. OMB will be working Government-wide, incremental progress in resolving
in conjunction with OPM and the CIO Council to review fundamental IT security weaknesses has been made
the survey results as well as the agency plans to ad- in many aspects of information security; however de-
dress identified gaps. partments and agencies must continually assess the
Securing Government Systems.—The Federal govern- risks associated with technological developments and
ment continues to improve information security per- service offerings. Thus, each year brings new challenges
formance; however, declines in a few agencies have re- and approaches, and potentially new measures for per-
sulted in a net decrease in overall performance in some formance. Additional information and detail concerning
areas. Additionally, aspects of IT security such as secur- the Federal Government’s IT security program and
ing data on removable media remain under addressed agency IT security performance can be found in OMB’s
government-wide. Departments and agencies progress Annual Report to Congress on IT Security. The next
against their corrective actions plans will be measured such report will be issued by March 1, 2007, and will
in the President’s Management Agenda Expanded Elec- be made available on OMB’s website.
tronic Government Scorecard. On balance, the majority Protecting Privacy.—In 2006, several agencies experi-
of agencies continue to improve or sustain high per- enced high profile data security breaches involving per-
formance. Agencies report quarterly on their efforts to sonal information. Most notable of these was the De-
address IT security weaknesses against key IT security partment of Veterans Affairs, but significant problems
performance measures. also exist at other departments and agencies. Virtually
The 2006 agency FISMA reports reveal continued all of these incidents resulted from ‘‘internal’’ problems
progress in the area of system certification and accredi- within agencies and not external attacks on agency sys-
tation. In FY 2006, the percentage of certified and ac- tems.
credited systems rose from 85 percent to 88 percent, To help address this issue, in May 2006, the Presi-
despite a 3 percent increase in the total system inven- dent signed an Executive Order creating the Federal
tory to 10,600 operational systems. A few larger agen- Identity Theft Task Force. Several of the Task Force’s
cies made exceptional progress in closing the gap on interim recommendations address the need to improve
certification and accreditation and testing of security data security in the government, improve the agencies’
controls and contingency plans. The State Department ability to respond to data breaches, and reduce the
and Department of Homeland security both more than risk to personally identifiable information.
doubled their percentage of secured systems. Several In this context, OMB has issued four security and
departments achieved impressive increases in the per- privacy policy and advisory memoranda. These memo-
centage of systems with tested security controls and/ randa reemphasize agency responsibilities under law
or contingency plans, most notably Homeland Security, and policy regarding protection and safeguard of sen-
the Department of Housing and Urban Development, sitive personally identifiable information, including in-
the Department of Defense, Department of Energy, formation accessed through removable media, and inci-
Education, and the General Services Administration. dent reporting. They are included in Table 9–2, ‘‘Man-
Overall quality of the certification and accreditation agement Guidance,’’ and are available at:
processes as determined by agency Inspectors General www.whitehouse.gov/OMB/memoranda.
(IG) decreased slightly compared to 2005, with 60 per- To help ensure safeguard of personally identifiable
cent of agencies reporting ‘‘satisfactory’’ or better proc- information, agencies are required to report on several
esses. Over 72 percent of agencies can demonstrate they performance metrics related to information privacy. Ad-
have an effective process in place for identifying and ditionally, this year agencies were also required to pro-
correcting weaknesses, a slight decrease from 2005. vide quantitative performance measures to assess the
The overall security status and progress in percent- privacy of agencies’ personally identifiable information.
age of systems, from FY 2002 to FY 2006, is as follows: The FY 2006 agency FISMA reports reveal modest suc-
cess in meeting several key privacy performance meas- —an impact analysis of fiscal and operational im-
ures: pacts and risks.
• Program Oversight. In 2006, the majority of agen- Agencies are required to submit status reports with
cies report having appropriate oversight over their their quarterly EA submissions showing progress
privacy programs in place. All agencies report hav- against the agency-specific milestones detailed in their
ing a privacy official who participates in privacy IPv6 transition plans.
compliance activities, however, 84 percent report To avoid unnecessary costs in the future, agencies
coordinated oversight coordination with the Office are also required to the maximum extent practicable,
of the Inspector General (OIG). Most agencies re- to ensure all new IT procurements are IPv6 compliant.
port privacy training for Federal employees and Any exceptions to the use of IPv6 require the agency’s
contractors, with 92 percent reporting general pri- CIO to give advance, written approval. In support of
vacy training and 84 percent reporting job-specific this requirement, the National Institute of Standards
privacy training. and Technology (NIST) will release a standards profile.
• Privacy Impact Assessments. In 2006, 82 percent The profile will be released for public comment in Janu-
of applicable systems government-wide have pub- ary 2007.
licly posted privacy impact assessments verses the Additionally, the President’s National Strategy to Se-
goal of 90 percent. cure Cyberspace directed the Secretary of Commerce
• System of Records Notices (SORNs). In 2006, 82 to form a task force to examine the most recent
percent of systems government-wide with person- iteration of the Internet Protocol, IP version 6 (IPv6).
ally identifiable information contained in a system The President charged the task force with considering
of records covered by the Privacy Act have devel- a variety of IPv6-related issues, ‘‘including the appro-
oped, published, and maintained current systems priate role of government, international interoper-
of records notices verses the goal of 90 percent. ability, security in transition, and costs and benefits.’’
Initiative to Secure Federal Information Systems and The task force, co-chaired by the Administrator of the
Facilities.—Inconsistent agency approaches to facility National Telecommunications and Information Admin-
security and computer security are inefficient and cost- istration (NTIA) and the Director of the NIST, prepared
ly, and increase risks to the Federal government. On a report discussing the benefits and impacts of IPv6.
August 27, 2004, the President signed Homeland Secu- This report was published in January 2006.
rity Presidential Directive (HSPD) 12, ‘‘Policy for a Making Government Accessible to All.—The efficient,
Common Identification Standard for Federal Employees effective, and appropriately consistent use of Federal
and Contractors,’’ which requires agencies to implement agency public websites is important to promote a more
a mandatory, government-wide standard for secure and citizen centered government. Federal agency public
reliable forms of identification for Federal employees websites are information resources funded in whole or
and contractors. In October 2006, agencies met the in part by the Federal government and operated by
major milestone of their HSPD-12 implementation an agency, contractor, or other organization on behalf
plans which was to begin issuance of compliant identi- of the agency. They present government information
fication cards. During FY2007—FY2008, agencies are or provide services to the public or a specific non-Fed-
required to complete issuance of these IDs to all appli- eral user group and support the proper performance
cable employees and contractors and install infrastruc- of an agency function.
ture to use them. GSA’s Office of Citizen Services and Communications
Initiative for Improving Government Networking Ca- manages the operations of FirstGov.gov and recently
pabilities.—In order for the departments and agencies upgraded their search capability and changed its name
to overcome technical limitations arising from this need to USA.gov in order to improve public access to Federal
to interoperate and support emerging requirements and government information.
technologies, the Administration set June 2008 as the An interagency ‘‘web content’’ working group, spon-
date by which all agencies’ infrastructure (network sored by GSA, regularly hosts training for Federal
backbones) must be IPv6-capable. In August 2005, agency webmasters and public affairs officers. Recent
OMB issued guidance to agencies to ensure an orderly courses provided instructions for making agency
and secure transition from Internet Protocol Version websites more effective and relevant to popular search
4 (IPv4) to Version 6 (IPv6). Since the Internet Protocol engines. Additionally, a web content working group
is core to an agency’s IT infrastructure, in February maintains www.webcontent.gov, conducts interagency
2006, the Administration began using the Enterprise meetings to assist agencies in managing their websites,
Architecture (EA) Assessment Framework to evaluate and exchanges best practices among other agencies.
agency IPv6 transition planning and progress. The These activities support agency efforts to provide access
agencies are responsible for a series of actions by spe- to and dissemination of government information to the
cific dates. For instance, by June 30, 2006, agencies public. GSA plans to complete the online tutorial by
were to complete: April 2007. This service will complement other services
—an inventory of existing routers, switches, and at USA.gov and elsewhere to aid the public in locating
hardware firewalls; and government information.
9. INTEGRATING SERVICES WITH INFORMATION TECHNOLOGY 157
SUCCESSFULLY USING ELECTRONIC GOVERNMENT
The departments and agencies continue to leverage those with disabilities can mail their GPS observations
information technologies to make government services to NOAA on a compact disk and receive the results
available to citizens while ensuring security of those back via the same mechanism on a prearranged basis.
systems, the privacy of the citizen information and the U.S. Department of Agriculture. The Animal and
prudent use of taxpayer money. E-Government is about Plant Health Inspection Service (APHIS) launched its
providing direct and measurable results supporting de- new electronic permitting system (ePermits) on April
partments’ and agencies’ mission and goals. For depart- 3, 2006. The system allows customers to apply for a
ments and agencies, the benefits will far outweigh the permit, check its status, and view it online. The ability
cost of implementation. Increased agency adoption and to submit applications and receive permits via the
customer utilization will become the primary measures Internet and in some cases the ability to pay applicable
of success. The expanded availability of government in- permit application fees online, saves customers and
formation and the utilization of an increased percentage APHIS the time and effort associated with the paper-
of transactions between the Federal government and based process. Additional information on system fea-
citizens will be measured, where appropriate and made tures can be found on the Web site at
available on line at www.egov.gov. www.aphis.usda.gov/permits/.
Examples of how the tenets of E-Government are To successfully implement the system, USDA dem-
helping to deliver services to the citizen and make the onstrated a desire to team with customers, state offi-
government more effective include: cials, and peer agencies by facilitating outreach sessions
Department of Commerce. The Online Positioning
and customer tests. USDA continues to maintain ongo-
User Service (OPUS) transforms how users of global
ing dialogue with system developers, users, partners,
positioning systems obtain highly accurate geographic
and stakeholders to plan and implement additional fea-
coordinates and elevation data (see: www.ngs.noaa.gov/
tures. Customers without Internet access at their facil-
OPUS/). The system allows users, such as professional
ity can still use the paper permit application process
surveyors, to electronically submit geospatial informa-
tion via the Internet to the Department, where data and USDA developed the system to be compliant with
are processed to determine corresponding three-dimen- Section 508 of The Rehabilitation Act of 1998.
sional positional coordinates. As a result, the Depart- Previously, the permit processing workload was grow-
ment is able to provide access to and disseminate more ing to become unmanageable with current staff and
accurate and quality geospatial information to the pub- resources. By eliminating the cost of processing paper
lic. For example, construction, transportation, and map- and automating the system, more efficiency will result,
ping industries reduce surveying time and costs (esti- with benefits to the Federal Government, state govern-
mated $270 million cost savings to the public) of cre- ments, and the general public estimated at $1.2 million
ating specific maps and other products needed to oper- per year in the first full year of operating the system.
ate their business to a fraction of those previously re- APHIS estimated that when the system is fully de-
ported. ployed it will cut in half the time it takes to process
User forums and workshops to obtain feedback are applications to import enterable plants and timber
held regularly across the country, and usage of the when the applications are entered online. In addition,
system has grown from 1,000 data submissions per the system will make it more difficult to tamper with
month in 2002, to over 13,000 per month in 2006. Ex- a permit because the system provides immediate access
tensive interaction between the National Oceanic and to information relating to applications and permits
Atmospheric Administration (NOAA) and system users The Administration continues the focus of the depart-
takes place during these sessions, and NOAA is cur- ment and agency specific services movement to citizen-
rently identifying and surveying representatives from centered services. Overall funding for the President’s
individual counties to ensure their diverse needs are E-Government initiatives has reduced annually since
being met. Additionally, users can complete an online Fiscal Year 2004 as the initiatives have met their mile-
survey to provide the Department comments and sug- stones and have become incorporated into the daily op-
gestions on how to improve the system and related erations of Federal departments and agencies. This re-
positioning products and services. OPUS users include duction has come as result of moving the initiatives
more than 175 organizations, including other Federal to fee-for-service models where appropriate, thereby
agencies, state and local governments, universities, the eliminating the need for agency contributions. Table
private sector, foreign governments, and others who 9–4, ‘‘Status of the Presidential E-Government Initia-
share the goal of making more accurate positioning tives,’’ included on the CD–ROM, provides an update
available worldwide. Users without Internet access and for each project.
CONTINUING TO ACHIEVE RESULTS
The Administration will continue to use the Federal focus our efforts to direct information technology invest-
Enterprise Architecture data for business analysis to ments to improve service delivery to citizens and other
entities. The Administration will continue to improve agement tools, the Federal government has the ability
performance and achieve results by continuing our ef- to be the best manager, innovator and user of informa-
forts in linking IT investments to program performance tion, services and information systems in the world.
as demonstrated by the analytical tool called the Pro- The Federal Government has huge potential and oppor-
gram Assessment Rating Tool (PART). tunities for growth and to ensure program success and
In 2008 and beyond, the Federal government will results through the effective use of information tech-
continue to identify IT opportunities for collaboration nology. Each department and agency will leverage ex-
and consolidation while improving services. Although isting capabilities to the maximum potential while en-
the Federal government continues to improve, much suring reliability, security, privacy and continuity of
more work is needed to better serve the citizen. services. The institution of the management practices
Through the PMA, the Clinger-Cohen Act, the E-Gov- within each department and agency and throughout the
ernment Act, FISMA, budget guidance and other man- government will ensure these results.
10. FEDERAL DRUG CONTROL FUNDING
Table 10–1. Federal Drug Control Funding, FY 2006–2008 1

Estimate 2008
Department/Agency Request
2006 2007
Department of Defense .......................................................................................... 1,086.6 1,073.9 936.8

Department of Education ...................................................................................... 489.8 524.8 275.0
National Institute on Drug Abuse ........................................................................ 998.9 1,000.0 1,000.4
Substance Abuse and Mental Health Services Administration .......................... 2,440.9 2,442.5 2,360.4
Total HHS ............................................................................................................ 3,439.7 3,442.5 3,360.7

Customs and Border Protection .......................................................................... 1,635.3 1,874.6 1,970.3
Immigration and Customs Enforcement .............................................................. 382.3 422.8 450.2
U.S. Coast Guard ................................................................................................ 1,225.5 1,140.2 1,073.2
Total DHS ............................................................................................................ 3,243.1 3,437.6 3,493.7

Bureau of Prisons ................................................................................................ 62.6 65.1 67.2
Drug Enforcement Administration ........................................................................ 1,890.8 1,876.0 2,041.8
Interagency Crime and Drug Enforcement ......................................................... 483.2 485.1 509.2
Office of Justice Programs .................................................................................. 238.2 227.8 178.9
Total Department of Justice ............................................................................. 2,674.9 2,654.0 2,797.0

ONDCP:
Counterdrug Technology Assessment Center .................................................... 29.7 19.6 5.0
Operations ............................................................................................................ 26.6 26.0 23.9
High Intensity Drug Trafficking Area Program .................................................... 224.7 225.3 220.0
Other Federal Drug Control Programs ............................................................... 193.0 194.0 224.5
Total ONDCP ...................................................................................................... 474.0 464.9 473.4

Department of State:
Bureau of International Narcotics and Law Enforcement Affairs ....................... 1,036.0 1,011.2 783.7
Economic Support Assistance ............................................................................. 120.9 84.0 313.1
Total Department of State ................................................................................ 1,156.9 1,095.2 1,096.8

Department of Treasury:
Internal Revenue Service .................................................................................... 55.0 55.0 57.3
Department of Veterans Affairs:
Veterans Health Administration ........................................................................... 376.7 376.6 392.0
Other Priorities 2 ..................................................................................................... 2.6 3.7 78.7
Total Federal Drug Budget ................................................................................... $12,999.2 $13,128.1 $12,961.4

1 Detailmay not add due to rounding.
2 Includes(1) the Small Business Administration’s Drug-Free Workplace grants, (2) the Department of Transportation Na-
tional Highway Traffic Safety Administration’s Drug Impaired Driving Program, and (3) for FY 2008, Screening and Brief Inter-
vention reimbursement by the Department of Health and Human Services’ Centers for Medicare and Medicaid Services.
159
11. CALIFORNIA–FEDERAL BAY–DELTA PROGRAM
BUDGET CROSSCUT (CALFED)
The California-Federal Bay-Delta program (also toring into program management to track progress to-
known as CALFED) is a cooperative effort of the Fed- ward achieving those goals. The parties signed a Record
eral Government, the State of California, local Govern- of Decision in 2000, spelling out the different program
ments, and water users, to proactively address the components and goals.
water management and aquatic ecosystem needs of In 2004, the President signed the Calfed Bay-Delta
California’s Central Valley. This valley, one of the most Authorization Act (P.L. 108–361) into law. This Act,
productive agricultural regions of the world, is drained authorizing funding and activities for the CALFED pro-
by the Sacramento River in the north, and the San gram through 2010, provides new programmatic author-
Joaquin River in the south. The two rivers meet south- ity for participating agencies, authorizes $395 million
west of Sacramento, forming the Sacramento-San Joa- to be appropriated for the Federal share of CALFED
quin Delta, and drain west into San Francisco Bay. activities, and specifies criteria for program cost-shares
The extensive development of the area’s water re- and achieving balanced implementation of CALFED
sources has significantly boosted agricultural produc- program components. Federal agencies contributing to
tion, but has also adversely affected the region’s eco- CALFED goals include: the Department of the Interior’s
systems. CALFED participants recognized the need to Bureau of Reclamation, Fish and Wildlife Service, and
provide a safe, clean, reliable source of water for mul- U.S. Geological Survey; the Department of Agriculture’s
tiple uses, while at the same time restoring or main- Natural Resources Conservation Service; the U.S. Army
taining the ecosystems of the area and protecting Corps of Engineers; the Department of Commerce’s Na-
against floods. This recognition resulted in the 1994 tional Oceanic and Atmospheric Administration; and
Bay-Delta Accord, which laid the foundation for the the Environmental Protection Agency.
CALFED program. CALFED’s adaptive management The Budget includes a crosscut of estimated Federal
approach to water resources development and manage- funding by each of the CALFED agencies, fulfilling the
ment seeks to balance achievement among the pro- reporting requirements of P.L. 108–361. Detailed tables
gram’s four objectives: Water Supply Reliability, Levee are included on the CD–ROM included with the Analyt-
System Integrity, Water Quality, and Ecosystem Res- ical Perspectives, as well as an explanation of budget
toration. The program integrates science and moni- crosscut methodology.
CALFED–RELATED FEDERAL FUNDING BUDGET CROSSCUT

Federal Fiscal Years 1998–2008
(Dollars in millions)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Bureau of Reclamation .......................... 153.368 114.672 138.507 79.748 103.320 74.212 75.738 81.104 99.828 84.075 84.073
Corps of Engineers ................................ 100.686 103.341 93.786 54.192 58.227 57.827 72.644 52.306 91.285 76.980 29.755
Natural Resources Conservation
Service ............................................... ................ 14.543 12.845 16.945 39.078 38.998 48.745 36.393 34.635 31.937 36.000
National Oceanic and Atmospheric
Administration .................................... 0.300 0.375 0.450 0.550 0.575 0.775 0.775 0.775 0.775 0.500 0.525
Geological Survey .................................. 3.158 3.158 4.319 5.366 5.089 5.089 4.910 5.419 5.177 4.078 3.814
Fish and Wildlife Service ....................... 0.941 1.143 3.647 18.230 5.605 11.189 13.684 8.914 10.744 1.483 1.483
Environmental Protection Agency ......... 3.204 3.049 57.262 53.375 54.255 20.693 62.780 97.652 32.324 0.533 1 N/A
Total ................................................... $261.657 $240.281 $310.816 $228.406 $266.149 $208.783 $279.276 $282.563 $274.768 $199.59 $155.650
1 Estimate not available.
161
ECONOMIC ASSUMPTIONS AND ANALYSES
163
12. ECONOMIC ASSUMPTIONS
By the end of 2006 the U.S. economy had entered 2.0 million of those job gains occurring during
its sixth year of expansion, with a moderate pace of 2006.
economic growth, sustained increases in payroll jobs, • Reflecting the improved labor situation, the unem-
relatively low levels of unemployment and underlying ployment rate was down to 4.5 percent in Decem-
inflation, and good prospects for steady, sustained ber 2006 from its post-recession high of 6.3 per-
growth ahead. 1 The ongoing solid economic perform- cent in June 2003—and recently has been at its
ance of recent years demonstrates the resilience of the lowest level in five years, and at levels below the
U.S. economy and the beneficial effects of successful averages of each of the past five decades.
pro-growth policies, including tax relief, Federal Re- • Labor productivity gains—the increase in output
serve monetary policy actions, and ongoing efforts to per hour of labor—have been remarkably strong
promote investment in innovative technologies and to during the expansion, providing a substantial
liberalize international trade. boost to growth in real GDP. Output per hour
The performance of the past five years reveals the in the nonfarm business sector has increased at
robust nature of the U.S. economic expansion and the
a 3.0 percent average annual rate over the past
ability of the economy to overcome a series of shocks,
five years, although at a slower 2.5 percent pace
including: sharp declines in the stock market and in
since the spring of 2003, reflecting the return to
investment in business equipment that led to the eco-
nomic slowdown and recession of 2000–2001; the ter- stronger employment growth.
rorist attacks of September 11, 2001; the onset of the • The productivity gains during the expansion rein-
Global War on Terror; high and increasing prices for force the stronger trend productivity performance
crude oil and energy in recent years; and the substan- of the past decade. Since 1995, labor productivity
tial damage and disruptions from the 2005 hurricane in the nonfarm business sector has increased at
season. Further, during 2006, the U.S. economy began about a 2.8 percent annual rate, double the 1.4
to experience adverse effects from a housing market percent annual rate of gain in the period from
slowdown. Despite these unfavorable events, the U.S. 1973 to 1995.
economy has continued to expand, with solid produc- Stronger growth in labor productivity is a funda-
tivity and income growth, low unemployment, and the mental building block for the longer-term performance
generation of more than 7.2 million payroll jobs since of the economy and represents the essential basis for
August 2003 (including revisions). rising wages and increasing standards of living for
As 2007 begins, the Administration and other public American workers and families.
and private forecasters expect the expansion to continue
throughout the budget window, with sustained non-in- • Reflecting labor gains from stronger productivity
flationary real growth providing a solid foundation for growth, during 2006 real hourly earnings of pro-
the Federal budget outlook. duction workers rose by 1.7 percent, the strongest
annual gain in five years.
Recent Economic Performance • Through November, real disposable personal in-
At the time of the preparation of the Budget, real come had increased by 3.0 percent at an annual
gross domestic product (GDP) in the U.S. economy has rate during 2006, and the real per capita increase
been increasing for 20 consecutive quarters, averaging was at a 2.0 percent rate. By way of comparison,
3.0 percent growth at an annual rate during the expan- during the current expansion real disposable per-
sion. Over the four quarters of 2006, real GDP growth sonal income per capita is up 9.7 percent, com-
was on track to register about a 3.1 percent growth pared with the 6.7 percent increase during the
rate, following the same pace during 2005 and a 3.4 equivalent period of the prior expansion of the
percent rate during 2004. 1990s.
Increases in employment and ongoing strong gains Other economic indicators also provide evidence for
in the efficiency of the U.S. workforce—that is, high the sustained growth performance of the U.S. economy
growth in labor productivity—have combined to gen- in recent years and during 2006:
erate the sustained growth in real output in recent • Through the third quarter of 2006, real consumer
years. spending had increased at a 3.4 percent annual
• In labor markets, nonfarm payroll employment rate, following increases at a 2.9 percent rate dur-
has increased by more than 7.2 million jobs since ing 2005 and at a 4.0 percent rate during 2004.
the post-recession low in August 2003, with about In the fourth quarter, consumption spending
1 Economic performance is discussed in terms of calendar years. Budget figures are in growth continued, providing a strong base for final
terms of fiscal years. demand in the economy at the end of the year.
165
• Real fixed business investment in structures to effects from hurricane damage to key oil, nat-
showed strong gains in 2006, rising at a 15 per- ural gas, and refining facilities.
cent annual rate through the third quarter of the • Inflation initially increased as the rise in energy
year, on track to being the strongest annual in- and gasoline prices contributed to higher inflation
crease in more than two decades. rates during 2005 and through the middle of
• Real business investment in durable equipment 2006—but price increases began to moderate by
and software increased by 7.1 percent at an an- the end of 2006. The consumer price index (CPI)
nual rate through the third quarter of 2006, fol- rose 2.5 percent during 2006 (December to Decem-
lowing the increases of 7.0 percent during 2005 ber), down from a 3.4 percent rate during 2005.
and 8.3 percent during 2004. • Core inflation rose during the first half of 2006
• Real net exports improved during the year as real and then began to subside. Abstracting from vola-
tile food and energy items shows that ‘‘core’’ CPI
exports grew by 9.0 percent at an annual rate
inflation was 2.6 percent during 2006, up from
through the third quarter of 2006—on track to
2.2 percent during 2005. The price index for per-
being the strongest performance in 10 years. sonal consumption expenditures excluding food
Although the underlying trend performance of the and energy items from the National Income and
U.S. economy has been good and the gains have trans- Product Accounts (NIPAs)—which uses a method
lated into solid growth of output, incomes, wages, and of calculation that eliminates one source of up-
accumulating wealth, the economy continues to face im- ward bias that exists in the CPI measures—was
portant challenges—some new, some ongoing including: up at a 2.3 percent annual rate through Novem-
• The housing market and residential investment ac- ber, compared to the 2.1 percent rate during 2005.
tivity generally slowed sharply during 2006, sub- • Imbalances in international accounts persisted
tracting significantly from real GDP growth as the during 2006 with the trade deficit at about 6 per-
year went on. Housing starts peaked at an annual cent of GDP and the current account deficit at
rate of more than 2.2 million units early in the nearly 7 percent of GDP. Even so, the inter-
year, but fell back to about a 1.5 million to 1.6 national imbalances actually stabilized over the
million annual pace near the end of the year— past year with little effect on real GDP growth—
the lowest in about 5 years. During 2006, real after having risen steadily over the past decade
residential investment spending was on track to and subtracting 0.6 percentage point per year on
subtract about 0.7 percentage point from overall average from GDP growth over that time.
real GDP growth. The economy continued to grow in the face of these
• Manufacturing activity showed signs of slowing at challenges, although growth has slowed somewhat over
the end of the summer and into the fall. Industrial the past year. Despite the volatility in the overall rate
production of consumer durables slipped in Sep- of inflation, underlying inflation remains relatively sub-
tember and October, reflecting declines in produc- dued and was lower during the last six months than
tion of motor vehicles, energy products, and resi- earlier in 2006. Meanwhile, expectations of future infla-
dential appliances, furniture, and carpeting. Sur- tion do not appear to be adversely affecting business
vey measures of manufacturing activity also or household decisions. In general, despite adverse
showed slowing activity. Even so, manufacturing events and slowing performance in specific sectors, eco-
industrial production rose in December and was nomic performance as a whole during 2006 confirms
that the U.S. economy is on track for continued expan-
3.3 percent higher than in December 2005.
sion with non-inflationary real growth.
• Energy prices—notably crude oil, natural gas, and
gasoline prices—increased sharply over the past Policy Background
five years and continued at relatively high levels The fiscal and monetary policies of the past five years
during much of 2006. For example, the benchmark have successfully contributed to the current good eco-
price for West Texas Intermediate crude oil in- nomic performance. The general fiscal policy outlook—
creased from under $20 a barrel in December 2001 as presented in the President’s Budget—reflects the
to about $74 a barrel in July 2006. Over the same outlook for sustained expansion in the U.S. economy
period, the national average retail gasoline price for the foreseeable future. Looking back, timely tax re-
rose from $1.09 a gallon to $2.98 a gallon. Some lief and reductions in interest rates promoted the econo-
relief occurred during the second half of 2006 as my’s recovery from recession and helped the Nation
the price of crude oil fell back to below $61 a overcome the adverse effects from the variety of shocks
barrel by the end of the year, and the retail gaso- it faced. Those policies continue to provide a solid foun-
line price fell to $2.34 a gallon. dation for current and future economic performance.
• The lingering effects from hurricane damage pre-
sented challenges during 2006 as the economy Fiscal Policy: Beginning in 2001, the Administration
worked through and rebounded from the adverse proposed, and the Congress enacted, significant tax re-
effects of the severe 2005 hurricane season. Some lief designed to overcome the shocks and recession—
of the persisting high energy prices in the first promoting recovery in the growth of output, income,
half of the year described above can be attributed and jobs—and to provide a strong basis for continued
12. ECONOMIC ASSUMPTIONS 167
economic expansion in the long term. Key tax relief and implement bilateral, regional, and multilateral
legislation included: agreements to promote international trade and invest-
• The Economic Growth and Tax Relief and Rec- ment with countries around the world. These policies
onciliation Act of 2001 lowered marginal income create and expand markets for U.S. exports and
tax rates; reduced the marriage tax penalty; and strengthen the U.S. economy while also creating new
created a new, lower 10 percent tax bracket, economic opportunities for our trading partners—in-
among other changes. cluding helping to alleviate poverty in the developing
• The Job Creation and Worker Assistance Act of world and promote democratic reform. The Administra-
2002 permitted immediate depreciation of 30 per- tion’s American Competitiveness Initiative is targeted
cent of the value of qualified new capital assets at advancing U.S. competitiveness through promoting
put in place for three years. The Act also extended
technological innovation, opening new markets, increas-
unemployment insurance benefits to workers who
ing research in the physical sciences and engineering,
had exhausted their normal benefits.
• The Jobs and Growth Tax Relief Reconciliation and protecting intellectual property. Efforts also con-
Act of 2003 lowered income tax rates, reduced the tinue to streamline and simplify Federal regulations
marriage penalty, raised the child tax credit, and that can hinder economic growth and job creation.
raised the exemption amount for the individual
Alternative Minimum Tax. The Act also reduced Economic Projections
tax rates on dividend income and capital gains The Administration’s economic projections, based on
and expanded bonus depreciation and small busi- information available as of mid-November 2006, are
ness expensing of equipment purchases. summarized in Table 12–1. These assumptions are close
Additional legislation of recent years has extended to those of the Congressional Budget Office and the
tax relief, helping to ensure that key provisions would consensus of private-sector forecasters, as described in
continue and not expire. more detail below and shown in Table 12–2. In brief,
Monetary Policy and Interest Rates: As 2007 be- the assumptions call for a continuation of the recent
gins, the Federal Reserve continues to orient monetary trends of sustained growth, solid jobs growth, low infla-
policy toward promoting sustained non-inflationary real tion, and relatively low interest rates.
growth in the U.S. economy. As the expansion strength-
Real GDP, Potential GDP, and Unemployment
ened, the Federal Reserve raised the Federal funds rate
in a steady series of increases from 1 percent to 5.25 Rate: Real GDP, which is estimated to have increased
percent. The Federal funds rate remained at 5.25 per- 3.1 percent in 2006 on a fourth quarter-over-fourth
cent over the second half of 2006. In a recent policy quarter basis, is projected to increase 2.9 percent this
statement, the Federal Open Market Committee stated year. During the next few years, both actual and poten-
that ‘‘the economy seems likely to expand at a moderate tial growth are projected to moderate slightly from 3.1
pace on balance over coming quarters... Nonetheless... percent for 2008 to 2.9 percent by 2012. As a result,
some inflation risks remain.’’ The Administration’s fore- the unemployment rate, which dipped as low as 4.4
cast for the 3-month Treasury bill rate, presented percent late in 2006, is projected to edge up to its
below, was derived to be consistent with market expec- sustainable rate of 4.8 percent and remain at that level.
tations for the interest rate outlook at the time the That rate is the center of the range that is thought
forecast was completed. to be consistent with stable inflation. The main sources
During 2006, longer-term interest rates, notably the of growth in demand in coming years are likely to be
yield on 10-year Treasury notes, remained low by his- business capital spending, net exports, and to a lesser
torical standards. The 10-year rate traded as low as extent, consumer spending. The contributions to overall
4.3 percent in January and as high as 5.25 percent growth from residential investment and the government
in June, but it ended the year at 4.7 percent. With sector are expected to be small at most.
the Federal funds rate exceeding 5 percent for most For the private business sector of the economy, poten-
of the year, the low 10-year Treasury yields during tial growth is approximately equal to the sum of the
the year produced a somewhat inverted structure of trend rates of growth of the labor force and of produc-
interest rates across short- to long-term maturities. tivity. Potential growth of total GDP (including govern-
ment sectors) is projected to be about 3.1 percent over
Trade and Regulatory Policies and Competitive-
the next two years, trending down to 2.9 percent by
ness Initiatives: Beyond these budget and monetary
policies, the Administration continues to work to ad- 2012, primarily because of an assumed slowing in labor
vance a comprehensive set of policies to promote the force growth. The labor force is projected to grow about
short- and long-term performance of the U.S. economy, 1.0 percent per year through 2008 on average, slowing
including trade and regulatory policies and initiatives to about 0.7 percent yearly on average during
aimed at boosting competitiveness in domestic and 2009–2012 as increasing numbers of baby boomers
international markets. Expanding opportunities in enter retirement.
international trade and investment is one of the Admin-
istration’s top priorities. Efforts continue to negotiate
Table 12–1. ECONOMIC ASSUMPTIONS 1

(Calendar years; dollar amounts in billions)
Projections
Actual
2005 2006 2007 2008 2009 2010 2011 2012
Gross Domestic Product (GDP):

Levels, dollar amounts in billions:
Current dollars ................................................................ 12,456 13,248 13,946 14,711 15,507 16,316 17,148 18,003
Real, chained (2000) dollars .......................................... 11,049 11,412 11,721 12,077 12,451 12,827 13,211 13,599
Chained price index (2000=100), annual average ........ 112.7 116.1 119.0 121.8 124.6 127.2 129.8 132.4
Percent change, fourth quarter over fourth quarter:
Current dollars ................................................................ 6.4 5.9 5.5 5.5 5.3 5.2 5.0 5.0
Real, chained (2000) dollars .......................................... 3.1 3.1 2.9 3.1 3.1 3.0 3.0 2.9
Chained price index (2000=100) .................................... 3.1 2.7 2.5 2.3 2.2 2.1 2.0 2.0
Percent change, year over year:
Current dollars ................................................................ 6.3 6.4 5.3 5.5 5.4 5.2 5.1 5.0
Real, chained (2000) dollars .......................................... 3.2 3.3 2.7 3.0 3.1 3.0 3.0 2.9
Chained price index (2000=100) .................................... 3.0 3.0 2.5 2.4 2.2 2.1 2.0 2.0
Incomes, billions of current dollars:
Corporate profits before tax ........................................... 1,519 1,779 1,785 1,815 1,839 1,846 1,860 1,879
Wages and salaries ........................................................ 5,665 6,115 6,478 6,862 7,248 7,628 8,035 8,454
Other taxable income 2 ................................................... 2,563 2,754 2,949 3,112 3,261 3,404 3,579 3,756
Consumer Price Index: 3
Level (1982—84=100), annual average ........................ 195.3 201.7 206.0 211.4 216.8 222.0 227.2 232.5
Percent change, fourth quarter over fourth quarter ...... 3.7 2.3 2.6 2.6 2.5 2.4 2.3 2.3
Percent change, year over year .................................... 3.4 3.3 2.1 2.6 2.5 2.4 2.3 2.3
Unemployment rate, civilian, percent:
Fourth quarter level ........................................................ 5.0 4.5 4.7 4.8 4.8 4.8 4.8 4.8
Annual average ............................................................... 5.1 4.6 4.6 4.8 4.8 4.8 4.8 4.8
Federal pay raises, January, percent:
Military 4 ........................................................................... 3.5 3.1 2.7 3.0 NA NA NA NA
Civilian 5 .......................................................................... 3.5 3.1 2.2 3.0 NA NA NA NA
Interest rates, percent:
91–day Treasury bills 6 ................................................... 3.1 4.7 4.7 4.6 4.4 4.2 4.1 4.1
10–year Treasury notes ................................................. 4.3 4.8 5.0 5.1 5.2 5.3 5.3 5.3
NA = Not Available.
1 Based on information available as of mid-November 2006.
2 Dividends, rent, interest and proprietors’ income components of personal income.
3 Seasonally adjusted CPI for all urban consumers.
4 Percentages apply to basic pay only; percentages to be proposed for years after 2008 have not yet been determined.
5 Overall average increase, including locality pay adjustments. Percentages to be proposed for years after 2008 have not yet been determined.
6 Average rate, secondary market (bank discount basis).
Trend productivity growth in the nonfarm business jected to increase 2.5 percent in 2007, moderating to
sector 2 is assumed to be 2.6 percent per year. The 2.0 by 2011 and 2012, slightly less than CPI inflation,
2.6 percent trend pace is noticeably below the average which is the usual pattern.
since the business cycle peak in the first quarter of The forecast of low inflation reflects the current very
2001 (3.1 percent per year). It is, however, close to low core inflation rate, falling energy prices, modest
the pace from 1995 through 2000 (2.5 percent) and inflation expectations, the downward pressure on infla-
not far from the 60-year average since the official pro- tion due to both domestic and global competition, and
ductivity series began in 1947 (2.3 percent). the Federal Reserve’s monetary policy.
Inflation: Inflation moderated in 2006, in large part Interest Rates: Short-term interest rates are pro-
because of declining energy prices. With the recent eas- jected to decline somewhat and long-term rates to rise
ing of these prices, inflation is likely to be lower in slightly, achieving a more normal yield curve spread.
2007. On a year-over-year basis, the CPI is projected The 3-month Treasury bill rate, which was 4.9 percent
to increase 2.1 percent this year but to rebound to at the end of December, is expected to decrease to 4.1
2.6 percent in 2008, with the increase moderating to percent by 2011. The yield on the 10-year Treasury
2.3 percent a year through 2012. This inflation rate note, 4.7 percent at the end of last year, is projected
is lower than the average during each decade of the to increase to 5.3 percent by 2010.
1970s, 1980s, and 1990s. The GDP price index is pro-
The forecast rates are historically low: the projected
2 The nonfarm business sector accounts for about three-fourths of the value of GDP, averages for 3-month and 10-year Treasuries during
with households, institutions, and government accounting for the remainder. The nonfarm
business sector serves as the standard sector of reference for productivity because of its
2007–2012 are lower than the averages for these instru-
reliable measurement. ments during each decade of the 1970s, 1980s, and
1990s. The relatively low projected yields are due large- nomic policies. The Administration forecast generally
ly to the relatively low projected inflation rate. Adjusted assumes that the President’s Budget proposals will be
for inflation, the projected real interest rates are close enacted. In contrast, the CBO baseline projection as-
to their historical averages. sumes that current law as of the time the estimates
are made remains unchanged. The 50 or so private
Income Shares: The share of labor compensation forecasters in the Blue Chip Consensus make differing
in GDP is projected to rise from its low level in 2006, policy assumptions. Despite their differing policy as-
while the share of corporate profits is projected to de- sumptions, the three sets of economic projections,
cline from the unusually high levels of 2006 and those shown in Table 12–2, are very close. The similarity
anticipated for 2007. In recent years, growth of hourly of the Budget economic projection to both the CBO
compensation adjusted for inflation has lagged the baseline projection and the Consensus forecast under-
growth of productivity. During the projection period, scores the conservative nature of the Administration
however, real hourly labor compensation is expected forecast.
to catch up, which would raise the labor share in GDP
back to about its historical average. For real GDP, the Administration, CBO, and the Blue
Among the components of labor compensation, the Chip Consensus anticipate moderate growth this year.
wage share in GDP is expected to rise from its recent The Administration projects 2.7 percent growth on a
low level while the share of supplements to wages and year-over-year basis, slightly higher than either the
salaries is expected to remain at around the high level Consensus or CBO’s forecast, which are 2.4 percent
reached in 2006. and 2.3 percent, respectively. For calendar year 2008,
Corporate profits before tax jumped sharply as a the Administration, CBO, and the Consensus all fore-
share of GDP in 2005 and 2006 in part due to the cast 3.0 percent real growth. The three forecasts are
end of the accelerated depreciation permitted by the in agreement in both 2009 (3.1 percent) and 2010 (3.0
2002 and 2003 tax acts. Accelerated depreciation low- percent). In 2011 and 2012, the Administration’s projec-
ered profits before tax compared with what they other- tion is about the same as the Consensus growth rate
wise would have been in 2003 and 2004 by allowing but CBO’s is slightly lower. Over the six-year span
firms to write off more of their investment sooner. Since as a whole, the Administration, CBO and the Con-
2004, however, corporate profits before tax have been sensus all project average annual growth rates in a
higher than normal both because new investment has narrow range of 2.8 to 3.0 percent.
not qualified for the temporary acceleration and be- All three forecasts anticipate continued low inflation
cause the remaining depreciation permitted on 2003 in the range of 1.8 to 2.5 percent as measured by the
and 2004 investment that used this provision has been GDP price index; and, after 2007, between 2.2 and 2.6
thereby reduced. percent as measured by the CPI, with CBO lower than
Among the other income components, the share of the Administration and the Consensus, which are close
personal interest income in GDP is projected to decline, to each other. The three unemployment rate projections
reflecting the low nominal interest rates of recent years. are also similar with projected rates in the narrow
Personal dividend income’s share, too, is projected to range of 4.8 percent to 5.0 percent after 2007. All three
decline, reflecting the declining profit share. A slight project slightly falling short-term interest rates and a
rise is projected for proprietors’ income, while the re- slight rise in long-term rates during the next few years,
maining share of the tax base, rental income, is pro- with the Administration’s short-term rates slightly
jected to remain relatively stable at around its 2006 below the Blue Chip’s and CBO’s, and the long-term
level. rate forecasts nearly identical.
Comparison with CBO and Private-Sector Changes in Economic Assumptions

Forecasts The economic assumptions underlying this Budget for
In addition to the Administration, the Congressional 2008 are similar to those of the 2007 Budget, as shown
Budget Office (CBO) and many private-sector fore- in Table 12–3.
casters also make economic projections. CBO develops Real GDP growth is now expected to be 2.7 percent
its projections to aid Congress in formulating budget in 2007, 3.0 percent in 2008, and 3.1 percent in 2009
policy. In the executive branch, this function is per- on a year-over-year basis, moderating gradually to 2.9
formed jointly by the Treasury Department, the Council percent by 2012. In comparison, last year’s Budget pro-
of Economic Advisers, and the Office of Management jections showed 3.3 percent real growth for both 2007
and Budget. Private-sector forecasts are often used by and 2008, moderating to 3.0 percent by 2012. Despite
businesses for current decision-making and in long-term the lower real growth forecast this year, the level of
planning, and the ‘‘consensus’’ or average serves as a nominal GDP is now projected to be higher than in
useful benchmark for comparison. Table 12–2 compares the 2007 Budget projection because of a faster-than-
the 2008 Budget assumptions with projections as of expected rise in the GDP price index last year and
January 2007 by CBO and by the Blue Chip Consensus, slightly higher projected GDP inflation in the next few
an average of about 50 private-sector forecasts. years.
The three sets of economic assumptions are based The unemployment rate projection has been adjusted
on different underlying assumptions concerning eco- slightly, reflecting a new assessment of the ‘‘natural
Table 12–2. COMPARISON OF ECONOMIC ASSUMPTIONS

(Calendar years)
Projections Average,
2007–12
2007 2008 2009 2010 2011 2012
GDP (billions of current dollars):

2008 Budget ...................................................................................................................................... 13,946 14,711 15,507 16,316 17,148 18,003
CBO January ..................................................................................................................................... 13,805 14,472 15,196 15,923 16,647 17,395
Blue Chip Consensus January ......................................................................................................... 13,843 14,561 15,323 16,116 16,937 17,805
Real GDP (chain-weighted): 1
2008 Budget ...................................................................................................................................... 2.7 3.0 3.1 3.0 3.0 2.9 3.0
CBO January ..................................................................................................................................... 2.3 3.0 3.1 3.0 2.7 2.7 2.8
Blue Chip Consensus January ......................................................................................................... 2.4 3.0 3.1 3.0 2.9 3.0 2.9
Chain-weighted GDP Price Index: 1
2008 Budget ...................................................................................................................................... 2.5 2.4 2.2 2.1 2.0 2.0 2.2
CBO January ..................................................................................................................................... 1.9 1.8 1.8 1.8 1.8 1.8 1.8
Consumer Price Index (all-urban): 1
2008 Budget ...................................................................................................................................... 2.1 2.6 2.5 2.4 2.3 2.3 2.4
CBO January ..................................................................................................................................... 1.9 2.3 2.2 2.2 2.2 2.2 2.2
Unemployment rate: 2
2008 Budget ...................................................................................................................................... 4.6 4.8 4.8 4.8 4.8 4.8 4.8
CBO January ..................................................................................................................................... 4.7 4.9 5.0 5.0 5.0 5.0 4.9
Interest rates: 2
91–day Treasury bills:
2008 Budget .................................................................................................................................. 4.7 4.6 4.4 4.2 4.1 4.1 4.4
CBO January ................................................................................................................................ 4.8 4.5 4.4 4.4 4.4 4.4 4.5
Blue Chip Consensus January ..................................................................................................... 4.9 4.8 4.7 4.5 4.5 4.6 4.7
10–year Treasury notes:
2008 Budget .................................................................................................................................. 5.0 5.1 5.2 5.3 5.3 5.3 5.2
CBO January ................................................................................................................................ 4.8 5.0 5.1 5.2 5.2 5.2 5.1
Blue Chip Consensus January ..................................................................................................... 4.8 5.0 5.2 5.2 5.2 5.3 5.1
Sources: Congressional Budget Office; Blue Chip Economic Indicators, Aspen Publishers, Inc.
January 2007 Blue Chip Consensus forecast for 2007 and 2008; Blue Chip October 2006 long-run extension for 2009—2012.
1 Year-over-year percent change.
2 Annual averages, percent.
rate’’ consistent with stable inflation. While the 2007 that can be traced to this factor can be called the cycli-
Budget had the rate level at 5.0 percent in future years, cal component. The portion of the deficit that remains
the rate is now projected to stabilize at 4.8 percent when the unemployment rate is at its long-run value
in the outyears. The 3-month Treasury bill rate is ex- is then called the structural deficit (or structural sur-
pected to trend downward, ultimately to the same level, plus). In the typical post-World War II business cycle,
4.3 percent, as before. The 10-year Treasury note rate the structural balance has provided a gauge of the sur-
is now projected to rise to 5.3 percent by 2010, lower plus or deficit that would persist if the economy were
than the previous assumption that it would reach 5.6 operating at the sustainable level of unemployment.
percent. Conventional estimates of the structural balance are
Structural and Cyclical Balances based on the historical relationship between changes
in the unemployment rate and real GDP growth on
Historically, a budget measure called the structural the one hand, and receipts and outlays on the other.
balance has provided an alternative perspective on the For various reasons, these estimated relationships do
stance of fiscal policy as compared to the unadjusted not take into account all of the cyclical changes in the
budget balance which includes a component related to economy. One example of a cyclical phenomenon not
the cyclical performance of the economy. For example,
captured in these estimates was the sharply rising
when the economy operates below potential, the unem-
stock market during the second half of the 1990s. It
ployment rate exceeds the long-run sustainable average
boosted capital gains-related receipts and pulled down
consistent with price stability. As a result, receipts are
lower and outlays for unemployment-sensitive programs the deficit. The subsequent fall in the stock market
(such as unemployment compensation and food stamps) reduced receipts and added to the deficit. Some of this
are higher; the deficit is larger (or the surplus smaller) rise and fall was cyclical in nature. It is not possible,
than if the unemployment rate were at its sustainable however, to estimate the cyclical component of the stock
long-run average. The portion of the deficit (or surplus) market accurately, and for that reason, all of the stock
Table 12–3. COMPARISON OF ECONOMIC ASSUMPTIONS IN THE 2007 AND 2008 BUDGETS
(Calendar years; dollar amounts in billions)
2006 2007 2008 2009 2010 2011 2012
Nominal GDP:
2007 Budget assumptions 1 .................................................................................... 13,192 13,931 14,693 15,473 16,288 17,154 18,059
2008 Budget assumptions ...................................................................................... 13,248 13,946 14,711 15,507 16,316 17,148 18,003
Real GDP (2000 dollars):
2007 Budget assumptions 1 .................................................................................... 11,433 11,813 12,198 12,580 12,970 13,373 13,779
2008 Budget assumptions ...................................................................................... 11,412 11,721 12,077 12,451 12,827 13,211 13,599
Real GDP (percent change): 2
2007 Budget assumptions ...................................................................................... 3.4 3.3 3.3 3.1 3.1 3.1 3.0
GDP price index (percent change): 2
Consumer Price Index (percent change): 2
Civilian unemployment rate (percent): 3
91–day Treasury bill rate (percent): 3
10–year Treasury note rate (percent): 3
1 Adjusted for July 2006 NIPA revisions.
2 Year-over-year.
3 Calendar year average.
market’s contribution to receipts is counted in the struc- A third example is the fall-off in the wage and salary
tural balance. share of GDP, from 49.2 percent in 2000 to 45.3 percent
Other factors unique to the current economic cycle in the second quarter of 2006. Again, this change is
provide additional examples of less-than-complete cycli- widely suspected to be partly cyclical. Since Federal
cal adjustment. The fall-off in labor force participation, tax collections depend heavily on wage and salary in-
from 67.1 percent of the U.S. population in 1997–2000 come, the larger-than-predicted decline in the wage
to 66.1 percent in 2004–2006, appears to be at least share of GDP suggests that the true cyclical component
partly cyclical in nature. Since the official unemploy- of the deficit is understated for this reason as well.
ment rate does not include workers who have left the There are also lags in the collection of tax revenue
labor force, the conventional measures of potential that can delay the impact of cyclical effects beyond
GDP, incomes, and Government receipts understate the the year in which they occur. The result is that even
extent to which potential work hours have been under- after the unemployment rate has fallen, receipts may
utilized in the current expansion to date because of remain cyclically depressed for some time until these
the decline in labor force participation. lagged effects have dissipated.
Table 12–4. ADJUSTED STRUCTURAL BALANCE

(Fiscal years; in billions of dollars)
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Unadjusted surplus or deficit (–) ...................................... 128.2 –157.8 –377.6 –412.7 –318.3 –248.2 –244.2 –239.4 –187.2 –94.4 –53.8 61.0
Cyclical component ....................................................... 92.7 –28.7 –70.8 –33.4 –5.5 15.1 8.6 –4.8 –3.1 –0.4 0.0 0.0
Structural surplus or deficit (–) ......................................... 35.5 –129.0 –306.8 –379.3 –312.9 –263.3 –252.8 –234.6 –184.1 –93.9 –53.8 61.0
Deposit insurance outlays ............................................ 1.6 1.0 1.4 2.0 1.4 1.1 2.2 3.4 5.6 5.9 6.1 3.9
Adjusted structural surplus or deficit (–) .......................... 37.1 –128.0 –305.3 –377.4 –311.5 –262.2 –250.6 –231.2 –178.5 –88.0 –47.7 65.0
NOTE: The NAIRU is assumed to be 4.8% in 2006 and subsequent years, 4.9% in earlier years.
For all these reasons, the current estimates of the deficit is estimated to increase by $16.1 billion;
cyclical deficit are probably understated. The current receipts in 2007 would be lower by $13.4 billion,
unemployment gap is believed to be near zero, and and outlays would be higher by $2.7 billion, pri-
the Administration forecasts that it will remain so, but marily for unemployment-sensitive programs. In
in the broader sense discussed above, the cyclical gap fiscal year 2008, the estimated receipts shortfall
in receipts is likely to still be large and only slowly would grow further to $27.7 billion, and outlays
shrinking. would increase by $8.0 billion relative to the base,
During fiscal year 2001 the unemployment rate ap- even though the growth rate in calendar year 2008
pears to have been lower than could be sustained in equaled the rate originally assumed. This is be-
the long run. Therefore, as shown in Table 12–4, in cause the level of real (and nominal) GDP and
that year the structural surplus was smaller than the taxable incomes would be permanently lower, and
actual surplus, which was enlarged by the boost to re- unemployment permanently higher. The budget
ceipts and the reduction in outlays associated with the effects (including growing interest costs associated
low level of unemployment. Similarly, in 2006 the un- with larger deficits) would continue to grow slight-
employment rate appeared to be slightly lower than ly in each successive year. During 2007–2012, the
the ‘‘natural rate,’’ rendering the structural deficit for cumulative increase in the budget deficit is esti-
that year slightly higher than the actual deficit, and mated to be $243 billion.
that effect persists into 2007. • The budgetary effects are much larger if the real
growth rate is permanently reduced by one per-
Sensitivity of the Budget to Economic centage point and the unemployment rate is un-
Assumptions changed, as shown in the second block. This sce-
Both receipts and outlays are affected by changes nario might occur if trend productivity were per-
in economic conditions. This sensitivity complicates manently lowered. In this example, during
budget planning because errors in economic assump- 2007–2012, the cumulative increase in the budget
tions lead to errors in the budget projections. It is deficit is estimated to be $689 billion.
therefore useful to examine the implications of possible • The third block shows the effect of a one percent-
changes in economic assumptions. Many of the budg- age point higher rate of inflation and one percent-
etary effects of such changes are fairly predictable, and age point higher interest rates during calendar
a set of rules of thumb embodying these relationships year 2007 only. In subsequent years, the price
can aid in estimating how changes in the economic level and nominal GDP would be one percent high-
assumptions would alter outlays, receipts, and the surer than in the base case, but interest rates and
plus or deficit. These rules of thumb should be under- future inflation rates are assumed to return to
stood as suggesting orders of magnitude; they ignore their base levels. In 2007 and 2008, outlays would
a long list of secondary effects that are not captured be above the base by $10.8 billion and $18.3 bil-
in the estimates. lion, respectively, due in part to lagged cost-of-
Economic variables that affect the budget do not usu- living adjustments. Receipts would rise by $23.2
ally change independently of one another. Output and billion in 2007, but then would rise by $44.5 bil-
employment tend to move together in the short run: lion above the base in 2008 due to the sustained
a high rate of real GDP growth is generally associated effects of the elevated price level on the tax base,
with a declining rate of unemployment, while slow or and to the temporary effect of higher 2007 interest
negative growth is usually accompanied by rising unem- rates on financial corporations’ profits and taxes,
ployment. In the long run, however, changes in the resulting in a $26.1 billion improvement in the
average rate of growth of real GDP are mainly due 2008 budget balance. In subsequent years, the
to changes in the rates of growth of productivity and amounts added to receipts would continue to be
the labor force, and are not necessarily associated with larger than the additions to outlays. During
changes in the average rate of unemployment. Inflation 2007–2012, cumulative budget deficits would be
and interest rates are also closely interrelated: a higher $130 billion smaller than in the base case.
expected rate of inflation increases interest rates, while • In the fourth block, the rate of inflation and the
lower expected inflation reduces interest rates. level of interest rates are higher by one percentage
Changes in real GDP growth or inflation have a much point in all years. As a result, the price level
greater cumulative effect on the budget over time if and nominal GDP rise by a cumulatively growing
they are sustained for several years than if they last percentage above their base levels. In this case,
for only one year. Highlights of the budgetary effects the effects on receipts and outlays mount steadily
of the above rules of thumb are shown in Table 12–5. in successive years, adding $344 billion to outlays
For real growth and employment: over 2007–2012 and $834 billion to receipts, for
• As shown in the first block, if in 2007 for one a net decrease in the 2007–2012 deficits of $490
year only, real GDP growth is lower by one per- billion.
centage point and the unemployment rate perma- • The outlay effects of a one percentage point in-
nently rises by one-half percentage point relative crease in interest rates alone are shown in the
to the Budget assumptions, the fiscal year 2007 fifth block. The receipts portion of this rule-of-
thumb is due to the Federal Reserve’s deposit of do not sum to the effects for simultaneous changes
earnings on its securities portfolio and the effect in both in the fourth block. This occurs largely
of interest rate changes on financial corporations’ because the gains in budget receipts due to higher
profits (and taxes). inflation result in higher debt service savings
• The sixth block shows that a sustained one per- when interest rates are assumed to be higher as
centage point increase in the GDP price index and well (the combined case) than when interest rates
in CPI inflation decreases cumulative deficits by are assumed to be unchanged (the separate case).
a substantial $445 billion during 2007–2012. This The last entry in the table shows rules of thumb
large effect is because the receipts from a higher for the added interest cost associated with changes in
tax base exceed the combination of higher outlays the budget deficit.
from mandatory cost-of-living adjustments and The effects of changes in economic assumptions in
lower receipts from CPI indexation of tax brackets. the opposite direction are approximately symmetric to
Outlays for discretionary programs are assumed those shown in the table. The impact of a one percent-
to be unchanged in spite of the higher inflation age point lower rate of inflation or higher real growth
rate. The separate effects of higher inflation and would have about the same magnitude as the effects
higher interest rates in the fifth and sixth blocks shown in the table, but with the opposite sign.
Table 12–5. SENSITIVITY OF THE BUDGET TO ECONOMIC ASSUMPTIONS

(Fiscal years; in billions of dollars)
Total of
Budget effect 2007 2008 2009 2010 2011 2012 Effects,
2007–2012
Real Growth and Employment

Budgetary effects of 1 percent lower real GDP growth:
(1) For calendar year 2007 only: 1
Receipts ............................................................................................................... –13.4 –27.7 –31.2 –33.8 –35.6 –37.6 –179.3
Outlays ................................................................................................................ 2.7 8.0 10.3 12.3 14.4 16.4 63.9
Increase in deficit (–) .......................................................................................... –16.1 –35.7 –41.5 –46.1 –49.9 –54.0 –243.3
(2) Sustained during 2007–2017, with no change in unemployment:
Receipts ............................................................................................................... –13.6 –43.6 –80.4 –123.2 –167.6 –216.2 –644.7
Outlays ................................................................................................................ 0.2 1.3 3.8 7.6 13.0 18.8 44.8
Increase in deficit (–) .......................................................................................... –13.8 –44.9 –84.2 –130.8 –180.6 –235.0 –689.4
Inflation and Interest Rates
Budgetary effects of 1 percentage point higher rate of:
(3) Inflation and interest rates during calendar year 2007 only:
Receipts ............................................................................................................... 23.2 44.5 38.4 34.4 36.1 38.2 214.8
Outlays ................................................................................................................ 10.8 18.3 15.2 14.1 13.4 12.6 84.4
Decrease in deficit (+) ........................................................................................ 12.4 26.1 23.2 20.4 22.7 25.6 130.4
(4) Inflation and interest rates, sustained during 2007–2017:
Receipts ............................................................................................................... 23.2 71.3 116.5 160.5 206.4 256.5 834.3
Outlays ................................................................................................................ 11.2 32.9 52.1 68.6 83.3 96.1 344.1
(5) Interest rates only, sustained during 2007–2017:
Receipts ............................................................................................................... 9.7 28.5 38.7 41.9 45.0 47.4 211.1
Outlays ................................................................................................................ 7.7 21.5 31.0 36.6 39.7 41.5 178.0
Increase in deficit (–) .......................................................................................... 2.0 7.0 7.6 5.3 5.2 5.9 33.1
(6) Inflation only, sustained during 2007–2017:
Receipts ............................................................................................................... 13.4 42.7 77.7 118.3 161.0 208.5 621.6
Outlays ................................................................................................................ 3.5 11.7 21.9 33.6 46.4 59.0 176.2
Interest Cost of Higher Federal Borrowing
(7) Outlay effect of $100 billion increase in borrowing in 2007 ................................ 2.5 5.1 5.2 5.2 5.3 5.5 28.8
$50 million or less.
1 The unemployment rate is assumed to be 0.5 percentage point higher per 1.0 percent shortfall in the level of real GDP.
13. STEWARDSHIP
Introduction • Part I explains how the separate pieces of analysis

The budget is an essential tool for allocating re- link together. Chart 13–1 is a schematic diagram
sources within the Federal Government and between showing the linkages.
the public and private sectors, but current outlays, re- • Part II presents estimates of the Government’s
ceipts, and the deficit give at best a partial picture assets and liabilities, which are shown in Table
of the Government’s financial condition. Indeed, 13–1. This table is similar to a business balance
changes in the annual budget deficit or surplus can sheet, but for that reason it cannot reveal some
be misleading. For example, the temporary shift from of the Government’s unique financial features and
annual deficits to surpluses in the late 1990s did noth- needs to be supplemented by the information in
ing to correct the long-term fiscal deficiencies in the Parts III and IV.
major entitlement programs, which are the major • Part III shows possible long-run paths for the Fed-
source of the long-run shortfall in Federal finances. eral budget. These projections vary depending on
This would have been more apparent at the time if alternative economic and demographic assump-
greater attention had been focused on long-term meas- tions. The projections are summarized in Table
ures such as those presented in this chapter. As impor- 13–2 and in a related set of charts. Table 13–3
tant as the current budget surplus or deficit is, other shows present value estimates of the funding
indicators are also needed to judge the Government’s shortfall in Social Security and Medicare. To-
fiscal condition. gether, these data indicate the scope of the Gov-
For the Federal Government, unfortunately, there is ernment’s future responsibilities and the resources
no single number that corresponds to a business’s bot- it will have available to discharge them under
tom line. The Government is judged by how its actions current law and policy. In particular, they show
affect the country’s security and well-being, and that the looming long-run fiscal challenge posed by the
cannot easily be summed up with a single statistic. Federal entitlement programs.
Also, even though its financial condition is important, • Part IV returns the focus to the present. This
the Government is not expected to earn a profit. One part presents information on national economic
measure of the Government’s performance is the extent and social conditions. It begins with an analysis
to which it collects the taxes that are owed to it, and of tax compliance, including what can be done to
another is whether it delivers value in spending the improve it, and what resources might be made
taxes that it collects. Both of those questions are ad- available with new efforts to assure compliance.
dressed below. In general, the Government’s financial The private economy is the ultimate source of the
status is best evaluated using a broad range of data Government’s resources. Table 13–4 gives a sum-
and several complementary perspectives. This chapter mary of total national wealth, while highlighting
presents a framework for such analysis. Because there the Federal investments that have contributed to
are serious limitations on the available data and the that wealth. Table 13–5 shows trends in wealth
future is uncertain, this chapter’s findings should be and Table 13–6 presents a small sample of statis-
interpreted as tentative; its conclusions are subject to tical indicators, which are intended to show how
future revision. the Government’s efforts to improve social and
The chapter consists of four parts: economic outcomes might be measured.
PART I—A FRAMEWORK TO EVALUATE FEDERAL FINANCES
No single framework can encompass all of the factors ment of the tax law to reach that potential. Measures
that affect the financial condition of the Federal Gov- of national wealth, which support future income and
ernment, but the framework presented here is reason- tax receipts, are presented along with an array of eco-
ably comprehensive and offers a useful way to examine nomic and social indicators showing potential pressure
the financial implications of Federal policies. This points that may require future policy responses.
framework includes information about assets and liabil- The Government’s binding obligations—its liabil-
ities such as might appear on a balance sheet, but ities—consist in the first place of Treasury debt. Other
it also includes long-run projections of the entire budget liabilities include the pensions and medical benefits
showing where future fiscal strains are most likely to owed to retired Federal employees and veterans. These
appear. It includes an analysis of the Government’s employee obligations are a form of deferred compensa-
potential revenue and what can be done realistically tion; they have counterparts in the business world, and
through better education and more rigorous enforce- would appear as liabilities on a business balance sheet.
175
Accrued obligations for Government insurance policies extension of the estimates in this Budget, long-run bal-
and the estimated present value of failed loan guaran- ance in this sense is not achieved, mostly because pro-
tees and deposit insurance claims are also analogous jected spending for Social Security, Medicare, and Med-
to private liabilities. These Government liabilities are icaid grows faster than the revenue available to pay
discussed further in Part II along with the Govern- for them.
ment’s assets. The liabilities and assets are collected The long-run budget projections and the table of as-
in Table 13–1. The liabilities shown in Table 13–1 are sets and liabilities are silent on the questions of wheth-
only a subset of the Government’s overall financial reer the Government is collecting the full amount of taxes
sponsibilities. Indeed, the full extent of the Govern- owed, whether the public is receiving value for its taxes
ment’s fiscal exposure through programmatic commit- paid, and whether Federal resources are being used
ments dwarfs the outstanding total of all acknowledged effectively. Information on those points requires per-
Federal liabilities. The commitments to Social Security formance measures for Government programs supple-
and Medicare alone amount to many times the value mented by appropriate information about conditions in
of Federal debt held by the public. the economy and society. Recent changes in budgeting
In addition to Social Security and Medicare, the Gov- practices have contributed to the goal of providing more
ernment has a broad range of programs that dispense information about Government programs and will per-
cash and other benefits to individual recipients. A few mit a closer alignment of the cost of programs with
examples of such programs are Medicaid, food stamps, performance measures. These changes have been de-
veterans’ pensions, and veterans’ health care. The Gov- scribed in detail in previous Budgets. They are re-
ernment also provides a wide range of public services viewed in Chapter 2 of this volume, and in the accom-
that must be financed through the tax system. It is panying material that describes results obtained with
true that specific programs may be modified or even the Program Assessment Rating Tool (PART). This
ended at any time by the Congress and the President, Stewardship chapter complements the detailed explo-
and changes in the laws governing these programs are ration of Government performance with an assessment
a regular part of the legislative cycle. For this reason, of the overall impact of Federal policy as reflected in
these programmatic commitments do not constitute ‘‘li- general measures of economic and social well-being,
abilities’’ that would appear on a balance sheet. Until shown in Table 13–7.
the law is changed, they are Federal responsibilities, Relationship with FASAB Objectives
however, and will have a claim on budgetary resources
for the foreseeable future. All of the Government’s exist- The framework presented here meets the stewardship
ing programs are reflected in the long-run budget pro- objective for Federal financial reporting recommended
jections in Part III. It would be misleading to leave by the Federal Accounting Standards Advisory Board
out any of these programmatic commitments in pro- (FASAB) and adopted for use by the Federal Govern-
jecting future claims on the Government or in calcu- ment in September 1993. 1
Federal financial reporting should assist report users in
lating the Government’s long-run fiscal balance. assessing the impact on the country of the government’s oper-
The Federal Government has many assets. These in- ations and investments for the period and how, as a result,
clude financial assets, such as loans and mortgages the government’s and the Nation’s financial conditions have
which have been acquired through various credit pro- changed and may change in the future. Federal financial
reporting should provide information that helps the reader
grams. They also include the plant and equipment used to determine:
to produce Government services. The Government also 3a. Whether the government’s financial position improved
owns a substantial amount of land. Such assets would or deteriorated over the period.
normally be shown on a balance sheet. The Government 3b. Whether future budgetary resources will likely be suffi-
cient to sustain public services and to meet obligations as
also has resources in addition to those that might be they come due.
expected to appear on a balance sheet. These additional 3c. Whether government operations have contributed to the
resources include most importantly the Government’s nation’s current and future well-being.
sovereign power to tax. The current presentation is an experimental approach
Because of its unique responsibilities and resources, for fulfilling this objective at the Federal Government-
the most revealing way to analyze the future strains wide level. It is intended to meet the broad interests
on the Government’s fiscal position is to make a long- of economists and others in evaluating trends over time,
run projection of the entire Federal budget. Part III including both past and future trends. The annual Fi-
of this chapter presents a set of such projections under nancial Report of the United States Government pre-
different assumptions about policy and future economic sents related information, but from a different perspec-
and demographic conditions. Over long periods of time, tive. The Financial Report includes a balance sheet.
the spending of the Government must be financed by The assets and liabilities on that balance sheet are
the taxes and other receipts it collects. Although the all based on transactions and other events that have
Government can borrow for temporary periods, it must already occurred. A similar table can be found in Part
pay interest on any such borrowing, which adds to fu- II of this chapter, which is based on different data
ture spending. In the long run, a solvent Government
1 Statement of Federal Financial Accounting Concepts, Number 1, Objectives of Federal
must pay for its programmatic spending out of its re- Financial Reporting, September 2, 1993. Other objectives are budgetary integrity, operating
ceipts. The projections in Part III show that under an performance, and systems and controls.
13. STEWARDSHIP 177
and methods of valuation. The Financial Report also • The left-hand side of Chart 13–1 shows the full
includes a statement of social insurance that reviews range of Federal resources, including assets the
a substantial body of information on the condition and Government owns, tax receipts it can expect to
sustainability of the Government’s social insurance pro- collect based on current and proposed laws, the
grams. The Report, however, does not extend that re- tax gap, and national wealth, including the
view to the condition or sustainability of the Govern- trained skills of the national work force, that pro-
ment as a whole, which is a main focus of this chapter, vide the base for Government revenues.
and it does not try to relate the Government’s assets • The right-hand side reveals the full range of Fed-
and liabilities to private wealth or broader economic eral obligations and responsibilities, beginning
and social conditions. with the Government’s acknowledged liabilities
Connecting the Dots:: The presentation that follows from past actions, such as the debt held by the
is constructed around a series of tables and charts. public, and including future budget outlays needed
The schematic diagram, Chart 13–1, shows how the to maintain present policies and trends. This col-
different pieces fit together. The tables and charts umn ends with a set of indicators highlighting
should be viewed as an ensemble, the main elements areas where Government activity affects society
of which are grouped in two broad categories—assets/ or the economy.
resources and liabilities/responsibilities.
Chart 13-1. The Financial Condition of the Federal

Government and the Nation
Assets/Resources Liabilities/Responsibilities
Federal Assets Federal Liabilities
Financial Assets Financial Liabilities
Monetary Assets Debt Held by the Public
Mortgages and Other Loans Guarantees and Insurance
Other Financial Assets Federal Governmental Deposit Insurance
Less Expected Loan Losses Assets and Liabilities Pension Benefit Guarantees
Physical Assets (Table 13-1) Loan Guarantees
Fixed Reproducible Capital Other Insurance
Defense Federal Retiree Pension
Nondefense and Health Insurance Liabilities
Inventories
Miscellaneous
Non-reproducible Capital
Land Net Balance
Mineral Rights
Resources/Receipts Long-Run Federal Responsibilities/Outlays

Budget Projections
Projected Receipts (Table 13-2) Projected Outlays
Surplus/Deficit
Actuarial Deficiencies in Social
Security and Medicare Actuarial Deficiencies in
(Table 13-3) Social Security and Medicare
National Assets/Resources Sources of the Tax Gap National Needs/Conditions

The Federal Tax Gap (Table 13-4) Indicators of economic, social,
Federally Owned Physical Assets educational, and environmental
National Wealth conditions
State & Local Govt. Physical Assets
Federal Contribution (Tables 13-5 and 13-6)
Privately Owned Physical Assets
Education Capital Social Indicators
(Table 13-7)
R&D Capital
QUESTIONS AND ANSWERS ABOUT THE GOVERNMENT’S STEWARDSHIP
1. According to Table 13–1, the Government’s liabilities exceed its assets. No business could
operate in such a fashion. Why does the Government not manage its finances more like a
business?
The Federal Government has different objectives from a business firm. The goal of every busi-
ness is to earn a profit, and as a general rule the Federal Government properly leaves activities
at which a profit could be earned to the private sector. For the vast bulk of the Federal Govern-
ment’s operations, it would be difficult or impossible to charge prices that would cover expenses.
The Government undertakes these activities not to improve its balance sheet, but to benefit the
Nation.
For example, the Government invests in education and research, but it earns no direct return
from these investments. People are enriched by these investments, but the returns do not show
up as an increase in Government assets but rather as an increase in the general state of knowl-
edge and in the capacity of the country’s citizens to earn a living and lead a fuller life. Business
investment motives are quite different; business invests to earn a profit for itself, not others,
and if its investments are successful, their value will be reflected in its balance sheet. Because
the Federal Government’s objectives are different, its balance sheet behaves differently, and
should be interpreted differently.
2. Table 13–1 seems to imply that the Government is insolvent. Is it?
No. Just as the Federal Government’s responsibilities are different from those of private busi-
ness, so are its resources. Government solvency must be evaluated in different terms.
What Table 13–1 shows is that those Federal obligations that are most comparable to the liabil-
ities of a business corporation exceed the estimated value of the assets actually owned by the
Federal Government. The Government, however, has access to other resources through its sov-
ereign powers. These powers, which include taxation, will allow the Government to meet its
present obligations and those that are anticipated from future operations even though the Gov-
ernment’s current assets are less than its current liabilities. Q06
Private financial markets clearly recognize this reality. The Federal Government’s implicit credit
rating is among the best in the world; lenders are willing to lend it money at interest rates sub-
stantially below those charged to private borrowers. This would not be true if the Government
were really insolvent or likely to become so. Where governments totter on the brink of insol-
vency, lenders are either unwilling to lend them money, or do so only in return for a substantial
interest premium.
13. STEWARDSHIP 179
QUESTIONS AND ANSWERS ABOUT THE GOVERNMENT’S STEWARDSHIP
3. Why are Social Security and Medicare not shown as Government liabilities in Table 13–1?
Future Social Security and Medicare benefits may be considered as promises or responsibilities
of the Federal Government, but these benefits are not a liability in a legal or accounting sense.
The Government has unilaterally decreased as well as increased these benefits in the past, and
future reforms could alter them again. These benefits are reflected in this presentation of the
Government’s finances, but they are shown elsewhere than in Table 13–1. They appear in two
ways: as part of the overall budget projections in Table 13–2, and in the actuarial deficiency es-
timates in Table 13–3.
Other Federal programs make similar promises to those of Social Security and Medicare—Med-
icaid, for example. Few have suggested counting future benefits expected under these programs
as Federal liabilities, yet it would be difficult to justify a different accounting treatment for
them if Social Security or Medicare were to be classified as a liability. There is no bright line di-
viding Social Security and Medicare from other programs that promise benefits to people, and
all the Government programs that do so should be accounted for similarly.
Also, if future Social Security and Medicare benefits were treated as liabilities, then payroll tax
receipts earmarked to finance those benefits ought to be treated as assets. This treatment would
be essential to gauge the size of the future claim. Tax receipts, however, are not generally con-
sidered to be Government assets, and for good reason: the Government does not own the wealth
on which future taxes depend. Including taxes on the balance sheet would be wrong for this rea-
son, but excluding taxes from the balance sheet would overstate the drain on net assets from So-
cial Security and Medicare benefits. Furthermore, treating taxes for Social Security or Medicare
differently from other taxes would be highly questionable.
Finally, under Generally Accepted Accounting Principles (GAAP), Social Security is not consid-
ered to be a liability, so not counting it as such in this chapter is consistent with accounting
standards.
4. Why doesn’t the Federal Government follow normal business practice in its bookkeeping?
The Government is not a business, and accounting standards designed to illuminate how much a
business earns and how much equity it has could provide misleading information if applied na-
ively to the Government. The Government does not have a ‘‘bottom line’’ comparable to that of a
business corporation, but the Federal Accounting Standards Advisory Board (FASAB) has devel-
oped, and the Government has adopted, a conceptual accounting framework that reflects the
Government’s distinct functions and answers many of the questions for which Government
should be accountable. This framework addresses budgetary integrity, operating performance,
stewardship, and systems and controls. FASAB has also developed, and the Government has
adopted, a full set of accounting standards. Federal agencies now issue audited financial reports
that follow these standards, and an audited Government-wide financial report is issued as well.
In short, the Federal Government does follow generally accepted accounting principles (GAAP)
just as businesses and State and local governments do, although the relevant principles differ
depending on the circumstances. This chapter is intended to address the ‘‘stewardship objec-
tive’’—assessing the interrelated condition of the Federal Government and the Nation. The data
in this chapter illuminate the trade-offs and connections between making the Federal Govern-
ment ‘‘better off’’ and making the Nation ‘‘better off.’’
PART II—THE FEDERAL GOVERNMENT’S ASSETS AND LIABILITIES
Table 13–1 looks at the Government’s assets and li- ment liabilities have exceeded the value of assets (see
abilities retrospectively, summarizing what the Govern- chart 13–2) over this entire period, but in the late
ment owes as a result of its past operations netted 1970s a speculative run-up in the prices of oil and
against the value of what it owns. The table gives some other real assets temporarily boosted the value of Fed-
perspective by showing these net asset figures for a eral holdings. When those prices subsequently declined,
number of years beginning in 1960. To ensure com- real Federal asset values declined and only recently
parability across time, the assets and liabilities are have they regained the level they had reached in the
measured in terms of constant FY 2006 dollars and mid-1980s.
the balance is also shown as a ratio to GDP. Govern-
Chart 13-2. Net Federal Liabilities

Percent of GDP
60
55
50
45
40
35
30
25
20
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Currently, the total real value of Federal assets is Assets

estimated to be 79 percent greater than it was in 1960. Table 13–1 offers a comprehensive list of the financial
Meanwhile, Federal liabilities have increased by 246 and physical resources owned by the Federal Govern-
percent in real terms. The decline in the Federal net ment.
asset position has been partly due to persistent Federal Financial Assets: According to the Federal Reserve
budget deficits that have boosted debt held by the pub- Board’s Flow-of-Funds accounts, the Federal Govern-
lic in most years since 1960. Other factors have also ment’s holdings of financial assets amounted to $600
been important such as large increases in health bene- billion at the end of 2006. Government-held mortgages
fits promised for Federal retirees and the sharp rise (measured in constant dollars) reached a peak in the
in veterans’ disability compensation. The relatively slow early 1990s as the Government acquired mortgages
growth in Federal asset values has also reduced the from savings and loan institutions that had failed. The
Government’s net asset position. Government subsequently liquidated most of the mort-
The shift from budget deficits to budget surpluses gages it acquired from these bankrupt savings and
in the late 1990s temporarily checked the decline in loans. Meanwhile, Government holdings of other loans
Federal net assets. Currently, the net excess of liabil- have been declining in real terms since the mid-1980s.
ities over assets is about $6.2 trillion or about $20,600 The face value of mortgages and other loans overstates
per capita. As a ratio to GDP, the excess of liabilities their economic worth. OMB estimates that the dis-
over assets reached a peak of 54 percent in 1995; it counted present value of future losses and interest sub-
declined to 41 percent in 2000; it rose to 48 percent sidies on these loans was around $47 billion as of year-
in 2004; and it has declined slightly since then to end 2006. These estimated losses are subtracted from
around 46 percent of GDP at the end of 2006. The the face value of outstanding loans to obtain a better
average since 1960 has been 38 percent (see Table estimate of their economic worth.
13–1). Reproducible Capital: The Federal Government is a
major investor in physical capital and computer soft-
ware. Government-owned stocks of such capital have
13. STEWARDSHIP 181
Table 13–1. GOVERNMENT ASSETS AND LIABILITIES*

(As of the end of the fiscal year, in billions of 2006 dollars)
1960 1965 1970 1975 1980 1985 1990 1995 2000 2004 2005 2006
ASSETS
Financial Assets:
Cash and Checking Deposits .............................................. 48 69 43 35 54 35 47 49 65 38 36 51
Other Monetary Assets ......................................................... 2 1 1 2 2 2 2 1 7 2 2 5
Mortgages ............................................................................. 31 30 44 46 86 88 112 77 89 79 79 81
Other Loans .......................................................................... 114 157 197 199 255 331 235 190 226 228 218 209
less Expected Loan Losses ............................................. –1 –3 –5 –10 –20 –19 –22 –28 –43 –50 –42 –47
Other Treasury Financial Assets ......................................... 69 86 76 68 96 142 226 272 248 334 318 302
Subtotal ........................................................................ 263 341 356 340 474 579 601 562 592 631 610 602
Nonfinancial Assets:
Fixed Reproducible Capital: ................................................. 1,151 1,142 1,188 1,152 1,092 1,234 1,280 1,287 1,129 1,113 1,138 1,166
Defense ............................................................................ 992 932 942 861 773 898 922 901 737 702 718 736
Nondefense ...................................................................... 159 210 246 292 319 336 359 386 392 412 420 430
Inventories ............................................................................. 301 261 243 217 268 307 272 209 215 277 280 281
Nonreproducible Capital: ...................................................... 487 500 480 710 1,139 1,220 964 719 1,078 1,484 1,839 1,896
Land .................................................................................. 106 147 185 292 374 388 399 297 462 635 764 833
Mineral Rights .................................................................. 381 354 295 418 765 832 564 422 616 849 1,076 1,062
Subtotal ........................................................................ 1,940 1,903 1,911 2,080 2,498 2,762 2,516 2,216 2,422 2,875 3,257 3,343
Total Assets ............................................................................. 2,202 2,244 2,267 2,419 2,972 3,341 3,117 2,777 3,014 3,505 3,867 3,944
LIABILITIES
Debt held by the Public ............................................................ 1,313 1,351 1,202 1,221 1,519 2,511 3,421 4,547 3,960 4,557 4,725 4,829
Insurance and Guarantee Liabilities:
Deposit Insurance ................................................................. ............ ............ ............ ............ 2 10 82 6 1 1 1 1
Pension Benefit Guarantee .................................................. ............ ............ ............ 50 36 50 50 24 47 93 84 74
Loan Guarantees .................................................................. ............ 1 3 7 14 12 18 34 43 46 49 48
Other Insurance .................................................................... 36 32 25 23 31 19 23 20 19 19 42 20
Subtotal ........................................................................ 36 33 28 80 84 92 173 84 110 160 177 143

Pension and Post-Employment Health Liabilities:
Civilian and Military Pensions .............................................. 992 1,247 1,490 1,689 2,077 2,061 2,014 1,953 1,990 2,128 2,196 2,211
Retiree Health Insurance Benefits ....................................... 238 299 357 405 498 494 483 468 454 1,052 1,157 1,132
Veterans Disability Compensation ....................................... 218 274 328 363 372 307 277 303 642 981 1,155 1,154
Subtotal ........................................................................ 1,448 1,820 2,175 2,457 2,947 2,862 2,774 2,724 3,085 4,161 4,508 4,497
Environmental and Disposal Liabilities ..................................... 78 96 116 131 158 187 220 287 350 264 267 305
Other Liabilities:
Trade Payables and Miscellaneous ..................................... 31 38 49 60 94 123 169 140 121 209 217 222
Benefits Due and Payable ................................................... 24 28 38 40 51 57 68 79 90 109 120 129
Subtotal ........................................................................ 55 66 87 100 145 180 237 219 212 318 337 351
Total Liabilities ........................................................................ 2,930 3,366 3,608 3,989 4,852 5,832 6,826 7,860 7,717 9,460 10,015 10,125
Net Assets (Assets Minus Liabilities) .................................. –727 –1,122 –1,341 –1,570 –1,880 –2,491 –3,709 –5,083 –4,702 –5,955 –6,147 –6,181
Addenda:
Net Assets Per Capita (in 2006 dollars) .............................. –4,032 –5,783 –6,551 –7,279 –8,242 –10,432 –14,802 –19,037 –16,627 –20,234 –20,696 –20,623
Ratio to GDP (in percent) ...................................................... –24.9 –30.6 –30.6 –31.6 –31.6 –35.1 –44.7 –54.2 –41.1 –47.6 –47.5 –46.4
* This table shows assets and liabilities for the Government as a whole excluding the Federal Reserve System. Data for 2006 are extrapolated in some cases.
amounted to about $1.2 trillion in constant 2006 dollars items that in 2006 amounted to about 24 percent of
for most of the last 45 years (OMB estimate). This the value of its fixed capital.
capital consists of defense equipment and structures, Nonreproducible Capital: The Government owns sig-
including weapons systems, as well as nondefense cap- nificant amounts of land and mineral deposits. There
ital goods. Currently, less than two-thirds of the capital are no official estimates of the market value of these
is defense equipment or structures. In 1960, defense holdings (and of course, in a realistic sense, many of
capital was over 90 percent of the total. In the 1970s, these resources would never be sold). Researchers in
there was a substantial decline in the real value of the private sector have estimated what they are worth,
U.S. defense capital and there was another large de- however, and these estimates are extrapolated in Table
cline in the 1990s after the end of the Cold War. Mean- 13–1. Private land values fell sharply in the early
while, nondefense Federal capital has increased at an 1990s, but they have risen since 1993. It is assumed
average annual rate of around 2.2 percent. The Govern- here that Federal land shared in the decline and the
ment also holds inventories of defense goods and other subsequent recovery. Oil prices have been on a roller
coaster since the mid-1990s. They declined sharply in
1997–1998, rebounded in 1999–2000, fell again in 2001, ments associated with such commitments can be large.
and rose substantially in 2002–2006. These fluctuations The figures reported in Table 13–1 are estimates of
have caused the estimated value of Federal mineral the current discounted value of prospective future
deposits to fluctuate as well. In 2006, as estimated losses on outstanding guarantees and insurance con-
here, the combined real value of Federal land and min- tracts. The present value of all such losses taken to-
eral rights was higher than it has ever been, but only gether is about $140 billion. As is true elsewhere in
35 percent greater than in 1982. These estimates omit this chapter, this estimate does not incorporate the
some valuable assets owned by the Federal Govern- market value of the risk associated with these contin-
ment—such as works of art and historical artifacts— gent liabilities; it merely reflects the present value of
partly because such unique assets are unlikely ever expected losses. Although individually many of these
to be sold and partly because there is no comprehensive programs are large and potential losses can be a serious
inventory or realistic basis for valuing them. concern, these insurance and guarantee liabilities are
Total Assets: The total value of Government assets fairly small relative to total Federal liabilities or even
measured in constant dollars has risen sharply in the the total debt held by the public. They were less than
past four years, and was at an all-time high in 2006. 2 percent of total liabilities in 2006.
The Government’s asset holdings are vast. As of the Pension and Post-Employment Health Liabilities: The
end of 2006, Government assets were estimated to be Federal Government owes pension benefits as a form
worth about $4 trillion or 30 percent of GDP. of deferred compensation to retired workers and to cur-
rent employees who will eventually retire. It also pro-
Liabilities vides civilian retirees with subsidized health insurance
through the Federal Employees Health Benefits pro-
Table 13–1 includes all Federal liabilities that would gram and military retirees receive similar benefits. Vet-
normally be listed on a balance sheet. All the various erans are owed compensation for their service-related
forms of publicly held Federal debt are counted, as disabilities. While the Government’s employee pension
are Federal pension and health insurance obligations obligations have risen slowly, there has been a sharp
to civilian and military retirees including the disability increase in the liability for future health benefits and
compensation that is owed the Nation’s veterans, which veterans compensation. The discounted present value
can be thought of as a form of deferred compensation. of all these benefits was estimated to be around $4.5
The estimated liabilities stemming from Federal insur- trillion at the end of 2006 up from $3.1 trillion in
ance programs and loan guarantees are shown. The 2000. 2 There was a large expansion in Federal military
benefits that are due and payable under various Fed- retiree health benefits legislated in 2001.
eral programs are also included, but these liabilities Environmental and Disposal Liabilities: During
reflect only binding short-term obligations, not the Gov- World War II and the Cold War, the Federal Govern-
ernment’s full commitment under these programs. The ment constructed a vast industrial complex to study,
Government also has a responsibility to repair environ- produce and test nuclear weapons. Environmental con-
mental damage that resulted from nuclear weapons pro- tamination occurred at these sites. The estimated liabil-
duction, and that cost has been included in the Table ity shown here is based on the cleanup costs required
as well. by Federal, State and local laws and regulations. The
Future benefit payments that are promised through Department of Energy is responsible for managing this
Social Security and other Federal income transfer pro- cleanup. The Department of Defense is also charged
grams are not Federal liabilities in a legal or account- with cleaning up contamination from its waste disposal
ing sense. They are Federal responsibilities, and it is practices, leaks, spills and other risky activities. To-
important to gauge their size, but they are not binding gether the cleanup costs are estimated to amount to
in the same way as a legally enforceable claim would around 300 billion dollars in present value. 3
be. The budget projections and other data in Part III
are designed to provide a sense of these broader respon- The Balance of Net Liabilities
sibilities and their claim on future budgets. The Government need not maintain a positive bal-
Debt Held by the Public: The Federal Government’s ance of net assets to assure its fiscal solvency, and
largest single financial liability is the debt owed to the buildup in net liabilities since 1960 has not signifi-
the public. It amounted to about $4.8 trillion at the cantly affected Federal creditworthiness. Long-term
end of 2006. Publicly held debt declined for several Government interest rates in 2003 reached their lowest
years in the late 1990s because of the unified budget levels in 45 years, and in 2004–2006 they remained
surpluses at that time, but as deficits returned, publicly lower than at any time from 1965 through 2002. De-
held debt began to increase again. spite the historically low interest rates, there are limits
Insurance and Guarantee Liabilities: The Federal to how much debt the Government can assume without
Government has contingent liabilities arising from the putting its finances in jeopardy. Over an extended time
loan guarantees it has made and from its insurance
programs. When the Government guarantees a loan or 2 Estimates of these liabilities were derived from the Financial Report of the United
States Government for 2006 and earlier years. Values for years prior to 1997 were extrapo-
offers insurance, cash disbursements are often small lated.
3 Estimates of these liabilities were also derived from the Financial Report of the United
initially, and if a fee is charged the Government may States Government for 2006 and earlier years. Values for years prior to 1997 were extrapo-
even collect money; but the risk of future cash pay- lated.
13. STEWARDSHIP 183
horizon, the Federal Government must take in enough It is necessary to project the budget into the future
revenue to cover all of its spending including debt serv- to judge the prospects for long-run solvency. That is
ice. The Government’s ability to service its debt in the the subject of the next section.
long run cannot be gauged from a balance sheet alone.
PART III—THE LONG-RUN BUDGET OUTLOOK
A balance sheet, with its focus on obligations arising often best addressed in the present. It is not possible
from past transactions, can only show so much informa- to assess the likelihood of future risks without projec-
tion. For the Government, it is also important to antici- tions. A full treatment of all the relevant risks is be-
pate what future budgetary requirements might flow yond the scope of this chapter, but the chapter does
from current laws and policies. Despite the uncertainty show how long-run budget projections respond to
surrounding the assumptions needed for such esti- changes in some of the key economic and demographic
mates, very long-run budget projections can be useful parameters. Given the uncertainties, a useful first step
in sounding warnings about potential problems. Federal is to work out the implications of expected develop-
responsibilities extend well beyond the next five or ten ments on a ‘‘what if’’ basis.
years, and problems that may be small in that time
The Impending Demographic Transition
frame can become much larger if allowed to grow.
Programs like Social Security and Medicare are ex- In 2008, the first members of the huge generation
pected to continue indefinitely, and so long-range pro- born after World War II, the so-called baby boomers,
jections for Social Security and Medicare have been will reach age 62 and become eligible for early retire-
prepared for decades. Budget projections for individual ment under Social Security. Three years later, they will
programs, even important ones such as Social Security turn 65 and become eligible for Medicare. In the years
and Medicare, cannot reveal the Government’s overall that follow, the elderly population will steadily increase,
budgetary position. Only by projecting the entire budget putting serious strains on the budget.
is it possible to anticipate whether sufficient resources The pressures are expected to persist even after the
will be available to meet all the anticipated require- baby boomers are gone. The Social Security actuaries
ments for individual programs. It is also necessary to project that the ratio of workers to Social Security bene-
estimate how the budget’s future growth compares with ficiaries will fall from around 3.3 currently to a little
that of the economy to judge how well the economy over 2 by the time most of the baby boomers have
might be able to support future budgetary needs. retired. From that point forward, because of lower fer-
To assess the overall financial condition of the Gov- tility and improved mortality, the ratio is expected to
ernment, it is necessary to examine the future prospects continue to decline slowly. With fewer workers to pay
for all Government programs including the revenue the taxes needed to support the retired population,
sources that support Government spending. Such an budgetary pressures will continue to grow. The problem
assessment reveals that the key drivers of the long- posed by the demographic transition is a permanent
range deficit are, not surprisingly, Social Security and one.
Medicare, along with Medicaid—the entitlement pro- Currently, the three major entitlement programs—
gram that provides medical assistance, including acute Social Security, Medicare, and Medicaid—account for
and long-term care to low-income persons including 43 percent of non-interest Federal spending, up from
families with dependent children, as well as aged, blind 30 percent in 1980. By 2035, when the remaining baby
or disabled individuals. Medicaid, like Medicare and boomers will be in their 70s and 80s, these three pro-
Social Security, is projected to grow more rapidly than grams could account for about two-thirds of non-interest
the economy over the next several decades and to add Federal spending even with the reforms proposed in
substantially to the overall budget deficit. Under cur- this Budget. At the end of the projection period, in
rent law, there is no offset anywhere in the budget 2080, the figure could rise to around three-quarters
large enough to cover all the demands that will eventu- of non-interest spending. In other words, almost all of
ally be imposed by Social Security, Medicare, and Med- the budget, aside from interest, would go to these three
icaid. programs alone. To say the least, that would severely
Future budget outcomes depend on a host of un- reduce the flexibility of the budget, and the Govern-
knowns—constantly changing economic conditions, un- ment’s ability to respond to new challenges.
foreseen international developments, unexpected demo-
graphic shifts, the unpredictable forces of technological An Unsustainable Path
advance, and evolving political preferences to name a These long-run budget projections show clearly that
few. These uncertainties make even short-run budget the budget is on an unsustainable path, although the
forecasting quite difficult, and the uncertainties in- expansion of the entitlement programs and the rise in
crease the further into the future projections are ex- the deficit unfold gradually. The budget deficit is pro-
tended. While uncertainty makes forecast accuracy dif- jected to decline as the economy expands over the next
ficult to achieve, it enhances the importance of long- several years until it reaches balance in 2012, while
run budget projections because future problems are most of the baby boomers are still in the work force.
The budget is projected to remain in surplus for some in the long run, so that spending increases in real
years after 2012, but the deficit eventually returns and terms whenever there is real economic growth.
then begins a steady increase. Without further reforms, In past budgets, these long-run budget projections
by the end of this chapter’s projection period in 2080, have jumped off from the end point for the current
rising deficits would have driven publicly held Federal budget. This year’s Budget includes the effects of add-
debt to levels well above the previous peak level rel- ing personal retirement accounts to Social Security.
ative to GDP reached at the end of World War II. Personal accounts are one element within a set of larg-
There is likely to be a crisis before that point is reached er reforms that would restore solvency to Social Secu-
that will force budgetary changes, but the timing of rity. The Administration has not yet specified a com-
the crisis and its resolution are impossible to predict, plete set of reforms to achieve solvency. Within the
and timely, comprehensive entitlement reforms could current budget horizon, these other reforms would not
avoid such a crisis. have significant budget effects. In the long run, how-
The revenue projections start with the budget’s esti- ever, their effects would be significant. Because these
mate of receipts under the Administration’s proposals other reforms are not yet specified, the long-range pro-
for the next five years. In the long run, receipts are jections shown here do not incorporate any Social Secu-
assumed to return gradually to their average as a share rity reforms. Showing the personal account proposal
of GDP over the last 40 years—18.3 percent. in isolation would give a distorted picture of the budget
The projection of discretionary spending is essentially effects of comprehensive Social Security reform. An al-
arbitrary, because discretionary spending is determined ternative projection, however, that incorporates the im-
annually through the legislative process, and no for- pact of personal accounts is shown later in this presen-
mula can dictate future spending in the absence of leg- tation.
islation. Alternative assumptions have been made for The long-run budget outlook is highly uncertain. With
discretionary spending in past budgets. Holding discre- pessimistic assumptions, the fiscal picture deteriorates
tionary spending unchanged in real terms is the ‘‘cur- even sooner than in the base projection. More optimistic
rent services’’ assumption used for baseline budget pro- assumptions imply a longer period before the pressures
jections when there is no legislative guidance on future of rising entitlement spending overwhelm the budget.
spending levels. Extending this assumption over many But despite the uncertainty, these projections clearly
decades, however, is not realistic. When the population show that under a wide range of forecasting assump-
and economy grow, as assumed in these projections, tions, the resources generated by the programs them-
the demand for public services is very likely to expand selves will be insufficient to cover the long-run costs
as well. The current base projection assumes that dis- of Social Security and Medicare. (For a further discus-
cretionary spending keeps pace with the growth in GDP sion of the forecasting assumptions used to make these
Table 13–2. LONG-RUN BUDGET PROJECTIONS

(receipts, outlays, surplus or deficit, and debt as a percent of GDP)
1980 1990 2000 2010 2020 2030 2040 2060 2080
Receipts ......................................................................................................... 19.0 18.0 20.9 18.3 18.3 18.3 18.3 18.3 18.3
Outlays:
Discretionary .............................................................................................. 10.1 8.7 6.3 6.6 4.8 4.8 4.8 4.8 4.8
Mandatory:
Social Security ...................................................................................... 4.3 4.3 4.2 4.2 4.9 5.8 6.0 6.1 6.3
Medicare ................................................................................................ 1.1 1.7 2.0 2.7 3.4 4.5 5.3 5.9 6.1
Medicaid ................................................................................................ 0.5 0.7 1.2 1.4 1.9 2.2 2.5 3.0 3.6
Other ..................................................................................................... 3.7 3.2 2.4 2.3 1.8 1.5 1.3 1.0 0.9
Subtotal, mandatory ......................................................................... 9.6 9.9 9.8 10.6 12.0 14.0 15.1 16.0 16.9
Net Interest ................................................................................................ 1.9 3.2 2.3 1.7 1.0 0.8 1.6 4.1 8.0
Total outlays ..................................................................................... 21.7 21.8 18.4 18.9 17.8 19.7 21.4 24.9 29.7
Surplus or Deficit (–) ..................................................................................... –2.7 –3.9 2.4 –0.6 0.5 –1.4 –3.1 –6.6 –11.4
Primary Surplus or Deficit (–) ....................................................................... –0.8 –0.6 4.7 1.2 1.5 –0.5 –1.6 –2.5 –3.4
Federal Debt Held by the Public .................................................................. 26.1 42.0 35.1 35.2 18.7 17.1 31.5 82.0 160.3
Addendum, without the Budget’s Mandatory Proposals:

Mandatory Outlays .................................................................................... 9.6 9.9 9.8 10.7 12.3 14.6 16.1 17.8 19.6
Surplus or Deficit (–) ................................................................................. –2.7 –3.9 2.4 –0.7 0.1 –2.3 –4.9 –10.7 –19.0
Primary Surplus or Deficit (–) ................................................................... –0.8 –0.6 4.7 1.0 1.2 –1.1 –2.6 –4.3 –6.1
Federal Debt Held by the Public .............................................................. 26.1 42.0 35.1 35.5 21.1 24.4 47.6 130.3 262.1
Note: The figures shown in this table for 2020 and beyond are the product of a long-range forecasting model maintained by the Office of Management and Budget. This model
is separate from the models and capabilities that produce detailed programmatic estimates in the Budget. It was designed to produce long-range forecasts based on additional
assumptions regarding growth of the economy, the long-range evolution of specific programs, and the demographic and economic forces affecting those programs. The model,
its assumptions, and sensitivity testing of those assumptions are presented in this chapter.
13. STEWARDSHIP 185
budget projections, see the technical note at the end faces a substantial shortfall in earmarked income com-
of this chapter.) pared with projected outgo. Although rising faster than
GDP, under these assumptions, Medicare grows less
Alternative Policy, Economic, and Technical
Assumptions rapidly than it has historically, so that even without
reform the program’s growth is constrained. The effect
The quantitative results discussed above are sensitive of the Administration’s proposals is to reduce the imbal-
to changes in underlying policy, economic, and technical ance in Medicare by about $8 trillion over the 75-year
assumptions. Some of the most important of these alter- forecasting horizon according to actuarial estimates. In-
native assumptions and their effects on the budget out- stead of facing a $32 trillion shortfall the program
look are discussed below. They generally show that would face a $24 trillion shortfall, if the Administra-
there are mounting deficits under most reasonable pro- tion’s proposals were adopted in full. The proposals
jections of the budget. would not eliminate the shortfall completely, but they
1. Health Spending: The projections for Medicare over would reduce it substantially.
the next 75 years are based on an extension of the
Eventually, the rising trend in health care costs for
Administration’s policy proposals to control costs in the
both Government and the private sector will have to
Medicare program. These reforms are expected to re-
duce Medicare expenditures relative to the actuarial end, but it is hard to know when and how that will
projections in the 2006 Medicare Trustees’ Report. Fol- happen. Improved health and increased longevity are
lowing the recommendations of its Technical Review highly valued, and society has shown that it is willing
Panel, the Medicare trustees assume that over the long to spend a larger share of income on them than it
run ‘‘age-and gender-adjusted, per-beneficiary spending did in the past. Whether society will be willing to de-
growth exceeds the growth of per-capita GDP by 1 per- vote the large share of resources to health care implied
centage point per year.’’ This implies that total Medi- by these projections, even with the Administration’s
care spending rises faster than GDP throughout the proposals, is an open question. The alternatives high-
projection period given that the Medicare population light the effect of raising or lowering the projected
is expanding as the population ages, and that Medicare growth rate in per capita health care costs by 1⁄4 per-
centage point.
2. Entitlement Savings: The Administration has pro- above. These proposals, if adopted, would have ongoing
posed a number of savings measures in entitlement budgetary effects. The chart below shows the long-run
programs in addition to the Medicare savings discussed deficit with and without these reforms.
3. Alternative Revenue Shares: In the base projection, that have restored the long-term average tax ratio. The
tax receipts are held constant relative to GDP at their chart below shows the effects of alternative receipts
average over the last 40 years—18.3 percent of GDP. assumptions. Allowing receipts to rise to 18.6 percent
Tax receipts have risen above this ratio from time to of GDP would reduce the long-run budget deficit, while
time, most recently at the end of the 1990s, but periods holding receipts to 18.0 percent of GDP would have
of high taxes have always been followed by tax changes the opposite effect.
4. Productivity: The rate of future productivity growth tionary spending rises with GDP. In the latter half
has a major effect on the long-run budget outlook. It of the 1990s, after two decades of much slower growth,
is also highly uncertain. Over the next few decades the rate of productivity growth increased unexpectedly
an increase in productivity growth would reduce pro- and it increased again in the period 2000–2003. The
jected budget deficits appreciably. Higher productivity underlying trend of productivity growth has clearly in-
growth adds directly to the growth of the major tax creased since the mid 1990s, and that increase is pro-
bases, while it has a smaller immediate effect on outlay jected to persist in these long-run projections. This in-
growth even assuming that in the long-run discre- crease in productivity growth is one of the most wel-
13. STEWARDSHIP 187
come developments of the last several years. Although here assume that real GDP per hour will continue to
the long-run growth rate of productivity is inherently grow at a 2.3 percent annual rate. The alternatives
uncertain, growth in real GDP per hour averaged 2.2 highlight the effect of raising the projected productivity
percent per year from 1948 through 1973; it has grown growth rate by 1⁄4 percentage point and the effect of
2.3 percent per year since 2000, and the projections lowering it by the same amount.
5. Population: The key assumptions for projecting woman in the future, just slightly below the re-
long-run demographic developments are fertility, immi- placement rate needed to maintain a constant pop-
gration, and mortality. ulation—2.1 births.
• The demographic projections assume that fertility
will average between 1.9 and 2.0 births per
• The rate of immigration is assumed to average ward pressure on population growth from low fer-
around 900,000 per year in these projections. tility and allows total population to expand
Higher immigration relieves some of the down-
throughout the projection period, although at a

much slower rate than has prevailed historically.
• Mortality is projected to decline, i.e., people are 2004 to 81.8 years by 2080. A technical panel to
expected to live longer. The average female life- the Social Security Trustees recently reported that
span is projected to rise from 79.6 years in 2004 the improvement in longevity might even be great-
to 85.1 years by 2080, and the average male life- er.
span is projected to increase from 74.7 years in
Actuarial Projections for Social Security and at least part of their financing, while the programs’
Medicare benefits largely go to those who are retired. The impor-
tance of these programs for the retirement security of
Social Security and Medicare are the Government’s
current and future generations makes it essential to
two largest entitlement programs. Both rely on payroll
understand their long-range financial prospects. Both
tax receipts from current workers and employers for
programs’ actuaries have calculated that they face per-
13. STEWARDSHIP 189
sistent long-run deficits. How best to measure the long- through premiums and general revenues. Under reason-
run imbalance in Social Security is a challenging ana- able assumptions, however, each program embodies a
lytical question; the imbalance may be even more dif- huge financial deficiency, and it will be very difficult
ficult to measure in Medicare, which includes both Hos- for the Government as a whole to maintain control
pital Insurance (HI), funded through the payroll tax, of the budget without addressing these programs’ finan-
and Supplementary Medical Insurance (SMI), financed cial problems.
Social Security: The Long-Range Challenge
Social Security provides financial security for the elderly, the disabled, and survivors. The Social Security system
is intended to be self-financing over time. The principle of self-financing is important, because it compels correc-
tions in the event that projected benefits consistently exceed dedicated receipts.
While Social Security is running surpluses today, it will begin running cash deficits 10 years from now. Social Se-
curity’s spending path is unsustainable under current law. The retirement of the baby-boom generation, born fol-
lowing World War II, will begin to increase greatly the number of Social Security beneficiaries within five years.
Demographic trends toward lower fertility rates and longer life spans mean that the ratio of retirees to the work-
ing population will remain permanently higher following the baby boomers’ passage through the system. The
number of workers available to support each beneficiary is projected to decline from 3.3 today to 2.2 in 2030, and
to continue to decline slowly from there. This decline in the workforce available to support retiree benefits means
that the Government will not be able to meet current-law benefit obligations at current payroll tax rates.
The size of Social Security’s future shortfall cannot be known with precision, but a gap between Social Security re-
ceipts and outlays emerges under a wide range of reasonable forecasting assumptions. Long-range uncertainty un-
derscores the importance of creating a system that is financially stable and self-contained. Otherwise, the de-
mands created by Social Security could compromise the rest of the budget and the Nation’s economic health. The
actuarial shortfall between future benefits and income is estimated to be $6.4 trillion over the next 75 years. Ex-
tending the horizon to perpetuity increases the imbalance to $15.3 trillion, excluding trust fund assets as these do
not represent a source of funds from a unified budget perspective.
The current structure of Social Security leads to substantial generational differences in the average rate of return
people can expect from the program. While previous generations have fared extremely well, people born today can
expect to receive less than a two percent annual real rate of return on their total payroll taxes (including the em-
ployer’s portion, which most economists believe is ultimately borne by labor). Moreover, such estimates in a sense
overstate the expected rate of return for future retirees, because they assume no changes in current-law taxes or
benefits, even though such changes are needed to meet Social Security’s financing shortfall. As an example, a
1995 analysis found that after adjusting revenues to keep the system solvent, a typical worker born in 2000 would
receive a 1.5 percent rate of return instead of a 1.7 percent rate of return.
One way to address the issues of uncertainty and declining rates of return, while protecting national savings,
would be to allow individuals to invest some of their payroll taxes in personal retirement accounts. The budget in-
cludes the estimated impact from the creation of personal accounts, funded through the Social Security payroll
tax. The Administration has also embraced the concept of progressive indexing, which would significantly con-
tribute to the solvency of the system by partially indexing the growth of benefits for higher-wage workers to infla-
tion rather than wage growth.
Medicare: The Long-Range Challenge
Medicare finances health insurance for tens of millions of Americans, including most of the nation’s seniors and
many individuals with disabilities. It is composed of two programs: Hospital Insurance (HI) or Part A, which cov-
ers medical expenses relating to hospitalization and other institutional care, and Supplementary Medical Insur-
ance (SMI) or Part B, which pays for physicians’ services and other related expenditures. Starting in 2006, Medi-
care began to offer a voluntary prescription drug benefit, Medicare Part D, which is funded out of the SMI Trust
Fund.
Like Social Security, HI is intended to be self-financing through dedicated taxes. According to the Medicare trust-
ees’ most recent report, the Trust Fund is projected to be depleted in 2018. Looking at the long run, the Medicare
actuaries project a 75-year unfunded promise of Medicare’s HI trust fund of around $11.0 trillion (net present
value). However, this measure tells less than half the story, because it does not include the deficiency in Medi-
care’s Part B and Part D programs. The main source of dedicated revenues to the SMI Trust Fund is beneficiary
premiums, which generally cover about one-quarter of its expenses. SMI’s funding structure creates an enormous
financing gap for the program and is the largest contributor to the total Medicare program shortfall over the next
75 years of $32.3 trillion. Extending the horizon to perpetuity increases the total shortfall to $70.8 trillion. SMI’s
financing gap is covered by an unlimited tap on general revenues. According to the Medicare Trustees’ 2006 re-
port, ‘‘Soon after the Part D program becomes fully implemented in 2006, general revenue transfers are expected
to constitute the largest single source of income to the Medicare program as a whole—and would add significantly
to the Federal Budget pressures.’’
This bifurcated trust fund structure finances Medicare as if the program offers two separate, unrelated benefits,
instead of recognizing that Medicare provides related and complementary health care services to its beneficiaries.
The Medicare Prescription Drug, Improvement, and Modernization Act (MMA), which established Part D, also
took an important first step toward improving Medicare sustainability by requiring the Medicare Trustees’ Report
to include a new, comprehensive fiscal analysis of the program’s financing that highlights the amount of general
revenue transfers used to fund Medicare. If the percent of Medicare funding that is from general fund transfers
reaches 45 percent within the current or next six years of the projection (2006–2012), the Trustees issue a finding
of ‘‘excess general revenue Medicare funding’’. In their 2006 report, the Trustees found that general revenue fund-
ing would first reach 45 percent level in fiscal year 2012, within the seven-year window. If a finding is present in
two consecutive Trustees’ reports, then a ‘‘Medicare funding warning’’ is triggered. This warning requires the
President to propose legislation to restore Medicare spending to sustainable levels, but it does not mandate Con-
gressional action.
The Budget proposes to strengthen the MMA provision by modestly slowing the rate of Medicare growth if the
MMA threshold is exceeded. The lower growth would be achieved through a four-tenths of a percent reduction to
all payments beginning the year the threshold is exceeded. The change would only take effect if the President and
Congress fail to agree on legislation to bring Medicare spending back into line with the threshold established by
the MMA. The reduction would grow by four-tenths of a percent every year the shortfall continues to occur. This
proposal would improve Medicare’s sustainability by slowing the rate of growth in spending.
The Social Security and Medicare Trustees’ Projec- those proposals would have. More recently, the trustees’
tions: In their annual reports and related documents, reports have also included a projection of the deficiency
the Social Security and Medicare trustees typically in perpetuity. This is the clearest way to see the total
present calculations of the 75-year actuarial imbalance imbalance in both programs.
or deficiency for Social Security and Medicare under The present value of the Social Security imbalance
current-law. The calculation covers current workers and over the next 75 years was estimated to be $6.4 trillion
retirees, as well as those projected to join the program as of January 1, 2006. The comparable estimate for
within the next 75 years (this is the so-called ‘‘open- Medicare was $32.3 trillion. These estimates exclude
group’’; the ‘‘closed-group’’ covers only current workers the trust fund balances because the balances do not
and retirees). These estimates measure the present represent a source of funds from a unified budget per-
value of each program’s future benefits net of future spective. (The estimates in Table 13–3 were prepared
income. They are complementary to the flow projections by the Social Security and Medicare actuaries, and they
described in the preceding section, but unlike those pro- are based on the intermediate economic and demo-
jections they do not reflect the Administration’s pro- graphic assumptions used for the 2006 trustees’ reports.
posals to reform the Medicare program and the effects These differ in some respects from the assumptions
13. STEWARDSHIP 191
used for the long-run budget projections described in at the top of Table 13–3 reveal that total Medicare
the preceding section. Table 13–3 would show a smaller benefits exceed future taxes and premiums by $70.8
imbalance if the economic assumptions used for the trillion in present value. This is due to an expected
budget had been used for the calculations. In addition, excess of benefits over taxes for current participants
because the estimates are on the basis of current law, over their lifetimes, but also for future generations.
they do not reflect the Administration’s proposals to Unlike Social Security, the imbalance is not simply the
reform Medicare. Under the Adminstration’s proposals, inherited result of a pay-as-you-go program that was
the Medicare actuaries estimate that the imbalance never fully funded, and which faces a demographic
would be reduced to about $24 trillion. crunch. That is part of the problem, but even more
Doing the calculations for a 75-year horizon under- fundamental is the assumption that medical costs con-
states the deficiencies, because the 75-year actuarial tinue to rise in excess of general inflation so that med-
calculations omit the large deficits that continue to ical spending increases relative to total output in the
occur beyond the 75th year. The understatement is sig- economy.
nificant, even though values in the distant future are General revenues have covered about 75 percent of
discounted by a large amount. Since 2004, the Social SMI program costs for many years, with the rest being
Security and Medicare actuaries have also presented covered by premiums paid by the beneficiaries. In Table
the actuarial imbalances calculated in perpetuity with- 13–3, only the receipts explicitly earmarked for financ-
out assuming a fixed horizon. Table 13–3 shows how ing these programs have been included. The
much these distant benefits add to the programs’ imbal- intragovernmental transfer is not financed by dedicated
ances. For Social Security, the imbalance in perpetuity tax revenues, and the share of general revenues that
is $15.3 trillion and for Medicare it is $70.8 trillion would have to be devoted to SMI to close the gap in-
as of January 1, 2006. (Again, the Medicare estimate creases substantially under current law. Other Govern-
would be smaller if the effects of the Administration’s ment programs also have a claim on these general reve-
policy proposals had been included in the calculation.) nues. From the standpoint of the Government as a
The imbalance estimated on a perpetuity basis is the whole, only receipts from the public can finance expend-
amount that the Government would have to raise in itures.
the private capital markets to resolve the program’s A significant portion of Medicare’s actuarial defi-
imbalance permanently (given current assumptions). If ciency is caused by the rapid expected increase in fu-
nothing else changes, the estimated imbalance will ture benefits due to rising health care costs. Some,
grow every year at approximately the rate of interest, perhaps most, of the projected increase in relative
just as an unpaid debt grows with interest each year health care costs reflects improvements in the quality
it remains outstanding. For Social Security this implies of care, although there is also evidence that medical
an increase of approximately $600 billion in 2006 and errors, waste, and excessive medical liability claims add
growing amounts with every year that the imbalance needlessly to costs. But even though the projected in-
remains unaddressed. The comparable imbalance in creases in Medicare spending are likely to contribute
Medicare is much larger than the Social Security imbal- to longer life-spans and safer treatments, the financial
ance. The exact size of the imbalance is harder to esti- implications remain the same. As long as medical costs
mate for Medicare because of greater uncertainty re- continue to outpace the growth of GDP and other ex-
garding the future growth of medical costs. penditures, as assumed in these projections, the finan-
Social Security: The current deficiency in Social Secu- cial pressure on the budget will mount, and that is
rity is essentially due to the fact that past and current reflected in the estimates shown in Tables 13–2 and
participants will receive more benefits than they have 13–3.
paid for with taxes (calculated in terms of present val- The Trust Funds and the Actuarial Deficiency: The
ues). By contrast, future participants—those who are fact that a special account or trust fund exists does
now under age 15 or not yet born—are projected to not necessarily mean that the Government saved the
pay in present value about $0.3 trillion more than they money recorded there. The trust fund surpluses could
will collect in benefits. This can be seen by comparing have added to national saving if overall government
the total deficiency in perpetuity, $15.3 trillion, with borrowing from the public had actually been reduced
the excess of benefits over taxes for current program because of the trust fund accumulations. But it is im-
participants, $15.0 trillion, from Table 13–3. In other possible to know for sure whether this happened or
words, the taxes that future participants are expected not.
to pay will be almost large enough to cover the benefits At the time Social Security or Medicare redeems the
due them under current law, but not large enough to debt instruments in the trust funds to pay benefits
cover those benefits plus the benefits promised to cur- not covered by income, the Treasury will have to turn
rent program participants in excess of the taxes paid to the public capital markets to raise the funds to fi-
by current program participants. nance the benefits, just as if the trust funds had never
Medicare: Extending the horizon to perpetuity shows existed. From the standpoint of overall Government fi-
that the benefits due future participants will eventually nances, the trust funds do not reduce the future burden
exceed projected payroll tax receipts and premiums by of financing Social Security or Medicare benefits, and
a huge margin. The projections into perpetuity shown for that reason, the trust funds are not netted against
Table 13–3. BENEFITS IN EXCESS OF FUTURE TAXES AND PREMIUMS—ACTUARIAL PRESENT VALUES
In Perpetuity as of January 1, in Trillions of Dollars 2004 2005 2006
Social Security ................................................................................................................................................................... ................ ................ 11.9 12.8 15.3

Medicare .............................................................................................................................................................................. ................ ................ 61.9 68.4 70.8
Social Security and Medicare .......................................................................................................................................... ................ ................ 73.8 81.2 86.0
Over a 75–Year Projection Period as of January 1, in Trillions of Dollars 2002 2003 2004 2005 2006
Social Security
Future benefits less future taxes for those age 62 and over ....................................................................................... 4.1 4.3 4.5 4.9 5.3
Future benefits less future taxes for those age 15 to 61 ............................................................................................. 7.2 7.4 8.0 8.7 9.6
Future benefits less taxes for those age 14 and under and those not yet born ........................................................ –6.7 –6.8 –7.3 –7.9 –8.5
Net present value for present and future participants .............................................................................................. 4.6 4.9 5.2 5.7 6.4
Medicare
Future benefits less future taxes for those age 65 and over ....................................................................................... 2.5 2.8 3.8 4.0 4.2
Future benefits less future taxes for those age 15 to 64 ............................................................................................. 10.4 12.2 20.9 22.4 24.9
Future benefits less taxes for those age 14 and under and those not yet born ........................................................ 0.4 0.8 3.4 3.6 3.3
Social Security and Medicare

Future benefits less future taxes for those who have attained eligibility ..................................................................... 6.6 7.1 8.3 8.9 9.5
Future benefits less future taxes for those over age 15 who have not yet attained eligibility ................................... 17.6 19.7 28.9 31.0 34.5
Future benefits less taxes for those age 14 and under and those not yet born ........................................................ –6.3 –6.0 –3.9 –4.3 –5.3
Addendum:
Actuarial deficiency as a percent of the discounted payroll tax base:
Social Security ................................................................................................................................................................. –1.87 –1.92 –1.89 –1.92 –2.02
Medicare HI ..................................................................................................................................................................... –2.02 –2.40 –3.12 –3.09 –3.51
future benefits in Table 13–3. The eventual claim on ever, the lost revenue occurs now, while the decrease
the Treasury is better revealed by the difference be- in future outlays is in the distant future beyond the
tween future benefits and future taxes or premiums. budget window, and the Federal Government must in-
In any case, trust fund assets remain small in size crease its borrowing to make up for the lost revenue
compared with the programs’ future obligations and in the meantime. If policymakers only focus on the
well short of what would be needed to pre-fund future Government’s near-term borrowing needs, a reform
benefits as indicated by the programs’ actuarial defi- such as this would appear to worsen the Government’s
ciencies. Historically, Social Security and Medicare’s HI finances, whereas the policy actually has a neutral im-
program were financed mostly on a pay-as-you-go basis, pact in the long run.
whereby workers’ payroll taxes were immediately used Now suppose that future outlays were instead re-
to pay retiree benefits. For the most part, workers’
duced by a little more than $100 in present value.
taxes have not been used to pre-fund their own future
In this case, the actuarial deficiency would actually
benefits, and taxes were not set at a level sufficient
to pre-fund future benefits had they been saved. decline, even though the Government’s borrowing needs
The Importance of Long-Run Measures in Evaluating would again increase if the savings occurred outside
Policy Changes: Consider a proposed policy change in the budget window. Focusing on the Government’s
which payroll taxes paid by younger workers were re- near-term borrowing alone, therefore, can lead to a bias
duced by $100 this year while the expected present against policies that could improve the Federal Govern-
value of these workers’ future retirement benefits were ment’s overall long-run fiscal condition. Taking a longer
also reduced by $100. The present value of future ben- view of policy changes and considering measures of the
efit payments would decrease by the same amount as Government’s fiscal condition other than the unified
the reduction in revenue. On a cash flow basis, how- budget surplus or deficit can correct for such mistakes.
PART IV—TAX COMPLIANCE, NATIONAL WEALTH, AND SOCIAL INDICATORS
To obtain a full picture of the Government’s financial additional information beyond the narrow list of Gov-
condition it is necessary to examine a broad range of ernment-owned assets and liabilities. It is even nec-
13. STEWARDSHIP 193
essary to consider more information than is contained more aggressive enforcement by the IRS, and an im-
in the long-term projections of the budget. This final proved economic environment have tended to decrease
section presents a sample of such additional informa- the gap, although inflation and the overall growth of
tion. It is intended to provide insight into the full range the economy have tended to increase compliance rates
of resources the Government can draw upon to meet over the past six years.
its long-term obligations and also to indicate in a sum- Due to changes in methodologies, comparisons be-
mary way what the Nation obtains in exchange for tween the 2001 estimates and those from earlier studies
the resources it provides the Government. should be made cautiously. However, it does appear
The first piece of additional information is analysis that the voluntary compliance rate has not changed
of compliance with the nation’s tax laws, the so-called much since the 1980s. The IRS previously reported vol-
‘‘tax gap.’’ The Government does not collect in a timely untary compliance rates of 87 percent in 1988, 86 per-
manner all of the taxes it is legally owed, as explained cent in 1985, and 84 percent in 1983. While the overall
in detail below (along with some proposals to narrow rate seems to have moved relatively little over time,
the gap). That discussion is followed by an investigation each one percentage point change significantly impacts
of national wealth and the contributions the Federal revenue. A one percentage point improvement would
Government has made to the wealth of private persons increase revenue by $21 billion per year based on 2001
and other levels of government. The final section dis- numbers.
cusses a range of economic and social indicators which The IRS’s compliance estimates, primarily based on
provide information about the outcomes of Government random audits of individuals and businesses, are not
policies. precise, but give a good general sense of the size of
the tax gap and patterns in compliance. This sort of
Improving Tax Fairness and Federal Finances
information is critical for effectively targeting IRS en-
through Better Tax Compliance
forcement programs to yield the greatest improvement
The Internal Revenue Service (IRS) collects over 95 with the smallest cost and burden on taxpayers. The
percent of total Federal receipts, $2.4 trillion in 2006. IRS’ estimates are most accurate for underpayments
However, not every dollar of tax legally owed is actually of known taxes as recorded in IRS financial systems,
paid. In general, taxpayers comply with the law by and for individual income tax compliance studied
filing returns and paying their taxes on time, but some through the recent random National Research Program
do not comply either because they do not understand (NRP) study. Non-filing estimates come from studies
their obligations due to the complexity of the tax law of census data and are somewhat less precise. The
or because they seek to avoid those obligations. weakest portions of the IRS’ estimates are in areas
Tax Compliance: In 2006, the IRS released updated where no recent studies have been completed and the
results of its first large study in two decades of the IRS is relying on older data (e.g., for partnerships and
difference between taxes owed and taxes actually corporations).
paid—the ‘‘tax gap.’’ The IRS estimated that taxpayers The gross tax gap results from a variety of honest
initially underpaid by $345 billion in 2001. This equates taxpayer errors and intentional noncompliance. Of the
to a voluntary compliance rate of 84 percent. Late pay- total, 82 percent comes from underreporting of tax li-
ments and IRS enforcement action reduced this to a ability (see chart). A significant portion of the gap also
net tax gap of $290 billion, raising the net compliance comes from underpayment of known tax debts and peo-
rate to 86 percent. The Department of the Treasury ple who fail to file returns. Individual income taxes,
does not have estimates of the tax gap for the years the largest source of Federal receipts, account for 71
after 2001. It is possible, however, that lower tax rates, percent of the tax gap.
Chart 13-10. Sources of the Gross Tax Gap

Dollars in billions
Nonfiling $27
8%
Underpayment $33
10%
Underreporting of Liability $285

83%
The highest compliance rates come in areas where The challenge is to find ways to improve compliance
the IRS has good information about income, because without unduly burdening compliant taxpayers or the
it is reported by third parties (e.g., Form W-2, reporting economy. For example, as noted above, income reported
wage income from employers and Form 1099, reporting to the IRS by third parties is claimed on tax returns
various third party payments, including interest from at a far higher rate than other income. Requiring third-
banks). The IRS estimates that 95 percent of income party reporting of all income would likely raise compli-
with third-party reporting but no withholding (e.g., in- ance levels. However, this is not possible in all cases
terest income, dividends) is declared on taxpayer re- and even where it is possible it might require burden-
turns. Where there is tax withholding, as in the case some new reporting requirements for individuals and
of most wages, nearly 99 percent of the amounts re- businesses. For example, individuals paying a con-
ported by payers is declared on taxpayer returns. tractor or purchasing a car might be required to file
Conversely, error rates are high for income with little reports to the IRS reporting these transactions. Such
or no third-party reporting. For example, an estimated broad expansions of reporting requirements would be
43 percent of the tax gap comes from business income excessively burdensome, and that this consideration
that should be reported on individual returns (Forms outweighs the gains they might bring in increased com-
1040) but goes unreported to the IRS (see chart). . pliance.
Improving Tax Compliance: While the tax gap can Similarly, requiring much more detailed documenta-
never be entirely eliminated, reducing the gap by im- tion, such as evidence supporting claims for deductions
proving compliance is important because non-compliant and credits or providing accounting records supporting
taxpayers impose unacceptable burdens on other tax- business income claims, would quite possibly improve
payers and on Federal finances. compliance. In some cases more detailed documentation
may be appropriate. However, unless carefully targeted,
Table 13–4. SOURCES OF THE TAX GAP FROM INCOME this is likely to impose an unacceptable increase in
UNDERREPORTING cost on both taxpayers and the IRS and to decrease
Contribu- Percent
privacy.
tion Share Another approach to improving compliance would be
to the of the to change the tax code to remove tax benefits wherever
Tax Gap Overall
in Dollars Tax Gap there is the potential for abuse. For example, deduc-
tions for non-cash giving could be prohibited. This
Business income underreported by individuals including small would prevent the overstatement of charitable deduc-
business owners ..................................................................... 148 43 tions by some taxpayers. However, it would also impose
Non-business income underreporting and improper deductions a tax increase on the millions of taxpayers who cur-
and credits .............................................................................. 88 26
rently take legitimate deductions for non-cash giving.
Corporate income underreporting ............................................... 30 9
Other underreporting ................................................................... 19 6 Compliant taxpayers are likely to regard this approach
as overly broad. Finally, much higher audit rates might
Total Underreporting ................................................................... 285 84
improve compliance, but would be extremely expensive
13. STEWARDSHIP 195
and unless properly targeted could be unduly burden- active support of the Congress to implement tax law
some to honest taxpayers. changes and provide funding for these improvements.
The Administration has developed a carefully tar-
The Federal Contribution to National Wealth
geted plan for reducing the tax gap, which is described
in the Department of the Treasury’s ‘‘A Comprehensive The Government relies on private wealth to support
Strategy for Reducing the Tax Gap’’ (see its activities. It also contributes to that wealth. Unlike
www.ustreas.gov/press/releases/hp111.htm). This docu- a private corporation, the Federal Government rou-
ment lays out a multi-year, seven-part strategy to im- tinely invests in ways that do not add directly to its
prove compliance without imposing undue burdens on assets. For example, Federal grants are frequently used
taxpayers. The Budget provides a $410 million initia- to fund capital projects by State or local governments
tive in the IRS to begin implementing this strategy. for highways and other purposes. Such investments are
Components of the strategy include: valuable, but they are not owned by the Federal Gov-
Reduce Opportunities for Evasion: The Administra- ernment and would not show up on a balance sheet
tion will pursue carefully targeted tax law changes to for the Federal Government. It is true, of course, that
promote compliance while causing minimal taxpayer by encouraging economic growth, these investments
burden and IRS cost increases. The Budget includes augment future tax receipts. The return on investment
16 legislative proposals, such as expanding third party that comes back to the Government in the form of high-
information reporting where it can be done with accept- er taxes, however, is far less than what a private inves-
able levels of taxpayer burden (e.g., including payments tor would require before undertaking a similar invest-
to corporations in existing third-party reporting requirement.
ments and requiring brokers to report the cost basis The Federal Government also supports education and
for certain securities’ sales). (See chapter 17, ‘‘Federal research and development (R&D). These outlays con-
Receipts’’ for a full description of these legislative pro- tribute to future productivity and are analogous to in-
posals.) vestments in physical capital. Indeed, economists have
Multi-Year Commitment to Research: Improved re- computed stocks of human and knowledge capital to
search on tax gap causes and potential remedies will reflect the accumulation of such investments. Nonethe-
help the IRS target its enforcement and service pro- less, such hypothetical capital stocks are obviously not
grams to achieve the greatest possible impact at the owned by the Federal Government, nor would they ap-
lowest cost. pear on a balance sheet.
Investments in Information Technology: Modernized To show the importance of these kinds of issues,
computer systems will give IRS staff the tools they Table 13–5 presents a national balance sheet. It in-
need to improve efficiency, service and compliance. cludes estimates of national wealth classified into three
Improve Compliance Activities: Through re- categories: physical assets, education capital, and R&D
engineering and selected funding increases the IRS will capital. The Federal Government has made contribu-
improve the effectiveness of its enforcement efforts to tions to each of these types of capital, and these con-
increase the fairness of the tax system by ensuring tributions are shown separately in the table. At the
that everyone pays their share. same time, the private wealth shown in Table 13–5
Taxpayer Service: Improved service will help tax- generates future income and tax receipts, which finance
payers avoid unintentional errors and will make filing future public activities. The Nation’s wealth sets the
easier. Improved telephone service, new internet tools, ultimate limit on the resources available to the Govern-
and increases in electronic filing have already helped ment.
taxpayers file more accurate returns with less effort. The table shows that Federal investments are respon-
Reform and Simplify the Tax Law: Simplifying the sible for about 7 percent of total national wealth includ-
tax law will reduce unintentional errors caused by a ing education and research and development. This may
lack of understanding. Simplification will also reduce seem like a small fraction, but it represents a large
the opportunities for intentional evasion and make it volume of capital: $7.8 trillion. The Federal contribution
easier for the IRS to administer the tax laws. is down from 9 percent in the early 1980s and from
Coordinate with Partners and Stakeholders: Closer 12 percent in 1960. Much of this decline reflects the
coordination is needed between the IRS and state and relative shrinkage in the stock of defense capital, which
foreign governments to share information and compli- has fallen from around 34 percent of GDP in 1960
ance strategies. Closer coordination is also needed with to under 6 percent in 2006.
practitioner organizations, including bar and accounting Physical Assets: The physical assets in the table in-
associations, to maintain and improve mechanisms to clude stocks of plant and equipment, office buildings,
ensure that advisors provide appropriate tax advice. residential structures, land, and the Government’s
Collectively these efforts will reduce the tax gap and physical assets such as military hardware and high-
improve the fiscal situation of the Government. Equally ways. Automobiles and consumer appliances are also
important, better compliance will improve the fairness included in this category. The total amount of such
of the tax system. Implementation depends on effective capital is vast, $60.5 trillion in 2006, consisting of $50.8
IRS leadership, to improve factors such as technology trillion in private physical capital and $9.7 trillion in
investments and reengineering processes, as well as the public physical capital (including capital funded by
Table 13–5. NATIONAL WEALTH

(As of the end of the fiscal year, in trillions of 2006 dollars)
1960 1965 1970 1975 1980 1985 1990 1995 2000 2004 2005 2006
ASSETS
Publicly Owned Physical Assets:
Structures and Equipment ..................................................................................... 2.3 2.6 3.2 3.9 4.2 4.4 4.8 5.3 6.0 6.9 7.4 7.6
Federally Owned or Financed ........................................................................... 1.3 1.4 1.5 1.7 1.8 2.0 2.2 2.3 2.3 2.4 2.5 2.6
Federally Owned ........................................................................................... 1.2 1.1 1.2 1.2 1.1 1.2 1.3 1.3 1.1 1.1 1.1 1.2
Grants to State and Local Governments ..................................................... 0.2 0.2 0.4 0.6 0.7 0.8 0.9 1.0 1.2 1.3 1.4 1.4
Funded by State and Local Governments ....................................................... 1.0 1.2 1.6 2.2 2.4 2.4 2.6 3.0 3.7 4.5 4.9 5.0
Other Federal Assets ............................................................................................. 0.8 0.8 0.7 0.9 1.4 1.5 1.2 0.9 1.3 1.8 2.1 2.2
Subtotal ..................................................................................................... 3.1 3.3 3.9 4.8 5.6 5.9 6.0 6.2 7.3 8.7 9.5 9.7
Privately Owned Physical Assets:
Reproducible Assets .............................................................................................. 7.7 8.8 10.8 13.9 18.1 19.2 21.9 24.2 29.4 33.8 35.3 35.5
Residential Structures ........................................................................................ 3.0 3.5 4.2 5.3 7.3 7.5 8.6 9.8 12.2 15.2 16.0 16.1
Nonresidential Plant & Equipment .................................................................... 3.0 3.4 4.3 5.7 7.4 8.1 9.1 9.9 12.0 13.1 13.7 13.6
Inventories .......................................................................................................... 0.8 0.8 1.0 1.3 1.6 1.4 1.5 1.6 1.8 1.8 1.8 1.9
Consumer Durables ........................................................................................... 0.9 1.1 1.3 1.6 1.9 2.1 2.7 3.0 3.4 3.7 3.8 3.9
Land ........................................................................................................................ 2.3 2.7 3.1 4.1 6.3 7.1 7.3 5.5 8.5 11.7 14.0 15.3
Subtotal ..................................................................................................... 10.0 11.6 14.0 18.0 24.3 26.3 29.2 29.7 37.9 45.4 49.3 50.8
Education Capital:
Federally Financed ................................................................................................. 0.1 0.1 0.3 0.4 0.5 0.7 0.8 1.0 1.3 1.5 1.6 1.7
Financed from Other Sources ............................................................................... 6.4 8.6 11.5 14.6 18.7 21.8 27.1 31.8 40.6 45.8 46.9 48.4
Subtotal ..................................................................................................... 6.4 8.7 11.8 15.0 19.2 22.5 27.9 32.9 41.9 47.3 48.5 50.0
Research and Development Capital:
Federally Financed R&D ................................................................................... 0.2 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.3
R&D Financed from Other Sources .................................................................. 0.1 0.2 0.3 0.4 0.5 0.7 1.0 1.2 1.7 2.0 2.1 2.1
Subtotal ..................................................................................................... 0.3 0.6 0.9 1.0 1.2 1.5 1.9 2.3 2.8 3.2 3.3 3.5
Total Assets .............................................................................................................. 19.8 24.2 30.5 38.9 50.3 56.2 65.1 71.0 89.9 104.7 110.6 114.0
Net Claims of Foreigners on U.S. ............................................................................. –0.1 –0.2 –0.2 –0.1 –0.4 0.1 0.9 1.6 3.2 4.7 5.8 6.1
Net Wealth ................................................................................................................. 19.9 24.4 30.7 39.0 50.7 56.1 64.2 69.4 86.7 99.9 104.9 108.0
ADDENDA:
Per Capita Wealth (thousands of 2006 $) ............................................................ 110.5 125.7 150.0 180.7 222.4 235.1 256.2 259.9 306.7 339.5 353.0 360.3
Ratio of Wealth to GDP (in percent) .................................................................... 682.9 665.2 700.3 784.4 853.2 790.8 773.8 740.2 757.3 798.3 810.5 810.2
Total Federally Funded Capital (trils 2006 $) ....................................................... 2.4 2.6 3.1 3.6 4.4 5.0 5.2 5.3 6.0 7.0 7.5 7.8
Percent of National Wealth ...................................................................... 11.9 10.8 10.0 9.3 8.7 8.9 8.1 7.6 7.0 7.0 7.2 7.2
State and local governments); by comparison, GDP was Although this is a relatively crude measure, it does
around $13 trillion in 2006. The Federal Government’s provide a rough order of magnitude for the current
contribution to this stock of capital includes its own value of the investment in education. According to this
physical assets of $3.3 trillion plus $1.4 trillion in accu- measure, the stock of education capital amounted to
mulated grants to State and local governments for cap- $50 trillion in 2006, of which about 3 percent was fi-
ital projects. The Federal Government has financed nanced by the Federal Government. It was approxi-
over 20 percent of all the physical capital held by other mately equal in value to the Nation’s private stock of
levels of government. physical capital. The main investors in education cap-
Education Capital: Economists have developed the ital have been State and local governments, parents,
concept of human capital to reflect the notion that indi- and students themselves.
viduals and society invest in people as well as in phys- Even broader concepts of human capital have been
ical assets. Investment in education is a good example proposed. Not all useful training occurs in a schoolroom
of how human capital is accumulated. Table 13–5 in- or in formal training programs at work. Much informal
cludes an estimate of the stock of capital represented learning occurs within families or on the job, but meas-
by the Nation’s investment in formal education and uring its value is very difficult. Labor compensation,
training. The estimate is based on the cost of replacing however, amounts to about two-thirds of national in-
the years of schooling embodied in the U.S. population come with the other third attributed to capital, and
aged 15 and over; in other words, the goal is to measure thinking of total labor income as the product of human
how much it would cost to reeducate the U.S. workforce capital suggests that the total value of human capital
at today’s prices (rather than at the original cost). This would be two times the estimated value of physical
is more meaningful economically than the historical capital if human capital earned a similar rate of return
cost of schooling, and is comparable to the methods to other forms of capital. Thus, the estimates offered
used to estimate the physical capital stocks presented here are in a sense conservative, because they reflect
earlier. only the costs of acquiring formal education and train-
13. STEWARDSHIP 197
ing, which is why they are referred to as education nitude of the imbalance in the Government’s accounts.
capital rather than human capital. They constitute that Federal net liabilities, as reported in Table 13–1,
part of total human capital that can be attributed to amounted to 5.7 percent of net U.S. wealth as shown
formal education and training. in Table 13–5. Prospectively, however, Federal liabil-
Research and Development Capital: Research and de- ities are a much larger share of national wealth, as
velopment can also be thought of as an investment, indicated by the long-run projections described in Part
because R&D represents a current expenditure that is III.
made in the expectation of earning a future return.
After adjusting for depreciation, the flow of R&D invest- Trends in National Wealth
ment can be added up to provide an estimate of the The net stock of wealth in the United States at the
current R&D stock. 5 That stock is estimated to have end of 2006 was $108 trillion, about eight times the
been $3.5 trillion in 2006. Although this represents a size of GDP. Since 1960, it has increased in real terms
large amount of research, it is a relatively small portion at an average annual rate of 3.7 percent per year. It
of total National wealth. Of this stock, 38 percent was grew very rapidly from 1960 to 1973, at an average
funded by the Federal Government. annual rate of 4.5 percent per year, slightly faster than
Liabilities: When considering how much the United real GDP grew over the same period. Between 1973
States owes as a Nation, the debts that Americans owe and 1995 growth slowed, as real net wealth grew at
to one another cancel out. Table 13–5 only shows Na- an average rate of just 3.1 percent per year, which
tional totals. Gross debt is important even though it paralleled the slowdown in real GDP over this period.
does not appear in Table 13–5. The amount of debt Since 1995 the rate of growth in U.S. real wealth has
owed by Americans to other Americans can exert both picked up. Net wealth has been growing at an average
positive and negative effects on the economy. Ameri- rate of 4.1 percent since 1995. Productivity growth has
cans’ willingness and ability to borrow have helped fuel also accelerated since 1995, following a similar slow-
the current expansion by supporting consumption and down from 1973 to 1995.
housing purchases. On the other hand, growing debt The net stock of privately owned nonresidential plant
could be a risk to future growth, if the ability to service and equipment accounts for about 27 percent of all
the higher level of debt were to become impaired. privately owned physical assets. In real terms, it grew
The only debts that show up in Table 13–5 are the 3.3 percent per year on average from 1960 to 2006.
debts Americans owe to foreigners for the investments It grew especially rapidly from 1960 to 1973, at an
that foreigners have made in the United States. Amer- average rate of 4.1 percent per year. Since 1973 it
ica’s net foreign debt has been increasing rapidly in has grown more slowly, averaging around 3.0 percent
recent years because of the rising imbalance in the per year. Plant and equipment did not experience a
U.S. current account. Although the current account def- more rapid rate of growth over the last ten years com-
icit is at record levels, the size of the net foreign debt pared with 1973–1995. Privately owned residential
remains relatively small compared with the total stock structures and land have all grown much more rapidly
of U.S. assets. In 2006, it amounted to 5 percent of in real value since 1995 than from 1973 to 1995, while
total assets including education and R&D capital. the stock of consumer durables has grown less rapidly.
Federal debt does not appear explicitly in Table 13–5 The accumulation of education capital has averaged
because much of it consists of claims held by Ameri- 4.6 percent per year since 1960. It also slowed down
cans; only that portion of the Federal debt which is between 1973 and 1995. It grew at an average rate
held by foreigners is included along with the other of 5.9 percent per year in the 1960s, 2.0 percentage
debts to foreigners. Comparing the Federal Govern- points faster than the average rate of growth in private
ment’s net liabilities with total national wealth does, physical capital during the same period. Since 1995,
however, provide another indication of the relative mag- education capital has grown at a 3.9 percent annual
rate. This reflects both the extra resources devoted to
5 R&D depreciates in the sense that the economic value of applied research and develop-
ment tends to decline with the passage of time, as still newer ideas move the technological
schooling in this period, and the fact that such re-
frontier. sources have been increasing in economic value. R&D
Table 13–6. TRENDS IN NATIONAL WEALTH

(Average Annual Rates in Percent)
1960–06 1960–1973 1973–1995 1995–2006
Real GDP ........................................................................................................................................................................................... 3.4 4.3 2.8 3.3

National Wealth .................................................................................................................................................................................. 3.7 4.5 3.1 4.1
Private Physical Wealth ..................................................................................................................................................................... 3.6 3.9 2.7 5.0
Nonresidential Plant and Equipment ............................................................................................................................................. 3.3 4.1 3.1 2.9
Residential Structures .................................................................................................................................................................... 3.7 4.0 3.1 4.6
Consumer Durables ....................................................................................................................................................................... 3.1 3.6 3.2 2.5
Public Physical Wealth ....................................................................................................................................................................... 2.6 2.8 1.6 4.2
Net Education ..................................................................................................................................................................................... 4.6 5.9 4.1 3.9
Net R&D ............................................................................................................................................................................................. 5.2 8.6 3.9 3.9
TABLE 13–7. ECONOMIC AND SOCIAL INDICATORS

Calendar Years 1960 1970 1980 1990 1995 2000 2004 2005 2006
Economic:
Living Standards:
Real GDP per person (2000 dollars) (a) .................................... 13,840 18,392 22,666 28,429 30,128 34,759 36,415 37,241 38,136
average annual percent change (5–year trend) .................... 0.6 2.3 2.6 2.3 1.2 2.9 1.4 1.4 1.9
Real Disposable Personal Income Per Capita ........................... 9,735 13,563 16,940 21,281 22,153 25,472 27,254 27,318 27,761
average annual percent change (5–year trend) .................... 1.2 3.2 2.1 1.8 0.8 2.8 2.1 1.4 1.6
Median Income: All Households (2005 dollars) ......................... N/A 38,026 39,739 43,366 43,346 47,599 45,817 46,326 N/A
average annual percent change (5–year trend) .................... N/A N/A 1.0 1.2 0.0 1.9 –0.8 –0.5 N/A
Income Share of Lower 60% of All Households ....................... 31.8 32.3 31.2 29.3 28.0 27.3 26.8 26.6 N/A
Poverty Rate (%) (b) ................................................................... 22.2 12.6 13.0 13.5 13.8 11.3 12.7 12.6 N/A
Economic Security:
Civilian Unemployment (%) ......................................................... 5.5 4.9 7.1 5.5 5.6 4.0 5.5 5.1 4.6
CPI-U (% Change) ...................................................................... 1.7 5.7 13.5 5.4 2.8 3.4 2.7 3.4 3.2
Payroll Employment Increase (millions) (c) ................................ –0.4 –0.4 0.3 0.3 2.2 1.9 2.1 2.6 2.0
Managerial or Professional Jobs (% of civilian employment) ... N/A N/A N/A 29.2 32.0 33.8 34.9 34.7 34.9
Wealth Creation:
Net National Saving Rate (% of GDP) (d) ................................. 10.6 8.3 7.4 4.4 4.1 5.9 0.9 0.1 2.0
Innovation:
Patents Issued to U.S. Residents (thousands) (e) .................... 42.3 50.6 41.7 56.1 64.5 97.0 94.1 82.6 N/A
Multifactor Productivity (average 5 year percent change) ......... 0.8 0.8 0.8 0.6 0.6 1.2 1.7 N/A N/A
Nonfarm Output per Hour (average 5 year percent change) .... 1.8 2.1 1.1 1.6 1.5 2.5 3.2 3.1 3.0
Environment:
Air Quality:
Nitrogen Oxide Emissions (millions of tons) .......................... 18 27 27 26 25 23 20 19 N/A
Sulfur Dioxide Emissions (millions of tons) ........................... 22 31 26 23 19 16 15 15 N/A
Carbon Monoxide (millions of tons) ....................................... N/A 197 178 144 120 102 N/A 89 N/A
Lead Emissions (thousands of tons) ...................................... N/A 221 74 5 4 3 3 3 N/A
Water Quality:
Population Served by Secondary Treatment or Better (mils) N/A 85 N/A 162 174 179 N/A N/A N/A
Social:
Families:
Children Living with Mother Only (% of all children) ............ 9.2 11.6 18.6 21.6 24.0 22.3 23.7 23.4 N/A
Safe Communities:
Violent Crime Rate (per 100,000 population) (f) ................... 160.0 364.0 597.0 729.6 684.5 506.5 463.2 469.2 482.2
Murder Rate (per 100,000 population) (g) ............................. 5.1 7.8 10.2 9.4 8.2 5.5 5.5 5.6 5.6
Murders (per 100,000 Persons Age 14 to 17) ...................... N/A N/A 5.9 9.8 11.0 4.8 4.6 N/A N/A
Health:
Infant Mortality (per 1000 Live Births) (g) .............................. 26.0 20.0 12.6 9.2 7.6 6.9 6.8 6.8 6.7
Low Birthweight [<2,500 gms] Babies (%) (g) ....................... 7.7 7.9 6.8 7.0 7.3 7.6 8.1 8.2 N/A
Life Expectancy at birth (years) ............................................. 69.7 70.8 73.7 75.4 75.8 77.0 77.9 N/A N/A
Cigarette Smokers (% population 18 and older) ................... N/A 39.2 33.0 25.3 24.6 23.1 20.8 20.9 N/A
Overweight (% population 20–74 with Body-Mass Index)2.5) 44.5 47.5 47.2 54.6 60.7 65.0 66.2 N/A N/A
Learning:
High School Graduates (% of population 25 and older) ....... 44.6 55.2 68.6 77.6 81.7 84.1 85.2 85.2 N/A
College Graduates (% of population 25 and older) .............. 8.4 11.0 17.0 21.3 23.0 25.6 27.7 27.6 N/A
National Assessment of Educational Progress (h)
Reading 17–year olds ........................................................ N/A N/A 285.0 290.0 288.0 287.4 285.0 N/A N/A
Mathematics 17–year olds ................................................. N/A N/A 299.0 305.0 306.5 307.8 307.0 N/A N/A
Participation:
Individual Charitable Giving per Capita (2000 dollars) .......... 281 381 373 465 449 692 639 N/A N/A
(by election year) ............................................................................. (1960) (1972) (1980) (1984) (1988) (1992) (1996) (2000) (2004)
Voting for President (% eligible population) .......................... 62.8 55.1 52.8 53.3 50.3 55.2 49.0 50.3 55.5
(a) Forecast data are used for the fourth quarter of 2006.
(b) The poverty rate does not reflect noncash government transfers such as Medicaid or food stamps.
(c) The data for 2005–2006 reflect the expected 810,000 benchmark revision scheduled for February 2007.
(d) 2006 through Q3 only.
(e) Preliminary data for 2005.
(f ) Not all crimes are reported, and the fraction that go unreported may have varied over time, preliminary data for 2006.
(g) Provisional data for 2005–2006; data for 2006 through April.
(h) Data for some years are interpoated.
stocks have also grown at an average rate of 3.9 percent Other Federal Influences on Economic Growth
per year since 1995. Federal investment decisions, as reflected in Table
13–5, obviously are important, but the Federal Govern-
ment also affects wealth in ways that cannot be easily
13. STEWARDSHIP 199
captured in a formal presentation. The Federal Re- Such a table can serve two functions. First, it high-
serve’s monetary policy affects the rate and direction lights areas where the Federal Government might need
of capital formation in the short run, and Federal regu- to modify its current practices or consider new ap-
latory and tax policies also affect how capital is in- proaches. Where there are clear signs of deteriorating
vested, as do the Federal Government’s credit and in- conditions, corrective action might be appropriate. Sec-
surance policies. ond, the table provides a context for evaluating other
Social Indicators data on Government activities. For example, Govern-
ment actions that weaken its own financial position
There are certain broad responsibilities that are may be appropriate when they promote a broader social
unique to the Federal Government. Especially impor- objective. The Government cannot avoid making such
tant are preserving national security, fostering healthy trade-offs because of its size and the broad ranging
economic conditions including sound economic growth,
effects of its actions. Monitoring these effects and incor-
promoting health and social welfare, and protecting the
porating them in the Government’s policy making is
environment. Table 13–7 offers a rough cut of informa-
tion that can be useful in assessing how well the Fed- a major challenge.
eral Government has been doing in promoting the do- Some of the trends in these indicators turned around
mestic portion of these general objectives. in the 1990s. The improvement in economic conditions
The indicators shown in Table 13–7 are only a subset beginning around 1995 has been widely noted, and
drawn from the vast array of available data on condi- there have also been some social improvements. Per-
tions in the United States. In choosing indicators for haps, most notable has been the turnaround in the
this table, priority was given to measures that were crime rate. After reaching a peak in the early 1990s,
consistently available over an extended period. Such violent crime fell by a third. The turnaround has been
indicators make it easier to draw valid comparisons especially dramatic in the murder rate, which has been
and evaluate trends. In some cases, however, this lower since 1998 than at any time since the 1960s,
meant choosing indicators with significant limitations. although the last two years have seen an uptick in
The individual measures in this table are influenced murders. The 2001 recession had a negative effect on
to varying degrees by many Government policies and some of these indicators: unemployment rose and real
programs, as well as by external factors beyond the GDP growth declined, but as the economy recovered
Government’s control. They do not measure the out- much of the improvement shown in Table 13–7 was
comes of Government policies, because they generally preserved. Indeed, productivity growth, the best indi-
do not show the direct results of Government activities, cator of future changes in the standard of living, accel-
but they do provide a quantitative measure of the erated and has grown at a faster average rate since
progress or lack of progress toward some of the ultimate 2001 than at any comparable period since the 1960s.
values that Government policy is intended to promote.
TECHNICAL NOTE: SOURCES OF DATA AND METHODS OF ESTIMATING
Long-Range Budget Projections • CPI inflation holds stable at 2.3 percent per year;
The long-range budget projections are based on demo- the unemployment rate is constant at 4.8 percent;
graphic and economic assumptions. A simplified model and the yield on 10-year Treasury notes is steady
of the Federal budget, developed at OMB, is used to at 5.3 percent.
compute the budgetary implications of these assump- • Real GDP per hour, a measure of productivity,
tions. grows at the same average rate as in the Adminis-
Demographic and Economic Assumptions: For the tration’s medium-term projections—2.3 percent
years 2007–2017, the assumptions are drawn from the per year.
Administration’s economic projections used for the • Consistent with the demographic assumptions in
budget. These budget assumptions reflect the Presi- the trustees’ reports, U.S. population growth slows
dent’s policy proposals. The economic assumptions are from around 1 percent per year to about half that
extended beyond this interval by holding constant infla- rate by 2030, and slower rates of growth beyond
tion, interest rates, and unemployment at the levels that point. Annual population growth is only 0.3
assumed in the final year of the budget forecast. Popu- percent at the end of the projection period in 2080.
lation growth and labor force growth are extended using • Real GDP growth declines over time because of
the intermediate assumptions from the 2006 Social Se- the slowdown in population growth and the in-
curity trustees’ report. The projected rate of growth crease in the population over age 65, who supply
for real GDP is built up from the labor force assump- less work effort than younger people do. Histori-
tions and an assumed rate of productivity growth. Pro- cally, real GDP has grown at an average yearly
ductivity growth is held constant at the average rate rate of 3.4 percent. In these projections, average
of growth in the budget’s economic assumptions. real GDP growth eventually declines to around
2.6 percent per year.
The economic and demographic projections described partment for farm land; the value of Federal oil depos-
above are set by assumption and do not automatically its was extrapolated using the Producer Price Index
change in response to changes in the budget outlook. for Crude Energy Materials.
This is unrealistic, but it simplifies comparisons of al- Debt Held by the Public: Treasury data.
ternative policies. Insurance and Guarantee Liabilities: Sources of data
Budget Projections: For the period through 2012, re- are the OMB Pension Guarantee Model and OMB esti-
ceipts follow the budget’s policy projections. After 2012, mates based on program data. Historical data on liabil-
receipts are assumed to return gradually to their share ities for deposit insurance were also drawn from CBO’s
of GDP over the last 40 years, 18.3 percent, and to study, The Economic Effects of the Savings and Loan
remain at that lower share over the long run. Discre- Crisis, issued January 1992.
tionary spending follows the growth policies in the Pension and Post-Employment Health Liabilities: The
Budget over the next ten years and grows at the rate accrued liabilities for Federal retiree pensions and re-
of growth in nominal GDP afterwards. Other spending tiree health insurance along with the liability for Vet-
also aligns with the Budget through the budget horizon, erans disability compensation were derived from the
except that the Social Security program does not in- Financial Report of the United States Government (and
clude the proposal to incorporate personal accounts in the Consolidated Financial Statement for some earlier
the program. Long-run Social Security spending is pro- years). Prior to 1976, the values were extrapolated.
jected by the Social Security actuaries using this Chap- Other Liabilities: The source of data for trade
ter’s long-range assumptions. Medicare benefits are pro- payables and miscellaneous liabilities is the Federal
jected based on the estimates in the 2006 Medicare Reserve’s Flow-of-Funds Accounts. The Financial Re-
trustees’ report, adjusted for differences in the assumed port of the United States Government was the source
inflation rate and the growth rate in real GDP per for benefits due and payable.
capita, and further adjusted for the estimated long- Environmental Liabilities: The source of data for en-
run effects of the Administration’s policy proposals. vironmental liabilities was the Financial Report of the
Federal pensions are derived from the most recent actu- United States Government for 2006 and previous years.
arial forecasts available at the time the budget is pre- Prior to 1994, the estimates were extrapolated assum-
pared, repriced using Adminstration inflation assump- ing a constant ratio to GDP.
tions. Medicaid outlays are based on the economic and
demographic projections in the model. Other entitle- National Balance Sheet
ment programs are projected based on rules of thumb Publicly Owned Physical Assets: Basic sources of data
linking program spending to elements of the economic for the federally owned or financed stocks of capital
and demographic projections such as the poverty rate. are the Federal investment flows described in Chapter
6. Federal grants for State and local government capital
Federally Owned Assets and Liabilities
are added, together with adjustments for inflation and
Financial Assets: The principal source of data is the depreciation in the same way as described above for
Federal Reserve Board’s Flow-of-Funds Accounts. direct Federal investment. Data for total State and local
Fixed Reproducible Capital: Estimates were devel- government capital come from the revised capital stock
oped from the OMB historical data base for physical data prepared by the Bureau of Economic Analysis ex-
capital outlays and software purchases. The data base trapolated for 2006.
extends back to 1940 and was supplemented by data Privately Owned Physical Assets: Data are from the
from other selected sources for 1915–1939. The source Flow-of-Funds national balance sheets and from the pri-
data are in current dollars. To estimate investment vate net capital stock estimates prepared by the Bureau
flows in constant dollars, it was necessary to deflate of Economic Analysis extrapolated for 2006 using in-
the nominal investment series. This was done using vestment data from the National Income and Product
chained price indexes for Federal investment from the Accounts.
National Income and Product Accounts. The resulting Education Capital: The stock of education capital is
capital stocks were aggregated into nine categories and computed by valuing the cost of replacing the total
depreciated using geometric rates roughly following years of education embodied in the U.S. population 15
those used by the Bureau of Economic Analysis in its years of age and older at the current cost of providing
estimates of physical capital stocks. schooling. The estimated cost includes both direct ex-
Fixed Nonreproducible Capital: Historical estimates penditures in the private and public sectors and an
for 1960–1985 were based on estimates in Michael J. estimate of students’ forgone earnings, i.e., it reflects
Boskin, Marc S. Robinson, and Alan M. Huber, ‘‘Gov- the opportunity cost of education. Estimates of students’
ernment Saving, Capital Formation and Wealth in the forgone earnings are based on the minimum wage for
United States, 1947–1985,’’ published in The Measure- high-school students and year-round, full-time earnings
ment of Saving, Investment, and Wealth , edited by of 18–24 year olds for college students. These year-
Robert E. Lipsey and Helen Stone Tice (The University round earnings are reduced by 25 percent because stu-
of Chicago Press, 1989). Estimates were updated using dents are usually out of school three months of the
changes in the value of private land from the Flow- year. Yearly earnings by age and educational attain-
of-Funds Balance Sheets and from the Agriculture De- ment are from the Bureau of the Census.
13. STEWARDSHIP 201
For this presentation, Federal investment in edu- cent on the estimated stock of applied research and
cation capital is a portion of the Federal outlays in- development. Basic research is assumed not to depre-
cluded in the conduct of education and training. This ciate. These are the same assumptions used in a study
portion includes direct Federal outlays and grants for published by the Bureau of Labor Statistics estimating
elementary, secondary, and vocational education and the R&D stocks financed by private industry (U.S. De-
for higher education. The data exclude Federal outlays partment of Labor, Bureau of Labor Statistics, ‘‘The
for physical capital at educational institutions because Impact of Research and Development on Productivity
these outlays are classified elsewhere as investment Growth,’’ Bulletin 2331, September 1989). Chapter 6
in physical capital. The data also exclude outlays under of this volume contains additional details on the esti-
the GI Bill; outlays for graduate and post-graduate edu- mates of the total federally financed R&D stock, as
cation spending in HHS, Defense and Agriculture; and well as its national defense and nondefense compo-
most outlays for vocational training. The Federal share nents.
of the total education stock in each year is estimated A similar method was used to estimate the stock
by averaging the prior years’ shares of Federal edu- of R&D capital financed from sources other than the
cation outlays in total education costs. Federal Government. The component financed by uni-
Data on investment in education financed from other versities, colleges, and other nonprofit organizations is
sources come from educational institution reports on estimated based on data from the National Science
the sources of their funds, published in U.S. Depart- Foundation, Surveys of Science Resources. The indus-
ment of Education, Digest of Education Statistics. try-financed R&D stock component is estimated from
Nominal expenditures were deflated by the implicit that source and from the U.S. Department of Labor,
price deflator for GDP to convert them to constant dol- ‘‘The Impact of Research and Development on Produc-
lar values. Education capital is assumed not to depre- tivity Growth,’’ Bulletin 2331, September 1989.
ciate, but to be retired when a person dies. An edu- Experimental estimates of R&D capital stocks have
cation capital stock computed using this method with been prepared by BEA. The results are described in
different source data can be found in Walter McMahon, ‘‘A Satellite Account for Research and Development,’’
‘‘Relative Returns to Human and Physical Capital in
Survey of Current Business, November 1994. These
the U.S. and Efficient Investment Strategies,’’ Econom-
BEA estimates are lower than those presented here
ics of Education Review, Vol. 10, No. 4, 1991. The meth-
primarily because BEA assumes that the stock of basic
od is described in detail in Walter McMahon, Invest-
research depreciates, while the estimates in Table 13–4
ment in Higher Education, Lexington Books , 1974.
assume that basic research does not depreciate. BEA
Research and Development Capital: The stock of R&D
also assumed a slightly higher rate of depreciation for
capital financed by the Federal Government was devel-
oped from a data base that measures the conduct of applied research and development, 11 percent, com-
R&D. The data exclude Federal outlays for physical pared with the 10 percent rate used here.
capital used in R&D because such outlays are classified
Sources of Data and Assumptions for
elsewhere as investment in federally financed physical
Estimating Social Indicators
capital. Nominal outlays were deflated using the GDP
deflator to convert them to constant dollar values. The main sources for the data in this table are the
Federally funded capital stock estimates were pre- Government statistical agencies. The data are all pub-
pared using the perpetual inventory method in which licly available, and can be found in such general sources
annual investment flows are cumulated to arrive at as the annual Economic Report of the President and
a capital stock. This stock was adjusted for depreciation the Statistical Abstract of the United States, or from
by assuming an annual rate of depreciation of 10 per- the respective agencies’ web sites.
14. NATIONAL INCOME AND PRODUCT ACCOUNTS
The National Income and Product Accounts (NIPAs) and expenditures in the NIPAs to differ from total re-
are an integrated set of measures of aggregate U.S. ceipts and outlays in the budget, albeit by relatively
economic activity that are prepared by the Department small amounts.2 Differences in timing and coverage also
of Commerce. Because the NIPAs include Federal trans- cause the NIPA net Federal Government saving to dif-
actions and are widely used in economic analysis, it fer from the budget surplus or deficit. Netting and
is important to show the NIPAs’ distinctive presen- grossing differences have equal effects on receipts and
tation of Federal transactions and contrast it with that expenditures and thus have no effect on net Govern-
of the budget. ment saving. Besides these differences, the NIPAs com-
One of the main purposes of the NIPAs is to measure bine transactions into different categories from those
the Nation’s total production of goods and services, used in the budget.
known as gross domestic product (GDP), and the in- Netting and grossing differences arise when the budg-
comes generated in its production. GDP is a measure et records certain transactions as offsets to outlays,
of the Nation’s final output, which excludes inter- while they are recorded as current receipts in the
mediate product to avoid double counting. Both govern- NIPAs (or vice versa). The budget treats all income
ment consumption expenditures and government gross that comes to the Government due to its sovereign pow-
investment—State and local as well as Federal—are ers—mainly, but not exclusively, taxes—as govern-
included in GDP as part of final output, together with mental receipts. The budget offsets against outlays any
personal consumption expenditures, gross private do- income that arises from voluntary business-type trans-
mestic investment, and net exports of goods and serv- actions with the public. The NIPAs often follow this
ices (exports minus imports). concept as well, and income to Government revolving
Other government expenditures—social benefits, accounts (such as the Government Printing Office) is
grants to State and local governments, subsidies, and offset against their expenditures. However, the NIPAs
interest payments—are not purchases of final output have a narrower definition of ‘‘business-type trans-
and as such are not included in GDP; however, these actions’’ than does the budget. Two classes of receipts,
transactions are recorded in the NIPA government cur- rents and royalties, and some regulatory or inspection
rent receipts and expenditures account, together with fees, both of which are classified as offsets to outlays
government consumption expenditures (which includes in the budget, are recorded in the NIPAs as Govern-
depreciation on government gross investment). ment receipts (income receipts on assets and current
Federal transactions are included in the NIPAs as transfer receipts, respectively). The NIPAs include
part of the government sector.1 The Federal subsector Medicare premiums as Government receipts, while the
is designed to measure certain important economic ef- budget classifies them as business-type transactions
fects of Federal transactions in a way that is consistent (offsetting receipts). In addition, the NIPAs treat the
with the conceptual framework of the entire set of inte- net surplus of Government enterprises as a component
grated accounts. The NIPA Federal subsector is not of current receipts.
itself a budget, because it is not a financial plan for In the budget, any intragovernmental income paid
proposing, determining, and controlling the fiscal activi- from one account to another is offset against outlays
ties of the Government. Also, it features current trans- rather than being recorded as a receipt so that total
actions, whereas the budget includes transactions that outlays and receipts measure transactions with the
the NIPA current account omits from its current republic. Government contributions for Federal employee
ceipts and current expenditure totals as ‘‘capital trans- social insurance (such as Social Security) is an example:
fers.’’ NIPA concepts also differ in many other ways the budget offsets these payments against outlays. In
from budget concepts, and therefore the NIPA presen- contrast, the NIPAs treat the Federal Government like
tation of Federal finances is significantly different from any other employer and show contributions for Federal
that of the budget. employee social insurance as expenditures by the em-
Differences Between the NIPAs and the Budget ploying agencies and as governmental (rather than off-
setting) receipts. The NIPAs also impute certain trans-
Federal transactions in the NIPAs are measured ac- actions that are not explicit in the budget. For example,
cording to NIPA accounting concepts in order to be unemployment benefits for Federal employees are fi-
compatible with the purposes of the NIPAs and other nanced by direct appropriations rather than social in-
transactions recorded in the NIPAs. As a result they surance contributions. The NIPAs impute social insur-
differ from the budget in netting and grossing, timing, ance contributions by employing agencies to finance
and coverage. These differences cause current receipts
2 Over the period 1994–2006, NIPA current expenditures averaged 3.8 percent higher
1 The other subsector of the NIPA government sector is a single set of transactions for than budget outlays, while NIPA current receipts averaged 2.4 percent higher than budget
all U.S. State and local units of government, treated as a consolidated entity. receipts.
203
these benefits—again, treating the Federal Government these transactions are excluded from the Federal cur-
like any other employer. rent account as an exchange of assets with no current
Timing differences for receipts occur because the production involved. Also unlike the budget, the NIPAs
NIPAs generally record personal taxes and social insur- exclude transactions with U.S. territories.
ance contributions when they are paid and business The treatment of Government pension plan income
taxes when they accrue, while the budget generally and outgo creates a coverage difference. Whereas the
records all receipts when they are received. Thus the budget treats employee payments to these pension
NIPAs attribute corporations’ final settlement pay- plans as governmental receipts, and employer contribu-
ments back to the quarter(s) in which the profits that tions by agencies as offsets to outlays because they
gave rise to the tax liability occurred. The delay be- are intragovernmental, the NIPAs treat both of these
tween accrual of liability and Treasury receipt of pay- components of employee compensation as personal in-
ment can result in significant timing differences become, in the same way as it treats contributions to
tween NIPA and budget measures of receipts for any pension plans in the private (household) sector. Like-
given accounting period. wise, the budget records a Government check to a re-
Timing differences also occur for expenditures. When tired Government employee as an outlay, but under
the first day of a month falls on a weekend or holiday, NIPA concepts, no Government expenditure occurs at
monthly benefit checks normally mailed on the first that time; the payment is treated (like private pension
day of the month may be mailed out a day or two payments) as a transfer of income within the household
earlier; the budget then reflects two payments in one sector.
month and none the next. As a result, the budget totals
Financial transactions such as loan disbursements,
occasionally reflect 13 monthly payments in one year
loan repayments, loan asset sales, and loan guarantees
and only 11 the next. NIPA expenditure figures always
are excluded from the NIPAs on the grounds that such
reflect 12 benefit payments per year, giving rise to a
transactions simply involve an exchange of assets rath-
timing difference compared to the budget.
Coverage differences also differentiate the budget and er than current production, income, or consumption.
the NIPAs. A coverage difference arises on the expendi- In contrast, under the Federal Credit Reform Act of
ture side because of the NIPA treatment of Government 1990, the budget records the estimated subsidy cost
investment. The budget includes outlays for Federal of the direct loan or loan guarantee as an outlay when
investments as they are paid, while the NIPA Federal the loan is disbursed. The cash flows with the public
current account instead excludes current investments are recorded in nonbudgetary accounts as a means of
but includes a depreciation charge on past investments financing the budget rather than as budgetary trans-
(‘‘consumption of general government fixed capital’’) as actions themselves. This treatment recognizes that part
part of ‘‘current expenditures.’’ The inclusion of depre- of a Federal direct loan is an exchange of assets with
ciation on fixed capital (structures, equipment and soft- equal value but part is a subsidy to the borrower. It
ware) in current expenditures is a proxy for the services also recognizes the subsidy normally granted by loan
that capital renders; i.e., for its contribution to Govern- guarantees. In the NIPAs, neither the subsidies nor
ment output of public services. the loan transactions are included. However, the
Certain items in the budget are excluded from the NIPAs, like the budget, include all interest transactions
NIPA Federal current account because they are capital with the public, including interest received by and paid
transfers that are related to the acquisition or sale to the loan financing accounts; and both the NIPAs
of assets, and not related to current consumption or and the budget include administrative costs of credit
income. Examples include Federal investment grants program operations.
to State and local governments, investment subsidies Deposit insurance outlays for resolving failed banks
to business, lump sum payments to amortize the un- and thrift institutions are similarly excluded from the
funded liability of the Uniformed Services Retiree NIPAs on the grounds that there are no offsetting cur-
Health Care Fund, and forgiveness of debt owed by rent income flows from these transactions. In 1991, this
foreign governments. Likewise, estate and gift taxes, exclusion was the largest difference between the NIPAs
included in budget receipts, are excluded from NIPA and the budget and made NIPA net Government saving
current receipts as being capital transfers. They also a significantly smaller negative number than the budg-
exclude the proceeds from the sales of nonproduced as- et deficit that year. In subsequent years, as assets ac-
sets such as land. Bonuses paid on Outer Continental quired from failed financial institutions were sold, these
Shelf oil leases and proceeds from broadcast spectrum collections tended to make the budget deficit a smaller
auctions are shown as offsetting receipts in the budget negative figure than NIPA net Federal Government
and are deducted from budget outlays. In the NIPAs saving.
14. NATIONAL INCOME AND PRODUCT ACCOUNTS 205
Table 14–1. FEDERAL TRANSACTIONS IN THE NATIONAL INCOME AND PRODUCT ACCOUNTS, 1997–2008
Actual Estimate
Description
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
CURRENT RECEIPTS
Current tax receipts ................................................ 1010.2 1105.9 1165.2 1305.6 1266.9 1089.7 1065.9 1118.9 1323.9 1527.2 1639.9 1708.9
Personal current taxes ....................................... 729.0 814.1 868.5 987.4 993.8 851.1 781.7 787.2 909.0 1028.6 1151.6 1231.6
Taxes on production and imports ...................... 77.2 80.7 82.5 87.8 86.4 86.4 89.1 93.1 99.7 106.0 102.5 108.1
Taxes on corporate income ............................... 198.9 205.9 207.9 223.5 179.5 144.7 186.8 229.4 304.3 381.6 374.5 357.8
Taxes from the rest of the world ....................... 5.1 5.2 6.2 6.8 7.1 7.4 8.3 9.2 11.0 11.0 11.3 11.3
Contributions for government social insurance ..... 565.5 604.4 642.2 687.8 713.8 729.6 749.9 788.0 849.9 890.1 944.6 995.6
Income receipts on assets ..................................... 26.7 22.3 20.9 24.3 26.4 21.3 21.4 22.4 23.7 24.8 25.0 26.2
Current transfer receipts ......................................... 23.8 21.0 21.8 24.9 26.5 25.5 24.7 26.9 6.4 35.1 33.3 38.2
Current surplus of government enterprises ........... 0.2 0.0 0.3 –1.3 –6.5 –1.1 2.5 0.2 –5.3 –3.6 –2.0 –1.6
Total current receipts .............................. 1626.4 1753.5 1850.3 2041.2 2027.1 1865.0 1864.4 1956.4 2198.6 2473.6 2640.9 2767.4
CURRENT EXPENDITURES
Consumption expenditures ..................................... 454.6 452.9 469.5 496.0 519.7 575.5 648.0 707.2 758.0 803.3 865.7 906.9
Defense ............................................................... 304.4 301.3 307.2 321.2 335.7 368.4 424.5 470.9 508.8 532.8 579.1 617.2
Nondefense ......................................................... 150.2 151.6 162.3 174.8 184.0 207.1 223.5 236.3 249.2 270.5 286.6 289.7
Current transfer payments ...................................... 908.2 940.3 976.4 1023.2 1108.0 1216.6 1308.9 1379.6 1462.5 1543.1 1655.1 1721.1
Government social benefits ................................ 700.0 716.4 733.0 762.7 823.6 900.9 956.3 1007.4 1072.0 1151.4 1244.9 1306.1
Grants-in-aid to State and local governments .. 194.1 209.9 227.7 244.1 268.2 296.7 329.3 347.6 359.5 361.4 373.9 377.2
Other transfers to the rest of the world ............ 14.2 14.0 15.7 16.4 16.3 19.0 23.2 24.5 31.0 30.4 36.4 37.8
Interest payments ................................................... 299.4 299.7 285.9 283.3 267.9 234.9 214.6 216.6 242.3 286.7 306.2 331.9
Subsidies ................................................................. 31.3 33.6 36.1 49.6 53.7 37.9 46.1 43.5 53.6 54.4 47.3 46.3
Wage disbursements less accruals ........................ ................ ................ ................ ................ ................ ................ ................ ................ ................ ................ ................ ................
Total current expenditures ..................... 1693.5 1726.5 1767.9 1852.0 1949.3 2064.9 2217.6 2346.9 2516.3 2687.5 2874.3 3006.2
Net Federal Government saving ............ –67.1 27.0 82.4 189.2 77.8 –199.9 –353.2 –390.5 –317.7 –213.9 –233.4 –238.9
ADDENDUM: TOTAL RECEIPTS AND
EXPENDITURES
Current receipts ...................................................... 1626.4 1753.5 1850.3 2041.2 2027.1 1865.0 1864.4 1956.4 2198.6 2473.6 2640.9 2767.4
Capital transfer receipts .......................................... 19.7 23.9 27.6 28.8 28.2 26.4 21.7 24.7 24.5 27.7 25.0 25.5
Total receipts ........................................... 1646.1 1777.4 1877.9 2070.1 2055.3 1891.3 1886.1 1981.1 2223.1 2501.3 2666.0 2792.8
Current expenditures .............................................. 1693.5 1726.5 1767.9 1852.0 1949.3 2064.9 2217.6 2346.9 2516.3 2687.5 2874.3 3006.2
Net investment:
Gross government investment:
Defense .......................................................... 44.5 45.4 46.5 48.5 49.9 54.5 59.0 65.0 71.7 76.9 86.7 79.1
Nondefense .................................................... 28.5 29.7 31.9 32.2 30.3 32.6 33.3 33.4 36.0 37.0 38.0 40.0
Less: Consumption of fixed capital:
Defense .......................................................... 60.6 59.8 59.7 60.2 60.3 60.4 61.4 63.4 67.2 70.8 74.2 77.2
Nondefense .................................................... 21.8 22.9 24.5 26.5 27.7 28.2 28.7 29.3 30.7 32.5 32.4 33.5
Capital transfer payments ....................................... 29.0 28.2 31.3 39.3 39.8 44.3 62.0 62.9 66.0 69.4 77.8 77.4
Net purchases of nonproduced assets .................. –11.0 –5.3 –1.7 –0.3 –0.9 0.3 0.1 0.1 –0.9 0.0 –13.7 –13.3
Total expenditures ................................... 1702.3 1741.8 1791.8 1885.1 1980.3 2108.0 2281.9 2415.6 2591.2 2767.6 2956.5 3079.0
Net lending or net borrowing (–) .......... –56.2 35.7 86.1 185.0 75.0 –216.7 –395.8 –434.5 –368.1 –266.2 –290.6 –286.1
$50 million or less.
Federal Sector Current Receipts porate income subcategory differs in classification from
Table 14–1 shows Federal current receipts in the five the corresponding budget category primarily because
major categories and four of the subcategories used in the NIPAs include the deposit of earnings of the Fed-
the NIPAs, which are similar to the budget categories eral Reserve System as corporate income taxes, while
but with significant differences. the budget treats these collections as miscellaneous re-
Current tax receipts is the largest category of current ceipts. (The timing difference between the NIPAs and
receipts, and its personal current taxes subcategory— the budget is especially large for corporate receipts.)
composed primarily of the individual income tax—is the The taxes on production and imports subcategory is
largest single subcategory. The NIPAs’ taxes on cor- composed of excise taxes and customs duties.
Contributions for Government social insurance is the Current transfer payments is the largest expenditure
second largest category of current receipts. It differs category. Transfer payments for Government social ben-
from the corresponding budget category primarily be- efits consist mainly of income security and health pro-
cause: (1) the NIPAs include Federal employer contribu- grams, such as Social Security and Medicare paid to
tions for social insurance as a governmental receipt, U.S. residents—and to retirees living outside the
while the budget offsets these contributions against out- United States. Payment of pension benefits to former
lays as undistributed offsetting receipts; (2) the NIPAs Government employees is not included, as explained
include premiums for Parts B and D of Medicare as previously. Grants-in-aid to State and local govern-
governmental receipts, while the budget nets them ments help finance a range of programs, including in-
against outlays; (3) the NIPAs treat Government em- come security, Medicaid, and education (but capital
ployee contributions to their pension plans as a transfer transfer payments for construction of highways, air-
of personal income within the household sector (as if ports, waste-water treatment plants, and mass transit
the pension system were private), while the budget in- are excluded). ‘‘Current transfer payments to the rest
cludes them in governmental receipts; and (4) the of the world (net)’’ consists mainly of grants to foreign
NIPAs impute employer contributions for Federal em- governments.
ployees’ unemployment insurance and workers’ com- Interest payments is the interest paid by the Govern-
pensation. ment on its debt (excluding debt held by trust funds,
The income receipts on assets category consists main- other than Federal employee pension plans; and other
ly of interest payments received on Government direct Government accounts). Where the budget nets interest
loans (such as student loans) and rents and royalties received on loans against outlays, the NIPAs treat it
on Outer Continental Shelf oil leases. The current as current receipts.
transfer receipts category consists primarily of deposit Subsidies consist of subsidy payments for resident
insurance premiums, fees, fines and other receipts from businesses (excluding subsidies for investment). NIPA
both individuals and businesses, less insurance settle- subsidies do not include the imputed credit subsidies
ments from the National Flood Insurance Program— estimated as budget outlays under credit reform. Rath-
er, as explained previously loans and guarantees are
virtually all of which are netted against outlays in the
categorized as financial transactions and are excluded
budget. The current surplus (or deficit) of Government
from the NIPAs except for associated interest and fees.
enterprises category is the profit or loss of ‘‘Government
Wage disbursements less accruals is an adjustment
enterprises,’’ such as the Postal Service, which are busi-
that is necessary to the extent that the wages paid
ness-type operations of Government that usually appear
in a period differ from the amount earned in the period.
in the budget as public enterprise revolving funds. De-
preciation (consumption of enterprise fixed capital) is Differences in the Estimates
netted in calculating the current surplus of Government
enterprises. Since the introduction of the unified budget in Janu-
ary 1968, NIPA current receipts have been greater than
Federal Sector Current Expenditures budget receipts in most years. This is due principally
to grossing differences and the fact that estate and
Table 14–1 shows current expenditures in five major gift taxes, which the NIPAs exclude as capital transfers,
NIPA categories and five subcategories, which are also roughly matched Medicare premiums, which the NIPAs
very different from the budget categories. include as a governmental receipt but the budget treats
Government consumption expenditures are the goods as an offsetting receipt. (In the budget, offsetting re-
and services purchased by the Federal Government in ceipts are netted against the outlay total and not in-
the current account, including compensation of employ- cluded in the governmental receipts total.) Since 1986,
ees and depreciation. Gross investment (shown among NIPA current expenditures have usually been higher
the addendum items in Table 14–1) is thus excluded than budget outlays (from which the Medicare pre-
from current expenditures in computing net Govern- miums and employer retirement contributions are net-
ment saving on a NIPA basis, whereas depreciation— ted out as offsetting receipts), despite the omission from
charges on federally-owned fixed capital—(‘‘consump- NIPA expenditures of capital transfer grants and pen-
tion of general government fixed capital’’) is included. sion benefit payments to former Government employ-
The NIPAs treat State and local investment and capital ees.
consumption in the same way—regardless of the extent Two components of budget outlays, however, are
to which it is financed with Federal aid (capital transfer sometimes sufficiently large in combination to exceed
payments) or from State and local own-source receipts. the netting and grossing adjustments. These are finan-
Although gross investment is not included in Govern- cial transactions and net investment (the difference be-
ment current expenditures, both Government gross in- tween gross investment and depreciation). Large out-
vestment and current consumption expenditures (in- lays associated with resolving the failed savings and
cluding depreciation) are included in total GDP, which loan associations and banks in 1990 and 1991 caused
makes the treatment of the government sector in the those year’s budget outlays to exceed NIPA current ex-
NIPAs similar to that of the private sector. Investment penditures. With the change in budgetary treatment
includes structures, equipment, and computer software. of direct loans in 1992 under credit reform, one type
14. NATIONAL INCOME AND PRODUCT ACCOUNTS 207
Table 14–2. RELATIONSHIP OF THE BUDGET TO THE FEDERAL SECTOR, NIPA’s

Actual Estimate
Description
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
RECEIPTS
Budget receipts ....................................................... 1579.4 1722.0 1827.6 2025.5 1991.4 1853.4 1782.5 1880.3 2153.9 2407.3 2540.1 2662.5
Contributions to government employee retire-
ment plans ...................................................... –4.4 –4.3 –4.5 –4.8 –4.7 –4.6 –4.6 –4.6 –4.5 –4.4 –4.7 –4.7
Capital transfers received .................................. –19.7 –23.9 –27.6 –28.8 –28.2 –26.3 –21.7 –24.7 –24.5 –27.7 –25.0 –25.5
Other coverage differences ................................ –3.9 –5.8 –7.0 –8.0 –7.9 –8.9 –9.0 –10.1 –11.0 –12.2 –12.4 –13.1
Netting and grossing .......................................... 69.5 64.5 65.7 70.6 69.9 77.0 85.1 88.4 70.7 112.7 121.7 133.7
Timing differences .............................................. 5.5 1.1 –3.9 –13.2 6.7 –25.6 32.1 27.1 14.0 –2.0 21.2 14.4
NIPA current receipts .................................. 1626.4 1753.5 1850.3 2041.2 2027.1 1865.0 1864.4 1956.4 2198.6 2473.6 2640.9 2767.4
EXPENDITURES
Budget outlays ........................................................ 1601.3 1652.7 1702.0 1789.2 1863.2 2011.2 2160.1 2293.0 2472.2 2655.4 2784.3 2901.9
Government employee retirement plan trans-
actions ............................................................ 31.6 31.3 32.1 31.7 31.5 33.7 33.1 33.5 39.4 42.4 44.4 47.4
Deposit insurance and other financial trans-
actions ............................................................ –6.4 –7.1 –6.1 –9.0 –6.2 –6.7 2.1 –0.8 –0.8 –9.1 –19.2 –25.2
Capital transfer payments .................................. –28.9 –28.2 –31.3 –35.1 –39.8 –44.1 –45.4 –46.4 –47.7 –51.2 –53.9 –55.8
Net purchases of nonproduced assets .............. 11.0 5.3 1.7 0.3 0.9 –0.3 –0.1 –0.1 0.7 0.0 13.7 13.3
Net investment .................................................... 9.3 7.6 5.7 6.0 7.9 1.4 –2.3 –5.7 –9.8 –10.6 –18.1 –8.5
Other coverage differences ................................ 11.4 1.0 2.7 4.0 7.9 –0.6 –13.5 –20.2 –25.1 –38.1 –7.5 –1.1
Netting and grossing differences ....................... 69.5 64.5 65.7 70.6 69.9 77.0 85.1 88.4 70.7 112.7 121.7 133.7
Timing differences .............................................. –5.4 –0.7 –4.7 –5.6 14.3 –6.7 –1.6 5.1 16.6 –14.0 8.9 0.7
NIPA current expenditures ......................... 1693.5 1726.5 1767.8 1852.0 1949.3 2064.9 2217.6 2346.9 2516.3 2687.5 2874.3 3006.2
ADDENDUM
Budget surplus or deficit (–) .............................. –21.9 69.3 125.6 236.2 128.2 –157.8 –377.6 –412.7 –318.3 –248.2 –244.2 –239.4
NIPA net Federal Government saving .............. –67.1 27.0 82.4 189.2 77.8 –199.9 –353.2 –390.5 –317.7 –213.9 –233.4 –238.9
of financial transaction—direct loans to the public— each year. For 2003–2008, however, the NIPA net Fed-
has been recorded in the budget in a way that is closer eral Government saving was, or is estimated to be,
to the NIPA treatment. Disbursement and repayment a smaller negative number than the budget deficit.
of loans made since that time are recorded outside the Table 14–1 displays Federal transactions using NIPA
budget as in the Federal sector of the NIPAs, although, concepts with actual data for 1997–2006 and estimates
unlike the NIPAs, credit subsidies are recorded as for 2007 and 2008 consistent with the Administration’s
budget outlays. budget proposals. Table 14–2 summarizes the reasons
During the period 1975–1992, the budget deficit was for differences between the data. Annual NIPA data
a larger negative number than net Federal Government for 1948–2008 are published in Section 14 of a separate
saving as measured in the NIPAs every year. The larg- budget volume, Historical Tables, Budget of the U.S.
est difference, $78.8 billion, occurred in 1991 as a result Government, Fiscal Year 2008.
of resolving failed financial institutions as discussed Detailed estimates of NIPA current receipts and ex-
above; the budget deficit was then –$269.2 billion, while penditures consistent with the budget and including
the NIPA net Government saving was –$190.5 billion. quarterly estimates will be published in a forthcoming
In 1993–2002, the NIPA net Federal Government sav- issue of the Department of Commerce publication, Sur-
ing was a larger negative number than the budget def- vey of Current Business and on the Bureau of Economic
icit or lower positive number than the budget surplus Analysis website at www.bea.doc.gov/bea/pubs.htm.
BUDGET REFORM PROPOSALS
209
15. BUDGET REFORM PROPOSALS
The budget process should be transparent, account- Long-term Unfunded Obligations.—The Administra-
able, and orderly. The current budget process needs tion proposes new measures to address the long-term
reforms to achieve these goals. No one change can fix unfunded obligations of Federal entitlement programs.
the budget process, and process alone cannot address As discussed in Chapter 13 of this volume, ‘‘Steward-
important fiscal issues. Nevertheless, process changes ship,’’ spending by the Government’s major entitlement
can be a key factor in the effort to control spending. programs, particularly Social Security and Medicare,
Starting with A Blueprint for New Beginnings and con- is projected to rise in the next few decades to levels
tinuing with subsequent budgets, this Administration that cannot be sustained, either by those program’s
has consistently proposed changes to the budget proc- own dedicated financing or by general revenues. The
ess, as well as an extension with changes to key provi- Administration’s proposed measures are designed to
sions of the Budget Enforcement Act (BEA) of 1990, begin addressing these challenges.
as amended, that are designed to improve budget deci- In the Medicare Modernization Act (MMA) of 2003,
sions and outcomes. This chapter updates the Adminis- Congress provided for a more comprehensive review of
tration’s previous proposals and describes additional re- the Medicare program’s finances and required the Medi-
forms proposed by the Administration. care trustees to issue a warning when general revenue
Medicare funding is projected to exceed 45 percent of
Controlling Entitlements and Other Mandatory Medicare’s total expenditures. The President’s Budget
Spending proposes to build on this reform by requiring an auto-
Mandatory Spending Control.—The Administration matic reduction in the rate of Medicare growth if the
proposes to require that all legislation that changes MMA threshold is exceeded. If a warning was issued
mandatory spending, in total, does not increase the def- and action was not taken over the next six years to
icit. The five-year impact of any proposals affecting keep this threshold from being exceeded, the reduction
mandatory spending would continue to be scored. Legis- would begin as a four-tenths of a percent reduction
lation that increases the current year and the budget to all payments to providers in the year the threshold
year deficit would trigger a sequester of direct spending is exceeded, and would grow by four-tenths of a percent
programs. The proposal does not apply to changes in every year the shortfall continued to occur. This provi-
taxes and does not permit mandatory spending in- sion is designed to encourage the President and the
creases to be offset by tax increases. This proposal effec- Congress to reach agreement on reforms to slow Medi-
tively applies a pay-as-you-go requirement to manda- care spending and bring it back into line with the
tory spending. Table 15–1 displays the President’s man- threshold established by the MMA.
datory spending proposals that would be subject to this Social Security’s Disability Insurance (DI) program
requirement. provides disability insurance coverage and benefits to
Table 15–1. MANDATORY PROPOSALS SUBJECT TO PAYGO

(Cost/Savings (–) in millions of dollars)
Proposals 2007 2008 2009 2010 2011 2012 2007–12
Medicare ............................................................................................. ................ –4,696 –9,113 –13,077 –17,463 –21,695 –66,044

Outlay Effects of Tax Proposals 1 ..................................................... ................ –388 –297 4,021 4,100 4,086 11,522
Medicaid/State Children’s Health Insurance Program ...................... 35 –330 –870 –1,765 –1,790 –2,005 –6,725
User Fee Proposals ........................................................................... ................ –774 –1,021 –1,178 –1,187 –1,315 –5,476
Pension Benefit Guaranty Corporation Reform ................................. ................ ................ –1,390 –1,387 –1,400 –1,295 –5,472
ANWR Leasing ................................................................................... ................ ................ –3,502 –2 –503 –3 –4,010
Federal Student Aid Proposals .......................................................... ................ –3,652 –356 –69 365 769 –2,943
Farm Bill Reauthorization ................................................................... ................ 500 500 500 500 500 2,500
Social Services Block Grant .............................................................. ................ ................ –425 –495 –500 –500 –1,920
Unemployment Insurance Integrity Proposal 1 .................................. ................ ................ –484 –494 –351 –355 –1,684
Other Proposals ................................................................................. –125 –1,215 –602 –687 –715 –895 –4,238
Total ................................................................................................ –90 –10,555 –17,560 –14,633 –18,944 –22,708 –84,490

Total, 2007 and 2008 ................................................................ ................ –10,645 ................ ................ ................ ................ ................
1 Affects
both receipts and outlays. Only the outlay effect is shown here. For receipt effects, see Table S–6 in the Budget volume.
Note: a more detailed list of the Administration’s mandatory proposals can be found in Table S–5 of the Budget volume.
211
America’s workers. Outlays for the DI program have Controlling these costs is integral to the Administra-
grown as a percentage of all Federal budget outlays tion’s commitment to reducing the deficit and enforcing
from roughly 2.1 percent in 1989 to an estimated 3.6 fiscal discipline. Toward that end, the Director of the
percent in 2007. The Budget projects DI outlays will Office of Management and Budget issued on May 23,
continue to increase as a percentage of the Federal 2005 a memorandum to all Executive Branch agencies
budget, along with escalating annual cash deficits. The implementing a budget-neutrality requirement on agen-
President’s Budget proposes a new Funding Warning cy administrative actions affecting mandatory spending.
to highlight the escalating and persistent fiscal prob- Discretionary administrative actions in entitlement pro-
lems facing DI. If SSA’s actuaries project a negative grams, including regulations, program memoranda,
DI cash flow that is more than 10 percent of program demonstrations, guidance to States or contractors, and
cost for four consecutive years in the upcoming 10 other similar changes to entitlement programs are gen-
years, the Board of Trustees will issue the warning erally required to be fully offset. This effectively estab-
in the annual Trustees Report. Issuance of a DI Fund- lishes a pay-as-you-go requirement for discretionary ad-
ing Warning would require the President to propose ministrative actions involving mandatory spending pro-
legislation to respond to the warning within 15 days grams. Exceptions to this requirement are only pro-
after the date of the next Budget submission; the Con- vided in extraordinary or compelling circumstances.
gress would then consider this legislation. The analysis
Controlling Discretionary Spending
of DI’s budgetary impact will safeguard an important
source of disability insurance while promoting sound Discretionary Caps.—The Administration proposes to
fiscal policy. set limits for 2007 through 2012 on net discretionary
In addition to this Medicare-specific control mecha- budget authority and outlays equal to the levels pro-
nism and DI Funding Warning, the President’s Budget posed in the 2008 Budget. Legislation that exceeds the
proposes to establish a broader enforcement measure discretionary caps would trigger a sequester of non-
to analyze the long-term impact of legislation on the exempt discretionary programs. Table 15–2 displays the
unfunded obligations of major entitlement programs total levels of discretionary budget authority and out-
and to make it more difficult to enact legislation that lays proposed for 2007 through 2012. This approach
would expand the unfunded obligations of these pro- would put in place a budget framework for the next
grams over the long-run. These measures would high- five years that ensures constrained, but reasonable
light proposed legislative changes that appear to cost growth in discretionary programs. For 2007 through
little in the short run but result in large increases 2009, separate defense (Function 050) and nondefense
in the spending burdens passed on to future genera- categories would be enforced. For 2010–2012, there
would be a single cap for all discretionary spending.
tions.
These discretionary levels do not reflect the Adminis-
First, the Administration proposes a point of order
tration’s proposal to replace aviation taxes that are cur-
against legislation that worsens the long-term unfunded
rently recorded as governmental receipts with FAA user
obligation of major entitlements. The specific programs fees that would be recorded as offsetting collections.
covered would be those programs with long term actu- This budget-neutral reclassification lowers receipts and
arial projections, including Social Security, Medicare, net budget authority by an identical amount and does
Federal civilian and military retirement, veterans dis- not affect gross discretionary budget authority levels.
ability compensation, and Supplemental Security In- If this proposal is enacted, the Administration would
come. Additional programs would be added once it be- adjust discretionary spending levels downward for FY
comes feasible to make long-term actuarial estimates 2009–2012 by the amount of the proposal. In addition,
for those programs. a separate category for transportation outlays financed
Second, the Administration proposes new reporting by dedicated revenues would be established for 2007
requirements to highlight legislative actions worsening through 2009 at levels consistent with those enacted
unfunded obligations. Under these requirements, the in the Safe, Accountable, Flexible, Efficient, Transpor-
Administration would report on any enacted legislation tation Equity Act: A Legacy for Users (SAFETEA–LU).
in the past year that worsens the unfunded obligations The Administration would support expanding the de-
of the specified programs fense category to include all security programs and a
Budget Discipline for Agency Administrative Ac- corresponding change to create a non-security category
tions.—A significant amount of Federal policy is made to ensure resources are devoted to security programs
via administrative action, which can increase Federal and are not diverted for other purposes.
spending, often on the order of tens of billions of dollars Program Integrity Cap Adjustments.—An improper
in entitlement programs such as Medicare or Medicaid. payment occurs when Federal funds go to the wrong
Although known costs are incorporated into the budget recipient, the recipient receives an incorrect amount
baselines of various programs, agencies frequently ini- of funds, or the recipient uses the funds in an improper
tiate unplanned for and costly proposals. Often, these manner. Approximately 80 percent of improper pay-
costs are not reflected in the baseline, or are not accom- ments are overpayments. The Administration has made
panied by other actions that would pay for the proposed the elimination of improper payments a major focus.
change. This results in increased spending and deficits. Federal agencies have aggressively reviewed Federal
15. BUDGET REFORM PROPOSALS 213
Table 15–2. DISCRETIONARY CAPS AND ADJUSTMENTS

(Amounts in billions of dollars)
2007 1 2008 2009 2010 2011 2012
Proposed Discretionary Spending Categories:

Defense Category (Function 050):
Budget authority ......................................................................... 455.8 501.9 531.4 NA NA NA
Outlays ....................................................................................... 536.2 479.0 546.2 NA NA NA
Nondefense Category:
Outlays ....................................................................................... 466.6 459.4 454.5 NA NA NA
Discretionary Category:
Budget authority ......................................................................... NA NA NA 978.9 991.9 1,006.2
Outlays ....................................................................................... NA NA NA 1,028.6 1,041.7 1,043.7
Proposed Cap Adjustments:
SSA Continuing Disability Reviews:
Budget authority ................................................................ NA 0.213 0.453 0.485 NA NA
Outlays .............................................................................. NA 0.213 0.453 0.485 NA NA
IRS Tax Enforcement:
Outlays .............................................................................. NA 0.414 0.583 0.778 NA NA
Health Care Fraud and Abuse Control:
Outlays .............................................................................. NA 0.183 0.198 0.211 NA NA
Unemployment Insurance Improper Payments:
Outlays .............................................................................. NA 0.034 0.040 0.040 NA NA
Subtotal, Nondefense Category with Adjustments:
Outlays ....................................................................................... 466.6 460.2 455.8 NA NA NA
Highway Category:
Outlays ....................................................................................... 33.8 37.6 39.4 NA NA NA
Mass Transit Category: 2
Outlays ....................................................................................... 7.5 8.7 9.8 NA NA NA
Total, All Discretionary Categories:
Budget authority ............................................................................. 872.8 929.8 964.7 980.4 991.9 1,006.2
Outlays ........................................................................................... 1,044.1 985.6 1,051.2 1,030.1 1,041.7 1,043.7
Project BioShield Category:
Budget authority ............................................................................. .............. .............. 2.2 .............. .............. ..............
Memorandum: 2007 Enacted Emergencies
Budget authority ............................................................................. 72.0 .............. .............. .............. .............. ..............
1 The discretionary budget authority total is equal to the 302(a) allocation provided in a separate deeming provision in both the
House and the Senate, excluding emergencies enacted for the Global War on Terror and for border security in the Department of De-
fense and Department of Homeland Security Appropriations Acts (P.L. 109–289 and P.L. 109–295, respectively). The House included a
deeming provision in section 2 of the special rule, H. Res. 818, on the Department of Interior, Environment, and Related Agencies Ap-
propriations Act for 2007. The Senate included a deeming provision in section 7035 of P.L. 109-234, the Emergency Supplemental Ap-
propriations Act for Defense, the Global War on Terror, and Hurricane Recovery, 2006.
2 Includes outlays from discretionary budget authority.
programs to evaluate the risk of improper payments four programs: Medicare, Earned Income Tax Credit,
and have developed measures to assess the extent of Old-Age, Survivors, and Disability Insurance, and Un-
improper payments. Processes and internal control im- employment Insurance. This program integrity cap ad-
provements have been initiated to enhance the accuracy justment initiative also captures IRS efforts to improve
and integrity of payments and to report the results tax compliance. While not technically improper pay-
of these efforts, pursuant to the Improper Payments ments, the challenges of tax compliance are similar to
Information Act of 2002 (P.L. 107–300). those of the improper payments programs.
The results of the agencies’ assessments have been In the context of the Administration’s efforts to elimi-
aggregated into a Government-wide report entitled Im- nate improper payments, the Administration is pro-
proving the Accuracy and Integrity of Federal Payments. posing adjustments for spending above a base level of
(The report can be found at www.whitehouse.gov/omb/ funding within the discretionary levels for several pro-
financial/fia—improper.html.) In 2006, the agencies re- gram integrity initiatives, specifically for continuing
ported a total of $40.5 billion in improper payments. disability reviews (CDRs) and redeterminations of eligi-
This represents a 2.87 percent improper payment rate. bility in the Social Security Administration (SSA), In-
Nearly 70 percent of those improper payments are in ternal Revenue Service (IRS) tax enforcement, the
Health Care Fraud and Abuse Control Program would recoup over $1.8 billion in savings over a ten-
(HCFAC) in the Centers for Medicare and Medicaid year period, with additional savings after the ten-year
Services and Unemployment Insurance improper pay- period, as estimated by SSA’s Office of the Actuary.
ments in the Department of Labor. These cap adjust- The savings from one year of program integrity activi-
ments provide an effective way to ensure that limited ties are realized over multiple years because some
resources are applied to activities that reduce errors CDRs identify that the beneficiary has medically im-
and generate program savings. proved and is capable of working, which may mean
In the past decade, there have been a variety of suc- that they are no longer eligible to receive Disability
cessful efforts to ensure dedicated resources for pro- Insurance (DI) or Supplemental Security Income (SSI)
gram integrity efforts. These efforts include cap adjust- benefits. This may also result in savings in Medicare
ment funding for Social Security continuing disability and Medicaid, since eligibility for these programs is
reviews and integrity efforts associated with the Earned linked to DI and SSI. Overpayments of SSI benefits
Income Tax Credit (EITC). These initiatives have led identified by a redetermination are not always recov-
to increased savings for the Social Security and Supple- ered in the same year that the redetermination is con-
mental Security Income programs and an increase in ducted.
The return on investment (ROI) for CDRs is approxi-
enforcement efforts in EITC. The Administration’s pro-
mately 10 to 1 in lifetime program savings, and ap-
posed adjustments for program integrity activities will
proximately 8 to 1 over the first ten years. The ROI
total $876 million in budget authority in 2008 and
for redeterminations is approximately 7 to 1. Redeter-
$1,310 million in budget authority in 2009 and $1,562
minations focus on an individual’s eligibility for the
million in budget authority in 2010.
means tested SSI program and generally result in a
For the Social Security Administration, the $213 mil- revision to the individual’s benefit level. However, the
lion cap adjustment would allow SSA to conduct an schedule of savings resulting from redeterminations will
additional 200,000 Continuing Disability Reviews be different for the base and the cap adjustment. This
(CDRs) and an additional 500,000 SSI redeterminations is due to the fact that redeterminations of eligibility
of eligibility in 2008. As a result of these efforts, SSA can uncover underpayment errors as well as overpay-
Table 15–3. PROGRAM INTEGRITY BASE AND CAP ADJUSTMENTS

(Budget authority in millions of dollars)
2007
2005 2006 2008 2009 2010
Actual Actual Proposed Proposed Proposed
Request CR rate
SSA Continuing Disability Reviews:

Enforcement Base 1 ............................................................................................................... 311 224 289 141 264 264 264
Cap Adjustments:
BA ...................................................................................................................................... NA NA 201 NA 213 453 485
Outlays .............................................................................................................................. NA NA 201 NA 213 453 485
IRS Tax Enforcement:
Enforcement Base 2 ............................................................................................................... 6,446 6,378 6,824 6,788 6,788 6,788 6,788
Cap Adjustments:
BA ...................................................................................................................................... NA 446 137 NA 440 619 826
Outlays .............................................................................................................................. NA 415 129 NA 414 583 778
Health Care Fraud and Abuse Control Program:
Enforcement Base (Mandatory) ............................................................................................ 1,075 1,212 1,075 1,137 1,156 1,178 1,200
Cap Adjustments:
BA ...................................................................................................................................... NA NA 118 NA 183 198 211
Outlays .............................................................................................................................. NA NA 118 NA 183 198 211
Unemployment Insurance Improper Payments:
Enforcement Base ................................................................................................................. 10 10 10 10 10 10 10
Cap Adjustments:
BA ...................................................................................................................................... NA NA 40 NA 40 40 40
Outlays .............................................................................................................................. NA NA 34 NA 34 40 40
Total:
Enforcement Base ................................................................................................................. 7,842 7,824 8,198 8,063 8,218 8,240 8,262
Cap Adjustments:
BA ...................................................................................................................................... NA 446 496 NA 876 1,310 1,562
Outlays .............................................................................................................................. NA 415 482 NA 844 1,274 1,514
1 The proposed 2008 base and cap adjustment would include both CDRs and redeterminations, whereas the 2005, 2006 and 2007 numbers reflect only CDRs, as previous cap
adjustments were for CDRs only. In 2008, the base is $161 million for CDRs and $103 million for redeterminations, and the cap adjustment is $163 million for CDRs and $50 mil-
lion for redeterminations. In 2009, the cap adjustment is $346 million for CDRs and $107 million for redeterminations. In 2010, the cap adjustment is $368 million for CDRs and
$117 million for redeterminations. In 2009 and 2010 the split for the base is the same as in 2008.
2 The enforcement base for the 2007 Request is equal to the 2006 enacted enforcement base of $6,378 million plus the 2006 enacted cap adjustment of $446 million.
ment errors. SSI recipients are more likely to initiate these efforts, the IRS will collect an estimated $51 bil-
a redetermination of eligibility if they believe there is lion in 2007 in direct enforcement revenue. The IRS
an underpayment error, and these recipient-initiated succeeded in increasing this figure by 44 percent be-
redeterminations are included in the base. In addition, tween 2002 and 2006. The IRS estimates that work
corrections for underpayment errors are realized more completed by the proposed new staff in 2008 will even-
quickly than corrections for overpayment errors. tually yield another $317 million. Once these new staff
SSA is required by law to conduct CDRs for all bene- are trained and become more experienced the enforce-
ficiaries who are receiving Disability Insurance benefits, ment revenue impact of the work they complete each
as well as all children under 18 who are receiving Sup- year will rise to $699 million. However, this ROI esti-
plemental Security Income. SSI redeterminations are mate is understated because much of the new invest-
also required by law, but the frequency is not specified ment is directed towards efforts to improve the perform-
in statute. Because of this mandate, in previous Presi- ance of the existing staff (such as new computers and
dent’s Budgets it was assumed that SSA devoted the better research) that are not reflected in the IRS’ ROI
resources necessary to carry out between 500,000 and calculation. More importantly, the ROI is understated
700,000 full medical CDRs and between 1 and 2 million because it does not reflect the impact enhanced enforce-
SSI redeterminations per year, with resulting savings ment has on deterring non-compliance that helps to
built into the baseline for SSI and DI. However, actual ensure the continued payment of more than $2 trillion
performance of program integrity activities has been in taxes voluntarily paid each year. The impact of in-
well below this level. This year, the baseline assumes creased IRS enforcement on improving voluntary com-
a more likely scenario for program integrity funding, pliance is not directly measured. However, research
and the President’s Budget shows the savings which suggests it is at least three times as large as the direct
will result from the program integrity cap adjustment impact on revenue.
proposal. The discretionary cap adjustment of $183 million for
For the IRS, the $440 million cap adjustment covers the Centers for Medicare and Medicaid Services’
cost increases (+$149 million) for the $6.8 billion base HCFAC program is designed to provide additional re-
IRS enforcement program plus new investments in ex- sources to identify and reduce improper payments in
panding staff and improving the efficiency of the IRS’ the Medicare prescription drug benefit and Medicare
enforcement programs (+$291 million). As a result of Advantage programs. This $183 million would build on
Table 15–4. DIRECT SAVINGS ESTIMATED FROM 2008 PROGRAM INTEGRITY FUNDING
(Budget authority in millions of dollars)
2008 Direct Savings Estimates

Program
Integrity 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total
Funding
SSA Continuing Disability Reviews 1

Enforcement Base .............................................. 264 578 –608 –414 –250 –206 –200 –185 –169 –162 –142 –1,758
Cap Adjustment .................................................. 213 –31 –439 –288 –188 –164 –158 –148 –137 –130 –118 –1,801
IRS Tax Enforcement 2
Enforcement Base .............................................. 6,788 –50,900 ................ ................ ................ ................ ................ ................ ................ ................ ................ –50,900
Cap Adjustment 3 ................................................ 440 –51 –194 –43 –14 –7 –4 –2 –1 –1 ................ –317
Health Care Fraud and Abuse Control
Program
Cap Adjustments 4 .............................................. 183 –330 ................ ................ ................ ................ ................ ................ ................ ................ ................ –330
Unemployment Insurance Improper Payments 5
Enforcement Base .............................................. 10 –50 ................ ................ ................ ................ ................ ................ ................ ................ ................ –50
Cap Adjustments ................................................ 40 –145 –60 ................ ................ ................ ................ ................ ................ ................ ................ –205
1 This is based on SSA’s Office of the Actuary estimates of savings from CDRs and redeterminations. In the first year, the enforcement base shows a positive outlay. This is
due to the fact that redeterminations of eligibility can uncover underpayment errors as well as overpayment errors. SSI recipients are more likely to initiate a redetermination if they
believe there is an underpayment, and SSA completes these beneficiary-initiated redeterminations in the enforcement base. In addition, corrections for underpayments are realized
more quickly than corrections for overpayment. The cap adjustment does not show an outlay in the first year because SSA would target their cap adjustment redetermination dol-
lars to cases where an overpayment is suspected.
2 Savings for IRS are revenue increases rather than spending reductions. They are shown as negatives for consistency in presentation. At the base level they are shown as
constant for simplicity.
3 The Internal Revenue Service (IRS) cap adjustment funds cost increases for the base program (+$149 million) and new initiatives (+$291 million). The IRS collects $51 billion
per year (2007 estimate) in direct enforcement revenue, and its enforcement program helps maintain the more than $2 trillion in taxes voluntarily paid each year. The cost in-
creases will help maintain the base revenue. The 2008 initiatives will yield an estimated $317 million in new enforcement revenue, fund improvements in the base program such
as new computers and better research, and help deter tax cheating. This deterrence impact is not directly measured. However, research suggests it is at least three times as
large as the direct impact on revenue.
4 These data are based on estimates from the HHS Office of the Actuary for return on investment from program integrity activities.
5 The maximum UI benefit period is typically 26 weeks. As a result, preventing an ineligible individual from collecting UI benefits would save at most a half year of benefits. The
two years of savings reflect the fact that reemployment and eligibility assessments conducted late in the year affect individuals whose benefits would have continued into the sub-
sequent fiscal year.
Table 15–5. TRANSPORTATION CATEGORY FOR HIGHWAYS AND MASS

TRANSIT SPENDING
(Amounts in millions of dollars)
2007 2008 2009
Transportation Category: 1
Highways: 2
Obligation Limitations ................................................................ 36,847 40,946 42,581
Outlays ....................................................................................... 33,840 37,649 39,443
Mass Transit:
Obligation Limitations ................................................................ 6,910 7,873 8,406
Outlays 3 ..................................................................................... 7,479 8,740 9,774
Memorandum:
Discretionary budget authority for Mass Transit included in the
Nondefense Category:.
Budget authority ............................................................................. 1,688 1,550 1,980
1 The amounts included for 2007 reflect the levels provided by the continuing resolution (P.L.
109–289, Division B, as amended). The SAFETEA–LU levels enacted for Highway and Mass Transit
programs apply in 2008 and 2009.
2 The Highway levels do not include adjustments authorized in SAFETEA–LU of $631 million in
FY 2008 for the revenue aligned budget authority (RABA) calculation. The levels do include $122
million in FY 2008–2009 for the National Highway Traffic Safety Administration. The proposal is to
fund NHTSA completely from the Highway Trust Fund instead of a portion from General Fund, as
authorized in SAFETEA–LU.
3 Includes outlays from discretionary budget authority.
funding provided in the Deficit Reduction Act of 2005 authority (RABA) adjustment as authorized in
for Part D program integrity activities for FY 2006 SAFETEA–LU for 2007 and 2008. The RABA adjust-
only. The funding would be allocated among CMS, the ment is calculated based on changes in estimated High-
Health and Human Services Office of Inspector Gen- way Trust Fund receipts, and results in either an in-
eral, the Federal Bureau of Investigation, and Depart- crease or decrease in the Highway Category funding
ment of Justice to safeguard these programs as well level enacted in SAFETEA–LU. The amounts shown
as Medicaid against fraud and abuse. This $183 million for 2007 reflect the levels provided by the continuing
would generate approximately $330 million in savings resolution (P.L. 109–289, Division B, as amended),
in FY 2008, which would reflect recouping improper which did not include the 2007 RABA adjustment au-
payments made to providers. thorized in SAFETEA–LU. For 2008, the RABA adjust-
The 2008 Budget proposes a discretionary cap adjustment authorized in SAFETEA–LU is a positive $631
ment of $40 million for the Department of Labor’s million; however, the Administration proposes not to
(DOL) Unemployment Insurance (UI) State administra- provide this increase in funding in order to preserve
tive grants program to reduce UI improper payments, the solvency of the Highway Trust Fund.
a top management challenge identified by GAO and Advance Appropriations.—An advance appropriation
DOL’s Inspector General. The proposal would expand becomes available one or more years beyond the year
a $10 million Reemployment and Eligibility Assessment for which its appropriations act is passed. Budget au-
initiative begun in 2005 to finance in-person interviews thority is recorded in the year the funds become avail-
at One-Stop Career Centers to assess UI beneficiaries’ able and not in the year of enactment. Too often, ad-
need for job-finding services and their continued eligi- vance appropriations have been used to expand spend-
bility for benefits. The current $10 million effort results ing levels by shifting budget authority from the budget
in a savings in UI benefit payments of $50 million. year into the subsequent year and then appropriating
The maximum UI benefit period is typically 26 weeks. the budget authority freed up under the budget year
As a result, preventing an ineligible individual from discretionary cap to other programs. The effect of these
collecting UI benefits would save at most a half year advance appropriations is to limit the amount of discre-
of benefits. The two years of savings from the additional tionary budget authority available in subsequent years,
$40 million, totaling $145 million in 2008 and $60 mil- thereby reducing future funding options available to
lion in 2009, reflect the fact that reemployment and both Congress and the President. From 1993 to 1998,
eligibility assessments conducted late in the year affect an average of $2.3 billion in discretionary budget au-
individuals whose benefits would have continued into thority was advance appropriated each year. In 1999,
the subsequent fiscal year. advance appropriations totaled $8.9 billion and in-
Transportation Category.—The Administration’s pro- creased to $23.4 billion in 2000.
posal for discretionary caps includes separate outlay Because this budget practice distorts the debate over
categories for spending on Federal Highway and Mass Government spending and misleads the public about
Transit programs. The transportation levels will be fi- spending levels in specific accounts, the 2001 Congres-
nanced by dedicated revenues through 2009. Table 15–5 sional Budget Resolution and this Administration’s
shows the levels, excluding the revenue aligned budget budget proposals have capped advance appropriations
at the amount advanced in the previous year. By cap- award for the 2007–2008 award year. For scoring pur-
ping advance appropriations, increases in these and poses, the funding needed to fully fund all awards for
other programs can be budgeted and reflected in the 2008–2009 is increased by the amount of this shortfall.
year of their enactment. For 2009, the Administration Project BioShield Category.—The Administration pro-
proposes a cap on advance appropriations of $23,174 poses a separate BEA category for budget authority
million. for Project BioShield, which received an advance appro-
In addition, the Administration proposes to score the priation for 2009 of $2.2 billion in P.L. 108–90, the
second-year effect of appropriations language that 2004 Department of Homeland Security Appropriations
delays obligations of mandatory budget authority as ad- Act. Because the success of this program in providing
vance appropriations that count against the discre- for the development of vaccines and medications for
tionary caps. Appropriations acts often include provi- biodefense depends on an assured funding availability,
sions that delay obligations of mandatory BA from one it is critical that this funding not be diverted to other
year to the next. The first year is appropriately scored purposes. The Administration’s proposal to create a sep-
as a discretionary savings because it is included in arate category will help ensure that funding for this
an appropriations act and it reduces spending in that program is not reduced and used as an offset for other
year. However, this is usually a temporary delay, and discretionary spending.
the funds become available for spending in the second
year. Under this proposal, the second-year impact Include Stricter Standard For Emergency
would be treated as an advance appropriation and Designation in the BEA
scored against the discretionary caps. This would cor- When the BEA was enacted in 1990, it provided a
rect an inconsistency in the current practice where sav- ‘‘safety valve’’ to ensure that the fiscal constraint envi-
ings are scored in the first year, but the second-year sioned by the BEA would not prevent the enactment
impact is reclassified in the subsequent budget as man- of legislation to respond to unforeseen disasters and
datory and not scored against the discretionary caps. emergencies such as Operation Desert Storm, the ter-
To enforce the level of advance appropriations, the rorist attacks of September 11, 2001, or Hurricane
discretionary cap proposal provides that total funding Katrina. If the President and the Congress separately
for advance appropriations (including obligation delays) designated a spending or tax item as an emergency
provided in an appropriations act for 2009 that is in requirement, the BEA held these items harmless from
excess of the Administration’s limit on advance appro- its enforcement mechanisms. Initially, this safety valve
priations of $23,174 million in 2009 will count against was used judiciously, but in later years its application
the discretionary cap in the year enacted, not against was expanded to circumvent the discretionary caps by
the year the funds first become available. declaring spending for ongoing programs as ‘‘emer-
For more information on individual accounts with ad- gencies.’’
vance appropriations, please see the chapter on this sub- The Administration proposes to include in the BEA
ject in the Budget Appendix. a definition of ‘‘emergency requirement’’ that will en-
Federal Pell Grants.—To ensure funding shortfalls do sure high standards are met before an event is deemed
not accumulate in the Pell Grant program in future an ‘‘emergency’’ and therefore exempt. This definition
years, the 2006 Congressional Budget Resolution adopt- should include the following elements: the requirement
ed the Administration’s proposal to score appropriations is a necessary expenditure that is sudden, urgent, un-
at the amount needed to fully fund the award level foreseen, and not permanent. These elements, all of
set in appropriations acts, beginning with the which would be used for defining something as an
2006–2007 school year, if the amount appropriated is emergency, are defined as follows:
insufficient to fully fund all awards. The Administration • necessary expenditure—an essential or vital ex-
proposes to continue this scoring rule. Under this rule, penditure, not one that is merely useful or bene-
the amount scored would be increased to cover any ficial;
cumulative funding shortfalls from previous years and • sudden—quickly coming into being, not building
reduced by any surpluses carried over from previous up over time;
years, beginning with any shortfalls or surpluses from • urgent—pressing and compelling, requiring imme-
the 2006–2007 school year. If the amount appropriated diate action;
exceeds the estimated full cost, the amount appro- • unforeseen—not predictable or seen beforehand as
priated would be scored against that year, and the sur- a coming need (an emergency that is part of the
plus would carry over as a credit against the following average annual level of disaster assistance fund-
year’s cost estimate. In the 2008 Budget, the Depart- ing would not be ‘‘unforeseen’’); and
ment of Education estimates that a cumulative $235 • not permanent—the need is temporary in nature.
million shortfall will be carried into the 2008–2009 aca- This definition codifies the criteria for an emergency
demic year. Because there is no final 2007 appropria- that have been the standard for a number of years.
tion for this account, the Budget assumes a 2007 en- It is designed to preclude funds from being declared
acted level of $12.607 billion for calculating this short- an emergency for events that occur on an annual or
fall, which was the CBO estimate of the 2007 Senate recurring basis. For example, even though it is not
Subcommittee appropriation of a $4,050 maximum possible to predict the specific occurrence of fires, tor-
nados, hurricanes, and other domestic disasters, it is requirement is for the discretionary baseline esti-
reasonable to assume that a combination of domestic mates for the budget year and the outyears to
disasters will occur in any given year that require fund- assume the current year appropriated level, ad-
ing equal to a multi-year average for disaster relief. justed for inflation. This is reasonable for ongoing
Funding at an average, therefore, should not be consid- programs, where the need is expected to continue
ered an emergency under this definition. On the other into the future. For emergencies, since the need
hand, an average level of funding for domestic disasters should be for a short duration, the baseline rules
will not accommodate the level necessary to address build unnecessary funding into the baseline esti-
a large and relatively infrequent domestic disaster, mates for the years after the need has been ad-
such as Hurricane Katrina. Under this definition for dressed and passed. In effect, the current rule bi-
emergencies, spending for extraordinary events could ases the baseline in favor of higher discretionary
be classified as emergency funding. In the end, classi- spending.
fication of certain spending as an emergency depends • Correct the overcompensation of baseline budg-
on common sense judgment, made on a case-by-case etary resources for pay raise-related costs due to
basis, about whether the totality of facts and cir- the way in which these costs are inflated. The
cumstances indicate a true emergency. current requirement, which provides a full year’s
In addition, the Administration proposes that the def- funding for pay raises in the budget year and
inition of an emergency requirement also encompass beyond, was written when Federal pay raises were
contingency operations that are national security re- scheduled to take effect on October 1, at the start
lated. Contingency operations that are national security of each fiscal year. However, this requirement is
related include both defense operations and foreign as- now inappropriate because the effective date for
sistance. Military operations and foreign aid with costs pay raises is now permanently set by law as the
that are incurred regularly should be a part of base first pay period in January. By treating pay raises
funding and, as such, are not covered under this defini- that begin on January 1 as if they take effect
tion. for the entire fiscal year, the baseline overstates
The Administration proposal also would require that the cost of providing a constant level of services.
the President and Congress concur in designating an • Eliminate the adjustments for expiring housing
emergency for each spending proposal covered by a des- contracts and social insurance administrative ex-
ignation. This would protect against the ‘‘bundling’’ of penses. Most multi-year housing contracts have
non-emergency items with true emergency spending. If expired or have been addressed since the BEA
the President determines that specific proposed emer- was first enacted in 1990, so the adjustment is
gency designations do not meet this definition, he would no longer needed. The adjustment for social insur-
not concur in the emergency designation and no discre- ance administrative expenses is also inconsistent
tionary cap adjustment or mandatory spending control with the baseline rules for other accounts that
exemption would apply. fund the costs of administration. These programs
should not be singled out for preferential treat-
Baseline ment.
The Administration supports the extension of section
257 of the BEA governing baseline calculations with Earmark Reform
the following changes: An earmark is a spending provision that the Con-
• Assume extension of all expiring tax provisions gress inserts in legislation. Frequently, these provisions
in the Economic Growth and Tax Relief Reconcili- are not publicly disclosed during the legislative process
ation Act of 2001 and certain provisions in the and often they are special interest projects. A number
Jobs and Growth Tax Relief Reconciliation Act of of organizations track earmarks. The Congressional Re-
2003. This proposal is consistent with the BEA search Service (CRS) and Citizens Against Government
baseline rules for expiring mandatory spending Waste (CAGW) have been tracking earmarks for over
and for excise taxes dedicated to a trust fund. a decade. While they do not use the same definition,
Except for a few relatively small mandatory pro- their data show similar trends. Earmarks have ex-
grams, the BEA assumes that mandatory spend- panded dramatically in recent years, with the numbers
ing and excise taxes dedicated to a trust fund and costs of earmarks more than tripling since the
will be reauthorized and extends them in the base- early 1990s. According to CAGW, the Congress added
line. The 2001 Act and 2003 Act provisions were nearly 550 earmarks at a cost of $3 billion to the Budg-
not intended to be temporary, and not extending et in 1991. The number of earmarks peaked in 2005.
them in the baseline raises inappropriate proce- CAGW has estimated that earmarks grew to almost
dural road blocks to extending them at current 14 thousand at a cost of $27 billion. CRS data show
rates. a similar trend, with earmarks reaching more than 16
• Add a provision to exclude discretionary funding thousand in 2005 at a cost of $52 billion. OMB has
for emergencies from the baseline. Instead, the also been tracking earmarks during recent years and
baseline would include emergency funding only for estimates that the number of earmarks grew to over
the year in which it was enacted. The current 13 thousand at a cost of nearly $18 billion. OMB is
in the process of developing the capability to track ear- for deficit reduction; they could not be applied to aug-
marks during the legislative process. ment spending elsewhere.
One major concern about earmarks is the lack of The President’s proposal received strong support. In
transparency. Most earmarks do not appear in statu- June 2006, the House of Representatives voted on a
tory language. Instead, they are included in committee bipartisan basis to enact a version of the Legislative
reports that accompany legislation. According to CRS, Line Item Veto. In the Senate, members voted to report
more than 90 percent of earmarks are in report lan- an amended version of the President’s proposal out of
guage. This means that the vast majority of earmarks the Senate Budget Committee for consideration on the
do not appear in the statutory language that the Con- floor.
gress actually votes on or that the President signs into Forty-three Governors have a line item veto to reduce
law. Also, earmarks frequently surface in the last stage spending, and the President needs similar authority
of the legislative process, in conference committees be- to help control unjustified and wasteful spending in
tween the House and the Senate. the Federal budget. The Administration urges contin-
The President has called on the Congress to fully ued support for this common-sense provision and will
disclose all earmarks to reduce the amount of wasteful seek its enactment in the 110th Congress.
and unnecessary spending. Taxpayers should feel con-
fident that their tax dollars are being spent wisely. Other Budget Reform Proposals
Unfortunately, the large number of earmarks and the Joint Budget Resolution.—A joint budget resolution
lack of transparency in the earmarking process make would set the overall levels for discretionary spending,
it difficult to assure the public that the Government mandatory spending, receipts, and debt in a simple doc-
is spending the people’s money on the Nation’s highest ument that would have the force of law. Under the
priorities. The President has proposed that the Con- current process, the Congress annually adopts a ‘‘con-
gress provide justification for earmarks, and identify current resolution,’’ which does not require the Presi-
the sponsor, costs, and recipients of each project. In dent’s signature and does not have the force of law.
addition, the President has proposed that the Congress A joint budget resolution could be enforced by seques-
stop the practice of placing earmarks in report lan- ters requiring automatic across-the-board cuts to offset
guage. Finally, he has called on the Congress to cut any excess spending, similar to the BEA. It would bring
the number and cost of earmarks by at least 50 percent. the President into the process at an early stage, encour-
age the President and the Congress to reach agreement
Line-Item Veto on overall fiscal policy before individual tax and spend-
ing bills are considered, and give the budget resolution
A perennial criticism of the Federal Government is
the force of law.
that spending and tax legislation contain too many pro- Biennial Budgeting and Appropriations.—Only three
visions that are not fully justified, are a low priority, times in the last 25 years have all appropriation bills
or are earmarked to avoid the discipline of competitive been enacted by the beginning of the fiscal year. Be-
or merit-based reviews. These special interest items cause Congress must enact these bills each year, it
would likely not become law if considered as a stand- cannot devote the time necessary to provide oversight
alone bill, and their persistence diverts resources from and fully address problems in Federal programs. The
higher priority programs and erodes the confidence of preoccupation with these annual appropriations bills
citizens in Government. frequently precludes review and action on authorization
From the Nation’s founding, presidents have exer- legislation and on the growing portion of the budget
cised the authority to not spend appropriated sums. that is permanently funded under entitlement laws. Ac-
However, Congress sought to curtail this authority in cording to the Congressional Budget Office, in recent
1974 through the Impoundment Control Act, which re- years the Congress appropriated between $160 billion
stricted the President’s authority to decline to spend and $170 billion for programs and activities whose au-
appropriated sums. Although the Line Item Veto Act thorizations of appropriations have expired.
of 1996 attempted to give the President the authority In contrast, a biennial budget would allow lawmakers
to cancel spending authority and special interest tax to devote more time every other year to ensuring that
breaks, the U.S. Supreme Court found that law uncon- taxpayers’ money is spent wisely and efficiently. In ad-
stitutional. dition, Government agencies would receive more stable
Last year, the President asked that Congress correct funding, which would facilitate longer range planning
this state of affairs by providing him and future presi- and improved fiscal management. Under the President’s
dents with a line item veto that would withstand con- proposal for a biennial budget, funding decisions would
stitutional challenge, and the President transmitted be made in odd-numbered years, with even numbered
legislation to the Congress in March 2006 that accom- years devoted to authorizing legislation.
plishes this purpose. Under the President’s proposal, Government Shutdown Prevention.—In the 22 out of
a President could propose legislation to rescind wasteful the past 25 years in which Congress has not finished
spending, and the Congress would be obligated to vote appropriation bills by the October 1st deadline, it has
quickly on that package of rescissions, without amend- funded the Government through ‘‘continuing resolu-
ment. All savings from the line-item veto would be used tions’’ (CRs), which provide temporary funding author-
ity for Government activities, usually at current levels, After the Supreme Court decision in INS v. Chadha
until the final appropriations bills are signed into law. (462 U.S. 919), the authority granted to presidents for
If Congress does not pass a CR or the President submitting reorganization plans under the Reorganiza-
does not sign it, the Federal Government must shut tion Act (5 U.S.C. 903) was limited by the requirement
down. Important Government functions should not be of congressional approval through a joint resolution and
held hostage simply because of an impasse over tem- by the scope of what could be proposed. This authority
porary funding bills. There should be a back-up plan was no longer available to the President after 1984.
to avoid the threat of a Government shutdown, al- Today, proposals to restructure or consolidate pro-
though the expectation is that appropriations bills still grams or agencies so they can perform better require
would pass on time as the law requires. Under the a change in law and often face long odds of being en-
Administration’s proposal, if an appropriations bill is acted due to a cumbersome process that requires ap-
not signed by October 1 of the new fiscal year, funding proval from multiple congressional committees.
would be automatically provided at the lower of the To address this problem, in June 2005 the Adminis-
President’s Budget or the prior year’s level. tration transmitted the Government Reorganization
Results and Sunset Commissions.—The Federal Gov- and Program Performance Improvement Act, which
ernment’s ability to serve the American people is often would establish bipartisan Results Commissions and a
hampered by poorly designed programs or uncoordi- Sunset Commission. Results Commissions would con-
nated, overlapping programs trying to achieve the same sider and revise Administration proposals to restructure
objective. Today, almost 30 percent of assessed pro- or consolidate programs or agencies to improve their
grams have been determined to be either ineffective performance. The Sunset Commission would consider
or unable to demonstrate results. And the problem of Presidential proposals to retain, restructure, or termi-
overlapping programs exists in many areas where the nate agencies and programs according to a schedule
Government is trying to serve. set by the Congress. Agencies and programs would
From the 1930s through 1984, presidents were per- automatically terminate according to the schedule un-
mitted to submit plans for reorganizing Federal agen- less reauthorized by the Congress. The legislation was
cies to Congress that would become effective unless the introduced in the House and Senate, but was not en-
plan was disapproved by either House of Congress. acted.
FEDERAL BORROWING AND DEBT
221
16. FEDERAL BORROWING AND DEBT
Debt is the largest legally binding obligation of the had loaned it the money to pay for past deficits. During
Federal Government. At the end of 2006, the Govern- that year, the Government paid the public around $237
ment owed $4,829 billion of principal to the people who billion of interest on this debt.
Table 16–1. TRENDS IN FEDERAL DEBT HELD BY THE PUBLIC

(Dollar amounts in billions)
Debt held by the public: Debt held by the public as a Interest on the debt held by
percent of: the public as a percent of: 3
Fiscal Year Current FY 2000 Credit mar-
Dollars dollars 1 GDP Total outlays GDP
ket debt 2
1946 ............................... 241.9 1,821.3 108.6 N/A 7.4 1.8

1950 ............................... 219.0 1,339.9 80.2 53.3 11.4 1.8
1955 ............................... 226.6 1,217.3 57.4 43.2 7.6 1.3
1960 ............................... 236.8 1,128.0 45.7 33.7 8.5 1.5
1965 ............................... 260.8 1,161.4 38.0 26.9 8.1 1.4
1970 ............................... 283.2 1,047.8 28.0 20.8 7.9 1.5
1975 ............................... 394.7 1,074.6 25.3 18.4 7.5 1.6
1980 ............................... 711.9 1,340.7 26.1 18.5 10.6 2.3
1985 ............................... 1,507.3 2,164.6 36.4 22.3 16.2 3.7
1990 ............................... 2,411.6 2,968.1 42.0 22.6 16.1 3.5
1991 ............................... 2,689.0 3,190.0 45.3 24.1 16.2 3.6
1992 ............................... 2,999.7 3,471.2 48.1 25.7 15.5 3.4
1993 ............................... 3,248.4 3,675.4 49.4 26.6 14.9 3.2
1994 ............................... 3,433.1 3,802.6 49.3 26.8 14.4 3.0
1995 ............................... 3,604.4 3,910.1 49.2 26.7 15.8 3.3
1996 ............................... 3,734.1 3,974.6 48.5 26.3 15.8 3.2
1997 ............................... 3,772.3 3,946.3 46.1 25.4 15.7 3.1
1998 ............................... 3,721.1 3,846.1 43.1 23.5 15.1 2.9
1999 ............................... 3,632.4 3,705.9 39.8 21.5 13.8 2.6
2000 ............................... 3,409.8 3,409.8 35.1 19.1 13.0 2.4
2001 ............................... 3,319.6 3,243.1 33.0 17.6 11.6 2.1
2002 ............................... 3,540.4 3,393.9 34.1 17.6 8.9 1.7
2003 ............................... 3,913.4 3,677.1 36.2 17.9 7.5 1.5
2004 ............................... 4,295.5 3,934.3 37.3 18.1 7.3 1.5
2005 ............................... 4,592.2 4,081.7 37.4 17.7 7.7 1.6
2006 ............................... 4,829.0 4,163.7 37.0 17.2 8.9 1.8
2007 estimate ................ 5,083.3 4,274.5 36.9 N/A 9.0 1.8
2008 estimate ................ 5,345.4 4,388.8 36.8 N/A 9.6 1.9
2009 estimate ................ 5,553.6 4,458.1 36.3 N/A 9.8 1.9
2010 estimate ................ 5,671.2 4,456.2 35.2 N/A 9.9 1.9
2011 estimate ................ 5,748.3 4,425.7 33.9 N/A 9.8 1.8
2012 estimate ................ 5,711.1 4,311.2 32.1 N/A 9.7 1.8
1 Debt in current dollars deflated by the GDP chain-type price index with Fiscal Year 2000 equal to 100.
2 Total credit market debt owed by domestic nonfinancial sectors, modified in some years to be consistent with budget con-
cepts for the measurement of Federal debt. Financial sectors are omitted to avoid double counting, since financial intermediaries
borrow in the credit market primarily in order to finance lending in the credit market. Source: Federal Reserve Board flow of
funds accounts. Projections are not available.
3 Interest on debt held by the public is estimated as the interest on Treasury debt securities less the ‘‘interest received by
trust funds’’ (subfunction 901 less subfunctions 902 and 903). The estimate of interest on debt held by the public does not in-
clude the comparatively small amount of interest paid on agency debt or the offsets for interest on Treasury debt received by
other Government accounts (revolving funds and special funds).
223
The deficit was $248 billion in 2006, down from $318 8.9 percent by 2002; interest as a percentage of GDP
billion in 2005. This $248 billion deficit, partially offset fell in a similar proportion.
by other financing transactions totaling $11 billion, re- The downward trend in debt relative to GDP ceased
quired the Government to increase its borrowing from in 2002 as economic conditions changed following the
the public by $237 billion last year. Debt held by the September 11 terrorist attacks. The decline in the stock
public fell from 37.4 percent of Gross Domestic Product market, the recession, and the initially slow recovery
(GDP) at the end of 2005 to 37.0 percent of GDP at all reduced tax receipts; tax relief had the same effect;
the end of 2006. The deficit is estimated to continue and spending increased due to the Global War on Ter-
to fall, with the Federal Government achieving surplus ror. Consequently, deficits ensued and debt began to
in 2012. Debt as a percentage of GDP is also estimated rise, both in nominal terms and as a percentage of
to continue to fall, reaching 32.1 percent of GDP in GDP. However, a growing economy led to a revival
2012. of receipts and deficits fell in 2005 and 2006. Deficits
are expected to continue to fall in 2007 through 2012.
Trends in Debt Since World War II In nominal dollars, debt is estimated to continue to
rise through 2011 and then to begin to fall in 2012
Table 16–1 depicts trends in Federal debt held by when the Government achieves surplus. Debt as a per-
the public from World War II to the present and esti- cent of GDP fell in 2006 and is expected to fall by
mates from the present through 2012. (It is supple- nearly five percentage points by the end of 2012.
mented for earlier years by Tables 7.1–7.3 in Historical
Tables, which is published as a separate volume of the Debt Held by the Public, Gross Federal Debt,
Budget.) Federal debt peaked at 108.6 percent of GDP and Liabilities Other Than Debt
in 1946, just after the end of the war. From then until The Federal Government issues debt securities for
the 1970s, because of an expanding economy as well two principal purposes. First, it borrows from the public
as inflation, Federal debt as a percentage of GDP de- to finance the Federal deficit. 1 Second, it issues debt
creased almost every year. With households borrowing to Government accounts, primarily trust funds, that
large amounts to buy homes and consumer durables, accumulate surpluses. (As used in this Budget, debt
and with businesses borrowing large amounts to buy held by Government accounts refers to debt held by
plant and equipment, Federal debt also decreased al- Federal Government accounts; investments by State
most every year as a percentage of the total credit and local governments in Federal securities are in-
market debt outstanding. The cumulative effect was cluded as debt held by the public.) By law, trust fund
impressive. From 1950 to 1975, debt held by the public surpluses must generally be invested in Federal securi-
declined from 80.2 percent of GDP to 25.3 percent, and ties. The gross Federal debt is defined to consist of
from 53.3 percent of credit market debt to 18.4 percent. both the debt held by the public and the debt held
Despite rising interest rates, interest outlays became by Government accounts. Nearly all the Federal debt
a smaller share of the budget and were roughly stable has been issued by the Treasury and is sometimes
as a percentage of GDP. called ‘‘public debt,’’ but a small portion has been issued
During the 1970s, large budget deficits emerged as by other Government agencies and is called ‘‘agency
spending surged and as the economy was disrupted debt.’’ 2
by oil shocks and rising inflation. The nominal amount Borrowing from the public, whether by the Treasury
of Federal debt more than doubled, and Federal debt or by some other Federal agency, is normally a good
relative to GDP and credit market debt stopped declin- approximation of the Federal demand on credit mar-
ing after the middle of the decade. The growth of Fed- kets. Regardless of whether the proceeds are used for
eral debt accelerated at the beginning of the 1980s, tangible or intangible investment or to finance current
due in large part to a deep recession, and the ratio consumption, the Federal demand on credit markets
of Federal debt to GDP grew sharply. The ratio of Fed- has to be financed out of the saving of households and
eral debt to credit market debt also rose, though to businesses, the State and local sector, or the rest of
a lesser extent. Interest outlays on debt held by the the world. Federal borrowing thereby competes with
the borrowing of other credit market sectors for finan-
public, calculated as a percentage of either total Federal
cial resources in the credit market. Borrowing from the
outlays or GDP, increased as well.
public thus affects the size and composition of assets
The growth of Federal debt held by the public was
held by the private sector, and the amount of saving
decelerating by the mid-1990s, however, and the debt
imported from abroad. It also increases the amount
declined markedly relative to both GDP and total credit
market debt. The decline accelerated as surpluses 1 Treasury debt held by the public is measured as the sales price plus the amortized
discount (or less the amortized premium). At the time of sale, the book value equals the
emerged from 1997 to 2001. Debt fell steadily from sales price. Subsequently, it equals the sales price plus the amount of the discount that
49.4 percent of GDP in 1993 to 33.0 percent in 2001; has been amortized up to that time. In equivalent terms, the book value of the debt
equals the principal amount due at maturity (par or face value) less the unamortized
and it fell more unevenly from 26.8 percent of total discount. (For a security sold at a premium, the definition is symmetrical.) For inflation-
credit market debt in 1994 to 17.6 percent in 2001 indexed notes and bonds, the book value includes a periodic adjustment for inflation. Agency
debt is generally recorded at par.
and 2002. Interest on this debt, relative to total outlays 2 The term ‘‘agency debt’’ is defined more narrowly in the budget than customarily in
and GDP, declined as well. Interest as a share of out- the securities market, where it includes not only the debt of the Federal agencies listed
in Table 16–3, but also the debt of the Government-sponsored enterprises listed in Table
lays peaked at 16.5 percent in 1989 and then fell to 7–9 at the end of Chapter 7 of this volume and certain Government-guaranteed securities.
16. FEDERAL BORROWING AND DEBT 225
Table 16–2. FEDERAL GOVERNMENT FINANCING AND DEBT

Estimate
Actual
2006 2007 2008 2009 2010 2011 2012
Financing:
Unified budget deficit (–)/surplus (+) .................................................................................... –248.2 –244.2 –239.4 –187.2 –94.4 –53.8 61.0
Financing other than borrowing from the public:
Net purchases of non-Federal securities by
the National Railroad Retirement Investment Trust (–) .............................................. –1.8 –0.9 * * 0.2 0.6 0.3
Changes in: 1
Treasury operating cash balance (–) ........................................................................... –16.4 7.1 ................ ................ ................ ................ ................
Checks outstanding, etc. 2 ............................................................................................ 12.7 ................ ................ ................ ................ ................ ................
Seigniorage on coins ........................................................................................................ 0.7 0.8 0.7 0.6 0.5 0.5 0.5
Credit net financing disbursements (–):
Direct loan financing accounts ..................................................................................... –4.7 –10.6 –16.7 –14.7 –18.0 –19.1 –20.5
Guaranteed loan financing accounts ........................................................................... 21.0 –6.6 –6.8 –7.0 –5.9 –5.4 –4.2
Total, financing other than borrowing from the public ............................................ 11.4 –10.1 –22.8 –21.0 –23.2 –23.3 –23.8
Total, requirement to borrow from the public ..................................................... –236.8 –254.3 –262.2 –208.2 –117.5 –77.1 37.2
Change in debt held by the public ....................................................................................... 236.8 254.3 262.2 208.2 117.5 77.1 –37.2
Changes in Debt Subject to Limitation:
Change in debt held by the public ....................................................................................... 236.8 254.3 262.2 208.2 117.5 77.1 –37.2
Change in debt held by Government accounts ................................................................... 309.3 302.1 305.6 354.6 381.7 400.1 409.7
Less: change in debt not subject to limit and other adjustments ....................................... 3.2 0.2 0.6 2.6 2.4 2.5 2.1
Total, change in debt subject to statutory limitation ....................................................... 549.2 556.6 568.3 565.5 501.7 479.7 374.6
Debt Subject to Statutory Limitation, End of Year:
Debt issued by Treasury ....................................................................................................... 8,425.6 8,982.2 9,550.5 10,113.9 10,613.8 11,091.8 11,465.0
Less: Treasury debt not subject to limitation (–) 3 ............................................................... –14.5 –14.5 –14.5 –12.4 –10.7 –8.9 –7.6
Agency debt subject to limitation ......................................................................................... 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Adjustment for discount and premium 4 ............................................................................... 9.1 9.1 9.1 9.1 9.1 9.1 9.1
Total, debt subject to statutory limitation 5 ....................................................................... 8,420.3 8,976.9 9,545.2 10,110.6 10,612.3 11,092.0 11,466.6
Debt Outstanding, End of Year:
Gross Federal debt: 6
Debt issued by Treasury .................................................................................................. 8,425.6 8,982.2 9,550.5 10,113.9 10,613.8 11,091.8 11,465.0
Debt issued by other agencies ........................................................................................ 25.8 25.6 25.0 24.5 23.7 23.0 22.3
Total, gross Federal debt ............................................................................................. 8,451.4 9,007.8 9,575.5 10,138.3 10,637.6 11,114.8 11,487.3
Held by:
Debt held by Government accounts ................................................................................ 3,622.4 3,924.5 4,230.1 4,584.7 4,966.4 5,366.5 5,776.2
Debt held by the public 7 .................................................................................................. 4,829.0 5,083.3 5,345.4 5,553.6 5,671.2 5,748.3 5,711.1
1 A decrease in the Treasury operating cash balance (which is an asset) is a means of financing a deficit and therefore has a positive sign. An increase in checks outstanding
(which is a liability) is also a means of financing a deficit and therefore also has a positive sign.
2 Besides checks outstanding, includes accrued interest payable on Treasury debt, uninvested deposit fund balances, allocations of special drawing rights, and other liability ac-
counts; and, as an offset, cash and monetary assets (other than the Treasury operating cash balance), other asset accounts, and profit on sale of gold.
3 Consists primarily of Federal Financing Bank debt.
4 Consists mainly of unamortized discount (less premium) on public issues of Treasury notes and bonds (other than zero-coupon bonds) and unrealized discount on Government
account series securities.
5 The statutory debt limit is $8,965 billion, enacted on March 20, 2006.
6 Treasury securities held by the public and zero-coupon bonds held by Government accounts are almost all measured at sales price plus amortized discount or less amortized
premium. Agency debt securities are almost all measured at face value. Treasury securities in the Government account series are otherwise measured at face value less unreal-
ized discount (if any).
7 At the end of 2006, the Federal Reserve Banks held $768.9 billion of Federal securities and the rest of the public held $4,060.0 billion. Debt held by the Federal Reserve
Banks is not estimated for future years.
of future resources required to pay interest to the public Issuing debt securities to Government accounts per-
on Federal debt. Borrowing from the public is therefore forms an essential function in accounting for the oper-
an important concern of Federal fiscal policy. 3 ation of these funds. The balances of debt represent
the cumulative surpluses of these funds due to the ex-
3 The Federal subsector of the national income and product accounts provides a measure
cess of their tax receipts, interest receipts, and other
of ‘‘net government saving’’ (based on current expenditures and current receipts) that can
be used to analyze the effect of Federal fiscal policy on national saving within the framework collections compared to their spending. The interest on
of an integrated set of measures of aggregate U.S. economic activity. The Federal subsector the debt that is credited to these funds accounts for
and its differences from the budget are discussed in Chapter 14 of this volume, ‘‘National
Income and Product Accounts.’’ the fact that some earmarked taxes and user fees will
be spent at a later time than when the funds receive in concept and much larger in size than the amount
the monies. The debt securities are a liability of the of Treasury debt that these programs hold.
general fund to the fund that holds the securities and For all these reasons, debt held by the public is a
are a mechanism for crediting interest to that fund better gauge of the effect of the budget on the credit
on its recorded balances. These accounting balances markets than gross Federal debt.
generally provide the fund with authority to draw upon Debt securities do not encompass all the liabilities
the U.S. Treasury in later years to make future pay- of the Federal Government. For example, accounts pay-
ments on its behalf to the public. Public policy may able occur in the normal course of buying goods and
run surpluses and accumulate debt in trust funds and services; Social Security benefits are due and payable
other Government accounts in anticipation of future as of the end of the month but, according to statute,
spending. are paid during the next month; loan guarantee liabil-
However, issuing debt to Government accounts does ities are incurred when the Government guarantees the
not have any of the credit market effects of borrowing payment of interest and principal on private loans; and
from the public. It is an internal transaction of the liabilities for future pension and retiree health pay-
Government, made between two accounts that are both ments are incurred as part of the current compensation
within the Government itself. It is not a current trans- for the services performed by Federal civilian and mili-
action of the Government with the public; it is not tary employees in producing Government outputs. Like
financed by private saving and does not compete with debt securities sold in the credit market, these liabil-
the private sector for available funds in the credit mar- ities have their own distinctive effects on the economy.
ket; it does not provide the account with resources other Federal liabilities are analyzed within the broader con-
than a legal claim on the U.S. Treasury, which itself ceptual framework of Federal resources and responsibil-
obtains real resources by taxation and borrowing; and ities in the ‘‘Stewardship’’ Chapter of this volume. The
its current interest does not have to be financed by different types of liabilities are reported annually in
other resources. the financial statements of Federal agencies and in the
Furthermore, the debt held by Government accounts Financial Report of the United States Government, pre-
does not represent the estimated amount of the ac- pared by the Treasury Department.
count’s obligations or responsibilities to make future Government Surpluses or Deficits and the
payments to the public. For example, if the account Change in Debt
records the transactions of a social insurance program,
the debt that it holds does not represent the actuarial Table 16–2 summarizes Federal borrowing and debt
present value of estimated future benefits (or future from 2006 through 2012. In 2006 the Government bor-
benefits less taxes) for the current participants in the rowed $237 billion, increasing the debt held by the
program; nor does it represent the actuarial present public from $4,592 billion at the end of 2005 to $4,829
value of estimated future benefits (or future benefits billion at the end of 2006. The debt held by Government
less taxes) for the current participants plus the esti- accounts increased $309 billion, and gross Federal debt
mated future participants over some stated time period. increased by $546 billion to $8,451 billion.
The future transactions of Federal social insurance and Debt held by the public. The Federal Government
employee retirement programs, which own 91 percent primarily finances deficits by borrowing from the public,
of the debt held by Government accounts, are important and it primarily uses surpluses to repay debt held by
in their own right and need to be analyzed separately. the public. Table 16–2 shows the relationship between
This can be done through information published in the the Federal deficit or surplus and the change in debt
actuarial and financial reports for these programs. 4 held by the public. The borrowing or debt repayment
This Budget uses a variety of information sources depends on the Federal Government’s expenditure pro-
to analyze the condition of Social Security and Medi- grams and tax laws, on the economic conditions that
care, the Government’s two largest social insurance pro- influence tax receipts and outlays, and on debt manage-
grams. Chapter 13 of the present volume, ‘‘Steward- ment policy. The sensitivity of the budget to economic
ship,’’ projects Social Security and Medicare outlays to conditions is analyzed in Chapter 12 of this volume,
the year 2080 relative to GDP. It also discusses in ‘‘Economic Assumptions.’’
some detail the actuarial projections prepared for the The total or unified budget surplus consists of two
Social Security and Medicare trustees reports to evalu- parts: the on-budget surplus or deficit; and the surplus
ate the long-run actuarial deficiency or shortfall in of the off-budget Federal entities, which have been ex-
these programs. A chapter in the main volume of the cluded from the budget by law. Under present law,
Budget, ‘‘The Nation’s Fiscal Outlook,’’ uses the same the off-budget Federal entities are the Social Security
data in less detail to explain the long-run fiscal prob- trust funds (Old-Age and Survivors Insurance and Dis-
lems of Social Security and Medicare revealed by these ability Insurance) and the Postal Service fund. 5 The
projections. The actuarial shortfalls are very different off-budget totals are virtually the same as Social Secu-
rity, which had a large surplus in 2006 and is estimated
4 Extensive actuarial analyses of the Social Security and Medicare programs are published
in the annual reports of the boards of trustees of these funds. Annual actuarial reports
to have large surpluses throughout the projection pe-
are also prepared for major Federal employee retirement funds. The actuarial estimates
for these and other programs are summarized in the Financial Report of the United States 5 For further explanation of the off-budget Federal entities, see Chapter 23 of this volume,
Government, prepared annually by the Treasury Department. ‘‘Off-Budget Federal Entities and Non-Budgetary Activities.’’
riod. The on-budget and off-budget surpluses or deficits funds were transferred to the new trust fund, which
are added together to determine the Government’s fi- invests its assets primarily in private stocks and bonds.
nancing needs. The Act ordered special treatment of the purchase or
The Government’s need to borrow, or its ability to sale of non-Federal assets by this trust fund, treating
repay debt held by the public, has always depended such purchases as a means of financing rather than
on several other factors besides the unified budget sur- an outlay. Therefore, the increased need to borrow from
plus or deficit, such as the change in the Treasury the public to finance the purchase of non-Federal assets
operating cash balance. As shown in Table 16–2, these is part of the ‘‘financing other than borrowing from
other factors, which in this table are called ‘‘financing the public’’ rather than included as an increase in the
other than borrowing from the public,’’ can either in- deficit. This increased borrowing expanded publicly held
crease or decrease the Government’s need to borrow. debt by $20 billion in 2003. Net purchases have been
(An increase in its need to borrow is represented by relatively small since 2003 and are estimated to remain
a negative sign, like the deficit.) Some of these indi- relatively small in future years. 6
vidual factors themselves may be either positive or neg- Net financing disbursements of the direct loan and
ative, and some of them vary considerably in size from guaranteed loan financing accounts.—Under the Fed-
year to year. In 2006 the deficit was $248 billion and eral Credit Reform Act of 1990, budget outlays for di-
the ‘‘financing other than borrowing from the public’’ rect loans and loan guarantees consist of the estimated
was $11 billion. As a result, the Government borrowed subsidy cost of the loans or guarantees at the time
$237 billion from the public. when the direct loans or guaranteed loans are dis-
Over the long-run, it is a good approximation to say bursed. The cash flows to and from the public resulting
that ‘‘the deficit is financed by borrowing from the pub- from these loans and guarantees—the disbursement
lic’’ or ‘‘the surplus is used to repay debt held by the and repayment of loans, the default payments on loan
public.’’ Over the last 20 years, the cumulative deficit guarantees, the collections of interest and fees, and so
was $2,945 billion and the increase in debt held by forth—are not costs to the Government except for those
the public was $3,088 billion. Thus, the other factors costs already included in budget outlays. Therefore,
added a total of $143 billion of borrowing, an average they are non-budgetary in nature and are recorded as
of $7 billion per year. transactions of the non-budgetary financing account for
In individual years it is also often a good approxima- each credit program. 7
tion to say that the deficit and borrowing (or the sur- The financing accounts also include several types of
plus and debt repayment) are about the same. The intragovernmental transactions. In particular, they re-
variation, however, can be wide, ranging over the last ceive payment from the credit program accounts for
20 years from additional borrowing (or lower repay- the costs of new direct loans and loan guarantees; they
ment) of $63 billion in 2002 to reduced borrowing of also receive payment for any upward reestimate of the
$30 billion in 2004. The other factors are estimated costs of direct loans and loan guarantees outstanding.
to increase borrowing in each of the years from 2007 These collections are offset against the gross disburse-
through 2012, by amounts ranging from $10 billion in ments of the financing accounts in determining the ac-
2007 to $24 billion in 2012. Three specific factors pre- counts’ total net cash flows. The total net cash flows
sented in Table 16–2 have recently been especially im- of the financing accounts, consisting of transactions
portant. with both the public and the budgetary accounts, are
Change in Treasury operating cash balance.—The op- called ‘‘net financing disbursements.’’ They are defined
erating cash balance decreased $26 billion during 2003, in the same way as the ‘‘outlays’’ of a budgetary account
partly because it was higher than planned at the end and therefore affect the requirement for borrowing from
of the previous year. Since then, however, changes in the public in the same way as the deficit.
the operating cash balance have been smaller, with a The result is that the intragovernmental transactions
$1 billion increase in 2004 and a $1 billion decrease of the financing accounts do not affect Federal bor-
in 2005. The cash balance increased $16 billion in 2006. rowing from the public. Although the deficit changes
The operating cash balance is estimated to decrease because of the budget’s outlay to, or receipt from, a
by $7 billion by the end of 2007 and then to remain financing account, the net financing disbursement
essentially the same. Changes in the operating cash changes in an equal amount with the opposite sign,
balance, while occasionally large, are inherently lim- so the effects cancel out. On the other hand, financing
ited. Decreases in cash—a means of financing the Gov- account disbursements to the public increase the re-
ernment—are limited by the amount of past accumula- quirement for borrowing from the public in the same
tions, which themselves required financing when they way as an increase in budget outlays that are disbursed
were built up. Increases are limited because it is more to the public in cash. Likewise, financing account re-
efficient to repay debt. 6 The budget treatment of this fund is further discussed in Chapter 26 of this volume,
Net purchases of non-Federal securities by the Na- ‘‘The Budget System and Concepts.’’
tional Railroad Retirement Investment Trust.—This 7 The Federal Credit Reform Act of 1990 (sec. 505(b)) requires that the financing accounts
be non-budgetary. As explained in Chapter 23 of this volume, ‘‘Off-Budget Federal Entities

trust fund was established by the Railroad Retirement and Non-Budgetary Activities,’’ they are non-budgetary in concept because they do not
measure cost. For additional discussion of credit reform, see Chapter 26 of this volume,
and Survivors’ Improvement Act of 2001. In 2003, most ‘‘The Budget System and Concepts,’’ and the other references cited in Chapter 23 of this
of the assets in the Railroad Retirement Board trust volume.
ceipts from the public can be used to finance the pay- Debt held by Government accounts.—The amount
ment of the Government’s obligations, and therefore of Federal debt issued to Government accounts depends
they reduce the requirement for Federal borrowing from largely on the surpluses of the trust funds, both on-
the public in the same way as an increase in budget budget and off-budget, which owned 93 percent of the
receipts. total Federal debt held by Government accounts at the
The impact of the financing accounts became large end of 2006. In 2006, the total trust fund surplus was
in the mid-1990s. In 2005 and 2006, large upward re- $289 billion, and trust funds invested $278 billion in
estimates were made in the cost of outstanding direct Federal securities. Investment may differ somewhat
and guaranteed loans. The credit program accounts in from the surplus due to changes in the amount of cash
the budget made large outlays to the financing ac- assets not currently invested. The remainder of debt
counts, which in turn had equal offsetting collections issued to Government accounts is owned by a number
and therefore large negative net financing disburse- of special funds and revolving funds. The debt held
ments. The result is shown as a positive amount in in major accounts and the annual investments are
shown in Table 16–4.
Table 16–2, canceling out the effect of a higher budget
deficit on the Government’s borrowing requirement. In Agency Debt
2007, net downward reestimates are expected and fi-
Some Federal agencies, shown in Table 16–3, sell
nancing accounts will make positive net financing dis-
or have sold debt securities to the public and, at times,
bursements of the downward reestimates to receipt ac-
to other Government accounts. At one time, several
counts. After 2007, the pattern is expected to be more other agencies issued debt securities, but this activity
normal. The financing accounts are estimated to in- has declined significantly over time. Currently, new
crease the need for borrowing by $17 billion in 2007 debt is issued only by the Tennessee Valley Authority
and from $22 billion to $25 billion in each of the fol- (TVA) and the Federal Housing Administration (FHA);
lowing five years. A major part of this financing is the remaining agencies are repaying existing borrowing.
normally due to the direct student loan program. Since During 2006, agencies repaid $0.4 billion of debt held
direct loans require cash disbursements equal to the by the public, resulting in total agency debt of $25.8
full amount of the loans when the loans are made, billion as of the end of the year. Agency debt is less
Federal borrowing requirements are initially increased. than one percent of Federal debt held by the public.
Later, when the loans are repaid, Federal borrowing Agencies are estimated to repay small amounts of debt
requirements will decrease. in 2007 and 2008.
Table 16–3. AGENCY DEBT

Borrowing or repayment (–) of debt Debt end

of
2006 2007 2008 2008
actual estimate estimate estimate
Borrowing from the public:

Federal Housing Administration ..................................... –34 * ................ 112
Participation certificates: Section 505 development
company ..................................................................... ................ –7 ................ ................
Architect of the Capitol ....................................................... –3 –4 –4 148
National Archives ................................................................ –9 –10 –11 204
Tennessee Valley Authority:
Bonds and notes ............................................................ –205 –11 –388 22,493
Lease/leaseback obligations ........................................... –34 –37 –43 1,029
Prepayment obligations .................................................. –106 –105 –106 1,033
Total, borrowing from the public ........................... –391 –174 –552 25,019
Borrowing from other funds:
Tennessee Valley Authority ................................................ 6 ................ ................ 7
Total, borrowing from other funds ........................ 6 ................ ................ 7
Total, agency borrowing ......................................... –385 –174 –552 25,026

* $500,000 or less.
The predominant agency borrower is the Tennessee were $1.2 billion at the end of 2006 and are estimated
Valley Authority, which had borrowed $25 billion from to continue to decline as TVA provides electric power
the public as of the end of 2006, or 98 percent of the under the contracts.
total debt of all agencies. TVA sells debt primarily to The Federal Housing Administration has for many
finance capital expenditures. years issued both checks and debentures as means of
The TVA has traditionally financed its capital con- paying claims to the public that arise from defaults
struction by selling bonds and notes to the public. Since on FHA-insured mortgages. Issuing debentures to pay
2000, it has also employed two types of alternative the Government’s bills is equivalent to selling securities
financing methods, lease/leaseback obligations and pre- to the public and then paying the bills by disbursing
payment obligations. The Office of Management and the cash borrowed, so the transaction is recorded as
Budget determined that each of these methods is a being simultaneously an outlay and borrowing. The de-
means of financing the acquisition of assets owned and bentures are therefore classified as agency debt.
used by the Government, or of refinancing debt pre- A number of years ago, the Federal Government
viously incurred to finance such assets. They are equiv- guaranteed the debt used to finance the construction
alent in concept to other forms of borrowing from the of buildings for the National Archives and the Architect
public, although at different terms and conditions. The of the Capitol, and subsequently exercised full control
budget therefore records the upfront cash proceeds from over the design, construction, and operation of the
these methods as borrowing from the public, not offset- buildings. These arrangements are equivalent to direct
ting collections. The obligations under these methods Federal construction financed by Federal borrowing.
are reported as liabilities on TVA’s balance sheet under The construction expenditures and interest were there-
generally accepted accounting principles. Table 16–3 fore classified as Federal outlays, and the borrowing
presents these alternative financing methods separately was classified as Federal agency borrowing from the
from TVA bonds and notes to distinguish between the public.
types of borrowing. The amount of agency securities sold to the public
The first type of alternative financing method is has been reduced over time by borrowing from the Fed-
lease/leasebacks. TVA signed contracts to lease some eral Financing Bank (FFB). The FFB is an entity with-
recently constructed power generators to private inves- in the Treasury Department, one of whose purposes
tors and simultaneously lease them back. It received is to substitute Treasury borrowing for agency bor-
a lump sum for leasing out its assets, and then leased rowing from the public. It has the authority to purchase
them back at fixed annual payments for a set number agency debt and finance these purchases by borrowing
of years. TVA retains substantially all of the economic from the Treasury. Agency borrowing from the FFB
benefits and risks related to ownership of the assets. is not included in gross Federal debt. It would be double
The arrangement is at least as governmental as a counting to add together (a) the agency borrowing from
‘‘lease-purchase without substantial private risk.’’ 8 The the FFB and (b) the Treasury borrowing from the public
same budget treatment was applied to the lease/lease- that was needed to provide the FFB with the funds
back of qualified technological equipment in 2003. The to lend to the agencies.
obligations for lease/leasebacks were $1.1 billion at the
Debt Held by Government Accounts
end of 2006 and are estimated to decline steadily in
the following years as they are amortized. Trust funds, and some special funds and public enter-
The second type of alternative financing method is prise revolving funds, accumulate cash in excess of cur-
prepayments for power that TVA sells to its power dis- rent needs in order to meet future obligations. These
tributors. Under the Discounted Energy Units program, cash surpluses are generally invested in Treasury debt.
which began in 2003, distributors may prepay a portion Investment by trust funds and other Government ac-
of the price of the power they plan to purchase in counts has risen greatly for many years. It was $309
the future. In return, they obtain a discount on a spe- billion in 2006, and is estimated to be $302 billion
cific quantity of the future power they buy from TVA. in 2007 and $306 billion in 2008, as shown in Table
The quantity varies, depending on TVA’s estimated cost 16–4. The holdings of Federal securities by Government
of borrowing. Most of the prepayments have been rel- accounts are estimated to grow to $4,230 billion by
atively small. However, TVA entered into a 15-year, the end of 2008, or 44 percent of the gross Federal
$1.5 billion contract with Memphis Light, Gas, and debt. The percentage is estimated to rise in the fol-
Water (MLGW) in 2004. The prepayment obligations lowing years, as the trust funds and several major re-
volving funds and special funds continue to accumulate
8 For further detail on the current budgetary treatment of lease-purchase without substan-
tial private risk, see OMB Circular No. A-11, Appendix B. Also see the section on outlays
surpluses while borrowing from the public begins to
in Chapter 26 of this volume, ‘‘The Budget System and Concepts.’’ fall.
Table 16–4. DEBT HELD BY GOVERNMENT ACCOUNTS 1

Investment or Disinvestment (–) Holdings

end
Description 2006 2007 2008 of 2008
Investment in Treasury debt:

Energy:
Nuclear waste disposal fund 1 ........................................................ 1,044 57 874 19,653
Uranium enrichment decontamination fund .................................... 337 321 112 4,661
Federal hospital insurance trust fund ............................................. 24,919 11,858 3,341 317,385
Federal supplementary medical insurance trust fund .................... 15,857 8,794 6,325 48,180
Vaccine injury compensation fund .................................................. 214 –77 –87 2,216
Homeland Security: Aquatic resources trust fund .............................. 100 15 –363 1,301
Federal Housing Administration mutual mortgage fund ................ –612 –597 217 21,650
Guarantees of mortgage-backed securities ................................... 436 336 349 9,070
Interior:
Bureau of Land Management permanent operating funds ........... 622 70 54 2,465
Environmental improvement and restoration fund ......................... 39 51 51 1,153
Abandoned mine reclamation fund ................................................ 131 112 112 2,490
Labor:
Unemployment trust fund ................................................................ 11,407 12,787 12,000 91,000
Pension Benefit Guaranty Corporation 1 ........................................ 2,618 –8,985 –456 5,546
State: Foreign service retirement and disability trust fund ................ 516 –477 134 13,533
Transportation:
Highway trust fund .......................................................................... 2,727 2,210 –1,628 11,580
Airport and airway trust fund .......................................................... –2,154 –667 –158 7,068
Treasury: Exchange stabilization fund ................................................ 473 346 353 16,410
Veterans Affairs:
National service life insurance trust fund ....................................... –409 –478 –531 9,180
Veterans special life insurance fund .............................................. 32 12 –17 1,955
Corps of Engineers: Harbor maintenance trust fund ......................... 542 421 520 4,105
Other Defense-Civil:
Medicare-eligible retiree health care fund ...................................... 19,867 23,471 24,076 120,287
Military retirement trust fund ........................................................... 4,528 27,072 7,582 216,464
Education benefits fund .................................................................. 216 141 148 1,530
Hazardous substance trust fund .................................................... 315 –9 .................... 2,631
Leaking underground storage tank trust fund ................................ 229 230 230 3,126
Overseas Private Investment Corporation ..................................... 244 95 140 4,508
Office of Personnel Management:
Civil service retirement and disability trust fund ............................ 29,186 9,296 30,148 729,380
Employees life insurance fund ....................................................... 1,797 1,400 1,669 34,351
Employees health benefits fund ..................................................... 2,292 1,553 709 17,087
Postal Service retiree health benefits fund .................................... .................... 31,358 6,883 38,241
Social Security Administration:
Federal old-age and survivors insurance trust fund 2 ................... 176,971 180,187 203,556 2,176,872
Federal disability insurance trust fund 2 ......................................... 8,915 4,156 5,698 212,032
District of Columbia: Federal pension fund ........................................ –20 –5 12 3,616
Farm Credit System Insurance Corporation:
Farm Credit System Insurance fund .............................................. 150 270 213 2,571
Federal Communications Commission: Universal service fund ......... 605 –* .................... 4,762
Federal Deposit Insurance Corporation:
Federal deposit insurance fund ...................................................... 1,158 1,542 2,579 50,337
FSLIC resolution fund ..................................................................... –94 246 294 3,569
National Credit Union Administration: Share insurance fund ............ 326 251 376 7,376
Postal Service fund 2 ........................................................................... 3,015 –3,088 .................... 1,145
Railroad Retirement Board trust funds ............................................... –109 161 79 2,131
Other Federal funds ............................................................................ 1,139 –2,191 –9 5,095
Other trust funds ................................................................................. 32 –139 –13 4,302
Unrealized discount 1 ........................................................................... –317 .................... .................... –1,962
Total, investment in Treasury debt 1 ...................................... 309,285 302,108 305,572 4,230,051

Table 16–4. DEBT HELD BY GOVERNMENT ACCOUNTS 1—Continued

Investment or Disinvestment (–) Holdings

end
Description 2006 2007 2008 of 2008
Investment in agency debt:

Railroad Retirement Board:
National Railroad Retirement Investment Trust ............................. 6 .................... .................... 7
Total, investment in agency debt 1 ........................................ 6 .................... .................... 7
Total, investment in Federal debt 1 .................................... 309,291 302,108 305,572 4,230,058
MEMORANDUM
Investment by Federal funds (on-budget) ............................................... 28,463 46,748 36,230 323,460
Investment by Federal funds (off-budget) ............................................... 3,015 –3,088 .................... 1,145
Investment by trust funds (on-budget) .................................................... 92,245 74,105 60,088 1,518,512
Investment by trust funds (off-budget) .................................................... 185,886 184,343 209,254 2,388,904
Unrealized discount 1 ............................................................................... –317 .................... .................... –1,962
* $500 thousand or less.
1 Debt held by Government accounts is measured at face value except for the Treasury zero-coupon bonds held by the Nu-
clear waste disposal fund and the Pension Benefit Guaranty Corporation (PBGC), which are recorded at market or redemption
price, and the unrealized discount on Government account series, which is not distributed by account. Changes are not estimated
in the unrealized discount. If recorded at face value, at the end of 2006 the debt figures would be $17.8 billion higher for the Nu-
clear Waste Disposal fund and $21.6 billion higher for PBGC than recorded in this table.
2 Off-budget Federal entity.
The large investment by Government accounts is con- corded at par in the OMB and Treasury reports on
centrated among a few trust funds. The two Social Se- Federal debt. However, there are two kinds of excep-
curity trust funds—Old-Age and Survivors Insurance tions.
and Disability Insurance—have a large combined sur- First, Treasury issues zero-coupon bonds to a very
plus and invest $579 billion during 2006–08, which is few Government accounts. Because the purchase price
63 percent of the total estimated investment by Govern- is a small fraction of par value and the amounts are
ment accounts. The funds for Federal employee retire- large, the holdings are recorded in Table 16–4 at par
ment also invest a large share of the total. The prin- value less unamortized discount. The only two Govern-
cipal trust fund for Federal civilian employees is the ment accounts that held zero-coupon bonds during the
Civil Service Retirement and Disability Fund (CSRDF). period of this table are the Nuclear Waste Disposal
In 2007, funds are being transferred from the CSRDF, fund in the Department of Energy and the Pension
the Postal Service, and other sources to create a new Benefit Guaranty Corporation (PBGC). The total
special fund for Postal Service retiree health benefits. unamortized discount on zero-coupon bonds was $39.4
Together the CSRDF and the new Postal Service retiree billion at the end of 2006.
health benefit fund account for 12 percent of the total Second, Treasury subtracts the unrealized discount
investment by Government accounts during 2006–08. on other Government account series securities in calcu-
The military retirement trust fund and the special fund lating ‘‘net federal securities held as investments of
for uniformed services Medicare-eligible retiree health government accounts.’’ Unlike the discount recorded for
care account for another 12 percent. The two Medicare zero-coupon bonds and debt held by the public, the
trust funds—Hospital Insurance and Supplementary unrealized discount is the discount at the time of issue
Medical Insurance—account for another 8 percent. Alto- and is not amortized over the term of the security.
gether, the investment by Social Security, Medicare, In Table 16–4 it is shown as a separate item at the
and these four Federal employee retirement funds is end of the table and not distributed by account. The
almost as much as the total investment by Government amount was $2.0 billion at the end of 2006.
accounts during this period. At the end of 2008, they
are estimated to own 94 percent of the total debt held Limitations on Federal Debt
by Government accounts. Many of the other Govern- Definition of debt subject to limit.—Statutory lim-
ment accounts also increase their holdings of Federal itations have usually been placed on Federal debt. Until
securities during this period. World War I, the Congress ordinarily authorized a spe-
Technical note on measurement.—The Treasury secu- cific amount of debt for each separate issue. Beginning
rities held by Government accounts consist almost en- with the Second Liberty Bond Act of 1917, however,
tirely of the Government account series. Most were the nature of the limitation was modified in several
issued at par value (face value), and the securities steps until it developed into a ceiling on the total
issued at a discount or premium were traditionally re- amount of most Federal debt outstanding. This last
type of limitation has been in effect since 1941. The or more. All three of these increases were enacted as
limit currently applies to most debt issued by the part of a deficit reduction package or a plan to balance
Treasury since September 1917, whether held by the the budget and were intended to last a relatively long
public or by Government accounts; and other debt time: the Omnibus Budget Reconciliation Act of 1990;
issued by Federal agencies that, according to explicit the Omnibus Budget Reconciliation Act of 1993; and
statute, is guaranteed as to principal and interest by the Balanced Budget Act of 1997. The 1997 increase
the United States Government. lasted until 2002.
The third part of Table 16–2 compares total Treasury Since 2002, the debt has reached the limit four times.
debt with the amount of Federal debt that is subject In each instance, the limit has been increased by an
to the limit. Nearly all Treasury debt is subject to the amount sufficient to last less than two years. The debt
debt limit. Most of the Treasury debt not subject to limit was increased to $6,400 billion on June 28, 2002,
the general statutory limit was issued by the Federal to $7,384 billion on May 27, 2003, to $8,184 billion
Financing Bank (FFB). The FFB, which is within the on November 19, 2004, and to $8,965 billion on March
Treasury Department, is authorized to have out- 20, 2006. Each time, in the weeks prior to the increase,
standing up to $15 billion of publicly issued debt. It the Treasury Department has taken a variety of admin-
issued $14 billion of securities to the Civil Service Re- istrative actions to meet the Government’s obligation
tirement and Disability Fund on November 15, 2004, to pay its bills and invest its trust funds while keeping
in exchange for an equal amount of regular Treasury debt under the existing limit.
securities, as explained below in the section on changes In the months leading to the most recent increase,
in the debt limit. The FFB securities have the same the Secretary of Treasury wrote Congress in December
interest rates and maturities as the regular Treasury 2005 that the debt subject to limit would reach the
securities for which they were exchanged. The securi- ceiling in February 2006. It did reach the limit on Feb-
ties mature on dates from June 30, 2009, through June ruary 16 and stayed there until the limit was increased.
30, 2019. The other Treasury debt not subject to the On February 16, the Secretary of Treasury declared
general limit consists almost entirely of silver certifi- that he would not be able to fully invest the Govern-
cates and other currencies no longer being issued. It ment Securities Investment Fund (G-fund) as of that
was $506 million at the end of 2006 and gradually day. This fund is one component of the Thrift Savings
declines over time. Plan, a defined contribution pension plan for Federal
The sole agency debt currently subject to the general employees. The Secretary has statutory authority to
limit, $96 million at the end of 2006, is certain deben- suspend investment of the G-fund in Treasury securi-
tures issued by the Federal Housing Administration. 9 ties as needed to prevent the debt from exceeding the
Some of the other agency debt, however, is subject to debt limit. When he does this, he is required to make
its own statutory limit. For example, the Tennessee the fund whole after the debt limit has been raised
Valley Authority is limited to $30 billion of bonds and by restoring the forgone interest and investing the fund
notes outstanding. fully. Treasury determined each day the amount of in-
The comparison between Treasury debt and debt sub- vestments that would allow the fund to be invested
ject to limit also includes an adjustment for measure- as fully as possible without exceeding the debt limit.
ment differences in the treatment of discounts and pre- That amount was invested, and no more. The balances
miums. As explained earlier in this Chapter, debt secu- not invested varied throughout the period. In addition,
rities may be sold at a discount or premium, and the Treasury discontinued the acceptance of subscriptions
measurement of debt may take this into account rather to the State and local government series of securities.
than recording the face value of the securities. How- As the need for financing grew, Treasury took further
ever, the measurement differs between gross Federal steps, as authorized by law. The Exchange Stabilization
debt (and its components) and the statutory definition fund was disinvested. The Secretary also declared a
of debt subject to limit. An adjustment is needed to debt issuance suspension period from March 6 to May
derive debt subject to limit (as defined by law) from 26. This allowed him to redeem a limited amount of
Treasury debt. The amount is relatively small: $9.1 securities held by the Civil Service Retirement and Dis-
billion at the end of 2006 compared to the total ability Fund and stop investing its receipts.
unamortized discount (less premium) of $81.4 billion These Treasury actions were used for a little more
on all Treasury securities. than one month. Congress passed a bill raising the
Changes in the debt limit.—The statutory debt debt limit to $8,965 billion on March 16, and the Presi-
limit has been changed many times. Since 1960, Con- dent signed the bill on March 20. Treasury promptly
gress has passed 72 separate acts to raise the limit, invested the G-fund and Civil Service Retirement and
extend the duration of a temporary increase, or revise Disability Fund fully and restored the forgone interest
the definition. 10 as prescribed by law. Treasury also fully invested the
During the 1990s, the debt limit was increased three Exchange Stabilization fund and reinstated acceptance
times by amounts large enough to last for two years of subscriptions to the State and local government se-
ries.
9 At the end of 2006, $16 million of FHA debentures was not subject to limit.
10 The Acts and the statutory limits since 1940 are listed in Historical Tables, Budget
All the steps taken during February or March had
of the United States Government, Fiscal Year 2008, Table 7.3. also been taken on previous occasions when the debt
had reached the statutory limit, including in 2002, main, are derived from tax receipts and borrowing and
2003, or 2004. In addition, Treasury has previously re- are used for the general purposes of the Government.
placed regular Treasury securities with borrowing by The trust funds, on the other hand, are financed by
the Federal Financing Bank, which, as explained above, taxes or other receipts earmarked by law for specified
is not subject to the debt limit. On November 15, 2004, purposes, such as paying Social Security benefits or
prior to the November 19 debt limit increase, the Fed- making grants to State governments for highway con-
eral Financing Bank issued $14 billion of FFB securi- struction. 11
ties to the Civil Service Retirement and Disability Fund A Federal funds deficit must generally be financed
in exchange for an equal amount of regular Treasury by borrowing, which can be done either by selling secu-
securities. FFB then exchanged those regular Treasury rities to the public or by issuing securities to Govern-
securities with Treasury at market value in return for ment accounts that are not within the Federal funds
the extinguishment of an equal market value of FFB group. Federal funds borrowing consists almost entirely
debt owed to Treasury. As indicated above, the FFB of Treasury securities that are subject to the statutory
securities issued to CSRDF begin to mature in June debt limit. Very little debt subject to statutory limit
2009. When the debt limit was reached in 2002 and has been issued for reasons except to finance the Fed-
2003, Treasury also reduced its compensating bal- eral funds deficit. The change in debt subject to limit
ances—deposits held in banks to pay for services under is therefore determined primarily by the Federal funds
financial agency agreements. However, compensating deficit, which is equal to the difference between the
balances were discontinued in 2004. total Government deficit or surplus and the trust fund
Methods of changing the debt limit.—The statu- surplus. Trust fund surpluses are almost entirely in-
tory limit is usually changed by normal legislative pro- vested in securities subject to the debt limit, and trust
cedures. Under the rules adopted by the House of Rep- funds hold most of the debt held by Government ac-
resentatives, it can also be changed as a consequence counts. The trust fund surplus reduces the total budget
of the annual Congressional budget resolution, which deficit or increases the total budget surplus, decreasing
is not itself a law. The budget resolution includes a the need to borrow from the public or increasing the
provision specifying the appropriate level of the debt ability to repay borrowing from the public. When the
subject to limit at the end of each fiscal year. The
trust fund surplus is invested in Federal securities, the
rule provides that, when the budget resolution is adopt-
debt held by Government accounts increases, offsetting
ed by both Houses of the Congress, the vote in the
the decrease in debt held by the public by an equal
House of Representatives is deemed to have been a
amount. Thus, there is no net effect on gross Federal
vote in favor of a Joint Resolution setting the statutory
limit at the level specified in the budget resolution. debt.
The Joint Resolution is transmitted to the Senate for Table 16–5 derives the change in debt subject to
further action, where it may be amended to change limit. In 2006 the Federal funds deficit was $537 bil-
the debt limit provision or in any other way. If it passes lion, and other factors reduced financing requirements
both Houses of the Congress, it is sent to the President by $13 billion. The net financing disbursements of the
for his signature. The House of Representatives first guaranteed loan financing accounts reduced the financ-
adopted this rule for 1980, although it was not included ing requirements by $16 billion, as explained in an
in the rules for several years before 2003. earlier section. As an offset, special funds and revolving
Federal funds financing and the change in debt funds, which are part of the Federal funds group, in-
subject to limit.—The change in debt held by the pub- vested $31 billion in Treasury securities. The largest
lic, as shown in Table 16–2, is determined primarily single investment was $20 billion for the uniformed
by the total Government deficit or surplus. The debt services Medicare-eligible retiree health care fund. In
subject to limit, however, includes not only debt held addition, an adjustment is made for the relatively
by the public but also debt held by Government ac- minor difference between the trust fund surplus and
counts. The change in debt subject to limit is therefore the trust funds’ investment in Federal securities (in-
determined both by the factors that determine the total cluding the changes in the National Railroad Retire-
Government deficit or surplus and by the factors that ment Investment Trust’s investments in non-Federal
determine the change in debt held by Government ac- securities). As a net result of all these factors, $546
counts. The effect of debt held by Government accounts billion in financing was required. Therefore, gross Fed-
on the total debt subject to limit is brought out sharply eral debt increased by $546 billion. Since Federal debt
in the second part of Table 16–2. The change in debt not subject to limit decreased by $0.4 billion and the
held by Government accounts is a large proportion of adjustment for discount and premium changed by $2.8
the change in total debt subject to limit each year and billion, the debt subject to limit increased by $549 bil-
accounts for over two-thirds of the estimated total in- lion, while debt held by the public increased by $237
crease from 2007 through 2012. billion.
The budget is composed of two groups of funds, Fed- 11 For further discussion of the trust funds and Federal funds groups, see Chapter 22
eral funds and trust funds. The Federal funds, in the of this volume, ‘‘Trust Funds and Federal Funds.’’
The debt subject to limit is estimated to increase The estimated increases in the debt subject to limit
to $8,977 billion by the end of 2007, which exceeds are caused by the continued Federal funds deficit, sup-
the present statutory debt limit of $8,965 billion. (This plemented by the other factors shown in Table 16–5.
estimate does not reflect any administrative actions While debt held by the public increases by $882 billion
that Treasury might take to meet the Government’s from the end of 2006 through 2012, debt subject to
obligations while staying within the statutory limit.) limit increases by $3,046 billion.
Table 16–5. FEDERAL FUNDS FINANCING AND CHANGE IN DEBT SUBJECT TO STATUTORY LIMIT
Estimate
Actual
Description 2006 2007 2008 2009 2010 2011 2012
Change in Gross Federal Debt:

Federal funds deficit (–) ........................................................................................................ –537.3 –489.7 –533.3 –498.2 –428.9 –403.1 –296.7
Means of financing other than borrowing—Federal funds 1 ................................................ 13.2 –9.3 –22.8 –21.0 –23.4 –24.0 –24.1
Decrease or increase (–) in Federal debt held by Federal funds ...................................... –31.5 –43.7 –36.2 –43.6 –47.2 –50.8 –52.0
Adjustments for trust fund surplus not invested in Federal securities 2 ............................. 9.2 –13.7 24.6 * 0.2 0.6 0.3
Less: change in unrealized discount on Federal debt held by Federal funds ................... –0.3 ................ ................ ................ ................ ................ ................
Total financing requirements ........................................................................................ –546.1 –556.4 –567.7 –562.8 –499.3 –477.2 –372.5
Change in Debt Subject to Limit:
Change in gross Federal debt .............................................................................................. 546.1 556.4 567.7 562.8 499.3 477.2 372.5
Less: increase or decrease (–) in Federal debt not subject to limit .................................. –0.4 –0.2 –0.6 –2.6 –2.4 –2.5 –2.1
Less: change in adjustment for discount and premium 3 .................................................... –2.8 ................ ................ ................ ................ ................ ................
Total, change in debt subject to limit ......................................................................... 549.2 556.6 568.3 565.5 501.7 479.7 374.6
ADDENDUM
Debt subject to statutory limit 4 ................................................................................................. 8,420.3 8,976.9 9,545.2 10,110.6 10,612.3 11,092.0 11,466.6
1 Includes Federal fund transactions that correspond to those presented in Table 16–2, but that are for Federal funds alone with respect to the public and trust funds.
2 Includes trust fund holdings in other cash assets and changes in the investments of the National Railroad Retirement Investment Trust in non-Federal securities.
3 Consists of unamortized discount (less premium) on public issues of Treasury notes and bonds (other than zero-coupon bonds).
4 The statutory debt limit is $8,965 billion.
Debt Held by Foreign Residents Although the amount of Federal debt held by foreign
residents has grown greatly over this period, the pro-
During most of American history, the Federal debt
portion that foreign residents own, after increasing
was held almost entirely by individuals and institutions
abruptly in the very early 1970s, remained about 15–20
within the United States. In the late 1960s, foreign
percent until the mid-1990s. During 1995–97, however,
holdings were just over $10 billion, less than 5 percent foreign holdings increased on average by around $200
of the total Federal debt held by the public. Foreign billion each year, considerably more than total Federal
holdings began to grow significantly starting in 1970. borrowing from the public. 13 As a result, the Federal
This increase has been almost entirely due to decisions debt held by individuals and institutions within the
by foreign central banks, corporations, and individuals, United States decreased in absolute amount during
rather than the direct marketing of these securities those years, despite further Federal borrowing, and the
to foreign residents. percentage of Federal debt held by foreign residents
Foreign holdings of Federal debt are presented in grew from 19 percent at the end of 1994 to 32 percent
Table 16–6. At the end of 2006, foreign holdings of at the end of 1997. In the next few years the change
Treasury debt were $2,134 billion, which was 44 per- in foreign debt holdings was much smaller. However,
cent of the total debt held by the public. 12 Foreign large increases in the Federal debt held by foreign resi-
central banks owned 66 percent of the Federal debt dents resumed beginning in 2003. Federal debt held
held by foreign residents; private investors owned near- by foreign residents increased by $203 billion in 2006,
ly all the rest. The percentage held by foreign central and by an average of $233 billion annually over the
banks is up from 63 percent at the end of 2005. All last four years. The percentage of Federal debt held
the Federal debt held by foreign residents is denomi-
13 Table 16–6 does not show the increase in foreign holdings in 1995 because of a bench-
nated in dollars. mark revision. As explained in footnote 3 to that table, a benchmark revision reduced
the estimated holdings as of December 1994 (by $47.9 billion). Because estimates of foreign
holdings were not revised retroactively, the increase in 1995 was more than the difference
12 The debt calculated by the Bureau of Economic Analysis, Department of Commerce,
between the beginning and end of year amounts as now calculated. Before the benchmark
is different, though similar in size, because of a different method of valuing the securities. revision, the increase was estimated to be $192.6 billion.
by foreign residents increased from 34 percent to 44 to finance Federal operations but also from its assist-
percent during these four years. The increase in foreign ance to certain borrowing by the public. The Govern-
holdings was about 86 percent of total Federal bor- ment guarantees borrowing by private and other non-
rowing in 2006 and about 72 percent of total Federal Federal lenders, which is another term for guaranteed
borrowing over the last four years. lending. In addition to its guarantees, it has established
Foreign holdings of Federal debt are around 15–20 private corporations called ‘‘Government-sponsored en-
percent of the foreign-owned assets in the United terprises,’’ or GSEs, to provide financial intermediation
States, depending on the method of measuring total for specified public purposes; it exempts the interest
assets. The foreign purchases of Federal debt securities on most State and local government debt from income
do not measure the full impact of the capital inflow tax; it permits mortgage interest to be deducted in cal-
from abroad on the market for Federal debt securities.
culating taxable income; and it insures the deposits
The capital inflow supplies additional funds to the cred-
of banks and thrift institutions, which themselves make
it market generally, and thus affects the market for
Federal debt. For example, the capital inflow includes loans.
deposits in U.S. financial intermediaries that them- Federal credit programs and other forms of assistance
selves buy Federal debt. are discussed in Chapter 7 of this volume, ‘‘Credit and
Insurance.’’ Detailed data are presented in tables at
Federal, Federally Guaranteed, and Other the end of that chapter.
Federally Assisted Borrowing
The effect of the Government on borrowing in the
credit market arises not only from its own borrowing
Table 16–6. FOREIGN HOLDINGS OF FEDERAL DEBT

(Dollar amounts in billions)
Debt held by the public Borrowing from the

public
Fiscal Year Percent-
Total Foreign 1 age Total 2 Foreign 1
foreign
1965 .............................................................................. 260.8 12.3 4.7 3.9 0.3

1970 .............................................................................. 283.2 14.0 5.0 5.1 3.8
1975 .............................................................................. 394.7 66.0 16.7 51.0 9.2
1980 .............................................................................. 711.9 121.7 17.1 71.6 1.4
1985 3 ............................................................................ 1,507.3 222.9 14.8 200.3 N/A
1990 3 ............................................................................ 2,411.6 440.3 18.3 220.8 N/A
1991 .............................................................................. 2,689.0 477.3 17.7 277.4 37.0
1992 .............................................................................. 2,999.7 535.2 17.8 310.7 57.9
1993 .............................................................................. 3,248.4 591.3 18.2 248.7 56.1
1994 .............................................................................. 3,433.1 655.8 19.1 184.7 64.5
1995 3 ............................................................................ 3,604.4 800.4 22.2 171.3 N/A
1996 .............................................................................. 3,734.1 978.1 26.2 129.7 177.7
1997 .............................................................................. 3,772.3 1,218.2 32.3 38.3 240.0
1998 .............................................................................. 3,721.1 1,216.9 32.7 –51.2 –1.2
1999 3 ............................................................................ 3,632.4 1,281.4 35.3 –88.7 N/A
2000 3 ............................................................................ 3,409.8 1,057.9 31.0 –222.6 N/A
2001 .............................................................................. 3,319.6 1,005.5 30.3 –90.2 –52.3
2002 3 ............................................................................ 3,540.4 1,200.8 33.9 220.8 N/A
2003 .............................................................................. 3,913.4 1,454.2 37.2 373.0 253.4
2004 .............................................................................. 4,295.5 1,798.7 41.9 382.1 344.5
2005 .............................................................................. 4,592.2 1,930.6 42.0 296.7 131.9
2006 .............................................................................. 4,829.0 2,133.6 44.2 236.8 202.9
1 Estimated by Treasury Department. These estimates exclude agency debt, the holdings of which are believed to
be small. The data on foreign holdings are recorded by methods that are not fully comparable with the data on debt
held by the public. Projections of foreign holdings are not available.
2 Borrowing from the public is defined as equal to the change in debt held by the public from the beginning of the
year to the end, except to the extent that the amount of debt is changed by reclassification.
3 Benchmark revisions increased the estimated foreign holdings as of December 1984 and December 1989; re-
duced the estimated holdings as of December 1994 and March 2000; and increased the estimated holdings as of
June 2002. A conceptual revision increased the estimated foreign holdings as of 1999. The change in debt that is
recorded as held by foreign residents in these fiscal years reflects the benchmark or conceptual revisions as well as
the net purchases of Federal securities. Borrowing is therefore not shown in these years.
FEDERAL RECEIPTS AND COLLECTIONS
237
17. FEDERAL RECEIPTS
Receipts (budget and off-budget) are taxes and other Total receipts in 2008 are estimated to be $2,662.5
collections from the public that result from the exercise billion, an increase of $122.4 billion or 4.8 percent rel-
of the Federal Government’s sovereign or governmental ative to 2007. Receipts are projected to grow at an
powers. The difference between receipts and outlays average annual rate of 5.6 percent between 2008 and
is the surplus or deficit. 2012, rising to $3,307.3 billion. This growth in receipts
The Federal Government also collects income from is largely due to assumed increases in incomes resulting
the public from market-oriented activities. Collections from both real economic growth and inflation.
from these activities, which are subtracted from gross As a share of Gross Domestic Product (GDP), receipts
outlays, rather than added to taxes and other govern- are projected to decline from 18.5 percent in 2007 to
mental receipts, are discussed in the next Chapter. 18.3 percent in 2008, and to rise to 18.6 percent in
2012.
Table 17–1. RECEIPTS BY SOURCE—SUMMARY

Estimate
2006 Actual
2007 2008 2009 2010 2011 2012
Individual income taxes ..................................................... 1,043.9 1,168.8 1,246.6 1,331.1 1,428.3 1,517.3 1,636.6
Corporation income taxes ................................................. 353.9 342.1 314.9 319.8 325.5 340.6 366.6
Social insurance and retirement receipts ......................... 837.8 873.4 927.2 974.2 1,029.3 1,085.7 1,138.8
(On-budget) .................................................................... (229.4) (239.2) (253.1) (262.8) (276.0) (289.9) (303.4)
(Off-budget) .................................................................... (608.4) (634.1) (674.1) (711.4) (753.3) (795.8) (835.3)
Excise taxes ....................................................................... 74.0 57.1 68.1 63.1 63.6 68.6 71.3
Estate and gift taxes ......................................................... 27.9 25.3 25.7 27.4 21.7 1.7 0.5
Customs duties .................................................................. 24.8 26.8 29.2 30.7 32.7 34.3 35.7
Miscellaneous receipts ...................................................... 45.0 46.7 50.7 52.0 53.6 55.5 57.8
Total receipts ............................................................... 2,407.3 2,540.1 2,662.5 2,798.3 2,954.7 3,103.6 3,307.3
(On-budget) ............................................................... (1,798.9) (1,906.0) (1,988.4) (2,086.9) (2,201.4) (2,307.8) (2,472.0)
(Off-budget) ............................................................... (608.4) (634.1) (674.1) (711.4) (753.3) (795.8) (835.3)
Total receipts as a percentage of GDP ....................... 18.4 18.5 18.3 18.3 18.3 18.3 18.6
Table 17–2. EFFECT ON RECEIPTS OF CHANGES IN THE SOCIAL SECURITY TAXABLE EARNINGS BASE
Estimate
2008 2009 2010 2011 2012
Social security (OASDI) taxable earnings base increases:

$97,500 to $102,600 on Jan. 1, 2008 ..................................................................... 2.7 7.0 7.9 8.8 9.7
$102,600 to $107,700 on Jan. 1, 2009 ................................................................... ................ 2.7 7.0 7.9 8.8
$107,700 to $113,100 on Jan. 1, 2010 ................................................................... ................ ................ 2.8 7.4 8.3
$113,100 to $118,500 on Jan. 1, 2011 ................................................................... ................ ................ ................ 2.8 7.5
$118,500 to $123,600 on Jan. 1, 2012 ................................................................... ................ ................ ................ ................ 2.7
239
Chart 17–1. Major Provisions of the Tax Code Under the 2001, 2003, 2004, and 2006 Enacted Tax Relief
Provision 2003 2004 2005 2006 2007 2008 2009 2010 2011
Individual Income Tax Rates reduced to Rates revert to

Rates 35, 33, 28, and 39.6, 36, 31,
25 percent and 28 per-
cent
10 Percent Bracket Top of bracket in- Bracket elimi-

creased to nated, low-
$7,000/$14,000 est bracket
for single/joint reverts to 15
filers and infla- percent
tion-indexed
15 Percent Bracket for Top of bracket for Top of bracket

Joint Filers joint filers infor joint fil-
creased to 200 ers reverts
percent of top to 167 per-
of bracket for cent of top
single filers of bracket
for single fil-
ers
Standard Deduction for Standard deduction Standard de-

Joint Filers for joint filers in- duction for
creased to 200 joint filers
percent of reverts to
standard deduc- 167 percent
tion for single of standard
filers deduction
for single fil-
ers
Child Credit Tax credit for each Tax credit for

qualifying child each quali-
under age 17 fying child
increased to under age
$1,000 and 17 reverts to
refundability ex- $500 and
tended to fami- refundability
lies with 1 or 2 restricted to
children taxpayers
with 3 or
more chil-
dren
Estate Taxes Top rate reduced Top rate re- Top Rate re- Top rate reduced Top rate re- Exempt Estate tax re- Top rate re-
to 49 percent duced to 48 duced to 47 to 46 percent duced to 45 amount in- pealed verts to 60
percent percent Exempt amount in- percent creased to percent
Exempt creased to $2 $3.5 million Exempt
amount in- million amount re-
creased to verts to $1
$1.5 million million
Small Business Deduction in- Deduction re-

Expensing creased to verts to
$100,000, re- $25,000, re-
duced by duced by
amount quali- amount
fying property qualifying
exceeds property ex-
$400,000, and ceeds
both amounts $200,000
inflation-indexed and
Includes software amounts not
inflation-in-
dexed
Does not apply
to software
17. FEDERAL RECEIPTS 241
Chart 17–1. Major Provisions of the Tax Code Under the 2001, 2003, 2004, and 2006 Enacted Tax Relief—Continued
Provision 2003 2004 2005 2006 2007 2008 2009 2010 2011
Capital Gains Tax rate on capital Tax on capital Tax rate on

gains reduced gains elimi- capital gains
to 5/15 percent nated for reverts to
taxpayers in 10/20 per-
10/15 percent (8/18
cent tax percent on
brackets assets held
over 5
years)
Dividends Tax rate on divi- Tax on divi- Dividends

dends reduced dends elimi- taxed at
to 5/15 percent nated for standard in-
taxpayers in come tax
10/15 per- rates
cent tax
brackets
Bonus Depreciation Bonus depreciation Bonus depre-

increased to 50 ciation ex-
percent of quali- pires
fied property
aquired after 5/
5/03
Alternative Minimum AMT exemption AMT exemption AMT exemp-

Tax amount in- amount in- tion amount
creased to creased to reverts to
$40,250/$58,000 $42,500/$62,550 $33,750/
for single/joint for single /joint $45,000 for
filers filers single /joint
filers
ENACTED LEGISLATION
Several laws were enacted in 2006 that have an effect annual investment limits were indexed annually for in-
on governmental receipts. The major legislative changes flation, effective for taxable years beginning after 2003
affecting receipts are described below. and before 2008. Also, with respect to a taxable year
beginning after 2002 and before 2008, taxpayers were
TAX INCREASE PREVENTION AND permitted to make or revoke expensing elections on
RECONCILIATION ACT OF 2005 amended returns without the consent of the Internal
The Tax Increase Prevention and Reconciliation Act Revenue Service (IRS) Commissioner. This Act ex-
of 2005 (TIPRA), which was signed by President Bush tended each of these temporary provisions, applicable
on May 17, 2006, extended previously enacted tax cuts for qualifying property (including off-the-shelf computer
that helped spur investment and economic expansion, software) placed in service in taxable years beginning
resulting in more jobs and higher wages for American in 2008 and 2009.
workers. The provisions of this Act increased the Alter-
native Minimum Tax (AMT) exemption amount for Extend reductions in individual income taxes on
2006; temporarily extended increased expensing limits capital gains and dividends.—Under prior law, the
for small businesses; reduced tax rates on capital gains maximum individual income tax rate on net capital
and dividends; and made other miscellaneous changes gains and dividends was 15 percent for taxpayers in
to tax law. The major provisions of this Act are de- individual income tax rate brackets above 15 percent
scribed below. and 5 percent (zero in 2008) for lower income taxpayers.
This Act extended these reduced rates (15 percent and
Expiring Provisions zero), which were scheduled to expire on December 31,
2008, through December 31, 2010.
Extend increased expensing for small business.—
Under prior law, business taxpayers were allowed to Extend and modify exceptions provided under
expense up to $100,000 in annual investment expendi- Subpart F.—Under the Subpart F rules, certain U.S.
tures for qualifying property (expanded to include off- shareholders of a controlled foreign corporation (CFC)
the-shelf computer software) placed in service in tax- are subject to U.S. tax currently on certain income
able years beginning in 2003 through 2007. The max- earned by the CFC, whether or not such income is
imum amount that could be expensed was reduced by distributed to the shareholders. The income subject to
the amount by which the taxpayer’s cost of qualifying current inclusion under the Subpart F rules includes,
property exceeded $400,000. Both the deduction and among other things, ‘‘foreign personal holding company
income’’ and insurance income. Foreign personal hold- Under a temporary provision of prior law, taxpayers
ing company income generally includes many types of were permitted to offset both the regular tax and the
income derived by a financial service company, such AMT with nonrefundable personal tax credits, effective
as dividends; interest; royalties; rents; annuities; net for taxable years beginning before January 1, 2006.
gains from the sale of certain property, including securi- This Act extended minimum tax relief for nonrefund-
ties, commodities and foreign currency; and income able personal tax credits for one year, to apply to tax-
from notional principal contracts and securities lending able year 2006. The extension does not apply to the
activities. Under prior law, for taxable years beginning child credit, the new saver’s credit, the earned income
before January 1, 2007, certain income derived in the credit (EITC) or the adoption credit, which were pro-
active conduct of a banking, financing, insurance, or vided AMT relief through December 31, 2010 under
similar business was provided an exception from Sub- the 2001 tax cut. The refundable portion of the child
part F. This Act extended the exception for two years, credit and the earned income tax credit are also allowed
to apply to taxable years beginning before January 1, against the AMT through December 31, 2010.
2009. This Act also provided an exception from Subpart
F for dividends, interest, rents, and royalties received Offsets
by one CFC from a related CFC to the extent attrib-
utable or properly allocable to non-Subpart F income Repeal income limitations on Roth Individual
of the payor, effective for taxable years beginning after Retirement Account (IRA) conversions.—Under
December 31, 2005 and before January 1, 2009. prior law, taxpayers with adjusted gross income (AGI)
of less than $100,000 were eligible to roll over or con-
Estimated Tax Payments by Corporations vert all or a portion of a traditional IRA to a Roth
IRA. Amounts converted were treated as distributions
Modify the timing of estimated tax payments by for income tax purposes, but the 10-percent tax on early
corporations.—Corporations generally are required to withdrawals did not apply. This Act repealed the in-
pay their income tax liability in quarterly estimated come limitation on conversions from traditional IRAs
payments. For corporations that keep their accounts to Roth IRAs, effective for conversions occurring after
on a calendar year basis, these payments are due on December 31, 2009. Unless a taxpayer elects otherwise
or before April 15, June 15, September 15, and Decem- (or converted amounts are distributed before 2012),
ber 15 (if these dates fall on a holiday or weekend, none of the amount converted in 2010 will be included
payment is due on the next business day). This Act in gross income for that year; instead, half of the
increased the estimated tax payments due in July amount converted will be included in gross income in
through September by corporations with assets of at each year, 2011 and 2012. If converted amounts are
least $1 billion to: 105 percent of the amount otherwise distributed before 2012, the amount included in income
due in 2006, 106.25 percent of the amount otherwise in the year of the distribution is increased by the
due in 2012, and 100.75 percent of the amount other- amount distributed, and the amount included in income
wise due in 2013. For corporations affected by this pro-
in 2012 (or 2011 and 2012 if the distribution was made
vision, the next required estimated tax payment is re-
in 2010) is the lesser of: (1) half of the amount includ-
duced accordingly. This Act also allowed corporations
ible in income as a result of the conversion, and (2)
to delay 20.5 percent of the estimated tax payment
the remaining portion of such amount not already in-
otherwise due on September 15, 2010 until October 1,
cluded in income.
2010, and 27.5 percent of the estimated tax payment
otherwise due on September 15, 2011 until October 1, Repeal foreign sales corporation (FSC)/
2011. extraterritorial income (ETI) binding contract re-
Alternative Minimum Tax (AMT) Relief for lief.—The FSC Repeal and ETI Exclusion Act of 2000
Individuals replaced the FSC tax provisions of prior law, which
the World Trade Organization (WTO) had found to be
Increase and extend AMT relief for individ- a prohibited export subsidy in violation of international
uals.—A temporary provision of prior law increased tax standards, with an exclusion from U.S. tax for
the AMT exemption amounts to $40,250 for single tax- extraterritorial income. Transition rules delayed the re-
payers, $58,000 for married taxpayers filing a joint repeal of the FSC rules and the effective date of ETI
turn and surviving spouses, and $29,000 for married for transactions in the ordinary course of a trade or
taxpayers filing a separate return and estates and business if such transactions were pursuant to a bind-
trusts. These temporary increases were effective for taxing contract between the taxpayer and an unrelated
able years beginning after December 31, 2002 and be- person and the contract was in effect on September
fore January 1, 2006. This Act increased the AMT ex- 30, 2000 and at all other times thereafter. The ETI
emption amounts, effective for taxable years beginning provisions also were declared a prohibited export sub-
after December 31, 2005 and before January 1, 2007, sidy by the WTO and were repealed by the American
to $42,500 for single taxpayers, $62,550 for married Jobs Creation Act of 2004, effective for transactions
taxpayers filing a joint return and surviving spouses, after December 31, 2004. Certain transitional tax rules
and $31,275 for married taxpayers filing a separate applied to transactions occurring in 2005 and 2006, pro-
return and estates and trusts. viding taxpayers with 80 percent and 60 percent, re-
spectively, of the tax benefits that would have been The foreign earned income exclusion generally is
otherwise allowed under the prior law ETI provisions. available for a qualified individual’s non-U.S. source
Moreover, the ETI provisions of prior law remained earned income attributable to personal services per-
in effect for transactions in the ordinary course of a formed by that individual during the period of foreign
trade or business if such transactions were pursuant residence or presence. Under prior law, the maximum
to a binding contract between the taxpayer and an un- amount of the foreign earned income exclusion was
related person and the contract was in effect on Sep- $80,000 in taxable years 2002 through 2007 and was
tember 17, 2003 and at all times thereafter. Both the indexed annually for inflation beginning in taxable year
FSC and ETI binding contract relief of prior law were 2008. This Act accelerated the annual indexation of
repealed under this Act, effective for taxable years be- the maximum amount of the foreign earned income ex-
ginning after May 17, 2006. clusion by two years, increasing the limitation for tax-
able year 2006 to $82,400.
Impose withholding on certain payments made The housing cost exclusion (or deduction for purposes
by government entities.—This Act imposed with- of computing AGI, if the otherwise excludable housing
holding on certain payments made by government enti- costs are not paid or reimbursed by a taxpayer’s em-
ties (the Government of the United States, every State, ployer) is equal to the excess of a taxpayer’s ‘‘housing
and every political subdivision or instrumentality there- expenses’’ over a base housing amount. ‘‘Housing ex-
of, including multi-State agencies) to persons providing penses’’ are the reasonable expenses paid or incurred
property or services. The requirement applies regard- during the taxable year for housing in a foreign country
less of whether the government entity making the pay- for the taxpayer, and, if they live with the taxpayer,
ment is the recipient of the property or service. The the taxpayer’s spouse and dependents. Housing ex-
rate of withholding is three percent and applies to pay- penses include costs attributable to housing, such as
ments made after December 31, 2010. Political subdivi- utilities and insurance, but do not include items that
sions of States (or any instrumentality thereof) with are separately deductible, such as mortgage interest
less than $100 million of annual expenditures for prop- and real estate taxes. If the taxpayer maintains a sec-
erty or services are exempt from the withholding re- ond household outside the United States for a spouse
quirement. In addition, the provision does not apply or dependents who do not reside with the taxpayer
to: (1) payments made through a public assistance or
because of dangerous, unhealthful, or otherwise adverse
public welfare program for which eligibility is deter-
living conditions, the housing expenses of the second
mined by a needs or income test; (2) payments, such
household also are eligible for exclusion. Under prior
as wages, that were subject to mandatory or voluntary
law, the base housing amount above which costs were
withholding under prior law; (3) payments of interest;
eligible for exclusion in a taxable year was 16 percent
(4) payments for real property; (5) payments to tax-
exempt entities or foreign governments; (6) intra-gov- of the annual salary (computed on a daily basis) of
ernmental payments; (7) payments made pursuant to a GS–14 step 1 Federal employee, multiplied by the
a classified or confidential contract; and (8) payments number of days of foreign residence or presence in the
to government employees that are not otherwise exclud- taxable year. This Act modified the base housing
able from the new withholding provision with respect amount used in calculating the foreign housing cost
to the employees’ services as an employee. exclusion, effective for taxable years beginning after De-
cember 31, 2005, changing it to 16 percent of the max-
Modify taxation of citizens living abroad.—U.S. imum amount (computed on a daily basis) of the foreign
citizens who earn income in a foreign country may be earned income exclusion, multiplied by the number of
taxed on that income by the foreign country. Such indi- days of foreign residence or presence in the taxable
viduals are allowed a credit against the U.S. income year. Reasonable housing expenses in excess of the base
tax imposed on foreign-source income for foreign taxes housing amount may still be excluded from gross in-
paid on that income; the amount of the credit generally come (or, if paid by the taxpayer, deductible in com-
is limited to the amount of U.S. tax otherwise owed puting AGI), but the amount of the exclusion is limited
on that income. to 30 percent of the taxpayer’s foreign earned income
A U.S. citizen or resident living abroad may be eligi- exclusion. Under this Act, the Secretary of the Treasury
ble to exclude from U.S. taxable income certain foreign has authority to adjust this 30-percent limitation up-
earned income and foreign housing costs, regardless of wards or downwards, based on geographic differences
whether any foreign tax is paid on the foreign earned in housing costs relative to housing costs in the United
income or housing costs. To qualify for these exclusions, States.
the taxpayer must have his or her tax home in a foreign As provided under prior law, the combined foreign
country and must be either: (1) a U.S. citizen who is earned income exclusion and housing cost exclusion (in-
a bona fide resident of a foreign country or countries cluding the amount deductible in computing AGI) may
for an uninterrupted period that includes an entire tax- not exceed the taxpayer’s total foreign earned income
able year, or (2) a U.S. citizen or resident present in for the taxable year. Similarly, the taxpayer’s foreign
a foreign country or countries for at least 330 full days tax credit must be reduced by the amount of the credit
in any 12-consecutive-month period. attributable to excluded income.
Under prior law, a taxpayer eligible for the foreign gust 8, 2005, in connection with oil and gas exploration
earned income and housing cost exclusions was subject in the United States, could be amortized over two years.
to tax on income in excess of the exclusion amounts This Act increased the amortization period to five years
(after deductions), starting in the lowest tax rate brack- for G&G costs paid or incurred by certain major inte-
et. Under this Act, effective for taxable years beginning grated oil companies after May 17, 2006. This five-
after December 31, 2005, a taxpayer eligible for the year amortization rule applies only to integrated oil
foreign earned income and housing exclusions is subject companies that have an average daily worldwide pro-
to tax on income in excess of the exclusion amounts duction of crude oil of at least 500,000 barrels for the
at the income tax rates that would have been applicable taxable year, have gross receipts in excess of $1 billion
had the individual not elected to take the exclusions. in the last taxable year ending during calendar year
2005, and either are a crude oil refiner or have an
Require partial payment with submission of of-
ownership interest in a crude oil refiner of 15 percent
fers-in-compromise.—Offers-in-compromise are offers
or more.
to the IRS by a taxpayer to settle outstanding tax liabil-
ity for less than the full amount due, generally based Modify taxation of unearned income of minors.—
on doubt as to liability for, or collectibility of, the tax. An unmarried individual eligible to be claimed as a
There are two general categories of offers-in-com- dependent on another taxpayer’s individual income tax
promise: (1) lump-sum offers, in which the taxpayer return generally must file an individual income tax re-
proposes to make one lump-sum payment of a specified
turn if he or she has: (1) earned income only over
dollar amount in settlement of the outstanding tax li-
$5,150 (for 2006); (2) unearned income only over the
ability, and (2) periodic-payment offers, in which the
minimum standard deduction amount for dependents
taxpayer proposes to make a series of payments over
time in settlement of the outstanding tax liability. The ($850 in 2006); or (3) both earned income and unearned
IRS imposes a user fee of $150 on most offers-in-com- income totaling more than the smaller of (a) $5,150
promise, payable upon submission of the offer to the (for 2006) or (b) the larger of (i) $850 (for 2006) or
IRS. Enforcement action generally is suspended during (ii) earned income plus $300. Under prior law, unearned
the period that the IRS evaluates an offer. Under prior income of a child was taxed under special rules if: (1)
law, taxpayers were permitted (but not required) to the child had not reached the age of 14 by the close
make a deposit with their offer; if the offer was re- of the taxable year, (2) the child’s unearned income
jected, the deposit generally was returned to the tax- (income other than wages, salaries, professional fees,
payer. This Act made the following changes, effective or other amounts received as compensation for personal
with respect to offers-in-compromise submitted to the services actually rendered) was more than $1,700 (for
IRS on and after July 16, 2006: (1) Taxpayers making 2006), and (3) the child was required to file a return
lump-sum offers (offers to pay in five or fewer install- for the year. These special rules (referred to as the
ments) are required to make a down payment of 20 ‘‘kiddie tax’’) applied if the child could have been
percent of the amount of the offer upon submission claimed as a dependent on the parent’s return, regard-
of the offer to the IRS. (2) Taxpayers making periodic- less of whether the parent actually claimed the child
payment offers are required to comply with the pay- as a dependent. Under the kiddie tax, the child’s net
ment schedule proposed in the offer while the offer unearned income over $1,700 (for 2006) was taxed at
is being considered. (3) Offers submitted to the IRS the parent’s tax rate if that rate was higher than the
that do not comply with these payment requirements child’s rate. The remainder of a child’s taxable income
are returned to the taxpayer as unprocessable and im- was taxed at the child’s tax rate, regardless of whether
mediate enforcement action is permitted. (4) The $150 the kiddie tax applied. Effective for taxable years begin-
user fee is applied to the taxpayer’s outstanding tax ning after December 31, 2005, this Act increased the
liability. (5) An offer-in-compromise is deemed accepted age to which the kiddie tax applies from under 14 years
if the IRS does not make a decision with respect to of age to under 18 years of age.
the offer within two years from the date the offer was
submitted. (6) The Secretary of the Treasury is author- Provide other offsets.—Other offsets provided in
ized to issue regulations providing exceptions to the this Act included: (1) application of earnings stripping
partial payment requirements in the case of offers from rules to partners that are C corporations, (2) amend-
certain low-income taxpayers and offers based on doubt ment of information reporting requirements to include
as to liability. interest paid on tax-exempt bonds, (3) modification of
the scope of the application of the Foreign Investment
Modify amortization for certain geological and in Real Property Tax Act of 1980 regime, (4) denial
geophysical expenditures.—Geological and geo- of tax-free treatment to certain corporate spin-off trans-
physical expenditures (G&G costs) are costs incurred actions, (5) imposition of new requirements on pooled
by a taxpayer for the purpose of obtaining and accumu- financing bonds, (6) clarification of the domestic manu-
lating data that will serve as the basis for the acquisi- facturing deduction wage limitation, and (7) imposition
tion and retention of mineral properties by taxpayers of penalties on certain exempt entities for participation
exploring for minerals. Under prior law, G&G costs in prohibited tax shelter transactions as accommodation
paid or incurred in taxable years beginning after Au- parties.
Other Provisions phased in over four years, as follows: 92 percent in

2008, 94 percent in 2009, 96 percent in 2010, and 100
Provide other changes.—Other changes provided in percent in 2011 and subsequent years. Other funding
this Act included: (1) modification of the tax treatment rules provided in this Act: (1) changed the calculation
of income earned by certain environmental cleanup of the value of credit balances and restricted the use
funds, (2) modification of the rules relating to taxation of credit balances in lieu of cash to fund required con-
of distributions of stock and securities of a controlled tributions; (2) changed the method of calculating liabil-
corporation, (3) expansion of eligibility for the qualified ities for plans considered to be at risk; (3) reduced
veterans’ mortgage bond program, (4) treatment of the the time period over which asset values can be aver-
sale or exchange of certain self-created musical works aged to two years, and limited averaged asset values
as capital gains, (5) modification of the vessel tonnage to no less than 90 percent and to no more than 110
tax, (6) extension of the exemption for a portion of percent of current fair market value; (4) required amor-
the Permanent University Fund from the tax-exempt tization of unfunded liabilities over seven years, in most
bond arbitrage rules, (7) election of five-year amortiza- cases; (5) updated the mortality table used to project
tion for the costs of creating or acquiring a musical future benefits; (6) allowed plan sponsors to deduct
composition, (8) acceleration of the increased capital from taxable income contributions of up to 150 percent
expenditure limitation on the issuance of qualified of plan liability; and (7) modified the interest rate used
small issue tax-exempt bonds to apply to bonds issued to calculate pension liability, requiring the use of a
after December 31, 2006, and (9) modification of the yield curve based on 24-month averages of the rates
tax treatment of loans to qualified continuing care fa- on corporate bonds of relevant maturities in the top
cilities. three rating categories (AAA, AA and A), phased in
PENSION PROTECTION ACT OF 2006 at 331⁄3 percent in 2008, 662⁄3 percent in 2009 and
100 percent beginning in 2010.
The Pension Protection Act of 2006, which was signed
by President Bush on August 17, 2006, was the most Reform funding rules for multiemployer defined-
sweeping reform of America’s pension system enacted benefit plans.—Multiemployer plans are subject to the
in 30 years. The provisions of this Act strengthened same general funding rules as the pre-2006 rules for
the private retirement system by making it more dif- single-employer plans, except that different rules apply
ficult for employers to underfund their pension plans in some cases. This Act modified the funding of multi-
and by preventing employers with underfunded plans employer plans by: (1) providing additional funding
from making promises to their employees that they can- rules for certain plans that are in endangered or critical
not keep. Provisions of this Act also provided more in- status; and (2) allowing plan sponsors to deduct from
centives to individuals to save for retirement, modified taxable income contributions of up to 140 percent of
tax provisions related to spending for health care, tem- plan liability. These changes were effective for plan
porarily suspended certain customs duties, provided in- years beginning after 2007; however, the additional
centives for certain charitable contributions, and modi- funding rules for plans in endangered or critical status
fied certain rules relating to activities of tax-exempt do no apply to plan years beginning after December
organizations. The major provisions of this Act that 31, 2014.
affect receipts are described below.
Other Pension Provisions
Pension Funding Rules
Encourage automatic enrollment in pension
Reform funding rules for single-employer de- plans.—Under current law, most defined-contribution
fined-benefit pension plans.—Under prior law, de- plans may include a qualified cash or deferred arrange-
fined-benefit pension plans were subject to minimum ment under which employees may elect to receive cash
funding requirements imposed under both the Internal or to have contributions made to the plan by the em-
Revenue Code and the Employee Retirement Income ployer on behalf of the employee in lieu of receiving
Security Act of 1974 (ERISA). In the case of a qualified cash. Contributions made to the plan at the election
plan, the Internal Revenue Code excluded such con- of the employee are referred to as ‘‘elective deferrals.’’
tributions from gross income and allowed a deduction Such a plan may be designed so that the employee
for the contributions, subject to certain limits on the will receive cash unless an affirmative election to make
maximum deductible amount. The calculation of the contributions is made. Alternatively, a plan may pro-
minimum funding requirements and the limits on de- vide that elective contributions are made at a specified
ductible contributions were determined under a series rate unless the employee elects otherwise; such a plan
of complex rules and measures of assets and liability, is sometimes referred to as an ‘‘automatic enrollment’’
many of which were manipulable and none of which plan. In either case, the employee must have an oppor-
entailed the use of an accurate measure of the plan’s tunity to elect to receive cash in lieu of contributions.
assets and its true liabilities. This Act replaced the This Act made changes to address employers’ con-
funding rules of prior law, effective for plan years be- cerns about implementing automatic enrollment plans
ginning after December 31, 2007, with a minimum and to provide incentives for automatic enrollment, gen-
funding requirement of 100 percent of plan liabilities, erally effective for plan years beginning after 2007. The
changes provided in the Act: (1) exempted such plans IRAs was the lesser of: (1) the individual’s compensa-
from State payroll withholding laws; (2) provided fidu- tion or (2) $4,000 for taxable years 2005 through 2007,
ciary relief for investment of participant account bal- and $5,000 for taxable year 2008, indexed thereafter
ances in certain default investments; (3) provided a 90- in increments of $500. In the case of a married couple,
day period from the initial payroll reduction during contributions could be made up to the dollar limit for
which participants are allowed to opt out of automatic each spouse if the combined compensation of the
enrollment and receive a penalty-free return of their spouses was at least equal to the contributed amount.
automatic elective contributions; and (4) provided that Individuals who attained age 50 before the end of a
plans with ‘‘a qualified automatic enrollment feature’’ taxable year were allowed to make additional ‘‘catch-
satisfy the nondiscrimination rules regarding elective up’’ contributions. For those individuals, the otherwise
deferrals and employer matching contributions, and are maximum contribution limit was increased by $1,000
not subject to the top-heavy rules. for taxable years 2006 through 2010. These contribution
limits, which had been scheduled to expire after Decem-
Allow certain small employers to establish com- ber 31, 2010, were extended permanently under this
bined defined-benefit plans and qualified cash or Act.
deferred arrangements.—Under prior law, a defined- An individual may make nondeductible contributions
benefit plan could not be combined with a qualified to a traditional IRA up to the IRA contribution limits
cash or deferred arrangement (Section 401(k) plan); specified above (to the extent the taxpayer cannot or
they had to be structured as two separate plans. This does not make deductible contributions). An individual
Act allowed small employers to establish combined de- may make deductible contributions to a traditional IRA
fined-benefit and 401(k) plans, effective for plan years up to the IRA contribution limits specified above, if
beginning after December 31, 2009. A small employer neither the individual nor the individual’s spouse is
is an employer with an average of at least two and an active participant in an employer-sponsored retire-
no more than 500 employees on business days during ment plan. If an individual (or the individual’s spouse)
the preceding calendar year and at least two employees is an active participant in an employer-sponsored retire-
on the first day of the plan year. The assets of the ment plan, the deduction is phased out for taxpayers
combined plan must be held in a single trust and they with AGI above certain levels. Under prior law, the
must be clearly identified and allocated to the defined- AGI phase-out ranges were: (1) $50,000 to $60,000 for
benefit plan and the 401(k) plan to the extent necessary single taxpayers; (2) $80,000 to $100,000 for married
for the separate application of the Internal Revenue taxpayers filing a joint return for 2007 and subsequent
Code and ERISA; in addition, the combined plan must years; and (3) $0 to $10,000 for married taxpayers filing
meet certain benefit, contribution, vesting, and non- a separate return. If an individual was not an active
discrimination requirements. participant in an employer-sponsored retirement plan,
but the individual’s spouse was an active participant
Make other miscellaneous changes affecting pen- in such a plan, the deduction was phased out for tax-
sion plans.—Other changes in pension plans that af- payers with AGI between $150,000 and $160,000. An
fect receipts: (1) permitted workers in publicly held individual may make nondeductible contributions to a
companies to divest themselves of company stock attrib- Roth IRA subject to the IRA contribution limits speci-
utable to employer contributions after three years of fied above. However, the maximum annual contribution
service and prohibited employers from requiring work- is phased out for taxpayers with AGI over certain lev-
ers to invest their own retirement savings in company els. Under prior law, the AGI phase-out ranges were:
stock; (2) improved portability of retirement savings, (1) $95,000 to $110,000 for single taxpayers; (2)
such as allowing direct rollovers from retirement plans $150,000 to $160,000 for married taxpayers filing a
to Roth IRAs and faster vesting of employer non-elec- joint return; and (3) $0 to $10,000 for married tax-
tive contributions; (3) gave taxpayers the option to de- payers filing a separate return. Under this Act, the
posit part of their individual income tax refund directly income thresholds that determine eligibility to make
into an IRA; and (4) allowed members of the National IRA contributions are indexed for inflation in incre-
Guard and reservists called to active duty to withdraw ments of $1,000 beginning in 2007.
money from their IRA or pension without penalty and
to repay the money within two years. Extend permanently maximum contribution and
benefit limits under qualified pension plans.—Lim-
Expiring Provisions its on contributions and benefits under qualified pen-
sion plans are based on the type of plan. Under prior
Extend permanently IRA maximum contribution law, annual contributions to a defined-contribution plan
limits and index income limitations on IRA con- with respect to each plan participant were limited to
tributions.—The maximum annual contribution that the lesser of 100 percent of compensation or $40,000
can be made to a traditional or Roth IRA by or on (adjusted annually for inflation in $1,000 increments
behalf of an individual varies depending on the par- after 2002). The maximum annual benefit payable
ticular circumstances, including the individual’s income. under a defined-benefit plan was generally the lesser
However, under prior law, the maximum annual con- of 100 percent of average compensation or $160,000
tribution that could be made to all of an Individual’s (adjusted annually for inflation for plans ending after
December 31, 2002, in increments of $1,000). The an- respect to withdrawals after December 31, 2010. This
nual compensation of each participant that could be Act also granted broad authority to the Secretary of
taken into account for purposes of determining con- the Treasury to issue regulations to carry out the pur-
tributions and benefits under a plan generally was lim- poses of section 529 and to prevent abuse of those pur-
ited to $200,000 in 2002 (indexed annually thereafter poses.
in $5,000 increments). The dollar limit on annual elec-
tive deferrals under section 401(k) plans, section 403(b) Extend permanently the nonrefundable tax cred-
annuities and salary reduction SEPs was $15,000 in it (saver’s credit) for certain elective deferrals and
2006, indexed annually thereafter in $500 increments. IRA contributions.—Under prior law, effective for tax-
The dollar limit on annual elective deferrals to a SIM- able years beginning after December 31, 2001 and be-
PLE plan was $10,000 in 2005 (adjusted for inflation fore January 1, 2007, a nonrefundable tax credit was
in increments of $500 after 2006). The dollar limit on provided for up to $2,000 in contributions made by eligi-
contributions to an eligible section 457 plan was the ble taxpayers to a qualified plan or to a traditional
lesser of 100 percent of includable compensation or or Roth IRA. The credit, which was in addition to any
$15,000 in 2006, indexed annually thereafter in incre- deduction or exclusion that would otherwise apply with
ments of $500. Individuals who attained age 50 before respect to the contribution, was available to single tax-
the end of a taxable year were allowed to make ‘‘catch- payers with AGI less than or equal to $25,000 ($37,500
up’’ contributions to a 401(k) plan, section 403(b) annu- for heads of household and $50,000 for married tax-
ity, SEP or SIMPLE plan, or section 457 plan. The payers filing a joint return). The credit was available
amount of catch-up contributions permitted was the to individuals who were 18 years of age or older (other
lesser of: (1) the applicable dollar amount or (2) the than individuals who were full-time students or claimed
participant’s compensation for the year after reduction as a dependent on another taxpayer’s return) and was
by any other elective deferrals of the participant for offset against both the regular and alternative min-
the year. The applicable dollar amount under a 401(k) imum tax. The credit rate was 50 percent for single
plan, section 403(b) annuity, SEP or section 457 plan taxpayers with AGI less than or equal to $15,000
was $5,000 for 2006, indexed annually thereafter in ($30,000 for married taxpayers filing a joint return and
increments of $500. The applicable dollar amount under $22,500 for heads of household), 20 percent for single
a SIMPLE plan was $2,500 in 2006, indexed annually taxpayers with AGI between $15,000 and $16,250 (be-
thereafter in increments of $500. These contribution tween $30,000 and $32,500 for married taxpayers filing
and benefit limits, which were scheduled to expire after a joint return and between $22,500 and $24,375 for
December 31, 2010, were extended permanently under heads of household), and 10 percent for single taxpayers
this Act. with AGI between $16,250 and $25,000 (between
$32,500 and $50,000 for married taxpayers filing a joint
Extend permanently the ability to make tax-free return and between $24,375 and $37,500 for heads of
distributions from qualified tuition programs (sec- household). The saver’s credit was extended perma-
tion 529 of the Internal Revenue Code).—Qualified nently under this Act. In addition, this Act provided
State tuition programs generally take two forms—pre- for annual indexing of the income limits applicable to
paid tuition plans and savings plans. Under a prepaid the credit in increments of $500 beginning in 2007.
tuition plan, an individual may purchase tuition credits
or certificates on behalf of a designated beneficiary, Health and Medical Benefits
which entitle the beneficiary to the waiver or payment
of qualified higher education expenses at participating Modify tax treatment of annuity and life insur-
educational institutions. Under a savings plan, an indi- ance contracts with a long-term care insurance
vidual may make contributions to an account estab- feature.—Under prior law, annuity contracts were not
lished for the purpose of meeting the qualified higher allowed to have a qualified long-term care insurance
education expenses of a designated beneficiary. Private feature; however, long-term care insurance could be
educational institutions are also allowed to establish provided by a rider on or as a part of a life insurance
qualified prepaid tuition plans (but not savings plans), contract. This Act allowed qualified long-term care in-
provided the institution is eligible to participate in Fed- surance to be provided by a rider on or as a part of
eral financial aid programs under Title IV of the Higher an annuity contract and provided special tax treatment
Education Act of 1965. Earnings in a qualified savings for the long-term care component of a life insurance
program accumulate tax free. Under current law, if a or annuity contract. Under this Act: (1) payments for
distribution is used to pay qualified higher education a qualified long-term care insurance contract, which
expenses, the distribution is tax free. Qualified ex- is a rider on or is part of a life insurance contract
penses include: tuition and fees; certain expenses for or annuity contract, that are charged against the cash
room and board; certain expenses for books, supplies value of the annuity contract or the cash surrender
and equipment; and expenses for a special needs bene- value of the life insurance contract are not includable
ficiary that are necessary in connection with enrollment in income and the investment in the contract is reduced
or attendance at an eligible education institution. This (but not below zero) by the charge; (2) the rules for
Act permanently extended the preferred tax treatment tax-free exchanges of certain insurance contracts are
of the distributions, which was scheduled to expire with expanded to include exchanges of a life insurance con-
tract, an endowment contract, an annuity contract, or tions made on or after the date the IRA owner attains
a qualified long-term care insurance contract for a age 701⁄2, and is effective for distributions made in tax-
qualified long-term care insurance contract; and (3) ex- able years beginning after December 31, 2005 and be-
cept as otherwise provided in regulations, the portion fore January 1, 2008. The exclusion applies only if a
of an annuity or life insurance contract providing long- charitable contribution deduction for the entire dis-
term care insurance coverage is treated as a separate tribution would otherwise be allowable under current
contract for Federal tax purposes. These, and other law, determined without regard to the percentage-of-
rules concerning the taxation of long-term care insur- AGI limitation. No charitable deduction is allowed with
ance provided as a rider on or as part of an annuity respect to any amount excludable from income under
or life insurance contract generally will be effective for this provision.
taxable years beginning after December 31, 2009 for
contracts issued after December 31, 1996. Expand enhanced charitable deduction for con-
tributions of food inventory.—A taxpayer’s deduction
Permit tax-free distributions from governmental for charitable contributions of inventory generally is
retirement plans for premiums for health and limited to the taxpayer’s basis (typically cost) in the
long-term care insurance for public safety offi- inventory, or, if less, the fair market value of the inven-
cers.—Under current law, a distribution from a quali- tory. However, for certain contributions of inventory,
fied retirement plan, a tax-sheltered annuity (a 403(b) C corporations may claim an enhanced deduction equal
annuity), an eligible deferred compensation plan main- to the lesser of: (1) basis plus one half of the fair mar-
tained by a State or local government (a governmental ket value in excess of basis or (2) two times basis.
457 plan), or an IRA generally is included in the tax- To be eligible for the enhanced deduction, the contrib-
payer’s gross income in the year of distribution, except uted property generally must be inventory of the tax-
to the extent the amount received constitutes a return payer contributed to a charitable organization and the
of after-tax contributions or a qualified distribution donee must: (1) use the property consistent with the
from a Roth IRA. This Act provided an annual exclusion donee’s exempt purpose solely for the care of the ill,
from gross income for up to $3,000 in otherwise taxable the needy, or infants; (2) not transfer the property in
distributions from an eligible retirement plan of a quali- exchange for money, other property, or services; and
fied public safety officer for the payment of qualified (3) provide the taxpayer a written statement that the
health insurance premiums made directly to the in- donee’s use of the property will be consistent with such
surer. Eligible retired public safety officers are individ- requirements. To use the enhanced deduction, the tax-
uals who, by reason of disability or attainment of nor- payer must establish that the fair market value of the
mal retirement age, are separated from service with donated item exceeds basis.
the employer who maintains the eligible retirement The Katrina Emergency Tax Relief Act of 2005 ex-
plan from which pension benefits are received. Quali- panded the enhanced deduction to apply to qualified
fied health insurance premiums include premiums for contributions of food inventory made after August 27,
accident or health insurance or qualified long-term care 2005 and before January 1, 2006 by all taxpayers (not
insurance contracts covering the taxpayer and the tax- just C corporations) engaged in a trade or business.
payer’s spouse and dependents. Amounts excluded from This Act extended the enhanced charitable deduction
income are not taken into account in determining the for contributions of food inventory provided under the
itemized deduction for medical expenses or the deduc- Katrina Emergency Tax Relief Act of 2005 to apply
tion for health insurance of self-employed individuals. to contributions made after December 31, 2005 and be-
The provision is effective for distributions in taxable fore January 1, 2008. The donated food must meet cer-
years beginning after December 31, 2006. tain quality and labeling standards, and, for taxpayers
other than C corporations, the total deduction for do-
Charitable Contributions and Tax-Exempt nated food inventory may not exceed 10 percent of the
Organizations taxpayer’s net income from the related trade or busi-
ness.
Permit tax-free withdrawals from IRAs for char-
itable contributions.—Eligible individuals may make Modify basis adjustment to stock of S corpora-
deductible or non-deductible contributions to a tradi- tions contributing appreciated property.—Each
tional IRA and nondeductible contributions to a Roth shareholder of an S corporation must take into account
IRA. Pre-tax contributions and earnings in a traditional his or her pro rata share of a charitable contribution
IRA are included in income when withdrawn. Qualified by the S corporation in determining his or her income
withdrawals from a Roth IRA are excluded from gross tax liability. For donations of property, this generally
income; withdrawals that are not qualified are included is the pro rata share of the property’s fair market value.
in gross income to the extent attributable to earnings. Under prior law, the shareholder’s basis in the stock
This Act provided an exclusion from gross income for of the company was reduced by the amount of the chari-
otherwise taxable distributions from a traditional or table contribution that flowed through to the share-
a Roth IRA made directly to a qualified charitable orga- holder. Under this Act, effective for charitable contribu-
nization. The exclusion may not exceed $100,000 per tions made by an S corporation in taxable years begin-
taxpayer per taxable year, is applicable only to distribu- ning after December 31, 2005 and before January 1,
2008, shareholders are allowed to adjust their basis 2005, to apply to expenses incurred in taxable years
in the stock of the company by their pro rata share beginning before January 1, 2008.
of the adjusted basis of the contributed property instead
of by their pro rata share of the market value of the Extend and modify the new markets tax credit.—
contributed property. The new markets tax credit is provided for qualified
equity investments made to acquire stock in a corpora-
Make other changes affecting charitable con- tion or a capital interest in a partnership that is a
tributions and tax-exempt organizations.—Other qualified community development entity (CDE). A cred-
incentives for charitable contributions or modifications it of five percent is provided to the investor for the
in the tax treatment of tax-exempt organizations pro- first three years of investment. The credit increases
vided in this Act included: (1) extension of the enhanced to six percent for the next four years. The maximum
deduction for contributions of books to public schools amount of annual qualifying equity investment is
for two years; (2) modification of the tax treatment capped at $2.0 billion for calendar years 2004 and 2005,
of certain payments to controlling exempt organizations; and $3.5 billion for calendar years 2006 and 2007. This
(3) modification of the deduction for qualified conserva- Act extended the new markets tax credit through 2008
tion contributions; (4) modification of the deduction for and permitted up to $3.5 billion in qualified equity
charitable contributions of clothing and household items investment for that calendar year. This Act also re-
that are not in good condition and for items of minimal quired the Secretary of the Treasury to prescribe regu-
monetary value; (5) expansion of the definition of gross lations to ensure that non-metropolitan counties receive
investment income of private foundations; (6) increases a proportional allocation of qualified equity invest-
in penalty excise taxes applicable to certain activities ments.
of charities, social welfare organizations, and private
foundations; (7) modification of recordkeeping and sub- Extend optional deduction for State and local
stantiation requirements; and (8) provision of new rules general sales taxes.—Under prior law, effective for
governing donor advised funds and supporting organiza- taxable years beginning after December 31, 2003 and
tions. before January 1, 2006, a taxpayer was allowed to elect
to take an itemized deduction for State and local gen-
TAX RELIEF AND HEALTH CARE ACT OF 2006 eral sales taxes in lieu of the itemized deduction for
The Tax Relief and Health Care Act of 2006, which State and local income taxes. This Act extended this
was signed by President Bush on December 20, 2006, deduction for two years, effective for taxable years be-
extended a number of expired or expiring tax provi- ginning before January 1, 2008.
sions, modified health savings accounts, modified var-
ious trade measures, and made a number of other Extend and modify the research and experimen-
changes to tax law. This Act also authorized drilling tation (R&E) tax credit.—The 20-percent tax credit
for oil in the Gulf of Mexico, rolled back a cut in Medi- for qualified research and experimentation expenditures
care physician payments, and amended the Surface above a base amount and the alternative incremental
Mining Control and Reclamation Act. The major provi- credit expired with respect to expenditures incurred
sions of this Act that affect receipts are described after December 31, 2005. This Act: (1) extended the
below. research credit for two years, to apply to expenditures
incurred before January 1, 2008; (2) extended the alter-
Expiring Provisions native incremental credit for one year, without modi-
fication, to apply to expenditures incurred before Janu-
Extend deduction for qualified tuition and re- ary 1, 2007; and (3) modified the alternative incre-
lated expenses.—An above-the-line deduction of up to mental credit and established an alternative simplified
$4,000 is provided for qualified higher education ex- credit, to apply to expenditures incurred after December
penses paid by a qualified taxpayer during the taxable 31, 2006 and before January 1, 2008.
year. For a given taxable year, the deduction may not
be claimed if an education tax credit is claimed for Extend and modify the work opportunity tax
the same student. In addition, the deduction may not credit and the welfare-to-work tax credit.—The
be claimed for amounts taken into account in deter- work opportunity tax credit (WOTC) provides incentives
mining the amount excludable from income due to a for hiring individuals from certain targeted groups. The
distribution from a Coverdell education IRA or the credit generally applies to the first $6,000 of wages
amount of interest excludable from income with respect paid to several categories of economically disadvantaged
to education savings bonds. A taxpayer may not claim or handicapped workers. The credit rate is 25 percent
a deduction for the amount of a distribution from a of qualified wages for employment of at least 120 hours
qualified tuition plan that is excludable from income; but less than 400 hours and 40 percent for employment
however, the deduction may be claimed for the amount of 400 or more hours.
of a distribution from a qualified tuition plan that is The welfare-to-work tax credit provides an incentive
not attributable to earnings. This Act extended the de- for hiring certain recipients of long-term family assist-
duction, which had expired with respect to expenses ance. The credit is 35 percent of up to $10,000 of eligi-
incurred in taxable years beginning after December 31, ble wages in the first year of employment and 50 per-
cent of wages up to $10,000 in the second year of em- penses claimed as an above-the-line deduction could not
ployment. Eligible wages include cash wages plus the be claimed as an itemized deduction. This Act extended
cash value of certain employer-paid health, dependent this above-the-line deduction to apply to expenses in-
care, and educational fringe benefits. The minimum em- curred before January 1, 2008.
ployment period that employees must work before em-
ployers can claim the credit is 400 hours. Extend and expand expensing of brownfields re-
This Act extended both the WOTC and the welfare- mediation costs.—Taxpayers may elect to treat certain
to-work tax credit for one year without modification, environmental remediation expenditures that would
effective for wages paid to qualified individuals who otherwise be chargeable to a capital account as deduct-
began work for the employer after December 31, 2005 ible in the year paid or incurred. This Act extended
and before January 1, 2007. For wages paid to individ- this provision, making it available for environmental
uals who begin work for the employer after December remediation expenditures paid or incurred after Decem-
31, 2006 and before January 1, 2008, this Act combined ber 31, 2005 and before January 1, 2008. In addition,
and modified the two credits. Modifications included: this Act expanded the provision to apply to expendi-
(1) use of the WOTC definition of wages; (2) repeal tures paid or incurred to abate contamination at sites
of the requirement that a qualified ex-felon be certified contaminated by petroleum products, which include
as a member of an economically disadvantaged family; crude oil, crude oil condensates and natural gasoline.
(3) expansion of eligibility by increasing the age ceiling
for the food stamp recipient category; and (4) extension Extend tax incentives for the District of Colum-
of the paperwork filing deadline from 21 days to 28 bia (DC).—A one-time, nonrefundable $5,000 tax credit
days. is available to purchasers of a principal residence in
DC who have not owned a residence in DC during
Extend treatment of combat pay for purposes of the year preceding the purchase. The credit phases out
computing the EITC.—This Act extended for one year, for taxpayers with modified AGI between $70,000 and
through December 31, 2007, the prior law election that $90,000 ($110,000 and $130,000 for joint returns). This
allowed combat pay, which is otherwise excluded from Act extended the credit for two years, making it avail-
gross income, to be treated as earned income for pur- able with respect to purchases after December 31, 2005
poses of calculating the EITC. and before January 1, 2008.
The DC Enterprise Zone includes the DC Enterprise
Extend and modify authority to issue Qualified Community and DC census tracts with a poverty rate
Zone Academy Bonds.—State and local governments of at least 20 percent. Businesses in the zone are eligi-
are allowed to issue ‘‘qualified zone academy bonds,’’ ble for: (1) A wage credit equal to 20 percent of the
the interest on which is effectively paid by the Federal first $15,000 in annual wages paid to qualified employ-
government in the form of an annual income tax credit. ees who reside within DC; (2) $35,000 in increased sec-
The proceeds of the bonds must be used for teacher tion 179 expensing; and (3) in certain circumstances,
training, purchases of equipment, curriculum develop- tax-exempt bond financing. In addition, a capital gains
ment, or rehabilitation and repairs at certain public exclusion is allowed for certain investments held more
school facilities. Under prior law, a nationwide total than five years and made within the DC Enterprise
of $400 million of qualified zone academy bonds were Zone, or within any DC census tract with a poverty
authorized to be issued in each of calendar years 1998 rate of at least 10 percent. This Act extended the DC
through 2005 and unused authority could be carried Enterprise Zone incentives for two years, through De-
forward for up to two years. This Act authorized the cember 31, 2007.
issuance of an additional $400 million of qualified zone
academy bonds in each of calendar years 2006 and Extend tax incentives for employment and in-
2007. This Act also: (1) extended the arbitrage require- vestment on Indian reservations.—This Act extended
ments that apply to interest-bearing tax-exempt bonds for two years, through December 31, 2007, the employ-
to qualified zone academy bonds, (2) imposed new ment tax credit for qualified workers employed on an
spending requirements on the issuers of these bonds, Indian reservation and the accelerated depreciation
and (3) imposed new reporting requirements on the rules for qualified property used in the active conduct
issuers of these bonds. of a trade or business within an Indian reservation.
The employment tax credit is not available for employ-
Extend the above-the-line deduction for qualified ees involved in certain gaming activities or who work
out-of-pocket classroom expenses.—Taxpayers who in a building that houses certain gaming activities.
itemize deductions (do not use the standard deduction) Similarly, property used to conduct or house certain
and incur unreimbursed, job-related expenses may de- gaming activities is not eligible for the accelerated de-
duct those expenses to the extent that when combined preciation recovery periods.
with other miscellaneous itemized deductions they ex-
ceed two percent of AGI. Through 2005, certain teach- Extend modified recovery period for qualified
ers and other elementary and secondary school profes- leasehold improvements and qualified restaurant
sionals could deduct up to $250 in annual qualified property.—A taxpayer generally must capitalize the
out-of-pocket classroom expenses above-the-line. Ex- cost of property used in a trade or business and recover
such cost over time through annual deductions for de- under prior law the deduction was restricted to prop-
preciation or amortization. Tangible property generally erty constructed by the taxpayer.
is depreciated under the modified accelerated cost re-
covery system (MACRS). Under this system, deprecia- Extend Archer Medical Savings Accounts (Ar-
tion is determined by applying specified recovery peri- cher MSAs).—Self-employed individuals and employees
ods, placed-in-service conventions, and depreciation of small firms are allowed to establish Archer MSAs;
methods to the cost of various types of depreciable prop- the number of accounts is capped at 750,000. In addi-
erty. Depreciation allowances for improvements made tion to other requirements: (1) individuals who estab-
on leased property are determined under MACRS, even lish Archer MSAs must be covered by a high-deductible
if the recovery period assigned to the property is longer health plan (and no other plan) with a deductible of
than the term of the lease. Under prior law, the recov- at least $1,750 but not greater than $2,650 for policies
covering a single person and a deductible of at least
ery period for qualified leasehold improvement property
$3,500 but not greater than $5,250 in all other cases
and qualified restaurant property was temporarily re-
(these amounts are indexed annually for inflation); (2)
duced from 39 years to 15 years, effective for such
tax-preferred contributions are limited to 65 percent
property placed in service after October 22, 2004 and
of the deductible for single policies and 75 percent of
before January 1, 2006. This Act extended the 15-year the deductible for other policies; and (3) either an indi-
recovery period applicable to qualified leasehold im- vidual or an employer, but not both, may make a tax-
provement property and qualified restaurant property, preferred contribution to an Archer MSA for a par-
effective for such property placed in service before Jan- ticular year. Under prior law, no new contributions
uary 1, 2008. could be made to an Archer MSA after December 31,
2005, except for the following: (1) those made by or
Extend tax on failure to comply with mental
on behalf of individuals who previously had Archer
health parity requirements applicable to group
MSA contributions and (2) those made by individuals
health plans.—Group health plans that provide both
employed by a participating employer. This Act ex-
mental health benefits and medical and surgical bene-
tended the Archer MSA program for two years, through
fits cannot impose aggregate lifetime or annual dollar
December 31, 2007.
limits on mental health benefits that are not imposed
on substantially all medical and surgical benefits. An Extend suspension of net income limitation on
excise tax of $100 per day for each individual affected percentage depletion for marginal oil and gas
(during the period of noncompliance) is imposed on an wells.—Taxpayers are allowed to recover their invest-
employer sponsoring a group plan that fails to meet ment in oil and gas wells through depletion deductions.
these requirements. For a given taxable year, the tax For certain properties, deductions may be determined
is limited to the lesser of 10 percent of the employer’s using the percentage of depletion method; however, in
group health insurance expenses for the prior taxable any year, the amount deducted generally may not ex-
year or $500,000. This Act extended the mental health ceed 100 percent of the net income from the property.
parity requirements and excise tax for failure to comply Under prior law, for taxable years beginning after De-
with these requirements, which had been scheduled to cember 31, 1997 and before January 1, 2006, domestic
expire with respect to benefits furnished after Decem- oil and gas production from ‘‘marginal’’ properties was
ber 31, 2006, through December 31, 2007. exempt from the 100-percent-of-net-income limitation.
This Act extended the exemption to apply to taxable
Extend deduction for corporate donations of years beginning after December 31, 2005 and before
computer technology.—The charitable contribution January 1, 2008.
deduction that may be claimed by corporations for do-
nations of inventory property generally is limited to Extend economic development credit for Amer-
the lesser of fair market value or the corporation’s basis ican Samoa.—Certain domestic corporations with
in the property. However, corporations are provided en- business operations in the U.S. possessions are eligible
hanced deductions, not subject to this limitation, for: for the possession tax credit, which offsets the U.S.
(1) a ‘‘qualified research contribution’’, or (2) a ‘‘quali- tax imposed on certain income related to operations
fied computer contribution.’’ The enhanced deduction in the U.S. possessions (including, among other places,
is equal to the lesser of: (1) basis plus one-half of the American Samoa). The possession tax credit is available
item’s fair market value in excess of basis, or (2) two only to a corporation that qualifies as an existing credit
times basis. This Act extended the enhanced deduction claimant; the determination of whether a corporation
for a qualified computer contribution, which expired is an existing credit claimant is made separately for
with respect to donations made after December 31, each possession. The credit is computed separately for
2005, to apply to donations made before January 1, each possession with respect to which the corporation
2008. (The enhanced deduction for ‘‘qualified research is an existing claimant and the credit is subject to
contributions’’ does not expire.) In addition, this Act either an economic activity-based limitation or an in-
expanded the definition of property eligible for either come-based limit. Under prior law, the possession tax
the enhanced deduction relating to research equipment credit was repealed for new claimants for taxable years
or computers to property assembled by the taxpayer; beginning after December 31, 1995, and was phased
out for existing credit claimants for taxable years begin- Extend provisions permitting disclosure of tax
ning after December 31, 1995 and before December 31, return information relating to terrorist activity.—
2006. This Act extended and modified the credit with The disclosure of tax return information relating to ter-
respect to American Samoa. Under the provision, a do- rorism is permitted in two situations. The first is when
mestic corporation that was an existing credit claimant an executive of a Federal law enforcement or intel-
with respect to American Samoa and that elected the ligence agency has reason to believe that the return
application of the possession tax credit for its last tax- information is relevant to a terrorist incident, threat
able year beginning before January 1, 2006 is allowed or activity and submits a written request. The second
to claim a possession tax credit based on the economic is when the IRS wishes to apprise a Federal law en-
activity-based limitation rules for the first two taxable forcement agency of a terrorist incident, threat or activ-
years beginning after December 31, 2005 and before ity. This Act extended this disclosure authority, which
January 1, 2008. expired on December 31, 2006, through December 31,
2007.
Extend placed-in-service deadline for certain
Gulf Opportunity Zone property.—Taxpayers are al- Extend provisions permitting disclosure of cer-
lowed to recover the cost of certain property used in tain other tax return information.—Certain law per-
a trade or business or for the production of income mits disclosure of taxpayer identity information and
through annual depreciation deductions. The amount signatures to any agency, body, or commission of any
of the allowable depreciation deduction for a taxable State for the purpose of carrying out with such agency,
year generally is determined under MACRS, which as- body or commission a combined Federal and State em-
signs applicable recovery periods and depreciation ployment tax reporting program approved by the Sec-
methods to different types of property. Under the Gulf retary of the Treasury. This Act extended this disclo-
Opportunity Zone Act of 2005, qualifying Gulf Oppor- sure authority, which expired on December 31, 2006,
tunity Zone (GO Zone) property was provided an addi- through December 31, 2007.
tional first-year depreciation deduction equal to 50 per-
cent of the adjusted basis of the property. In order Energy Provisions
to qualify, property generally had to be tangible prop-
erty with a recovery period of 20 years or less and Extend placed-in-service date for tax credit for
included: (1) certain computer software; (2) water utility energy produced from certain renewable sources.—
property; (3) leasehold improvement property; (4) non- Taxpayers are allowed a tax credit for electricity pro-
residential real property; and (5) residential rental duced from wind, closed-loop biomass, open-loop bio-
property. In addition: (1) substantially all of the use mass, geothermal energy, solar energy, small irrigation
of the property had to be in the GO Zone and in the power, municipal solid waste, and qualified hydropower.
active conduct of a trade or business by the taxpayer The credit rate is 1.5 cents per kilowatt hour for elec-
in the GO Zone; (2) the original use of the property tricity produced from wind, closed-loop biomass, geo-
in the GO Zone had to commence with the taxpayer thermal, and solar power, and 0.75 cent per kilowatt
on or after August 28, 2005; and (3) the property had hour for electricity produced from open-loop biomass,
to be acquired by purchase by the taxpayer on or after small irrigation power, municipal solid waste, and
August 28, 2005 and placed in service on or before qualified hydropower (both rates are adjusted for infla-
December 31, 2007 (December 31, 2008 in the case tion since 1992). A credit is also provided for the pro-
of nonresidential real property and residential rental duction of refined coal and Indian coal at qualified fa-
property). This Act extended the placed-in-service dead- cilities. The credit for refined coal is $4.375 per ton
line to December 31, 2010 for nonresidential real prop- (adjusted for inflation since 1992) and the credit for
erty and residential rental property located in those Indian coal is $1.50 per ton for coal produced after
portions of the GO Zone in a county or parish in which December 31, 2005 and before January 1, 2010 and
hurricanes occurring in 2005 damaged more than 60 $2.00 per ton for coal produced after December 31, 2009
percent of the housing units. However, only the ad- and before January 1, 2013. To qualify for the credit
justed basis of such property attributable to manufac- under prior law, electricity generally had to be produced
ture, construction, or production before January 1, 2010 at a facility placed in service before January 1, 2008
(‘‘progress expenditures’’) is eligible for the additional (January 1, 2006, in the case of solar facilities) and
first-year depreciation. coal had to be produced at a facility placed in service
before January 1, 2009. This Act extended the placed-
Extend IRS authority to fund undercover oper- in-service date by one year, through December 31, 2008,
ations.—The IRS is permitted to fund certain nec- for all facilities except solar energy, refined coal, and
essary and reasonable expenses of undercover oper- Indian coal facilities. For these facilities the placed-
ations, which places it on equal footing with other Fed- in-service termination dates of prior law were not
eral law enforcement agencies. These undercover oper- changed.
ations include international and domestic money laun-
dering and narcotics operations. This Act extended this Extend and modify other energy tax provisions.—
funding authority, which expired on December 31, 2006, Other energy tax provisions provided in this Act: (1)
through December 31, 2007. authorized the issuance of an additional $400 million
of clean renewable energy bonds and extended the au- from flexible spending arrangements (FSAs) and health
thority to issue such bonds through December 31, 2008; reimbursement arrangements (HRAs) directly to HSAs,
(2) modified the advanced coal credit with respect to effective for distributions on or after December 20, 2006
sub-bituminous coal; (3) extended the deduction for ex- and before January 1, 2012; (2) treating certain FSA
penditures associated with the installation of energy- coverage as disregarded coverage for purposes of deter-
efficient property in a commercial building; (4) extended mining if tax deductible contributions can be made to
the tax credit for the construction of qualified new en- an HSA, effective for taxable years beginning after De-
ergy-efficient homes to apply to homes the construction cember 31, 2006; (3) repealing the provision that lim-
of which is substantially completed after December 31, ited the maximum deductible contribution to the annual
2005 and that are purchased after December 31, 2005 deductible under the high-deductible health plan, effec-
and before January 1, 2009; (5) extended the tax credit tive for taxable years beginning after December 31,
for the purchase of certain residential solar energy 2006; (4) modifying the 12-month period over which
property to apply to property placed in service after the Consumer Price Index (CPI) for a calendar year
December 31, 2005 and before January 1, 2009; and is determined for purposes of making cost-of-living ad-
(6) extended the business energy tax credit for the cost justments to HSA contribution limits and high-deduct-
of certain solar energy, microturbine, and fuel cell prop- ible health plan requirements, effective for adjustments
erty to apply to property purchased before January 1, for taxable years beginning after 2007; (5) allowing in-
2009. dividuals who become eligible individuals in a month
other than January to make the full deductible HSA
Health Savings Accounts
contribution for the year, effective for taxable years
Modify health savings accounts.—Individuals with beginning after December 31, 2006; (6) modifying em-
a high-deductible health plan (and no other health plan ployer comparable contribution requirements for con-
other than a plan that provides certain permitted cov- tributions made to non-highly compensated employees;
erage) may establish a health savings account (HSA). and (7) allowing one-time rollovers from IRAs directly
Individuals who may be claimed as a dependent on to HSAs up to the annual HSA maximum contribution,
another person’s tax return cannot establish HSAs and effective for taxable years beginning after December
individuals who enroll in Medicare cannot make con- 31 2006.
tributions to an HSA. In general, HSAs provide tax-
favored treatment for current medical expenses as well Trade Measures
as the ability to save on a tax-favored basis for future Extend Generalized System of Preferences
medical expenses. Contributions to an HSA may be (GSP).—Under GSP, duty-free access is provided to ap-
made by both an individual and the individual’s em- proximately 3,400 products from eligible beneficiary de-
ployer, all contributions are aggregated for purposes veloping countries that meet certain worker rights, in-
of the maximum annual contribution limit, and con- tellectual property protection, and other statutory cri-
tributions to Archer MSAs reduce the annual contribu- teria. This Act extended this program, which was sched-
tion limit for HSAs. Contributions to an HSA made uled to expire after December 31, 2006, through Decem-
by an employer are excluded from income and employ- ber 31, 2008. This Act also provided that the President
ment taxes and, within limits, contributions to an HSA should revoke any existing competitive need limitation
made by or on behalf of an eligible individual are de- (CNL) waiver that has been in effect for at least five
ductible by the individual in determining AGI (whether years, if a GSP-eligible product from a specific country
or not the individual itemizes deductions). Earnings on has an annual trade level in the previous calendar year
amounts in an HSA are not taxable and distributions that exceeds 150 percent of the annual trade cap or
for qualified medical expenses are not included in gross 75 percent of all U.S. imports of that product.
income; however, distributions from an HSA that are
not used for qualified medical expenses are included Extend Andean Trade Preference Act (ATPA).—
in gross income and except in the case of death, dis- The ATPA, which was scheduled to expire after Decem-
ability or the attainment of age 65, are subject to an ber 31, 2006, was designed to provide economic alter-
additional tax of 10 percent. Under prior law, the max- natives for Bolivia, Columbia, Ecuador, and Peru in
imum aggregate annual contribution that could be their fight against narcotics production and trafficking.
made to an HSA was the lesser of: (1) 100 percent This Act extended the ATPA for six-months through
of the annual deductible under the high deductible June 30, 2007. An additional six-month extension,
health plan or (2) for 2007, $2,850 in the case of self- through December 31, 2007, was granted to any ATPA
only coverage and $5,650 in the case of family coverage. beneficiary country that concludes a trade promotion
In the case of policy holders and covered spouses who agreement with the United States, provided the Con-
were age 55 or older, the HSA annual contribution limit gress and that country’s legislature both approve the
was greater than the otherwise applicable limit by $700 agreement by June 30, 2007.
in 2006, $800 in 2007, $900 in 2008, and $1,000 in
2009 and subsequent years. This Act modified HSAs Modify African Growth and Opportunity Act
by: (1) allowing one-time rollovers of certain amounts (AGOA) and AGOA Acceleration Act.—The African
(not greater than the balance on September 21, 2006) Growth and Opportunity Act (AGOA) and the AGOA
Acceleration Act, enacted in 2000 and 2004, respec- labor agreements with the UMWA, past transfers from
tively, reduced barriers to trade, thereby increasing an overfunded United Mine Workers pension fund, and
U.S.-Africa trade, creating jobs, and increasing opportu- transfers from the Abandoned Mine Reclamation Fund.
nities for Africans and Americans alike. This Act modi- The Social Security Administration is responsible for
fied previous AGOA legislation by: (1) extending the assigning eligible retired miners and their dependents
deadline for use of third country fabric benefits, which to current and former signatories to labor agreements
was scheduled to expire after September 30, 2007, with the UMWA and calculating annual contributions
through September 30, 2012, with a 3.5 percent cap; to be paid by each such signatory for each beneficiary
(2) providing an exception to the third country fabric assigned to the signatory. The term ‘‘assigned operator’’
benefit for apparel goods made from fabric or yarn com- is used to refer to the signatory to whom liability for
ponents that are in ‘‘abundant supply’’ in Africa; and a particular beneficiary of the Combined Benefit Fund
(3) providing duty-free treatment to certain textiles and has been assigned. Effective December 20, 2006, this
textile articles (non-apparel) of wholly made African Act allowed certain assigned operators to prepay their
fabric imported from lesser-developed AGOA bene- premium liability to the Combined Benefit Fund. Under
ficiaries. this Act: (1) the payment by the assigned operator (or
any related person on behalf of the assigned operator)
Other trade measures.—This Act also: (1) author-
must be no less than the present value of the total
ized the President to grant permanent normal trade
premium liability of the assigned operator, as deter-
relations status to Vietnam; (2) provided new rules of
mined by the operator’s enrolled actuary, using actu-
origin for duty-free apparel imports from Haiti, subject
arial methods and assumptions each of which is reason-
to meeting statutory criteria; (3) offered temporary duty
reductions on a variety of items not manufactured in able and which are reasonable in the aggregate; and
the United States; and (5) extended the period from (2) the enrolled actuary must file with the Department
15 to 30 days before changes made in the Harmonized of Labor an actuarial report regarding the valuation
Tariff Schedule of the United States to implement cer- made by the actuary.
tain international tariff nomenclature obligations be- Provide other changes.—Other provisions in this
come effective.
Act: (1) allowed U.S. businesses operating as branches
Other Provisions in Puerto Rico to claim the domestic manufacturing
deduction for two years; (2) allowed individuals to take
Expand qualified mortgage bond program.— advantage of a refundable credit with respect to certain
Under current law, State and local governments may long-term unused AMT credits existing prior to January
issue mortgage revenue bond (MRBs) to provide low- 1, 2013; (3) allowed individuals to treat premiums paid
interest rate financing to qualified individuals for the or accrued before December 31, 2007 on qualified mort-
purchase, improvement, or rehabilitation of owner-occu- gage insurance contracts issued after January 1, 2007
pied residences. Several restrictions, including purchase as qualified mortgage interest (subject to income limits);
price limitations, mortgagor income, and the first-time (4) modified the excise tax on unrelated business tax-
homebuyer requirement (except with regard to resi- able income of charitable remainder trusts; and (5) re-
dences in certain targeted areas) apply to the financing formed the reward program for individuals who provide
of mortgages with MRBs. Effective for bonds issued information regarding violations of the tax laws.
after December 20, 2006 and before January 1, 2008,
this Act waived the first-time homebuyer requirement UNITED STATES-OMAN FREE TRADE
with respect to financing for veterans who served in AGREEMENT IMPLEMENTATION ACT
the active military. The exception applies without re-
gard to the date the veteran last served on active duty This Act, which was signed by President Bush on
or the date on which the veteran applied for the loan September 26, 2006, approved and provided for U.S
after leaving active duty; however, each veteran may implementation of the United States-Oman Free Trade
use the exception only one time. Agreement, as signed by the United States and Oman
on January 19, 2006. When this Agreement enters into
Allow prepayment of premium liability for coal force, it will level the playing field for U.S. workers
industry health benefits.—The United Mine Workers and businesses, provide additional market access for
of America (UMWA) Combined Benefit Fund was estab- U.S. goods, help Oman’s leaders develop long-term op-
lished by the Coal Industry Retiree Health Benefit Act portunities for their people, and advance our shared
of 1992 to assume responsibility of payments for med- goal of building a Middle East Free Trade Area. By
ical care expenses of certain retired miners and their strengthening our relations with a strategic friend and
dependents. The Combined Benefit Fund is financed ally in the Middle East, this Agreement will also help
by assessments on current and former signatories to protect America’s national security interests.
ADMINISTRATION PROPOSALS
IMPROVE THE TAX SYSTEM TO MAKE THE 2002 and before 2010, taxpayers are permitted to make
U.S. MORE COMPETITIVE or revoke expensing elections on amended returns with-
Americans deserve a tax system that is simple, fair, out the consent of the IRS Commissioner. The Adminis-
and pro-growth—in tune with our dynamic, 21st cen- tration proposes to extend permanently each of these
tury economy. The tax system should allow taxpayers temporary provisions, applicable for qualifying property
to make decisions based on economic merit, free of tax- (including off-the-shelf computer software) placed in
induced distortions. The tax system should promote the service in taxable years beginning after 2009.
competitiveness of American workers and businesses Extend permanently provisions expiring in
in the global economy. The Report of the President’s 2010.—Most of the provisions of the 2001 tax cut sun-
Advisory Panel on Federal Tax Reform has helped lay set on December 31, 2010. The Administration proposes
groundwork on ways to ensure that our tax system to extend those provisions permanently.
better meets the needs of today’s economy.
The President’s tax relief enacted in 2001 and 2003 TAX INCENTIVES
helped move the tax code in this direction. The Presi- Simplify and Encourage Saving
dent has proposed changes that would move the tax
code yet further in this direction. The Budget includes Expand tax-free savings opportunities.—Under
proposals to make health care more affordable and concurrent law, individuals can contribute to traditional
sumer-driven, to promote savings for all Americans, and IRAs, nondeductible IRAs, and Roth IRAs, each subject
to encourage investment by entrepreneurs. The Budget to different sets of rules. For example, contributions
also recognizes that tax policy analysis needs to account to traditional IRAs are deductible, while distributions
fully for the economic benefits of policy changes on our are taxed; contributions to Roth IRAs are taxed, but
economy. In the coming months, the Treasury Depart- distributions are excluded from income. In addition, eli-
ment will engage in a public dialogue on how our tax gibility to contribute is subject to various age and in-
system can be improved to make the U.S. more com- come limits. While primarily intended for retirement
petitive in the global economy. saving, withdrawals for certain education, medical, and
MAKE PERMANENT CERTAIN TAX RELIEF other non-retirement expenses are penalty free. The
ENACTED IN 2001 AND 2003 eligibility and withdrawal restrictions for these ac-
counts complicate compliance and limit incentives to
Extend permanently reductions in individual in- save.
come taxes on capital gains and dividends.—The The Administration proposes to replace current law
maximum individual income tax rate on net capital IRAs with two new savings accounts: a Lifetime Sav-
gains and dividends is 15 percent for taxpayers in indi- ings Account (LSA) and a Retirement Savings Account
vidual income tax rate brackets above 15 percent and (RSA). Regardless of age or income, individuals could
5 percent (zero in 2008, 2009 and 2010) for lower in- make annual nondeductible contributions of $2,000 to
come taxpayers. The Administration proposes to extend an LSA and $5,000 (or earnings if less) to an RSA.
permanently these reduced rates (15 percent and zero), Distributions from an LSA would be excluded from in-
which are scheduled to expire on December 31, 2010. come and could be made at any time for any purpose
without restriction. Distributions from an RSA would
Extend permanently increased expensing for be excluded from income after attaining age 58 or in
small business.—Under current law, beginning in the event of death or disability. All other distributions
2010, taxpayers may expense up to $25,000 in annual would be included in income (to the extent they exceed
investment expenditures for qualifying property, and basis) and subject to an additional tax. Distributions
the maximum amount that may be expensed is reduced would be deemed to come from basis first. The proposal
by the amount by which the taxpayer’s cost of quali- would be effective for contributions made after Decem-
fying property exceeds $200,000. Neither of these dollar ber 31, 2007 and future year contribution limits would
amounts is indexed for inflation. However, under tem- be indexed for inflation.
porary provisions first enacted in 2003, business tax- Existing Roth IRAs would be renamed RSAs and
payers are allowed to expense up to $100,000 in annual would be subject to the new rules for RSAs. Existing
investment expenditures for qualifying property (ex- traditional and nondeductible IRAs could be converted
panded to include off-the-shelf computer software) into an RSA by including the conversion amount (ex-
placed in service in taxable years beginning in 2003 cluding basis) in gross income, similar to a current-
through 2009. The maximum amount that may be ex- law Roth conversion. However, no income limit would
pensed is reduced by the amount by which the tax- apply to the ability to convert. Taxpayers who convert
payer’s cost of qualifying property exceeds $400,000. IRAs to RSAs before January 1, 2009 could spread the
Both the temporary deduction and annual investment included conversion amount over four years. Existing
limits are indexed annually for inflation, effective for traditional or nondeductible IRAs that are not con-
taxable years beginning after 2003 and before 2010. verted to RSAs could not accept new contributions. New
Also, with respect to a taxable year beginning after traditional IRAs could be created to accommodate roll-
overs from employer plans, but they could not accept the taxpayer’s cost of qualifying property exceeds
new individual contributions. Individuals wishing to roll $400,000. Both the deduction and annual investment
an amount directly from an employer plan to an RSA limits are indexed annually for inflation, effective for
could do so by including the rollover amount (excluding taxable years beginning after 2003 and before 2010.
basis) in gross income (i.e., ‘‘converting’’ the rollover, Also, with respect to a taxable year beginning after
similar to a current law Roth conversion). 2002 and before 2010, taxpayers are permitted to make
Saving will be further simplified and encouraged by or revoke expensing elections on amended returns with-
administrative changes already planned for the 2007 out the consent of the IRS Commissioner. The Adminis-
filing season that will allow taxpayers to have their tration proposes to increase the amount of annual in-
tax refunds directly deposited into more than one ac- vestment expenditures that taxpayers are allowed to
count. Consequently, taxpayers will be able, for exam- expense to $200,000, and to raise the amount of quali-
ple, to direct that a portion of their tax refunds be fying investment at which the phase-out begins to
deposited into an LSA or RSA. $800,000, effective for qualifying property placed in
service in taxable years beginning after 2007. These
Consolidate employer-based savings accounts.— higher amounts would be indexed for inflation, effective
Current law provides multiple types of tax-preferred for taxable years beginning after 2008.
employer-based savings accounts to encourage saving
for retirement. The accounts have similar goals but are Invest in Health Care
subject to different sets of rules regulating eligibility,
contribution limits, tax treatment, and withdrawal re- Provide a flat $15,000 deduction for family cov-
strictions. For example, 401(k) plans for private employ- erage ($7,500 for individual coverage) for those
ers, SIMPLE 401(k) plans for small employers, 403(b) with and who purchase health insurance.—The Ad-
plans for 501(c)(3) organizations and public schools, and ministration proposes to provide a flat $15,000 deduc-
457 plans for State and local governments are all sub- tion to all families who purchase health insurance
ject to different rules. To qualify for tax benefits, plans ($7,500 for those purchasing individual coverage),
must satisfy multiple requirements. Among the require- whether directly or through an employer, that meets
ments, the plan generally may not discriminate in favor minimum requirements. The full deduction would apply
of highly compensated employees with regard either regardless of how much a family or individual spends
to coverage or to amount or availability of contributions on health insurance; that is, a family or individual that
or benefits. Rules covering employer-based savings ac- spends less than the full deduction on health insurance
counts are among the lengthiest and most complicated would still receive the full deduction. The deduction
sections of the tax code and associated regulations. This would apply for purposes of both the income and payroll
complexity imposes substantial costs on employers, par- tax.
ticipants, and the Government, and likely has inhibited The new, flat deduction would replace the existing
the adoption of retirement plans by employers, espe- exclusion for employer-provided health insurance, the
cially small employers. self-employed premium deduction, and the medical
The Administration proposes to consolidate 401(k), itemized deduction for those under 65 years of age.
SIMPLE 401(k), 403(b), and 457 plans, as well as SIM- The current exclusion or deduction from income of
PLE IRAs and SARSEPs, into a single type of plan— health care spending, whether for insurance premiums
Employee Retirement Savings Accounts (ERSAs) that or out-of-pocket expenses, except under a Health Sav-
would be available to all employers. ERSA non-discrimi- ings Account (HSA), would also be repealed. Employers
nation rules would be simpler and include a new ERSA would be required to report the value of health insur-
non-discrimination safe-harbor. Under one of the safe- ance coverage to their employees on their annual Form
harbor options, a plan would satisfy the nondiscrimina- W-2 and such amounts would be subject to withholding
tion rules with respect to employee deferrals and em- and employment taxes. Businesses would continue to
ployee contributions if it provided a 50-percent match deduct employer-provided health insurance as a busi-
on elective contributions up to six percent of compensa- ness expense. In addition, the phase-out rate for the
tion. By creating a simplified and uniform set of rules, EITC for taxpayers with qualifying children would be
the proposal would substantially reduce complexity. The reduced to 15 percent. These provisions would be effec-
proposal would be effective for taxable years beginning tive for tax years beginning after December 31, 2008.
after December 31, 2007.
Expand and make health savings accounts
Encourage Entrepreneurship and Investment (HSAs) more flexible.—Current law allows individuals
to accumulate funds in an HSA or medical savings ac-
Increase expensing for small business.—Business count (MSA) on a tax-preferred basis to pay for medical
taxpayers are currently allowed to expense up to expenses, provided they are covered by an HSA-quali-
$100,000 in annual investment expenditures for qualified high-deductible health plan (HDHP), and no other
fying property (expanded to include off-the-shelf com- health plan. Under current law, individual contribu-
puter software) placed in service in taxable years begin- tions to HSAs are deductible for income tax purposes,
ning in 2003 through 2009. The maximum amount that while employer contributions to HSAs are excluded
may be expensed is reduced by the amount by which from both the income and payroll tax. The higher de-
ductible under HSA-qualified health plans increases the the restriction period by the length of the eligible indi-
cost consciousness of health care consumers by increas- vidual’s creditable coverage (as of the date the indi-
ing their exposure to the cost of health care. vidual applied for the State-based coverage). This provi-
In addition to higher deductibles, the Administration sion would be effective for eligible individuals applying
also recognizes that higher coinsurance levels encourage for coverage after December 31, 2007. Also, in order
cost consciousness among health care consumers. to prevent an individual from losing the benefit of the
Therefore, the Administration proposes to allow health HCTC just because his or her spouse becomes eligible
plans to be considered HSA-eligible if they meet all for Medicare, the Administration proposes to permit
the existing requirements of an HDHP except that, in spouses of HCTC-eligible individuals to claim the HCTC
lieu of satisfying the minimum deductible requirement, when the HCTC-eligible individual becomes entitled to
they have at least a 50 percent coinsurance require- Medicare coverage. The spouse, however, would have
ment and a minimum out-of-pocket exposure that would to be at least 55 years old and meet the other HCTC
result in the same (or lower) premium as coverage eligibility requirements. This provision would be effec-
under a high-deductible health plan under the current tive for taxable years beginning after December 31,
requirements for the same family or individual. 2007.
The Administration also proposes that additional To improve the administration of the HCTC, the Ad-
changes be made to HSAs to encourage the use of HSAs ministration proposes to: (1) modify the definition of
and coverage under the HSA-eligible high-deductible ‘‘other specified coverage’’ for ‘‘eligible ATAA recipients,’’
health plans including: (1) allowing family coverage to to be the same as the definition applied to ‘‘eligible
include coverage where each individual in the family TAA recipients;’’ (2) clarify that certain PBGC pension
can receive benefits once they have reached the min- recipients are eligible for the tax credit; (3) allow State-
imum deductible for an individual HDHP; (2) allowing based continuation coverage to qualify without meeting
both spouses to contribute the catch-up contribution to the requirements for State-based qualified coverage;
a single HSA owned by one spouse if both spouses and (4) for purposes of the State-based coverage rules,
are eligible individuals; (3) allowing an individual to permit the Commonwealths of Puerto Rico and North-
be covered by a flexible spending arrangement (FSA) ern Mariana Islands, as well as American Samoa,
or health reimbursement arrangement (HRA) with first Guam, and the U.S. Virgin Islands to be deemed as
dollar coverage and still contribute to an HSA, but off- States.
set the maximum allowable HSA contribution by the
level of FSA or HRA coverage; (4) allowing qualified Allow the orphan drug tax credit for certain pre-
medical expenses to include any medical expense in- designation expenses.—Current law provides a 50-
curred on or after the first day of HDHP coverage if percent credit for expenses related to human clinical
individuals have established an HSA by their return testing of drugs for the treatment of certain rare dis-
filing date for that year; and (5) excluding from the eases and conditions (‘‘orphan drugs’’). A taxpayer may
comparability rules extra employer contributions to claim the credit only for expenses incurred after the
HSAs on behalf of employees who are chronically ill Food and Drug Administration (FDA) designates a drug
or employees who have spouses or dependents who are as a potential treatment for a rare disease or condition.
chronically ill. All of the HSA-related proposals would This creates an incentive to defer clinical testing for
be effective for years beginning after December 31, orphan drugs until the taxpayer receives the FDA’s
2007. approval and increases complexity for taxpayers by
treating pre-designation and post-designation clinical
Improve the Health Coverage Tax Credit.—The expenses differently. The Administration proposes to
Health Coverage Tax Credit (HCTC) was created under allow taxpayers to claim the orphan drug credit for
the Trade Act of 2002 for the purchase of qualified expenses incurred prior to FDA designation if designa-
health insurance. Eligible persons include certain indi- tion occurs before the due date (including extensions)
viduals who are receiving benefits under the Trade Ad- for filing the tax return for the year in which the FDA
justment Assistance (TAA) or the Alternative TAA application was filed. The proposal would be effective
(ATAA) program and certain individuals between the for qualified expenses incurred after December 31,
ages of 55 and 64 who are receiving pension benefits 2006.
from the Pension Benefit Guaranty Corporation
(PBGC). The tax credit is refundable and can be Provide Incentives for Charitable Giving
claimed through an advance payment mechanism at
the time the insurance is purchased. Extend permanently tax-free withdrawals from
To make the requirements for qualified State-based IRAs for charitable contributions.—Under current
coverage under the HCTC more consistent with the law, eligible individuals may make deductible or non-
rules applicable under the Health Insurance Portability deductible contributions to a traditional IRA and non-
and Accountability Act (HIPAA) and thus encourage deductible contributions to a Roth IRA. Pre-tax con-
more plans to participate in the HCTC program, the tributions and earnings in a traditional IRA are in-
Administration proposes to allow State-based coverage cluded in income when withdrawn. Qualified with-
to impose a pre-existing condition restriction for a pe- drawals from a Roth IRA are excluded from gross in-
riod of up to 12 months, provided the plan reduces come; withdrawals that are not qualified are included
in gross income to the extent attributable to earnings. Extend permanently the deduction for corporate
The Pension Protection Act of 2006 provided an exclu- donations of computer technology.—The charitable
sion from gross income for otherwise taxable distribu- contribution deduction that may be claimed by corpora-
tions from a traditional or a Roth IRA made directly tions for donations of inventory property generally is
to a qualified charitable organization. The exclusion limited to the lesser of fair market value or the corpora-
may not exceed $100,000 per taxpayer per taxable year, tion’s basis in the property. However, corporations are
is applicable only to distributions made on or after the provided enhanced deductions, not subject to this limi-
date the IRA owner attains age 701⁄2, and is effective tation, for contributions of computer technology and
for distributions made in taxable years beginning after equipment for education purposes. The enhanced deduc-
December 31, 2005 and before January 1, 2008. The tion is equal to the lesser of: (1) basis plus one-half
exclusion applies only if a charitable contribution de- of the item’s fair market value in excess of basis, or
duction for the entire distribution would otherwise be (2) two times basis. To qualify for the enhanced deduc-
allowable under current law, determined without re- tion, equipment contributed must have been con-
structed or assembled by the taxpayer and be donated
gard to the percentage-of-AGI limitation. No charitable
no later than three years after completion. This provi-
deduction is allowed with respect to any amount exclud-
sion expires with respect to donations made after De-
able from income under this provision. cember 31, 2007. The Administration proposes to per-
The Administration proposes to permanently extend manently extend this deduction, effective for distribu-
this exclusion, effective for distributions made in tax- tions made in taxable years beginning after December
able years beginning after December 31, 2007. 31, 2007.
Extend permanently the enhanced charitable de- Permanently increase limits on contributions of
duction for contributions of food inventory.—A tax- property interests made for conservation pur-
payer’s deduction for charitable contributions of inven- poses.—In general, a deduction is permitted for chari-
tory generally is limited to the taxpayer’s basis (typi- table contributions, subject to certain limitations that
cally cost) in the inventory, or, if less, the fair market depend on the type of taxpayer, the property contrib-
value of the inventory. However, for certain contribu- uted, and the donee organization. Exceptions to these
tions of inventory, C corporations may claim an en- general rules are provided for certain types of contribu-
hanced deduction equal to the lesser of: (1) basis plus tions, including qualified conservation contributions.
one half of the fair market value in excess of basis, The special rules for qualified conservation contribu-
or (2) two times basis. To be eligible for the enhanced tions were enhanced under the Pension Reform Act of
deduction, the contributed property generally must be 2006, applicable for qualified conservation contributions
inventory of the taxpayer contributed to a charitable made in taxable years beginning after December 31,
organization and the donee must: (1) use the property 2005 and before January 1, 2008. These special rules:
consistent with the donee’s exempt purpose solely for (1) increased the cap on deductions for qualified con-
the care of the ill, the needy, or infants; (2) not transfer servation contributions from 30 percent to 50 percent
the property in exchange for money, other property, of the excess of the donor’s contribution base over the
or services; and (3) provide the taxpayer a written amount of all other allowable charitable contributions,
statement that the donee’s use of the property will be (2) increased the cap on deductions for qualified con-
consistent with such requirements. To use the enhanced servation contributions applicable to qualified ranchers
deduction, the taxpayer must establish that the fair and farmers to 100 percent of the excess of the donor’s
market value of the donated item exceeds basis. contribution base over the amount of all other allowable
The Katrina Emergency Tax Relief Act of 2005 ex- charitable contributions in the case of individuals and
panded the enhanced deduction to apply to qualified to 100 percent of the excess of taxable income over
contributions of food inventory made after August 27, the amount of all other allowable charitable contribu-
2005 and before January 1, 2006 by all taxpayers (not tions in the case of corporations, and (3) increased the
number of years qualified conservation contributions in
just C corporations) engaged in a trade or business.
excess of the 50- and 100-percent caps may be carried
The Pension Protection Act of 2006 extended the en-
forward from five to 15 years. The Administration pro-
hanced charitable deduction for contributions of food
poses to permanently extend these special rules, appli-
inventory provided under the Katrina Emergency Tax cable for qualified conservation contributions made in
Relief Act of 2005 to apply to contributions made after taxable years beginning after December 31, 2007.
December 31, 2005 and before January 1, 2008. The
donated food must meet certain quality and labeling Extend permanently basis adjustment to stock
standards, and, for taxpayer’s other than C corpora- of S corporations contributing appreciated prop-
tions, the total deduction for donated food inventory erty.—Each shareholder of an S corporation must take
may not exceed 10 percent of the taxpayer’s net income into account his or her pro rata share of a charitable
from the related trade or business. The Administration contribution by the S corporation in determining his
proposes to permanently extend the enhanced chari- or her income tax liability. For donations of property,
table deduction for contributions of food inventory to this generally is the pro rata share of the property’s
apply to contributions made after December 31, 2007. fair market value. Under prior law, the shareholder’s
basis in the stock of the company was reduced by the Repeal certain restrictions on the use of quali-
amount of the charitable contribution that flowed fied 501(c)(3) bonds for residential rental prop-
through to the shareholder. Under the Pension Protec- erty.—Tax-exempt, 501(c)(3) organizations generally
tion Act of 2006, effective for charitable contributions may utilize tax-exempt financing for charitable pur-
made by an S corporation in taxable years beginning poses. However, existing law contains a special limita-
after December 31, 2005 and before January 1, 2008, tion under which 501(c)(3) organizations may not use
shareholders are allowed to adjust their basis in the tax-exempt financing to acquire existing residential
stock of the company by their pro rata share of the rental property for charitable purposes unless the prop-
adjusted basis of the contributed property instead of erty is rented to low-income tenants or is substantially
by their pro rata share of the market value of the rehabilitated. In order to simplify the tax laws and
contributed property. The Administration proposes to provide consistent treatment of bonds for 501(c)(3) orga-
permanently extend this provision, effective for chari- nizations, the Administration proposes to repeal the
table contributions made by an S corporation in taxable residential rental property limitation.
years beginning after December 31, 2007. Strengthen Education
Reform excise tax based on investment income Extend permanently the above-the-line deduction
of private foundations.—Under current law, private for qualified out-of-pocket classroom expenses.—
foundations that are exempt from Federal income tax Under current law, teachers who itemize deductions
are subject to a two-percent excise tax on their net (do not use the standard deduction) and incur unreim-
investment income (one-percent if certain requirements bursed, job-related expenses are allowed to deduct those
are met). The excise tax on private foundations that expenses to the extent that, when combined with other
are not exempt from Federal income tax, such as cer- miscellaneous itemized deductions, they exceeded two
tain charitable trusts, is equal to the excess of the percent of AGI. Current law also allows certain teach-
sum of the excise tax that would have been imposed ers and other elementary and secondary school profes-
if the foundation were tax exempt and the amount of sionals to treat up to $250 in annual qualified out-
the unrelated business income tax that would have of-pocket classroom expenses as a non-itemized deduc-
been imposed if the foundation were tax exempt, over tion (deductible above-the-line). Unreimbrsed expendi-
the income tax imposed on the foundation. To encour- tures for certain books, supplies, and equipment related
age increased charitable activity and simplify the tax to classroom instruction qualify for the above-the-line
laws, the Administration proposes to replace the two deduction. Expenses claimed as an above-the-line de-
rates of tax on the net investment income of private duction may not be claimed as an itemized deduction.
foundations that are exempt from Federal income tax This additional deduction is effective for expenses in-
with a single tax rate of one percent. The excise tax curred in table years beginning after December 31,
on private foundations not exempt from Federal income 2001 and before January 1, 2008. The Administration
tax would be equal to the excess of the sum of the proposes to extend permanently the above-the-line de-
one-percent excise tax that would have been imposed duction to apply to qualified out-of-pocket expenditures
if the foundation were tax exempt and the amount of incurred in taxable years beginning after December 31,
the unrelated business income tax that would have 2007.
been imposed if the foundation were tax exempt, over Allow the saver’s credit for contributions to
the income tax imposed on the foundation. The pro- qualified tuition programs (section 529 of the In-
posed change would be effective for taxable years begin- ternal Revenue Code).—Under current law, taxpayers
ning after December 31, 2007. age 18 or older who are not dependents or full-time
students may receive a nonrefundable credit (the sav-
Repeal the $150 million limitation on qualified er’s credit) on up to $2,000 of their compensation con-
501(c)(3) bonds.—Current law contains a $150 million tributed to employer-sponsored qualified retirement
limitation on the volume of outstanding, non-hospital, plans and IRAs. The credit ranges between 10 and 50
tax-exempt bonds for the benefit of any one 501(c)(3) percent of the amount contributed, depending on the
organization. The limitation was repealed in 1997 for taxpayer’s filing status and AGI (adjusted for inflation).
bonds issued after August 5, 1997, at least 95 percent In determining the credit, qualified contributions are
of the net proceeds of which are used to finance capital reduced by distributions from qualified plans and IRAs
expenditures incurred after that date. However, the during the current tax year, the two preceding tax
limitation continues to apply to bonds more than five years, and the following year, up to the due date of
percent of the net proceeds of which finance or refi- the return, including extensions.
nance working capital expenditures, or capital expendi- Under current law, taxpayers may contribute to a
tures incurred on or before August 5, 1997. In order section 529 qualified tuition program (QTP) to save for
to simplify the tax laws and provide consistent treat- higher education expenses of a designated beneficiary.
ment of bonds for 501(c)(3) organizations, the Adminis- Contributions to a QTP are not deductible from income
tration proposes to repeal the $150 million limitation for Federal tax purposes, but earnings on contributions
in its entirety. accumulate tax-free. Taxpayers may exclude from gross
income amounts distributed from a QTP and used for systems become self-financing like the electric and gas
qualified higher education expenses, provided the dis- utilities and minimize the need for future Federal fi-
tribution is not used for the same educational expenses nancing. The volume cap would be removed for obliga-
for which another tax benefit is claimed. Nonqualified tions issued after December 31, 2007.
distributions are subject to an additional tax.
Restructure Assistance to New York City for
The Administration proposes to allow the saver’s
Continued Recovery from the Attacks of
credit for qualified contributions to QTPs controlled by
the taxpayer. AGI would be modified to include the September 11th
excludable portion of the taxpayer’s Social Security ben- Provide tax incentives for transportation infra-
efits in determining the applicable rate for the saver’s structure.—The Administration proposes to restructure
credit. The credit would apply to an annual aggregate the tax benefits for New York recovery that were en-
contribution of up to $2,000 (or earnings includible in acted in 2002. Some of the tax benefits that were pro-
gross income, if less) to the taxpayer’s elective deferral vided to New York following the attacks of September
plans, IRAs, and QTPs. For an individual who is mar- 11, 2001, likely will not be usable in the form in which
ried filing a joint return, the earnings limitation would they were originally provided. As such, the Administra-
be binding only if the combined includible compensation tion proposed in the Mid-Session Review of the 2005
of the spouses was less than $4,000. Qualified contribu- Budget to sunset certain existing New York Liberty
tions would be reduced by distributions from elective Zone tax benefits and in their place provide tax credits
deferral plans, IRAs, and QTPs during the current tax to New York State and New York City for expenditures
year, the two preceding tax years, and the following incurred in building or improving transportation infra-
tax year up to the due date of the return, including structure in or connecting with the New York Liberty
extensions. The credit would be effective for years be- Zone. The tax credit would be available as of the date
ginning after December 31, 2007. of enactment, subject to an annual limit of $200 million
($2 billion in total over 10 years), evenly divided be-
tween the State and the City. Any unused credit limit
Protect the Environment
in a given year would be added to the $200 million
Extend permanently expensing of brownfields re- allowable in the following year, including years beyond
mediation costs.—Taxpayers may elect, with respect the 10-year period of the credit. Similarly, expenditures
to expenditures paid or incurred before January 1, that could not be credited in a given year because of
2008, to treat certain environmental remediation ex- the credit limit would be carried forward and used
penditures that would otherwise be chargeable to a cap- against the next year’s limitation. The credit would be
ital account as deductible in the year paid or incurred. allowed against any payments (e.g., income tax with-
The Administration proposes to extend this provision holding) made by the City and State under any provi-
permanently, making it available for expenditures paid sion of the Internal Revenue Code, other than Social
or incurred after December 31, 2007, and facilitating Security and Medicare payroll taxes and excise taxes.
its use by businesses to undertake projects that may The Secretary of the Treasury may prescribe such rules
be uncertain in overall duration. as are necessary to ensure that the expenditures are
made for the intended purpose. The Administration also
Eliminate the volume cap for private activity proposes to terminate the additional first-year deprecia-
bonds for water infrastructure.—Bonds are classi- tion deduction for certain real property, which was pro-
fied as private activity bonds if they meet a private vided to eligible property within the New York Liberty
business use test and a private payments test. Private Zone under the 2002 economic stimulus act.
activity bonds may be issued on a tax-exempt basis SIMPLIFY THE TAX LAWS FOR FAMILIES
only if they meet specified requirements, including tar-
geting requirements that limit such bond financing to Clarify uniform definition of a child.—The 2004
specifically defined facilities and programs. For exam- tax relief act created a uniform definition of a child,
ple, qualified private activity bonds can be used to fi- allowing, in many circumstances, a taxpayer to claim
nance facilities for the furnishing of water and for the same child for five different child-related tax bene-
sewer facilities. Qualified private activity bonds are fits. Under the new rules, a qualifying child must meet
subject to the same general rules applicable to govern- relationship, residency, and age tests. While the new
mental bonds. Most qualified private activity bonds are rules simplify the determination of eligibility for many
also subject to a number of additional rules and limita- child-related tax benefits, the elimination of certain
tions, in particular an annual State volume cap limita- complicated factual tests to determine if siblings and
tion. certain other family members are eligible to claim a
The Administration proposes to remove from the an- qualifying child may have some unintended con-
nual State volume cap limitation qualified private activ- sequences. The new rules effectively deny the EITC
ity bonds issued to finance water and sewage facilities. to some young taxpayers who are the sole guardians
Municipalities that use these bonds for wastewater and of their younger siblings. Yet some taxpayers are able
drinking water systems must implement (if they have to avoid income limitations on child-related tax benefits
not already) full-cost pricing for services, to help their by allowing other family members, who have lower in-
comes, to claim the taxpayers’ sons or daughters as excess of $11,750 may qualify for a refundable (or ‘‘addi-
qualifying children. The 2004 tax relief act had other tional’’) child tax credit even if they do not have any
unintended consequences, which made some of the eligi- income tax liability. Over 70 percent of additional child
bility rules less uniform. For example, it allowed de- tax credit claimants also claim the EITC. However, the
pendent filers to claim the child tax credit, even though two credits have a different definition of earned income
they are generally ineligible for most other child-related and different U.S. residency requirements. In addition,
tax benefits. It also allowed taxpayers to claim the child some taxpayers have to perform multiple computations
tax credit on behalf of a married child who files a to determine the amount of the additional child tax
joint return with his or her spouse, even though the credit they can claim. First, they must compute the
taxpayer generally cannot claim other benefits for the additional child tax credit using a formula based on
married child. These exceptions create confusion and earned income. Then, if they have three or more chil-
add complexity to the tax code. dren, they may recalculate the credit using a formula
To ensure that deserving taxpayers receive child-re- based on social security taxes and claim the higher
lated tax benefits, the Administration proposes to clar- of the two amounts.
ify the uniform definition of a child. First, the definition Under the proposal, the additional child tax credit
of a qualifying child would be further simplified. A tax- would use the same definition of earned income as is
payer would not be a qualifying child of another indi- used for the EITC. Taxpayers (other than members of
vidual if the taxpayer is older than that individual. the Armed Forces stationed overseas) would be required
However, an individual could be a qualifying child of to reside with a child in the United States to claim
a younger sibling if the individual is permanently and the additional child tax credit (as they are currently
totally disabled. Also, under the proposal, an individual required to do for the EITC). Taxpayers with three
who is married and filing jointly (for any reason other or more children would do only one computation based
than to obtain a refund of overwithheld taxes) would on earned income to determine the credit amount. The
not be considered a qualifying child for the child-related proposal would be effective for taxable years beginning
tax benefits, including the child tax credit. Second, the after December 31, 2007.
proposal clarifies when a taxpayer is eligible to claim
child-related tax benefits. If a parent resides with his IMPROVE TAX COMPLIANCE
or her child for over half the year, the parent would
be the only individual eligible to claim the child as The Federal tax system is based on voluntary compli-
a qualifying child. The parent could waive the child- ance with the tax laws. Under this system, taxpayers
related tax benefits to another member of the household report and pay their taxes voluntarily with minimal
who has higher AGI and is otherwise eligible for the interaction with the IRS. While the vast majority of
tax benefits. In addition, dependent filers would not American taxpayers pay their taxes timely and accu-
be allowed to claim qualifying children. The proposal rately, there remains in aggregate a difference between
is effective for taxable years beginning after December what taxpayers should pay and what they actually pay
31, 2007. on a timely basis. In 2001, the overall compliance rate
was 86 percent, after including late payments and re-
Simplify EITC eligibility requirement regarding coveries from IRS enforcement activities. While this
filing status, presence of children, and work and rate of compliance is high, a large amount of the tax
immigrant status.—To qualify for the EITC, tax- that should be paid is not, resulting in the so-called
payers must satisfy requirements regarding filing sta- ‘‘tax gap’’. 1
tus, the presence of children in their households, and In September 2006, the Treasury Department re-
their work and immigration status in the United leased a comprehensive strategy to improve tax compli-
States. These rules are confusing, require significant ance. 2 The strategy builds upon the demonstrated expe-
record-keeping, and are costly to administer. Under the rience and current efforts of the Treasury Department
proposal, married taxpayers who reside with children and IRS to improve compliance.
could claim the EITC without satisfying a complicated Four key principles guided development of the strat-
household maintenance test if they live apart from their egy:
spouse for the last six months of the year. In addition, • Unintentional taxpayer errors and intentional tax-
certain taxpayers who live with children but do not payer evasion should both be addressed.
qualify for the larger child-related EITC could claim • Sources of non-compliance should be targeted with
the smaller EITC for very low-income childless workers. specificity.
The simplification of the filing status and residency • Enforcement activities should be combined with
requirements would be effective for taxable years begin- a commitment to taxpayer service.
ning after December 31, 2007. Effective January 1, • Tax policy and compliance proposals should be
2008, the proposal would also improve the administra- sensitive to taxpayer rights and maintain an ap-
tion of the EITC with respect to eligibility requirements propriate balance between enforcement activity
for undocumented workers. and imposition of taxpayer burden.
1 See Chapter 13, Stewardship, in the Analytical Perspectives volume.
Reduce computational complexity of refundable 2 Comprehensive Strategy for Reducing the Tax Gap, U.S. Treasury Department, Sep-
child tax credit.—Taxpayers with earned income in tember 26, 2006.
These principles point to the need for a comprehen- IMPROVE TAX ADMINISTRATION AND OTHER
sive, integrated, multi-year strategy to improve tax MISCELLANEOUS PROPOSALS
compliance. Components of this strategy must include:
(1) legislative proposals to reduce opportunities for eva- Implement IRS administrative reforms.—The Ad-
sion; (2) a multi-year commitment to compliance re- ministration has four proposals relating to administra-
search; (3) continued improvements in information tech- tive reforms. The first proposal modifies employee in-
nology; (4) improvements in IRS compliance activities; fractions subject to mandatory termination and permits
(5) enhancements of taxpayer service; (6) simplification a broader range of available penalties. It strengthens
of the tax law; and (7) coordination between the govern- taxpayer privacy while reducing employee anxiety re-
ment and its partners and stakeholders. sulting from unduly harsh discipline or unfounded alle-
The IRS has taken a number of steps to improve gations. The second proposal allows the IRS to termi-
compliance. To enhance the IRS’ efforts, the Adminis- nate installment agreements when taxpayers fail to
tration’s Budget includes a number of legislative pro- make timely tax deposits and file tax returns on cur-
posals intended to improve tax compliance with min- rent liabilities. The third proposal eliminates the re-
imum taxpayer burden. The Administration proposes quirement that the IRS Chief Counsel provide an opin-
to expand information reporting, improve compliance ion for any accepted offer-in-compromise of unpaid tax
by businesses, strengthen tax administration, and ex- (including interest and penalties) equal to or exceeding
pand penalties. $50,000. This proposal requires that the Secretary of
the Treasury establish standards to determine when
Expand information reporting.—Compliance with an opinion is appropriate. The fourth proposal modifies
the tax laws is highest when payments are subject to the way that Financial Management Services (FMS)
information reporting to the IRS. Specific information recovers its transaction fees for processing IRS levies
reporting proposals would: (1) require information re- by permitting FMS to add the fee to the liability being
porting on payments to corporations; (2) require basis recovered thereby shifting the cost of collection to the
reporting on security sales; (3) expand broker informa- delinquent taxpayer. The offset amount would be in-
tion reporting; (4) require information reporting on mer- cluded as part of the 15-percent limit on continuous
chant payment card reimbursements; (5) require a cer- levies against income.
tified tax identification number (TIN) from non-em-
ployee service providers; (6) require increased informa- Extend IRS authority to fund undercover oper-
tion reporting for certain government payments for ations.—The IRS is permitted to fund certain nec-
property and services; and (7) increase information re- essary and reasonable expenses of undercover oper-
turn penalties. ations, placing it on equal footing with other Federal
law enforcement agencies. These undercover operations
Improve compliance by businesses.—Improving include international and domestic money laundering
compliance by businesses of all sizes is important. Spe- and narcotics operations. The Administration proposes
cific proposals to improve compliance by businesses to extend this funding authority, which expires on De-
would: (1) require electronic filing by certain large busi- cember 31, 2007, through December 31, 2010.
nesses; (2) implement standards clarifying when em-
ployee leasing companies can be held liable for their Eliminate the special exclusion from unrelated
clients’ Federal employment taxes; and (3) amend col- business taxable income for gain or loss on the
lection due process procedures applicable to employ- sale or exchange of certain brownfields.—In gen-
ment tax liabilities. eral, an organization that is otherwise exempt from
Federal income tax is taxed on income from any trade
Strengthen tax administration.—The IRS has or business regularly carried on by the organization
taken a number of steps under existing law to improve that is not substantially related to the organization’s
compliance. These efforts would be enhanced by specific exempt purposes. In addition, income derived from
tax administration proposals that would: (1) expand property that is debt-financed generally is subject to
IRS access to information in the National Directory unrelated business income tax. The 2004 job creation
of New Hires database; (2) permit the IRS to disclose act created a special exclusion from unrelated business
to prison officials return information about tax viola- taxable income of gain or loss from the sale or exchange
tions; and (3) make repeated failure to file a tax return of certain qualifying brownfield properties. The exclu-
a felony. sion applies regardless of whether the property is debt-
financed. The new provision adds considerable com-
Expand penalties.—Penalties play an important plexity to the Internal Revenue Code and, because there
role in discouraging intentional non-compliance. Specific is no limit on the amount of tax-free gain, could exempt
proposals to expand penalties would: (1) expand pre- from tax real estate development considerably beyond
parer penalties; (2) impose a penalty on failure to com- mere environmental remediation. The proposal would
ply with electronic filing requirements; and (3) create eliminate this special exclusion effective for taxable
an erroneous refund claim penalty. years beginning after December 31, 2007.
Limit related party interest deductions.—Current direct relationship between the taxes paid by users and
law (section 163(j) of the Internal Revenue Code) denies the air traffic control services provided by the FAA.
U.S. tax deductions for certain interest expenses paid Under the reauthorization proposal, FAA would collect
to a related party where: (1) the corporation’s debt- user fees from commercial aviation operators for air
to-equity ratio exceeds 1.5 to 1, and (2) net interest traffic control services starting in 2009. For non-com-
expenses exceed 50 percent of the corporation’s adjusted mercial users, FAA would continue to recover its costs
taxable income (computed by adding back net interest for air traffic control services via a fuel tax. Both com-
expense, depreciation, amortization, depletion, and any mercial and non-commercial users would continue to
net operating loss deduction). If these thresholds are pay fuel taxes to support FAA’s Airport Improvement
exceeded, no deduction is allowed for interest in excess Program.
of the 50-percent limit that is paid to a related party
or paid to an unrelated party but guaranteed by a Anticipated receipt of donations to the National
related party, and that is not subject to U.S. tax. Any Park Service through the National Park Centen-
interest that is disallowed in a given year is carried nial Challenge Fund.—The President’s National
forward indefinitely and may be deductible in a subse- Parks Centennial Challenge encourages the public to
quent taxable year. A three-year carryforward for any increase donations to national parks by proposing to
excess limitation (the amount by which interest expense match contributions for signature projects and pro-
for a given year falls short of the 50-percent limit) grams on a dollar-for-dollar basis up to $100 million
is also allowed. Because of the opportunities available a year for ten years. As part of a broader initiative
under current law to reduce inappropriately U.S. tax to prepare for the National Park Service Centennial
on income earned on U.S. operations through the use in 2016, this Challenge continues the National Park
of foreign related-party debt, the Administration pro- Service’s legacy of leveraging philanthropic investment
poses to tighten the interest disallowance rules of sec- for the benefit of our national parks.
tion 163(j) as follows: (1) the current law 1.5 to 1 debt-
to-equity safe harbor would be eliminated; (2) the ad- Transition from the non-foreign cost-of-living
justed taxable income threshold for the limitation would adjustment (COLA) to locality pay for employees
be reduced from 50 percent to 25 percent of adjusted in non-foreign areas.—Federal employees working
taxable income with respect to disqualified interest outside the continental United States in Alaska, Hawaii
other than interest paid to unrelated parties on debt or the US territories presently receive a COLA, which
that is subject to a related-party guarantee, which gen- is an untaxed annual pay adjustment that is not cred-
erally would remain subject to the current law 50 per- itable for retirement. By transitioning to locality pay,
cent threshold; and (3) the indefinite carryforward for Federal employees in the non-foreign areas will con-
disallowed interest would be limited to ten years and tribute a larger percentage of their pay into the Federal
the three-year carryforward of excess limitation would retirement fund as locality pay is retirement-creditable.
be eliminated. The Department of Treasury also is con- The proposal would establish a yearly reduction in the
ducting a study of these rules and the potential for COLA, offset by a yearly increase in applicable locality
further modifications to ensure the prevention of inap- pay, with the intent of eliminating the COLA over
propriate income-reduction opportunities. seven years.
Repeal telephone tax on local telephone serv- IMPROVE UNEMPLOYMENT INSURANCE

ice.—Under prior law, a three-percent Federal excise
tax was imposed on amounts paid for local telephone Strengthen the financial integrity of the unem-
service, toll telephone service (essentially long distance ployment insurance system by reducing improper
telephone service), and teletypewriter exchange service. benefit payments and tax avoidance.—The Adminis-
In accordance with multiple court decisions that con- tration has a multi-part proposal to strengthen the fi-
cluded that the tax did not apply to long distance serv- nancial integrity of the unemployment insurance (UI)
ices sold at flat per-minute rates for interstate, intra- system and to encourage the early reemployment of
state, and international calls, the IRS is no longer col- UI beneficiaries. The Administration’s proposal will
lecting tax on telephone service other than local-only boost States’ ability to recover benefit overpayments
telephone service. The Administration proposes to re- and deter tax evasion schemes by permitting them to
peal the tax on local telephone service effective for use a portion of recovered funds to expand enforcement
amounts paid pursuant to bills first rendered more than efforts in these areas. In addition, the proposal would
90 days after enactment of legislation repealing the require States to impose a monetary penalty on UI
tax. benefit fraud, which would be used to reduce overpay-
ments; make it easier for States to use private collec-
Modify financing of the Airport and Airway trust tion agencies in the recovery of hard-to-collect overpay-
fund.—The Administration supports a reauthorization ments and delinquent employer taxes; require States
proposal that would make the Federal Aviation Admin- to charge employers found to be at fault when their
istration’s (FAA’s) financing system more cost-based. actions lead to overpayments; permit collection of delin-
The FAA’s current excise tax system, largely based on quent UI overpayments and employer taxes through
taxes on the price of airline tickets, does not have a garnishment of Federal tax refunds; and improve the
accuracy of hiring data in the National Directory of the recently completed agreement with Colombia could
New Hires, which would reduce benefit overpayments. also begin implementation in FY 2008. Free trade
The Administration’s proposal would also permit States agreements are expected to be completed with Korea,
to request waivers of certain Federal requirements in Malaysia, and the United Arab Emirates (UAE), with
order to carry out demonstration projects that improve implementation to begin in FY 2009. These agreements
the administration of the UI program, such as speeding will continue the Administration’s effort to use free
reemployment of UI beneficiaries. These efforts to trade agreements to benefit U.S. consumers and pro-
strengthen the financial integrity of the UI system and ducers as well as strengthen the economies of our part-
encourage early reemployment of UI beneficiaries will ner countries.
keep State UI taxes down and improve the solvency
of the State trust funds. Establish Reconstruction Opportunity Zones
(ROZs) in Pakistan and Afghanistan.—In March
Extend unemployment insurance surtax.—The 2006, the President announced his intention to estab-
Federal unemployment tax on employers is scheduled lish ROZs in Afghanistan and the border regions of
to drop from 0.8 percent to 0.6 percent with respect Pakistan. ROZs are a critical part of the Administra-
to wages paid after December 31, 2007. The 0.8 percent tion’s broader counterterrorism strategy in these areas,
rate is proposed to be extended for five years, through designed to connect isolated regions to the global econ-
December 31, 2012. omy and create vital employment opportunities in terri-
MODIFY ENERGY PROVISIONS tories prone to extremism. The creation of ROZs will
encourage investment and economic development in
Repeal reduced recovery period for natural gas these areas by granting duty-free entry to the United
distribution lines.—The Energy Policy Act of 2005 States for certain goods produced in designated terri-
reduced the recovery period for new natural gas dis- tories. By stimulating economic activity in remote and
tribution lines that are placed in service before January underdeveloped regions, ROZs can also serve as a pow-
1, 2011 from 20 years to 15 years. The Administration erful catalyst for peace, prosperity, stability, growth
proposes to repeal this provision for natural gas dis- and good governance. In early 2007, the Administration
tribution lines placed in service after December 31, will work closely with Congress and private sector
2007. stakeholders to implement this important initiative.
Modify amortization for certain geological and EXTEND EXPIRING PROVISIONS
geophysical expenditures.—Geological and geo-
physical expenditures (G&G costs) are costs incurred Extend AMT relief for individuals.—A temporary
by a taxpayer for the purpose of obtaining and accumu- provision of current law increased the AMT exemption
lating data that will serve as the basis for the acquisi- amounts to $42,500 for single taxpayers, $62,550 for
tion and retention of mineral properties by taxpayers married taxpayers filing a joint return and surviving
exploring for minerals. Under the Energy Policy Act spouses, and $31,275 for married taxpayers filing a sep-
of 2005, G&G costs paid or incurred in taxable years arate return and estates and trusts. Effective for tax-
beginning after August 8, 2005, in connection with oil able years beginning after December 31, 2006, the AMT
and gas exploration in the United States, could be am- exemption amounts decline to $33,750 for single tax-
ortized over two years. The Tax Increase Prevention payers, $45,000 for married taxpayers filing a joint re-
and Reconciliation Act of 2006 increased the amortiza- turn and surviving spouses, and $22,500 for married
tion period to five years for G&G costs paid or incurred taxpayers filing a separate return and estates and
by certain major integrated oil companies after May trusts. A temporary provision of current law permits
17, 2006. This five-year amortization rule applies only nonrefundable personal tax credits to offset both the
to integrated oil companies that have an average daily regular tax and the AMT for taxable years beginning
worldwide production of crude oil of at least 500,000 before January 1, 2007.
barrels for the taxable year, have gross receipts in ex- The Administration proposes to increase the AMT
cess of $1 billion in the last taxable year ending during exemption amounts to $43,900 for single taxpayers,
calendar year 2005, and either are a crude oil refiner $65,350 for married taxpayers filing a joint return, and
or have an ownership interest in a crude oil refiner $32,675 for married taxpayers filing a separate return
of 15 percent or more. The Administration proposes and estates and trusts through taxable year 2007 to
to increase the amortization period to five years for prevent the number of AMT taxpayers from increasing.
all companies, effective for amounts paid or incurred
Non-refundable personal tax credits also would be al-
in taxable years beginning after December 31, 2007.
lowed to offset both the regular tax and the AMT
PROMOTE TRADE through taxable year 2007.
Implement free trade agreements.—Free trade Extend permanently the research and experi-
agreement negotiations with Panama were completed, mentation (R&E) tax credit.—The Administration
with the expectation that implementation could begin proposes to extend permanently the tax credits for re-
as early as FY 2008. The FTA signed with Peru and search and experimentation expenditures, which are
scheduled to expire with respect to expenditures in- to proceeds that are used to purchase other gas or
curred after December 31, 2007. electric utility property during the four-year period be-
ginning on the date of the transaction (the reinvestment
Extend the work opportunity tax credit.—The period). A sale or other disposition of property is a
work opportunity tax credit provides incentives for hir- qualifying electric transmission transaction if: (1) the
ing individuals from certain targeted groups. The credit property is used in the trade or business of providing
applies to wages paid to qualified individuals who begin electric transmission services or is an ownership inter-
work for the employer before January 1, 2008. The est in a entity whose principal trade or business is
Administration proposes to extend the credit for one providing electric transmission services, and (2) the sale
year, making it applicable to wages paid to qualified or other disposition is to an independent transmission
individuals who begin work after December 31, 2007 company and occurs before January 1, 2008. In general,
and before January 1, 2009. whether the purchaser qualifies as an independent
transmission company depends on determinations by
Extend the first-time homebuyer credit for the the Federal Energy Regulatory Commission (FERC) or,
District of Columbia.—A one-time nonrefundable in the case of facilities subject to the jurisdiction of
$5,000 credit is available to purchasers of a principal the Public Utility Commission of Texas, by that Com-
residence in the District of Columbia who have not mission. The special rule allowing the deferral of tax
owned a residence in the District during the year pre- on the gain from the sale or disposition of electric trans-
ceding the purchase. The credit phases out for tax- mission property would be extended for one year, allow-
payers with modified adjusted gross income between ing taxpayers to elect deferral with respect to sales
$70,000 and $90,000 ($110,000 and $130,000 for joint or dispositions that occur before January 1, 2009.
returns). The credit does not apply to purchases after
December 31, 2007. The Administration proposes to ex- Extend provisions permitting disclosure of tax
tend the credit for one year, making the credit available return information relating to terrorist activity.—
with respect to purchases after December 31, 2007 and The disclosure of tax return information relating to ter-
before January 1, 2009. rorism is permitted in two situations. The first is when
an executive of a Federal law enforcement or intel-
Extend authority to issue Qualified Zone Acad- ligence agency has reason to believe that the return
emy Bonds.—Current law allows State and local gov- information is relevant to a terrorist incident, threat
ernments to issue ‘‘qualified zone academy bonds,’’ the or activity and submits a written request. The second
interest on which is effectively paid by the Federal is when the IRS wishes to apprise a Federal law en-
government in the form of an annual income tax credit. forcement agency of a terrorist incident, threat or activ-
The proceeds of the bonds have to be used for teacher ity. The Administration proposes to extend this disclo-
training, purchases of equipment, curriculum develop- sure authority, which expires on December 31, 2007,
ment, or rehabilitation and repairs at certain public through December 31, 2008.
school facilities. A nationwide total of $400 million of
qualified zone academy bonds were authorized to be Extend excise tax on coal at current rates.—Ex-
issued in each of calendar years 1998 through 2007. cise taxes levied on coal mined and sold for use in
In addition, unused authority arising in 1998 and 1999 the United States are deposited in the Black Lung Dis-
can be carried forward for up to three years and unused ability Trust Fund. Amounts deposited in the Fund are
authority arising in 2000 through 2007 can be carried used to cover the cost of program administration and
forward for up to two years. The Administration pro- compensation, medical, and survivor benefits to eligible
poses to authorize the issuance of an additional $400 miners and their survivors, when mine employment ter-
million of qualified zone academy bonds in calendar minated prior to 1970 or when no mine operator can
year 2008; unused authority could be carried forward be assigned liability. Current tax rates on coal sold
for up to two years. Reporting of issuance would be by a producer are $1.10 per ton of coal from under-
required. ground mines and $0.55 per ton of coal from surface
mines; however, these rates may not exceed 4.4 percent
Extend deferral of gains from sales of electric of the price at which the coal is sold. Effective for
transmission property.—Generally, the gain on the coal sold after December 31, 2013, the tax rates on
sale of business assets is subject to current income tax coal from underground mines and surface mines will
unless a special rule provides for nonrecognition or de- decline to $0.50 per ton and $0.25 per ton, respectively,
ferral of the gain. One such special rule applies to and will be capped at 2 percent of the price at which
qualifying electric transmission transactions. Under the coal is sold. The Administration proposes to repeal
this rule, a taxpayer may elect to recognize the gain the reduction in these tax rates effective for sales after
from a qualifying electric transmission transaction rat- December 31, 2013, and keep current rates in effect
ably over the eight-year period beginning with the year until the Black Lung Disability Trust Fund debt is
of the transaction. Deferral is allowed only with respect repaid.
Extend the exception for retirement plan dis- period, make contributions to an IRA in an amount
tributions provided individuals called to active not exceeding the amount of the qualified reservist dis-
duty for at least 179 days.—Under current law, a tribution. Such contributions are not subject to the dol-
taxpayer who receives a distribution from a qualified lar limitations otherwise applicable to contributions to
retirement plan prior to age 591⁄2, death or disability IRAs. The exception to the tax for qualified reservist
is subject to a 10-percent early withdrawal tax unless distributions applies to individuals ordered or called
a specific exception to the tax applies. One of the excep- to active duty after September 11, 2001 and before
tions to the tax applies to qualified reservist distribu- December 31, 2007. The Administration proposes to ex-
tions. An individual who receives a qualified reservist tend the exception to individuals ordered or called to
distribution may, at any time during a two-year period active duty before December 31, 2008.
beginning on the day after the end of the active duty
Table 17–3. EFFECT OF PROPOSALS ON RECEIPTS

2007 2008 2009 2010 2011 2012 2008–12 2008–17
Make Permanent Certain Tax Relief Enacted in 2001 and 2003

(assumed in the baseline):
Dividends tax rate structure ...................................................................... 344 683 695 –3,595 –13,789 1,491 –14,515 –89,973
Capital gains tax rate structure ................................................................. ................ ................ ................ –3,405 –17,477 –7,269 –28,151 –79,059
Expensing for small business .................................................................... ................ ................ ................ –3,728 –4,947 –3,376 –12,051 –20,158
Marginal individual income tax rate reductions ........................................ ................ ................ ................ ................ –71,892 –113,251 –185,143 –793,780
Child tax credit 1 ......................................................................................... ................ ................ ................ ................ –5,265 –21,128 –26,393 –135,380
Marriage penalty relief 1 ............................................................................. ................ ................ ................ ................ –5,380 –7,971 –13,351 –41,317
Education incentives .................................................................................. ................ ................ ................ ................ –739 –1,336 –2,075 –9,673
Repeal of estate and generation-skipping transfer taxes, and modifica-
tion of gift taxes ..................................................................................... –156 –1,373 –2,290 –3,067 –26,845 –57,652 –91,227 –442,490
Other incentives for families and children ................................................ ................ ................ ................ 6 –179 –866 –1,039 –5,341
Total, make permanent certain tax relief enacted in 2001 and 2003 188 –690 –1,595 –13,789 –146,513 –211,358 –373,945 –1,617,171
Tax Incentives:
Simplify and encourage saving:
Expand tax-free savings opportunities ...................................................... ................ 1,527 3,545 3,023 1,075 –1,314 7,856 –592
Consolidate employer-based savings accounts ........................................ ................ –80 –120 –132 –141 –150 –623 –1,484
Total, simplify and encourage saving ................................................... ................ 1,447 3,425 2,891 934 –1,464 7,233 –2,076
Encourage entrepreneurship and investment:
Increase expensing for small business ..................................................... ................ –1,597 –2,180 –1,541 –1,135 –847 –7,300 –10,095
Invest in health care:
Provide a flat $15,000 deduction for family coverage ($7,500 for indi-
vidual coverage) for those with and who purchase health insurance 1 ................ ................ –31,433 –38,892 –30,843 –20,033 –121,201 5,150
Expand and make health savings accounts (HSAs) more flexible .......... ................ –318 –593 –784 –937 –1,037 –3,669 –10,366
Improve the Health Coverage Tax Credit 1 .............................................. ................ –1 –3 –4 –5 –5 –18 –51
Allow the orphan drug tax credit for certain pre-designation expenses .. ................ ................ ................ ................ ................ ................ ................ –1
Total, invest in health care ................................................................... ................ –319 –32,029 –39,680 –31,785 –21,075 –124,888 –5,268
Provide incentives for charitable giving:
Extend permanently tax-free withdrawals from IRAs for charitable con-
tributions ................................................................................................. ................ –120 –255 –235 –171 –147 –928 –1,867
Extend permanently the enhanced charitable deduction for contribu-
tions of food inventory ........................................................................... ................ –44 –96 –106 –116 –127 –489 –1,345
Extend permanently the deduction for corporate donations of computer
technology .............................................................................................. ................ –50 –118 –147 –154 –162 –631 –1,570
Permanently increase limits on contributions of property interests made
for conservation purposes ..................................................................... ................ –48 –35 –22 –18 –21 –144 –265
Extend permanently basis adjustment to stock of S corporations con-
tributing appreciated property ............................................................... ................ –3 –15 –21 –25 –28 –92 –301
Reform excise tax based on investment income of private foundations ................ –61 –91 –97 –103 –110 –462 –1,163
Repeal the $150 million limitation on qualified 501(c)(3) bonds ............. ................ –2 –3 –9 –13 –14 –41 –104
Repeal certain restrictions on the use of qualified 501(c)(3) bonds for
residential rental property ...................................................................... ................ –2 –5 –10 –17 –24 –58 –286
Total, provide incentives for charitable giving ...................................... ................ –330 –618 –647 –617 –633 –2,845 –6,901
Strengthen education:
Extend permanently the above-the-line deduction for qualified out-of-
pocket classroom expenses .................................................................. ................ –18 –180 –183 –185 –188 –754 –1,739
Table 17–3. EFFECT OF PROPOSALS ON RECEIPTS—Continued

2007 2008 2009 2010 2011 2012 2008–12 2008–17
Allow the saver’s credit for contributions to qualified tuition programs ... ................ –63 –163 –176 –189 –200 –791 –1,966
Total, strengthen education ................................................................... ................ –81 –343 –359 –374 –388 –1,545 –3,705
Protect the environment:
Extend permanently expensing of brownfields remediation costs ........... 61 –244 –400 –352 –342 –331 –1,669 –2,851
Eliminate the volume cap for private activity bonds for water infrastruc-
ture ......................................................................................................... ................ –1 –3 –5 –9 –13 –31 –184
Total, protect the environment .............................................................. 61 –245 –403 –357 –351 –344 –1,700 –3,035
Restructure assistance to New York City for continued recovery
from the attacks of September 11th:
Provide tax incentives for transportation infrastructure ............................ ................ –200 –200 –200 –200 –200 –1,000 –2,000
Total, tax incentives .............................................................................. 61 –1,325 –32,348 –39,893 –33,528 –24,951 –132,045 –33,080
Simplify the Tax Laws for Families:
Clarify uniform definition of a child 1 ............................................................. 17 64 48 31 40 15 198 350
Simplify EITC eligibility requirement regarding filing status, presence of
children, and work and immigration status 1 ............................................. ................ 31 –25 –22 –22 –21 –59 –164
Reduce computational complexity of refundable child tax credit 1 ............... ................ ................ ................ ................ ................ ................ ................ ..................
Total, simplify the tax laws for families .................................................... 17 95 23 9 18 –6 139 186
Improve Tax Compliance: 5
Expand information reporting ......................................................................... ................ 232 1,075 1,848 2,488 2,903 8,546 28,849
Improve compliance by businesses ............................................................... ................ 143 91 38 21 20 313 421
Strengthen tax administration ........................................................................ ................ ................ ................ 1 1 1 3 17
Expand penalties ............................................................................................ ................ 3 5 11 18 20 57 178
Total, improve tax compliance .................................................................. ................ 378 1,171 1,898 2,528 2,944 8,919 29,465
Improve Tax Administration and Other Miscellaneous Proposals:
Implement IRS administrative reforms and extend IRS authority to fund
undercover operations 4 ............................................................................. ................ ................ ................ ................ ................ ................ ................ ..................
Eliminate the special exclusion from unrelated business taxable income
for gain or loss on the sale or exchange of certain brownfields ............. ................ 2 14 28 28 23 95 126
Limit related party interest deductions .......................................................... 86 148 155 163 171 180 817 1,859
Repeal excise tax on local telephone service 2 ............................................ –552 –463 –148 –74 –74 –74 –833 –1,211
Modify financing of the Airport and Airway trust fund 2 ................................ ................ ................ –6,407 –6,705 –7,005 –7,326 –27,443 –69,732
Anticipated receipt of donations to the National Park Service through the
National Park Centennial Challenge Fund ................................................ ................ 100 100 100 100 100 500 1,000
Transition from the non-foreign COLA to locality pay for employees in
non-foreign areas ....................................................................................... ................ 1 2 3 4 5 15 50
Total, improve tax administration and other miscellaneous proposals 2 .. –466 –212 –6,284 –6,485 –6,776 –7,092 –26,849 –67,908
Improve Unemployment Insurance:
Strengthen the financial integrity of the unemployment insurance system
by reducing improper benefit payments and tax avoidance 2 .................. ................ ................ 29 29 –16 –64 –22 –1,469
Extend unemployment insurance surtax 2 ..................................................... ................ 1,073 1,542 1,580 1,617 1,633 7,445 1,526
Total, improve unemployment insurance 2 ................................................ ................ 1,073 1,571 1,609 1,601 1,569 7,423 57
Modify Energy Provisions:
Repeal reduced recovery period for natural gas distribution lines .............. ................ 52 88 107 119 106 472 906
Modify amortization for certain geological and geophysical expenditures ... ................ 15 55 81 67 56 274 582
Indirect effect of energy proposals 3 .............................................................. ................ –45 –93 –163 –92 –98 –491 –1,019
Total, modify energy provisions ................................................................ ................ 22 50 25 94 64 255 469

Promote Trade:
Implement free trade agreements and modify other trade-related provi-
sions 2 ......................................................................................................... ................ –241 –502 –760 –994 –1,240 –3,737 –13,072
Extend Expiring Provisions:
AMT relief for individuals ............................................................................... –9,123 –47,922 11,431 ................ ................ ................ –36,491 –36,491
Research & Experimentation (R&E) tax credit .............................................. ................ –3,221 –7,071 –9,145 –10,601 –11,799 –41,837 –117,309
Work opportunity tax credit ............................................................................ ................ –71 –192 –162 –80 –51 –556 –582
First-time homebuyer credit for DC ............................................................... ................ –1 –19 ................ ................ ................ –20 –20
Authority to issue Qualified Zone Academy Bonds ...................................... ................ –3 –8 –13 –18 –20 –62 –162
Deferral of gains from sales of electric transmission property ..................... –63 –48 –52 –65 –39 5 –199 41
Disclosure of tax return information related to terrorist activity 4 ................. ................ ................ ................ ................ ................ ................ ................ ..................
Excise tax on coal 2 ....................................................................................... ................ ................ ................ ................ ................ ................ ................ 1,081
Table 17–3. EFFECT OF PROPOSALS ON RECEIPTS—Continued

2007 2008 2009 2010 2011 2012 2008–12 2008–17
Exception for retirement plan distributions provided individuals called to

active duty for at least 179 days .............................................................. –* –* –* –* –* –* –* –*
Total, extend expiring provisions 2 ............................................................ –9,186 –51,266 4,089 –9,385 –10,738 –11,865 –79,165 –153,442
Total budget proposals, including proposals assumed in the
baseline 2 ................................................................................................... –9,386 –52,166 –33,825 –66,771 –194,308 –251,935 –599,005 –1,854,496
Total budget proposals, excluding proposals assumed in the
baseline 2 ................................................................................................... –9,574 –51,476 –32,230 –52,982 –47,795 –40,577 –225,060 –237,325
* $500,000 or less.
1 Affects both receipts and outlays. Only the receipt effect is shown here. For the outlay effect, see summary Table S–5 of the Budget volume.
2 Net of income offsets.
3 Indirect effect on receipts of proposed alternative fuels and fuel efficiency standards. These proposals are discussed in the Energy chapter of the Budget volume.
4 No net budgetary impact.
5 ‘‘Tax gap’’-related proposals.
Table 17–4. RECEIPTS BY SOURCE

Estimate
2006
Source Actual 2007 2008 2009 2010 2011 2012
Individual income taxes (federal funds):

Existing law ............................................................................................................................ 1,043,908 1,177,703 1,294,636 1,349,248 1,476,448 1,673,666 1,819,724
Proposed legislation .......................................................................................................... .................. –8,857 –48,022 –18,111 –48,131 –156,377 –183,157
Total individual income taxes ................................................................................................ 1,043,908 1,168,846 1,246,614 1,331,137 1,428,317 1,517,289 1,636,567
Corporation income taxes:

Federal funds:
Existing law ....................................................................................................................... 353,914 341,867 318,385 326,647 334,665 350,891 377,546
Proposed legislation ...................................................................................................... .................. 190 –3,444 –6,837 –9,206 –10,314 –10,910
Total Federal funds corporation income taxes ..................................................................... 353,914 342,057 314,941 319,810 325,459 340,577 366,636
Trust funds:
Hazardous substance superfund ...................................................................................... 1 .................. .................. .................. .................. .................. ..................
Total corporation income taxes ............................................................................................. 353,915 342,057 314,941 319,810 325,459 340,577 366,636
Social insurance and retirement receipts (trust funds):

Employment and general retirement:
Old-age and survivors insurance (Off-budget) ................................................................. 520,069 542,098 576,237 608,106 643,935 680,272 714,061
Disability insurance (Off-budget) ....................................................................................... 88,313 92,032 97,848 103,264 109,347 115,518 121,256
Hospital insurance ............................................................................................................. 177,429 185,163 198,726 208,700 221,160 233,811 245,766
Railroad retirement:
Social Security equivalent account .............................................................................. 1,894 1,993 2,073 2,137 2,203 2,258 2,319
Rail pension and supplemental annuity ....................................................................... 2,338 2,364 2,441 2,529 2,473 2,507 2,712
Total employment and general retirement ............................................................................ 790,043 823,650 877,325 924,736 979,118 1,034,366 1,086,114
On-budget .......................................................................................................................... 181,661 189,520 203,240 213,366 225,836 238,576 250,797

Off-budget .......................................................................................................................... 608,382 634,130 674,085 711,370 753,282 795,790 835,317
Unemployment insurance:
Deposits by States 1 ......................................................................................................... 35,938 37,574 37,584 36,792 37,203 38,150 39,352
Proposed legislation ...................................................................................................... .................. .................. .................. 36 36 –20 –108
Federal unemployment receipts 1 .................................................................................... 7,394 7,323 6,183 5,785 5,925 6,065 6,207
Proposed legislation ...................................................................................................... .................. .................. 1,341 1,928 1,975 2,022 2,069
Railroad unemployment receipts 1 ................................................................................... 88 88 95 106 112 114 122
Total unemployment insurance ............................................................................................. 43,420 44,985 45,203 44,647 45,251 46,331 47,642
Other retirement:
Federal employees’ retirement—employee share ............................................................ 4,308 4,704 4,633 4,798 4,909 4,964 4,972
Proposed legislation ...................................................................................................... .................. .................. 1 2 3 4 5
Non-Federal employees retirement 2 ............................................................................... 50 38 33 31 28 26 23
Total other retirement ............................................................................................................ 4,358 4,742 4,667 4,831 4,940 4,994 5,000
Total social insurance and retirement receipts ................................................................... 837,821 873,377 927,195 974,214 1,029,309 1,085,691 1,138,756
On-budget .............................................................................................................................. 229,439 239,247 253,110 262,844 276,027 289,901 303,439

Off-budget .............................................................................................................................. 608,382 634,130 674,085 711,370 753,282 795,790 835,317
Excise taxes:
Federal funds:
Alcohol taxes ..................................................................................................................... 8,484 8,614 8,798 8,953 9,109 9,318 9,524
Proposed legislation ...................................................................................................... .................. .................. –76 –26 .................. .................. ..................
Tobacco taxes ................................................................................................................... 7,710 7,605 7,496 7,393 7,298 7,208 7,123
Transportation fuels tax .................................................................................................... –2,386 –2,960 –3,459 –4,101 –4,798 –1,227 234
Proposed legislation ...................................................................................................... .................. .................. –74 –139 –190 –57 ..................
Telephone and teletype services ...................................................................................... 4,897 –10,892 –1,712 197 100 100 100
Proposed legislation ...................................................................................................... .................. –736 –616 –197 –100 –100 –100
Other Federal fund excise taxes ...................................................................................... 3,755 1,493 1,932 1,987 2,057 2,128 2,208
Proposed legislation ...................................................................................................... .................. .................. 15 –121 –155 –163 –172
Total Federal fund excise taxes ........................................................................................... 22,460 3,124 12,304 13,946 13,321 17,207 18,917
Table 17–4. RECEIPTS BY SOURCE—Continued

Estimate
2006
Source Actual 2007 2008 2009 2010 2011 2012
Trust funds:
Highway ............................................................................................................................. 38,378 39,707 40,858 41,911 42,696 43,402 44,045
Proposed legislation ...................................................................................................... .................. .................. 12 14 –27 –65 –131
Airport and airway ............................................................................................................. 10,590 11,426 12,094 12,808 13,556 14,341 15,162
Proposed legislation ...................................................................................................... .................. .................. .................. –8,485 –8,882 –9,279 –9,706
Sport fish restoration and boating safety ......................................................................... 519 547 564 581 600 619 638
Tobacco assessments ....................................................................................................... 891 960 960 960 960 960 960
Black lung disability insurance ......................................................................................... 607 624 629 640 659 679 692
Inland waterway ................................................................................................................ 81 84 85 86 87 88 89
Oil spill liability .................................................................................................................. 54 199 205 214 225 233 244
Vaccine injury compensation ............................................................................................ 184 195 196 198 199 202 203
Leaking underground storage tank ................................................................................... 197 196 199 204 206 210 212
Total trust funds excise taxes ............................................................................................... 51,501 53,938 55,802 49,131 50,279 51,390 52,408
Total excise taxes .................................................................................................................... 73,961 57,062 68,106 63,077 63,600 68,597 71,325
Estate and gift taxes:

Federal funds ......................................................................................................................... 27,877 25,260 26,786 28,757 22,920 20,407 48,691
Proposed legislation .......................................................................................................... .................. 17 –1,081 –1,318 –1,179 –18,733 –48,170
Total estate and gift taxes ...................................................................................................... 27,877 25,277 25,705 27,439 21,741 1,674 521
Customs duties:
Federal funds ......................................................................................................................... 23,533 25,430 28,105 29,786 32,066 33,837 35,501
Proposed legislation .......................................................................................................... .................. .................. –322 –671 –1,015 –1,326 –1,655
Trust funds ............................................................................................................................. 1,277 1,336 1,440 1,536 1,637 1,740 1,849
Total customs duties ............................................................................................................... 24,810 26,766 29,223 30,651 32,688 34,251 35,695
MISCELLANEOUS RECEIPTS: 3
Miscellaneous taxes .............................................................................................................. 423 534 542 549 558 567 577
Exercise of warrants .............................................................................................................. 118 .................. .................. .................. .................. .................. ..................
United Mine Workers of America combined benefit fund .................................................... 119 72 65 44 24 5 3
Deposit of earnings, Federal Reserve System .................................................................... 29,945 32,638 36,115 37,625 39,040 40,680 42,804
Defense cooperation .............................................................................................................. 12 8 8 8 8 8 8
Fees for permits and regulatory and judicial services ......................................................... 10,226 10,083 10,468 10,600 10,806 11,020 11,213
Fines, penalties, and forfeitures ............................................................................................ 3,796 3,243 3,254 2,910 2,929 2,948 2,969
Gifts and contributions .......................................................................................................... 378 189 194 199 201 203 206
Proposed legislation .......................................................................................................... .................. .................. 100 100 100 100 100
Refunds and recoveries ........................................................................................................ –55 –56 –56 –56 –56 –56 –56
Total miscellaneous receipts ................................................................................................. 44,962 46,711 50,690 51,979 53,610 55,475 57,824
Total budget receipts .............................................................................................................. 2,407,254 2,540,096 2,662,474 2,798,307 2,954,724 3,103,554 3,307,324
On-budget .............................................................................................................................. 1,798,872 1,905,966 1,988,389 2,086,937 2,201,442 2,307,764 2,472,007
Off-budget .............................................................................................................................. 608,382 634,130 674,085 711,370 753,282 795,790 835,317
MEMORANDUM
Federal funds ......................................................................................................................... 1,517,453 1,635,493 1,681,337 1,774,042 1,874,190 1,965,503 2,115,280
Trust funds ............................................................................................................................. 616,863 653,127 692,062 709,365 747,034 789,414 827,684
Interfund transactions ............................................................................................................ –335,444 –382,654 –385,010 –396,470 –419,782 –447,153 –470,957
Total on-budget ........................................................................................................................ 1,798,872 1,905,966 1,988,389 2,086,937 2,201,442 2,307,764 2,472,007
Off-budget (trust funds) .......................................................................................................... 608,382 634,130 674,085 711,370 753,282 795,790 835,317
Total ........................................................................................................................................... 2,407,254 2,540,096 2,662,474 2,798,307 2,954,724 3,103,554 3,307,324

1 Deposits by States cover the benefit part of the program. Federal unemployment receipts cover administrative costs at both the Federal and State levels. Railroad unemploy-
ment receipts cover both the benefits and adminstrative costs of the program for the railroads.
2 Represents employer and employee contributions to the civil service retirement and disability fund for covered employees of Government-sponsored, privately owned enter-
prises and the District of Columbia municipal government.
3 Includes both Federal and trust funds.
18. USER CHARGES AND OTHER COLLECTIONS
In addition to collecting taxes and other receipts by Usually offsetting collections are authorized to be
the exercise of its sovereign powers, which is discussed spent for the purposes of the account without further
in the previous chapter, the Federal Government col- action by the Congress. Offsetting receipts may or may
lects income from the public from market-oriented ac- not be earmarked for a specific purpose, depending on
tivities and the financing of regulatory expenses. These the legislation that authorizes them. When earmarked,
collections are classified as user charges, and they in- the authorizing legislation may either authorize them
clude the sale of postage stamps and electricity, charges to be spent without further action by the Congress,
for admittance to national parks, premiums for deposit or require them to be appropriated in annual appropria-
insurance, and proceeds from the sale of assets, such tions acts before they can be spent.
as rents and royalties for the right to extract oil from Offsetting collections and receipts include most user
the Outer Continental Shelf. charges, which are discussed below, as well as some
Depending on the laws that authorize the user amounts that are not user charges. Table 18–1 summa-
charges, most are credited to expenditure accounts as rizes these transactions. For 2008, total offsetting col-
lections and receipts from the public are estimated to
‘‘offsetting collections,’’ or to receipt accounts as ‘‘offset-
be $319.3 billion, and total user charges are estimated
ting receipts.’’ The budget refers to these amounts as
to be $244.6 billion.
‘‘offsetting’’ because they are subtracted from gross out- The following section discusses user charges and the
lays rather than added to taxes on the receipts side Administration’s user charge proposals. The subsequent
of the budget. The purpose of this treatment is to section displays more information on offsetting collec-
produce budget totals for receipts, outlays, and budget tions and receipts. The offsetting collections and re-
authority in terms of the amount of resources allocated ceipts by agency are displayed in Table 21–1, which
governmentally, through collective political choice, rath- appears in Chapter 21, ‘‘Outlays to the Public, Gross
er than through the market. 1 In addition, some regu- and Net,’’ of this volume. Collections specifically related
latory fees therefore are classified as governmental re- to credit programs are discussed in Chapter 7, ‘‘Credit
ceipts and are on the receipts side of the budget. and Insurance.’’
Table 18–1. GROSS OUTLAYS, USER CHARGES, OTHER OFFSETTING

COLLECTIONS AND RECEIPTS FROM THE PUBLIC, AND NET OUTLAYS
(In billions)
Estimate
Actual
2006 2007 2008
Gross outlays ...................................................................................... 2,935.5 3,100.3 3,221.1

Offsetting collections and receipts from the public:
User charges 1 ............................................................................... –197.8 –226.8 –241.2
Other ............................................................................................... –82.2 –89.2 –78.1
Subtotal, offsetting collections and receipts from the public ... –280.1 –316.0 –319.3
Net outlays .......................................................................................... 2,655.4 2,784.3 2,901.9

1 Total user charges are shown below. They include user charges that are classified on the receipts side
of the budget in addition to the amounts shown on this line. For additional details of total user charges, see
Table 18–2, ‘‘Total User Charge Collections.’’
Total user charges:

Offsetting collections and receipts from the public ...................................... 197.8 226.8 241.2
Receipts ......................................................................................................... 3.5 3.5 3.4
Total, User charges .................................................................................. 201.4 230.3 244.6
1 Showing collections from business-type transactions as offsets on the spending side of on Budget Concepts in 1967. The concept is discussed in Chapter 26: ‘‘The Budget System
the budget follows the concept recommended by the Report of the President’s Commission and Concepts’’ in this volume.
271
USER CHARGES
I. Introduction and Background tions may be used for other purposes. Much of the
The Federal Government often charges those who discussion of user charges below—their purpose, when
benefit directly from a particular activity or those sub- they should be levied, and how the amount should be
ject to regulation. Based on the definition used in this set—applies to these alternatives as well.
chapter, Table 18–2 shows that user charges were Other definitions of user charges could, for example:
$201.4 billion in 2006, and are estimated to increase • be narrower than the one used here, by limiting
to $230.3 billion in 2007 and to $244.6 billion in 2008, the definition to proceeds from the sale of goods
growing to an estimated $275.5 billion in 2012, includ- and services (and excluding the sale of assets),
ing the user charges proposals that are shown in Table and by limiting the definition to include only pro-
18–3. This table shows that the Administration’s user ceeds that are earmarked to be used specifically
charge proposals, including extension of expiring to finance the goods and services being provided.
charges, would increase user charges by an estimated This definition is similar to one the House of Rep-
$4.5 billion in 2008, growing to an estimated $19.1 resentatives uses as a guide for purposes of com-
billion in 2012. mittee jurisdiction. (See the Congressional Record,
Definition. User charges are fees, charges, and as- January 3, 1991, p. H31, item 8.)
sessments levied on individuals or organizations di- • be even narrower than the user fee concept de-
rectly benefiting from, or subject to regulation by, a scribed above, by excluding regulatory fees and
Government program or activity. In addition, the pay- focusing solely on business-type transactions.
ers of the charge must be limited to those benefiting • be broader than the one used in this chapter by
from, or subject to regulation by, the program or activ- including beneficiary- or liability-based excise
ity, and may not include the general public, and gen- taxes, such as gasoline taxes. 2
erally does not apply to a broad segment of the public What is the purpose of user charges? The purpose
(such as those who pay income taxes or customs duties). of user charges is to improve the efficiency and equity
• Examples of business-type or market-oriented user of certain Government activities, and to reduce the bur-
charges include charges for the sale of postal serv- den on taxpayers to finance activities whose benefits
ices (the sale of stamps), electricity (e.g., sales by accrue to a relatively limited number of people, or to
the Tennessee Valley Authority), proceeds from impose a charge on activities that impose a cost on
the sale of goods by defense commissaries, pay- the public.
ments for Medicare voluntary supplemental med- User charges that are set to cover the costs of produc-
ical insurance, life insurance premiums for vet- tion of goods and services can provide efficiency in the
erans, recreation fees for parks, and proceeds from allocation of resources within the economy. They allo-
the sale of assets (property, plant, and equipment) cate goods and services to those who value them the
and natural resources (such as timber, oil, and most, and they signal to the Government how much
minerals). of the goods or services it should provide. Prices in
• Examples of regulatory and licensing user charges private, competitive markets serve the same purposes.
include charges for regulating the nuclear energy User charges for goods and services that do not have
industry, bankruptcy filing fees, immigration fees, special social benefits improve equity, or fairness, by
food inspection fees, passport fees, and patent and requiring that those who benefit from an activity are
trademark fees. the same people who pay for it. The public often per-
The ‘‘user charges’’ concept used here aligns these ceives user charges as fair because those who benefit
estimates with the concept that establishes policy for from the good or service pay for it in whole or in part,
charging prices to the public for the sale or use of and those who do not benefit do not pay.
goods, services, property, and resources (see OMB Cir- When should the Government charge a fee? Dis-
cular No. A–25, ‘‘User Charges,’’ July 8, 1993). cussions of whether to finance spending with a tax or
User charges do not include all offsetting collections a fee often focus on whether the benefits of the activity
and receipts from the public, such as repayments re- are to the public in general or to a limited group of
ceived from credit programs; interest, dividends, and people. In general, if the benefits accrue broadly to
other earnings; payments from one part of the Federal the public, then the program should be financed by
Government to another; or cost sharing contributions. taxes paid by the public; in contrast, if the benefits
Nor do they include earmarked taxes (such as taxes accrue to a limited number of private individuals or
paid to social insurance programs or excise taxes on organizations, then the program should be financed by
gasoline), or customs duties, fines, penalties, and for- charges paid by the private beneficiaries. For Federal
feitures. 2 Beneficiary- and liability-based taxes are terms taken from the Congressional Budget
Alternative definitions. The definition used in this Office, The Growth of Federal User Charges, August 1993, and updated in October 1995.
chapter is useful because it is similar to the definition In addition to gasoline taxes, examples of beneficiary-based taxes include taxes on airline
tickets, which finance air traffic control activities and airports. An example of a liability-
used in OMB Circular No. A–25, ‘‘User Charges,’’ which based tax is the excise tax that formerly helped fund the hazardous substance superfund
in the Environmental Protection Agency. This tax was paid by industry groups to finance
provides policy guidance to Executive Branch agencies environmental cleanup activities related to the industry activity but not necessarily caused
on setting prices for user charges. Alternative defini- by the payer of the fee.
18. USER CHARGES AND OTHER COLLECTIONS 273
programs where the benefits are entirely public or en- Classification of user charges in the budget. As
tirely private, applying this principle is relatively easy. shown in Table 18–1, most user charges are classified
For example, according to this principle, the benefits as offsets to outlays on the spending side of the budget,
from national defense accrue to the public in general but a few are classified on the receipts side of the
and should be (and are) financed by taxes. In contrast, budget. An estimated $3.4 billion in 2008 are classified
the benefits of electricity sold by the Tennessee Valley on the receipts side and are included in the totals de-
Authority accrue exclusively to those using the elec- scribed in Chapter 17. ‘‘Federal Receipts.’’ They are
tricity, and should be (and are) financed by user classified as receipts because they are regulatory
charges. charges collected by the Federal Government by the
In many cases, however, an activity has benefits that exercise of its sovereign powers. Examples include filing
accrue to both public and to private groups, and it fees in the United States courts, agricultural quar-
may be difficult to identify how much of the benefits antine inspection fees, and passport fees. These regu-
accrue to each. Because of this, it can be difficult to latory charges are unlike user fees classified as offsets
know how much of the program should be financed to outlays, which are normally for identifiable goods
by taxes and how much by fees. For example, the bene- or services whose benefits primarily fall to the party
fits from recreation areas are mixed. Fees for visitors paying the fee and for which alternatives may exist
to these areas are appropriate because the visitors ben- in the private sector or State and local sector.
efit directly from their visit, but the public in general The remaining user charges, an estimated $241.2 bil-
also benefits because these areas protect the Nation’s lion in 2008, are classified as offsetting collections and
natural and historic heritage now and for posterity. receipts on the spending side of the budget. Some of
As a further complication, where a fee may be appro- these are collected by the Federal Government by the
priate to finance all or part of an activity, some consid- exercise of its sovereign powers and conceptually would
eration must be given to the ease of administering the appear on the receipts side of the budget, but are re-
fee. quired by law to be classified on the spending side
What should be the amount of the fee? For pro- as offsetting collections or receipts. Examples of these
grams that have private beneficiaries, the amount of fees include immigration examination fees, U. S. cus-
the charge should depend on the costs of producing toms processing fees, and nuclear regulatory fees.
the goods or services and the portion of the program An estimated $141.8 billion of user charges for 2008
that is for private benefits. If the benefit is primarily are credited directly to expenditure accounts, and are
private and any public benefits are incidental, current generally available for expenditure when they are col-
policies support charges that cover the full cost to the lected, without further action by the Congress. An esti-
Government, including both direct and indirect costs. mated $99.4 billion of user charges for 2008 are depos-
When the Government is not acting in its capacity as ited in offsetting receipt accounts, and are available
sovereign and engages in a business-type transaction to be spent only according to the legislation that estab-
(i.e., leasing or selling goods, services, or resources), lished the charges.
market price should be the basis for establishing the As a further classification, the accompanying Tables
fee. 3 18–2 and 18–3 identify the user charges as discre-
The Executive Branch is working to put cost account- tionary or mandatory. These classifications are terms
ing systems in place across the Government that would from the Budget Enforcement Act of 1990 as amended
make the calculation of full cost more feasible. The and are used frequently in the analysis of the budget.
difficulties in measuring full cost are associated in part ‘‘Discretionary’’ in this chapter refers to user charges
with allocating to an activity the full costs of capital, generally controlled through annual appropriations acts
retirement benefits, and insurance, as well as other and under the jurisdiction of the appropriations com-
Federal costs that may appear in other parts of the mittees in the Congress. ‘‘Mandatory’’ refers to user
budget. Guidance in the Statement of Federal Financial charges controlled by permanent laws and under the
Accounting Standards No. 4, ‘‘Managerial Cost Account- jurisdiction of the authorizing committees.
ing Standards’’ for the Federal Government (July 31, These and other classifications are discussed further
1995), should underlie cost accounting in the Federal in this volume in Chapter 26, ‘‘The Budget System and
Government. Concepts.’’
II. TOTAL USER CHARGES
As shown in Table 18–2, total user charge collections and for Medicare premiums are the largest and are
(including those proposed in this Budget) are estimated estimated to be more than half of total user charge
to be $244.6 billion in 2008, increasing to $275.5 billion collections in 2008.
in 2012. User charge collections by the Postal Service
3 Policies for setting user charges are promulgated in OMB Circular No. A–25: ‘‘User
Charges’’ (July 8, 1993).

Table 18–2. TOTAL USER CHARGE COLLECTIONS

Estimates
Actual
2006 2007 2008 2009 2010 2011 2012
Receipts
Judicial Branch: Filing fees, U.S. courts ................................................................................................ 221 144 172 157 153 159 164
Department of Agriculture: Agricultural quarantine inspection fees ....................................................... 418 455 494 502 509 517 524
Department of the Interior: Abandoned mine reclamation fund ............................................................ 303 301 295 270 275 282 286
Department of State: Immigration, passport, and consular fees ........................................................... 861 719 732 731 730 729 728
Corps of Engineers: Harbor maintenance fees ...................................................................................... 1,207 1,264 1,367 1,461 1,561 1,663 1,770
Other ........................................................................................................................................................ 538 567 357 304 306 309 312
Subtotal, receipts ................................................................................................................................. 3,548 3,450 3,417 3,425 3,534 3,659 3,784
Offsetting Collections and Receipts from the Public
Discretionary
Department of Agriculture: Food safety inspection and other charges ............................................ 316 312 309 305 304 309 312
Department of Commerce: Patent and trademark, fees for weather services, and other charges 1,779 1,892 2,034 2,182 2,368 2,574 2,757
Department of Defense: Commissary and other charges ................................................................. 10,079 10,564 10,417 10,393 10,392 10,392 10,392
Department of Energy: Federal Energy Regulation Commission, power marketing, and other
charges ............................................................................................................................................ 982 1,131 1,345 1,323 1,319 1,349 1,361
Department of Health and Human Services: Food and Drug Administration, Centers for Medi-
care and Medicaid Services, and other charges ........................................................................... 1,247 972 1,193 1,104 1,100 1,124 1,134
Department of Homeland Security: Border and Transportation Security and other charges .......... 2,051 2,431 2,761 2,842 2,937 3,035 3,136
Department of the Interior: Minerals Management Service and other charges ............................... 736 721 843 826 811 848 850
Department of Justice: Charges for bankruptcy oversight and other charges ................................. 301 329 364 358 357 365 368
Department of State: Passport and other charges ............................................................................ 948 1,308 1,576 1,622 1,670 1,719 1,769
Department of Transportation: FAA user fee proposal, pipeline safety, and other charges ........... 188 105 252 8,422 8,908 9,344 9,766
Department of the Treasury: Sale of commemorative coins and other charges ............................. 1,606 1,992 1,948 1,916 1,909 1,954 1,970
Department of Veterans Affairs: Medical care and other charges ................................................... 2,082 2,274 2,431 2,518 2,607 2,703 2,801
General Services Administration: Acquisition services fund and other charges .............................. 87 452 470 481 491 501 511
Social Security Administration, State supplemental fees, supplemental security income ................ 116 119 135 133 132 135 137
Federal Communications Commission: Regulatory fees ................................................................... 383 374 397 391 389 398 402
Federal Trade Commission: Regulatory fees ..................................................................................... 133 153 165 162 162 165 167
Nuclear Regulatory Commission: Regulatory fees ............................................................................ 624 641 765 756 756 774 783
Securities and Exchange Commission: Regulatory fees ................................................................... 1,904 1,379 1,147 1,332 1,520 1,740 1,742
All other agencies, discretionary user charges .................................................................................. –3,036 305 255 249 246 247 248
Subtotal, discretionary user charges .............................................................................................. 22,526 27,454 28,807 37,315 38,378 39,676 40,606
Mandatory
Department of Agriculture: Crop insurance and other charges ........................................................ 1,941 1,829 2,648 2,457 2,405 2,444 2,374
Department of Defense: Commissary surcharge and other charges ................................................ 1,036 742 784 791 770 703 515
Department of Energy: Proceeds from the sale of energy, nuclear waste disposal, and other
charges ............................................................................................................................................ 4,491 4,680 4,553 4,769 4,608 4,670 4,594
Department of Health and Human Services: Medicare Part B and Part D insurance premiums
and other charges ........................................................................................................................... 47,250 54,956 59,578 64,404 69,320 74,660 80,728
Department of Homeland Security: Customs, immigration, and other charges ............................... 7,024 7,478 8,428 8,345 8,782 9,222 9,646
Department of the Interior: Recreation and other charges ............................................................... 6,156 4,778 5,148 5,654 5,497 5,383 5,866
Department of Justice: Federal Prison Commissary fees and other charges .................................. 435 516 549 561 575 588 602
Department of Labor: Insurance premiums to guaranty private pensions and other charges ........ 3,160 3,756 3,607 6,575 7,532 7,943 8,561
Department of the Treasury: Bank regulation, and other charges ................................................... 956 1,048 1,120 1,146 1,186 1,228 1,272
Department of Veterans Affairs: Veterans life insurance and other charges ................................... 2,468 2,499 2,207 2,291 2,258 2,230 2,239
Office of Personnel Management: Federal employee health and life insurance fees ..................... 11,164 11,560 12,207 13,001 13,947 14,991 15,978
Federal Deposit Insurance Corporation: Deposit insurance fees and other charges ...................... 252 865 2,526 5,318 6,946 8,105 6,330
National Credit Union Administration: Credit union share insurance and other charges ................ 353 401 453 477 434 461 487
Postal Service: Fees for postal services ............................................................................................ 70,348 73,672 76,733 70,273 70,533 70,865 71,312
Tennessee Valley Authority: Proceeds from the sale of energy ....................................................... 9,051 9,136 9,410 8,428 8,708 8,987 9,354
Undistributed Offsetting Receipts:
Department of Commerce: Digital television transition and public safety fund ........................... .............. .............. 11,800 2,058 .............. .............. ..............
Department of the Interior: Arctic National Wildlife Refuge, lease bonuses ................................ .............. .............. .............. 7,004 4 1,006 6
Executive Office of the President: Spectrum relocation receipts .................................................. .............. 6,850 .............. .............. .............. .............. ..............
Federal Communications Commission: Auction receipts .............................................................. 111 6,900 50 100 100 100 ..............
Outer Continental Shelf receipts and other collections ................................................................. 7,283 6,940 9,621 10,662 9,558 10,166 10,208
All other agencies, mandatory user charges ..................................................................................... 1,815 765 957 957 973 1,018 1,004
Subtotal, mandatory user charges ................................................................................................. 175,294 199,371 212,379 215,271 214,136 224,770 231,076
Subtotal, user charges that are offsetting collections and receipts from the public .................... 197,820 226,825 241,186 252,586 252,514 264,446 271,682
TOTAL, User charges ............................................................................................................................ 201,368 230,275 244,603 256,011 256,048 268,105 275,466
III. USER CHARGE PROPOSALS
As shown in Table 18–3, the Administration is pro- The total 2008 savings for these proposals is estimated
posing new or increased user charges, including pro- to be $1,862 million.
posed extensions of expiring charges, that would in-
Department of Health and Human Services
crease collections by an estimated $4.5 billion in 2008,
increasing to $19.1 billion in 2012. These amounts are Food and Drug Administration (FDA)
collections and receipts only. They do not include re- Generic drug review activities fee. Generic drugs play
lated spending. an important role in reducing the cost of pharma-
ceuticals. The Budget proposes a new user fee to gen-
A. Discretionary User Charge Proposals
erate additional resources to support FDA’s generic
1. Offsetting collections drug review activities. Similar to the purpose of FDA’s
current prescription drug user fees, the proposed ge-
Department of Commerce: Minority Business De-
neric drug user fee would be targeted towards improv-
velopment Agency
ing review times and reducing the backlog of applica-
Conference fees. The Budget proposed to give the Mi- tions.
nority Business Development Agency (MBDA) the au- Expiring user fees. The Prescription Drug User Fee
thority to collect and retain fees to offset the costs Act, the Medical Devices User Fee and Modernization
of conducting conferences. MBDA conducts the annual Act, and the Mammography Quality Standards Act will
Minority Enterprise Development (MED) Week con- expire on September 30, 2007. These laws authorize
ference and estimated fees are less than $500 thousand the FDA to assess and collect fees associated with the
per year. pre-market review of prescription drugs, medical de-
vices, and activities related to ensuring mammography
Department of Defense (DOD) quality. The Administration supports reauthorizing the
Medical care enrollment fees and deductible. The collection and spending of these fees.
Budget gives DOD the authority to increase enrollment Centers for Medicare and Medicaid Services
fees and deductibles for military retirees under age 65
Survey and certification user fee. The Budget proposes
(and families). The new cost shares differ for officer
a new user fee for the survey and certification program
and enlisted retirees and for those in the different types within the Centers for Medicare and Medicaid Services.
of plans. The Budget also assumes that retail pharmacy The agency would charge facilities participating in
co-payments for all military retirees will increase. None Medicare and Medicaid a fee for conducting follow-up
of these changes apply to active-duty members and surveys, which verify that they have taken appropriate
their dependents. DOD will take into account the rec- action to correct identified deficiencies in compliance
ommendations of the DOD Task Force on the Future with specific Federal health, safety, and quality stand-
of Military Health Care before final implementation. ards.
Table 18–3. USER FEE AND OTHER USER CHARGE PROPOSALS 1

(Estimated collections in millions of dollars)
2007 2008 2009 2010 2011 2012 2008–2012
DISCRETIONARY:
1. Offsetting collections
Department of Commerce: Minority Business Development Agency
Conference fees ............................................................................................................................................ ............ * * * * * 2
Department of Defense
Medical care enrollment fees and deductible .............................................................................................. ............ 1,862 2,322 2,815 3,424 4,061 14,484
Food and Drug Administration:
Generic drug review activities fee ............................................................................................................ ............ 16 16 16 16 16 80
Prescription drug user fee ........................................................................................................................ ............ 339 333 332 340 343 1,687
Medical devices user fee .......................................................................................................................... ............ 48 47 47 48 49 239
Mammography standards user fee ........................................................................................................... ............ 18 18 18 18 18 90
Centers for Medicare and Medicaid Services: Survey and certification user fee ...................................... ............ 35 34 34 35 35 173
Department of Transportation
Federal Aviation Administration: User fee proposal ..................................................................................... ............ ............ 8,173 8,660 9,092 9,511 35,436
Federal Election Commission
Registration fees ............................................................................................................................................ ............ * * * * * 1
2. Offsetting receipts
Department of Homeland Security: U.S. Citizenship and Immigration Services
Systematic alien verification for entitlements program ................................................................................. ............ 3 3 3 3 3 15
Department of Housing and Urban Development
Office of Federal Housing Enterprise Oversight .......................................................................................... ............ –66 –65 –65 –66 –67 –329
Department of the Interior
Repeal Energy Act fee prohibition ................................................................................................................ ............ 21 21 21 21 21 105
Subtotal, discretionary user charge proposals ......................................................................................... ............ 2,277 10,903 11,882 12,932 13,991 51,983
MANDATORY:
1. Offsetting collections
Department of Labor
Pension Benefit Guaranty Corporation premiums ........................................................................................ ............ ............ 1,390 1,387 1,400 1,295 5,472
Federal Housing Enterprise Regulator
Government-Sponsored Enterprises regulatory fee ..................................................................................... ............ 101 105 105 107 109 527
Federal Housing Finance Board
Federal Home Loan Bank fees ..................................................................................................................... ............ –35 –39 –40 –41 –42 –197
Department of Agriculture
Food Safety and Inspection Service user fees ............................................................................................ ............ 96 98 100 102 104 500
Grain, Inspection, Packers, and Stockyards Administration user fees ....................................................... ............ 22 22 23 23 24 115
Animal and Plant Health Inspection Service user fees ............................................................................... ............ 9 13 13 14 14 63
Federal crop insurance fees ......................................................................................................................... ............ ............ 15 15 15 15 60
Forest county safety net payments .............................................................................................................. ............ 467 264 180 137 ............ 1,048
Department of Defense
National defense stockpile asset sales: Authorization for additional sales ................................................. ............ 69 145 198 145 25 582
Food and Drug Administration: Re-inspection fees and export certification fees ...................................... ............ 27 28 28 29 30 142
Centers for Medicare and Medicaid Services: Additional Medicare premiums .......................................... ............ 403 804 1,116 1,432 1,792 5,547
Ginnie Mae premium increase ...................................................................................................................... ............ 46 46 46 46 46 230
Government-Sponsored Enterprises oversight fee ....................................................................................... ............ 6 6 6 6 6 30
Amend Bureau of Land Management Federal land sale authority ............................................................. ............ 5 10 14 53 53 135
Require upfront payment of coal bonus bid receipts ................................................................................... ............ 2 121 115 54 134 426
Arctic National Wildlife Refuge lease bonuses:
Collections for payment to Alaska ............................................................................................................ ............ ............ 3,502 2 503 3 4,010
Collections deposited in the Treasury ...................................................................................................... ............ ............ 3,502 2 503 3 4,010
Department of Labor
Foreign labor certification fees ...................................................................................................................... ............ 65 65 65 65 65 325
Department of Veterans Affairs
Pharmacy co-pay increase ............................................................................................................................ ............ 311 304 306 307 342 1,570
Income-based medical care enrollment fee ................................................................................................. ............ ............ 138 134 129 125 526
Third-party insurance co-payment offset ...................................................................................................... ............ 44 44 44 43 43 218
Corps of Engineers—Civil Works
Additional recreation fees .............................................................................................................................. ............ 7 10 13 16 19 65
Table 18–3. USER FEE AND OTHER USER CHARGE PROPOSALS 1—Continued
(Estimated collections in millions of dollars)
2007 2008 2009 2010 2011 2012 2008–2012
Environmental Protection Agency

Pesticide user fees ........................................................................................................................................ ............ 66 57 60 66 57 306
Pre-manufacture notice user fees ................................................................................................................. ............ 4 8 8 8 8 36
Commodity Futures Trading Commission
Transaction fees ............................................................................................................................................ ............ 86 89 92 95 99 461
Federal Communications Commission
Spectrum license fee authority ..................................................................................................................... ............ 50 150 300 300 400 1,200
Extend spectrum auction authority ............................................................................................................... ............ ............ ............ ............ ............ 200 200
Prospective ancillary terrestrial component spectrum auctions ................................................................... ............ 150 150 150 150 150 750
Domestic satellite spectrum auctions ........................................................................................................... 130 252 105 100 100 75 632
Subtotal, mandatory user charge proposals ............................................................................................ 130 2,253 11,152 4,582 5,807 5,194 28,989
GOVERNMENTAL RECEIPTS
Department of Transportation
Federal Aviation Administration: Aviation overflight fees ............................................................................. ............ ............ –56 –58 –60 –62 –236
Total, user charge proposals ................................................................................................................ 130 4,530 21,999 16,406 18,679 19,123 80,736
1A negative sign indicates a decrease in collections.
*$500 thousand or less
Department of Transportation: Federal Aviation collected from the Systematic Alien Verification for En-
Administration (FAA) titlements (SAVE) Program into the USCIS immigra-
User fee proposal. The Budget includes a reauthorization examinations fee account. This program is an inter-
tion proposal that would make the Federal Aviation governmental information-sharing intiative that aids
Administration’s financing system more cost-based. The organizations in determining an applicant’s/recipient’s
FAA’s current excise tax system, which generated $10.6 immigration status, and thereby ensure that only enti-
billion in 2006, largely based on taxes on the price tled applicants/recipients receive Federal, State, or local
of airline tickets, does not have a direct relationship public benefits as required by the Immigration Reform
between the taxes paid by users and the air traffic and Control Act. The proposed language will clarify
control services provided by the FAA. Under its reau- DHS authority to collect these fees and provide them
thorization proposal, FAA would collect user fees from the authority to deposit those fees in their mandatory
commercial aviation operators for air traffic control fee account.
services. Implementing user fees for services provided
should create incentives to make the system more effi-
cient and responsive to user needs. FAA would have Office of Federal Housing Enterprise Oversight. This
the authority to collect the user fees that directly offset proposal is discussed below in the section on the Fed-
the cost of its operations; expenditure of the proceeds eral Housing Enterprise Regulator.
from these fees would be subject to the appropriations
process. The Budget assumes FAA will implement its
new financing system starting in 2009, and estimates Repeal Energy Act fee prohibition. A last-minute addi-
FAA will collect $8 billion in user fees during the first tion to the 2005 Energy Policy Act prohibited the Bu-
year. reau of Land Management from implementing new user
fees for oil and gas permit processing and instead di-
Federal Election Commission verted existing rental receipts to make up for the lost
Registration fees. The Federal Election Commission program funding. The Budget proposes to repeal these
hosts public conferences on subjects related to campaign changes and substitute new user fees for the mandatory
finance. The Administration proposes to grant the FEC funding provided by the Act. The proposal would also
authority to collect registration fees from attendees to repeal a mandatory geothermal program fund drawn
cover the cost of these events. from Federal geothermal royalties and return to the
2. Offsetting receipts traditional 50/50 Federal-State revenue sharing ar-
rangement for geothermal revenues. The proposed fees
Department of Homeland Security: U.S. Citizen- are expected to generate at least $20 million per year
ship and Immigration Services (USCIS) beginning in 2008, thereby reducing the cost to tax-
Systematic alien verification for entitlements program. payers for operating these programs. Additional savings
The Budget requests authority for the Secretary of the will be generated by discontinuing the Act’s mandatory
Department of Homeland Security (DHS) to deposit fees spending provisions related to geothermal receipts.
B. Mandatory User Charge Proposals companies participating in the Federal crop insurance
1. Offsetting collections program based on a rate of about one-half cent per
dollar of premium sold. Because it is the companies
Department of Labor that will most benefit from better, more advanced com-
Pension Benefit Guaranty Corporation (PBGC) pre- puter systems, it is reasonable that they contribute to
miums. The Budget re-proposes increases to the pre- the modernization and maintenance of these systems.
miums paid to the PBGC for single-employer defined Forest county safety net payments. The Budget in-
benefit pension insurance. Despite improvements in the cludes a legislative proposal that authorizes the Sec-
recently enacted Pension Protection Act, further pre- retary of Agriculture to dispose of certain Forest Service
mium increases are needed to reduce PBGC’s $19 bil- lands, up to $800 million, identified in National Forest
lion deficit. plans as suitable for exchange since they are isolated
or inefficient to manage. Along with additional pro-
Federal Housing Enterprise Regulator ceeds, these receipts will finance payments to the most
Government-Sponsored Enterprises (GSE) regulatory affected areas and for national forest land acquisition
fee. The Administration will again propose broad reform in States where parcels are sold. For the 2007 payment
of the supervisory system for GSEs in the housing mar- (to be made in 2008), the Administration will continue
ket. Fees currently collected by the Office of Federal to work with Congress to identify mutually agreeable
Housing Enterprise Oversight in the Department of offsets.
Housing and Development and the Federal Housing Fi- Department of Defense
nance Board would instead be collected by a new hous-
ing GSE safety and soundness regulator. For additional National Defense stockpile asset sales: Authorization
information, see the ‘‘Credit and Insurance’’ chapter in for additional sales. The Administration proposes legis-
this volume. lation to permit the sale of the remaining government-
owned industrial commodities in the National Defense
Federal Housing Finance Board Stockpile that are not needed for national defense re-
Federal Home Loan Bank fees. This proposal is dis- quirements. Sales of these commodities are expected
cussed above in the section on the Federal Housing to result in mandatory sales receipts of an estimated
Enterprise Regulator. $69 million in 2008. Sales receipts are subject to fluc-
tuation based on commodity price changes.
Department of Agriculture Department of Health and Human Services
Food Safety and Inspection Service (FSIS) user fees. Food and Drug Administration (FDA)
This Budget proposes two new user fees, a licensing Re-inspection fees. FDA conducts post-market inspec-
fee and a performance fee. These two fees are different tions of food, human drug, biologic, animal drug and
from those proposed in recent budgets and do not try feed, and medical device manufacturers to assess their
to completely offset a portion of the Food Safety and compliance with Good Manufacturing Practice require-
Inspection Services operational expenses. The rec- ments. The Administration proposes new fees that
ommended fees, estimated to be $96 million in the first would be assessed for repeat inspections due to viola-
year, include: tions found during the first inspection.
• $92 million for a licensing fee scaled to the size Food and animal feed export certification fees. FDA
of the operation, and collects user fees for the issuance of export certifications
• $4 million for a performance fee. Plants that have for human and animal drugs, and medical devices as
resampling and retesting due to positive samples, authorized by the Federal Food, Drug, and Cosmetic
recalls, or are linked to outbreaks would pay a Act. The Administration proposes to expand FDA’s au-
fee to FSIS for each incident. thority to collect user fees for the issuance of export
Grain Inspection, Packers, and Stockyards Adminis- certificates for foods and animal feed. Timely issuance
tration (GIPSA) user fees. The Administration proposes of food/feed export certificates funded through user fees
to establish a fee to cover the cost associated with would improve the ability of food and animal feed pro-
GIPSA’s standardization activities and a licensing fee ducers to export their products.
to cover the cost associated with administering meat
packers and stockyards activities. Centers for Medicare and Medicaid Services
Animal and Plant Health Inspection Service user fees. Additional Medicare premiums. Medicare bene-
The Administration proposes to establish user fees for ficiaries share in the costs of their health services
animal welfare inspections, for animal research facili- through premiums, deductibles, and co-insurance. The
ties, carriers, and in-transit handlers of animals. Medicare Prescription Drug, Improvement, and Mod-
Federal crop insurance fees. The Administration pro- ernization Act of 2003 (MMA) began to limit the growth
poses to implement a participation fee in the Federal in subsidies for certain higher-income beneficiaries.
crop insurance program to fund modernization and fu- Beneficiaries who are most able to contribute to the
ture maintenance of the existing information technology costs of their coverage have more responsibility and
(IT) system. The fee would be charged to insurance ownership over their health care utilization and costs.
To help improve Medicare’s long-term sustainability, oil and gas exploration and development within a small
the Budget proposes to broaden the application of re- area of the Arctic National Wildlife Refuge, sometimes
duced subsidies for certain higher-income beneficiaries. referred to as the ‘‘1002 Area,’’ located in northern Alas-
ka. The Department of the Interior estimates that re-
(HUD) coverable oil from this area is between 5.7 and 16 bil-
lion barrels. The Budget assumes that the first oil and
Ginnie Mae premium increase. This proposal will cre- gas lease sale would be held in 2009 and would result
ate an upfront premium of 6 basis points on new mort- in an estimated $7 billion in new revenues. All oil and
gage-backed securities that will be charged to security gas revenues from the 1002 Area would be shared fifty
issuers. This will generate receipts to cover the total percent with the State of Alaska, including the esti-
cost of administrating the Government National Mort- mated $6 million in annual rental payments. The Fed-
gage Association (Ginnie Mae) and promote oversight eral share of revenues would be deposited in the Treas-
of such spending. ury.
Government-Sponsored Enterprises (GSE) oversight
fee. Upon enactment of the Administration’s proposal Department of Labor
for a strengthened regulator for GSEs, the cost of Foreign labor certification fees. The 2008 Budget re-
HUD’s responsibilities under the Federal Housing En- proposes legislation to establish a cost-based user fee
terprise Safety and Soundness Act of 1992, and amend- for new applications under the permanent foreign labor
ments as proposed, would be assessed on Fannie Mae certification program. Fee proceeds would offset the
and Freddie Mac. These responsibilities include the es-
costs of administering the program. Upon enactment
tablishment and enforcement of affordable housing
of the fee, funding for these activities now included
goals for the GSEs, ensuring GSE compliance with fair
in the program administration account will be reviewed
housing laws, and providing consultation to the safety
and adjusted.
and soundness regulator on the GSEs’ new activities.
The cost of these regulatory responsibilities is currently Department of Veterans Affairs
in the HUD salaries and expenses account as a non-
Medical care fees. The President’s Budget includes
reimbursable expense.
legislation to implement new or higher fees for non-
Department of the Interior disabled higher-income veterans (PL 7/8 veterans).
Amend Bureau of Land Management (BLM) Federal These veterans will pay higher drug co-pays (from $8
land sale authority. The Administration will propose to $15) and new income-based annual enrollment fees
legislation to amend BLM’s land sale authority under that start at $250 for those with household incomes
the Federal Land Transaction Facilitation Act (FLTFA) of $50,000 and rise to $750 for those with incomes
to: (1) allow BLM to use updated management plans of $100,000 or greater. These proposals do not pertain
to identify areas suitable for disposal; (2) allow a por- to veterans who are considered among VA’s core mis-
tion of the receipts to be used by BLM for restoration sion and the highest priority—those with service dis-
projects; (3) return 70 percent of land sale proceeds abilities, lower incomes, or special needs. The Budget
to the Treasury; and (4) cap receipt retention at $60 also includes technical correction language to ensure
million per year. BLM is currently limited to selling that current co-pays are charged to all eligible veterans
lands that had been identified for disposal in land use equally and not reduced if a veteran has health insur-
plans that were in effect prior to enactment of FLTFA. ance. These proposals will result in an additional $355
Use of the receipts is currently limited to the purchase million in estimated receipts for 2008.
of other lands for conservation purposes. The new re- Corps of Engineers—Civil Works
ceipts shown in this chapter reflect only a portion of
the savings from this proposal; additional savings will Additional recreation fees. The Corps of Engineers
be generated by redirecting receipts under the existing manages 4,300 recreation areas at 465 Corps projects
FLFTA authority to the Treasury. The amounts shown (mostly lakes and reservoirs) on 12 million acres in
in Table 18–3 reflect receipts only and do not include 43 States at an annual cost of about $267 million. The
related spending. Administration re-proposes a recreation modernization
Require upfront payment of coal bonus bid receipts. (‘‘RecMod’’) initiative that would encourage the collec-
The Budget proposes to amend the Mineral Leasing tion of entrance fees (not currently authorized) and the
Act to change the current practice of allowing bonus creation of public/private partnerships to improve Corps
bid payments for coal lease sales to be made over a recreation facilities and services at little or no cost to
five-year period, instead requiring the full payment to the Federal Government. The Corps would implement
be made in the sale year. This proposal would increase user fees and private/public partnerships selectively, at
near-term revenues, but would reduce revenues in later recreation areas where fees would be appropriate. Some
years when deferred payments under the current sys- Corps recreation areas are isolated and remote; raising
tem would otherwise be collected. fees there might not be productive. But others are inte-
Arctic National Wildlife Refuge lease bonuses. The gral parts of prosperous urban communities with valu-
Budget includes a proposal to authorize the Department able lake-front property. Those communities may decide
of the Interior to conduct environmentally responsible to help upgrade the Corps recreation areas that their
citizens enjoy to provide amenities that might not oth- Spectrum license fee authority. To continue to promote
erwise be available. efficient spectrum use, the Administration proposes leg-
islation to provide the Federal Communications Com-
Environmental Protection Agency (EPA) mission (FCC) with new authority to use other eco-
Pesticide user fees. EPA presently collects fees from nomic mechanisms, such as fees, as a spectrum man-
entities seeking to register their pesticides and from agement tool. The Commission would be authorized to
entities with existing pesticides registered for use in set user fees on unauctioned spectrum licenses based
the United States. The Administration proposes to bet- on public-interest and spectrum-management prin-
ter cover the costs of EPA’s pesticide services by in- ciples. Fees would be phased in over time as part of
creasing collections of currently authorized, but soon an ongoing rulemaking process to determine the appro-
to expire, pesticide user fees. Furthermore, the Federal priate application and level for fees. Fee collections are
Food, Drug, and Cosmetic Act requires EPA to collect proposed to begin in 2008 and are estimated to total
fees for the establishment and reassessment of pesticide more than $3.6 billion through 2017.
tolerances. However, collection of these fees has been Extend spectrum auction authority. The Administra-
blocked through 2008. The Administration proposes to tion proposes legislation to extend indefinitely the au-
eliminate the prohibition and collect the tolerance fee thority of the FCC to auction spectrum licenses, which
in 2008. In addition, amendments to the Federal Insec- expires on September 30, 2011. The additional receipts
ticide, Fungicide, and Rodenticide Act require EPA to associated with this permanent extension are estimated
implement a new program to review all registered pes- to total $1.2 billion through 2017.
ticides on a 15 year cycle to ensure that registrations Prospective ancillary terrestrial component spectrum
reflect current science. EPA initiated this new Registra- auctions. The Administration proposes legislation to
tion Review program in 2007. If EPA determines that bring greater competition to the assignment of the land-
a pesticide adversely impacts an endangered species based component of hybrid terrestrial-satellite commu-
during registration review, additional work is required nications networks, such as the Ancillary Terrestrial
to ensure adequate protections are implemented. The Component to Mobile Satellite Services, subject to tech-
new registration review fee structure is designed to nical feasibility as determined by the FCC. The use
cover the incremental cost of this work. of auctions to assign the land-based component for any
Pre-manufacture notice user fees. EPA presently col- future satellite licenses for these hybrid networks will
lects fees from chemical manufacturers seeking to bring help to ensure that the radio spectrum is assigned effi-
new chemicals into commerce. These fees are author- ciently and effectively. The additional receipts associ-
ized by the Toxic Substances Control Act and are sub- ated with this policy are estimated to total $1.5 billion
ject to an outdated statutory cap. The Administration through 2017.
proposes to eliminate the cap so that EPA can recover Domestic satellite spectrum auctions. The Administra-
a greater portion of the cost of the program. tion proposes legislation to ensure that spectrum li-
censes for predominantly domestic satellite services are
Commodity Futures Trading Commission (CFTC) assigned efficiently and effectively through competitive
Transaction fees. The CFTC is the only Federal finan- bidding. Services such as Direct Broadcast Satellite and
cial regulator that does not derive its funding from Satellite Digital Audio Radio Services were assigned
the specialized entities it regulates. The Administration by auction prior to a 2005 court decision that ques-
will propose legislation to collect a new transaction fee tioned this practice on technical grounds. By clarifying
on commodity futures and option contracts traded on through legislation that auctions of licenses for these
approved exchanges. The fees would be set at a level domestic satellite services are authorized, prior policy
to equal the costs to the taxpayer of funding CFTC’s of the FCC will be restored. The additional receipts
Market Oversight and Clearing and Intermediary Over- associated with this policy are estimated to total $690
sight functions, an estimated $86 million in 2008. Such million through 2017.
fees are already imposed on futures exchanges to fund C. User Charge Proposals that are Governmental
the programs of the futures industry’s self-regulatory Receipts
organization, and will help to offset the deficit impact
of general taxpayer funding of the CFTC’s activities. Federal Aviation Administration (FAA): Aviation over-
flight fees. This proposal is part of the proposal dis-
Federal Communications Commission cussed above for the FAA user fees.
OTHER OFFSETTING COLLECTIONS AND RECEIPTS
Table 18–4 shows the distribution of user charges billion in 2008. Of these, an estimated $169.9 billion
and other offsetting collections and receipts from the are offsetting collections credited to expenditure ac-
public according to whether they are offsetting collec- counts and an estimated $149.4 billion are deposited
tions credited to expenditure accounts or offsetting rein offsetting receipt accounts.
ceipts. The table shows that total offsetting collections Information on the user charges presented in Table
and receipts from the public are estimated to be $319.3 18–4 is available in Tables 18–2 and 18–3 and the
discussion that accompanies those tables. Major offset- other, called intragovernmental transactions. These re-
ting collections deposited in expenditure accounts that ceipts are offset (deducted) from outlays in the Federal
are not user charges include collections by the Com- budget. In total, offsetting receipts are estimated to
modity Credit Corporation fund in the Department of be $737.0 billion in 2008: $587.6 billion are
Agriculture, which are related to loans; collections from intragovernmental transactions; and $149.4 billion are
States to supplement payments in the supplemental from the public. The $149.4 billion in offsetting receipts
security income program; and pre-credit reform loan from the public consist of proprietary receipts from the
repayments. Major offsetting receipts that are not user public ($129.9 billion) and offsetting governmental re-
charges include military assistance program sales and ceipts ($19.5 billion).
interest income. As noted above, offsetting collections and receipts by
Table 18–5 includes all offsetting receipts deposited agency are also displayed in Table 21–1, which appears
in receipt accounts. These include offsetting receipts
in Chapter 21, ‘‘Outlays to the Public, Gross and Net,’’
from the public (as summarized in Table 18–4) and
of this volume.
also payments from one part of the Government to an-
Table 18–4. OFFSETTING COLLECTIONS AND RECEIPTS FROM THE PUBLIC
Estimate
Actual
2006 2007 2008
Offsetting collections (credited to expenditure accounts):

User charges:
Postal service stamps and other postal fees (off-budget) ......................................................................................................................... 70.3 73.7 76.7
Defense Commissary Agency ..................................................................................................................................................................... 5.5 5.4 5.4
Employee contributions for employees and retired employees health benefits funds .............................................................................. 9.1 9.4 10.0
Sale of energy:
Tennessee Valley Authority ..................................................................................................................................................................... 9.1 9.1 9.4
Bonneville Power Administration ............................................................................................................................................................. 3.3 3.3 3.3
All other user charges ................................................................................................................................................................................. 29.6 34.5 36.9
Subtotal, user charges ............................................................................................................................................................................ 126.8 135.5 141.8

Other collections credited to expenditure accounts:
Commodity Credit Corporation fund ............................................................................................................................................................ 10.2 13.7 13.2
Supplemental security income (collections from the States) ..................................................................................................................... 4.2 4.4 4.6
Other collections .......................................................................................................................................................................................... 14.8 10.5 10.4
Subtotal, other collections ....................................................................................................................................................................... 29.1 28.6 28.1
Subtotal, offsetting collections ..................................................................................................................................................................... 156.0 164.1 169.9

Offsetting receipts (deposited in receipt accounts):
User charges:
Medicare premiums ...................................................................................................................................................................................... 45.1 52.8 57.3
Outer Continental Shelf rents, bonuses, and royalties ............................................................................................................................... 7.3 6.8 9.2
All other user charges ................................................................................................................................................................................. 18.6 31.7 32.9
Subtotal, user charges deposited in receipt accounts ........................................................................................................................... 71.0 91.3 99.4
Other collections deposited in receipt accounts:
Military assistance program sales ............................................................................................................................................................... 14.2 15.1 13.1
Interest income ............................................................................................................................................................................................. 14.7 16.1 16.2
All other collections deposited in receipt accounts .................................................................................................................................... 24.2 29.4 20.7
Subtotal, other collections deposited in receipt accounts ...................................................................................................................... 53.1 60.5 49.9
Subtotal, offsetting receipts .............................................................................................................................................................................. 124.1 151.8 149.4
Total, offsetting collections and receipts from the public ........................................................................................................................... 280.1 316.0 319.3
Total, offsetting collections and receipts excluding off-budget .................................................................................................................. 209.7 242.3 242.5
ADDENDUM:
User charges that are offsetting collections and receipts 1 ............................................................................................................................ 197.8 226.8 241.2
Other offsetting collections and receipts from the public ............................................................................................................................... 82.2 89.2 78.1
Total, offsetting collections and receipts from the public ................................................................................................................... 280.1 316.0 319.3
1 Excludes user charges that are classified on the receipts side of the budget. For total user charges, see Table 18.1 or Table 18.2.
Table 18–5. OFFSETTING RECEIPTS BY TYPE

Estimate
2006
Source Actual 2007 2008 2009 2010 2011 2012
INTRAGOVERNMENTAL TRANSACTIONS
On-budget receipts:
Federal intrafund transactions:
Distributed by agency:
Interest from the Federal Financing Bank ................................................................... 391 765 1,023 1,077 1,174 1,272 1,450
Interest on Government capital in enterprises ............................................................ 1,208 1,716 1,654 846 838 850 862
Interest received by retirement and health benefits funds ......................................... 198 169 176 183 198 215 235
General fund payments to retirement and
health benefits funds:
Employees health benefits fund .............................................................................. .................. 5,400 5,400 5,400 5,500 5,500 5,600
DoD retiree health care fund ................................................................................... 20,391 19,415 21,185 23,101 25,196 27,461 29,887
Miscellaneous Federal retirement funds .................................................................. 285 345 362 427 524 487 489
Other ............................................................................................................................. 1,998 5,723 4,291 4,741 4,726 5,175 5,694
Undistributed by agency:
Employing agency contributions:
DoD retiree health care fund ................................................................................... 11,138 11,550 11,212 12,216 12,993 13,897 14,691
Total Federal intrafunds ................................................................................................ 35,609 45,083 45,303 47,991 51,149 54,857 58,908
Trust intrafund transactions:

Payments to railroad retirement ................................................................................... 4,793 5,211 5,298 5,392 5,710 6,163 5,959
Total trust intrafunds ..................................................................................................... 4,793 5,211 5,298 5,392 5,710 6,163 5,959
Total intrafund transactions .............................................................................................. 40,402 50,294 50,601 53,383 56,859 61,020 64,867
Interfund transactions:
Federal fund payments to trust funds:
Contributions to insurance programs:
Military retirement fund ........................................................................................ 23,180 26,048 27,025 28,039 29,090 30,181 31,313
Supplementary medical insurance ....................................................................... 162,602 175,657 187,749 197,816 212,353 231,110 246,821
Proposed Legislation (non-PAYGO) ............................................................... .................. .................. –1,649 –3,594 –5,409 –7,063 –8,916
Hospital insurance ................................................................................................ 10,973 11,572 13,248 14,410 16,037 17,775 19,699
Railroad social security equivalent fund ............................................................. 129 132 144 159 168 186 205
Rail industry pension fund ................................................................................... 337 325 339 355 370 386 401
Civilian supplementary retirement contributions .................................................. 28,430 32,388 33,831 35,470 37,199 38,969 41,180
Unemployment insurance .................................................................................... 828 830 807 806 812 800 781
Other contributions ............................................................................................... 782 850 882 831 898 777 767
Subtotal ................................................................................................................ 227,261 247,802 262,376 274,292 291,518 313,121 332,251
Miscellaneous payments .......................................................................................... 1,870 1,762 1,775 1,751 1,731 1,749 1,758
Proposed Legislation (non-PAYGO) .................................................................... .................. .................. 2,752 .................. .................. .................. ..................
Subtotal ..................................................................................................................... 229,131 249,564 266,903 276,043 293,249 314,870 334,009
Trust fund payments to Federal funds:

Quinquennial adjustment for military service credits .............................................. 350 .................. .................. .................. .................. .................. ..................
Other ......................................................................................................................... 1,757 24,804 1,840 1,894 1,946 2,000 2,201
Proposed Legislation (non-PAYGO) .................................................................... .................. .................. 2,315 –437 –432 –424 –424
Subtotal ..................................................................................................................... 2,107 24,804 4,155 1,457 1,514 1,576 1,777
Total interfunds distributed by agency ......................................................................... 231,238 274,368 271,058 277,500 294,763 316,446 335,786
Employer share, employee retirement (on-budget):
Civil service retirement and disability insurance ..................................................... 13,819 14,072 15,714 16,623 18,141 19,723 21,342
Proposed Legislation (non-PAYGO) .................................................................... .................. .................. 2 8 15 23 31
CSRDI from Postal Service ..................................................................................... 4,429 3,382 3,596 3,817 4,063 4,327 4,609
Hospital insurance (contribution as employer) 1 ..................................................... 2,722 2,839 2,965 3,053 3,180 3,344 3,439
Postal employer contributions to FHI ...................................................................... 682 694 720 752 788 827 868
Military retirement fund ............................................................................................. 16,240 16,115 17,249 18,356 19,046 19,806 20,430
Table 18–5. OFFSETTING RECEIPTS BY TYPE—Continued

Estimate
2006
Source Actual 2007 2008 2009 2010 2011 2012
Other Federal employees retirement ....................................................................... 201 193 195 198 200 202 204
Total employer share, employee retirement (on-budget) ........................................ 38,093 37,295 40,441 42,807 45,433 48,252 50,923
Interest received by on-budget trust funds ............................................................. 71,574 75,067 77,710 80,363 83,658 86,270 87,640
Proposed Legislation (non-PAYGO) .................................................................... .................. .................. 117 369 779 1,339 2,085
Total interfund transactions undistributed by agency .................................................. 109,667 112,362 118,268 123,539 129,870 135,861 140,648
Total interfund transactions .............................................................................................. 340,905 386,730 389,326 401,039 424,633 452,307 476,434
Total on-budget receipts ....................................................................................................... 381,307 437,024 439,927 454,422 481,492 513,327 541,301
Off-budget receipts:
Trust intrafund transactions:
Interfund transactions:
Federal fund payments to trust funds:
Old-age, survivors, and disability insurance ............................................................ 22,056 19,358 19,962 22,034 24,227 27,110 30,069
Employer share, employee retirement (off-budget) ................................................. 11,625 12,289 13,108 13,848 14,739 15,788 16,560
Interest received by off-budget trust funds ............................................................. 97,722 106,249 114,618 124,802 136,492 149,278 162,901
Proposed Legislation (non-PAYGO) .................................................................... .................. .................. .................. .................. .................. .................. –775
Total off-budget receipts: ...................................................................................................... 131,403 137,896 147,688 160,684 175,458 192,176 208,755
Total intragovernmental transactions ................................................................................... 512,710 574,920 587,615 615,106 656,950 705,503 750,056
PROPRIETARY RECEIPTS FROM THE PUBLIC

Interest:
Interest on foreign loans and deferred foreign collections .............................................. 285 210 210 210 210 210 210
Interest on deposits in tax and loan accounts ................................................................ 924 1,022 871 834 797 769 767
Proposed Legislation (non-PAYGO) ............................................................................. .................. .................. 10 10 10 10 10
Other interest (domestic—civil) 2 ...................................................................................... 11,264 12,494 13,632 14,681 16,041 17,554 19,047
Total interest ...................................................................................................................... 12,473 13,726 14,723 15,735 17,058 18,543 20,034
Dividends and other earnings ........................................................................................... 2,177 2,382 1,446 1,490 1,511 1,486 1,464
Royalties and rents ............................................................................................................... 4,337 3,955 4,271 4,452 4,384 4,392 4,671
Proposed Legislation (PAYGO) ........................................................................................ .................. .................. –44 192 177 58 216
Sale of products:
Sale of timber and other natural land products ............................................................... 393 272 279 288 296 305 314
Proposed Legislation (PAYGO) ........................................................................................ .................. .................. 67 64 60 57 ..................
Sale of minerals and mineral products ............................................................................ 671 74 39 37 36 35 36
Sale of power and other utilities ...................................................................................... 725 705 674 644 660 628 630
Proposed Legislation (PAYGO) .................................................................................... .................. .................. 17 17 17 17 17
Other .................................................................................................................................. 102 99 115 112 99 119 115
Total sale of products ....................................................................................................... 1,891 1,150 1,205 1,176 1,182 1,175 1,126
Fees and other charges for services and special benefits:

Medicare premiums and other charges (trust funds) ...................................................... 45,108 52,785 57,202 61,923 66,864 72,138 78,222
Proposed Legislation (PAYGO) .................................................................................... .................. .................. 78 82 –43 –78 –95
Nuclear waste disposal revenues ..................................................................................... 752 760 770 771 773 774 775
Veterans life insurance (trust funds) ................................................................................ 154 141 128 116 104 92 82
Other 2 ............................................................................................................................... 7,908 12,002 12,060 12,672 13,338 14,130 15,025
Proposed Legislation (non-PAYGO) ............................................................................. .................. .................. 21 21 21 21 21
Proposed Legislation (PAYGO) .................................................................................... .................. .................. 762 1,091 1,306 1,561 1,900
Total fees and other charges ........................................................................................... 53,922 65,688 71,021 76,676 82,363 88,638 95,930
Sale of Government property:

Sale of land and other real property 2 ............................................................................. 984 191 229 197 195 160 160
Military assistance program sales (trust funds) ............................................................... 14,233 15,053 13,054 11,446 11,651 11,861 12,074
Table 18–5. OFFSETTING RECEIPTS BY TYPE—Continued

Estimate
2006
Source Actual 2007 2008 2009 2010 2011 2012
Other .................................................................................................................................. 214 147 164 130 106 99 47

Total sale of Government property .................................................................................. 15,431 15,391 13,892 12,095 12,252 12,364 12,325
Realization upon loans and investments:

Negative subsidies and downward reestimates ............................................................... 8,600 11,752 713 629 611 609 534
Proposed Legislation (non-PAYGO) ............................................................................. .................. .................. –21 –21 –21 –21 –21
Proposed Legislation (PAYGO) .................................................................................... .................. .................. 2,859 46 46 46 46
Repayment of loans to foreign nations ............................................................................ 328 .................. .................. .................. .................. .................. ..................
Other .................................................................................................................................. 475 70 67 80 80 80 80
Total realization upon loans and investments ................................................................. 9,403 11,822 3,618 734 716 714 639
Recoveries and refunds 2 ..................................................................................................... 8,169 8,782 8,562 8,935 9,385 9,131 9,276
Proposed Legislation (non-PAYGO) ................................................................................. .................. .................. .................. 58 122 126 130
Proposed Legislation (PAYGO) ........................................................................................ .................. .................. 2 492 507 373 379
Miscellaneous receipt accounts 2 ......................................................................................... 2,980 2,008 1,949 1,961 1,972 1,983 1,994
Total proprietary receipts from the public distributed by agency ........................................ 110,783 124,904 120,659 124,010 131,643 138,997 148,198
Other interest: Interest received from Outer Continental Shelf escrow account ................ 2 .................. .................. .................. .................. .................. ..................
Rents, bonuses, and royalties:
Outer Continental Shelf rents and bonuses ..................................................................... 967 662 2,404 1,169 875 532 474
Outer Continental Shelf royalties ...................................................................................... 6,316 6,148 6,740 8,759 8,087 9,035 8,860
Arctic National Wildlife Refuge:
Proposed Legislation (PAYGO) .................................................................................... .................. .................. .................. 7,004 4 1,006 6
Sale of major assets ............................................................................................................. .................. .................. .................. 323 .................. .................. ..................
Other undistributed offsetting receipts .................................................................................. .................. 6,850 .................. .................. .................. .................. ..................
Total proprietary receipts from the public undistributed by agency .................................... 7,285 13,660 9,194 17,305 9,016 10,623 9,390
Total proprietary receipts from the public .......................................................................... 118,068 138,564 129,853 141,315 140,659 149,620 157,588
OFFSETTING GOVERNMENTAL RECEIPTS

Regulatory fees ...................................................................................................................... 5,759 6,108 7,032 7,235 7,527 7,866 8,158
Proposed Legislation (non-PAYGO) ................................................................................. .................. .................. –63 –62 –62 –63 –64
Other ...................................................................................................................................... 159 143 144 144 145 124 125
Spectrum auction proceeds .................................................................................................. 111 6,900 11,850 2,158 100 100 ..................
Proposed Legislation (PAYGO) ........................................................................................ .................. 130 452 405 550 550 825
Total offsetting governmental receipts ............................................................................ 6,029 13,281 19,507 9,973 8,353 8,671 9,139
Total offsetting receipts .......................................................................................................... 636,807 726,765 736,975 766,394 805,962 863,794 916,783
1 Includes provision for covered Federal civilian employees and military personnel.
2 Includes both Federal funds and trust funds.
19. TAX EXPENDITURES
The Congressional Budget Act of 1974 (Public Law The ambiguities in the tax expenditure concept are
93–344) requires that a list of ‘‘tax expenditures’’ be reviewed in greater detail in Appendix A. This review
included in the budget. Tax expenditures are defined focuses on defining tax expenditures relative to a com-
in the law as ‘‘revenue losses attributable to provisions prehensive income tax baseline and a consumption tax
of the Federal tax laws which allow a special exclusion, baseline, and defining negative tax expenditures, i.e.,
exemption, or deduction from gross income or which provisions of current law that over-tax certain items
provide a special credit, a preferential rate of tax, or or activities.
a deferral of liability.’’ These exceptions may be viewed The tax expenditure estimates presented below differ
as alternatives to other policy instruments, such as from a comprehensive income tax in a number of other
spending or regulatory programs. important respects. While under a comprehensive in-
Identification and measurement of tax expenditures come tax all income is taxed once, the U.S. income
depends importantly on the baseline tax system against tax system generally taxes corporate income twice, first
which the actual tax system is compared. In general, at the corporate level through the corporate income tax
the tax expenditure estimates presented in this chapter and then again when the income is received by inves-
are patterned on a comprehensive income tax, which tors as dividends or capital gains. This ‘‘double tax’’
defines income as the sum of consumption and the is accounted for in some of the tax expenditure esti-
change in net wealth in a given period of time. An mates, such as those related to retirement savings, but
alternative approach would be to pattern the tax ex- not in the corporate tax expenditures. Indeed, the tax
penditure estimates on a comprehensive consumption expenditure estimates, in large part, view the indi-
tax. Which approach is used is perhaps the most impor- vidual and corporation income taxes separately, rather
tant factor determining what is included as a tax ex- than as an integrated system as appropriate under com-
penditure. For example, because a consumption tax prehensive income tax principles. Other areas of diver-
does not tax the return to saving or investment, using gence from a comprehensive income tax are detailed
a comprehensive consumption tax as the normative below.
baseline for determining tax expenditures would ex- An important assumption underlying each tax ex-
clude current tax exemptions related to retirement and penditure estimate reported below is that other parts
education saving accounts. Similarly, business provi- of the tax code remain unchanged. The estimates would
sions that provide accelerated depreciation or expensing be different if tax expenditures were changed simulta-
of investment would also be excluded as tax expendi- neously because of potential interactions among provi-
tures because investment is generally deducted imme- sions. For that reason, this chapter does not present
diately under a comprehensive consumption tax. a grand total for the estimated tax expenditures.
The choice of the baseline—a comprehensive income Tax expenditures relating to the individual and cor-
or a comprehensive consumption tax—is arbitrary when porate income taxes are estimated for fiscal years
viewed from the perspective of the current so-called 2006–2012 using two methods of accounting: current
income tax system, which includes elements of both revenue effects and present value effects. The present
income and consumption taxes. According to Treasury value approach provides estimates of the revenue ef-
Department analysis, roughly 35 percent of household fects for tax expenditures that generally involve defer-
financial assets receive consumption tax treatment be- rals of tax payments into the future.
cause assets are held in tax-preferred accounts such A discussion of performance measures and economic
as individual retirement accounts (IRAs), defined-con- effects related to the assessment of the effect of tax
tribution retirement plans (401(k) type plans), defined- expenditures on the achievement of program perform-
benefit pension plans, and tax-preferred annuities and ance goals is presented in Appendix B. This section
various life insurance products. The balance of house- is a complement to the Government-wide performance
hold financial assets reflecting most other saving vehi- plan required by the Government Performance and Re-
cles receive income tax treatment. sults Act of 1993.
TAX EXPENDITURES IN THE INCOME TAX
Tax Expenditure Estimates ity occurring before fiscal year 2006. Due to the time
All tax expenditure estimates presented here are required to estimate the large number of tax expendi-
based upon current tax law enacted as of December tures, the estimates are based on Mid-Session economic
31, 2006. Expired or repealed provisions are not listed assumptions; exceptions are the earned income tax
if their revenue effects result only from taxpayer activ- credit and child credit provisions, which involve outlay
285
components and hence are updated to reflect the eco- Interpreting Tax Expenditure Estimates
nomic assumptions used elsewhere in the Budget.
The estimates shown for individual tax expenditures
The total revenue effects for tax expenditures for fis-
cal years 2006–2012 are displayed according to the in Tables 19–1, 19–2, and 19–3 do not necessarily equal
Budget’s functional categories in Table 19–1. Descrip- the increase in Federal revenues (or the change in the
tions of the specific tax expenditure provisions follow budget balance) that would result from repealing these
the tables of estimates and the discussion of general special provisions, for the following reasons:
features of the tax expenditure concept. First, eliminating a tax expenditure may have incen-
Two baseline concepts—the normal tax baseline and tive effects that alter economic behavior. These incen-
the reference tax law baseline—are used to identify tives can affect the resulting magnitudes of the activity
and estimate tax expenditures. 1 For the most part, the or of other tax provisions or Government programs.
two concepts coincide. However, items treated as tax For example, if capital gains were taxed at ordinary
expenditures under the normal tax baseline, but not rates, capital gain realizations would be expected to
the reference tax law baseline, are indicated by the decline, potentially resulting in a decline in tax re-
designation ‘‘normal tax method’’ in the tables. The rev- ceipts. Such behavioral effects are not reflected in the
enue effects for these items are zero using the reference estimates.
tax rules. The alternative baseline concepts are dis- Second, tax expenditures are interdependent even
cussed in detail following the tables. without incentive effects. Repeal of a tax expenditure
Table 19–2 reports the respective portions of the total provision can increase or decrease the tax revenues as-
revenue effects that arise under the individual and cor- sociated with other provisions. For example, even if
porate income taxes separately. The location of the esti- behavior does not change, repeal of an itemized deduc-
mates under the individual and corporate headings does tion could increase the revenue costs from other deduc-
not imply that these categories of filers benefit from tions because some taxpayers would be moved into
the special tax provisions in proportion to the respective
higher tax brackets. Alternatively, repeal of an itemized
tax expenditure amounts shown. Rather, these break-
deduction could lower the revenue cost from other de-
downs show the specific tax accounts through which
the various provisions are cleared. The ultimate bene- ductions if taxpayers are led to claim the standard de-
ficiaries of corporate tax expenditures could be share- duction instead of itemizing. Similarly, if two provisions
holders, employees, customers, or other providers of were repealed simultaneously, the increase in tax liabil-
capital, depending on economic forces. ity could be greater or less than the sum of the two
Table 19–3 ranks the major tax expenditures by the separate tax expenditures, because each is estimated
size of their 2008–2012 revenue effect. The first column assuming that the other remains in force. In addition,
provides the number of the provision in order to cross the estimates reported in Table 19–1 are the totals
reference this table to Tables 19–1 and 19–2 as well of individual and corporate income tax revenue effects
as to the descriptions below. Outlay Equivalent Esti- reported in Table 19–2 and do not reflect any possible
mates of Income Tax Expenditures, which were in- interactions between individual and corporate income
cluded in prior volumes of Analytical Perspectives, are tax receipts. For this reason, the estimates in Table
no longer included in this chapter. 2 19–1 should be regarded as approximations.
1 These baseline concepts are thoroughly discussed in Special Analysis G of the 1985
Budget, where the former is referred to as the pre-1983 method and the latter the post-
1982 method.
2 The Administration has dropped the estimates of the outlay equivalents because they the concepts as to when they should differ were often judgmental and hard to apply with
were often the same as the normal tax expenditure estimates, and the criteria for applying consistency across time and across tax expenditure items.
19. TAX EXPENDITURES 287
Table 19–1. ESTIMATES OF TOTAL INCOME TAX EXPENDITURES

(in millions of dollars)
Total from corporations and individuals
2006 2007 2008 2009 2010 2011 2012 2008–12
National Defense
1 Exclusion of benefits and allowances to armed forces personnel ........................................................... 3,100 3,220 3,350 3,480 3,620 3,780 3,930 18,160
International affairs:
2 Exclusion of income earned abroad by U.S. citizens ............................................................................... 2,500 2,630 2,760 2,900 3,050 3,200 3,360 15,270
3 Exclusion of certain allowances for Federal employees abroad .............................................................. 800 840 880 920 970 1,020 1,070 4,860
4 Extraterritorial income exclusion ................................................................................................................ 4,400 1,630 .............. .............. .............. .............. .............. ................
5 Inventory property sales source rules exception ....................................................................................... 1,730 1,890 2,120 2,330 2,510 2,704 2,913 12,577
6 Deferral of income from controlled foreign corporations (normal tax method) ........................................ 11,160 11,940 12,770 13,650 14,600 15,620 16,710 73,350
7 Deferred taxes for financial firms on certain income earned overseas ................................................... 2,260 2,370 2,490 1,060 .............. .............. .............. 3,550
8 Expensing of research and experimentation expenditures (normal tax method) ..................................... 7,920 5,680 5,280 4,060 5,030 6,230 6,000 26,600
9 Credit for increasing research activities ..................................................................................................... 2,180 10,320 4,960 2,100 920 360 70 8,410
Energy:
10 Expensing of exploration and development costs, fuels ........................................................................... 680 860 840 710 600 450 310 2,910
11 Excess of percentage over cost depletion, fuels ...................................................................................... 760 790 790 790 780 760 740 3,860
12 Alternative fuel production credit ................................................................................................................ 2,980 2,370 780 10 10 .............. .............. 800
13 Exception from passive loss limitation for working interests in oil and gas properties ........................... 30 30 30 30 30 30 30 150
14 Capital gains treatment of royalties on coal .............................................................................................. 160 170 170 170 190 180 130 840
15 Exclusion of interest on energy facility bonds ........................................................................................... 40 40 50 50 50 50 50 250
16 New technology credit ................................................................................................................................ 510 690 960 1,120 1,150 1,150 1,150 5,530
17 Alcohol fuel credits 1 ................................................................................................................................... 50 50 60 70 80 30 .............. 240
18 Tax credit and deduction for clean-fuel burning vehicles ......................................................................... 110 260 150 130 –20 –50 –60 150
19 Exclusion of utility conservation subsidies ................................................................................................. 110 110 110 110 110 110 100 540
20 Credit for holding clean renewable energy bonds .................................................................................... 20 60 80 100 100 100 100 480
21 Deferral of gain from dispositions of transmission property to implement FERC restructuring policy ... 620 530 230 –100 –360 –510 –540 –1,280
22 Credit for investment in clean coal facilities .............................................................................................. .............. 30 50 80 130 180 250 690
23 Temporary 50% expensing for equipment used in the refining of liquid fuels ........................................ 10 30 120 240 260 180 –50 750
24 Natural gas distribution pipelines treated as 15–year property ................................................................ 20 50 90 120 150 150 120 630
25 Amortize all geological and geophysical expenditures over 2 years ....................................................... 10 60 90 70 40 10 10 220
26 Allowance of deduction for certain energy efficient commercial building property .................................. 80 190 170 90 30 –10 –10 270
27 Credit for construction of new energy efficient homes ............................................................................. 10 20 30 20 10 .............. .............. 60
28 Credit for energy efficiency improvements to existing homes .................................................................. 230 380 150 .............. .............. .............. .............. 150
29 Credit for energy efficient appliances ........................................................................................................ 120 80 .............. .............. .............. .............. .............. ................
30 30% credit for residential purchases/installations of solar and fuel cells ................................................ 10 10 10 .............. .............. .............. .............. 10
31 Credit for business installation of qualified fuel cells and stationary microturbine power plants ............ 80 90 130 50 –10 –10 –10 150
32 Partial expensing for advanced mine safety equipment ........................................................................... .............. 10 20 .............. .............. .............. .............. 20
Natural resources and environment:
33 Expensing of exploration and development costs, nonfuel minerals ....................................................... 10 10 10 10 10 10 10 50
34 Excess of percentage over cost depletion, nonfuel minerals ................................................................... 450 480 490 510 530 550 570 2,650
35 Exclusion of interest on bonds for water, sewage, and hazardous waste facilities ................................ 510 580 600 630 640 670 680 3,220
36 Capital gains treatment of certain timber income ..................................................................................... 160 170 170 170 190 180 130 840
37 Expensing of multiperiod timber growing costs ......................................................................................... 290 310 320 330 350 360 370 1,730
38 Tax incentives for preservation of historic structures ............................................................................... 390 400 430 440 470 490 520 2,350
39 Expensing of capital costs with respect to complying with EPA sulfur regulations ................................ 10 10 30 50 30 .............. .............. 110
40 Exclusion of gain or loss on sale or exchange of certain brownfield sites ............................................. .............. 10 30 40 40 40 30 180
Agriculture:
41 Expensing of certain capital outlays .......................................................................................................... 130 130 130 140 140 150 150 710
42 Expensing of certain multiperiod production costs .................................................................................... 70 70 80 80 80 90 90 420
43 Treatment of loans forgiven for solvent farmers ....................................................................................... 20 20 20 20 20 30 30 120
44 Capital gains treatment of certain income ................................................................................................. 880 940 950 950 1,010 980 700 4,590
45 Income averaging for farmers .................................................................................................................... 60 60 60 60 60 70 70 320
46 Deferral of gain on sale of farm refiners ................................................................................................... 10 20 20 20 20 20 20 100
47 Bio-Diesel and small agri-biodiesel producer tax credits .......................................................................... 90 180 200 30 20 10 10 270
Commerce and housing:
Financial institutions and insurance:
48 Exemption of credit union income ......................................................................................................... 1,320 1,400 1,480 1,570 1,660 1,750 1,850 8,310
49 Excess bad debt reserves of financial institutions ................................................................................ 20 10 10 10 10 .............. .............. 30
50 Exclusion of interest on life insurance savings ..................................................................................... 19,380 20,150 21,925 25,060 27,830 30,090 32,100 137,005
51 Special alternative tax on small property and casualty insurance companies .................................... 50 50 50 50 50 60 60 270
52 Tax exemption of certain insurance companies owned by tax-exempt organizations ........................ 220 230 240 250 260 270 280 1,300
53 Small life insurance company deduction ............................................................................................... 60 60 60 60 60 50 50 280
54 Exclusion of interest spread of financial institutions ............................................................................. 1,350 1,330 1,400 1,480 1,550 1,950 2,050 8,430
Housing:
55 Exclusion of interest on owner-occupied mortgage subsidy bonds ..................................................... 1,170 1,300 1,390 1,430 1,470 1,510 1,560 7,360
56 Exclusion of interest on rental housing bonds ...................................................................................... 970 1,090 1,150 1,180 1,220 1,260 1,300 6,110
Table 19–1. ESTIMATES OF TOTAL INCOME TAX EXPENDITURES—Continued

2006 2007 2008 2009 2010 2011 2012 2008–12
57 Deductibility of mortgage interest on owner-occupied homes .............................................................. 68,330 79,940 89,430 96,250 103,540 111,440 119,600 520,260
58 Deductibility of State and local property tax on owner-occupied homes ............................................ 21,260 15,540 12,620 12,590 12,580 22,440 27,770 88,000
59 Deferral of income from installment sales ............................................................................................. 1,190 1,210 1,230 1,250 1,370 1,500 1,650 7,000
60 Capital gains exclusion on home sales ................................................................................................. 35,270 37,030 38,890 40,830 42,870 45,010 47,270 214,870
61 Exclusion of net imputed rental income ................................................................................................ 28,780 32,110 35,680 39,440 43,596 48,190 53,269 220,176
62 Exception from passive loss rules for $25,000 of rental loss .............................................................. 6,590 7,150 7,520 7,790 7,990 8,150 8,300 39,750
63 Credit for low-income housing investments .......................................................................................... 4,420 4,660 4,940 5,250 5,570 5,870 6,170 27,800
64 Accelerated depreciation on rental housing (normal tax method) ....................................................... 10,340 11,240 12,300 13,480 14,560 15,790 17,190 73,320
Commerce:
65 Cancellation of indebtedness ................................................................................................................. 90 100 90 60 30 30 30 240
66 Exceptions from imputed interest rules ................................................................................................. 50 50 50 50 50 50 50 250
67 Capital gains (except agriculture, timber, iron ore, and coal) .............................................................. 48,610 51,770 51,960 52,230 55,400 53,870 38,420 251,880
68 Capital gains exclusion of small corporation stock ............................................................................... 240 270 320 340 370 490 540 2,060
69 Step-up basis of capital gains at death ................................................................................................ 29,600 32,600 35,900 36,750 37,950 39,450 41,010 191,060
70 Carryover basis of capital gains on gifts .............................................................................................. 590 650 760 800 1,270 6,340 1,500 10,670
71 Ordinary income treatment of loss from small business corporation stock sale ................................. 50 50 50 50 60 60 60 280
72 Accelerated depreciation of buildings other than rental housing (normal tax method) ....................... –970 –740 –310 260 870 1,550 2,280 4,650
73 Accelerated depreciation of machinery and equipment (normal tax method) ..................................... 36,470 51,030 64,670 78,390 85,250 92,630 100,850 421,790
74 Expensing of certain small investments (normal tax method) ............................................................. 5,000 5,330 5,330 4,740 –1,090 80 850 9,910
75 Graduated corporation income tax rate (normal tax method) .............................................................. 4,050 4,270 4,240 4,320 4,420 4,530 4,690 22,200
76 Exclusion of interest on small issue bonds .......................................................................................... 510 580 600 630 640 670 680 3,220
77 Deduction for US production activities .................................................................................................. 9,950 10,700 13,810 14,500 19,550 23,890 25,360 97,110
78 Special rules for certain film and TV production .................................................................................. 110 90 70 –40 –90 –60 –50 –170
Transportation:
79 Deferral of tax on shipping companies ...................................................................................................... 20 20 20 20 20 20 20 100
80 Exclusion of reimbursed employee parking expenses .............................................................................. 2,740 2,890 3,040 3,190 3,350 3,430 3,540 16,550
81 Exclusion for employer-provided transit passes ........................................................................................ 560 630 710 790 880 960 1,030 4,370
82 Tax credit for certain expenditures for maintaining railroad tracks .......................................................... 140 160 130 60 30 10 10 240
83 Exclusion of interest on bonds for Financing of Highway Projects and rail-truck transfer facilities ....... 25 50 75 95 95 100 100 465
Community and regional development:
84 Investment credit for rehabilitation of structures (other than historic) ...................................................... 40 40 40 40 40 40 40 200
85 Exclusion of interest for airport, dock, and similar bonds ........................................................................ 1,130 1,250 1,320 1,360 1,400 1,440 1,480 7,000
86 Exemption of certain mutuals’ and cooperatives’ income ......................................................................... 80 80 80 80 80 90 90 420
87 Empowerment zones and renewal communities ....................................................................................... 1,210 1,340 1,480 1,740 1,130 420 570 5,340
88 New markets tax credit .............................................................................................................................. 590 810 990 970 860 730 590 4,140
89 Expensing of environmental remediation costs ......................................................................................... 150 300 130 –40 –20 –20 –30 20
90 Credit to holders of Gulf Tax Credit Bonds .............................................................................................. 10 10 10 10 10 10 10 50
Education, training, employment, and social services:
Education:
91 Exclusion of scholarship and fellowship income (normal tax method) ................................................ 1,780 1,870 1,960 2,050 2,150 2,250 2,360 10,770
92 HOPE tax credit ..................................................................................................................................... 3,900 3,330 3,350 3,600 3,710 4,350 4,730 19,740
93 Lifetime Learning tax credit ................................................................................................................... 2,490 2,190 2,200 2,310 2,390 2,780 3,020 12,700
94 Education Individual Retirement Accounts ............................................................................................ 10 10 10 20 20 20 30 100
95 Deductibility of student-loan interest ...................................................................................................... 800 810 820 830 840 780 530 3,800
96 Deduction for higher education expenses ............................................................................................. 1,420 1,450 1,180 .............. .............. .............. .............. 1,180
97 State prepaid tuition plans ..................................................................................................................... 690 830 1,000 1,210 1,470 1,820 2,000 7,500
98 Exclusion of interest on student-loan bonds ......................................................................................... 500 550 590 600 630 640 670 3,130
99 Exclusion of interest on bonds for private nonprofit educational facilities ........................................... 2,140 2,380 2,530 2,610 2,690 2,770 2,850 13,450
100 Credit for holders of zone academy bonds .......................................................................................... 130 140 160 170 170 170 160 830
101 Exclusion of interest on savings bonds redeemed to finance educational expenses ......................... .............. 20 20 20 20 20 20 100
102 Parental personal exemption for students age 19 or over ................................................................... 4,030 2,500 1,590 1,480 1,410 2,620 3,040 10,140
103 Deductibility of charitable contributions (education) .............................................................................. 4,200 4,550 5,120 5,520 5,900 6,320 6,770 29,630
104 Exclusion of employer-provided educational assistance ....................................................................... 590 620 660 690 720 40 .............. 2,110
105 Special deduction for teacher expenses ............................................................................................... 160 170 160 .............. .............. .............. .............. 160
106 Discharge of student loan indebtedness ............................................................................................... 20 20 20 20 20 20 20 100
Training, employment, and social services: .............. .............. .............. .............. .............. .............. .............. ................
107 Work opportunity tax credit .................................................................................................................... 210 360 370 250 140 70 40 870
108 Welfare-to-work tax credit ...................................................................................................................... 80 80 80 50 20 10 10 170
109 Employer provided child care exclusion ................................................................................................ 660 890 1,030 1,080 1,140 1,160 1,210 5,620
110 Employer-provided child care credit ...................................................................................................... 10 10 10 20 20 10 .............. 60
111 Assistance for adopted foster children .................................................................................................. 320 350 400 440 480 530 570 2,420
112 Adoption credit and exclusion ................................................................................................................ 540 560 570 580 600 540 170 2,460
113 Exclusion of employee meals and lodging (other than military) .......................................................... 890 930 970 1,010 1,060 1,110 1,170 5,320
114 Child credit 2 ........................................................................................................................................... 30,377 32,556 32,341 32,096 31,909 24,719 13,598 134,666
115 Credit for child and dependent care expenses ..................................................................................... 3,190 2,810 1,740 1,650 1,570 1,500 1,430 7,890
116 Credit for disabled access expenditures ............................................................................................... 20 30 30 30 30 30 30 150

2006 2007 2008 2009 2010 2011 2012 2008–12
117 Deductibility of charitable contributions, other than education and health .......................................... 37,120 40,400 45,760 49,360 52,840 56,610 60,740 265,310
118 Exclusion of certain foster care payments ............................................................................................ 440 450 460 470 480 490 500 2,400
119 Exclusion of parsonage allowances ...................................................................................................... 480 510 550 580 610 640 670 3,050
120 Employee retention credit for employers affected by Hurricane Katrina, Rita, and Wilma ................ .............. 40 .............. .............. .............. .............. .............. ................
Health:
121 Exclusion of employer contributions for medical insurance premiums and medical care ....................... 125,000 141,270 160,190 179,580 200,510 221,880 243,820 1,005,980
122 Self-employed medical insurance premiums ............................................................................................. 3,970 4,370 3,730 4,180 4,670 5,230 5,810 23,620
123 Medical Savings Accounts/Health Savings Accounts ................................................................................ 280 990 1,980 2,600 2,830 2,910 2,850 13,170
124 Deductibility of medical expenses .............................................................................................................. 3,770 4,240 4,920 5,820 6,840 9,250 10,780 37,610
125 Exclusion of interest on hospital construction bonds ................................................................................ 3,420 3,770 4,010 4,130 4,260 4,380 4,510 21,290
126 Deductibility of charitable contributions (health) ........................................................................................ 4,190 4,560 5,160 5,570 5,960 6,380 6,850 29,920
127 Tax credit for orphan drug research .......................................................................................................... 230 260 290 320 360 410 460 1,840
128 Special Blue Cross/Blue Shield deduction ................................................................................................ 620 680 740 610 660 690 740 3,440
129 Tax credit for health insurance purchased by certain displaced and retired individuals 3 ...................... .............. 10 10 10 10 10 10 50
130 Distributions from retirement plans for premiums for health and long-term care insurance ................... .............. 250 240 280 310 340 380 1,550
Income security:
131 Exclusion of railroad retirement system benefits ....................................................................................... 390 380 380 380 370 360 350 1,840
132 Exclusion of workers’ compensation benefits ............................................................................................ 5,660 5,740 5,830 5,920 6,010 6,110 6,200 30,070
133 Exclusion of public assistance benefits (normal tax method) ................................................................... 450 470 490 510 530 550 580 2,660
134 Exclusion of special benefits for disabled coal miners ............................................................................. 50 50 40 40 40 40 40 200
135 Exclusion of military disability pensions ..................................................................................................... 110 110 120 130 130 140 150 670
Net exclusion of pension contributions and earnings:
136 Employer plans ....................................................................................................................................... 49,040 49,510 48,480 48,030 46,350 43,700 42,790 229,350
137 401(k) plans ............................................................................................................................................ 40,760 42,410 43,970 45,980 48,550 54,230 57,690 250,420
138 Individual Retirement Accounts ............................................................................................................. 3,970 5,700 6,650 7,130 7,200 7,460 7,840 36,280
139 Low and moderate income savers credit .............................................................................................. 700 690 670 630 610 590 580 3,080
140 Keogh plans ............................................................................................................................................ 10,130 10,860 11,890 13,010 14,230 15,550 16,970 71,650
Exclusion of other employee benefits:
141 Premiums on group term life insurance ................................................................................................ 2,280 2,310 2,350 2,380 2,420 2,450 2,490 12,090
142 Premiums on accident and disability insurance .................................................................................... 290 300 310 320 330 340 350 1,650
143 Income of trusts to finance supplementary unemployment benefits ........................................................ 20 30 30 30 40 40 50 190
144 Special ESOP rules .................................................................................................................................... 1,760 1,890 2,030 2,170 2,330 2,490 2,670 11,690
145 Additional deduction for the blind .............................................................................................................. 40 40 40 40 40 50 60 230
146 Additional deduction for the elderly ........................................................................................................... 1,920 1,830 1,830 1,910 2,010 2,890 3,480 12,120
147 Tax credit for the elderly and disabled ...................................................................................................... 20 10 10 10 10 10 10 50
148 Deductibility of casualty losses .................................................................................................................. 260 280 300 310 320 350 370 1,650
149 Earned income tax credit 4 ......................................................................................................................... 5,050 5,360 5,340 5,490 5,660 5,890 7,900 30,280
150 Additional exemption for housing Hurricane Katrina displaced individuals .............................................. 110 20 .............. .............. .............. .............. .............. ................
Social Security:
Exclusion of social security benefits:
151 Social Security benefits for retired workers .......................................................................................... 17,890 18,100 18,930 19,110 20,230 21,320 23,260 102,850
152 Social Security benefits for disabled ..................................................................................................... 4,730 5,120 5,620 5,890 6,240 6,690 7,220 31,660
153 Social Security benefits for dependents and survivors ........................................................................ 3,360 3,340 3,400 3,330 3,420 3,490 3,700 17,340
Veterans benefits and services:
154 Exclusion of veterans death benefits and disability compensation .......................................................... 3,580 3,770 3,890 4,030 4,200 4,590 5,030 21,740
155 Exclusion of veterans pensions ................................................................................................................. 150 180 180 180 190 200 230 980
156 DExclusion of GI bill benefits ..................................................................................................................... 210 260 280 300 320 360 420 1,680
157 Exclusion of interest on veterans housing bonds ..................................................................................... 40 40 40 50 50 50 50 240
General purpose fiscal assistance:
158 Exclusion of interest on public purpose State and local bonds ............................................................... 22,980 25,430 27,150 27,960 28,800 29,670 30,560 144,140
159 Deductibility of nonbusiness state and local taxes other than on owner-occupied homes ..................... 43,120 33,680 27,900 27,790 28,570 48,560 59,850 192,670
160 Tax credit for corporations receiving income from doing business in U.S. possessions ........................ 200 20 .............. .............. .............. .............. .............. ................
Interest:
161 Deferral of interest on U.S. savings bonds ............................................................................................... 1,260 1,330 1,340 1,360 1,370 1,420 1,520 7,010
Addendum: Aid to State and local governments:
Deductibility of:
Property taxes on owner-occupied homes ............................................................................................ 21,260 15,540 12,620 12,590 12,580 22,440 27,770 88,000
Nonbusiness State and local taxes other than on owner-occupied homes ........................................ 43,120 33,680 27,900 27,790 28,570 48,560 59,850 192,670
Exclusion of interest on State and local bonds for:
Public purposes ...................................................................................................................................... 22,980 25,430 27,150 27,960 28,800 29,670 30,560 144,140
Energy facilities ...................................................................................................................................... 40 40 50 50 50 50 50 250
Water, sewage, and hazardous waste disposal facilities ..................................................................... 510 580 600 630 640 670 680 3,220
Small-issues ............................................................................................................................................ 510 580 600 630 640 670 680 3,220
Owner-occupied mortgage subsidies ..................................................................................................... 1,170 1,300 1,390 1,430 1,470 1,510 1,560 7,360

2006 2007 2008 2009 2010 2011 2012 2008–12
Rental housing ........................................................................................................................................ 970 1,090 1,150 1,180 1,220 1,260 1,300 6,110
Airports, docks, and similar facilities ..................................................................................................... 1,130 1,250 1,320 1,360 1,400 1,440 1,480 7,000
Student loans .......................................................................................................................................... 500 550 590 600 630 640 670 3,130
Private nonprofit educational facilities ................................................................................................... 2,140 2,380 2,530 2,610 2,690 2,770 2,850 13,450
Hospital construction .............................................................................................................................. 3,420 3,770 4,010 4,130 4,260 4,380 4,510 21,290
Veterans’ housing ................................................................................................................................... 40 40 40 50 50 50 50 240
Credit for holders of zone academy bonds ............................................................................................... 130 140 160 170 170 170 160 830
1 In addition, the alcohol fuel credit results in a reduction in excise tax receipts (in millions of dollars) as follows: 2006 $2,570; 2007 $2,990; 2008 $3,460; 2009 $4,280; 2010 $4,990; 2011 $1,440; 0 in
2012.
2 The figures in the table indicate the effect of the child tax credit on receipts. The effect of the credit on outlays (in millions of dollars) is as follows: 2006 $15,473; 2007 $14,931; 2008 $14,367; 2009
$14,019; 2010 $13,651; 2011 $13,410; and 2012 $1,275.
3 The figures in the table indicate the effect of the health insurance tax credit on receipts. The effect of the credit on outlays (in millions of dollars) is as follows: 2006 $90; 2007 $100; 2008 $110; 2009
$120; 2010 $130; 2011 $140; and 2012 $150.
4 The figures in the table indicate the effect of the earned income tax credit on receipts. The effect of the credit on outlays (in millions of dollars) is as follows: 2006 $36,166;2007 $36,461; 2008
$37,573; 2009 $38,237; 2010 $38,994; 2011 $40,289; and 2012 $36,982.
Note: Provisions with estimates denoted normal tax method have no revenue loss under the reference tax law method.
All estimates have been rounded to the nearest $10 million. Provisions with estimates that rounded to zero in each year are not included in the table.
Present-Value Estimates plement to the cash-basis estimates for provisions in-

volving deferrals, are discussed below.
The annual value of tax expenditures for tax defer-
Discounted present-value estimates of revenue effects
rals is reported on a cash basis in all tables except
are presented in Table 19–4 for certain provisions that
Table 19–4. Cash-based estimates reflect the difference
involve tax deferrals or other long-term revenue effects.
between taxes deferred in the current year and incom- These estimates complement the cash-based tax ex-
ing revenues that are received due to deferrals of taxes penditure estimates presented in the other tables.
from prior years. Although such estimates are useful The present-value estimates represent the revenue
as a measure of cash flows into the Government, they effects, net of future tax payments that follow from
do not accurately reflect the true economic cost of these activities undertaken during calendar year 2006 which
provisions. For example, for a provision where activity cause the deferrals or other long-term revenue effects.
levels have changed, so that incoming tax receipts from For instance, a pension contribution in 2006 would
past deferrals are greater than deferred receipts from cause a deferral of tax payments on wages in 2006
new activity, the cash-basis tax expenditure estimate and on pension earnings on this contribution (e.g., in-
can be negative, despite the fact that in present-value terest) in later years. In some future year, however,
terms current deferrals have a real cost to the Govern- the 2006 pension contribution and accrued earnings will
ment. Alternatively, in the case of a newly enacted be paid out and taxes will be due; these receipts are
deferral provision, a cash-based estimate can overstate included in the present-value estimate. In general, this
the real effect on receipts to the Government because conceptual approach is similar to the one used for re-
the newly deferred taxes will ultimately be received. porting the budgetary effects of credit programs, where
Present-value estimates, which are a useful com- direct loans and guarantees in a given year affect fu-
ture cash flows.
Table 19–2. ESTIMATES OF TAX EXPENDITURES FOR THE CORPORATE AND INDIVIDUAL INCOME TAXES
Corporations Individuals
2006 2007 2008 2009 2010 2011 2012 2008–12 2006 2007 2008 2009 2010 2011 2012 2008–12
National Defense
1 Exclusion of benefits and allowances to
armed forces personnel ........................ ............ ............ ................ ................ ................ ................ ................ ................ 3,100 3,220 3,350 3,480 3,620 3,780 3,930 18,160
International affairs:
2 Exclusion of income earned abroad by
U.S. citizens .......................................... ............ ............ ................ ................ ................ ................ ................ ................ 2,500 2,630 2,760 2,900 3,050 3,200 3,360 15,270
3 Exclusion of certain allowances for Fed-
eral employees abroad ......................... ............ ............ ................ ................ ................ ................ ................ ................ 800 840 880 920 970 1020 1070 4,860
4 Extraterritorial income exclusion ............... 4,400 1,630 ................ ................ ................ ................ ................ ................ ................ ................ ................ ................ ................ ................ ................ ................
5 Inventory property sales source rules ex-
ception ................................................... 1,730 1,890 2,120 2,330 2,510 2,704 2,913 12,577 ................ ................ ................ ................ ................ ................ ................ ................
6 Deferral of income from controlled foreign
corporations (normal tax method) ........ 11,160 11,940 12,770 13,650 14,600 15,620 16,710 73,350 ................ ................ ................ ................ ................ ................ ................ ................
7 Deferred taxes for financial firms on cer-
tain income earned overseas ............... 2,260 2,370 2,490 1,060 ................ ................ ................ 3,550 ................ ................ ................ ................ ................ ................ ................ ................
8 Expensing of research and experimen-
tation expenditures (normal tax meth-
od) .......................................................... 7,770 5,570 5,170 3,980 4,920 6,100 5,880 26,050 150 110 110 80 110 130 120 550
9 Credit for increasing research activities ... 2,120 10,260 4,910 2,100 920 360 70 8,360 60 60 50 ................ ................ ................ ................ 50
Energy:
10 Expensing of exploration and develop-
ment costs, fuels ................................... 590 750 730 620 520 390 270 2,530 90 110 110 90 80 60 40 380
11 Excess of percentage over cost depletion,
fuels ....................................................... 680 710 710 710 700 680 670 3,470 80 80 80 80 80 80 70 390
12 Alternative fuel production credit .............. 2,860 2,270 750 10 10 ................ ................ 770 120 100 30 ................ ................ ................ ................ 30
13 Exception from passive loss limitation for
working interests in oil and gas prop-
erties ...................................................... ............ ............ ................ ................ ................ ................ ................ ................ 30 30 30 30 30 30 30 150
14 Capital gains treatment of royalties on
coal ........................................................ ............ ............ ................ ................ ................ ................ ................ ................ 160 170 170 170 190 180 130 840
15 Exclusion of interest on energy facility
bonds ..................................................... 10 10 10 10 10 10 10 50 30 30 40 40 40 40 40 200
16 New technology credit ............................... 470 640 900 1060 1090 1090 1090 5,230 40 50 60 60 60 60 60 300
17 Alcohol fuel credits 1 .................................. 40 40 50 50 60 20 ................ 180 10 10 10 20 20 10 ................ 60
18 Tax credit and deduction for clean-fuel
burning vehicles .................................... 40 30 ................ –30 –30 –40 –50 –150 70 230 150 160 10 –10 –10 300
19 Exclusion of utility conservation subsidies ............ ............ ................ ................ ................ ................ ................ ................ 110 110 110 110 110 110 100 540
20 Credit for holding clean renewable energy
bonds ..................................................... 10 30 40 50 50 50 50 240 10 30 40 50 50 50 50 240
21 Deferral of gain from dispositions of
transmission property to implement
FERC restructuring policy ..................... 620 530 230 –100 –360 –510 –540 –1,280 ................ ................ ................ ................ ................ ................ ................ ................
22 Credit for investment in clean coal facili-
ties ......................................................... ............ 30 50 80 130 180 250 690 ................ ................ ................ ................ ................ ................ ................ ................
23 Temporary 50% expensing for equipment
used in the refining of liquid fuels ........ 10 30 120 240 260 180 –50 750 ................ ................ ................ ................ ................ ................ ................ ................
24 Natural gas distribution pipelines treated
as 15–year property .............................. 20 50 90 120 150 150 120 630 ................ ................ ................ ................ ................ ................ ................ ................
25 Amortize all geological and geophysical
expenditures over 2 years .................... 10 50 70 60 30 10 10 180 ................ 10 20 10 10 ................ ................ 40
26 Allowance of deduction for certain energy
efficient commercial building property .. 60 140 130 70 20 –10 –10 200 20 50 40 20 10 ................ ................ 70
27 Credit for construction of new energy effi-
cient homes ........................................... 10 20 20 20 10 ................ ................ 50 ................ ................ 10 ................ ................ ................ ................ 10
28 Credit for energy efficiency improvements
to existing homes .................................. ............ ............ ................ ................ ................ ................ ................ ................ 230 380 150 ................ ................ ................ ................ 150
29 Credit for energy efficient appliances ....... 120 80 ................ ................ ................ ................ ................ ................ ................ ................ ................ ................ ................ ................ ................ ................
30 30% credit for residential purchases/in-
stallations of solar and fuel cells .......... ............ ............ ................ ................ ................ ................ ................ ................ 10 10 10 ................ ................ ................ ................ 10
31 Credit for business installation of qualified
fuel cells and stationary microturbine
power plants .......................................... 60 70 100 40 –10 –10 –10 110 20 20 30 10 ................ ................ ................ 40
32 Partial expensing for advanced mine
safety equipment ................................... ............ 10 20 ................ ................ ................ ................ 20 ................ ................ ................ ................ ................ ................ ................ ................
Natural resources and environment:
33 Expensing of exploration and develop-
ment costs, nonfuel minerals ................ 10 10 10 10 10 10 10 50 ................ ................ ................ ................ ................ ................ ................ ................
34 Excess of percentage over cost depletion,
nonfuel minerals .................................... 430 460 470 480 500 520 540 2,510 20 20 20 30 30 30 30 140
35 Exclusion of interest on bonds for water,
sewage, and hazardous waste facilities 120 140 140 150 150 160 160 760 390 440 460 480 490 510 520 2,460
36 Capital gains treatment of certain timber
income ................................................... ............ ............ ................ ................ ................ ................ ................ ................ 160 170 170 170 190 180 130 840
37 Expensing of multiperiod timber growing
costs ...................................................... 200 220 230 240 250 260 270 1,250 90 90 90 90 100 100 100 480
38 Tax incentives for preservation of historic
structures ............................................... 300 310 330 340 360 380 400 1,810 90 90 100 100 110 110 120 540
39 Expensing of capital costs with respect to
complying with EPA sulfur regulations 10 10 30 50 30 ................ ................ 110 ................ ................ ................ ................ ................ ................ ................ ................
40 Exclusion of gain or loss on sale or ex-
change of certain brownfield sites ....... ............ 10 20 30 30 30 20 130 ................ ................ 10 10 10 10 10 50
Agriculture:
41 Expensing of certain capital outlays ......... 20 20 20 20 20 30 30 120 110 110 110 120 120 120 120 590
Table 19–2. ESTIMATES OF TAX EXPENDITURES FOR THE CORPORATE AND INDIVIDUAL INCOME TAXES—Continued
2006 2007 2008 2009 2010 2011 2012 2008–12 2006 2007 2008 2009 2010 2011 2012 2008–12
42 Expensing of certain multiperiod produc-

tion costs ............................................... 10 10 10 10 10 20 20 70 60 60 70 70 70 70 70 350
43 Treatment of loans forgiven for solvent
farmers ................................................... ............ ............ ................ ................ ................ ................ ................ ................ 20 20 20 20 20 30 30 120
44 Capital gains treatment of certain income ............ ............ ................ ................ ................ ................ ................ ................ 880 940 950 950 1,010 980 700 4,590
45 Income averaging for farmers ................... ............ ............ ................ ................ ................ ................ ................ ................ 60 60 60 60 60 70 70 320
46 Deferral of gain on sale of farm refiners 10 20 20 20 20 20 20 100 ................ ................ ................ ................ ................ ................ ................ ................
47 Bio-Diesel and small agri-biodiesel pro-
ducer tax credits ................................... ............ ............ ................ ................ ................ ................ ................ ................ 90 180 200 30 20 10 10 270
Commerce and housing:
Financial institutions and insurance:
48 Exemption of credit union income ........ 1320 1400 1480 1570 1660 1750 1850 8,310 ................ ................ ................ ................ ................ ................ ................ ................
49 Excess bad debt reserves of financial
institutions ......................................... 20 10 10 10 10 ................ ................ 30 ................ ................ ................ ................ ................ ................ ................ ................
50 Exclusion of interest on life insurance
savings .............................................. 1780 1850 2020 2310 2560 2770 2950 12,610 17600 18300 19905 22750 25270 27320 29150 124,395
51 Special alternative tax on small prop-
erty and casualty insurance compa-
nies .................................................... 50 50 50 50 50 60 60 270 ................ ................ ................ ................ ................ ................ ................ ................
52 Tax exemption of certain insurance
companies owned by tax-exempt or-
ganizations ........................................ 220 230 240 250 260 270 280 1,300 ................ ................ ................ ................ ................ ................ ................ ................
53 Small life insurance company deduc-
tion ..................................................... 60 60 60 60 60 50 50 280 ................ ................ ................ ................ ................ ................ ................ ................
54 Exclusion of interest spread of financial
institutions ......................................... ............ ............ ................ ................ ................ ................ ................ ................ 1,350 1,330 1,400 1,480 1,550 1,950 2,050 8,430
Housing:
55 Exclusion of interest on owner-occu-
pied mortgage subsidy bonds .......... 280 310 330 340 350 360 370 1,750 890 990 1,060 1,090 1,120 1,150 1,190 5,610
56 Exclusion of interest on rental housing
bonds ................................................. 230 260 270 280 290 300 310 1,450 740 830 880 900 930 960 990 4,660
57 Deductibility of mortgage interest on
owner-occupied homes ..................... ............ ............ ................ ................ ................ ................ ................ ................ 68,330 79,940 89,430 96,250 103,540 111,440 119,600 520,260
58 Deductibility of State and local property
tax on owner-occupied homes ......... ............ ............ ................ ................ ................ ................ ................ ................ 21,260 15,540 12,620 12,590 12,580 22,440 27,770 88,000
59 Deferral of income from installment
sales .................................................. 310 310 310 320 320 320 330 1,600 880 900 920 930 1,050 1,180 1,320 5,400
60 Capital gains exclusion on home sales ............ ............ ................ ................ ................ ................ ................ ................ 35,270 37,030 38,890 40,830 42,870 45,010 47,270 214,870
61 Exclusion of net imputed rental income ............ ............ ................ ................ ................ ................ ................ ................ 28,780 32,110 35,680 39,440 43,596 48,190 53,269 220,176
62 Exception from passive loss rules for
$25,000 of rental loss ....................... ............ ............ ................ ................ ................ ................ ................ ................ 6,590 7,150 7,520 7,790 7,990 8,150 8,300 39,750
63 Credit for low-income housing invest-
ments ................................................. 3,980 4,200 4,440 4,730 5,010 5,280 5,550 25,010 440 460 500 520 560 590 620 2,790
64 Accelerated depreciation on rental
housing (normal tax method) ........... 640 680 720 770 820 870 930 4,110 9,700 10,560 11,580 12,710 13,740 14,920 16,260 69,210
Commerce:
65 Cancellation of indebtedness ................ ............ ............ ................ ................ ................ ................ ................ ................ 90 100 90 60 30 30 30 240
66 Exceptions from imputed interest rules ............ ............ ................ ................ ................ ................ ................ ................ 50 50 50 50 50 50 50 250
67 Capital gains (except agriculture, tim-
ber, iron ore, and coal) .................... ............ ............ ................ ................ ................ ................ ................ ................ 48,610 51,770 51,960 52,230 55,400 53,870 38,420 251,880
68 Capital gains exclusion of small cor-
poration stock ................................... ............ ............ ................ ................ ................ ................ ................ ................ 240 270 320 340 370 490 540 2,060
69 Step-up basis of capital gains at death ............ ............ ................ ................ ................ ................ ................ ................ 29,600 32,600 35,900 36,750 37,950 39,450 41,010 191,060
70 Carryover basis of capital gains on
gifts .................................................... ............ ............ ................ ................ ................ ................ ................ ................ 590 650 760 800 1,270 6,340 1,500 10,670
71 Ordinary income treatment of loss from
small business corporation stock
sale .................................................... ............ ............ ................ ................ ................ ................ ................ ................ 50 50 50 50 60 60 60 280
72 Accelerated depreciation of buildings
other than rental housing (normal
tax method) ....................................... 230 290 450 680 910 1,170 1,440 4,650 –1,200 –1,030 –760 –420 –40 380 840 ................
73 Accelerated depreciation of machinery
and equipment (normal tax method) 23,730 34,650 44,780 55,310 62,620 68,490 74,110 305,310 12,740 16,380 19,890 23,080 22,630 24,140 26,740 116,480
74 Expensing of certain small investments
(normal tax method) ......................... 1,150 1,130 1,070 890 –800 –360 –70 730 3,850 4,200 4,260 3,850 –290 440 920 9,180
75 Graduated corporation income tax rate
(normal tax method) ......................... 4,050 4,270 4,240 4,320 4,420 4,530 4,690 22,200 ................ ................ ................ ................ ................ ................ ................ ................
76 Exclusion of interest on small issue
bonds ................................................. 120 140 140 150 150 160 160 760 390 440 460 480 490 510 520 2,460
77 Deduction for US production activities 8,180 8,690 11,380 12,000 16,220 19,100 19,770 78,470 1,770 2,010 2,430 2,500 3,330 4,790 5,590 18,640
78 Special rules for certain film and TV
production .......................................... 90 70 60 –30 –70 –50 –40 –130 20 20 10 –10 –20 –10 –10 –40
Transportation:
79 Deferral of tax on shipping companies .... 20 20 20 20 20 20 20 100 ................ ................ ................ ................ ................ ................ ................ ................
80 Exclusion of reimbursed employee park-
ing expenses ......................................... ............ ............ ................ ................ ................ ................ ................ ................ 2,740 2,890 3,040 3,190 3,350 3,430 3,540 16,550
81 Exclusion for employer-provided transit
passes ................................................... ............ ............ ................ ................ ................ ................ ................ ................ 560 630 710 790 880 960 1,030 4,370
82 Tax credit for certain expenditures for
maintaining railroad tracks .................... 140 160 130 60 30 10 10 240 ................ ................ ................ ................ ................ ................ ................ ................
83 Exclusion of interest on bonds for Financ-
ing of Highway Projects and rail-truck
transfer facilities .................................... 10 15 20 25 25 25 25 120 15 35 55 70 70 75 75 345
Community and regional development:
84 Investment credit for rehabilitation of
structures (other than historic) .............. 20 20 20 20 20 20 20 100 20 20 20 20 20 20 20 100
2006 2007 2008 2009 2010 2011 2012 2008–12 2006 2007 2008 2009 2010 2011 2012 2008–12
85 Exclusion of interest for airport, dock, and

similar bonds ......................................... 270 300 310 320 330 340 350 1,650 860 950 1,010 1,040 1,070 1,100 1,130 5,350
86 Exemption of certain mutuals’ and co-
operatives’ income ................................ 80 80 80 80 80 90 90 420 ................ ................ ................ ................ ................ ................ ................ ................
87 Empowerment zones and renewal com-
munities ................................................. 310 340 370 420 190 60 90 1,130 900 1,000 1,110 1,320 940 360 480 4,210
88 New markets tax credit ............................. 150 210 250 240 210 180 140 1,020 440 600 740 730 650 550 450 3,120
89 Expensing of environmental remediation
costs ...................................................... 120 250 110 –30 –20 –20 –30 10 30 50 20 –10 ................ ................ ................ 10
90 Credit to holders of Gulf Tax Credit
Bonds ..................................................... ............ ............ ................ ................ ................ ................ ................ ................ 10 10 10 10 10 10 10 50
Education, training, employment, and so-
cial services:
Education:
91 Exclusion of scholarship and fellowship
income (normal tax method) ............ ............ ............ ................ ................ ................ ................ ................ ................ 1,780 1,870 1,960 2,050 2,150 2,250 2,360 10,770
92 HOPE tax credit .................................... ............ ............ ................ ................ ................ ................ ................ ................ 3,900 3,330 3,350 3,600 3,710 4,350 4,730 19,740
93 Lifetime Learning tax credit .................. ............ ............ ................ ................ ................ ................ ................ ................ 2,490 2,190 2,200 2,310 2,390 2,780 3,020 12,700
94 Education Individual Retirement Ac-
counts ................................................ ............ ............ ................ ................ ................ ................ ................ ................ 10 10 10 20 20 20 30 100
95 Deductibility of student-loan interest .... ............ ............ ................ ................ ................ ................ ................ ................ 800 810 820 830 840 780 530 3,800
96 Deduction for higher education ex-
penses ............................................... ............ ............ ................ ................ ................ ................ ................ ................ 1,420 1,450 1,180 ................ ................ ................ ................ 1,180
97 State prepaid tuition plans .................... ............ ............ ................ ................ ................ ................ ................ ................ 690 830 1,000 1,210 1,470 1,820 2,000 7,500
98 Exclusion of interest on student-loan
bonds ................................................. 120 130 140 140 150 150 160 740 380 420 450 460 480 490 510 2,390
99 Exclusion of interest on bonds for pri-
vate nonprofit educational facilities .. 510 570 600 620 640 660 680 3,200 1630 1810 1930 1990 2050 2110 2170 10,250
100 Credit for holders of zone academy
bonds ................................................. 130 140 160 170 170 170 160 830 ................ ................ ................ ................ ................ ................ ................ ................
101 Exclusion of interest on savings bonds
redeemed to finance educational ex-
penses ............................................... ............ ............ ................ ................ ................ ................ ................ ................ ................ 20 20 20 20 20 20 100
102 Parental personal exemption for stu-
dents age 19 or over ....................... ............ ............ ................ ................ ................ ................ ................ ................ 4,030 2,500 1,590 1,480 1,410 2,620 3,040 10,140
103 Deductibility of charitable contributions
(education) ........................................ 570 600 630 670 710 750 790 3,550 3,630 3,950 4,490 4,850 5,190 5,570 5,980 26,080
104 Exclusion of employer-provided edu-
cational assistance ........................... ............ ............ ................ ................ ................ ................ ................ ................ 590 620 660 690 720 40 ................ 2,110
105 Special deduction for teacher ex-
penses ............................................... ............ ............ ................ ................ ................ ................ ................ ................ 160 170 160 ................ ................ ................ ................ 160
106 Discharge of student loan indebted-
ness ................................................... ............ ............ ................ ................ ................ ................ ................ ................ 20 20 20 20 20 20 20 100
Training, employment, and social serv-
ices:
107 Work opportunity tax credit ................... 180 320 340 220 120 60 30 770 30 40 30 30 20 10 10 100
108 Welfare-to-work tax credit ..................... 70 70 60 40 20 10 10 140 10 10 20 10 ................ ................ ................ 30
109 Employer provided child care exclusion ............ ............ ................ ................ ................ ................ ................ ................ 660 890 1030 1080 1140 1160 1210 5,620
110 Employer-provided child care credit ..... 10 10 10 20 20 10 ................ 60 ................ ................ ................ ................ ................ ................ ................ ................
111 Assistance for adopted foster children ............ ............ ................ ................ ................ ................ ................ ................ 320 350 400 440 480 530 570 2,420
112 Adoption credit and exclusion .............. ............ ............ ................ ................ ................ ................ ................ ................ 540 560 570 580 600 540 170 2,460
113 Exclusion of employee meals and
lodging (other than military) ............. ............ ............ ................ ................ ................ ................ ................ ................ 890 930 970 1,010 1,060 1,110 1,170 5,320
114 Child credit 2 .......................................... ............ ............ ................ ................ ................ ................ ................ ................ 30,377 32,556 32,341 32,096 31,909 24,719 13,601 134,666
115 Credit for child and dependent care
expenses ........................................... ............ ............ ................ ................ ................ ................ ................ ................ 3,190 2,810 1,740 1,650 1,570 1,500 1,430 7,890
116 Credit for disabled access expendi-
tures .................................................. 10 10 10 10 10 10 10 50 10 20 20 20 20 20 20 100
117 Deductibility of charitable contributions,
other than education and health ...... 1,300 1,370 1,440 1,510 1,580 1,650 1720 7,900 35,820 39,030 44,320 47,850 51,260 54,960 59,020 257,410
118 Exclusion of certain foster care pay-
ments ................................................. ............ ............ ................ ................ ................ ................ ................ ................ 440 450 460 470 480 490 500 2,400
119 Exclusion of parsonage allowances ..... ............ ............ ................ ................ ................ ................ ................ ................ 480 510 550 580 610 640 670 3,050
120 Employee retention credit for employ-
ers affected by Hurricane Katrina,
Rita, and Wilma ................................ ............ 40 ................ ................ ................ ................ ................ ................ ................ ................ ................ ................ ................ ................ ................ ................
Health:
121 Exclusion of employer contributions for
medical insurance premiums and med-
ical care ................................................. ............ ............ ................ ................ ................ ................ ................ ................ 125,000 141,270 160,190 179,580 200,510 221,880 243,820 1,005,980
122 Self-employed medical insurance pre-
miums .................................................... ............ ............ ................ ................ ................ ................ ................ ................ 3,970 4,370 3,730 4,180 4,670 5,230 5,810 23,620
123 Medical Savings Accounts / Health Sav-
ings Accounts ........................................ ............ ............ ................ ................ ................ ................ ................ ................ 280 990 1,980 2,600 2,830 2,910 2,850 13,170
124 Deductibility of medical expenses ............. ............ ............ ................ ................ ................ ................ ................ ................ 3,770 4,240 4,920 5,820 6,840 9,250 10,780 37,610
125 Exclusion of interest on hospital construc-
tion bonds .............................................. 820 900 950 980 1,010 1,040 1,070 5,050 2,600 2,870 3,060 3,150 3,250 3,340 3,440 16,240
126 Deductibility of charitable contributions
(health) ................................................... 170 180 190 200 210 220 230 1,050 4,020 4,380 4,970 5,370 5,750 6,160 6,620 28,870
127 Tax credit for orphan drug research ........ 230 260 290 320 360 410 460 1,840 ................ ................ ................ ................ ................ ................ ................ ................
128 Special Blue Cross/Blue Shield deduction 620 680 740 610 660 690 740 3,440 ................ ................ ................ ................ ................ ................ ................ ................
129 Tax credit for health insurance purchased
by certain displaced and retired individ-
uals 3 ...................................................... ............ ............ ................ ................ ................ ................ ................ ................ ................ 10 10 10 10 10 10 50
2006 2007 2008 2009 2010 2011 2012 2008–12 2006 2007 2008 2009 2010 2011 2012 2008–12
130 Distributions from retirement plans for

premiums for health and long-term
care insurance ....................................... ............ ............ ................ ................ ................ ................ ................ ................ ................ 250 240 280 310 340 380 1,550
Income security:
131 Exclusion of railroad retirement system
benefits .................................................. ............ ............ ................ ................ ................ ................ ................ ................ 390 380 380 380 370 360 350 1,840
132 Exclusion of workers’ compensation ben-
efits ........................................................ ............ ............ ................ ................ ................ ................ ................ ................ 5,660 5,740 5,830 5,920 6,010 6,110 6,200 30,070
133 Exclusion of public assistance benefits
(normal tax method) .............................. ............ ............ ................ ................ ................ ................ ................ ................ 450 470 490 510 530 550 580 2,660
134 Exclusion of special benefits for disabled
coal miners ............................................ ............ ............ ................ ................ ................ ................ ................ ................ 50 50 40 40 40 40 40 200
135 Exclusion of military disability pensions ... ............ ............ ................ ................ ................ ................ ................ ................ 110 110 120 130 130 140 150 670
Net exclusion of pension contributions
and earnings:
136 Employer plans ..................................... ............ ............ ................ ................ ................ ................ ................ ................ 49,040 49,510 48,480 48,030 46,350 43,700 42,790 229,350
137 401(k) plans .......................................... ............ ............ ................ ................ ................ ................ ................ ................ 40,760 42,410 43,970 45,980 48,550 54,230 57,690 250,420
138 Individual Retirement Accounts ............ ............ ............ ................ ................ ................ ................ ................ ................ 3,970 5,700 6,650 7,130 7,200 7,460 7,840 36,280
139 Low and moderate income savers
credit .................................................. ............ ............ ................ ................ ................ ................ ................ ................ 700 690 670 630 610 590 580 3,080
140 Keogh plans .......................................... ............ ............ ................ ................ ................ ................ ................ ................ 10,130 10,860 11,890 13,010 14,230 15,550 16,970 71,650
Exclusion of other employee benefits:
141 Premiums on group term life insurance ............ ............ ................ ................ ................ ................ ................ ................ 2280 2310 2350 2380 2420 2450 2490 12,090
142 Premiums on accident and disability in-
surance .............................................. ............ ............ ................ ................ ................ ................ ................ ................ 290 300 310 320 330 340 350 1,650
143 Income of trusts to finance supplementary
unemployment benefits ......................... ............ ............ ................ ................ ................ ................ ................ ................ 20 30 30 30 40 40 50 190
144 Special ESOP rules ................................... 1420 1540 1660 1780 1940 2100 2280 9,760 340 350 370 390 390 390 390 1,930
145 Additional deduction for the blind ............. ............ ............ ................ ................ ................ ................ ................ ................ 40 40 40 40 40 50 60 230
146 Additional deduction for the elderly .......... ............ ............ ................ ................ ................ ................ ................ ................ 1,920 1,830 1,830 1,910 2,010 2,890 3,480 12,120
147 Tax credit for the elderly and disabled .... ............ ............ ................ ................ ................ ................ ................ ................ 20 10 10 10 10 10 10 50
148 Deductibility of casualty losses ................. ............ ............ ................ ................ ................ ................ ................ ................ 260 280 300 310 320 350 370 1,650
149 Earned income tax credit 4 ........................ ............ ............ ................ ................ ................ ................ ................ ................ 5,050 5,360 5,340 5,490 5,660 5,890 7,900 30,280
150 Additional exemption for housing Hurri-
cane Katrina displaced individuals ....... ............ ............ ................ ................ ................ ................ ................ ................ 110 20 ................ ................ ................ ................ ................ ................
Social Security:
Exclusion of Social Security benefits:
151 Social Security benefits for retired
workers .............................................. ............ ............ ................ ................ ................ ................ ................ ................ 17,890 18,100 18,930 19,110 20,230 21,320 23,260 102,850
152 Social Security benefits for disabled .... ............ ............ ................ ................ ................ ................ ................ ................ 4,730 5,120 5,620 5,890 6,240 6,690 7,220 31,660
153 Social Security benefits for dependents
and survivors .................................... ............ ............ ................ ................ ................ ................ ................ ................ 3,360 3,340 3,400 3,330 3,420 3,490 3,700 17,340
154 Exclusion of veterans death benefits and
disability compensation ......................... ............ ............ ................ ................ ................ ................ ................ ................ 3,580 3,770 3,890 4,030 4,200 4,590 5,030 21,740
155 Exclusion of veterans pensions ................ ............ ............ ................ ................ ................ ................ ................ ................ 150 180 180 180 190 200 230 980
156 Exclusion of GI bill benefits ...................... ............ ............ ................ ................ ................ ................ ................ ................ 210 260 280 300 320 360 420 1,680
157 Exclusion of interest on veterans housing
bonds ..................................................... 10 10 10 10 10 10 10 50 30 30 30 40 40 40 40 190
General purpose fiscal assistance:
158 Exclusion of interest on public purpose
State and local bonds ........................... 7,230 8,000 8,460 8,710 8,970 9,240 9,520 44,900 15,750 17,430 18,690 19,250 19,830 20,430 21,040 99,240
159 Deductibility of nonbusiness State and
local taxes other than on owner-occu-
pied homes ............................................ ............ ............ ................ ................ ................ ................ ................ ................ 43,120 33,680 27,900 27,790 28,570 48,560 59,850 192,670
160 Tax credit for corporations receiving in-
come from doing business in U.S. pos-
sessions ................................................. 200 20 ................ ................ ................ ................ ................ ................ ................ ................ ................ ................ ................ ................ ................ ................
Interest:
161 Deferral of interest on U.S. savings
bonds ..................................................... ............ ............ ................ ................ ................ ................ ................ ................ 1,260 1,330 1,340 1,360 1,370 1,420 1,520 7,010
Addendum: Aid to State and local gov-
ernments:
Deductibility of:
Property taxes on owner-occupied
homes ................................................ ............ ............ ................ ................ ................ ................ ................ ................ 21,260 15,540 12,620 12,590 12,580 22,440 27,770 88,000
Nonbusiness State and local taxes
other than on owner-occupied
homes ................................................ ............ ............ ................ ................ ................ ................ ................ ................ 43,120 33,680 27,900 27,790 28,570 48,560 59,850 192,670
Exclusion of interest on State and local
bonds for:
Public purposes ..................................... 7,230 8,000 8,460 8,710 8,970 9,240 9,520 44,900 15,750 17,430 18,690 19,250 19,830 20,430 21,040 99,240
Energy facilities ..................................... 10 10 10 10 10 10 10 50 30 30 40 40 40 40 40 200
Water, sewage, and hazardous waste
disposal facilities ............................... 120 140 140 150 150 160 160 760 390 440 460 480 490 510 520 2,460
Small-issues .......................................... 120 140 140 150 150 160 160 760 390 440 460 480 490 510 520 2,460
Owner-occupied mortgage subsidies ... 280 310 330 340 350 360 370 1,750 890 990 1,060 1,090 1,120 1,150 1,190 5,610
Rental housing ...................................... 230 260 270 280 290 300 310 1,450 740 830 880 900 930 960 990 4,660
Airports, docks, and similar facilities .... 270 300 310 320 330 340 350 1,650 860 950 1,010 1,040 1,070 1,100 1,130 5,350
Student loans ........................................ 120 130 140 140 150 150 160 740 380 420 450 460 480 490 510 2,390
Private nonprofit educational facilities .. 510 570 600 620 640 660 680 3,200 1,630 1,810 1,930 1,990 2,050 2,110 2,170 10,250
Hospital construction ............................. 820 900 950 980 1010 1040 1070 5,050 2,600 2,870 3,060 3,150 3,250 3,340 3,440 16,240
Veterans’ housing ................................. 10 10 10 10 10 10 10 50 30 30 30 40 40 40 40 190
2006 2007 2008 2009 2010 2011 2012 2008–12 2006 2007 2008 2009 2010 2011 2012 2008–12
Credit for holders of zone academy bonds .. 130 140 160 170 170 170 160 830 ................ ................ ................ ................ ................ ................ ................ ................
1 In addition, the alcohol fuel credit results in a reduction in excise tax receipts (in millions of dollars) as follows: 2006 $2,570; 2007 $2,990; 2008 $3,460; 2009 $4,280; 2010 $4,990; 2011
$1,440; 0 in 2012.
2 The figures in the table indicate the effect of the child tax credit on receipts. The effect of the credit on outlays (in millions of dollars) is as follows: 2006 $15,473; 2007 $14,931; 2008 $14,367;
2009 $14,019; 2010 $13,651; 2011 $13,410; and 2012 $1,275.
3 The figures in the table indicate the effect of the health insurance tax credit on receipts. The effect of the credit on outlays (in millions of dollars) is as follows: 2006 $90; 2007 $100; 2008
$110; 2009 $120; 2010 $130; 2011 $140; and 2012 $150.
4 The figures in the table indicate the effect of the earned income tax credit on receipts. The effect of the credit on outlays (in millions of dollars) is as follows: 2006 $36,166;2007 $36,461; 2008
$37,573; 2009 $38,237; 2010 $38,994; 2011 $40,289; and 2012 $36,982.
Note: Provisions with estimates denoted normal tax method have no revenue loss under the reference tax law method.
All estimates have been rounded to the nearest $10 million. Provisions with estimates that rounded to zero in each year are not included in the table.
Tax Expenditure Baselines • A separate corporate income tax is not part of

A tax expenditure is an exception to baseline provi- a comprehensive income tax.
sions of the tax structure that usually results in a • Tax rates vary by level of income. Multiple tax
reduction in the amount of tax owed. The 1974 Congres- rates exist as a means to facilitate the redistribu-
sional Budget Act, which mandated the tax expenditure tion of income.
budget, did not specify the baseline provisions of the • Tax rates are allowed to vary with marital status.
tax law. As noted previously, deciding whether provi- • Values of assets and debt are not generally ad-
sions are exceptions, therefore, is a matter of judgment. justed for inflation. A comprehensive income tax
As in prior years, most of this year’s tax expenditure would adjust the cost basis of capital assets and
estimates are presented using two baselines: the normal debt for changes in the price level during the time
tax baseline and the reference tax law baseline. An the assets or debt are held. Thus, under a com-
exception is provided for the lower tax rate on dividends prehensive income tax baseline, the failure to take
and capital gains on corporate shares as discussed account of inflation in measuring depreciation,
below. capital gains, and interest income would be re-
The normal tax baseline is patterned on a com- garded as a negative tax expenditure (i.e., a tax
prehensive income tax, which defines income as the penalty), and failure to take account of inflation
sum of consumption and the change in net wealth in in measuring interest costs would be regarded as
a given period of time. The normal tax baseline allows a positive tax expenditure (i.e., a tax subsidy).
personal exemptions, a standard deduction, and deduc- Although the reference law and normal tax baselines
tion of expenses incurred in earning income. It is not are generally similar, areas of difference include:
limited to a particular structure of tax rates, or by Tax rates. The separate schedules applying to the
a specific definition of the taxpaying unit. various taxpaying units are included in the reference
In the case of income taxes, the reference tax law law baseline. Thus, corporate tax rates below the max-
baseline is also patterned on a comprehensive income imum statutory rate do not give rise to a tax expendi-
tax, but it is closer to existing law. Tax expenditures ture. The normal tax baseline is similar, except that,
under the reference law baseline are generally tax ex- by convention, it specifies the current maximum rate
penditures under the normal tax baseline, but the re- as the baseline for the corporate income tax. The lower
verse is not always true. tax rates applied to the first $10 million of corporate
Both the normal and reference tax baselines allow income are thus regarded as a tax expenditure. Again,
several major departures from a pure comprehensive by convention, the Alternative Minimum Tax is treated
income tax. For example, under the normal and ref- as part of the baseline rate structure under both the
erence tax baselines: reference and normal tax methods.
• Income is taxable only when it is realized in ex- Income subject to the tax. Income subject to tax is
change. Thus, neither the deferral of tax on unre- defined as gross income less the costs of earning that
alized capital gains nor the tax exclusion of im- income. The Federal income tax defines gross income
puted income (such as the rental value of owner- to include: (1) consideration received in the exchange
occupied housing or farmers’ consumption of their of goods and services, including labor services or prop-
own produce) are regarded as tax expenditures. erty; and (2) the taxpayer’s share of gross or net income
Both accrued and imputed income would be taxed earned and/or reported by another entity (such as a
under a comprehensive income tax. partnership). Under the reference tax rules, therefore,
• A comprehensive income tax would generally not gross income does not include gifts defined as receipts
exclude from the tax base amounts for personal of money or property that are not consideration in an
exemptions or a standard deduction, except per- exchange nor does gross income include most transfer
haps to ease tax administration. payments which can be thought of as gifts from the
Government. 3 The normal tax baseline also excludes income taxes paid (up to the amount of U.S. income
gifts between individuals from gross income. Under the taxes that would otherwise be due), which prevents
normal tax baseline, however, all cash transfer pay- double taxation of income earned abroad. Under the
ments from the Government to private individuals are normal tax method, however, controlled foreign corpora-
counted in gross income, and exemptions of such trans- tions (CFCs) are not regarded as entities separate from
fers from tax are identified as tax expenditures. The their controlling U.S. shareholders. Thus, the deferral
costs of earning income are generally deductible in de- of tax on income received by CFCs is regarded as a
termining taxable income under both the reference and tax expenditure under this method. In contrast, except
normal tax baselines. 4 for tax haven activities, the reference law baseline fol-
Capital recovery. Under the reference tax law base- lows current law in treating CFCs as separate taxable
line no tax expenditures arise from accelerated depre- entities whose income is not subject to U.S. tax until
ciation. Under the normal tax baseline, the depreciation
distributed to U.S. taxpayers. Under this baseline, de-
allowance for property is computed using estimates of
ferral of tax on CFC income is not a tax expenditure
economic depreciation. The latter represents a change
in the calculation of the tax expenditure under normal because U.S. taxpayers generally are not taxed on ac-
law first made in the 2004 Budget. Appendix A provides crued, but unrealized, income.
further details on the new methodology and how it In addition to these areas of difference, the Joint
differs from the prior methodology. Committee on Taxation considers a somewhat broader
Treatment of foreign income. Both the normal and set of tax expenditures under its normal tax baseline
reference tax baselines allow a tax credit for foreign than is considered here.
Table 19–3. INCOME TAX EXPENDITURES RANKED BY TOTAL 2008–2012 PROJECTED REVENUE EFFECT
Provision 2008 2008–12
121 Exclusion of employer contributions for medical insurance premiums and medical care ................................................. 160,190 1,005,980
57 Deductibility of mortgage interest on owner-occupied homes ............................................................................................ 89,430 520,260
73 Accelerated depreciation of machinery and equipment (normal tax method) ................................................................... 64,670 421,790
117 Deductibility of charitable contributions, other than education and health ......................................................................... 45,760 265,310
67 Capital gains (except agriculture, timber, iron ore, and coal) ............................................................................................ 51,960 251,880
137 401(k) plans .......................................................................................................................................................................... 43,970 250,420
136 Employer plans ..................................................................................................................................................................... 48,480 229,350
61 Exclusion of net imputed rental income .............................................................................................................................. 35,680 220,176
60 Capital gains exclusion on home sales ............................................................................................................................... 38,890 214,870
159 Deductibility of nonbusiness State and local taxes other than on owner-occupied homes .............................................. 27,900 192,670
69 Step-up basis of capital gains at death .............................................................................................................................. 35,900 191,060
158 Exclusion of interest on public purpose State and local bonds ......................................................................................... 27,150 144,140
50 Exclusion of interest on life insurance savings ................................................................................................................... 21,925 137,005
114 Child tax credit ..................................................................................................................................................................... 32,341 134,666
151 Social Security benefits for retired workers ......................................................................................................................... 18,930 102,850
77 Deduction for U.S. production activities .............................................................................................................................. 13,810 97,110
58 Deductibility of State and local property tax on owner-occupied homes ........................................................................... 12,620 88,000
6 Deferral of income from controlled foreign corporations (normal tax method) .................................................................. 12,770 73,350
64 Accelerated depreciation on rental housing (normal tax method) ...................................................................................... 12,300 73,320
140 Keogh plans .......................................................................................................................................................................... 11,890 71,650
62 Exception from passive loss rules for $25,000 of rental loss ............................................................................................ 7,520 39,750
124 Deductibility of medical expenses ........................................................................................................................................ 4,920 37,610
138 Individual Retirement Accounts ............................................................................................................................................ 6,650 36,280
152 Social Security benefits for disabled ................................................................................................................................... 5,620 31,660
149 Earned income tax credit ..................................................................................................................................................... 5,340 30,280
132 Exclusion of workers’ compensation benefits ...................................................................................................................... 5,830 30,070
126 Deductibility of charitable contributions (health) .................................................................................................................. 5,160 29,920
103 Deductibility of charitable contributions (education) ............................................................................................................ 5,120 29,630
63 Credit for low-income housing investments ......................................................................................................................... 4,940 27,800
8 Expensing of research and experimentation expenditures (normal tax method) .............................................................. 5,280 26,600
122 Self-employed medical insurance premiums ....................................................................................................................... 3,730 23,620
75 Graduated corporation income tax rate (normal tax method) ............................................................................................ 4,240 22,200
154 Exclusion of veterans death benefits and disability compensation .................................................................................... 3,890 21,740
125 Exclusion of interest on hospital construction bonds .......................................................................................................... 4,010 21,290
92 HOPE tax credit ................................................................................................................................................................... 3,350 19,740
3 Gross income does, however, include transfer payments associated with past employment, a partnership interest, does not actively perform managerial or other participatory functions.
such as Social Security benefits. The taxpayer may generally report no larger deductions for a year than will reduce taxable
4 In the case of individuals who hold ‘‘passive’’ equity interests in businesses, however, income from such activities to zero. Deductions in excess of the limitation may be taken
the pro-rata shares of sales and expense deductions reportable in a year are limited. A in subsequent years, or when the interest is liquidated. In addition, costs of earning income
passive business activity is defined to be one in which the holder of the interest, usually may be limited under the Alternative Minimum Tax.
Table 19–3. INCOME TAX EXPENDITURES RANKED BY TOTAL 2008–2012 PROJECTED REVENUE EFFECT—Continued
1 Exclusion of benefits and allowances to armed forces personnel ..................................................................................... 3,350 18,160
153 Social Security benefits for dependents and survivors ....................................................................................................... 3,400 17,340
80 Exclusion of reimbursed employee parking expenses ........................................................................................................ 3,040 16,550
2 Exclusion of income earned abroad by U.S. citizens ......................................................................................................... 2,760 15,270
99 Exclusion of interest on bonds for private nonprofit educational facilities ......................................................................... 2,530 13,450
123 Medical Savings Accounts / Health Savings Accounts ...................................................................................................... 1,980 13,170
93 Lifetime Learning tax credit .................................................................................................................................................. 2,200 12,700
5 Inventory property sales source rules exception ................................................................................................................. 2,120 12,577
146 Additional deduction for the elderly ..................................................................................................................................... 1,830 12,120
141 Premiums on group term life insurance .............................................................................................................................. 2,350 12,090
144 Special ESOP rules .............................................................................................................................................................. 2,030 11,690
91 Exclusion of scholarship and fellowship income (normal tax method) .............................................................................. 1,960 10,770
70 Carryover basis of capital gains on gifts ............................................................................................................................. 760 10,670
102 Parental personal exemption for students age 19 or over ................................................................................................. 1,590 10,140
74 Expensing of certain small investments (normal tax method) ............................................................................................ 5,330 9,910
54 Exclusion of interest spread of financial institutions ........................................................................................................... 1,400 8,430
9 Credit for increasing research activities .............................................................................................................................. 4,960 8,410
48 Exemption of credit union income ....................................................................................................................................... 1,480 8,310
115 Credit for child and dependent care expenses ................................................................................................................... 1,740 7,890
97 State prepaid tuition plans ................................................................................................................................................... 1,000 7,500
55 Exclusion of interest on owner-occupied mortgage subsidy bonds ................................................................................... 1,390 7,360
161 Deferral of interest on U.S. savings bonds ......................................................................................................................... 1,340 7,010
59 Deferral of income from installment sales ........................................................................................................................... 1,230 7,000
85 Exclusion of interest for airport, dock, and similar bonds .................................................................................................. 1,320 7,000
56 Exclusion of interest on rental housing bonds .................................................................................................................... 1,150 6,110
109 Employer provided child care exclusion .............................................................................................................................. 1,030 5,620
16 New technology credit .......................................................................................................................................................... 960 5,530
87 Empowerment zones, Enterprise communities, and Renewal communities ...................................................................... 1,480 5,340
113 Exclusion of employee meals and lodging (other than military) ........................................................................................ 970 5,320
3 Exclusion of certain allowances for Federal employees abroad ........................................................................................ 880 4,860
72 Accelerated depreciation of buildings other than rental housing (normal tax method) ..................................................... –310 4,650
44 Capital gains treatment of certain income .......................................................................................................................... 950 4,590
81 Exclusion for employer-provided transit passes .................................................................................................................. 710 4,370
88 New markets tax credit ........................................................................................................................................................ 990 4,140
11 Excess of percentage over cost depletion, fuels ................................................................................................................ 790 3,860
95 Deductibility of student-loan interest .................................................................................................................................... 820 3,800
7 Deferred taxes for financial firms on certain income earned overseas ............................................................................. 2,490 3,550
128 Special Blue Cross/Blue Shield deduction .......................................................................................................................... 740 3,440
35 Exclusion of interest on bonds for water, sewage, and hazardous waste facilities .......................................................... 600 3,220
76 Exclusion of interest on small issue bonds ......................................................................................................................... 600 3,220
98 Exclusion of interest on student-loan bonds ....................................................................................................................... 590 3,130
139 Low and moderate income savers credit ............................................................................................................................ 670 3,080
119 Exclusion of parsonage allowances ..................................................................................................................................... 550 3,050
10 Expensing of exploration and development costs, fuels .................................................................................................... 840 2,910
133 Exclusion of public assistance benefits (normal tax method) ............................................................................................ 490 2,660
34 Excess of percentage over cost depletion, nonfuel minerals ............................................................................................. 490 2,650
112 Adoption credit and exclusion .............................................................................................................................................. 570 2,460
111 Assistance for adopted foster children ................................................................................................................................ 400 2,420
118 Exclusion of certain foster care payments .......................................................................................................................... 460 2,400
38 Tax incentives for preservation of historic structures ......................................................................................................... 430 2,350
104 Exclusion of employer-provided educational assistance ..................................................................................................... 660 2,110
68 Capital gains exclusion of small corporation stock ............................................................................................................. 320 2,060
127 Tax credit for orphan drug research .................................................................................................................................... 290 1,840
131 Exclusion of railroad retirement system benefits ................................................................................................................ 380 1,840
37 Expensing of multiperiod timber growing costs ................................................................................................................... 320 1,730
156 Exclusion of GI bill benefits ................................................................................................................................................. 280 1,680
142 Premiums on accident and disability insurance .................................................................................................................. 310 1,650
148 Deductibility of casualty losses ............................................................................................................................................ 300 1,650
130 Distributions from retirement plans for premiums for health and long-term care insurance ............................................. 240 1,550
52 Tax exemption of certain insurance companies owned by tax-exempt organizations ...................................................... 240 1,300
96 Deduction for higher education expenses ........................................................................................................................... 1,180 1,180
155 Exclusion of veterans pensions ........................................................................................................................................... 180 980
107 Work opportunity tax credit .................................................................................................................................................. 370 870
14 Capital gains treatment of royalties on coal ....................................................................................................................... 170 840
36 Capital gains treatment of certain timber income ............................................................................................................... 170 840
100 Credit for holders of zone academy bonds ......................................................................................................................... 160 830
12 Alternative fuel production credit ......................................................................................................................................... 780 800
23 Temporary 50% expensing for equipment used in the refining of liquid fuels .................................................................. 120 750
Table 19–3. INCOME TAX EXPENDITURES RANKED BY TOTAL 2008–2012 PROJECTED REVENUE EFFECT—Continued
41 Expensing of certain capital outlays .................................................................................................................................... 130 710

22 Credit for investment in clean coal facilities ....................................................................................................................... 50 690
135 Exclusion of military disability pensions .............................................................................................................................. 120 670
24 Natural gas distribution pipelines treated as 15–year property .......................................................................................... 90 630
19 Exclusion of utility conservation subsidies .......................................................................................................................... 110 540
20 Credit for holding clean renewable energy bonds .............................................................................................................. 80 480
83 Exclusion of interest on bonds for Financing of Highway Projects and rail-truck transfer facilities ................................. 75 465
42 Expensing of certain multiperiod production costs .............................................................................................................. 80 420
86 Exemption of certain mutuals’ and cooperatives’ income .................................................................................................. 80 420
45 Income averaging for farmers .............................................................................................................................................. 60 320
53 Small life insurance company deduction ............................................................................................................................. 60 280
71 Ordinary income treatment of loss from small business corporation stock sale ............................................................... 50 280
26 Allowance of deduction for certain energy efficient commercial building property ............................................................ 170 270
47 Bio-Diesel tax credit ............................................................................................................................................................. 200 270
51 Special alternative tax on small property and casualty insurance companies .................................................................. 50 270
15 Exclusion of interest on energy facility bonds .................................................................................................................... 50 250
66 Exceptions from imputed interest rules ............................................................................................................................... 50 250
17 Alcohol fuel credits ............................................................................................................................................................... 60 240
65 Cancellation of indebtedness ............................................................................................................................................... 90 240
82 Tax credit for certain expenditures for maintaining railroad tracks .................................................................................... 130 240
157 Exclusion of interest on veterans housing bonds ............................................................................................................... 40 240
145 Additional deduction for the blind ........................................................................................................................................ 40 230
25 Amortize all geological and geophysical expenditures over 2 years ................................................................................. 90 220
84 Investment credit for rehabilitation of structures (other than historic) ................................................................................ 40 200
134 Exclusion of special benefits for disabled coal miners ....................................................................................................... 40 200
143 Income of trusts to finance supplementary unemployment benefits .................................................................................. 30 190
40 Exclusion of gain or loss on sale or exchange of certain brownfield sites ....................................................................... 30 180
108 Welfare-to-work tax credit .................................................................................................................................................... 80 170
105 Special deduction for teacher expenses ............................................................................................................................. 160 160
13 Exception from passive loss limitation for working interests in oil and gas properties ..................................................... 30 150
18 Tax credit and deduction for clean-fuel burning vehicles ................................................................................................... 150 150
28 Credit for energy efficiency improvements to existing homes ............................................................................................ 150 150
31 Credit for business installation of qualified fuel cells and stationary microturbine power plants ...................................... 130 150
116 Credit for disabled access expenditures ............................................................................................................................. 30 150
43 Treatment of loans forgiven for solvent farmers ................................................................................................................. 20 120
39 Expensing of capital costs with respect to complying with EPA sulfur regulations .......................................................... 30 110
46 Deferral of gain on sale of farm refiners ............................................................................................................................. 20 100
79 Deferral of tax on shipping companies ............................................................................................................................... 20 100
94 Education Individual Retirement Accounts .......................................................................................................................... 10 100
101 Exclusion of interest on savings bonds redeemed to finance educational expenses ....................................................... 20 100
106 Discharge of student loan indebtedness ............................................................................................................................. 20 100
27 Credit for construction of new energy efficient homes ....................................................................................................... 30 60
110 Employer-provided child care credit .................................................................................................................................... 10 60
33 Expensing of exploration and development costs, nonfuel minerals ................................................................................. 10 50
90 Credit to holders of Gulf Tax Credit Bonds ........................................................................................................................ 10 50
129 Tax credit for health insurance purchased by certain displaced and retired individuals .................................................. 10 50
147 Tax credit for the elderly and disabled ............................................................................................................................... 10 50
49 Excess bad debt reserves of financial institutions .............................................................................................................. 10 30
32 Partial expensing for advanced mine safety equipment ..................................................................................................... 20 20
89 Expensing of environmental remediation costs ................................................................................................................... 130 20
30 30% credit for residential purchases/installations of solar and fuel cells .......................................................................... 10 10
4 Extraterritorial income exclusion .......................................................................................................................................... ............................ ............................
29 Credit for energy efficient appliances .................................................................................................................................. ............................ ............................
120 Employee retention credit for employers affected by Hurricane Katrina, Rita, and Wilma ............................................... ............................ ............................
150 Additional exemption for housing Hurricane Katrina displaced individuals ........................................................................ ............................ ............................
160 Tax credit for corporations receiving income from doing business in U.S. possessions .................................................. ............................ ............................
78 Special rules for certain film and TV production ................................................................................................................ 70 –170
21 Deferral of gain from dispositions of transmission property to implement FERC restructuring policy ............................. 230 –1,280
Table 19–4. PRESENT VALUE OF SELECTED TAX EXPENDITURES FOR ACTIVITY IN

CALENDAR YEAR 2006
2006
Present Value
Provision of Revenue
Loss
1 Deferral of income from controlled foreign corporations (normal tax method) ................................................... 10,520
2 Deferred taxes for financial firms on income earned overseas .......................................................................... 2,380
3 Expensing of research and experimentation expenditures (normal tax method) ............................................... 2,690
4 Expensing of exploration and development costs—fuels .................................................................................... 260
5 Expensing of exploration and development costs—nonfuels .............................................................................. 10
6 Expensing of multiperiod timber growing costs ................................................................................................... 160
7 Expensing of certain multiperiod production costs—agriculture .......................................................................... 140
8 Expensing of certain capital outlays—agriculture ................................................................................................ 180
9 Deferral of income on life insurance and annuity contracts ................................................................................ 19,750
10 Accelerated depreciation on rental housing ......................................................................................................... 16,240
11 Accelerated depreciation of buildings other than rental ...................................................................................... 10,510
12 Accelerated depreciation of machinery and equipment ....................................................................................... 68,430
13 Expensing of certain small investments (normal tax method) ............................................................................ 860
14 Deferral of tax on shipping companies ................................................................................................................ 20
15 Credit for holders of zone academy bonds ......................................................................................................... 210
16 Credit for low-income housing investments ......................................................................................................... 4,530
17 Deferral for state prepaid tuition plans ................................................................................................................. 4,730
18 Exclusion of pension contributions—employer plans ........................................................................................... 75,660
19 Exclusion of 401(k) contributions .......................................................................................................................... 110,000
20 Exclusion of IRA contributions and earnings ....................................................................................................... 4,100
21 Exclusion of contributions and earnings for Keogh plans ................................................................................... 7,640
22 Exclusion of interest on public-purpose bonds .................................................................................................... 20,420
23 Exclusion of interest on non-public purpose bonds ............................................................................................. 6,900
24 Deferral of interest on U.S. savings bonds .......................................................................................................... 420
25 Exclusion of Roth earnings and distributions ....................................................................................................... 8,380
26 Exclusion of non-deductible IRA earnings ........................................................................................................... 400
Double Taxation of Corporate Profits (TRHCA) extended and expanded the scope of many
existing provisions.
In a gradual transition to a more economically neu-
TIPRA extended the 15 percent tax rate for dividends
tral tax system under which all income is taxed no
and capital gains through December 31, 2010, and the
more than once, the lower tax rates on dividends and
higher limit for certain investment that can be ex-
capital gains on corporate equity under current law
pensed through December 31, 2009.
have not been considered tax preferences since the 2005
Provisions extended or expanded by the PPA include:
Budget. Thus, the difference between ordinary tax rates
• the low-income saver’s credit (made permanent)
and the lower tax rates on dividends, introduced by
• Section 529 education savings provisions (made
the Jobs and Growth Tax Relief Reconciliation Act of
permanent)
2003 (JGTRRA), does not give rise to a tax expenditure.
• the maximum contribution and benefit limits
Similarly, the lower capital gains tax rates applied to
under qualified pension plans (made permanent)
gains realized from the disposition of corporate equity • the enhanced charitable deduction for food and
do not give rise to a tax expenditure. As a consequence, book inventories
tax expenditure estimates for the lower tax rates on • the indexation of the IRA contribution limits (and
capital, step-up in basis, and the inside build-up on higher limits made permanent)
pension assets, 401k plans, IRAs, among others, are • allowing for tax-free distributions from retirement
limited to capital gains from sources other than cor- plans for premiums for health and long-term care
porate equity. Appendix A provides a greater discussion insurance for public safety officers
of alternative baselines. • tax-free distributions from IRAs to public charities
Provisions extended or expanded by the TRHCA in-
Descriptions of Income Tax Provisions
clude:
Descriptions of the individual and corporate income • the deduction for tuition and teaching related ex-
tax expenditures reported on in this chapter follow. penses
These descriptions relate to current law as of December • the new markets tax credit
31, 2006, and do not reflect proposals made elsewhere • the deduction for State and local sales taxes
in the Budget. Legislation enacted in 2006, such as • the research and experimentation tax credit
the Tax Increase Prevention and Reconciliation Act of • the work opportunity and welfare to work tax
2005 (TIPRA), the Pension Protection Act of 2006 credits
(PPA), and the Tax Relief and Health Care Act of 2006 • qualified zone academy bonds
• expensing of remediation costs ings abroad than would be the case if the allocation
• charitable contributions of computers and sci- of earnings was based on actual economic activity.
entific property 6. Income of U.S.-controlled foreign corpora-
• credit for clean renewable energy bonds tions.—The income of foreign corporations controlled
• credits for construction of new energy efficient by U.S. shareholders is not subject to U.S. taxation.
homes and commercial buildings The income becomes taxable only when the controlling
• credits for alternative technologies U.S. shareholders receive dividends or other distribu-
• select empowerment zone incentives tions from their foreign stockholding. Under the normal
Chapter 17 on Federal Receipts has more detailed tax method, the currently attributable foreign source
descriptions of the provisions of these three bills. pre-tax income from such a controlling interest is con-
sidered to be subject to U.S. taxation, whether or not
National Defense
distributed. Thus, the normal tax method considers the
1. Benefits and allowances to armed forces per- amount of controlled foreign corporation income not yet
sonnel.—The housing and meals provided military per- distributed to a U.S. shareholder as tax-deferred in-
sonnel, either in cash or in kind, as well as certain come.
amounts of pay related to combat service, are excluded 7. Exceptions under subpart F for active financ-
from income subject to tax. ing income.—Financial firms can defer taxes on in-
come earned overseas in an active business. Taxes on
International Affairs
income earned through December 31, 2006 can be de-
2. Income earned abroad.—U.S. citizens who lived ferred.
abroad, worked in the private sector, and satisfied a
foreign residency requirement may exclude up to General Science, Space, and Technology
$80,000 in foreign earned income from U.S. taxes. In
8. Expensing R&E expenditures.—Research and
addition, if these taxpayers receive a specific allowance
experimentation (R&E) projects can be viewed as in-
for foreign housing from their employers, then they may
vestments because, if successful, their benefits accrue
also exclude the value of that allowance. If they do
for several years. It is often difficult, however, to iden-
not receive a specific allowance for housing expenses,
tify whether a specific R&E project is successful and,
they may deduct against their U.S. taxes that portion
if successful, what its expected life will be. Under the
of such expenses that exceeds one-sixth the salary of
normal tax method, the expensing of R&E expenditures
a civil servant at grade GS–14, step 1 ($77,793 in 2006).
3. Exclusion of certain allowances for Federal is viewed as a tax expenditure. The baseline assumed
employees abroad.—U.S. Federal civilian employees for the normal tax method is that all R&E expenditures
and Peace Corps members who work outside the conti- are successful and have an expected life of five years.
nental United States are allowed to exclude from U.S. 9. R&E credit.—The research and experimentation
taxable income certain special allowances they receive (R&E) credit is 20 percent of qualified research expendi-
to compensate them for the relatively high costs associ- tures in excess of a base amount. The base amount
ated with living overseas. The allowances supplement is generally determined by multiplying a ‘‘fixed-base
wage income and cover expenses like rent, education, percentage’’ by the average amount of the company’s
and the cost of travel to and from the United States. gross receipts for the prior four years. The taxpayer’s
4. Extraterritorial income exclusion 5.—The exclu- fixed base percentage generally is the ratio of its re-
sion for extraterritorial income was repealed by the search expenses to gross receipts for 1984 through
American Jobs Creation Act of 2004. Under the transi- 1988. Taxpayers may also elect an alternative incre-
tion rules, taxpayers retain 80 percent of ETI benefits mental credit regime. Under the alternative incre-
for 2005, 60 percent of ETI benefits for 2006, and no mental credit regime the taxpayer is assigned a three-
ETI benefits thereafter. The exclusion for tiered fixed-base percentage that is lower than the
extraterritorial income remains in effect for certain fixed-base percentage that would otherwise apply, and
transactions which occur pursuant to a binding contract the credit rate is reduced (the rates range from 2.65
entered into on or before September 17, 2003. percent to 3.75 percent). Beginning in 2007, the rates
5. Sales source rule exceptions.—The worldwide for the alternative incremental credit increases to a
income of U.S. persons is taxable by the United States range of 3 percent to 5 percent. An alternative sim-
and a credit for foreign taxes paid is allowed. The plified credit is also allowed which is equal to 12 per-
amount of foreign taxes that can be credited is limited cent of qualified research expenses that exceed 50 per-
to the pre-credit U.S. tax on the foreign source income. cent of the average qualified research expenses for the
The sales source rules for inventory property allow U.S. three preceding taxable years. A 20-percent credit with
exporters to use more foreign tax credits by allowing a separate threshold is provided for a taxpayer’s pay-
the exporters to attribute a larger portion of their earn- ments to universities for basic research. A 20-percent
‘‘flat’’ credit with no threshold base amount is available
5 The determination of whether a provision is a tax expenditure is made on the basis
for energy research expenditures paid to certain re-
of a broad concept of ‘‘income’’ that is larger in scope than is ‘‘income’’ as defined under
general U.S. income tax principles. For that reason, the tax expenditure estimates include, search consortia. The credit applies to research con-
for example, estimates related to the exclusion of extraterritorial income, as well as other
exclusions, notwithstanding that such exclusions define income under the general rule of
ducted before January 1, 2008 and extends to research
U.S. income taxation. conducted in Puerto Rico and the U.S. possessions.
Energy generally subject to the State private-activity bond an-

10. Exploration and development costs.—For suc- nual volume cap.
cessful investments in domestic oil and gas wells, intan- 16. New technology, refined coal, Indian coal
gible drilling costs (e.g., wages, the costs of using ma- and coke and coke gas credits.—A credit is provided
chinery for grading and drilling, the cost of equal to 10 percent of the basis of solar property (30
unsalvageable materials used in constructing wells) percent for purchases beginning in 2006 through 2008)
may be expensed rather than amortized over the pro- and 10 percent of the basis of geothermal property
ductive life of the property. Integrated oil companies placed in service during the taxable year. A credit is
may deduct only 70 percent of such costs and must also available for certain electricity produced from wind
amortize the remaining 30 percent over five years. The energy, biomass, geothermal energy, solar energy, small
same rule applies to the exploration and development irrigation power, municipal solid waste, or qualified hy-
costs of surface stripping and the construction of shafts dropower and sold to an unrelated party. The credit
and tunnels for other fuel minerals. rate in 2006 is 1.9 cents per kilowatt hour (0.9 cents
11. Percentage depletion.—Independent fuel min- per kilowatt hour for open-loop biomass, small irriga-
eral producers and royalty owners are generally allowed tion power, municipal solid waste and qualified hydro-
to take percentage depletion deductions rather than power) and the rate is indexed in subsequent years.
cost depletion on limited quantities of output. Under Another credit is available for refined coal. The credit
cost depletion, outlays are deducted over the productive rate in 2006 is $5.679 per ton and the rate is indexed
life of the property based on the fraction of the resource in subsequent years. An additional credit is available
extracted. Under percentage depletion, taxpayers de- for the production of Indian coal. The value of the credit
duct a percentage of gross income from mineral produc- is $1.50 per ton in 2006 and indexed for inflation in
tion at rates of 22 percent for uranium; 15 percent subsequent years.
for oil, gas and oil shale; and 10 percent for coal. The 17. Alcohol fuel credits.—An income tax credit is
deduction is limited to 50 percent of net income from provided for ethanol that is derived from renewable
the property, except for oil and gas where the deduction sources and used as fuel. The credit equals 51 cents
can be 100 percent of net property income. Production per gallon through 2010. In lieu of the alcohol mixture
from geothermal deposits is eligible for percentage de- credit, the taxpayer may claim a refundable excise tax
pletion at 65 percent of net income, but with no limit credit. In addition, small ethanol producers are eligible
on output and no limitation with respect to qualified for a separate 10 cents per gallon credit.
producers. Unlike depreciation or cost depletion, per- 18. Credit and deduction for clean-fuel vehicles
centage depletion deductions can exceed the cost of the and property and alternative motor vehicle cred-
investment. its.—A tax credit of 10 percent (not to exceed $4,000)
12. Alternative fuel production credit.—A credit is provided for purchasers of electric vehicles. The cred-
of $3 per oil-equivalent barrel of production (in 1979 it is reduced by 75 percent for vehicles placed in service
dollars) is provided for gas produced from biomass and in 2006 and is not available for vehicles placed in serv-
liquid, gaseous, or solid synthetic fuels produced from ice after December 31, 2006. No deduction is available
coal. The credit is generally available if the price of to taxpayers for vehicles placed in service after Decem-
oil stays below $29.50 (in 1979 dollars). The credit ap- ber 31, 2005. The deduction for clean-fuel property is
plies only to fuel (1) produced at a facility placed in available for costs incurred before January 1, 2007. A
service before July 1, 1998, and (2) sold before January taxpayer may claim a 30 percent credit for the cost
1, 2008. A credit is also available for the production of installing clean-fuel vehicle refueling property for
of coke or coke gas from a qualified facility. Qualified property placed in service after December 31, 2005 and
facilities must have been placed in service before Janu- before January 1, 2008. The taxpayer may not claim
ary 1, 1993, or after June 30, 1998, and before January deductions with respect to property for which the credit
1, 2010. is claimed. A tax credit is also available for the pur-
13. Oil and gas exception to passive loss limita- chase of hybrid vehicles, fuel cell vehicles, alternative
tion.—Owners of working interests in oil and gas prop- fuel vehicles and advanced lean burn vehicles. The pro-
erties are exempt from the ‘‘passive income’’ limitations. vision applies to vehicles placed in service after Decem-
As a result, the working interest-holder, who manages ber 31, 2005, in the case of qualified fuel cell motor
on behalf of himself and all other owners the develop- vehicles, before January 1, 2015; in the case of qualified
ment of wells and incurs all the costs of their operation, hybrid motor vehicles that are automobiles and light
may aggregate negative taxable income from such inter- trucks and in the case of advanced lean-burn technology
ests with his income from all other sources. vehicles, before January 1, 2011; in the case of qualified
14. Capital gains treatment of royalties on hybrid motor vehicles that are medium and heavy
coal.—Sales of certain coal under royalty contracts can trucks, before January 1, 2010; and in the case of quali-
be treated as capital gains rather than ordinary income. fied alternative fuel motor vehicles, before January 1,
15. Energy facility bonds.—Interest earned on 2011.
State and local bonds used to finance construction of 19. Exclusion of utility conservation subsidies.—
certain energy facilities is taxexempt. These bonds are Non-business customers can exclude from gross income
subsidies received from public utilities for expenditures compared to the American Society of Heating, Refrig-
on energy conservation measures. erating, and Air Conditioning Engineers (ASHRAE)
20. Credit to holders of clean renewable energy standard is allowed. The provision is effective for prop-
bonds.—This provision provides for up to $800 million erty placed in service after December 31, 2005 and
in aggregate issuance of Clean Renewable Energy prior to January 1, 2008.
Bonds (CREBs) through December 31, 2008. Taxpayers 27. Credit for construction of new energy effi-
holding CREBs on a credit allowance date are entitled cient homes.—A credit is available to eligible contrac-
to a tax credit in lieu of interest. tors for construction of a qualified new energy-efficient
21. Deferral of gain from dispositions of trans- home. The credit applies to homes whose construction
mission property to implement FERC restructuring is substantially completed after December 31, 2005 and
policy.—Utilities that sell their transmission assets to which are purchased after December 31, 2005 and prior
a FERC-approved independent transmission company to January 1, 2009.
are allowed a longer recognition period for their gains 28. Credit for energy efficiency improvements to
from sale. Rather than paying tax on any gain from existing homes.—A 10 percent investment tax credit
the sale in the year that the sale is completed, utilities up to $500 is available for expenditures on insulation,
will have 8 years to pay the tax on any gain from exterior windows and doors that improve the energy
the sale. The rule expires at the end of 2007. efficiency of homes and meet certain standards. Credits
22. Credit for investment in clean coal facili- for purchases of advanced main air circulating fans,
ties.—Three investment tax credits for clean coal facili- natural gas, propane, or oil furnaces or hot water boil-
ties are available: a 15 percent and 20 percent invest- ers, and other qualified energy efficient property are
ment tax credit for clean coal facilities producing elec- also available. Credit applies to property placed in serv-
tricity; and a 20 percent credit for industrial gasifi- ice after December 31, 2005 and prior to January 1,
cation projects. Integrated gasification combined cycle 2008.
(IGCC) projects get a 20 percent investment tax credit 29. Credit for energy efficient appliances.—Tax
and other advanced coal-based projects that produce credits for the manufacture of efficient dishwashers,
electricity get a 15 percent credit. The Secretary of clothes washers, and refrigerators are available. Credits
the Treasury may allocate up to $800 million for IGCC vary depending on the efficiency of the unit. The provi-
projects and up to $500 million for other advanced coal- sion is effective for appliances manufactured in 2006
based technologies and up to $350 million for industrial and 2007.
gasification. 30. Credit for residential purchases/installations
23. Temporary 50 percent expensing for equip- of solar and fuel cells.—A credit, equal to 30 percent
ment used in the refining of liquid fuels.—Tax- of qualifying expenditures, for purchase for qualified
payers may expense 50 percent of the cost of refinery photovoltaic property and solar water heating property
investments which increase the capacity of an existing is available. A 30 percent credit for the purchase of
refinery by at least 5 percent or increase the through- qualified fuel cell power plants is also allowed and ap-
put of qualified fuels by at least 25 percent. Qualified plies to property placed in service after December 31,
fuels include oil from shale and tar sands. Investments 2005 and prior to January 1, 2009.
must be placed in service before January 1, 2012. 31. Credit for business installation of qualified
24. Natural gas distribution pipelines treated as fuel cells and stationary microturbine power
15-year property.—The depreciation period is short- plants.—A 30 percent business energy credit for pur-
ened to 15 years for any gas distribution lines the origi- chase of qualified fuel cell power plants for businesses
nal use of which occurred after April 11, 2004 and and a 10 percent credit for purchase of qualifying sta-
before January 1, 2011. The provision does not apply tionary microturbine power plants are allowed.
to any property which the taxpayer or a related party 32. Partial expensing for advanced mine safety
had entered into a binding contract for the construction equipment.—Qualified mine safety equipment may me
thereof or self-constructed on or before April 11, 2005. expensed rather depreciated over time. Provision lim-
25. Amortize all geological and geophysical ex-
ited to property placed in service on or before December
penditures over 2 years.—Geological and geophysical
31, 2008.
amounts incurred in connection with oil and gas explo-
ration in the United States may be amortized over two Natural Resources and Environment
years for non-integrated oil companies and five years
for certain major integrated oil companies. In the case 33. Exploration and development costs.—Certain
of abandoned property, any remaining basis may no capital outlays associated with exploration and develop-
longer be recovered in the year of abandonment of a ment of nonfuel minerals may be expensed rather than
property as all basis is recovered over the two-year depreciated over the life of the asset.
amortization period. 34. Percentage depletion.—Most nonfuel mineral
26. Allowance of deduction for certain energy ef- extractors may use percentage depletion rather than
ficient commercial building property.—A deduction cost depletion, with percentage depletion rates ranging
for energy efficient commercial buildings that reduce from 22 percent for sulfur to 5 percent for sand and
annual energy and power consumption by 50 percent gravel.
35. Sewage, water, solid and hazardous waste ness as income or reduce their recoverable basis in
facility bonds.—Interest earned on State and local the property to which the loan relates. If the debtor
bonds used to finance the construction of sewage, water, elects to reduce basis and the amount of forgiveness
or hazardous waste facilities is tax-exempt. These bonds exceeds the basis in the property, the excess forgiveness
are generally subject to the State private-activity bond is taxable. For insolvent (bankrupt) debtors, however,
annual volume cap. the amount of loan forgiveness reduces carryover losses,
36. Capital gains treatment of certain timber.— then unused credits, and then basis; any remainder
Certain timber sales can be treated as a capital gain of the forgiven debt is excluded from tax. Farmers with
rather than ordinary income. forgiven debt are considered insolvent for tax purposes,
37. Expensing multi-period timber growing and thus qualify for income tax forgiveness.
costs.—Most of the production costs of growing timber 44. Capital gains treatment of certain income.—
may be expensed rather than capitalized and deducted Certain agricultural income, such as unharvested crops,
when the timber is sold. In most other industries, these can be treated as capital gains rather than ordinary
costs are capitalized under the uniform capitalization income.
rules. 45. Income averaging for farmers.—Taxpayers can
38. Historic preservation.—Expenditures to pre- lower their tax liability by averaging, over the prior
serve and restore historic structures qualify for a 20- three-year period, their taxable income from farming
percent investment tax credit, but the depreciable basis and fishing.
must be reduced by the full amount of the credit taken. 46. Deferral of gain on sales of farm refiners.—
39. Expensing of capital costs with respect to A taxpayer who sells stock in a farm refiner to a farm-
complying with EPA sulfur regulations.—Small re- ers’ cooperative can defer recognition of gain if the tax-
finers are allowed to deduct 75 percent of qualified payer reinvests the proceeds in qualified replacement
capital costs incurred by the taxpayer during the tax- property.
able year. 47. Bio-Diesel tax credit.—An income tax credit of
40. Exclusion of gain or loss on sale or exchange $0.50, similar to Ethanol benefits, is available for each
of certain brownfield sites.—In general, an organiza- gallon of biodiesel used or sold. Biodiesel derived from
tion that is otherwise exempt from federal income tax virgin sources (agri-biodiesel) receives an increased
is taxed on income from any trade or business regularly credit of $1.00 per gallon. The Energy Tax Incentives
carried on by the organization that is not substantially Act of 2005 extends the income tax credit, excise tax
related to the organization’s exempt purpose. The AJCA credit, and payment provisions through December 31,
of 2004 created a special exclusion from unrelated busi- 2008 and adds a credit for small agri-biodiesel pro-
ness taxable income of the gain or loss from the sale ducers. The conference agreement also creates a similar
or exchange of certain qualifying brownfield properties. income tax credit, excise tax credit and payment system
The exclusion applies regardless of whether the prop- for renewable diesel, however there is no credit for
erty is debt-financed. In order to qualify, a minimum small producers of renewable diesel. Renewable diesel
amount of remediation expenditures must be incurred means diesel fuel derived form biomass using thermal
by the organization. depolymerization process.
Agriculture Commerce and Housing

41. Expensing certain capital outlays.—Farmers, This category includes a number of tax expenditure
except for certain agricultural corporations and partner- provisions that also affect economic activity in other
ships, are allowed to expense certain expenditures for functional categories. For example, provisions related
feed and fertilizer, as well as for soil and water con- to investment, such as accelerated depreciation, could
servation measures. Expensing is allowed, even though be classified under the energy, natural resources and
these expenditures are for inventories held beyond the environment, agriculture, or transportation categories.
end of the year, or for capital improvements that would 48. Credit union income.—The earnings of credit
otherwise be capitalized. unions not distributed to members as interest or divi-
42. Expensing multi-period livestock and crop dends are exempt from income tax.
production costs.—The production of livestock and 49. Bad debt reserves.—Small (less than $500 mil-
crops with a production period of less than two years lion in assets) commercial banks, mutual savings
is exempt from the uniform cost capitalization rules. banks, and savings and loan associations may deduct
Farmers establishing orchards, constructing farm facili- additions to bad debt reserves in excess of actually
ties for their own use, or producing any goods for sale experienced losses.
with a production period of two years or more may 50. Deferral of income on life insurance and an-
elect not to capitalize costs. If they do, they must apply nuity contracts.—Favorable tax treatment is provided
straight-line depreciation to all depreciable property for investment income within qualified life insurance
they use in farming. and annuity contracts. Investment income earned on
43. Loans forgiven solvent farmers.—Farmers are qualified life insurance contracts held until death is
forgiven the tax liability on certain forgiven debt. Nor- permanently exempt from income tax. Investment in-
mally, debtors must include the amount of loan forgive- come distributed prior to the death of the insured is
tax-deferred, if not tax-exempt. Investment income development bonds was $62.50 per capita ($187.5 mil-
earned on annuities is treated less favorably than in- lion minimum) per State in 2001, and $75 per capita
come earned on life insurance contracts, but it benefits ($225 million minimum) in 2002. The Community Re-
from tax deferral without annual contribution or income newal Tax Relief Act of 2000 accelerated the scheduled
limits generally applicable to other tax-favored retire- increase in the state volume cap and indexed the cap
ment income plans. for inflation, beginning in 2003. States may issue mort-
51. Small property and casualty insurance com- gage credit certificates (MCCs) in lieu of mortgage rev-
panies.—For taxable years beginning before January enue bonds. MCCs entitle home buyers to income tax
1, 2004, insurance companies that were not life insur- credits for a specified percentage of interest on qualified
ance companies and which had annual net premiums mortgages. The total amount of MCCs issued by a State
of less than $350,000 were exempt from tax; those with cannot exceed 25 percent of its annual ceiling for mort-
$350,000 to $1.2 million of annual net premiums could gage-revenue bonds.
elect to pay tax only on the income earned by their 56. Rental housing bonds.—Interest earned on
taxable investment portfolio. For taxable years begin- State and local government bonds used to finance mul-
ning after December 31, 2003, stock non-life insurance tifamily rental housing projects is tax-exempt. At least
companies are generally exempt from tax if their gross 20 percent (15 percent in targeted areas) of the units
receipts for the taxable year do not exceed $600,00 and must be reserved for families whose income does not
more than 50 percent of such gross receipts consists exceed 50 percent of the area’s median income; or 40
of premiums. Mutual non-life insurance companies are percent for families with incomes of no more than 60
generally tax-exempt if their annual gross receipts do percent of the area median income. Other tax-exempt
not exceed $150,000 and more than 35 percent of gross bonds for multifamily rental projects are generally
receipts consist of premiums. Also, for taxable years issued with the requirement that all tenants must be
beginning after December 31, 2003, non-life insurance low or moderate income families. Rental housing bonds
companies with no more than $1.2 million of annual are subject to the volume cap discussed in the mortgage
net premiums may elect to pay tax only on their taxable housing bond section above.
investment income. 57. Interest on owner-occupied homes.—Owner-oc-
52. Insurance companies owned by exempt orga- cupants of homes may deduct mortgage interest on
nizations.—Generally, the income generated by life their primary and secondary residences as itemized
and property and casualty insurance companies is sub- nonbusiness deductions. The mortgage interest deduc-
ject to tax, albeit by special rules. Insurance operations tion is limited to interest on debt no greater than the
conducted by such exempt organizations as fraternal owner’s basis in the residence and, for debt incurred
societies and voluntary employee benefit associations, after October 13, 1987; it is limited to no more than
however, are exempt from tax. $1 million. Interest on up to $100,000 of other debt
53. Small life insurance company deduction.— secured by a lien on a principal or second residence
Small life insurance companies (gross assets of less is also deductible, irrespective of the purpose of bor-
than $500 million) can deduct 60 percent of the first rowing, provided the debt does not exceed the fair mar-
$3 million of otherwise taxable income. The deduction ket value of the residence. Mortgage interest deductions
phases out for otherwise taxable income between $3 on personal residences are tax expenditures because
million and $15 million. the value of owner-occupied housing services is not in-
54. Exclusion of interest spread of financial included in a taxpayer’s taxable income.
stitutions.—Consumers and non-profit organizations 58. Taxes on owner-occupied homes.—Owner-occu-
pay for some deposit-linked services, such as check pants of homes may deduct property taxes on their
cashing, by accepting a below-market interest rate on primary and secondary residences even though they are
their demand deposits. If they received a market rate not required to report the value of owner-occupied hous-
of interest on those deposits and paid explicit fees for ing services as gross income.
the associated services, they would pay taxes on the 59. Installment sales.—Dealers in real and personal
full market rate and (unlike businesses) could not de- property (i.e., sellers who regularly hold property for
duct the fees. The government thus foregoes tax on sale or resale) cannot defer taxable income from install-
the difference between the risk-free market interest ment sales until the receipt of the loan repayment.
rate and below-market interest rates on demand depos- Nondealers (i.e., sellers of real property used in their
its, which under competitive conditions should equal business) are required to pay interest on deferred taxes
the value added of deposit services. attributable to their total installment obligations in ex-
55. Mortgage housing bonds.—Interest earned on cess of $5 million. Only properties with sales prices
State and local bonds used to finance homes purchased exceeding $150,000 are includable in the total. The pay-
by first-time, low-to-moderate-income buyers is tax-ex- ment of a market rate of interest eliminates the benefit
empt. The amount of State and local tax-exempt bonds of the tax deferral. The tax exemption for nondealers
that can be issued to finance these and other private with total installment obligations of less than $5 million
activity is limited. The combined volume cap for private is, therefore, a tax expenditure.
activity bonds, including mortgage housing bonds, rent- 60. Capital gains exclusion on home sales.—A
al housing bonds, student loan bonds, and industrial homeowner can exclude from tax up to $500,000
($250,000 for singles) of the capital gains from the sale 67. Capital gains (other than agriculture, tim-
of a principal residence. The exclusion may not be used ber, iron ore, and coal).—Capital gains on assets held
more than once every two years. for more than 1 year are taxed at a lower rate than
61. Imputed net rental income on owner-occu- ordinary income. Under the revised reference law base-
pied housing.—The implicit rental value of home own- line used for the 2005 Budget, the lower rate on capital
ership, net of expenses such as mortgage interest and gains is considered a tax expenditure under the ref-
depreciation, is excluded from income. Appendix A pro- erence law method, but only for capital gains that have
vides a fuller explanation of this new addition to the not been previously taxed under the corporate income
tax expenditure budget. tax. As discussed above, this treatment partially adjusts
62. Passive loss real estate exemption.—In gen- for the double tax on corporate income and is more
eral, passive losses may not offset income from other consistent with a comprehensive income tax base.
sources. Losses up to $25,000 attributable to certain The Jobs Growth Tax Relief Reconciliation Act
rental real estate activity, however, are exempt from (JGTRRA) lowered the top tax rate on capital gains
this rule. from 20 percent to 15 percent, which is effective
63. Low-income housing credit.—Taxpayers who through 2010. For taxpayers in the 15 percent or below
invest in certain low-income housing are eligible for ordinary tax bracket, JGTRRA lowered the tax rate
a tax credit. The credit rate is set so that the present on capital gains to 5 percent (0 percent in 2008). These
value of the credit is equal to 70 percent for new con- lower rates apply to assets held for more than one
struction and 30 percent for (1) housing receiving other year.
Federal benefits (such as tax-exempt bond financing), Previously, for assets acquired after December 31,
or (2) substantially rehabilitated existing housing. The 2000, the top capital gains tax rate for assets held
credit is allowed in equal amounts over 10 years. State for more than 5 years was 18 percent. Since January
agencies determine who receives the credit; States are 1, 2001, taxpayers may mark-to-market existing assets
limited in the amount of credit they may authorize to start the 5-year holding period. Losses from the
annually. The Community Renewal Tax Relief Act of mark-to-market are not recognized. For assets held for
2000 increased the per-resident limit to $1.50 in 2001 more than 1 year by taxpayers in the 15-percent ordi-
and to $1.75 in 2002 and indexed the limit for inflation, nary tax bracket, the top capital gains tax rate was
beginning in 2003. The Act also created a $2 million 10 percent. After December 31, 2000, the top capital
minimum annual cap for small States beginning in gains tax rate for assets held by these taxpayers for
2002; the cap is indexed for inflation, beginning in more than 5 years was 8 percent.
2003. 68. Capital gains exclusion for small business
64. Accelerated depreciation of rental property.— stock.—An exclusion of 50 percent is provided for cap-
The tax depreciation allowance provisions are part of ital gains from qualified small business stock held by
the reference law rules, and thus do not give rise to individuals for more than 5 years. A qualified small
tax expenditures under the reference method. Under business is a corporation whose gross assets do not
the normal tax method, however, economic depreciation exceed $50 million as of the date of issuance of the
is assumed. This calculation is described in more detail stock.
in Appendix A. 69. Step-up in basis of capital gains at death.—
65. Cancellation of indebtedness.—Individuals are Capital gains on assets held at the owner’s death are
not required to report the cancellation of certain indebt- not subject to capital gains taxes. The cost basis of
edness as current income. If the canceled debt is not the appreciated assets is adjusted upward to the mar-
reported as current income, however, the basis of the ket value at the owner’s date of death. After repeal
underlying property must be reduced by the amount of the estate tax for 2010 under the Economic Growth
canceled. and Tax Relief Reconciliation Act (EGTRRA) of 2001,
66. Imputed interest rules.—Holders (issuers) of the basis for property acquired from a decedent will
debt instruments are generally required to report inter- be the lesser of fair market value or the decedent’s
est earned (paid) in the period it accrues, not when basis. Certain types of additions to basis will be allowed
paid. In addition, the amount of interest accrued is so that assets in most estates that are not currently
determined by the actual price paid, not by the stated subject to estate tax will not be subject to capital gains
principal and interest stipulated in the instrument. In tax in the hands of the heirs.
general, any debt associated with the sale of property 70. Carryover basis of capital gains on gifts.—
worth less than $250,000 is excepted from the general When a gift is made, the donor’s basis in the trans-
interest accounting rules. This general $250,000 excep- ferred property (the cost that was incurred when the
tion is not a tax expenditure under reference law but transferred property was first acquired) carries-over to
is under normal law. Exceptions above $250,000 are the donee. The carryover of the donor’s basis allows
a tax expenditure under reference law; these exceptions a continued deferral of unrealized capital gains.
include the following: (1) sales of personal residences 71. Ordinary income treatment of losses from
worth more than $250,000, and (2) sales of farms and sale of small business corporate stock shares.—
small businesses worth between $250,000 and $1 mil- Up to $100,000 in losses from the sale of small business
lion. corporate stock (capitalization less than $1 million) may
be treated as ordinary losses. Such losses would, thus, bonds (IDBs) issued by State and local governments
not be subject to the $3,000 annual capital loss write- to finance manufacturing facilities is tax exempt. De-
off limit. preciable property financed with small issue IDBs must
72. Accelerated depreciation of non-rental-hous- be depreciated, however, using the straight-line method.
ing buildings.—The tax depreciation allowance provi- The annual volume of small issue IDBs is subject to
sions are part of the reference law rules, and thus the unified volume cap discussed in the mortgage hous-
do not give rise to tax expenditures under reference ing bond section above.
law. Under normal law, however, economic depreciation 77. Deduction for U.S. production activities.—
is assumed. This calculation is described in more detail This provision was introduced by the AJCA in 2004
in Appendix A. and allows for a deduction equal to a portion of taxable
73. Accelerated depreciation of machinery and income attributable to domestic production. For taxable
equipment.—The tax depreciation allowance provisions years beginning in 2004, 2005, 2006, 2007, and 2008,
are part of the reference law rules, and thus do not the amount of the deduction is 5, 5, 5, 6, and 7 percent,
give rise to tax expenditures under reference law. respectively. For taxable years beginning after 2008,
Under the normal tax baseline, this tax depreciation the amount of the deduction is 9 percent.
allowance is measured relative to economic deprecia- 78. Special rules for certain film and TV produc-
tion. This calculation is described in more detail in tion.—Taxpayers may deduct up to $15 million ($15
Appendix A.
million in certain distressed areas) per production ex-
74. Expensing of certain small investments.—As
penditures in the year incurred. Excess expenditures
of 2003, under prior law, qualifying investments in tan-
may be deducted over three years using the straight
gible property up to $25,000 could have been expensed
line method. This provision was introduced by the
rather than depreciated over time. The amount eligible
for expensing was decreased to the extent the tax- AJCA enacted in 2004. Under prior law, production
payer’s qualifying investment during the year exceeded expenses were depreciated.
$200,000. For 2003, however, the expensing limit was
Transportation
temporarily increased to $100,000, the phase-out limit
was temporarily increased to $400,000, and computer 79. Deferral of tax on U.S. shipping companies.—
software became temporarily eligible for expensing Certain companies that operate U.S. flag vessels can
treatment. For 2004 through 2009, these higher limits defer income taxes on that portion of their income used
are indexed for inflation, and computer software con- for shipping purposes, primarily construction, mod-
tinues to be an eligible investment. In all years, the ernization and major repairs to ships, and repayment
amount expensed cannot exceed the taxpayer’s taxable of loans to finance these investments. Once indefinite,
income for the year. The prior rules will apply for tax- the deferral has been limited to 25 years since January
able years beginning after 2009. 1, 1987.
75. Graduated corporation income tax rate 80. Exclusion of employee parking expenses.—
schedule.—The corporate income tax schedule is grad- Employee parking expenses that are paid for by the
uated, with rates of 15 percent on the first $50,000 employer or that are received in lieu of wages are ex-
of taxable income, 25 percent on the next $25,000, and cludable from the income of the employee. In 2006,
34 percent on the next $9.925 million. Compared with the maximum amount of the parking exclusion is $250
a flat 34-percent rate, the lower rates provide an (indexed) per month. The tax expenditure estimate does
$11,750 reduction in tax liability for corporations with not include parking at facilities owned by the employer.
taxable income of $75,000. This benefit is recaptured 81. Exclusion of employee transit pass ex-
for corporations with taxable incomes exceeding penses.—Transit passes, tokens, fare cards, and van-
$100,000 by a 5-percent additional tax on corporate
pool expenses paid for by an employer or provided in
incomes in excess of $100,000 but less than $335,000.
lieu of wages to defray an employee’s commuting costs
The corporate tax rate is 35 percent on income over
$10 million. Compared with a flat 35-percent tax rate, are excludable from the employee’s income. In 2006,
the 34-percent rate provides a $100,000 reduction in the maximum amount of the exclusion is $105 (indexed)
tax liability for corporations with taxable incomes of per month.
$10 million. This benefit is recaptured for corporations 82. Tax credit for certain expenditures for main-
with taxable incomes exceeding $15 million by a 3- taining railroad tracks.—Eligible taxpayers may
percent additional tax on income over $15 million but claim a credit equal to the lesser of 50 percent of main-
less than $18.33 million. Because the corporate rate tenance expenditures and the product of $3,500 and
schedule is part of reference tax law, it is not consid- the number of miles of track owned or leased.
ered a tax expenditure under the reference method. 83. Exclusion of interest on bonds for Financing
A flat corporation income tax rate is taken as the base- of Highway Projects and Rail-Truck Transfer Fa-
line under the normal tax method; therefore the lower cilities.—This provision provides for $15 billion of tax-
rate is considered a tax expenditure under this concept. exempt bond authority to finance qualified highway or
76. Small issue industrial development bonds.— surface freight transfer facilities. The authority to issue
Interest earned on small issue industrial development these bonds expires on December 31, 2015.
Community and Regional Development cated to CDEs through a competitive application proc-
84.Rehabilitation of structures.—A 10-percent in- ess.
vestment tax credit is available for the rehabilitation 89. Expensing of environmental remediation
of buildings that are used for business or productive costs.—Taxpayers who clean up certain hazardous sub-
activities and that were erected before 1936 for other stances at a qualified site may expense the clean-up
than residential purposes. The taxpayer’s recoverable costs, even though the expenses will generally increase
basis must be reduced by the amount of the credit. the value of the property significantly or appreciably
85. Airport, dock, and similar facility bonds.— prolong the life of the property. The Working Families
Interest earned on State and local bonds issued to fi- Tax Relief Act of 2004 extended this provision for two
nance high-speed rail facilities and government-owned years, allowing remediation expenditures incurred be-
airports, docks, wharves, and sport and convention fa- fore December 31, 2007 to be eligible for expensing.
cilities is tax-exempt. These bonds are not subject to 90. Credit to holders of Gulf Tax Credit Bonds.—
a volume cap. Taxpayers that own Gulf Tax Credit bonds receive a
86. Exemption of income of mutuals and coopera- non-refundable tax credit (at a rate set by the Treasury
tives.—The incomes of mutual and cooperative tele- Department) rather than interest. The credit is in-
phone and electric companies are exempt from tax if cluded in gross income. The maximum amount that
at least 85 percent of their revenues are derived from can be issued is $200 million in the case of Louisiana,
patron service charges. $100 million in the case of Mississippi, and $50 million
87. Empowerment zones and renewal commu- in the case of Alabama.
nities.—Qualifying businesses in designated economi-
cally depressed areas can receive tax benefits such as Education, Training, Employment, and Social
an employer wage credit, increased expensing of invest- Services
ment in equipment, special tax-exempt financing, accel- 91.Scholarship and fellowship income.—Scholar-
erated depreciation, and certain capital gains incen- ships and fellowships are excluded from taxable income
tives. Empowerment zone and renewal community des- to the extent they pay for tuition and course-related
ignations expire at the end of 2009. The Job Creation expenses of the grantee. Similarly, tuition reductions
and Worker Assistance Act of 2002 expanded the exist- for employees of educational institutions and their fami-
ing provisions by adding the ‘‘New York City Liberty lies are not included in taxable income. From an eco-
Zone.’’ In addition, the Working Families Tax Relief nomic point of view, scholarships and fellowships are
Act of 2004 extended the District of Columbia Enter- either gifts not conditioned on the performance of serv-
prise Zone and the District of Columbia first time ices, or they are rebates of educational costs. Thus,
homebuyer credit by two years through 2007. under the reference law method, this exclusion is not
The Gulf Opportunity Zone Act of 2005 added several a tax expenditure because this method does not include
provisions targeted to encourage the redevelopment of either gifts or price reductions in a taxpayer’s gross
areas affected by hurricanes Katrina, Rita and Wilma, income. The exclusion, however, is considered a tax ex-
including some provisions that have already been listed penditure under the normal tax method, which includes
elsewhere in this table. Gulf Opportunity Zone Act pro- gift-like transfers of Government funds in gross income
visions not listed elsewhere include additional tax-ex- (many scholarships are derived directly or indirectly
empt bond financing authority, accelerated depreciation from Government funding).
of investment in both structures and equipment, partial 92. HOPE tax credit.—The non-refundable HOPE
expensing for certain demolition and clean-up costs, in- tax credit allows a credit for 100 percent of an eligible
creased carryback of certain net operating losses, in- student’s first $1,100 of tuition and fees and 50 percent
creased authority to allocate low-income housing tax of the next $1,100 of tuition and fees. The credit only
credits and new markets tax credits within the affected covers tuition and fees paid during the first two years
areas and other provisions. of a student’s post-secondary education. In 2006, the
88. New markets tax credit.—Taxpayers who make credit is phased out ratably for taxpayers with modified
qualified equity investments in a community develop- AGI between $90,000 and $110,000 ($45,000 and
ment entity (CDE), which then makes qualified invest- $55,000 for singles), indexed.
ments in low-income communities, are eligible for a 93. Lifetime Learning tax credit.—The non-refund-
tax credit received over 7 years. The amount of the able Lifetime Learning tax credit allows a credit for
credit equals (1) 5 percent in the year of purchase and 20 percent of an eligible student’s tuition and fees, up
the following 2 years, and (2) 6 percent in the following to a maximum credit per return is $2,000. The credit
4 years. A CDE is any domestic firm the primary mis- is phased out ratably for taxpayers with modified AGI
sion of which is to serve or provide investment capital between $90,000 and $110,000 ($45,000 and $55,000
for low-income communities/individuals; a CDE must for singles) (indexed beginning in 2002). The credit ap-
be accountable to residents of low-income communities. plies to both undergraduate and graduate students.
The total equity investment available for the credit 94. Education Individual Retirement Accounts.—
across all CDEs is $1.0 billion in 2001, $1.5 billion Contributions to an education IRA are not tax-deduct-
in 2002 and 2003, $2.0 billion in 2004 and 2005, and ible. Investment income earned by education IRAs is
$3.5 billion in 2006 and 2008. Credit authority is allo- not taxed when earned, and investment income from
an education IRA is tax-exempt when withdrawn to 102. Dependent students age 19 or older.—Tax-
pay for a student’s tuition and fees. The maximum con- payers may claim personal exemptions for dependent
tribution to an education IRA in 2006 is $2000 per children who are over the age of 18 or under the age
beneficiary. The maximum contribution is phased down of 24 and who (1) reside with the taxpayer for over
ratably for taxpayers with modified AGI between half the year (with exceptions for temporary absences
$190,000 and $220,000 ($95,000 and $110,000 for sin- from home, such as for school attendance), (2) are full-
gles). time students, and (3) do not claim a personal exemp-
95. Student-loan interest.—Taxpayers may claim tion on their own tax returns.
an above-the-line deduction of up to $2,500 on interest 103. Charitable contributions to educational in-
paid on an education loan. Interest may only be de- stitutions.—Taxpayers may deduct contributions to
ducted for the first five years in which interest pay- nonprofit educational institutions. Taxpayers who do-
ments are required. In 2006, the maximum deduction nate capital assets to educational institutions can de-
is phased down ratably for taxpayers with modified duct the asset’s current value without being taxed on
AGI between $105,000 and $135,000 ($50,000 and any appreciation in value. An individual’s total chari-
$65,000 for singles), indexed. table contribution generally may not exceed 50 percent
96. Deduction for Higher Education Expenses.— of adjusted gross income; a corporation’s total charitable
The maximum annual deduction for qualified higher contributions generally may not exceed 10 percent of
education expenses is $4,000 in 2007 for taxpayers with pre-tax income.
adjusted gross income up to $130,000 on a joint return 104. Employer-provided educational assist-
($65,000 for singles). Taxpayers with adjusted gross in- ance.—Employer-provided educational assistance is ex-
come up to $160,000 on a joint return ($80,000 for cluded from an employee’s gross income even though
singles) may deduct up to $2,000 beginning in 2004. the employer’s costs for this assistance are a deductible
No deduction is allowed for expenses paid after Decem- business expense.
ber 31, 2007. 105. Special deduction for teacher expenses.—
97. State prepaid tuition plans.—Some States Educators in both public and private elementary and
have adopted prepaid tuition plans and prepaid room secondary schools, who work at least 900 hours during
a school year as a teacher, instructor, counselor, prin-
and board plans, which allow persons to pay in advance
cipal or aide, may subtract up to $250 of qualified ex-
for college expenses for designated beneficiaries. In
penses when figuring their adjusted gross income (AGI).
2001 taxes on the earnings from these plans are paid
Provision expires at end of December 31, 2007.
by the beneficiaries and are deferred until tuition is
106. Discharge of student loan indebtedness.—
actually paid. Beginning in 2002, investment income
Certain professionals who perform in underserved
is not taxed when earned, and is tax-exempt when areas, and as a consequence get their student loans
withdrawn to pay for qualified expenses. discharged, may not recognize such discharge as in-
98. Student-loan bonds.—Interest earned on State come. This provision was expanded by the AJCA to
and local bonds issued to finance student loans is tax- include health professionals.
exempt. The volume of all such private activity bonds 107. Work opportunity tax credit.—Employers can
that each State may issue annually is limited. claim a tax credit for qualified wages paid to individ-
99. Bonds for private nonprofit educational in- uals who begin work on or before December 31, 2007
stitutions.—Interest earned on State and local Govern- and who are certified as members of various targeted
ment bonds issued to finance the construction of facili- groups. The amount of the credit that can be claimed
ties used by private nonprofit educational institutions is 25 percent for employment of less than 400 hours
is not taxed. and 40 percent for employment of 400 hours or more.
100. Credit for holders of zone academy bonds.— The maximum credit per employee is $2,400 and can
Financial institutions that own zone academy bonds only be claimed on the first year of wages an individual
receive a non-refundable tax credit (at a rate set by earns from an employer. Employees must work at least
the Treasury Department) rather than interest. The 120 hours to be eligible for the credit. Employers must
credit is included in gross income. Proceeds from zone reduce their deduction for wages paid by the amount
academy bonds may only be used to renovate, but not of the credit claimed. The Katrina Emergency Tax Re-
construct, qualifying schools and for certain other lief Act of 2005 expanded WOTC eligibility to Hurricane
school purposes. The total amount of zone academy Katrina Employees, defined as persons whose principal
bonds that may be issued is limited to $1.6 billion— places of abode on August 28, 2005 were in the core
$400 million in each year from 1998 to 2007. disaster area and who beginning on such date and
101. U.S. savings bonds for education.—Interest through August 28, 2007, are hired for a position prin-
earned on U.S. savings bonds issued after December cipally located in the core disaster area; and beginning
31, 1989 is tax-exempt if the bonds are transferred on such date and through December 31, 2005, are hired
to an educational institution to pay for educational ex- for a position regardless of its location. The usual cer-
penses. The tax exemption is phased out for taxpayers tification process rules are waived for Hurricane
with AGI between $94,700 and $124,700 ($63,100 and Katrina employees. The Tax Relief and Health Care
$78,100 for singles) in 2006. Act of 2006 modified the Work opportunity tax credit
by changing definitions of the Food Stamp and Ex- an employee’s gross income even though the employer’s
Convict target groups and adding persons eligible for costs for these items are a deductible business expense.
the Welfare-to-work credit as a new WOTC target group 114. Child credit.—Taxpayers with children under
with a $10,000 ceiling on qualified first year wages age 17 can qualify for a $1,000 partially refundable
and a 50 percent credit on qualified second year wages per child credit. The maximum credit declines to $500
up to $10,000. Under the 2006 Act, qualified employees in 2011 and later years. The credit is phased out for
hired through December 31, 2007, are eligible for the taxpayers at the rate of $50 per $1,000 of modified
modified WOTC credit.. AGI above $110,000 ($75,000 for singles).
108. Welfare-to-work tax credit.—An employer is 115. Child and dependent care expenses.—Mar-
eligible for a tax credit on the first $20,000 of eligible ried couples with child and dependent care expenses
wages paid to qualified long-term family assistance re- may claim a tax credit when one spouse works full
cipients during the first two years of employment. The time and the other works at least part time or goes
credit is 35 percent of the first $10,000 of wages in to school. The credit may also be claimed by single
the first year of employment and 50 percent of the parents and by divorced or separated parents who have
first $10,000 of wages in the second year of employ- custody of children. In 2006, expenditures up to a max-
ment. Employees must work at least 400 hours to be imum $3,000 for one dependent and $6,000 for two
eligible for the credit. The maximum credit is $8,500 or more dependents are eligible for the credit. The cred-
per employee. The credit applies to wages paid to em- it is equal to 35 percent of qualified expenditures for
ployees who are hired on or before December 31, 2006. taxpayers with incomes of $15,000. The credit is re-
The Tax Relief and Health Care Act of 2006 modified duced to a minimum of 20 percent by one percentage
the Welfare to Work credit by making qualified long- point for each $2,000 of income in excess of $15,000.
term family assistance recipients a WOTC target group 116. Disabled access expenditure credit.—Small
after December 31, 2007. businesses (less than $1 million in gross receipts or
109. Employer-provided child care exclusion.— fewer than 31 full-time employees) can claim a 50-per-
Up to $5,000 of employer-provided child care is ex- cent credit for expenditures in excess of $250 to remove
cluded from an employee’s gross income even though access barriers for disabled persons. The credit is lim-
the employer’s costs for the child care are a deductible ited to $5,000.
business expense. 117. Charitable contributions, other than edu-
110. Employer-provided child care credit.—The cation and health.—Taxpayers may deduct contribu-
credit is equal to 25 percent of qualified expenses for tions to charitable, religious, and certain other non-
employee child care and 10 percent of qualified ex- profit organizations. Taxpayers who donate capital as-
penses for child care resource and referral services. Em- sets to charitable organizations can deduct the assets’
ployer deductions for such expenses are reduced by the current value without being taxed on any appreciation
amount of the credit. The maximum total credit is lim- in value. An individual’s total charitable contribution
ited to $150,000 per taxable year. generally may not exceed 50 percent of adjusted gross
111. Assistance for adopted foster children.—Tax- income; a corporation’s total charitable contributions
payers who adopt eligible children from the public fos- generally may not exceed 10 percent of pre-tax income.
ter care system can receive monthly payments for the 118. Foster care payments.—Foster parents provide
children’s significant and varied needs and a reimburse- a home and care for children who are wards of the
ment of up to $2,000 for nonrecurring adoption ex- State, under contract with the State. Compensation re-
penses. These payments are excluded from gross in- ceived for this service is excluded from the gross in-
come. comes of foster parents; the expenses they incur are
112. Adoption credit and exclusion.—Taxpayers nondeductible.
can receive a nonrefundable tax credit for qualified 119. Parsonage allowances.—The value of a min-
adoption expenses. The maximum credit is $10,960 per ister’s housing allowance and the rental value of par-
child for 2006, and is phased-out ratably for taxpayers sonages are not included in a minister’s taxable income.
with modified AGI between $164,410 and $204,410. The 120. Provide an employee retention credit to em-
credit amounts and the phase-out thresholds are in- ployers affected by hurricane Katrina, Rita, and
dexed for inflation beginning in 2003. Unused credits Wilma.—Businesses located within the Gulf Oppor-
may be carried forward and used during the five subse- tunity (GO) Zone on August 28, 2005 are eligible for
quent years. Taxpayers may also exclude qualified a 40 percent tax credit on the first $6,000 in qualified
adoption expenses from income, subject to the same wages paid to qualified employees employed within the
maximum amounts and phase-out as the credit. The GO Zone. Qualified wages are those paid by an eligible
same expenses cannot qualify for tax benefits under employer to an eligible employee on any day after Au-
both programs; however, a taxpayer may use the bene- gust 28, 2005 and before January 1, 2006 during the
fits of the exclusion and the tax credit for different period beginning on the date on which the trade or
expenses. Stepchild adoptions are not eligible for either business first became inoperable at the principal place
benefit. of employment of the employee by reason of hurricane
113. Employer-provided meals and lodging.—Em- Katrina and ending on the date on which such trade
ployer-provided meals and lodging are excluded from or business resumed significant operations at such prin-
cipal place of employment. Similar rules apply to the ble insurance company income tax accounting rules that
Rita GO Zone and the Wilma GO Zone with initial substantially reduce (or even eliminate) their tax liabil-
effective dates of September 23, 2005, and October 23, ities.
2005, respectively. 129. Tax credit for health insurance purchased
by certain displaced and retired individuals.—The
Health Trade Act of 2002 provided a refundable tax credit of
121. Employer-paid medical insurance and ex- 65 percent for the purchase of health insurance cov-
penses.—Employer-paid health insurance premiums erage by individuals eligible for Trade Adjustment As-
and other medical expenses (including long-term care) sistance and certain PBGC pension recipients.
are deducted as a business expense by employers, but 130. Distributions for premiums for health and
they are not included in employee gross income. The long-term care insurance.—This provision provides
self-employed also may deduct part of their family for tax-free distributions of up to $3,000 from govern-
health insurance premiums. mental retirement plans for premiums for health and
122. Self-employed medical insurance pre- long term care premiums of public safety officers.
miums.—Self-employed taxpayers may deduct a per-
centage of their family health insurance premiums. Income Security
Taxpayers without self-employment income are not eli- 131. Railroad retirement benefits.—Railroad re-
gible for the special percentage deduction. The deduct- tirement benefits are not generally subject to the in-
ible percentage is 60 percent in 2001, 70 percent in come tax unless the recipient’s gross income reaches
2002, and 100 percent in 2003 and thereafter. a certain threshold. The threshold is discussed more
123. Medical and health savings accounts.—Indi- fully under the Social Security function.
vidual contributions to Archer Medical Savings Ac- 132. Workers’ compensation benefits.—Workers
counts (Archer MSAs) and Health Savings Accounts compensation provides payments to disabled workers.
(HSAs) are allowed as a deduction in determining ad- These benefits, although income to the recipients, are
justed gross income whether or not the individual not subject to the income tax.
itemizes deductions. Employer contributions to Archer 133. Public assistance benefits.—Public assistance
MSAs and HSAs are excluded from income and employ-
benefits are excluded from tax. The normal tax method
ment taxes. Archer MSAs and HSAs require that the
considers cash transfers from the Government as tax-
individual have coverage by a qualifying high deduct-
able and, thus, treats the exclusion for public assistance
ible health plan. Earnings from the accounts are ex-
benefits as a tax expenditure.
cluded from taxable income. Distributions from the ac-
134. Special benefits for disabled coal miners.—
counts used for medical expenses are not taxable. The
rules for HSAs are generally more flexible than for Disability payments to former coal miners out of the
Archer MSAs and the deductible contribution amounts Black Lung Trust Fund, although income to the recipi-
are greater (in 2007, $2850 for taxpayers with indi- ent, are not subject to the income tax.
vidual coverage and $5,650 for taxpayers with family 135. Military disability pensions.—Most of the
coverage). Thus, HSAs have largely replaced MSAs. military pension income received by current disabled
124. Medical care expenses.—Personal expendi- retired veterans is excluded from their income subject
tures for medical care (including the costs of prescrip- to tax.
tion drugs) exceeding 7.5 percent of the taxpayer’s ad- 136. Employer-provided pension contributions
justed gross income are deductible. and earnings.—Certain employer contributions to pen-
125. Hospital construction bonds.—Interest earned sion plans are excluded from an employee’s gross in-
on State and local government debt issued to finance come even though the employer can deduct the con-
hospital construction is excluded from income subject tributions. In addition, the tax on the investment in-
to tax. come earned by the pension plans is deferred until the
126. Charitable contributions to health institu- money is withdrawn.
tions.—Individuals and corporations may deduct con- 137. 401(k) plans.—Individual taxpayers can make
tributions to nonprofit health institutions. Tax expendi- tax-preferred contributions to certain types of employer-
tures resulting from the deductibility of contributions provided 401(k) plans (and 401(k)-type plans like 403(b)
to other charitable institutions are listed under the edu- plans and the Federal government’s Thrift Savings
cation, training, employment, and social services func- Plan). In 2006, an employee could exclude up to $15,000
tion. (indexed) of wages from AGI under a qualified arrange-
127. Orphan drugs.—Drug firms can claim a tax ment with an employer’s 401(k) plan. The tax on the
credit of 50 percent of the costs for clinical testing reinvestment income earned by 401(k)-type plans is de-
quired by the Food and Drug Administration for drugs ferred until withdrawn.
that treat rare physical conditions or rare diseases. Employees are allowed to make after-tax contribu-
128. Blue Cross and Blue Shield.—Blue Cross and tions to 401(k) and 401(k)-type plans. These contribu-
Blue Shield health insurance providers in existence on tions are not excluded from AGI, but the investment
August 16, 1986 and certain other nonprofit health in- income of such after-tax contributions is not taxed when
surers are provided exceptions from otherwise applica- earned or withdrawn.
138. Individual Retirement Accounts.—Individual share of the total costs does not exceed the cost of
taxpayers can take advantage of several different Indi- $50,000 of such insurance.
vidual Retirement Accounts (IRAs): deductible IRAs, 142. Employer-provided accident and disability
non-deductible IRAs, and Roth IRAs. The annual con- benefits.—Employer-provided accident and disability
tributions limit applies to the total of a taxpayer’s de- benefits are excluded from an employee’s gross income
ductible, non-deductible, and Roth IRAs contributions. even though the employer’s costs for the benefits are
The IRA contribution limit is $4,000 in 2006, and a deductible business expense.
$5,000 in 2008 (indexed thereafter) and allows tax- 143. Employer-provided supplementary unem-
payers over age 50 to make additional ‘‘catch-up’’ con- ployment benefits.—Employers may establish trusts
tributions of $1,000. to pay supplemental unemployment benefits to employ-
Taxpayers whose AGI is below $85,000 ($65,000 for ees separated from employment. Interest payments to
non-joint filers) in 2006 can claim a deduction for IRA such trusts are exempt from taxation.
contributions. The IRA deduction is phased out for tax- 144. Employer Stock Ownership Plan (ESOP)
payers with AGI between $75,000 and $85,000 ($50,000 provisions.—ESOPs are a special type of tax-exempt
and $60,000 for non-joint). The phase-out range in- employee benefit plan. Employer-paid contributions (the
creases annually until it reaches $80,000 to $100,000 value of stock issued to the ESOP) are deductible by
in 2007. Taxpayers whose AGI is above the phase-out the employer as part of employee compensation costs.
range can also claim a deduction for their IRA contribu- They are not included in the employees’ gross income
tions depending on whether they (or their spouse) are for tax purposes, however, until they are paid out as
an active participant in an employer-provided retire- benefits. The following special income tax provisions
ment plan. The tax on the investment income earned for ESOPs are intended to increase ownership of cor-
by 401(k) plans, non-deductible IRAs, and deductible porations by their employees: (1) annual employer con-
IRAs is deferred until the money is withdrawn. tributions are subject to less restrictive limitations; (2)
Taxpayers with incomes below $160,000 ($110,000 for ESOPs may borrow to purchase employer stock, guar-
nonjoint filers) can make contributions to Roth IRAs. anteed by their agreement with the employer that the
The maximum contribution to a Roth IRA is phased debt will be serviced by his payment (deductible by
him) of a portion of wages (excludable by the employ-
out for taxpayers with AGI between $150,000 and
ees) to service the loan; (3) employees who sell appre-
$160,000 ($95,000 and $110,000 for singles). Investment
ciated company stock to the ESOP may defer any taxes
income of a Roth IRA is not taxed when earned nor
due until they withdraw benefits; and (4) dividends
when withdrawn. Withdrawals from a Roth IRA are
paid to ESOP-held stock are deductible by the em-
penalty free if: (1) the Roth IRA was opened at least
ployer.
5 years before the withdrawal, and (2) the taxpayer 145. Additional deduction for the blind.—Tax-
either (a) is at least 591/2, (b) dies, (c) is disabled, payers who are blind may take an additional $1,250
or (d) purchases a first-time house. standard deduction if single, or $1,000 if married in
Taxpayers can contribute to a non-deductible IRA re- 2006.
gardless of their income and whether they are an active 146. Additional deduction for the elderly.—Tax-
participant in an employer-provided retirement plan. payers who are 65 years or older may take an addi-
The tax on investment income earned by non-deductible tional $1,250 standard deduction if single, or $1,000
IRAs is deferred until the money is withdrawn. if married in 2006.
139. Low and moderate-income savers’ credit.— 147. Tax credit for the elderly and disabled.—
The Tax Code provides an additional incentive for Individuals who are 65 years of age or older, or who
lower-income taxpayers to save through a nonrefund- are permanently disabled, can take a tax credit equal
able credit of up to 50 percent on IRA and other retire- to 15 percent of the sum of their earned and retirement
ment contributions of up to $2,000. This credit is in income. Income is limited to no more than $5,000 for
addition to any deduction or exclusion. The credit is single individuals or married couples filing a joint re-
completely phased out by $50,000 for joint filers and turn where only one spouse is 65 years of age or older,
$25,000 for single filers. and up to $7,500 for joint returns where both spouses
140. Keogh plans.—Self-employed individuals can are 65 years of age or older. These limits are reduced
make deductible contributions to their own retirement by one-half of the taxpayer’s adjusted gross income over
(Keogh) plans equal to 25 percent of their income, up $7,500 for single individuals and $10,000 for married
to a maximum of $44,000 in 2006. Total plan contribu- couples filing a joint return.
tions are limited to 25 percent of a firm’s total wages. 148. Casualty losses.—Neither the purchase of prop-
The tax on the investment income earned by Keogh erty nor insurance premiums to protect its value are
plans is deferred until withdrawn. deductible as costs of earning income; therefore, reim-
141. Employer-provided life insurance benefits.— bursement for insured loss of such property is not re-
Employer-provided life insurance benefits are excluded portable as a part of gross income. Taxpayers, however,
from an employee’s gross income even though the em- may deduct uninsured casualty and theft losses of more
ployer’s costs for the insurance are a deductible busi- than $100 each, but only to the extent that total losses
ness expense, but only to the extent that the employer’s during the year exceed 10 percent of AGI.
149. Earned income tax credit (EITC ).—The EITC and tier 1 railroad retirement benefits. The tax expend-
may be claimed by low-income workers. For a family iture is limited to the portion of the benefits received
with one qualifying child, the credit is 34 percent of by taxpayers who are below the base amounts at which
the first $8,080 of earned income in 2006. The credit 85 percent of the benefits are taxable.
is 40 percent of the first $11,340 of income for a family 152. Social Security benefits for the disabled.—
with two or more qualifying children. The credit is Benefit payments from the Social Security Trust Fund
phased out beginning when the taxpayer’s income ex- for disability are partially excluded from a beneficiary’s
ceeds $14,810 at the rate of 15.98 percent (21.06 per- gross incomes.
cent if two or more qualifying children are present). 153. Social Security benefits for dependents and
It is completely phased out when the taxpayer’s modi- survivors.—Benefit payments from the Social Security
fied adjusted gross income reaches $32,001 ($36,348 if Trust Fund for dependents and survivors are partially
two or more qualifying children are present), $34,001 excluded from a beneficiary’s gross income.
(or $38,348) for those married.
The credit may also be claimed by workers who do Veterans Benefits and Services
not have children living with them. Qualifying workers 154. Veterans death benefits and disability com-
must be at least age 25 and may not be claimed as pensation.—All compensation due to death or dis-
a dependent on another taxpayer’s return. The credit ability paid by the Veterans Administration is excluded
is not available to workers age 65 or older. In 2006, from taxable income.
the credit is 7.65 percent of the first $5,380 of earned 155. Veterans pension payments.—Pension pay-
income. When the taxpayer’s income exceeds $6,740 ments made by the Veterans Administration are ex-
(8,740 if married), the credit is phased out at the rate cluded from gross income.
of 7.65 percent. It is completely phased out at $12,120 156. G.I. Bill benefits.—G.I. Bill benefits paid by
($14,120 for married) of modified adjusted gross income. the Veterans Administration are excluded from gross
For workers with or without children, the income income.
levels at which the credit begins to phase-out and the 157. Tax-exempt mortgage bonds for veteran.—
maximum amounts of income on which the credit can
Interest earned on general obligation bonds issued by
be taken are adjusted for inflation. For married tax-
State and local governments to finance housing for vet-
payers filing a joint return, the base amount for the
erans is excluded from taxable income. The issuance
phase-out increases by $2,000 in 2006 through 2007,
of such bonds is limited, however, to five pre-existing
and $3,000 in 2008 (indexed thereafter).
State programs and to amounts based upon previous
Earned income tax credits in excess of tax liabilities
volume levels for the period January 1, 1979 to June
owed through the individual income tax system are re-
22, 1984. Furthermore, future issues are limited to vet-
fundable to individuals. This portion of the credit is
erans who served on active duty before 1977.
shown as an outlay, while the amount that offsets tax
liabilities is shown as a tax expenditure. General Government
150. Additional exemption for housing Hurri-
cane Katrina displaced individuals.—This provi- 158. Public purpose State and local bonds.—In-
sion, introduced by the Katrina Emergency Tax Relief terest earned on State and local government bonds
Act of 2005, provides an additional exemption of $500 issued to finance public-purpose construction (e.g.,
for each Hurricane Katrina displaced individual for schools, roads, sewers), equipment acquisition, and
whom the taxpayer is providing shelter in his or her other public purposes is tax-exempt. Interest on bonds
home, for a maximum additional exemption amount is issued by Indian tribal governments for essential gov-
$2,000. ernmental purposes is also tax-exempt.
159. Deductibility of certain nonbusiness State
Social Security and local taxes.—Taxpayers may deduct State and
151. Social Security benefits for retired work- local income taxes and property taxes even though
ers.—The non-taxation of Social Security benefits that these taxes primarily pay for services that, if purchased
exceed the beneficiary’s contributions out of taxed indirectly by taxpayers, would not be deductible.
come is a tax expenditure. These additional retirement 160. Business income earned in U.S. posses-
benefits are paid for partly by employers’ contributions sions.—U.S. corporations operating in a U.S. possession
that were not included in employees’ taxable compensa- (e.g., Puerto Rico) can claim a credit against some or
tion. Portions (reaching as much as 85 percent) of re- all of their U.S. tax liability on possession business
cipients’ Social Security and Tier 1 Railroad Retirement income. The credit expires December 31, 2005.
benefits are included in the income tax base, however,
if the recipient’s provisional income exceeds certain Interest
base amounts. Provisional income is equal to adjusted 161. U.S. savings bonds.—Taxpayers may defer pay-
gross income plus foreign or U.S. possession income ing tax on interest earned on U.S. savings bonds until
and tax-exempt interest, and one half of Social Security the bonds are redeemed.
Appendix A
TREASURY REVIEW OF THE TAX EXPENDITURE PRESENTATION
This appendix provides a presentation of the Treas- the current budget to those implied by a consumption
ury Department’s continuing review of the tax expendi- tax baseline, and also discusses negative tax expendi-
ture budget. The review focuses on three issues: (1) tures. The final section addresses concerns that have
using comprehensive income as a baseline tax system; been raised over the measurement of some current tax
(2) using a consumption tax as a baseline tax system; expenditures by describing new estimates of the tax
and (3) defining negative tax expenditures (provisions expenditure caused by accelerated depreciation and by
that cause taxpayers to pay too much tax). the tax exemption of the return earned on owner-occu-
The first section of this appendix compares major pied housing, and an alternative estimate of the tax
tax expenditures in the current budget to those implied expenditure for the preferential treatment of capital
by a comprehensive income baseline. This comparison gains. The final section also provides an estimate of
includes a discussion of negative tax expenditures. The the negative tax expenditure caused by the double tax
second section compares the major tax expenditures in on corporate profits.
DIFFERENCES BETWEEN OFFICIAL TAX EXPENDITURES AND THOSE BASED ON

COMPREHENSIVE INCOME
As discussed in the main body of the chapter, tax income leading to the double taxation of corporate prof-
expenditures are measured relative to normal law or its.
reference law baselines that deviate from a comprehen- Comprehensive income is widely held to be the ideal-
sive concept of income. Consequently, tax expenditures ized base for an income tax even though it is not a
identified in the Budget can differ from those that perfectly defined concept. 6 It suffers from conceptual
would be identified under a comprehensive income tax ambiguities, some of which are discussed below, as well
baseline. This appendix compares major tax expendi- as practical problems in measurement and tax adminis-
tures listed in the tax expenditure budget with those tration, e.g., how to implement a practicable deduction
implied by a comprehensive income baseline. for economic depreciation or include in income the re-
Current budgetary practice excludes from the list of turn earned on consumer durable goods such as hous-
ing, automobiles, and major appliances.
tax expenditures those provisions that over-tax certain
Furthermore, comprehensive income does not nec-
items of income because the original motivation for the
essarily represent an ideal tax base; economic efficiency
analysis was to identify tax provisions that substitute would be improved by deviating from comprehensive
for direct Government spending programs. However, income as a tax base by reducing the tax on capital
this treatment gives a one-sided picture of how current income to spur economic growth further or by sub-
law deviates from the baseline tax system. Relative sidizing certain types of activities to correct for market
to comprehensive income, a number of current tax pro- failures. In addition, some elements of comprehensive
visions would be negative tax expenditures. Some of income would be difficult or impossible to include in
these also might be negative tax expenditures under a tax system that is administrable.
the reference law or normal law baselines, expanded Classifying individual tax provisions relative to a
to admit negative tax expenditures. comprehensive income baseline is difficult in part be-
cause of the ambiguity of the baseline. It also is difficult
Major Tax Expenditures from the Traditional Budget
because of interactions between tax provisions (or their
under a Comprehensive Income Tax Baseline
absence). These interactions mean that it may not al-
Comprehensive income, also called Haig-Simons in- ways be appropriate to consider each provision in isola-
come, is the real, inflation-adjusted accretion to one’s tion. Nonetheless, Appendix Table 1 attempts such a
economic power arising between two points in time, classification for each of the thirty largest tax expendi-
e.g., the beginning and ending of the year. It includes tures from the Budget.
all accretions to wealth, whether or not realized, wheth- Table 1 classifies fifteen of the thirty items as tax
er or not related to a market transaction, and whether expenditures under a comprehensive tax base (those
a return to capital or labor. Inflation-adjusted capital in panel A). Most of these give preferential tax treat-
gains (and losses) would be included in comprehensive ment to the return on certain types of savings or invest-
income as they accrue. Business investment and cas- ment. They reflect the hybrid nature of the existing
ualty losses, including losses caused by depreciation, tax system and arise out of policy decisions to reduce
would be deducted. Implicit returns, such as those ac- the high tax rate on capital income that would other-
cruing to homeowners, also would be included in com- wise arise. Even these relatively clear-cut items, how-
prehensive income. A comprehensive income tax base- 6 See, e.g., David F. Bradford, Untangling the Income Tax (Cambridge, MA: Harvard
line would tax all sources of income once and only once. University Press, 1986), pp. 15–31, and Richard Goode, ‘‘The Economic Definition of Income’’
in Joseph Pechman, ed., Comprehensive Income Taxation (Washington, D.C.: The Brookings
Thus, it would not levy a separate tax on corporate Institution, 1977), pp. 1–29.
ever, can raise ambiguities in light of the absence of taxes and property taxes even though these taxes pri-
integration of the corporate and individual tax systems. marily pay for services that, if purchased directly by
For example, the reduction or elimination of individual taxpayers, would not be deductible. 10 The difficulty is
level tax on income from investment in corporate equi- that this presumes that one’s consumption of State and
ties might not be a tax expenditure relative to a com- local services relates directly to the amount of State
prehensive income baseline because the income is taxed and local taxes paid. Such a presumption is difficult
first at the corporate level. A similar line of reasoning to sustain when taxes are levied inconsistently across
suggests that in the case of corporations, expensing 7 taxpayers. 11
of R&E or accelerated depreciation are not tax expendi- In contrast to the view in the official Budget, how-
tures because they offset the corporate tax penalty. ever, the deduction for State and local taxes might not
Because net rental income (gross rents minus depre- be a tax expenditure if the baseline were comprehensive
ciation, interest, taxes, and other expenses) would be income. Properly measured comprehensive income
in the homeowner’s tax base under a comprehensive would include the value of State and local government
income tax baseline, this item would continue to be benefits received, but would allow a deduction for State
a tax expenditure relative to a comprehensive income and local taxes paid. 12 Thus, in this sense the deduct-
baseline. ibility of State and local taxes is consistent with com-
The exclusion of worker’s compensation benefits also prehensive income tax principles; it should not be a
would be a tax expenditure under comprehensive in- tax expenditure. Nonetheless, imputing the value of
come tax principles; if the worker were to buy the in- State and local services is difficult and is not done
surance himself, he would be able to deduct the pre- under current law. Consequently, a deduction for taxes
mium (since it represents a reduction in net worth) might sensibly be viewed as a (roughly measured) tax
but should include in income the benefits when paid expenditure relative to a comprehensive income base-
(since it represents an increase in net worth). 8 If the line. 13
employer pays the premium, the proper treatment The comprehensive income tax base is an objective
would allow the employer a deduction and allow the measure of income. Traditionally, this measure is modi-
employee to disregard the premium, but he would take fied to reflect a subjective or social economic policy
any proceeds into income. Current law allows the em- concern regarding the financial ability of an individual
ployer to deduct the premium and excludes both the to pay tax. Absent this modification, provisions such
premium and the benefits from the employee’s tax base. as the personal exemption and the child tax credit
Panel B displays items that probably are tax expendi- would be treated as tax expenditures. However, once
tures, but that raise additional issues. Current law, the definition of income is modified to reflect the ability
for instance, allows deductions for home mortgage inter- of an individual to pay tax, then these and similar
est and for property taxes on owner-occupied housing. provisions are typically dropped from the list of tax
The tax expenditure budget includes both of these pro- expenditures.
visions. A comprehensive tax base would allow both The step-up of basis at death lowers the tax on cap-
deductions, but it would also include imputed gross ital gains for those who inherit assets. From that per-
rental income. Current law does not include gross rent- spective it would be a tax expenditure under a com-
al income, however, and so on this basis the home prehensive income baseline. Nonetheless, there are am-
mortgage interest deduction and the deduction for prop- biguities. Under a comprehensive income baseline, all
erty taxes on owner-occupied housing are properly tax inflation-adjusted gains would be taxed as accrued, so
expenditures under a comprehensive income tax base. 9 there would be no deferred unrealized gains on assets
Indeed, the sum of the tax expenditure for these two held at death.
deductions, plus the tax expenditure for the failure to The partial exclusion of Social Security benefits from
include net rental income, sums to the tax expenditure tax is also listed in panel B. To the extent Social Secu-
for owner-occupied housing relative to a comprehensive rity is viewed as a pension, comprehensive income
income tax base. would include all contributions to Social Security retire-
The deduction of nonbusiness State and local taxes ment funds (payroll taxes) and tax accretions to value
other than on owner-occupied homes also is included as they arise. 14 Benefits paid out of contributions and
in Panel B. The justification for this tax expenditure the inside build-up in value, however, would not be
is that ‘‘Taxpayers may deduct State and local income 10 Fiscal Year 2003 Budget of the United States Government, Analytical Perspectives
(Washington, D.C.: U.S. Government Printing Office, 2002) p. 127.

7 Expensing means immediate deduction. Proper income tax treatment requires capitaliza- 11 Property taxes on owner-occupied housing also might serve as a proxy for the value
tion followed by annual depreciation allowances reflecting the decay in value of the associ- of untaxed local services provided to homeowners. As such, they would be listed in the
ated R&E spending. tax expenditure budget (as configured, i.e., building on the estimate for the failure to
8 Suppose a taxpayer buys a one year term unemployment insurance policy at the begin- tax net rents) twice, once because current law does not tax rental income and again as
ning of the year. At that time he exchanges one asset, cash, for another, the insurance a proxy for government services received. Property taxes on other consumer durables such
policy, so there is no change in net worth. But, at the end of the year, the policy expires as automobiles also might be included twice, owing to current law’s exclusion from income
and so is worthless, hence the taxpayer has a reduction in net worth equal to the premium. of the associated service flow.
If the policy pays off during the year (i.e., the taxpayer has a work related injury), then 12 U.S. Treasury, Blueprints for Basic Tax Reform (Washington, D.C.: U.S. Government
the taxpayer would include the proceeds in income because they represent an increase Printing Office, 1977) p. 92.
in his net worth. 13 Under the normal tax method employed by the Joint Committee on Taxation, the
9 If there were no deduction for interest and property taxes, the tax expenditure base value of some public assistance benefits provided by State Governments is included as
(i.e., the proper tax base minus the actual tax base) for owner-occupied housing would a tax expenditure, thereby raising a potential double counting issue.
equal the homeowner’s net rental income: gross rents minus(depreciation+interest+property 14 As a practical matter, this may be impossible to do. Valuing claims subject to future
taxes+other expenses). With the deduction for interest and property taxes, the tax expendi- contingencies is very difficult, as discussed in Bradford, Untangling the Income Tax, pp.
ture base rises to gross rents minus (depreciation+other expenses). 23–24.
included because the fall in the value of the individual’s The next category (panel C) includes items whose
Social Security account would be offset by an increase treatment is less certain. The proper treatment of some
in cash. In contrast, to the extent that Social Security of these items under a comprehensive income tax is
is viewed as a transfer program, all contributions ambiguous, while others may serve as proxies for provi-
should be deductible from income and all benefits re- sions that would be a tax expenditure under a com-
ceived should be included. prehensive income base. 18
In contrast to any of these treatments, current law For example, under existing law charitable contribu-
excludes one-half of Social Security contributions (em- tions are deductible, and this deduction is considered
ployer-paid payroll taxes) from the base of the income on its face a tax expenditure in the current budget. 19
tax, makes no attempt to tax accretions, and subjects The treatment of charitable donations, however, is am-
some, but not all, benefits to taxation. The difference biguous under a comprehensive income tax. If chari-
between current law’s treatment of Social Security ben- table contributions are a consumption item for the
efits and their treatment under a comprehensive in- giver, then they are properly included in his taxable
come tax would qualify as a tax expenditure, but such income and a deduction for contributions would be a
a tax expenditure differs in concept from that included tax expenditure under a comprehensive income tax
in the official Budget. base. In contrast, charitable contributions could rep-
The tax expenditures in the official Budget 15 reflect resent a transfer of purchasing power from the giver
exemptions for lower-income beneficiaries from the tax to the receiver. As such, they would represent a reduc-
on 85 percent of Social Security benefits. 16 Historically, tion in the giver’s net worth, not an item of consump-
payroll taxes paid by the employee represented no more tion, and so properly would be deductible, implying that
than 15 percent of the expected value of the retirement the charitable deduction is not a tax expenditure. At
benefits received by a lower-earning Social Security the same time, however, the value of the charitable
beneficiary. The 85 percent inclusion rate is intended benefits received is income to the recipient. Under cur-
to tax upon distribution the remaining amount of the rent law, such income is not taxed. 20
retirement benefit payment—the portion arising from Medical expenditures may or may not be an element
the payroll tax contributions made by employers and of income. These expenditures may be viewed as a re-
the implicit return on the employee and employer con- duction of net worth (e.g. cost of earning income) rather
tributions. Thus, the tax expenditure conceived and than as discretionary spending, and so are not really
measured in the current budget is not intended to cap- consumption and should be excluded from the tax base.
ture the deviation from a comprehensive income base- However, expenditures for medical care may be consid-
line, which would additionally account for the deferral ered as indistinguishable from other consumption items
of tax on the employer’s contributions and on the rate which are not excluded from a comprehensive income
of return (less an inflation adjustment attributable to base.
the employee’s payroll tax contributions). Rather, it is The exemption of full taxation of Social Security ben-
intended to approximate the taxation of private pen- efits paid to the disabled also raises issues. Social Secu-
sions with employee contributions made from after-tax rity benefits for the disabled most closely resemble ei-
income 17 . Hence, the tax expenditure budget under- ther Government transfers or insurance. From either
states the tax advantage accorded Social Security re- perspective, a comprehensive income tax would require
tirement benefits relative to a comprehensive income that the benefit be included in income and would allow
baseline. a deduction for associated Social Security taxes. If
viewed as insurance, an equivalent treatment would
The deduction for U.S. production activities also
allow the taxpayer to include the premium (i.e., tax)
raises problems. To the extent it is viewed as a tax
and exclude the benefit. The deviation between either
break for certain qualifying businesses (‘‘manufactur-
of these treatments and current law’s treatment (de-
ers’’), it would be a tax expenditure. In contrast, the
scribed above) would be a tax expenditure under a com-
deduction may prove to be so broad that it is available
prehensive income baseline.
to most U.S. businesses, in which case it might not
In contrast, as described above, the tax expenditure
be seen as a tax expenditure. Rather, it would then
budget displays the benefit of exempting low-income
represent a feature of the baseline tax rate system be-
beneficiaries from the tax on 85 percent of Social Secu-
cause the deduction is equivalent to a lower tax rate.
rity benefits. This measurement does not correspond
In addition, it might not be a tax expenditure to the
closely to that required under a comprehensive income
extent it is viewed as providing relief from the double
base. If the payment of the benefit is viewed as a trans-
tax on corporate profits.
fer and divorced from the treatment of Social Security
15 This includes the tax expenditure for benefits paid to workers, that for benefits paid taxes, then the current tax expenditure understates the
to survivors and dependents, and that for benefits paid to dependents.
16 The current Budget does not include as a tax expenditure the absence of income taxation
tax expenditure measured relative to a comprehensive
on the employer’s contributions (payroll taxes) to Social Security retirement at the time
these contributions are made. 18 See, for example, Goode, The Economic Definition of Income, pp. 16–17, and Bradford,
17 Private pensions allow the employee to defer tax on all inside build-up. They also Untangling the Income Tax, pp. 19–21, and pp.30–31.
allow the employee to defer tax on contributions made by the employer, but not on contribu- 19 The item also includes gifts of appreciated property, at least part of which represents
tions made directly by the employee. Applying these tax rules to Social Security would a tax expenditure relative to an ideal income tax, even if one assumes that charitable
require the employee to include in his taxable income benefits paid out of inside build- donations are not consumption.
up and out of the employer’s contributions, but would allow the employee to exclude from 20 If recipients tend to be in lower tax brackets, then the tax expenditure is smaller
his taxable income benefits paid out of his own contributions. than when measured at the donor’s tax rates..
income baseline. If the payment of the benefit is viewed basic tax rate schedule. The foreign tax credit also
as a transfer but the inability to deduct the employee’s might be a tax expenditure since a deduction for foreign
share of the Social Security tax is simultaneously con- taxes, rather than a credit, might measure the income
sidered, then it is less likely that the current tax ex- of U.S. residents properly.
penditure overstates the tax expenditure relative to a
comprehensive income baseline, and in some cases it Negative Tax Expenditures
may generate a negative tax expenditure. If the benefit The passive loss rules, restrictions on the deduct-
is viewed as insurance and the tax as a premium, then ibility of capital losses, and net operating loss (NOL)
the current tax expenditure overstates the tax expendi- carry-forward requirements each would generate a neg-
ture relative to a comprehensive income baseline. In- ative tax expenditure, since a comprehensive income
deed, in the insurance model, the ability to exclude tax would allow full deductibility of losses.
from tax only half of the premium might suggest that Human capital is generally considered a productive
half of the payout should be taxed, so that the current asset, and so its cost (e.g., certain education and train-
tax rules impose a greater tax burden than that implied ing expenses, including perhaps the cost of college and
by a comprehensive income tax, i.e., a negative tax professional school) should be amortizable under a com-
expenditure. prehensive income tax, but it is not under current
The final category (panel D) includes items that law. 23
would not be tax expenditures under a comprehensive Some restricted deductions under the individual AMT
income tax base. A tax based on comprehensive income might be negative tax expenditures as might the phase-
would allow all losses to be deducted. Hence, the excep- out of personal exemptions and of itemized deductions.
tion from the passive loss rules would not be a tax The inability to deduct consumer interest also might
expenditure. 21
be a negative tax expenditure, as an interest deduction
Major Tax Expenditures under a Comprehensive Income may be required to measure income properly, as seen
Tax That Are Excluded from the Current Budget by the equivalence between borrowing and reduced
While most of the major tax expenditures in the cur- lending. 24 As discussed above, the current treatment
rent budget also would be tax expenditures under a of Social Security payments to the disabled also might
comprehensive income base, there also are tax expendi- represent a negative tax expenditure if viewed as pay-
tures relative to a comprehensive income base that are ments on an insurance policy.
not found on the existing tax expenditure list. These Current tax law also fails to index for inflation inter-
additional tax expenditures include the imputed return est receipts, capital gains, depreciation, and inventories.
from certain consumer durables (e.g., automobiles), the This failure leads to negative tax expenditures because
difference between capital gains (and losses) as they comprehensive income would be indexed for inflation.
accrue and capital gains as they are realized, private Current law, however, also fails to index for inflation
gifts and inheritances received, in-kind benefits from the deduction for interest payments and so this rep-
such Government programs as food-stamps, Medicaid, resents a (positive) tax expenditure.
and public housing, the value of payouts from insurance The issue of indexing also highlights that even if
policies, 22 and benefits received from private charities. one wished to focus only on tax policies that are similar
Under some theories of comprehensive income, the to spending programs, accounting for some negative tax
value of leisure and of household production of goods expenditures may be required. For example, the net
and services also would be included as tax expendi- subsidy created by accelerated depreciation is properly
tures. The personal exemption and standard deduction measured by the difference between depreciation allow-
also might be considered tax expenditures, although ances specified under existing tax law and economic
they can be viewed differently, e.g., as elements of the depreciation, which is indexed for inflation. 25
DIFFERENCES BETWEEN OFFICIAL TAX EXPENDITURES AND TAX EXPENDITURES RELATIVE

TO A CONSUMPTION TAX BASE
This section compares tax expenditures listed in the under the consumption tax baseline, concluding that
tax expenditure budget with those implied by a com- about half would remain under a consumption tax base-
prehensive consumption tax baseline. It first discusses line. Most that fall off the list are incentives for saving
some of the difficulties encountered in contemplating and investment.
current tax provisions as part of a comprehensive con- The section next discusses some major differences be-
sumption tax. Next, it assesses which of the thirty larg- tween current law and a comprehensive consumption
est income tax expenditures would be tax expenditures tax baseline. These differences include the consumption
21 In contrast, the passive loss rules themselves, which restrict the deduction of losses, and career training that is related to foregone earnings and this would be a tax expenditure
would be a negative tax expenditure when compared to a comprehensive tax base. under a comprehensive income baseline.
22 To the extent that premiums are deductible. 24 See Bradford, Untangling the Income Tax, p. 41.
23 Current law offers favorable treatment to some education costs, thereby creating (posi- 25 Accelerated depreciation can be described as the equivalent of an interest free loan
tive) tax expenditures. Current law allows expensing of that part of the cost of education from the Government to the taxpayer. Under federal budget accounting principles, such
a loan would be treated as an outlay equal to the present value of the foregone interest.
value of owner-occupied housing and other consumer that offsets in present value terms the tax paid on
durables, benefits from in-kind Government transfers, the investment’s future normal returns. Because of this
and gifts. It concludes with a discussion of negative equivalence, in the context of consumption taxes, a
tax expenditures relative to a consumption tax baseline. yield exemption approach is sometimes called a tax pre-
payment approach. That is, tax is paid on an asset’s
Ambiguities in Determining Tax Expenditures Relative
purchase price rather than on the consumption flow
to a Consumption Baseline
that it generates.
A broad-based consumption tax can be viewed as a However, a yield exemption approach differs from a
combination of an income tax plus a deduction for net pure consumption tax with respect to the distribution
saving. This follows from the definition of comprehen- of income and Government revenue. Pure profits in ex-
sive income as consumption plus the change in net cess of the normal rate of return would be taxed under
worth. It therefore seems straightforward to say that a consumption tax because pure profits are an element
current law’s deviations from a consumption base are of cash flow; however, pure profits would not be taxed
the sum of (a) tax expenditures on an income base under a yield exemption tax system. The question
associated with exemptions and deductions for certain arises whether an exemption of certain kinds of invest-
types of income, plus (b) overpayments of tax, or nega- ment income, and certain investment tax credits, should
tive tax expenditures, to the extent net saving is not be regarded as the equivalent of consumption tax treat-
deductible from the tax base. In reality, however, the ment. The classification that follows takes a fairly
situation is more complicated. Some issues arise which broad view of this equivalence and considers many tax
are also problems in defining a comprehensive income provisions that reduce or eliminate the tax on capital
tax, but seem more severe, or at least only more obvi- income to be roughly consistent with a broad-based con-
ous, for the consumption tax baseline. sumption tax.
It is not always clear how to treat certain items Considering provisions individually can be mis-
under a consumption tax. One problem discussed ear- leading. The hybrid character of the existing tax system
lier in the context of the comprehensive income tax reflects many provisions that might be good policy in
is determining whether a particular expenditure, such the context of a consumption tax, but that generate
as spending on medical care and charitable donations, inefficiencies because of the problem of the ‘‘uneven
is an item of consumption. playing field’’ when evaluated within the context of the
Also, there may be more than one way to treat var- existing tax rules. It is not clear how these should
ious items under a consumption tax. For example, a be classified. For example, many saving incentives are
consumption tax might ignore borrowing and lending targeted to specific tax-favored sources of capital in-
by excluding from the borrower’s tax base the proceeds come. The inability to save on a similar tax-favored
from loans, denying the borrower a deduction for pay- basis irrespective of the ultimate purpose to which the
ments of interest and principal, and excluding interest saving is applied potentially distorts economic choices
and principal payments received from the lender’s tax in ways that would not occur under a broad-based con-
base. On the other hand, a consumption tax might in- sumption tax.
clude borrowing and lending in the tax base by requir- In addition, provisions can interact even once an ap-
ing the borrower to add the proceeds from loans in propriate treatment is determined. For example, if fi-
his tax base, allowing the lender to deduct loans from nancial flows are excluded from the tax base, then the
his tax base, allowing the borrower to deduct payments deduction for home mortgage interest would be a tax
of principal and interest, and requiring the lender to expenditure except that current law generally taxes in-
include receipt of principal and interest payments. In terest income. When combined with the mortgage inter-
present value terms, the two approaches are equivalent est deduction, this offsets the inclusion of the interest
for both the borrower and the lender; in particular both flow, consistent with consumption tax treatment.
allow the tax base to measure consumption and both Capital gains would not be a part of a comprehensive
impose a zero effective tax rate on interest income. consumption tax base. Proceeds from asset sales and
But which approach is taken obviously has different sometimes borrowing would be part of the cash-flow
implications (at least on an annual flow basis) for the tax base, but, for transactions between domestic inves-
treatment of many important items of income and ex- tors at a flat tax rate, the effects of these transactions
pense such as the home mortgage interest deduction. would cancel out in the economy as a whole. The classi-
The classification below suggests that the deduction for fication below generally views available capital gains
home mortgage interest could well be a tax expenditure, tax relief as consistent with a broad-based consumption
but takes note of alternative views. tax because they lower tax rate on capital income is
Some exclusions of income are equivalent in many consistent with a consumption-based tax.
respects to consumption tax treatment that imme- Such considerations suggest that, as with an income
diately deducts the cost of an investment while taxing tax, computing the current tax’s deviations from ‘‘the’’
the future cash flow. For example, exempting an invest- base of a consumption tax is difficult because deviations
ment’s income (or yield) is equivalent to consumption cannot always be uniquely determined, making it prob-
tax treatment with respect to the normal rate of return lematic to do a consistent accounting of the differences
on new investment; expensing generates a tax reduction between the current tax base and a consumption tax
base. Nonetheless, Appendix Table 2 attempts a classi- though there is a bit of ambiguity. Property taxes would
fication based on the judgments outlined above. be deducted under a consumption tax under which the
base allowed expensing of the cost of the house and
Treatment of Major Tax Expenditures under a Com-
included the rental value of the house in the annual
prehensive Consumption Baseline
tax base. But, as discussed above in the income tax
As noted above, the major difference between a com- section, this deduction nonetheless is a strong candidate
prehensive consumption tax and a comprehensive infor inclusion as a tax expenditure because the current
come tax is in the treatment of saving, or in the tax- tax system does not impute the consumption value of
ation of capital income. Consequently, many current housing services to the homeowner’s tax base.
tax expenditures related to preferential taxation of cap- Under a consumption tax based on the yield exemp-
ital income would not be tax expenditures under a con- tion or tax prepayment approach to housing, property
sumption tax. However, preferential treatment of items taxes would not be deducted by the homeowner because
of income that is unrelated to saving or investment the cash flows (positive and negative) related to the
incentives would remain tax expenditures under a con- investment are simply ignored for tax purposes—they
sumption baseline. In addition, several official tax ex-
are outside the tax base. Their deduction under current
penditures relating to items of income and expense are
law would represent a tax expenditure. As discussed
difficult to classify properly, while others may serve
below, current law’s taxation of housing approximates
as proxies for properly measured tax expenditures.
Appendix Table 2 shows thirty large tax expenditures a yield exemption approach; no deduction of the pur-
from the Budget classified according to whether they chase price of the house, no tax on the house’s service
would be considered a tax expenditure under a con- flow. Consequently, the deduction for property taxes
sumption tax. One of the thirty items clearly would probably would be a tax expenditure relative to a con-
be a tax expenditure (shown in panel A) under a consumption base.
sumption tax, while an additional six (those in panel As discussed in the section on comprehensive income,
B) probably would be tax expenditures. whether the deduction for State and local income taxes
Exclusion of workers’ compensation benefits allows gives rise to a tax expenditure under a consumption
an exclusion from income that is unrelated to invest- tax depends on whether the services paid for with these
ment, and so should be included in the base of a com- taxes constitute consumption value to the taxpayer. If
prehensive consumption tax. there is not a firm relationship between the taxes paid
In one respect the deductibility of home mortgage and the services received, then the deduction may not
interest is a strong candidate for inclusion as a tax be viewed as a tax expenditure.
expenditure. A consumption tax would seek to tax the Property taxes on assets other than housing would
entire value of the flow of services from housing, and seem to be best thought of using the model discussed
so would not allow a deduction for home mortgage in- above for housing. These taxes typically are paid on
terest. This would be the case regardless of whether assets, such as automobiles and boats, yielding a
the tax base included the annual flow of housing serv- stream of services that current federal tax law fails
ices, or instead used a tax-prepayment or yield exemp- to impute to income.
tion approach (discussed more completely below) to tax- The tax expenditures for Social Security benefits dis-
ing housing services. A deduction for interest would cussed in the section on comprehensive income measure
be allowed under a consumption tax applied to both a tax benefit relative to a baseline that is somewhere
real and financial cash flows, but current law does not between a comprehensive income tax and a consump-
require the homeowner to take into income the proceeds tion tax. The properly measured tax expenditure rel-
of a home loan, nor does it allow a deduction for prin- ative to a consumption tax baseline would include only
cipal repayments. those Social Security benefits that are accorded treat-
From another perspective, however, the home mort- ment more favorable than that implied by a consump-
gage interest deduction would not be a tax expenditure tion tax, which would correspond to including 50 per-
under a consumption tax. Under a consumption tax, cent of Social Security benefits in the recipient’s tax
the interest income accruing to the mortgage lender base. 27 Thus, the existing tax expenditure is correct
generally would not be taxed (at least in present value conceptually, but is not measured properly relative to
terms). As interest income is subject to tax under cur- a comprehensive income tax. A similar analysis would
rent law, the homeowner’s mortgage interest deduction
could be viewed as counterbalancing the lender’s inclu- 27 The current tax expenditure estimates reflect exceptions for low-income taxpayers from
the general rule that 85 percent of Social Security benefits are included in the recipient’s
sion, eliminating interest flows from the tax base, as tax base. The 85 percent inclusion is intended as a simplified mechanism for taxing Social
would be appropriate under many types of consumption Security benefits as if the Social Security program were a private pension with employee
contributions made from after-tax income. Under these tax rules, income earned on contribu-
taxes. 26 tions made by both employers and employees benefits from tax deferral, but employer
The deductibility of property taxes on owner-occupied contributions also benefit because the employee may exclude them from his taxable income,
while the employee’s own contributions are included in his taxable income. These tax rules
housing also is a strong candidate for inclusion as a give the equivalent of consumption tax treatment, a zero effective tax rate on the return,
to the extent that the original pension contributions are made by the employer, but give
tax expenditure under a consumption tax baseline, al- less generous treatment to the extent that the original contributions are made by the
employee. Income earned on employee contributions is taxed at a low, but positive, effective
26 One must guard against double counting here, however, to the extent that current tax rate. Based on historical calculations, the 85 percent inclusion reflects roughly the
law’s general taxation of capital income is calculated elsewhere in the tax expenditure outcome of applying these tax rules to a lower-income earner when one-half of the contribu-
budget as a negative tax expenditure.. tions are from the employer and one-half from the employee.
apply to the exclusion of Social Security benefits of The credit for low-income housing acts to lower the
dependents and retirees. tax burden on qualified investment, and so from one
There is a strong case for viewing the child tax credit perspective would not be a tax expenditure under a
and the earned income tax credit as social welfare pro- consumption tax baseline. However, in some cases the
grams (transfers). As such, they would be tax expendi- credit is too generous; it can give a negative tax on
tures relative to a consumption baseline. These credits income from qualified investment rather than the zero
could alternatively be viewed as relieving tax on ‘‘non- tax called for under consumption tax principles. In ad-
discretionary’’ consumption, and so not properly consid- dition, the credit is very narrowly targeted. Con-
ered a tax expenditure. sequently, it could be considered a tax expenditure rel-
The treatment of the items in panel C is less uncer- ative to a consumption tax baseline.
tain. Several of these items relate to the costs of med- The final panel (D) shows items that are not tax
ical care or to charitable contributions. As discussed expenditures under a consumption base. Most of these
in the previous section of the appendix, there is dis- relate to tax provisions that eliminate or reduce the
agreement within the tax policy community over the tax on various types of capital income because a zero
extent to which medical care and charitable giving rep- tax on capital income is consistent with consumption
resent consumption items. tax principles.
There also is the issue of how to tax medical insur- The deduction for U.S. production activities is not
ance premiums. Under current law, employees may ex- classified as a tax expenditure. This reflects the view
clude insurance premiums paid for by employers from that it represents a widespread reduction in taxes on
their income. The self-employed also may exclude (via capital income or an offset to the corporate income tax.
a deduction) medical insurance premiums from their The exception from the passive loss rules probably
taxable income. From some perspectives, these pre- would not be a tax expenditure because proper meas-
miums should be included in the tax base because they urement of income, and hence of consumption, requires
represent consumption. Yet an alternative perspective full deduction of losses.
would support excluding the premium from the tax base Major Tax Expenditures under a Consumption Tax That
as long as the value of any medical services paid for Are Excluded from the Current Budget
by the insurance policy were included. But even from Several differences between current law and a con-
this alternative perspective, the official tax expenditure sumption tax are left off the official tax expenditure
might continue to be a tax expenditure under a con- list. Additional possible tax expenditures include bene-
sumption tax baseline because current law excludes the fits paid by insurance policies, in-kind benefits from
value of medical services paid with insurance benefits such Government programs as food-stamps, Medicaid,
from the employee’s taxable income. and public housing, and benefits received from char-
Current law does not tax the annual rental value ities. Under some theories of a comprehensive consump-
of owner-occupied housing. In contrast, the annual rent- tion tax, the value of leisure and of household produc-
al value of the housing would be taxed under a con- tion of goods and services would be included as a tax
sumption tax. Hence, from one perspective, the exclu- expenditure.
sion of the net annual rental value of owner-occupied A consumption tax implemented as a tax on gross
housing would be a tax expenditure relative to a con- cash flows would tax all proceeds from sales of capital
sumption tax baseline. assets when consumed, rather than just capital gains;
However, a consumption tax that included in its base because of expensing, taxpayers effectively would have
the annual rental value of housing also would allow a zero basis. The proceeds from borrowing would be
the homeowner a deduction for the price of the house in the base of a consumption tax that also allowed
in the year it was purchased; the investment in housing a deduction for repayment of principal and interest,
would be expensed. Current law fails to allow such but are excluded from the current tax base. The deduc-
a deduction, raising doubt about classifying as a tax tion of business interest expense might be a tax expend-
expenditure the exclusion of net rental income from iture, since under some forms of consumption taxation
owner-occupied housing. Indeed, it is possible to inter- interest is neither deducted from the borrower’s tax
pret current law as applying the tax pre-payment or base nor included in the lender’s tax base. The personal
yield exemption method to housing, so it is not clear exemption and standard deduction also might be con-
whether the failure to tax the rental income from hous- sidered tax expenditures, although they can be viewed
ing represents a tax expenditure. differently, e.g., as elements of the basic tax rate sched-
The taxation of Social Security benefits for the dis- ule.
abled also is difficult to classify. As discussed in this
appendix above, these benefits generally ought to be Negative Tax Expenditures
taxed because they represent purchasing power. How- Importantly, current law also deviates from a con-
ever, the associated Social Security taxes ought to be sumption tax norm in ways that increase, rather than
fully deductible, but they are not. Hence the proper decrease, tax liability. These provisions are called nega-
treatment is unclear. Moreover, if the insurance model tive tax expenditures.
is applied, the taxation of Social Security benefits might A large item on this list would be the inclusion of
be a negative tax expenditure. capital income in the current individual income tax
base, including the income earned on inside-build up in net worth requires a deduction for losses (consump-
in Social Security accounts. The revenue from the cor- tion = income—the change in net worth). Human cap-
porate income tax, or more generally a measure of the ital is a productive asset, and so its cost (e.g., certain
double tax on corporate profits, also would be a nega- education and training expenses, including perhaps
tive tax expenditure. Depreciation allowances, even if costs of college and professional school) should be ex-
accelerated, would be a negative tax expenditure since pensed, but it is not under current law. Certain restric-
consumption tax treatment generally requires expens- tions under the individual Alternative Minimum Tax
ing. Depending on the treatment of loans, the bor- as well as the phase-out of personal exemptions and
rower’s inability to deduct payments of principal and of itemized deductions also might be considered nega-
the lender’s inability to deduct loans might be a negative tax expenditures. Under some views, the current
tive tax expenditure. The passive loss rules and net tax treatment of Social Security benefits paid to the
operating loss carry-forward provisions also might gen-
disabled would be a negative tax expenditure.
erate negative tax expenditures, because the change
REVISED ESTIMATES OF SELECTED TAX EXPENDITURES
Accelerated Depreciation est, depreciation, property taxes, and other costs associ-
Under the reference tax law baseline no tax expendi- ated with earning the rental income. Thus, a com-
tures arise from accelerated depreciation. In the past, prehensive tax base would include in its base the home-
tax expenditure estimates of accelerated depreciation owner’s implicit net rental income (gross income minus
under the normal tax law baseline compared tax allow- deductions) earned on investment in owner-occupied
ances based on the historic cost of an asset with allow- housing.
ances calculated using the straight-line method over In contrast to a comprehensive income tax, current
relatively long recovery periods. Normal law allowances law makes no imputation for gross rental income and
also were determined by the historical cost of the asset allows no deduction for depreciation or for other ex-
and so did not adjust for inflation, although such an penses, such as utilities and maintenance. Current law
adjustment is required when measuring economic de- does, however, allow a deduction for home mortgage
preciation, the age related fall in the real value of the interest and for property taxes. Consequently, relative
asset. to a comprehensive income baseline, the total tax ex-
Beginning with the 2004 Budget, the tax expendi- penditure for owner-occupied housing is the sum of tax
tures for accelerated depreciation under the normal law on net rental income plus the tax saving from the de-
concept have been recalculated using as a baseline deduction for property taxes and for home mortgage inter-
preciation rates and replacement cost indexes from the est. 30
National Income and Product Accounts. 28 The revised Prior to 2006, the official list of tax expenditures
estimates are intended to approximate the degree of did not include the exclusion of net implicit rental in-
acceleration provided by current law over a baseline come on owner-occupied housing. Instead, it included
determined by real, inflation adjusted, and economic as tax expenditures deductions for home mortgage in-
depreciation. Current law depreciation allowances for terest and for property taxes. While these deductions
machinery and equipment include the benefits of a tem- are legitimately considered tax expenditures, given cur-
porary expensing provision. 29 The estimates are shown rent law’s failure to impute rental income, they are
in tables in the body of the main text, e.g., Table 19–1. highly flawed as estimates of the total income tax ad-
vantage to housing; they overlook the additional exclu-
Owner-Occupied Housing sion of implicit net rental income. To the extent a
A homeowner receives a flow of housing services homeowner owns his house outright, unencumbered by
equal in gross value to the rent that could have been a mortgage, he would have no home mortgage interest
earned had the owner chosen to rent the house to oth- deduction, yet he still would enjoy the benefits of receiv-
ers. Comprehensive income would include in the home- ing tax free the implicit rental income earned on his
owner’s tax base this gross rental flow, and would allow house. On the other hand, a homeowner with a mort-
the homeowner a deduction for expenses such as inter- gage approximately matching the value of the house
28 See Barbara Fraumeni, ‘‘The Measurement of Depreciation in the U.S. National Income
might make interest payments that exceed the implicit
and Product Accounts,’’ in Survey of Current Business 77 No. 7 (Washington, D.C.: Depart- rental income. The treatment of owner-occupied housing
ment of Commerce, Bureau of Economic Analysis, July, 1997), pp. 7–42, and the National has been revised beginning in the 2006 budget, which
Income and Product Accounts of the United States, Table 7.6, ‘‘Chain-type Quantity and
Price Indexes for Private Fixed Investment by Type,’’ U.S. Department of Commerce, Bureau now includes an item for the exclusion of net rental
of Economic Analysis.
29 The temporary provision allows 30 percent of the cost of a qualifying investment to
income of homeowners. 31
be deducted immediately rather than capitalized and depreciated over time. It is generally
effective for qualifying investments made after September 10, 2001 and before September 30 The homeowner’s tax base under a comprehensive income tax is net rents. Under
11, 2004. The Jobs and Growth Tax Relief Reconciliation Act of 2003 raised the deduction current law, the homeowner’s tax base is -(interest + property taxes). The tax expenditure
to 50 percent depreciation (up from 30 percent) of the cost new equipment purchased base is the difference between the comprehensive income base and current law’s tax base,
after May 5, 2003 and placed into service before January 1, 2005. Qualifying investments which for homeowners is the sum of net rents plus interest plus property taxes.
generally are limited to tangible property with depreciation recovery periods of 20 years 31 This estimate combines the positive tax expenditure for the failure to impute rental
or less, certain software, and leasehold improvements, but this set of assets corresponds income with the negative tax expenditure for the failure to allow a deduction for depreciation
closely to machinery and equipment. and other costs.
Appendix Table 3, as well as the tables in the body In contrast to this benchmark, current law taxes in-
of the main text, e.g., Tables 19–1 and 19–2, show come that shareholders earn on investment in corporate
estimates of the tax expenditure caused by the exclu- stocks at least twice, and at combined rates that gen-
sion of implicit net rental income from investment in erally are higher than those imposed on other sources
owner-occupied housing. This estimate starts with the of income. Corporate profits are taxed once at the com-
NIPA calculated value of gross rent on owner-occupied pany level under the corporation income tax. They are
housing, and subtracts interest, taxes, economic depre- taxed again at the shareholder level when received as
ciation, and other costs in arriving at an estimate of a dividend or recognized as a capital gain. Corporate
net-rental income from owner-occupied housing. 32 profits can be taxed more then twice when they pass
Accrued Capital Gains through multiple corporations before being distributed
Under a comprehensive income baseline, all real to noncorporate shareholders. Corporate level taxes cas-
gains would be taxed as accrued. These gains would cade because corporations are taxed on capital gains
be taxed as ordinary income rather than at preferential they realize on the sale of stock shares and on some
rates. There would be no deferred unrealized gains on dividend income received. Compared to a comprehen-
assets held at death, nor gains carried over on gifts, sive income tax, current law’s double (or more) tax on
or other preferential treatments. Indeed, all of the pro- corporate profits is an example of a negative tax ex-
visions related to capitals gains listed in the tax expenditure because it subjects income to a larger tax
penditure budget would be dropped. Instead, in their burden than implied by a comprehensive income base-
place the difference between the ordinary tax on real line.
gains accrued and the actual tax paid would be cal- Appendix A Table 3 provides an estimate of the nega-
culated. For 1999, for instance, the tax on real accrued tive tax expenditure caused by the multiple levels of
gains on corporate equity is estimated at $594 billion. tax on corporate profits. This negative tax expenditure
This compares to an estimated tax on realized gains is measured as the shareholder level tax on dividends
of $62 billion, for forgone revenues of $562 billion. How- paid and capital gains realized out of earnings that
ever, this forgone revenue may easily turn into a rev- have been fully taxed at the corporate level. It also
enue gain given the limits on capital losses. For 2000, includes the corporate tax paid on inter-corporate divi-
for instance, real accrued losses in corporate equity dends and on corporate capital gains attributable to
amounted to $1.4 trillion. Yet, taxpayers paid an esti- the sale of stock shares. The estimate includes the re-
mated $70 billion in capital gains taxes. This roughly duction in the dividends and capital gains tax rates
translates into an overpayment of taxes to the tune enacted in JGTRRA.
of $464 billion. The negative tax expenditure is large in magnitude;
Double Tax on Corporate Profits it exceeds $34 billion in the years 2007 through in
A comprehensive income tax would tax all sources 2011. It is comparable in size (but opposite in sign)
of income once. Taxes would not vary by type or source to all but the largest official tax expenditures. JGTRRA
of income. reduced but did not eliminate the double tax on cor-
porate profits.
32 National Income and Production Accounts, Table 2.4.
Appendix Table 1. COMPARISON OF CURRENT TAX EXPENDITURES WITH THOSE IMPLIED BY A

COMPREHENSIVE INCOME TAX 1
Revenue Effect
Description 2008
A. Tax Expenditure Under a Comprehensive Income Tax

Accelerated depreciation of machinery and equipment (normal tax method) ........................................................... 64,670
Capital gains (except agriculture, timber, iron ore, and coal) ................................................................................... 51,960
Net exclusion of pension contributions and earnings: Employer plans ..................................................................... 48,480
Net exclusion of pension contributions and earnings: 401(k) plans .......................................................................... 43,970
Capital gains exclusion on home sales ...................................................................................................................... 38,890
Exclusion of net imputed rental income on owner-occupied housing ....................................................................... 35,680
Exclusion of interest on public purpose State and local bonds ................................................................................ 27,150
Exclusion of interest on life insurance savings .......................................................................................................... 21,925
Deferral of income from controlled foreign corporations (normal tax method) ......................................................... 12,770
Accelerated depreciation on rental housing (normal tax method) ............................................................................. 12,300
Net exclusion of pension contributions and earnings: Keogh plans ......................................................................... 11,890
Net exclusion of pension contributions and earnings: Individual Retirement Accounts ........................................... 6,650
Exclusion of workers’ compensation benefits ............................................................................................................. 5,830
Expensing of research and experimentation expenditures (normal tax method) ...................................................... 5,280
Credit for low-income housing investments ................................................................................................................ 4,940
B. Possibly a Tax Expenditure Under a Comprehensive Income Tax, But With Some Qualifications
Deductibility of mortgage interest on owner-occupied homes ................................................................................... 89,430
Step-up basis of capital gains at death ...................................................................................................................... 35,900
Child tax credit ............................................................................................................................................................. 32,341
Deductibility of nonbusiness State and local taxes other than on owner-occupied homes ..................................... 27,900
Exclusion of Social Security benefits for retired workers .......................................................................................... 18,930
Deduction for U.S. production activities ...................................................................................................................... 13,810
Deductibility of State and local property tax on owner-occupied homes .................................................................. 12,620
Earned income tax credit ............................................................................................................................................ 5,340
C. Uncertain
Exclusion of employer contributions for medical insurance premiums and medical care ........................................ 160,190
Deductibility of charitable contributions, other than education and health ................................................................ 45,760
Social Security benefits for the disabled .................................................................................................................... 5,620
Deductibility of charitable contributions, health .......................................................................................................... 5,160
Deductibility of charitable contributions, education ..................................................................................................... 5,120
Deductibility of medical expenses ............................................................................................................................... 4,920
D. Probably Not a Tax Expenditure Under a Comprehensive Income Tax
Exception from passive loss rules for $25,000 of rental loss ................................................................................... 7,520
1 The
measurement of certain tax expenditures under a comprehensive income tax baseline may differ from the official budget esti-
mate even when the provision would be a tax expenditure under both baselines.
Source: Table 19–2, Tax Expenditure Budget.
Appendix Table 2. COMPARISON OF CURRENT TAX EXPENDITURES WITH THOSE IMPLIED BY A

COMPREHENSIVE CONSUMPTION TAX 1
Revenue Effect
Description 2008
A. Tax Expenditure Under a Consumption Base

Exclusion of workers’ compensation benefits ............................................................................................................. 5,830
B. Probably a Tax Expenditure Under a Consumption Base
Deductibility of mortgage interest on owner-occupied homes ................................................................................... 89,430
Child tax credit ............................................................................................................................................................. 32,341
Deductibility of nonbusiness State and local taxes other than on owner-occupied homes ..................................... 27,900
Exclusion of Social Security benefits for retired workers .......................................................................................... 18,930
Deductibility of State and local property tax on owner-occupied homes .................................................................. 12,620
Earned income tax credit ............................................................................................................................................ 5,340
C. Uncertain
Exclusion of employer contributions for medical insurance premiums and medical care ........................................ 160,190
Deductibility of charitable contributions, other than education and health ................................................................ 45,760
Exclusion of net imputed rental income on owner-occupied housing ....................................................................... 35,680
Social Security benefits for disabled ........................................................................................................................... 5,620
Credit for low-income housing investments ................................................................................................................ 4,940
Deductibility of medical expenses ............................................................................................................................... 4,920
Deductibility of charitable contributions, health .......................................................................................................... 5,160
Deductibility of charitable contributions, education ..................................................................................................... 5,120
D. Not a Tax Expenditure Under a Consumption Base
Accelerated depreciation of machinery and equipment (normal tax method) ........................................................... 64,670
Capital gains (except agriculture, timber, iron ore, and coal) ................................................................................... 51,960
Net exclusion of pension contributions and earnings: Employer plans ..................................................................... 48,480
Net exclusion of pension contributions and earnings: 401(k) plans .......................................................................... 43,970
Capital gains exclusion on home sales ...................................................................................................................... 38,890
Step-up basis of capital gains at death ...................................................................................................................... 35,900
Exclusion of interest on public purpose State and local bonds ................................................................................ 27,150
Exclusion of interest on life insurance savings .......................................................................................................... 21,925
Deduction for U.S. production activities ...................................................................................................................... 13,810
Deferral of income from controlled foreign corporations (normal tax method) ......................................................... 12,770
Accelerated depreciation on rental housing (normal tax method) ............................................................................. 12,300
Net exclusion of pension contributions and earnings: Keogh plans ......................................................................... 11,890
Exception from passive loss rules for $25,000 of rental loss ................................................................................... 7,520
Net exclusion of pension contributions and earnings: Individual Retirement Accounts ........................................... 6,650
Expensing of research and experimentation expenditures (normal tax method) ...................................................... 5,280
1 The measurement of certain tax expenditures under a consumption tax baseline may differ from the official budget estimate even
when the provision would be a tax expenditure under both baselines.Source: Table 19–2, Tax Expenditure Budget.
Appendix Table 3. REVISED TAX EXPENDITURE ESTIMATES 1

Revenue Loss
Provision
2006 2007 2008 2009 2010 2011 2012
Imputed Rent On Owner-Occupied Housing ..................................... 28,780 32,110 35,680 39,440 43,596 48,190 53,269
Double Tax on corporate profit 2 ....................................................... –33,530 –34,930 –36,160 –37,280 –38,435 –39,625 –40,852
1 Calculations described in the appendix text.
2 This is a negative tax expenditure, a tax provision that overtaxes income relative to the treatment specified by the baseline tax system.
Appendix B
PERFORMANCE MEASURES AND THE ECONOMIC EFFECTS OF TAX EXPENDITURES
The Government Performance and Results Act of ties to be addressed with specific resources in a way
1993 (GPRA) directs Federal agencies to develop annual that is difficult to emulate with tax expenditures.
and strategic plans for their programs and activities. Outlay programs have advantages where direct Gov-
These plans set out performance objectives to be ernment service provision is particularly warranted
achieved over a specific time period. Most of these ob- such as equipping and providing the armed forces or
jectives will be achieved through direct expenditure pro- administering the system of justice. Outlay programs
grams. Tax expenditures, however, may also contribute may also be specifically designed to meet the needs
to achieving these goals. This Appendix responds to of low-income families who would not otherwise be sub-
the report of the Senate Governmental Affairs Com- ject to income taxes or need to file a tax return. Outlay
mittee on GPRA4 33 calling on the Executive Branch programs may also receive more year-to-year oversight
to undertake a series of analyses to assess the effect and fine tuning through the legislative and executive
of specific tax expenditures on the achievement of agen- budget process. In addition, many different types of
cies’ performance objectives. spending programs including direct Government provi-
Comparison of tax expenditure, spending, and regu- sion; credit programs; and payments to State and local
latory policies. Tax expenditures by definition work governments, the private sector, or individuals in the
through the tax system and, particularly, the income form of grants or contracts provide flexibility for policy
tax. Thus, they may be relatively advantageous policy design. On the other hand, certain outlay programs
approaches when the benefit or incentive is related to such as direct Government service provision may rely
income and is intended to be widely available. 34 Be- less directly on economic incentives and private-market
cause there is an existing public administrative and provision than tax incentives, which may reduce the
private compliance structure for the tax system, the relative efficiency of spending programs for some goals.
incremental administrative and compliance costs for a Spending programs also require resources to be raised
tax expenditure may be low in many cases. In addition, via taxes, user charges, or Government borrowing,
some tax expenditures actually simplify the operation which can impose further costs by diverting resources
of the tax system, (for example, the exclusion for up from their most efficient uses. Finally, spending pro-
to $500,000 of capital gains on home sales). Tax expend-
grams, particularly on the discretionary side, may re-
itures also implicitly subsidize certain activities. Spend-
spond less readily to changing activity levels and eco-
ing, regulatory or tax-disincentive policies can also mod-
nomic conditions than tax expenditures.
ify behavior, but may have different economic effects.
Regulations have more direct and immediate effects
Finally, a variety of tax expenditure tools can be used
than outlay and tax-expenditure programs because reg-
e.g., deductions, credits, exemptions, deferrals, floors,
ulations apply directly and immediately to the regu-
ceilings; phase-ins; phase-outs; dependent on income,
lated party (i.e., the intended actor) generally in the
expenses, or demographic characteristics (age, number
private sector. Regulations can also be fine-tuned more
of family members, etc.). This wide range of policy in-
quickly than tax expenditures because they can often
struments means that tax expenditures can be flexible
and can have very different economic effects. be changed as needed by the Executive Branch without
Tax expenditures also have limitations. In many legislation. Like tax expenditures, regulations often rely
cases they add to the complexity of the tax system, largely on voluntary compliance, rather than detailed
which raises both administrative and compliance costs. inspections and policing. As such, the public adminis-
For example, personal exemptions, deductions, credits, trative costs tend to be modest relative to the private
and phase-outs can complicate filing and decision-mak- resource costs associated with modifying activities. His-
ing. The income tax system may have little or no con- torically, regulations have tended to rely on proscriptive
tact with persons who have no or very low incomes, measures, as opposed to economic incentives. This reli-
and does not require information on certain characteris- ance can diminish their economic efficiency, although
tics of individuals used in some spending programs, this feature can also promote full compliance where
such as wealth. These features may reduce the effec- (as in certain safety-related cases) policymakers believe
tiveness of tax expenditures for addressing certain in- that trade-offs with economic considerations are not of
come-transfer objectives. Tax expenditures also gen- paramount importance. Also, regulations generally do
erally do not enable the same degree of agency discre- not directly affect Federal outlays or receipts. Thus,
tion as an outlay program. For example, grant or direct like tax expenditures, they may escape the degree of
Federal service delivery programs can prioritize activi- scrutiny that outlay programs receive. However, major
regulations are subjected to a formal regulatory anal-
33 Committee on Government Affairs, United States Senate, ‘‘Government Performance
ysis that goes well beyond the analysis required for
and Results Act of 1993’’ (Report 103–58, 1993).
34 Although this chapter focuses upon tax expenditures under the income tax, tax expendi- outlays and tax-expenditures. To some extent, the
tures also arise under the unified transfer, payroll, and excise tax systems. Such provisions
can be useful when they relate to the base of those taxes, such as an excise tax exemption
GPRA requirement for performance evaluation will ad-
for certain types of consumption deemed meritorious. dress this lack of formal analysis.
Some policy objectives are achieved using multiple addition, such assessments can raise significant chal-
approaches. For example, minimum wage legislation, lenges in economic modeling.
the earned income tax credit, and the food stamp pro- National defense. Some tax expenditures are intended
gram are regulatory, tax expenditure, and direct outlay to assist governmental activities. For example, tax pref-
programs, respectively, all having the objective of im- erences for military benefits reflect, among other
proving the economic welfare of low-wage workers. things, the view that benefits such as housing, subsist-
Tax expenditures, like spending and regulatory pro- ence, and moving expenses are intrinsic aspects of mili-
grams, have a variety of objectives and effects. When tary service, and are provided, in part, for the benefit
measured against a comprehensive income tax, for ex- of the employer, the U.S. Government. Tax benefits
ample, these include: encouraging certain types of ac- for combat service are intended to reduce tax burdens
tivities (e.g., saving for retirement or investing in cer- on military personnel undertaking hazardous service
tain sectors); increasing certain types of after-tax infor the Nation. A portion of the tax expenditure associ-
come (e.g., favorable tax treatment of Social Security ated with foreign earnings is targeted to benefit U.S.
income); reducing private compliance costs and Govern- Government civilian personnel working abroad by off-
ment administrative costs (e.g., the exclusion for up setting the living costs that can be higher than those
to $500,000 of capital gains on home sales); and pro- in the United States. These tax expenditures should
moting tax neutrality (e.g., accelerated depreciation in be considered together with direct agency budget costs
the presence of inflation). Some of these objectives are in making programmatic decisions.
well suited to quantitative measurement, while others International affairs. Tax expenditures are also aimed
are less well suited. Also, many tax expenditures, in- at goals such as tax neutrality. These include the exclu-
cluding those cited above, may have more than one sion for income earned abroad by nongovernmental em-
objective. For example, accelerated depreciation may ployees and exclusions for income of U.S.-controlled for-
encourage investment. In addition, the economic effects eign corporations. Measuring the effectiveness of these
of particular provisions can extend beyond their in- provisions raises challenging issues.
tended objectives (e.g., a provision intended to promote General science, space and technology; energy; natural
an activity or raise certain incomes may have positive resources and the environment; agriculture; and com-
or negative effects on tax neutrality). merce and housing. A series of tax expenditures reduces
Performance measurement is generally concerned the cost of investment, both in specific activities such
with inputs, outputs, and outcomes. In the case of tax as research and experimentation, extractive industries,
expenditures, the principal input is usually the revenue and certain financial activities and more generally,
effect. Outputs are quantitative or qualitative measures through accelerated depreciation for plant and equip-
of goods and services, or changes in income and investment. These provisions can be evaluated along a num-
ment, directly produced by these inputs. Outcomes, in ber of dimensions. For example, it could be useful to
turn, represent the changes in the economy, society, consider the strength of the incentives by measuring
or environment that are the ultimate goals of programs. their effects on the cost of capital (the interest rate
Thus, for a provision that reduces taxes on certain which investments must yield to cover their costs) and
investment activity, an increase in the amount of ineffective tax rates. The impact of these provisions on
vestment would likely be a key output. The resulting the amounts of corresponding forms of investment (e.g.,
production from that investment, and, in turn, the asso- research spending, exploration activity, equipment)
ciated improvements in national income, welfare, or se- might also be estimated. In some cases, such as re-
curity, could be the outcomes of interest. For other pro- search, there is evidence that the investment can pro-
visions, such as those designed to address a potential vide significant positive externalities that is, economic
inequity or unintended consequence in the tax code, benefits that are not reflected in the market trans-
an important performance measure might be how they actions between private parties. It could be useful to
change effective tax rates (the discounted present-value quantify these externalities and compare them with the
of taxes owed on new investments or incremental earn- size of tax expenditures. Measures could also indicate
ings) or excess burden (an economic measure of the the effects on production from these investments such
distortions caused by taxes). Effects on the incomes of as numbers or values of patents, energy production and
members of particular groups may be an important reserves, and industrial production. Issues to be consid-
measure for certain provisions. ered include the extent to which the preferences in-
An Overview of Evaluation Issues by Budget Function. crease production (as opposed to benefiting existing out-
The discussion below considers the types of measures put) and their cost-effectiveness relative to other poli-
that might be useful for some major programmatic cies. Analysis could also consider objectives that are
groups of tax expenditures. The discussion is intended more difficult to measure but still are ultimate goals,
to be illustrative and not all encompassing. However, such as promoting the Nation’s technological base, en-
it is premised on the assumption that the data needed ergy security, environmental quality, or economic
to perform the analysis are available or can be devel- growth. Such an assessment is likely to involve tax
oped. In practice, data availability is likely to be a analysis as well as consideration of non-tax matters
major challenge, and data constraints may limit the such as market structure, scientific, and other informa-
assessment of the effectiveness of many provisions. In tion (such as the effects of increased domestic fuel pro-
duction on imports from various regions, or the effects Federal tax and spending policies, including related fea-
of various energy sources on the environment). tures of the tax system, such as personal exemptions
Housing investment also benefits from tax expendi- (which are not defined as a tax expenditure). Evalua-
tures. The imputed net rental income from owner-occu- tion of charitable activities requires consideration of
pied housing is excluded from the tax base. The mort- the beneficiaries of these activities, who are generally
gage interest deduction and property tax deduction on not the parties receiving the tax reduction.
personal residences also are reported as tax expendi- Health. Individuals also benefit from favorable treat-
tures because the value of owner-occupied housing serv- ment of employer-provided health insurance. Measures
ices is not included in a taxpayer’s taxable income. of these benefits could include increased coverage and
Taxpayers also may exclude up to $500,000 of the cap- pooling of risks. The effects of insurance coverage on
ital gains from the sale of personal residences. Meas- final outcome measures of actual health (e.g., infant
ures of the effectiveness of these provisions could in- mortality, days of work lost due to illness, or life expect-
clude their effects on increasing the extent of home ancy) or intermediate outcomes (e.g., use of preventive
ownership and the quality of housing. Similarly, anal- health care or health care costs) could also be inves-
ysis of the extent of accumulated inflationary gains is tigated.
likely to be relevant to evaluation of the capital gains Income security, Social Security, and veterans benefits
for home sales. Deductibility of State and local property and services. Major tax expenditures in the income se-
taxes assists with making housing more affordable as curity function benefit retirement savings, through em-
well as easing the cost of providing community services ployer-provided pensions, individual retirement ac-
through these taxes. Provisions intended to promote counts, and Keogh plans. These provisions might be
investment in rental housing could be evaluated for evaluated in terms of their effects on boosting retire-
their effects on making such housing more available ment incomes, private savings, and national savings
and affordable. These provisions should then be com- (which would include the effect on private savings as
pared with alternative programs that address housing well as public savings or deficits). Interactions with
supply and demand. other programs, including Social Security, also may
Transportation. Employer-provided parking is a merit analysis. As in the case of employer-provided
fringe benefit that, for the most part, is excluded from health insurance, analysis of employer-provided pension
taxation. The tax expenditure estimates reflect the cost programs requires imputing the value of benefits fund-
of parking that is leased by employers for employees; ed at the firm level to individuals.
an estimate is not currently available for the value Other provisions principally affect the incomes of
of parking owned by employers and provided to their members of certain groups, rather than affecting incen-
employees. The exclusion for employer-provided transit tives. For example, tax-favored treatment of Social Se-
passes is intended to promote use of this mode of trans- curity benefits, certain veterans’ benefits, and deduc-
portation, which has environmental and congestion ben- tions for the blind and elderly provide increased in-
efits. The tax treatments of these different benefits comes to eligible parties. The earned-income tax credit,
could be compared with alternative transportation poli- in contrast, should be evaluated for its effects on labor
cies. force participation as well as the income it provides
Community and regional development. A series of tax lower-income workers.
expenditures is intended to promote community and General purpose fiscal assistance and interest. The
regional development by reducing the costs of financing tax-exemption for public purpose State and local bonds
specialized infrastructure, such as airports, docks, and reduces the costs of borrowing for a variety of purposes
stadiums. Empowerment zone and enterprise commu- (borrowing for non-public purposes is reflected under
nity provisions are designed to promote activity in dis- other budget functions). The deductibility of certain
advantaged areas. These provisions can be compared State and local taxes reflected under this function pri-
with grants and other policies designed to spur eco- marily relates to personal income taxes (property tax
nomic development. deductibility is reflected under the commerce and hous-
Education, training, employment, and social services. ing function). Tax preferences for Puerto Rico and other
Major provisions in this function are intended to pro- U.S. possessions are also included here. These provi-
mote post-secondary education, to offset costs of raising sions can be compared with other tax and spending
children, and to promote a variety of charitable activi- policies as means of benefiting fiscal and economic con-
ties. The education incentives can be compared with ditions in the States, localities, and possessions. Fi-
loans, grants, and other programs designed to promote nally, the tax deferral for interest on U.S. savings
higher education and training. The child credits are bonds benefits savers who invest in these instruments.
intended to adjust the tax system for the costs of rais- The extent of these benefits and any effects on Federal
ing children; as such, they could be compared to other borrowing costs could be evaluated.
The above illustrative discussion, although broad, is Treasury, and other agencies will work together, as
nevertheless incomplete, omitting important details appropriate, to address this challenge. As indicated
both for the provisions mentioned and the many that above, over the next few years the Executive Branch’s
are not explicitly cited. Developing a framework that focus will be on the availability of the data needed
is sufficiently comprehensive, accurate, and flexible to to assess the effects of the tax expenditures designed
reflect the objectives and effects of the wide range of to increase savings.
tax expenditures will be a significant challenge. OMB,
DIMENSIONS OF THE BUDGET
329
20. COMPARISON OF ACTUAL TO ESTIMATED TOTALS
In successive budgets, the Administration publishes tual results for 2006 with the current services estimates
several estimates of the surplus or deficit for a par- shown in the 2006 Budget, published in February 2005.
ticular fiscal year. Initially, the year appears as an Part II of the chapter presents a broader comparison
outyear projection at the end of the budget horizon. of estimates and actual outcomes. This part first dis-
In each subsequent budget, the year advances in the cusses the historical record of budget year estimates
estimating horizon until it becomes the ‘‘budget year.’’ versus actual results over the last two decades. Second,
One year later, the year becomes the ‘‘current year’’ it lengthens the focus to estimates made for each year
then in progress, and the following year, it becomes of the budget horizon, extending four years beyond the
the just-completed ‘‘actual year.’’ budget year. This longer focus shows that the dif-
The budget is legally required to compare budget year ferences between estimates and the eventual actual re-
estimates of receipts and outlays with the subsequent sults grow as the estimates extend further into the
actual receipts and outlays for that year. Part I of this
future.
chapter meets that requirement by comparing the ac-
PART I: COMPARISON OF ACTUAL TO ESTIMATED TOTALS FOR 2006
This part of the chapter compares the actual receipts, Receipts

outlays, and deficit for 2006 with the current services Actual receipts for 2006 were $2,407 billion, $229
estimates shown in the 2006 Budget, published in Feb- billion more than the $2,178 billion current services
ruary 2005. 1 This part also presents a more detailed estimate in the 2006 Budget (February 2005). As shown
comparison for mandatory and related programs, and in Table 20–1, this increase was the net effect of legisla-
reconciles the actual receipts, outlays, and deficit totals tive and administrative changes; economic conditions
shown here with the figures for 2006 previously pub- that differed from what had been expected; and tech-
lished by the Department of the Treasury. nical factors that resulted in different collection pat-
terns and effective tax rates than had been assumed.
Table 20–1. COMPARISON OF ACTUAL 2006 RECEIPTS WITH THE INITIAL CURRENT SERVICES
ESTIMATES
Enacted
February legislation/ Different Technical
2005 administra- economic Net change Actual
factors
estimate tive conditions
actions
Individual income taxes ..................................................... 965 –11 10 81 79 1,044

Corporation income taxes .................................................. 223 * –5 136 131 354
Social insurance and retirement receipts ......................... 819 ................ 16 3 19 838
Excise taxes ....................................................................... 76 * –1 –1 –2 74
Estate and gift taxes .......................................................... 26 1 * 1 2 28
Customs duties .................................................................. 27 –* 1 –3 –2 25
Miscellaneous receipts ....................................................... 43 * 3 –1 2 45
Total receipts ................................................................. 2,178 –10 23 216 229 2,407

Policy differences. Several laws were enacted after Act of 2005 and the Gulf Opportunity Zone Act of 2005
February 2005 that reduced 2006 receipts by a net accounted for $5 billion of the net reduction in 2006
$10 billion. The emergency tax relief provided to indi- receipts. The provisions of the Tax Increase Prevention
viduals and businesses affected by hurricanes Katrina, and Reconciliation Act of 2005 (TIPRA), primarily the
Rita and Wilma in the Katrina Emergency Tax Relief increase in the alternative minimum tax (AMT) exemp-
1 The current services concept is discussed in Chapter 24, ‘‘Current Services Estimates.’’ in the 2001 and 2003 tax acts. For discretionary programs the current services estimate
For mandatory programs and receipts, the February 2005 current services estimate was was based on the current year estimates, excluding one-time emergency appropriations,
based on laws then in place, adjusted to reflect extension of certain expiring provisions adjusted for inflation.
331
tion amount and a modification of the timing of esti- grams and net interest. 2 The table also makes rough
mated tax payments by corporations, also reduced 2006 estimates according to three reasons for the changes:
receipts by a net $5 billion. The effects of other legisla- policy; economic conditions; and technical estimating
tive and administrative changes on 2006 receipts were differences, a residual.
largely offsetting. Policy changes are the result of legislative actions
Economic differences. Differences between the eco- that change spending levels, primarily through higher
nomic assumptions upon which the current services es- or lower appropriations or changes in authorizing legis-
timates were based and actual economic performance lation, which may themselves reflect responses to
increased 2006 receipts by a net $23 billion. Higher- changed economic conditions. For 2006, policy changes
than-anticipated wages and salaries and other sources increased outlays by an estimated $160 billion relative
of personal income were in large part responsible for to the initial current services estimates.
the increases in individual income taxes and social in- Policy changes increased discretionary outlays by
surance and retirement receipts of $10 billion and $16 $141 billion. Defense discretionary outlays increased by
billion, respectively. These increases were partially off- $93 billion and nondefense discretionary outlays in-
set by a $5 billion decrease in corporation income taxes, creased by $48 billion. A significant portion of both
attributable to lower-than-expected corporate profits. defense and nondefense outlay increases resulted from
Differences between anticipated and actual economic enactment of emergency supplemental appropriation
performance increased other sources of receipts by a acts for defense, the Global War on Terror, and hurri-
net $3 billion. cane recovery in 2005 and 2006. Policy changes in-
Technical reestimates. Technical factors increased creased mandatory outlays by a net $15 billion above
2006 receipts by a net $216 billion above the February current law. This increase largely reflects a $19 billion
2005 current services estimate. This net increase was increase in outlays for the National flood insurance pro-
primarily attributable to higher-than-anticipated collec- gram in response to hurricane recovery, partly offset
tions of individual and corporation income taxes of $81 by a $5 billion decrease in Medicare outlays, largely
billion and $136 billion, respectively. Different collec- enacted in the Deficit Reduction Act of 2005.
tion patterns and effective tax rates than assumed in Economic conditions that differed from those forecast
February 2005 were primarily responsible for the high- in February 2005 resulted in a net increase in outlays
er-than-anticipated collections of individual and cor- of $18 billion. The most significant changes consist of
poration income taxes. Changes in other sources of re- a $7 billion increase in Social Security benefits largely
ceipts attributable to technical factors were largely off- resulting from higher cost-of-living adjustments and a
setting. $12 billion increase in net interest due to higher-than-
expected interest rates.
Outlays Technical estimating differences and other changes
Outlays for 2006 were $2,655 billion, $116 billion resulted in a net decrease in outlays of $61 billion.
Technical changes result from changes in such factors
more than the $2,539 billion current services estimate
in the 2006 Budget (February 2005). 2 Discretionary programs are controlled by annual appropriations, while mandatory pro-
Table 20–2 distributes the $116 billion net increase grams are generally controlled by authorizing legislation. Mandatory programs are mostly
formula benefit or entitlement programs with permanent spending authority that depend
in outlays among discretionary and mandatory pro- on eligibility criteria, benefit levels, and other factors.
Table 20–2. COMPARISON OF ACTUAL 2006 OUTLAYS WITH THE INITIAL CURRENT
SERVICES ESTIMATES
(Outlays in billions)
Changes
Current
Services Actual
Total
(Feb. 2005) Policy Economic Technical changes
Discretionary:
Defense .................................................................... 437 93 .............. –11 83 520
Nondefense .............................................................. 477 48 .............. –28 20 497
Subtotal, discretionary ......................................... 914 141 .............. –39 103 1,017

Mandatory:
Social Security ......................................................... 540 .............. 7 –3 4 544
Other programs ........................................................ 876 15 –1 –22 –7 868
Subtotal, mandatory ............................................. 1,416 15 6 –25 –4 1,412

Net interest ................................................................... 209 3 12 2 17 227
Total outlays ........................................................ 2,539 160 18 –61 116 2,655

20. COMPARISON OF ACTUAL TO ESTIMATED TOTALS 333
Table 20–3. COMPARISON OF THE ACTUAL 2006 DEFICIT WITH THE

INITIAL CURRENT SERVICES ESTIMATE
(In billions)
Current Changes
Services Actual
(Feb. Total
Policy Economic Technical
2005) changes
Receipts ....................................... 2,178 –10 23 216 229 2,407

Outlays ......................................... 2,539 160 18 –61 116 2,655
Deficit ....................................... 361 170 –6 –277 –113 248

Note: Deficit changes are outlays minus receipts. For these changes, a plus indicates an increase in the deficit.
as the number of beneficiaries for entitlement pro- A number of factors may cause differences between
grams, crop conditions, or other factors not associated the amounts estimated in the budget and the actual
with policy changes or economic conditions. Outlays for mandatory outlays. For example, legislation may
discretionary programs decreased an estimated $39 bil- change benefit rates or coverage; the actual number
lion, because budget authority for both defense and of beneficiaries may differ from the number estimated;
nondefense programs was spent more slowly than ex- or economic conditions (such as inflation or interest
pected. Outlays for mandatory programs decreased by rates) may differ from what was assumed in making
a net $25 billion, largely because higher-than-antici- the original estimates.
pated outlays for higher education and mortgage credit Table 20–4 shows the differences between the actual
programs were more than offset by lower-than-antici- outlays for these programs in 2006 and the amounts
pated outlays for Medicaid, Medicare, unemployment originally estimated in the 2006 Budget, based on laws
compensation, and other programs. Net interest outlays in effect at that time. Actual outlays for mandatory
increased by $2 billion due to technical factors com- spending and net interest in 2006 were $1,639 billion,
pared to the February 2005 estimates. which was $14 billion more than the initial estimate
of $1,625 billion, based on existing law in February
Deficit 2005.
The preceding two sections discussed the differences As Table 20–4 shows, actual outlays for mandatory
between the initial current services estimates and the human resources programs were $1,444 billion, $6 bil-
actual amounts of Federal Government receipts and lion less than originally estimated. This decrease was
outlays for 2006. This section combines these effects the net effect of legislative action, differences between
to show the net impact of these differences. actual and assumed economic conditions, differences be-
As shown in Table 20–3, the 2006 current services tween the anticipated and actual number of bene-
deficit was initially estimated to be $361 billion. The ficiaries, and other technical differences. Outlays for
actual deficit was $248 billion, which was a $113 billion other functions were $4 billion more than originally
decrease from the initial estimate. Receipts were $229 estimated. Undistributed offsetting receipts were $1 bil-
billion more than the initial estimate and outlays were lion higher than expected, thus reducing total outlays.
$116 billion more. The table shows the distribution of Outlays for net interest were $227 billion, or $17
the changes according to the categories in the preceding billion more than the original estimate. This increase
two sections. was the net effect of changes in interest rates from
The net effect of policy changes for receipts and out- those initially assumed, changes in borrowing require-
lays increased the deficit by $170 billion. Economic con- ments due to differences in deficits, and technical fac-
ditions that differed from the initial assumptions in tors.
February 2005 accounted for an estimated $6 billion
decrease in the deficit. Technical factors reduced the Reconciliation of Differences with Amounts
deficit by an estimated $277 billion. Published by Treasury for 2006
Table 20–5 provides a reconciliation of the receipts,
Comparison of the Actual and Estimated Out-
outlays, and deficit totals published by the Department
lays for Mandatory and Related Programs for
of the Treasury in the September 2006 Monthly Treas-
2006
ury Statement and those published in this Budget. The
This section compares the original 2006 outlay esti- Department of the Treasury made adjustments to the
mates for mandatory and related programs under cur- estimates for the Combined Statement of Receipts, Out-
rent law in the 2006 Budget (February 2005) with the lays, and Balances, which decreased receipts by $6 mil-
actual outlays. Major examples of these programs in- lion and increased outlays by $499 million. Nearly all
clude Social Security and Medicare benefits, agricul- of the outlay adjustment was the correction of reporting
tural price support payments to farmers, and deposit for the Exchange Stabilization Fund. Additional adjust-
insurance for banks and thrift institutions. This cat- ments for this Budget increased receipts and outlays
egory also includes net interest outlays and undistrib- by $579 million and $557 million, respectively. Several
uted offsetting receipts. financial transactions that are not reported to the De-
Table 20–4. COMPARISON OF ACTUAL AND ESTIMATED OUTLAYS FOR MANDATORY AND
RELATED PROGRAMS UNDER CURRENT LAW
2006
Feb. 2006 Actual Change

estimate
Mandatory outlays:
Human resources programs:
Education, training, employment, and social services ......................................... 11 38 27
Health:
Medicaid ............................................................................................................ 193 181 –12
Other ................................................................................................................. 20 21 1
Total health ....................................................................................................... 213 201 –11

Medicare ................................................................................................................ 340 325 –15
Income security:
Retirement and disability .................................................................................. 106 102 –3
Unemployment compensation .......................................................................... 37 31 –6
Food and nutrition assistance .......................................................................... 51 48 –3
Other ................................................................................................................. 113 116 3
Total, income security .................................................................................. 307 298 –9

Social security ....................................................................................................... 540 544 4
Income security for veterans ............................................................................ 35 36 *
Other ................................................................................................................. 3 2 –1
Total veterans benefits and services .......................................................... 38 37 –1
Total mandatory human resources programs ............................................. 1,449 1,444 –6
Other functions:
Agriculture ............................................................................................................. 21 20 –1
International ........................................................................................................... –2 –7 –4
Deposit insurance ................................................................................................. –1 –1 –*
Other functions ...................................................................................................... 15 24 9
Total, other functions ................................................................................... 33 37 4
Undistributed offsetting receipts:

Employer share, employee retirement ................................................................. –60 –61 –1
Rents and royalties on the outer continental shelf ............................................. –7 –7 –*
Other undistributed offsetting receipts ................................................................. –* –* –*
Total undistributed offsetting receipts .......................................................... –67 –68 –1
Total, mandatory ............................................................................................... 1,416 1,412 –4
Net interest:
Interest on Treasury debt securities (gross) ............................................................ 391 406 15
Interest received by trust funds ................................................................................ –172 –169 2
Other interest ............................................................................................................. –10 –10 –*
Total net interest .......................................................................................... 209 227 17
Total outlays for mandatory and net interest .............................................. 1,625 1,639 14
partment of the Treasury, including those for the Af- Investment Trust (NRRIT). Reporting to the Depart-
fordable Housing Program, the Public Company Ac- ment of the Treasury for the NRRIT is done with a
counting Oversight Board, and the United Mine Work- one month lag so that the fiscal year total provided
ers of America benefit funds, are included in the budg- in the Treasury Combined Statement covers September
et. Reporting for these programs adds roughly equiva- 2005 through August 2006. The budget has been ad-
lent amounts to outlays and receipts, with little impact justed to reflect transactions that occurred during the
on the deficit. Another significant conceptual difference actual fiscal year, which begins in October.
in reporting is for the National Railroad Retirement
Table 20–5. RECONCILIATION OF FINAL AMOUNTS FOR 2006

Receipts Outlays Deficit
Totals published by Treasury (September 30 MTS) ........................ 2,406,681 2,654,379 –247,698

Miscellaneous Treasury adjustments ............................................ –6 499 –505
Totals published by Treasury in Combined Statement .................... 2,406,675 2,654,878 –248,203

Affordable Housing Program ......................................................... 307 307 ........................
Public Company Accounting Oversight Board .............................. 131 131 ........................
United Mine Workers of America benefit funds ........................... 119 114 5
National Railroad Retirement Investment Trust ............................ ........................ –48 48
Other ............................................................................................... 22 53 –31
Total adjustments, net ................................................................... 579 557 22

Totals in the budget ........................................................................... 2,407,254 2,655,435 –248,181
MEMORANDUM:
Total change since year-end statement ........................................ 573 1,056 –483
Part II: HISTORICAL COMPARISON OF ACTUAL TO ESTIMATED SURPLUSES OR DEFICITS
This part of the chapter compares estimated sur- billion underestimate, in the 2002 Budget, was due
pluses or deficits to actual outcomes over the last two largely to receipt shortfalls related to the 2001 reces-
and a half decades. The first section compares the esti- sion and associated weak stock market performance.
mate for the budget year of each budget with the subse- About a quarter of the underestimate was due to in-
quent actual result. The second section extends the creased spending for recovery from the September 11,
comparison to the estimated surpluses or deficits for 2001 terrorist attacks, homeland security measures,
each year of the budget window: that is, for the current and the war on terror, along with lower receipts due
year through the fourth year following the budget year. to tax relief in the March 2002 economic stimulus act.
This part concludes with some observations on the his- The $190 billion overestimate of the deficit in the 1998
torical record of estimates of the surplus or deficit Budget stemmed largely from stronger-than-expected
versus the subsequent actual outcomes. economic growth and a surge in individual income tax
collections beyond that accounted for by economic fac-
Historical Comparison of Actual to Estimated
tors.
Results for the Budget Year
Because the average deficit difference obscures the
Table 20–6 compares the estimated and actual sur- degree of under- and overestimation in the historical
pluses or deficits since the deficit estimated for 1982 data, a more appropriate statistic to measure the mag-
in the 1982 Budget. The estimated surpluses or deficits nitude of the differences is the average absolute dif-
for each budget include the Administration’s policy pro- ference. This statistic measures the difference without
posals. Therefore, the original deficit estimate for 2006 regard to whether it was an under- or overestimate.
differs from that shown in Table 20–3, which is on Since 1982, the average absolute difference has been
a current services basis. Earlier comparisons of actual $99 billion.
and estimated surpluses or deficits were on a policy Another measure of variability is the standard devi-
basis, so for consistency the figures in Table 20–6 are ation. This statistic measures the dispersion of the data
on this basis. around the average value. The standard deviation of
On average, the estimates for the budget year under- the deficit differences since 1982 is $136 billion. Like
estimated actual deficits (or overestimated actual sur- the average absolute difference, this measure illustrates
pluses) by $20 billion over the 25-year period. Policy the high degree of variation in the difference between
outcomes that differed from the original proposals in- estimates and actual deficits.
creased the deficit by an average of $34 billion. Dif- The large variability in errors in estimates of the
ferences between economic assumptions and actual eco- surplus or deficit for the budget year underscores the
nomic performance increased the deficit an average of inherent uncertainties in estimating the future path
$12 billion. Differences due to these two factors were of the Federal budget. Some estimating errors are un-
partly offset by technical revisions, which reduced the avoidable, because of differences between the Presi-
deficit an average of $26 billion. dent’s original budget proposals and the legislation that
The relatively small average difference between ac- Congress subsequently enacts. Occasionally such dif-
tual and estimated deficits conceals a wide variation ferences are huge, such as additional appropriations
in the differences from budget to budget. The dif- for disaster recovery, homeland security, and war ef-
ferences ranged from a $389 billion underestimate of forts in response to the terrorist attacks of September
the deficit to a $190 billion overestimate. The $389 11, 2001, which were obviously not envisioned in the
Table 20–6. COMPARISON OF ESTIMATED AND ACTUAL SURPLUSES OR DEFICITS

SINCE 1982
Surplus Differences due to Actual

or deficit (–) Total
Budget surplus or
estimated for Enacted Economic Technical difference deficit(–)
budget year 1 legislation factors factors
1982 ................................................................... –62 15 –70 –11 –66 –128

1983 ................................................................... –107 –12 –67 –22 –101 –208
1984 ................................................................... –203 –21 38 –0 17 –185
1985 ................................................................... –195 –12 –17 12 –17 –212
1986 ................................................................... –180 –8 –27 –7 –41 –221
1987 ................................................................... –144 2 –16 8 –6 –150
1988 ................................................................... –111 –9 –19 –16 –44 –155
1989 ................................................................... –130 –22 10 –11 –23 –153
1990 ................................................................... –91 –21 –31 –79 –131 –221
1991 ................................................................... –63 21 –85 –143 –206 –269
1992 ................................................................... –281 –36 –21 48 –9 –290
1993 ................................................................... –350 –8 –13 115 95 –255
1994 ................................................................... –264 –8 16 52 61 –203
1995 ................................................................... –165 –18 1 18 1 –164
1996 ................................................................... –197 6 53 30 89 –107
1997 ................................................................... –140 1 –4 121 118 –22
1998 ................................................................... –121 –9 48 151 190 69
1999 ................................................................... 10 –22 56 82 116 126
2000 ................................................................... 117 –42 88 73 119 236
2001 ................................................................... 184 –129 32 41 –56 128
2002 ................................................................... 231 –104 –201 –84 –389 –158
2003 ................................................................... –80 –86 –34 –177 –297 –378
2004 ................................................................... –307 –122 –22 39 –105 –412
2005 ................................................................... –364 –67 –11 123 45 –318
2006 ................................................................... –390 –141 6 277 142 –248
Average .............................................................. .................. –34 –12 26 –20 ..............
Absolute average 2 ............................................ .................. 38 39 70 99 ..............
Standard deviation ............................................. .................. 46 57 94 136 ..............
1 Surplus or deficit estimate includes the effect of the budget’s policy proposals.
2 Absolute average is the average without regard to sign.
President’s Budget submitted the previous February. but underestimated the deficit in the budget year by
Even aside from differences in policy outcomes, errors $20 billion. The budget estimates understated the def-
in budget estimates can arise from new economic devel- icit in the years following, by amounts growing from
opments, unexpected changes in program costs, shifts $59 billion for BY+1 to $141 billion for BY+4. While
in taxpayer behavior, and other factors. The budget these results suggest a tendency to underestimate defi-
impact of changes in economic assumptions is discussed cits toward the end of the budget horizon, the averages
further in Chapter 12 of this volume, ‘‘Economic As- are not statistically different from zero in light of the
sumptions.’’ high variation in the data.
The average absolute difference between estimated
Five-Year Comparison of Actual to Estimated and actual deficits grows dramatically over the six
Surpluses or Deficits years from CY through BY+4, from $58 billion in the
The substantial difference between actual surpluses current year to $99 billion for the budget year, to $269
or deficits and the budget year estimates made less billion for BY+4. While under- and overestimates of
than two years earlier raises questions about the degree the deficit have historically tended to average out, the
of variability for estimates of years beyond the budget absolute size of the under- or overestimates grows as
year. Table 20–7 shows the summary statistics for the the estimates extend further into the future. The stand-
differences for the current year (CY), budget year (BY), ard deviation of the deficit differences shows the same
and the four succeeding years (BY+1 through BY+4). pattern. The standard deviation grows from $71 billion
These are the years that are required to be estimated for current year estimates to $136 billion for the budget
in the budget by the Budget Enforcement Act of 1990. year estimates and continues to increase steadily as
On average, the budget estimates since 1982 over- the estimates extend further out, reaching $289 billion
stated the deficit in the current year by $26 billion, for BY+4.
Table 20–7. DIFFERENCES BETWEEN ESTIMATED AND ACTUAL SURPLUSES OR

DEFICITS FOR FIVE-YEAR BUDGET ESTIMATES SINCE 1982
Estimate for budget year plus

Current Budget
year year Two Three Four
One year
estimate estimate years years years
(BY+1) (BY+2) (BY+3) (BY+4)
Average difference 1 .................................. 26 –20 –59 –97 –128 –141

Average absolute difference 2 ................... 58 99 149 202 245 269
Standard deviation .................................... 71 136 202 249 271 289
1A positive figure represents an underestimate of the surplus or an overestimate of the deficit.
2 Average absolute difference is the difference without regard to sign.
The estimates of variability in the difference between of two standard deviations applied to the deficit esti-
estimated and actual deficits can be used to construct mates in this Budget. This chart illustrates that unfore-
a range of uncertainty around a given set of estimates. seen economic developments, policy outcomes, or other
Statistically, if these differences are normally distrib- factors could give rise to large swings in the deficit
uted, the actual deficit will be within a range of two estimates.
standard deviations above or below the estimate about
90 percent of the time. Chart 20–1 shows this range
Chart 20-1. Illustrative Range of

Budget Outcomes
Surplus(+)/deficit(-) in billions of dollars
800
600 Potential Upper Bound
400
200 Current Estimate

0
-200
-400
Potential Lower Bound
-600
-800
CY BY BY+1 BY+2 BY+3 BY+4
21. OUTLAYS TO THE PUBLIC, GROSS AND NET
The usual measure of total outlays in the budget cies than for others. For example, in 2008 the Postal
is a net measure. First, gross outlays are net of pay- Service is estimated to have gross outlays of $75 billion
ments from other Federal Government accounts. For but net outlays of –$2 billion, due to offsetting collec-
example, if account A paid account B $100 to do some tions and receipts of $77 billion from the sale of stamps
work and account B used $100 to pay for salaries, mate- and other income. In contrast, gross and net outlays
rials, and supplies to do the work, gross outlays would for the National Aeronautics and Space Administration
be $200 while the impact on the nation’s economy (NASA) are very similar, because NASA has relatively
would be only $100. Netting is done to take out the few offsetting receipts and collections from the public.
double count. For all presentations in this chapter, this In Table 21–1, negative outlays occur when offsetting
type of netting is assumed. Second, and more impor- collections exceed payments. The amounts for ‘‘Allow-
tant, is that gross outlays are net of offsetting collec-
ances’’ cover certain transactions that are expected to
tions and offsetting receipts from the public. In this
increase or decrease outlays but are not, for various
case, a net basis of reporting is more significant, since
it measures the extent to which general taxpayers are reasons, attributed to any specific agency. The amounts
contributing to operating deficits. A counter argument labeled ‘‘undistributed offsetting receipts’’ are also de-
is that net treatment conceals important information. ducted from the Government-wide outlay totals but not
Table 21–1 provides a gross presentation of outlays to from any specific agency. These consist principally of
the public to permit users of budget information the rents and royalties on oil and gas production on the
flexibility to use gross or net outlays. The table shows Outer Continental Shelf and proceeds from the auction
outlays gross and net of offsetting collections and offset- of rights to the electromagnetic spectrum.
ting receipts from the public for all major agencies. See the section on ‘‘Outlays’’ in Chapter 26, ‘‘The
In 2008, net outlays of $2,902 billion consist of gross Budget System and Concepts,’’ for a more detailed dis-
outlays of $3,221 billion less offsetting collections and cussion on the outlay totals in the budget. Offsetting
receipts from the public of $319 billion. The table shows collections and offsetting receipts are discussed in more
that offsetting receipts and offsetting collections from detail in Chapter 18 of this volume, ‘‘User Charges
the public are relatively more important for some agen- and Other Collections.’’
Table 21–1. TOTAL OUTLAYS, GROSS AND NET OF OFFSETTING COLLECTIONS AND RECEIPTS
FROM THE PUBLIC, BY AGENCY, 2006–2008
2006 2007 2008
Outlays Gross Offsetting Outlays Gross Offsetting Outlays Gross Offsetting

Department or Other Unit of Collections Collections of Collections Collections of Collections Collections
and Receipts and Receipts Net Outlays and Receipts and Receipts Net Outlays and Receipts and Receipts Net Outlays
from the from the from the from the from the from the
Public Public Public Public Public Public
Legislative Branch ............................................................................ 4,203 –75 4,128 4,378 –72 4,306 4,776 –72 4,704
Judicial Branch ................................................................................. 5,875 –52 5,823 5,911 –66 5,845 6,730 –69 6,661
Executive Branch
Department of Agriculture ....................................................... 112,884 –19,350 93,534 109,523 –20,756 88,767 108,964 –19,938 89,026
Department of Commerce ....................................................... 8,908 –2,535 6,373 8,121 –1,942 6,179 9,133 –2,055 7,078
Department of Defense—Military ............................................ 513,353 –13,996 499,357 561,800 –12,885 548,915 595,837 –12,554 583,283
Department of Education ......................................................... 94,758 –1,329 93,429 74,403 –6,363 68,040 63,568 –4,965 58,603
Department of Energy ............................................................. 26,244 –6,595 19,649 28,380 –6,392 21,988 28,343 –6,476 21,867
Department of Health and Human Services .......................... 669,477 –55,162 614,315 737,727 –66,473 671,254 770,580 –71,340 699,240
Department of Homeland Security .......................................... 78,589 –9,491 69,098 60,601 –10,183 50,418 54,690 –11,490 43,200
Department of Housing and Urban Development .................. 45,397 –2,962 42,435 46,839 –4,005 42,834 46,509 –2,107 44,402
Department of the Interior ....................................................... 16,357 –7,293 9,064 16,838 –5,961 10,877 16,983 –6,455 10,528
Department of Justice ............................................................. 24,567 –1,243 23,324 24,006 –967 23,039 25,086 –1,041 24,045
Department of Labor ............................................................... 46,350 –3,212 43,138 51,230 –3,790 47,440 55,937 –3,641 52,296
Department of State ................................................................ 13,910 –948 12,962 17,640 –1,318 16,322 18,385 –1,582 16,803
Department of Transportation ................................................. 60,827 –688 60,139 64,089 –314 63,775 67,373 –341 67,032
Department of the Treasury .................................................... 480,937 –16,225 464,712 508,178 –17,671 490,507 543,672 –18,682 524,990
Department of Veterans Affairs ............................................... 76,196 –6,389 69,807 78,425 –6,100 72,325 88,293 –5,005 83,288
Corps of Engineers-Civil Works .............................................. 9,543 –2,599 6,944 8,632 –1,075 7,557 7,535 –1,055 6,480
Other Defense Civil Programs ................................................ 44,451 –15 44,436 47,650 –14 47,636 49,112 –14 49,098
339
Table 21–1. TOTAL OUTLAYS, GROSS AND NET OF OFFSETTING COLLECTIONS AND RECEIPTS—Continued
FROM THE PUBLIC, BY AGENCY, 2006–2008
2006 2007 2008
Outlays Gross Offsetting Outlays Gross Offsetting Outlays Gross Offsetting

Department or Other Unit of Collections Collections of Collections Collections of Collections Collections
and Receipts and Receipts Net Outlays and Receipts and Receipts Net Outlays and Receipts and Receipts Net Outlays
from the from the from the from the from the from the
Public Public Public Public Public Public
Environmental Protection Agency ........................................... 8,728 –407 8,321 8,404 –366 8,038 8,208 –430 7,778
Executive Office of the President ........................................... 5,382 –3 5,379 2,679 –2 2,677 1,391 –2 1,389
General Services Administration ............................................. 721 –697 24 1,002 –504 498 1,350 –522 828
International Assistance Programs .......................................... 29,776 –15,832 13,944 33,382 –16,321 17,061 31,885 –13,926 17,959
National Aeronautics and Space Administration .................... 11,878 3,247 15,125 16,381 –238 16,143 17,488 –238 17,250
National Science Foundation .................................................. 5,546 –4 5,542 5,862 –2 5,860 6,028 –2 6,026
Office of Personnel Management ........................................... 73,561 –11,161 62,400 70,364 –11,562 58,802 76,371 –12,209 64,162
Small Business Administration ................................................ 1,976 –1,071 905 1,508 –833 675 781 –56 725
Social Security Administration ................................................. 593,142 –7,399 585,743 630,650 –7,731 622,919 662,085 –7,618 654,467
Export-Import Bank of the United States ............................... 334 –2,525 –2,191 474 –1,811 –1,337 247 –220 27
Federal Deposit Insurance Corporation .................................. –425 –252 –677 –944 –865 –1,809 –367 –2,526 –2,893
Postal Service .......................................................................... 69,377 –70,348 –971 76,417 –73,672 2,745 74,527 –76,733 –2,206
Railroad Retirement Board ...................................................... 6,012 –2,690 3,322 6,404 –2,408 3,996 6,657 –1,474 5,183
Other Independent Agencies ................................................... 26,816 –13,366 13,450 27,748 –12,635 15,113 27,902 –12,927 14,975
Allowances ........................................................................................ .................. .................. .................. 8,002 .................. 8,002 2,269 .................. 2,269
Undistributed Offsetting Receipts ..................................................... –230,152 –7,396 –237,548 –242,450 –20,690 –263,140 –257,206 –21,496 –278,702
Totals ................................................................................................ 2,935,498 –280,063 2,655,435 3,100,254 –315,987 2,784,267 3,221,122 –319,261 2,901,861
22. TRUST FUNDS AND FEDERAL FUNDS
When money is received by the Federal Government, are reported net of these collections, which are known
it is credited to an account, and when money is spent as ‘‘offsetting collections’’ because they offset outlays
by the Government, it is taken from an account. All rather than being recorded as Governmental receipts.
budget accounts belong to one of two groups of funds: There are two classes of revolving funds. Public enter-
Federal funds and trust funds. This section presents prise funds, such as the Postal Service Fund, conduct
summary information about the transactions of each business-like operations mainly with the public.
of these two fund groups. Information is provided about Intragovernmental funds, such as the Federal Buildings
the income and outgo of the major trust funds and Fund, conduct business-like operations mainly within
a number of Federal funds that are financed by ear- and between Government agencies.
marked collections in a manner similar to trust funds.
Trust Funds Group
Federal Funds Group
The trust funds group consists of funds that are des-
The Federal funds group accounts for a larger share ignated by law as trust funds. Like special funds and
of the budget than the trust funds group, and includes revolving funds, they receive earmarked collections for
all transactions that are not required by law to pass spending on specific purposes. Many of the larger trust
through trust funds. funds are used to finance social insurance payments,
The Federal funds group includes the general fund, such as Social Security, Medicare, and unemployment
which is the largest fund in the Government and is compensation. Other major trust funds finance military
used to carry out the general purposes of Government and Federal civilian employees’ retirement benefits,
rather than being restricted by law to a specific pro- highway and transit construction, and airport and air-
gram. The general fund receives all collections not ear- way development. There are a few trust revolving funds
marked by law for some other fund, including virtually that are credited with collections earmarked by law
all income taxes and many excise taxes. Together with to carry out a cycle of business-type operations. There
Treasury borrowing, the general fund finances all ex- are also a few small trust funds that have been estab-
penditures not financed by earmarked collections. lished to carry out the terms of a conditional gift or
The Federal funds group also includes special funds bequest.
and revolving funds, which receive earmarked collec- There is no substantive difference between special
tions for spending on specific purposes. Where the law funds in the Federal funds group and trust funds or,
requires that Federal fund collections be earmarked to as noted below, between revolving funds and trust re-
finance a particular program, the collections and associ- volving funds. Whether a particular fund is designated
ated disbursements are recorded in special fund receipt in law as a trust fund is, in many cases, arbitrary.
and expenditure accounts. An example is the portion For example, the National Service Life Insurance Fund
of the Outer Continental Shelf mineral leasing receipts is a trust fund, but the Servicemen’s Group Life Insur-
deposited into the Land and Water Conservation Fund. ance Fund is a Federal fund, even though both are
The majority of special fund collections are derived from financed by earmarked fees paid by veterans and both
the Government’s power to impose taxes, fines, and provide life insurance payments to veterans’ bene-
other compulsory payments. Money in these funds must ficiaries. 1
be appropriated before it can be obligated and spent. The meaning of the term ‘‘trust’’ in the Federal Gov-
Although a majority of special fund collections are de- ernment budget differs significantly from the private
rived from the Government’s power to compel payment, sector usage. The beneficiary of a private trust owns
significant amounts of collections credited to special the trust’s income and often its assets. A custodian
funds are derived from business-like activity, such as or trustee manages the assets on behalf of the bene-
the receipts from Outer Continental Shelf mineral leas- ficiary according to the stipulations of the trust, which
ing. neither the trustee nor the beneficiary can change uni-
Revolving funds are used to conduct continuing cycles laterally. In contrast, the Federal Government owns
of business-like activity. Revolving funds receive money the assets and the earnings of most Federal trust funds,
collected from the sale of products or services and these and it can unilaterally raise or lower future trust fund
proceeds are used to finance spending of the program collections and payments, or change the purpose for
providing the products or services. Instead of being de- which the collections are used, by changing existing
posited in receipt accounts, the programs’ proceeds are law. Only a few small Federal trust funds are managed
recorded in the revolving funds, which are expenditure 1 Another example is the Violent Crime Reduction Trust Fund, established pursuant to
accounts. The proceeds collected in this way are gen- the Violent Crime Control and Law Enforcement Act of 1994. Because the Fund is sub-
stantively a means of accounting for general fund appropriations, and does not have any
erally available automatically for obligation and ex- dedicated receipts, it is classified as a Federal fund rather than a trust fund, notwithstanding
penditure. Outlays for programs with revolving funds the presence of the words ‘‘Trust Fund’’ in its official name.
341
pursuant to a trust agreement whereby the Govern- (to record outgo). However, a few trust funds, such as
ment acts as the trustee, and even then the Govern- the Veterans Special Life Insurance fund, are estab-
ment generally owns these funds and has some ability lished by law as trust revolving funds. These funds
to alter the amount deposited into or paid out of these are similar to revolving funds in the Federal funds
funds. Deposit funds, which are funds held by the Gov- group, in that they may consist of a single account
ernment as a custodian on behalf of some non-govern- to record both income and outgo. They are used to
mental entity, are similar to private-sector trust funds. conduct a cycle of business-type operations; offsetting
The Government makes no decisions about the amount collections are credited to the funds (which are also
of money placed in deposit funds or about how the expenditure accounts); and their outlays are displayed
proceeds are spent. Therefore, these funds are consid- net of the offsetting collections.
ered to be non-budgetary instead of Federal trust funds
and are excluded from the Federal budget. Income and Outgo by Fund Group
A trust fund must use its income for the purposes
designated by law. Some, such as the Federal Employ- Table 22–1 shows income, outgo, and surplus or def-
ees Health Benefits fund, spend their income almost icit by fund group and in the aggregate (netted to avoid
as quickly as it is collected. Others, such as the Social double-counting) from which the total unified budget
Security and the Federal civilian employees’ retirement receipts, outlays, and surplus or deficit are derived.
trust funds, currently spend considerably less than they The estimates assume enactment of the President’s
collect each year. A surplus of income over outgo adds budget proposals. Income consists mostly of receipts
to the trust fund’s balance, which is available to finance (derived from governmental activity—primarily income,
future expenditures. The balances are generally re- payroll, and excise taxes—and gifts). It also consists
quired by law to be invested in Treasury securities. 2 of offsetting receipts, which include proprietary receipts
A trust fund normally consists of one or more receipt (derived from business-like transactions with the pub-
accounts (to record income) and an expenditure account lic) and interfund collections (receipts by one fund of
2 The relationships between Treasury securities held by trust funds (and by other Govern-
payments from a fund in the other fund group) that
ment accounts), debt held the public, and gross Federal debt are discussed in Chapter are deposited into receipt accounts. Outgo consists of
16 of this volume, ‘‘Federal Borrowing and Debt.’’
Table 22–1. RECEIPTS, OUTLAYS AND SURPLUS OR DEFICIT BY FUND GROUP

Estimate
2006
Actual 2007 2008 2009 2010 2011 2012
Receipts:
Federal funds cash income:
From the public ................................................................................................................. 1,569.8 1,679.9 1,742.1 1,834.9 1,926.5 2,020.7 2,171.3
From trust funds: .............................................................................................................. 2.1 24.8 4.2 1.5 1.5 1.6 1.8
Total, Federal funds cash income ............................................................................... 1,572.0 1,704.7 1,746.3 1,836.3 1,928.1 2,022.3 2,173.1
Trust funds cash income:
From the public ................................................................................................................. 961.5 1012.1 1069.7 1114.7 1177.2 1241.1 1302.7
From Federal funds:
Interest .......................................................................................................................... 171.3 183.5 194.8 208.1 223.7 239.7 254.8
Other ............................................................................................................................. 298.9 316.3 338.1 352.2 374.9 403.2 428.6
Total, trust funds cash income .................................................................................... 1,431.7 1,511.9 1,602.6 1,675.0 1,775.8 1,884.0 1,986.1
Offsetting receipts ................................................................................................................. –596.4 –676.5 –686.4 –713.0 –749.1 –802.8 –851.9
Total, unified budget receipts ........................................................................................... 2,407.3 2,540.1 2,662.5 2,798.3 2,954.7 3,103.6 3,307.3
Outlays:
Federal funds cash outgo ..................................................................................................... 2,109.2 2,194.4 2,279.6 2,334.5 2,357.0 2,425.4 2,469.8
Trust funds cash outgo ......................................................................................................... 1,142.6 1,266.3 1,308.7 1,363.9 1,441.2 1,534.7 1,628.4
Offsetting receipts ................................................................................................................. –596.4 –676.5 –686.4 –713.0 –749.1 –802.8 –851.9
Total, unified budget outlays ........................................................................................ 2,655.4 2,784.3 2,901.9 2,985.5 3,049.1 3,157.3 3,246.3
Surplus or deficit (–):
Federal funds ........................................................................................................................ –537.3 –489.7 –533.3 –498.2 –428.9 –403.1 –296.7
Trust funds ............................................................................................................................ 289.1 245.6 293.9 311.1 334.5 349.3 357.7
Total, unified surplus/deficit (–) ........................................................................................ –248.2 –244.2 –239.4 –187.2 –94.4 –53.8 61.0
Note: Receipts include governmental, interfund, and proprietary receipts. Receipts exclude intrafund receipts, which are offset against intrafund payments so that cash income
and cash outgo of the fund group are not overstated.
22. TRUST FUNDS AND FEDERAL FUNDS 343
payments made to the public or to a fund in the other fund of the Treasury. 5 Borrowed funds are not recorded
fund group. as receipts of the fund or included in the income of
Two types of transactions are treated specially in the the fund. The borrowed funds finance outlays by the
table. First, income and outgo for each fund group net fund in excess of available receipts. Subsequently, fund
out all transactions that occur between funds within receipts are transferred from the fund to the general
the same fund group. 3 These intrafund transactions fund in repayment of the borrowing. The repayment
constitute outgo and income for the individual funds is not recorded as an outlay of the fund or included
that make and collect the payments, but they are offset- in fund outgo.
Some income in both Federal funds and trust funds
ting for the fund group as a whole. The totals for each
consists of offsetting receipts. For most budget pur-
fund group measure only the group’s transactions with
poses, offsetting receipts are excluded from receipts fig-
the public and the other fund group. Second, income
ures and subtracted from gross outlays. There are two
is computed net of the collections that are offset against
reasons for the normal treatment:
outgo in revolving fund expenditure accounts. 4 It would
• Business-like or market-oriented activities with the
be conceptually appropriate to classify these offsetting
public: The collections from such activities are de-
collections as income, but at present the data are not
ducted from gross outlays, rather than added to
tabulated centrally for both fund groups. Consequently, receipts, in order to produce budget totals for re-
they are offset against outgo in Table 22–1 and are ceipts and outlays that represent governmental
not shown separately. rather than market activity.
Some funds in the Federal funds group and some • Intragovernmental transactions: Collections by one
trust funds are authorized to borrow from the general Government account from another are deducted
from gross outlays, rather than added to receipts,
3 For example, the railroad retirement trust funds pay the equivalent of Social Security
so that the budget totals measure the transactions
benefits to railroad retirees, in addition to the regular railroad pension. These benefits
are financed by a payment from the Federal Old-Age and Survivors Insurance trust fund of the Government with the public.
to the railroad retirement trust funds. The payment and collection are both deducted so
that total trust fund income and outgo measure disbursements to the public and to Federal 5 For example, the Bonneville Power Administration Fund, a revolving fund in the Depart-
funds. ment of Energy, is authorized to borrow from the general fund, and the Black Lung Dis-
4 For example, postage stamp fees are deposited as offsetting collections in the Postal
ability Trust Fund in the Department of Labor is authorized to receive appropriations
Service fund. As a result, the Fund’s outgo is disbursements net of collections. of repayable advances from the general fund (a form of borrowing).
Table 22–2. INCOME, OUTGO, AND BALANCES OF TRUST FUNDS GROUP

Estimate
2006
Actual 2007 2008 2009 2010 2011 2012
Total Trust Funds

Balance, start of year ................................................................................................................ 3,148.5 3,437.5 3,683.1 3,976.7 4,287.8 4,622.3 4,971.6
Income:
Governmental receipts .......................................................................................................... 891.5 929.4 985.3 1,025.7 1,082.0 1,139.6 1,193.8
Proprietary receipts ............................................................................................................... 83.2 96.3 98.7 104.1 111.2 118.6 127.0
Receipts from Federal funds:
Interest ............................................................................................................................... 171.3 183.5 194.8 208.1 223.7 239.7 254.8
Other .................................................................................................................................. 334.6 353.3 377.0 393.0 417.9 448.9 476.8
Subtotal, income ........................................................................................................... 1,480.7 1,562.5 1,655.8 1,730.8 1,834.7 1,946.8 2,052.4
Outgo:
To the public ......................................................................................................................... 1189.5 1292.2 1357.7 1418.3 1498.7 1596.0 1692.9
Payments to Federal funds ................................................................................................... 2.1 24.8 4.2 1.5 1.5 1.6 1.8
Subtotal, outgo ............................................................................................................. 1191.6 1317.0 1361.9 1419.8 1500.2 1597.5 1694.7
Change in fund balance:
Excluding interest .............................................................................................................. 117.7 62.1 99.1 103.0 110.9 109.6 102.9
Interest ............................................................................................................................... 171.3 183.5 194.8 208.1 223.7 239.7 254.8
Subtotal, surplus or deficit (–) ...................................................................................... 289.1 245.6 293.9 311.1 334.5 349.3 357.7
Adjustments:
Transfers/lapses (net) ........................................................................................................... * * –0.3 ................ ................ ................ ................
Other adjustments ................................................................................................................. * * * ................ ................ ................ ................
Total, change in fund balance ......................................................................................... 289.1 245.6 293.6 311.1 334.5 349.3 357.7
Balance, end of year ................................................................................................................. 3,437.5 3,683.1 3,976.7 4,287.8 4,622.3 4,971.6 5,329.4
Because the income for Federal funds and for trust The definition of income and outgo in this table dif-
funds recorded in Table 22–1 includes offsetting refers from those in Table 22–1 in one important way.
ceipts, those offsetting receipts must be deducted from Trust fund collections that are offset against outgo (as
the two fund groups’ combined gross income in order offsetting collections) within expenditure accounts in-
to reconcile to total (net) unified budget receipts. Simi- stead of being deposited in separate receipt accounts
larly, because the outgo for Federal funds and for trust are classified as income in this table but not in Table
funds in Table 22–1 consists of outlays gross of offset- 22–1. This classification is consistent with the defini-
ting receipts, the amount of the offsetting receipts must tions of income and outgo for trust funds used else-
be deducted from the sum of the Federal funds’ and where in the budget. It has the effect of increasing
the trust funds’ gross outgo in order to reconcile to both income and outgo by the amount of the offsetting
total (net) unified budget outlays. Table 22–3 reconciles, collections. The difference was approximately $49 bil-
for fiscal year 2006, the gross total of all trust fund lion in 2006. Table 22–2, therefore, provides a more
and Federal fund receipts with the net total of the transparent summary of trust fund income and outgo.
Federal fund group’s and the trust fund group’s cash The trust funds group is expected to have large and
income (as shown in Table 22–1), and with the unified growing surpluses over the projection period. As a con-
budget’s receipt total. sequence, trust fund balances are estimated to grow
substantially, continuing a trend that has persisted
Income, Outgo, and Balances of Trust Funds over the past two decades. The size of the anticipated
Table 22–2 shows, for the trust funds group as a balances is unprecedented and results mainly from
whole, the funds’ balance at the start of each year, changes in the way some trust funds are financed.
income and outgo during the year, and the end of year Primarily because of these changes, but also because
balance. Income and outgo are divided between trans- of the impact of real growth and inflation, trust fund
actions with the public and transactions with Federal balances increased tenfold from 1982 to 2000, from
funds. Receipts from Federal funds are divided between $205 billion to $2.1 trillion. The balances are estimated
interest and other interfund receipts. to increase by more than 150 percent by the year 2012,
Table 22–3. RELATIONSHIP OF TOTAL FEDERAL FUND AND TRUST FUND

RECEIPTS TO UNIFIED BUDGET RECEIPTS, FISCAL YEAR 2006
Gross trust fund receipts .......................................................................................................................... 1,436.5

Gross Federal fund receipts ..................................................................................................................... 1,607.6
Total of trust fund receipts and Federal fund receipts ........................................................................... 3,044.1
Deduct intrafund receipts (from funds within the same fund group):
Trust intrafund receipts .................................................................................................................... –4.8
Federal intrafund receipts ................................................................................................................ –35.6
Subtotal, intrafund receipts .......................................................................................................... –40.4
Total of trust funds cash income and Federal funds cash income ........................................................ 3,003.7
Deduct offsetting receipts: 1
Trust fund receipts from Federal funds:
Interest in receipt accounts ......................................................................................................... –169.3
General fund payment to Medicare Parts B and D ................................................................... –162.6
Employing agencies’ payments for pensions, Social Security, and Medicare .......................... –49.7
General fund payments for unfunded liabilities of Federal employees retirement funds ......... –51.6
Transfer of taxation of Social Security and RRB benefits to OASDI, HI, and RRB ................ –33.5
Other receipts from Federal funds .............................................................................................. –3.5
Subtotal, trust fund receipts from Federal funds ................................................................... –470.2

Federal fund receipts from trust funds ............................................................................................ –2.1
Proprietary receipts .......................................................................................................................... –124.1
Subtotal, offsetting receipts ..................................................................................................... –596.4
Unified budget receipts ............................................................................................................................. 2,407.3

1 Offsetting
receipts are included in cash income for each fund group, but in the unified budget totals are ex-
cluded from the receipts total and instead deducted from outlays
rising to $5.3 trillion. 6 Almost all of these balances the expenditure in the same way as any other Federal
are invested in Treasury securities and earn interest. expenditure: out of current receipts, by borrowing from
Therefore, they represent the value, in current dollars, the public, or by reducing benefits or other expendi-
of taxes and user fees that have been paid in advance tures. The existence of large trust fund balances, there-
for future benefits and services. fore, does not, by itself, increase the Government’s abil-
Until the 1980s, most trust funds operated on a pay- ity to pay benefits.
as-you-go basis. Taxes and user fees were set at levels From an economic standpoint, the Government is able
high enough to finance program expenditures and ad- to prefund benefits only by increasing saving and in-
ministrative expenses, and to maintain prudent re- vestment in the economy as a whole. This can be fully
serves, generally defined as being equal to one year’s accomplished only by simultaneously running trust
expenditures. As a result, trust fund balances tended fund surpluses equal to the actuarial present value of
to grow at about the same rate as their annual expendi- the accumulating benefits while maintaining an un-
tures. changed Federal fund deficit, so that the trust fund
Pay-as-you-go financing was replaced in the 1980s surplus reduces the unified budget deficit or increases
by full or partial advance funding for some of the larger the unified budget surplus. This would reduce Federal
trust funds. In order to partially prefund the Social borrowing by the amount of the trust funds surplus
Security benefits of the ‘‘baby-boomers’’, the Social Se- and increase the amount of national saving available
curity Amendments of 1983 raised payroll taxes above to finance investment. As long as the increase in Gov-
the levels necessary to finance current expenditures. ernment saving is not offset by a reduction in private
In 1984 a new system was set up to finance military saving, greater investment would increase future in-
retirement benefits on a full accrual basis. In 1986 comes and wealth, which would provide more real eco-
full accrual funding of retirement benefits was man- nomic resources to support the benefits.
dated for Federal civilian employees hired after Decem- Table 22–4 shows estimates of income, outgo, and
ber 31, 1983. The latter two changes require Federal balances for 2006 through 2012 for the major trust
agencies and their employees to make annual payments funds. With the exception of transactions between trust
to the Federal employees’ retirement trust funds in an
funds, the data for the individual trust funds are con-
amount equal to the retirement benefits earned by em-
ceptually the same as the data in Table 22–2 for the
ployees. Since many years will pass between the time
trust funds group. As explained previously, transactions
when benefits are earned and when they are paid, the
between trust funds are shown as outgo of the fund
trust funds will accumulate substantial balances over
that makes the payment and as income of the fund
time.
that collects it in the data for an individual trust fund,
These balances are available to finance future benefit
but the collections are offset against outgo in the data
payments and other trust fund expenditures—but only
for the trust fund group as a whole. Additional informa-
in a bookkeeping sense. These funds are not set up
tion for these and other trust funds can be found in
to be pension funds, like the funds of private pension
the Status of Funds tables in the Budget Appendix.
plans. The holdings of the trust funds are not assets
Table 22–5 shows income, outgo, and balances of five
of the Government as a whole that can be drawn down
Federal funds—three revolving funds and two special
in the future to fund benefits. Instead, they are claims
funds. All these funds are similar to trust funds in
on the Treasury. When trust fund holdings are re-
that they are financed by earmarked receipts, the ex-
deemed to pay benefits, Treasury will have to finance
cess of income over outgo is invested, the interest earn-
6 The trust fund balances shown here reflect the Administration’s proposal to add Personal ings add to balances, and the balances remain available
Retirement Accounts (PRAs) as part of a reform to return the Social Security program
to solvency. Because the PRAs would be privately owned, their balances would not be
to finance future expenditures. The table is illustrative
included in the budget or in trust fund balances. Diverting a portion of payroll taxes of the Federal funds group, which includes many other
into PRAs would slow the growth of aggregate trust fund balances in the short term,
but in combination with other reforms to restore Social Security to solvency would have
revolving funds and special funds in addition to the
a positive effect on trust fund balances in the long run. ones shown.
Table 22–4. INCOME, OUTGO, AND BALANCES OF MAJOR TRUST FUNDS

Estimate
2006
Actual 2007 2008 2009 2010 2011 2012
Airport and Airway Trust Fund

Balance, start of year ................................................................................................................ 11.3 10.3 10.2 8.6 9.2 10.2 11.5
Income:
Governmental receipts .......................................................................................................... 10.6 11.4 12.1 4.3 4.7 5.1 5.5
Proprietary receipts ............................................................................................................... 0.1 * * * * * *
Interest ............................................................................................................................... 0.5 0.5 0.5 0.4 0.4 0.4 0.4
Other .................................................................................................................................. * 0.2 * * * * 0.1
Receipts from Trust funds .................................................................................................... ................ ................ ................ ................ ................ ................ ................
Subtotal, income ........................................................................................................... 11.2 12.1 12.6 4.8 5.1 5.5 5.9
Outgo:
To the public ......................................................................................................................... 12.1 12.3 14.2 4.2 4.1 4.2 4.3
Payments to Other funds ...................................................................................................... ................ ................ ................ ................ ................ ................ ................
Subtotal, outgo ............................................................................................................. 12.1 12.3 14.2 4.2 4.1 4.2 4.3
Excluding interest .............................................................................................................. –1.4 –0.7 –2.0 0.2 0.6 0.9 1.2
Interest ............................................................................................................................... 0.5 0.5 0.5 0.4 0.4 0.4 0.4
Subtotal, surplus or deficit (–) ...................................................................................... –1.0 –0.2 –1.5 0.6 1.0 1.3 1.6
Adjustments:
Transfers/lapses (net) ....................................................................................................... ................ ................ ................ ................ ................ ................ ................
Other adjustments ............................................................................................................. ................ ................ ................ ................ ................ ................ ................
Total, change in fund balance ......................................................................................... –1.0 –0.2 –1.5 0.6 1.0 1.3 1.6
Balance, end of year ................................................................................................................. 10.3 10.2 8.6 9.2 10.2 11.5 13.2
Memorandum commitments against balance, end of year:.
Obligated balances ................................................................................................................ 7.6 6.5 3.9 5.0 5.5 5.6 5.6
Unobligated balances ............................................................................................................ 1.0 1.7 1.6 0.4 ................ ................ ................
Total commitments .................................................................................................................... 8.6 8.2 5.5 5.4 5.5 5.6 5.6
Uncommitted balance, end of year ........................................................................................... 1.8 2.0 3.1 3.8 4.7 5.9 7.5
Federal Civilian Employees Retirement Funds

Income:
Proprietary receipts ............................................................................................................... ................ ................ ................ ................ ................ ................ ................
Interest ............................................................................................................................... 37.2 42.9 44.6 45.5 46.6 47.0 46.3
Other .................................................................................................................................. 46.9 50.1 53.4 56.2 59.7 63.3 67.4
Subtotal, income ........................................................................................................... 88.5 97.7 102.6 106.5 111.1 115.2 118.6
Outgo:
To the public ......................................................................................................................... 58.7 62.3 65.0 67.4 69.7 71.8 74.0
Payments to Other funds ...................................................................................................... ................ 23.01 ................ ................ ................ ................ ................
Subtotal, outgo ............................................................................................................. 58.7 85.3 65.0 67.4 69.7 71.8 74.0
Excluding interest .............................................................................................................. –7.5 –30.5 –7.0 –6.5 –5.1 –3.6 –1.6
Interest ............................................................................................................................... 37.2 42.9 44.6 45.5 46.6 47.0 46.3
Adjustments:
Other adjustments ............................................................................................................. ................ * * ................ ................ ................ ................
Table 22–4. INCOME, OUTGO, AND BALANCES OF MAJOR TRUST FUNDS—Continued

Estimate
2006
Actual 2007 2008 2009 2010 2011 2012
Federal Employees Health Benefits Fund

Income:
Governmental receipts .......................................................................................................... ................ ................ ................ ................ ................ ................ ................
Interest ............................................................................................................................... 0.6 0.7 0.7 0.8 0.8 0.8 0.9
Other .................................................................................................................................. 23.9 24.7 26.3 28.1 30.2 32.7 34.8
Subtotal, income ........................................................................................................... 33.5 34.8 37.1 39.6 42.6 46.1 49.1
Outgo:
To the public ......................................................................................................................... 31.3 33.2 36.4 39.0 41.9 45.0 48.3
Subtotal, outgo ............................................................................................................. 31.3 33.2 36.4 39.0 41.9 45.0 48.3
Excluding interest .............................................................................................................. 1.7 0.9 –* –0.1 –0.2 0.2 –*
Interest ............................................................................................................................... 0.6 0.7 0.7 0.8 0.8 0.8 0.9
Adjustments:
Foreign Military Sales Trust Fund

Income:
Interest ............................................................................................................................... ................ ................ ................ ................ ................ ................ ................
Other .................................................................................................................................. ................ ................ ................ ................ ................ ................ ................
Subtotal, income ........................................................................................................... 14.2 15.1 13.1 11.4 11.7 11.9 12.1
Outgo:
To the public ......................................................................................................................... 13.0 15.1 13.1 11.4 11.7 11.9 12.1
Subtotal, outgo ............................................................................................................. 13.0 15.1 13.1 11.4 11.7 11.9 12.1
Excluding interest .............................................................................................................. 1.2 ................ ................ ................ ................ ................ ................
Interest ............................................................................................................................... ................ ................ ................ ................ ................ ................ ................
Subtotal, surplus or deficit (–) ...................................................................................... 1.2 ................ ................ ................ ................ ................ ................
Adjustments:
Total, change in fund balance ......................................................................................... 1.2 ................ ................ ................ ................ ................ ................

Estimate
2006
Actual 2007 2008 2009 2010 2011 2012
Highway Trust Fund

Balance, start of year ................................................................................................................ 12.5 15.1 15.8 12.2 6.8 * –7.0
Income:
Proprietary receipts ............................................................................................................... * * * * * * *
Interest ............................................................................................................................... ................ ................ ................ ................ ................ ................ ................
Other .................................................................................................................................. 0.1 0.1 0.2 0.1 0.1 0.2 0.2
Subtotal, Income ........................................................................................................... 38.5 39.9 41.0 42.1 42.8 43.5 44.1
Outgo:
To the public ......................................................................................................................... 36.0 39.1 44.4 47.4 49.7 50.5 51.6
Subtotal, Outgo ............................................................................................................. 36.0 39.1 44.4 47.4 49.7 50.5 51.6
Surplus or deficit:
Excluding interest .............................................................................................................. 2.5 0.7 –3.3 –5.4 –6.8 –7.0 –7.5
Interest ............................................................................................................................... ................ ................ ................ ................ ................ ................ ................
Subtotal, surplus or deficit ........................................................................................... 2.5 0.7 –3.3 –5.4 –6.8 –7.0 –7.5
Adjustments:
Transfers/lapses (net) ....................................................................................................... –* –* –0.3 ................ ................ ................ ................
Total, Change in fund balance ......................................................................................... 2.5 0.7 –3.6 –5.4 –6.8 –7.0 –7.5
Balance, End of Year ................................................................................................................ 15.1 15.8 12.2 6.8 * –7.0 –14.5
Medicare: Hospital Insurance (HI) Trust Fund

Income:
Interest ............................................................................................................................... 15.4 15.2 16.0 17.5 18.8 20.3 21.9
Other .................................................................................................................................. 14.5 15.3 17.2 18.4 20.2 22.2 24.2
Subtotal, income ........................................................................................................... 212.4 221.0 237.4 250.4 266.3 282.6 298.4
Outgo:
To the public ......................................................................................................................... 186.9 208.1 214.6 226.3 237.7 256.7 260.7
Payments to Other funds ...................................................................................................... ................ * * * * * 0.1
Subtotal, outgo ............................................................................................................. 186.9 208.2 214.6 226.3 237.7 256.7 260.8
Excluding interest .............................................................................................................. 10.1 –2.4 6.8 6.5 9.8 5.6 15.7
Interest ............................................................................................................................... 15.4 15.2 16.0 17.5 18.8 20.3 21.9
Adjustments:
Other adjustments ............................................................................................................. –* ................ ................ ................ ................ ................ ................

Estimate
2006
Actual 2007 2008 2009 2010 2011 2012
Medicare: Supplementary Medical Insurance (SMI) Trust Fund

Income:
Interest ............................................................................................................................... 1.5 2.0 2.5 2.7 2.9 3.0 3.2
Other .................................................................................................................................. 162.6 175.7 186.1 194.2 206.9 224.0 237.9
Subtotal, income ........................................................................................................... 211.3 236.8 252.2 266.0 284.4 307.6 328.6
Outgo:
To the public ......................................................................................................................... 194.9 228.2 245.9 262.5 282.0 310.5 319.8
Payments to Other funds ...................................................................................................... ................ * * * * * 0.1
Subtotal, outgo ............................................................................................................. 194.9 228.2 245.9 262.5 282.0 310.5 319.9
Excluding interest .............................................................................................................. 14.9 6.6 3.8 0.7 –0.5 –6.0 5.5
Interest ............................................................................................................................... 1.5 2.0 2.5 2.7 2.9 3.0 3.2
Subtotal, surplus or deficit (–) ...................................................................................... 16.4 8.6 6.3 3.4 2.4 –2.9 8.6
Adjustments:
Other adjustments ............................................................................................................. * ................ ................ ................ ................ ................ ................
Total, change in fund balance ......................................................................................... 16.4 8.6 6.3 3.4 2.4 –2.9 8.6
Military Retirement Fund

Income:
Interest ............................................................................................................................... 13.0 9.7 8.9 8.6 9.2 9.9 10.7
Other .................................................................................................................................. 39.4 42.2 44.3 46.4 48.1 50.0 51.7
Subtotal, income ........................................................................................................... 52.4 51.9 53.2 55.0 57.4 59.9 62.4
Outgo:
To the public ......................................................................................................................... 41.1 43.7 45.7 47.6 49.4 51.2 52.4
Subtotal, outgo ............................................................................................................. 41.1 43.7 45.7 47.6 49.4 51.2 52.4
Interest ............................................................................................................................... 13.0 9.7 8.9 8.6 9.2 9.9 10.7
Adjustments:

Estimate
2006
Actual 2007 2008 2009 2010 2011 2012
Railroad Retirement Trust Funds

Income:
Interest ............................................................................................................................... * 0.1 0.1 0.1 0.1 0.1 0.1
Other .................................................................................................................................. 0.5 0.5 0.5 0.5 0.5 0.6 0.6
Receipts from Trust funds .................................................................................................... 4.8 5.2 5.3 5.4 5.7 6.2 6.0
Subtotal, income ........................................................................................................... 12.2 12.5 11.8 12.1 12.5 13.1 13.1
Outgo:
To the public ......................................................................................................................... 9.5 9.9 10.2 10.6 11.0 11.4 11.8
Payments to Other funds ...................................................................................................... 1.1 1.5 1.6 1.6 1.8 2.2 1.8
Subtotal, outgo ............................................................................................................. 10.6 11.4 11.8 12.2 12.8 13.6 13.6
Excluding interest .............................................................................................................. 1.5 1.0 –* –0.2 –0.4 –0.6 –0.6
Interest ............................................................................................................................... * 0.1 0.1 0.1 0.1 0.1 0.1
Subtotal, surplus or deficit (–) ...................................................................................... 1.6 1.1 * –0.1 –0.3 –0.6 –0.5
Adjustments:
Transfers/lapses (net) ....................................................................................................... * * * ................ ................ ................ ................
Total, change in fund balance ......................................................................................... 1.6 1.1 * –0.1 –0.3 –0.6 –0.5
Social Security: Old-Age, Survivors and Disability Insurance (OASDI) Trust Funds
Balance, start of year ................................................................................................................ 1,809.0 1,994.2 2,179.6 2,388.9 2,616.4 2,862.6 3,129.0
Income:
Proprietary receipts ............................................................................................................... * 0.1 0.1 0.1 0.1 0.1 0.1
Interest ............................................................................................................................... 97.7 106.2 114.6 124.8 136.5 149.3 162.1
Other .................................................................................................................................. 33.7 31.6 33.1 35.9 39.0 42.9 46.6
Subtotal, income ........................................................................................................... 739.8 772.1 821.8 872.1 928.8 988.0 1,044.1
Outgo:
To the public ......................................................................................................................... 549.6 581.8 607.7 639.8 677.6 716.5 789.6
Subtotal, outgo ............................................................................................................. 554.6 586.6 612.6 644.7 682.6 721.7 795.0
Interest ............................................................................................................................... 97.7 106.2 114.6 124.8 136.5 149.3 162.1
Adjustments:
Balance, end of year ................................................................................................................. 1,994.2 2,179.6 2,388.9 2,616.4 2,862.6 3,129.0 3,378.2

Estimate
2006
Actual 2007 2008 2009 2010 2011 2012
Unemployment Trust Fund

Income:
Proprietary receipts ............................................................................................................... * * * 0.6 0.6 0.5 0.5
Interest ............................................................................................................................... 2.7 3.3 3.9 4.6 5.1 5.5 5.9
Other .................................................................................................................................. 0.8 0.8 0.8 0.8 0.8 0.8 0.8
Subtotal, income ........................................................................................................... 47.0 49.1 50.0 50.6 51.8 53.2 54.8
Outgo:
To the public ......................................................................................................................... 35.2 35.8 37.8 39.2 41.3 43.1 44.8
Subtotal, outgo ............................................................................................................. 35.2 35.8 37.8 39.2 41.3 43.1 44.8
Interest ............................................................................................................................... 2.7 3.3 3.9 4.6 5.1 5.5 5.9
Adjustments:
Transfers/lapses (net) ....................................................................................................... –* –* –* ................ ................ ................ ................
Veterans Life Insurance Trust Funds

Income:
Interest ............................................................................................................................... 0.8 0.7 0.7 0.6 0.6 0.5 0.5
Other .................................................................................................................................. * * * * * * *
Subtotal, income ........................................................................................................... 1.3 1.2 1.1 1.1 1.0 0.9 0.8
Outgo:
To the public ......................................................................................................................... 1.7 1.7 1.7 1.7 1.6 1.6 1.6
Subtotal, outgo ............................................................................................................. 1.7 1.7 1.7 1.7 1.6 1.6 1.6
Interest ............................................................................................................................... 0.8 0.7 0.7 0.6 0.6 0.5 0.5
Subtotal, surplus or deficit (–) ...................................................................................... –0.4 –0.5 –0.5 –0.6 –0.7 –0.7 –0.7
Adjustments:
Other adjustments ............................................................................................................. –* * * ................ ................ ................ ................
Total, change in fund balance ......................................................................................... –0.4 –0.5 –0.5 –0.6 –0.7 –0.7 –0.7

Estimate
2006
Actual 2007 2008 2009 2010 2011 2012
Other Trust Funds

Income:
Interest ............................................................................................................................... 2.0 2.1 2.3 2.5 2.7 2.9 3.0
Other .................................................................................................................................. 12.2 12.1 15.2 12.3 12.2 12.2 12.5
Receipts adjustments ............................................................................................................ ................ ................ ................ ................ ................ ................ ................
Subtotal, income ........................................................................................................... 23.2 23.6 27.2 24.6 25.0 25.5 26.2
Outgo:
To the public ......................................................................................................................... 19.5 20.8 21.1 21.1 21.1 21.5 21.9
Subtotal, outgo ............................................................................................................. 20.2 21.5 24.2 21.4 21.5 21.9 22.3
Excluding interest .............................................................................................................. 1.0 –0.1 0.7 0.7 0.9 0.8 0.9
Interest ............................................................................................................................... 2.0 2.1 2.3 2.5 2.7 2.9 3.0
Adjustments:
Transfers/lapses (net) ....................................................................................................... * * * ................ ................ ................ ................
Other adjustments ............................................................................................................. –* –* –* ................ ................ ................ ................
1 This amount reflects a payment from the Civil Service Retirement and Disability Fund to the newly-created Postal Service Retiree Health Benefits Fund at the Office of Per-
sonnel Management as required by the Postal Accountability and Enhancement Act (P.L. 109-435).
Note: Balances shown include committed and uncommitted cash balances.
Table 22–5. INCOME, OUTGO, AND BALANCES OF SELECTED FEDERAL FUNDS

Estimate
2006
Actual 2007 2008 2009 2010 2011 2012
Abandoned Mine Reclamation Fund

Income:
Interest ............................................................................................................................... 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Other .................................................................................................................................. ................ ................ ................ ................ ................ ................ ................
Subtotal, income ........................................................................................................... 0.4 0.4 0.4 0.4 0.4 0.4 0.4
Outgo:
To the public ......................................................................................................................... 0.3 0.3 0.3 0.3 0.3 0.3 0.3
Subtotal, outgo ............................................................................................................. 0.3 0.3 0.3 0.3 0.3 0.3 0.3
Excluding interest .............................................................................................................. * * –* –0.1 –0.1 –* –0.1
Interest ............................................................................................................................... 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Adjustments:
National Credit Union Share Insurance Fund

Income:
Interest ............................................................................................................................... 0.2 0.3 0.3 0.3 0.3 0.3 0.4
Other .................................................................................................................................. * ................ ................ ................ ................ ................ ................
Subtotal, income ........................................................................................................... 0.4 0.5 0.5 0.6 0.5 0.6 0.6
Outgo:
To the public ......................................................................................................................... 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Subtotal, outgo ............................................................................................................. 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Excluding interest .............................................................................................................. * 0.1 0.1 0.1 0.1 0.1 0.1
Interest ............................................................................................................................... 0.2 0.3 0.3 0.3 0.3 0.3 0.4
Adjustments:
Table 22–5. INCOME, OUTGO, AND BALANCES OF SELECTED FEDERAL FUNDS—Continued

Estimate
2006
Actual 2007 2008 2009 2010 2011 2012
Overseas Private Investment Corporation

Income:
Proprietary receipts ............................................................................................................... 0.1 * * * * * *
Interest ............................................................................................................................... 0.2 0.2 0.2 0.2 0.2 0.2 0.2
Other .................................................................................................................................. * * * * * * *
Subtotal, income ........................................................................................................... 0.3 0.2 0.3 0.3 0.3 0.3 0.3
Outgo:
To the public ......................................................................................................................... * 0.1 0.1 0.1 0.1 0.1 0.1
Subtotal, outgo ............................................................................................................. * 0.1 0.1 0.1 0.1 0.1 0.1

Excluding interest .............................................................................................................. 0.1 –0.1 –* –* –0.1 –* –*
Interest ............................................................................................................................... 0.2 0.2 0.2 0.2 0.2 0.2 0.2
Adjustments:
Transfers/lapses (net) ....................................................................................................... –* –* –0.1 ................ ................ ................ ................
Pension Benefit Guaranty Corporation

Income:
Interest ............................................................................................................................... 3.9 0.7 0.7 0.7 0.8 0.8 0.8
Other .................................................................................................................................. ................ ................ ................ ................ ................ ................ ................
Subtotal, income ........................................................................................................... 7.1 4.5 4.2 7.2 8.2 8.7 9.3
Outgo:
To the public ......................................................................................................................... 4.4 4.8 5.3 6.3 7.2 7.8 8.4
Subtotal, outgo ............................................................................................................. 4.4 4.8 5.3 6.3 7.2 7.8 8.4
Excluding interest .............................................................................................................. –1.3 –1.0 –1.8 0.2 0.3 0.1 0.1
Interest ............................................................................................................................... 3.9 0.7 0.7 0.7 0.8 0.8 0.8
Subtotal, surplus or deficit (–) ...................................................................................... 2.6 –0.3 –1.1 1.0 1.0 0.9 0.9
Adjustments:
Total, change in fund balance ......................................................................................... 2.6 –0.3 –1.1 1.0 1.0 0.9 0.9
Table 22–5. INCOME, OUTGO, AND BALANCES OF SELECTED FEDERAL FUNDS—Continued

Estimate
2006
Actual 2007 2008 2009 2010 2011 2012
Uniformed services retiree health care fund

Income:
Interest ............................................................................................................................... 3.8 3.8 5.0 6.3 7.8 9.4 11.1
Other .................................................................................................................................. 27.8 27.2 27.4 29.0 30.4 32.0 33.5
Subtotal, Income ........................................................................................................... 31.5 31.0 32.4 35.3 38.2 41.4 44.6
Outgo:
To the public ......................................................................................................................... 7.1 7.7 8.3 8.9 9.7 10.4 11.3
Subtotal, Outgo ............................................................................................................. 7.1 7.7 8.3 8.9 9.7 10.4 11.3
Surplus or deficit:
Interest ............................................................................................................................... 3.8 3.8 5.0 6.3 7.8 9.4 11.1
Subtotal, surplus or deficit ........................................................................................... 24.5 23.3 24.1 26.4 28.5 30.9 33.3
Adjustments:
Transfers/lapses (net) ....................................................................................................... ................ 0.2 ................ ................ ................ ................ ................
Total, Change in fund balance ......................................................................................... 24.5 23.5 24.1 26.4 28.5 30.9 33.3
Balance, End of Year ................................................................................................................ 84.7 108.1 132.2 158.6 187.1 218.1 251.4
Note: Balances shown include committed and uncommitted cash balances.
23. OFF–BUDGET FEDERAL ENTITIES AND NON–BUDGETARY ACTIVITIES
The Federal Government’s activities have far-reach- Off-Budget Federal Entities

ing impacts, affecting the economy and society of the The Federal Government has used the unified budget
Nation and the world. One of the primary activities concept as the foundation for its budgetary analysis
of the Government is to allocate resources to meet the and presentation since the 1969 Budget. This concept
Nation’s needs. The budget is a financial plan for pro- was developed by the President’s Commission on Budg-
posing, deciding, and controlling the allocation of re- et Concepts in 1967. It calls for the budget to include
sources by the Federal Government. Those Federal fi- all the Federal Government’s programs and all the fis-
nancial activities that affect the Government’s alloca- cal transactions of these programs with the public.
tion of resources in a measurable way are characterized Every year since 1971, however, at least one Federal
as ‘‘budgetary.’’ entity that would otherwise be included in the budget
Those Federal activities that do not involve the Gov- has been declared to be off-budget by law. Such off-
ernment’s direct allocation of resources are character- budget Federal entities are federally owned and con-
ized as ‘‘non-budgetary’’ and classified outside of the trolled, but their transactions are excluded from the
budget. For example, the budget does not include funds on-budget totals by law. When a Federal entity is off-
that are privately owned, such as the deposit funds budget by law, its receipts, outlays, and surplus or def-
owned by Native American Indians, even though those icit are separated from the on-budget receipts, outlays,
funds are held and managed by the Government in and surplus or deficit; and its budget authority is also
a fiduciary capacity. In addition, the budget does not separated from the total budget authority for the on-
include costs that are borne by the private sector rather budget Federal entities. Federal entities that are off-
than the Government even though those costs result budget by law are distinct from entities that are non-
from Federal activity, such as regulatory activity. Also, budgetary, as discussed below.
the budget includes the subsidy costs of Federal loan Off-budget Federal entities conduct programs of the
programs, but excludes other cash flows related to these same type as on-budget entities, and the programs they
programs because they do not reflect an allocation of conduct result in the same kind of spending and re-
resources, as explained below. Although non-budgetary, ceipts as on-budget entities. For this reason, most of
some of these activities are important instruments of the tables in the budget include both on-budget and
Federal policy and are discussed in other parts of the off-budget amounts separately and in combination, or
budget along with relevant financial data; they are also as a total amount.
discussed further in the section of this chapter on non- The off-budget Federal entities currently consist of
budgetary activities. the two Social Security trust funds, old-age and sur-
The term ‘‘off-budget’’ may appear to be synonymous vivors insurance and disability insurance, and the Post-
with ‘‘non-budgetary.’’ However, the term ‘‘off-budget’’ al Service fund. Social Security was classified off-budget
has a meaning distinct from ‘‘non-budgetary’’ and refers as of 1986 and the Postal Service fund in 1989. A
to Federal Government activities that are required by number of other entities that had been declared off-
budget by law at different times before 1986 have been
law to be excluded from the budget totals. The ‘‘unified’’
classified on-budget by law since at least 1985.
budget of the Federal Government reflects this legal
Table 23–1 divides total Federal Government re-
distinction between ‘‘on-budget’’ and ‘‘off-budget’’ enti-
ceipts, outlays, and the surplus or deficit between on-
ties by showing outlays and receipts for both types of budget and off-budget amounts. Within this table, the
entities separately. Although there is a legal distinction Social Security and Postal Service transactions are clas-
between on-budget and off-budget entities, there is no sified as off-budget for all years in order to provide
conceptual difference between the two. The off-budget a consistent comparison over time. Entities that were
Federal entities engage in the same basic activities of off-budget at one time, but are now on-budget, are clas-
government as the on-budget entities and off-budget sified as on-budget for all years.
spending channels economic resources toward par- Because Social Security is off-budget, the off-budget
ticular uses in the same way as does on-budget spend- accounts comprise a significant part of total Federal
ing. The unified budget reflects the conceptual simi- spending and receipts. In 2008, off-budget receipts are
larity between on-budget and off-budget entities by an estimated 25 percent of total receipts, and off-budget
showing outlays and receipts for both types of entities outlays are a smaller, but still significant, percentage
combined. Off-budget spending and receipts are dis- of total outlays at 16 percent. The estimated unified
cussed further in the following section on off-budget budget deficit in 2008 is $239 billion—a $451 billion
Federal entities. on-budget deficit partly offset by a $212 billion off-budg-
et surplus. The off-budget surplus consists almost en-
357
tirely of the Social Security surplus. Social Security loans or guarantee private loans. The Federal Credit
had small deficits or surpluses from its inception Reform Act of 1990 refined how the costs of credit pro-
through the early 1980s, but since the middle 1980s grams are recorded in the budget by defining as budg-
it has had a large and growing surplus. However, under etary the subsidies provided by the credit programs
present law, the surplus is eventually estimated to de- and classifying the other credit cash flows as non-budg-
cline, turn into a deficit within approximately ten years etary.
and never reach balance again. The long-term challenge When the Government makes a loan, it generates
of Social Security is addressed briefly in a chapter of a financial asset that will produce future cash inflows
the main Budget volume, ‘‘The Nation’s Fiscal Outlook,’’ for the Government as the loan is repaid. When the
and in Chapter 13 of this volume, ‘‘Stewardship.’’ Government guarantees a loan made by a non-Federal
lender, it acquires a contingent liability that may re-
Non-Budgetary Activities quire a cash outflow in a future year. Prior to the
Some important Federal activities are characterized Credit Reform Act, the budget treated the full amount
as non-budgetary because they do not involve the allo- of a Federal loan as a cost and an outlay at the time
cation of resources by the Federal Government or they the loan was made, and treated the future repayments
allocate resources in a way that is indirect. The Budget of principal and interest as receipts. Similarly, the
does not reflect these indirect economic and financial budget did not record the cash outflows for loan guaran-
effects. tees as a cost and an outlay until the loan defaulted,
and the Government had to fulfill its guarantee com-
Federal credit: budgetary and non-budgetary mitment.
transactions.—Federal credit programs make direct
TABLE 23–1. COMPARISON OF TOTAL, ON-BUDGET, AND OFF-BUDGET TRANSACTIONS 1

Receipts Outlays Surplus or deficit (–)

Fiscal Year
Total On-budget Off-budget Total On-budget Off-budget Total On-budget Off-budget
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 ............................................................. 1,032.1 750.4 281.7 1,253.1 1,028.1 225.1 –221.0 –277.6 56.6
1991 ............................................................. 1,055.1 761.2 293.9 1,324.3 1,082.6 241.7 –269.2 –321.4 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 ............................................................. 1,154.5 842.5 311.9 1,409.5 1,142.9 266.6 –255.1 –300.4 45.3
1994 ............................................................. 1,258.7 923.7 335.0 1,461.9 1,182.5 279.4 –203.2 –258.8 55.7
1995 ............................................................. 1,351.9 1,000.9 351.1 1,515.9 1,227.2 288.7 –164.0 –226.4 62.4
1996 ............................................................. 1,453.2 1,085.7 367.5 1,560.6 1,259.7 300.9 –107.4 –174.0 66.6
1997 ............................................................. 1,579.4 1,187.4 392.0 1,601.3 1,290.7 310.6 –21.9 –103.2 81.4
1998 ............................................................. 1,722.0 1,306.2 415.8 1,652.7 1,336.1 316.6 69.3 –29.9 99.2
1999 ............................................................. 1,827.6 1,383.2 444.5 1,702.0 1,381.3 320.8 125.6 1.9 123.7
2000 ............................................................. 2,025.5 1,544.9 480.6 1,789.2 1,458.5 330.8 236.2 86.4 149.8
2001 ............................................................. 1,991.4 1,483.9 507.5 1,863.2 1,516.4 346.8 128.2 –32.4 160.7
2002 ............................................................. 1,853.4 1,338.1 515.3 2,011.2 1,655.5 355.7 –157.8 –317.4 159.7
2003 ............................................................. 1,782.5 1,258.7 523.8 2,160.1 1,797.1 363.0 –377.6 –538.4 160.8
2004 ............................................................. 1,880.3 1,345.5 534.7 2,293.0 1,913.5 379.5 –412.7 –568.0 155.2
2005 ............................................................. 2,153.9 1,576.4 577.5 2,472.2 2,070.0 402.2 –318.3 –493.6 175.3
2006 ............................................................. 2,407.3 1,798.9 608.4 2,655.4 2,233.4 422.1 –248.2 –434.5 186.3
2007 estimate .............................................. 2,540.1 1,906.0 634.1 2,784.3 2,333.0 451.3 –244.2 –427.0 182.8
2008 estimate .............................................. 2,662.5 1,988.4 674.1 2,901.9 2,439.3 462.5 –239.4 –450.9 211.6
2009 estimate .............................................. 2,798.3 2,086.9 711.4 2,985.5 2,499.7 485.8 –187.2 –412.7 225.6
2010 estimate .............................................. 2,954.7 2,201.4 753.3 3,049.1 2,540.5 508.6 –94.4 –339.1 244.7
2011 estimate .............................................. 3,103.6 2,307.8 795.8 3,157.3 2,625.8 531.5 –53.8 –318.0 264.3
2012 estimate .............................................. 3,307.3 2,472.0 835.3 3,246.3 2,659.1 587.2 61.0 –187.1 248.1
1 Off-budget transactions consist of the Social Security trust funds and the Postal Service fund.
23. OFF–BUDGET FEDERAL ENTITIES AND NON–BUDGETARY ACTIVITIES 359
Under the Credit Reform Act, beginning in 1992, the discussed in Chapter 7 of this volume, ‘‘Credit and In-
budgetary costs of direct loans and loan guarantees surance.’’
are measured as the net present value of estimated
cash outflows from the Government less the present Deposit funds.—Deposit funds are non-budgetary ac-
value of estimated cash inflows to the Government. The counts that record amounts held by the Government
cash flows are discounted at the Government’s cost of temporarily until ownership is determined (such as ear-
borrowing. The costs are recorded in the budget at the nest money paid by bidders for mineral leases) or held
time the Government makes a loan or guarantees a by the Government as an agent for others (such as
loan made by a non-Federal lender. A group of loans State income taxes withheld from Federal employees’
that is expected to repay exactly what it costs the Gov- salaries and not yet paid to the States). The largest
ernment to finance would have zero net cost and, under deposit fund is the Government Securities Investment
the Credit Reform Act, no effect on Government out- Fund, which is also known as the G Fund. It is one
lays. The same is true for a group of non-Federal loans of several investment funds managed by the Federal
that is guaranteed by the Government and for which Retirement Thrift Investment Board, as an agent, for
upfront fees offset the cost of defaults. However, if the Federal employees who participate in the Government’s
Government provides a subsidy, by charging below-mar- defined contribution retirement plan, the Thrift Savings
Plan (TSP). Because the G Fund assets, which are held
ket interest rates or fees that are less than the cost
by the Department of the Treasury, are the property
of the defaults, or by paying interest subsidies to non-
of Federal employees and are held by the Government
Federal lenders, the Government incurs a budgetary
only in a fiduciary capacity, the transactions of the
cost, which also is measured on a present value basis.
Fund are not transactions of the Government itself and
This cost is similar to the net outlays of other Federal are non-budgetary. The administrative functions of the
programs and, under the Credit Reform Act, is included Thrift Investment Board are carried out by Government
in the budget as an outlay of a credit ‘‘program’’ ac- employees, and are, therefore, included in the budget
count. on a reimbursable basis. For similar reasons, the budg-
All of the cash transactions with the public that re- et excludes funds that are owned by Native American
sult from Government credit programs—the disburse- Indians, but held and managed by the Government in
ment and repayment of loans, the payment of default a fiduciary capacity.
claims on guarantees, and the collection of interest and The Social Security voluntary personal retirement ac-
fees—are recorded in credit ‘‘financing’’ accounts. These counts proposed by the Administration would be owned
financing accounts also receive payments from the cred- by individuals, not the Government. If the proposal is
it program accounts for the costs of direct loans and adopted, contributions into the accounts will be re-
loan guarantees. The net transactions of the financing corded as outlays, but the accounts themselves would
accounts—i.e., the cash transactions with the public be non-budgetary. If these accounts were held by the
less the amounts received from the program accounts— Government, it would be only in a fiduciary capacity,
are not costs or outlays to the Government. Therefore, and the accounts would be classified as deposit funds.
the financing accounts are non-budgetary and excluded Deposit funds are further discussed in a section of
from the budget under the Credit Reform Act. 1 Trans- Chapter 26 of this volume, ‘‘The Budget System and
actions of the financing accounts do, however, affect Concepts.’’
the Government’s borrowing requirements, as explained
in Chapter 16 of this volume, ‘‘Federal Borrowing and Tax expenditures.— The Federal tax system in-
Debt.’’ cludes numerous special tax exclusions, exemptions, de-
Since credit reform, the budget outlays of credit pro- ductions, and similar provisions that have been added
grams reflect only the subsidy costs of Government to the tax code over time. These provisions affect re-
credit, thus measuring accurately the cost of credit deci- source allocation and income distribution in ways that
sions, and record this cost when the credit assistance are similar to spending programs. Because of this simi-
is provided. This enables the budget to fulfill its pur- larity, these provisions are referred to as ‘‘tax expendi-
pose of being a financial plan for allocating resources tures.’’ Unlike typical spending programs, however, tax
among alternative uses by comparing the cost of a pro- expenditures reduce receipts rather than increase out-
gram with its benefits, comparing the cost of credit lays. Measuring tax expenditures requires specifying a
programs with the cost of other spending programs, hypothetical ‘‘baseline’’ tax system, which as noted
and comparing the cost of one type of credit assistance below can be highly subjective. Because of the subjec-
with the cost of another type. 2 Credit programs are tivity in determining what is a tax expenditure and
because of the difficulties in measuring them, tax ex-
1 See§505(b) of the Federal Credit Reform Act of 1990.
2 For more explanation of the budget concepts for direct loans and loan guarantees, see penditures are treated as non-budgetary.
the sections on Federal credit and credit financing accounts in Chapter 26 of this volume, Tax expenditures are discussed in Chapter 19 of this
‘‘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 volume, ‘‘Tax Expenditures.’’ Chapter 19 presents esti-
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
mates for tax expenditures associated with the indi-
United States Government, Fiscal Year 1997, pp. 142–44. Refinements and simplifications vidual and corporate income taxes, and discusses how
enacted by the Balanced Budget Act of 1997 or provided by later OMB guidance are ex-
plained in Chapter 8, ‘‘Underwriting Federal Credit and Insurance,’’ Analytical Perspectives,
tax expenditures compare with spending programs and
Budget of the United States Government, Fiscal Year 1999, p. 170. regulation as alternative methods for achieving policy
objectives. The chapter explains that the baseline con- the budget reflects the cost to the Government of con-
cepts used to identify and measure tax expenditures ducting regulatory activities, the costs imposed on the
are somewhat arbitrary. As the chapter notes, the mag- private sector as a result of the regulation are treated
nitude and distribution of tax expenditures would be as non-budgetary. The Government’s regulatory prior-
significantly different if measured relative to a com- ities and plans are described in the annual Regulatory
prehensive income tax or a comprehensive consumption Plan and the semi-annual Unified Agenda of Federal
tax. The current tax expenditure baseline is loosely pat- Regulatory and Deregulatory Actions. 3
terned on a comprehensive income tax, but departs Although not included in the budget, the estimated
from that standard in a number of areas. The appendix costs and benefits of Federal regulation have been pub-
to Chapter 19 provides a critique of the current tax lished annually by the Office of Management and Budg-
expenditure presentation and attempts to answer three et (OMB) since 1997. The latest report was released
questions: (1) what would be tax expenditures if a com-
in January 2007. 4 The report estimates the total costs
prehensive income tax were used as the baseline with-
out any departures from such a standard; (2) what and benefits of major Federal regulations reviewed by
would be the tax expenditures if a comprehensive con- OMB from October 1995 through September 2005, and
sumption tax were used to define the baseline; and the impact of Federal regulation on State, local, and
(3) what are the negative tax expenditures under the tribal governments. It also reviews the international
current system. Negative tax expenditures are provi- literature on the effects of regulation on national eco-
sions that cause people to pay more tax than they nomic growth and performance, provides an update on
would under a baseline—such as the failure to adjust various initiatives to improve regulatory cooperation
interest, capital gains, and depreciation for inflation. internationally, provides an update on the status of
Hypothetically, tax expenditures could be included in regulatory reforms resulting from three public nomina-
the budget by measuring receipts as the sum of actual tion initiatives in 2001, 2002, and 2004, and includes
receipts plus tax expenditures receipts, and measuring a report on Agency Compliance with the Unfunded
outlays as the sum of actual outlays plus tax expendi- Mandates Reform Act of 1995. The draft of the 2007
tures. The budget could then show the allocation of report will be published in February 2007 for public
resources to education, housing or other purposes comment.
through the combined effect of tax expenditures and
spending programs. Receipts and outlays would be in- Indirect Macroeconomic Effects of Federal Activ-
creased by the same amount, so this change in display ity.—Government activity has many effects on the Na-
would have no impact on the deficit. However, as noted tion’s economy that extend beyond the amounts re-
above, the difficulty in identifying and measuring tax corded in the budget. Government expenditures, tax-
expenditures makes it impractical to include tax ex- ation, tax expenditures, regulation and trade policy can
penditures in the budget. all affect the allocation of resources among private uses
and income distribution among individuals. These ef-
Government-sponsored enterprises.—The Federal fects, resulting indirectly from Federal activity, are gen-
Government chartered several Government-sponsored erally not part of the budget, but the most important
enterprises (GSEs), such as Fannie Mae, Freddie Mac, of them are discussed in this volume and in the main
and the Farm Credit Banks, to provide financial inter-
Budget volume.
mediation for specified public purposes. The GSEs are
excluded from the budget because they are privately
owned and controlled. However, because they were es-
tablished by the Federal Government for public-policy
purposes and because they still serve such purposes
to some extent, 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.’’ 3 The most recent Regulatory Plan and introduction to the Unified Agenda were issued
by the General Services Administration’s Regulatory Information Service Center and were
printed in the Federal Register of December 11, 2006 (vol. 71, no. 237). Both the Regulatory
Regulation.—Government regulation often requires Plan and Unified Agenda are available on-line at www.reginfo.gov and at www.gpoaccess.gov.
the private sector to make expenditures for specified 4 Office of Information and Regulatory Affairs, Office of Management and Budget, Vali-
dating Regulatory Analysis: 2006 Report to Congress on the Costs and Benefits of Federal
purposes, such as safety and pollution control. Although Regulations and Unfunded Mandates on State, Local, and Tribal Entities (2006).
24. FEDERAL EMPLOYMENT AND COMPENSATION
This section provides information on civilian and mili- significant growth in its workforce as a part of the
tary employment in the Executive, Legislative, and Ju- Administration’s efforts to increase border security and
dicial branches. It also provides information on per- to improve interior enforcement of our Nation’s immi-
sonnel compensation and benefits and on overseas staff- gration laws. ICE has hired new detention and removal
ing presence. New this year is a discussion on the full personnel to manage the significant growth in the num-
cost of military personnel. ber of detention beds and additional criminal investiga-
tors to increase worksite enforcement, to investigate
Measuring Federal Employment visa overstays and to combat cross-border smuggling
For budgetary purposes, civilian employment is meas- of aliens and goods. In addition, the United States Citi-
ured on the basis of full-time equivalents (FTEs). One zenship and Immigration Services is increasing adju-
FTE is equal to one work year (see OMB Circular A- dication and supporting staff as part of its effort to
11, Section 85). Put simply, one full-time employee more effectively meet the increasing applications for
counts as one FTE, and two half-time employees also immigration benefits and services. Lastly, there are in-
count as one FTE. creases for aviation and transportation security.
Department of Justice FTE increases are due to en-
Significant Changes in Civilian Employment hancements in critical law enforcement and
Table 24–1 shows Executive Branch civilian FTE (ex- counterterrorism related programs. The growth largely
cluding the U.S. Postal Service) growing by three per- occurs within the Federal Prison System as a result
cent between 2004 and 2008. The primary reason for of the growing federal prisoner population and in the
this growth continues to be mission increases for home- Federal Bureau of Investigation as it continues its
land security and the global war on terrorism. Signifi- transformation to meet both its law enforcement and
cant changes by agency are discussed below. counterterrorism responsibilities.
Within the Department of Commerce, the Bureau of Department of Transportation’s workforce growth
the Census is preparing for the 2010 Census. Census largely comes from the Federal Aviation Administration
will conduct a ‘‘dress rehearsal’’ in 2008. They will (FAA). The FAA plans to increase its FTE for the ‘‘Air
begin opening regional field offices to prepare for na- Traffic Organization’’ and ‘‘Safety and Operations’’ ac-
tionwide activities in 2009. Also, they will increase FTE counts in 2008 in order to annualize hiring made dur-
for the data collection phase of the Economic Census. ing 2006, increase personnel for the air traffic control
The U.S. Patent and Trademark Office requests addi- and safety workforces, and implement new directives
tional FTE in an effort to decrease processing times regarding contract oversight and homeland security.
for patent and trademark applications, both of which The Office of Personnel Management has gained FTE
are increasing. as it completes the transfer of security investigative
The Department of Energy is increasing its FTE as personnel from the Department of Defense to OPM.
it continues to oversee the Nation’s effort to improve
energy supply and conservation. Increases are also due Personnel Compensation and Benefits
to a change in the technical skills mix required for Table 24–4 displays personnel compensation and ben-
the National Nuclear Security Administration (NNSA). efits (in millions of dollars) for Federal civilian and
The NNSA aggressively shed staff several years ago military personnel of all branches of Government.
and is now adding back personnel who are better suited Direct compensation of the Federal civilian work force
to the current and future program of work. includes base pay and premium pay, such as overtime.
The Department of Health and Human Services is In addition, it includes other cash components, such
requesting additional FTE due to increased activities as geographic and other pay differentials (e.g., locality
in a number of program areas. The majority of the pay, and special pay adjustments for law enforcement
increase is due to the following: 1) Additional staff for officers), recruitment and relocation bonuses, retention
the Food and Drug Administration’s generic drug re- allowances, performance awards, and cost-of-living and
view and post-market drug safety activities; 2) Ex- overseas allowances. Military personnel compensation
panded staff at Indian Health Service health care facili- also includes special and incentive pays (e.g., enlist-
ties; 3) Increases in activities related to improved bio- ment and reenlistment bonuses), and allowances for
terrorism and pandemic influenza preparedness; and clothing, housing, and subsistence.
4) Increases in the Public Health Service Commissioned Personnel benefits for current employees consists of
Corps to form two new Health and Medical Response the cost to Government agencies for health insurance,
(HAMR) Teams. life insurance, Social Security (old age, survivors, dis-
Within the Department of Homeland Security, Immi- ability, and health insurance) contributions to the re-
gration and Customs Enforcement (ICE) has seen a tirement funds to finance future retirement benefits,
361
and other items. Compensation for former personnel the percentage of defense spending devoted to military
includes outlays for retirement pay benefits and the personnel at a near-constant level. In 1989, when there
Government’s share of the cost of health and life insur- were 800,000 more active duty military personnel on
ance. duty, military personnel costs constituted 27 percent
Military Compensation of the base budget. The percentage remains about 25
percent now.
Since 1989, military end strength has been decreas-
ing, but the cost per person has steadily risen keeping
Chart 24-1. Post Cold War End Strength and Spending

Constant dollars (billions) End strength (millions)
500 2.2
Military Personnel Costs End Strength
2.1
All Other DoD Costs
400 2.0
1.9
300 1.8
1.7
200 1.6
1.5
100 1.4
1.3
0 1.2
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
What has driven personnel costs higher? • Increased moving allowances and full replacement
• Increased basic pay by more than 28 percent dur- value for damaged property;
ing this administration alone; • Increased post-service benefits, which are financed
• Increased housing allowances to eliminate the av- by investing current funds to ensure money is
erage out-of-pocket housing costs (from approxi- available in the future;
mately 18 percent in the mid-1990s to zero today) • Increased special pays and bonuses, and the ex-
as well as the shift from set-percentage increases pansion of eligible populations;
to the use of surveys to set housing rates; • Increased tax law exemptions to allow service
• Increased health care benefits for both active and members to claim the Earned Income Tax Credit.
reserve forces (increased 95 percent between 2001 The following chart depicts the average Fiscal Year
2005 peacetime cost to the government of employing
and 2005);
service members:
• Increased education benefits for both active and
reserve forces;
24. FEDERAL EMPLOYMENT AND COMPENSATION 363
Chart 24-2. DoD Direct Compensation Costs

Fiscal Year 2005
Total: $138.5 billion
Cash Payments to
Members --
pay, allowances, special
pays, and $64.8 $59.8
tax advantage billion billion
$13.9
billion
In-Kind Payments to Accruing Costs of

Members -- Future Benefits --
health care, housing, tuition amounts needed to fund future
assistance, commissary benefits, including retirement,
benefits, child care, and other unemployment compensation,
subsidized benefits and health care
Basic Data: Department of Defense Program Analysis and Evaluation.
In addition to these costs, the Department of Defense be about $505,000, as reported by agencies with per-
spends more than $12 billion on non-compensation costs sonnel overseas. This total includes direct costs, such
for service members and families for facilities, training, as salary, benefits, and overseas allowances, and also
child education, and travel and more than $42 billion support costs, such as housing, educational costs for
for payments to retirees and survivors. The Department dependents, travel, administrative support, and Capital
of Veterans Affairs spends nearly $40 billion on medical Security Cost Sharing charges.
care, vocational rehabilitation, compensation, pensions, The Administration continues to work to improve the
education, home loans, burial and other services for safety, efficiency, and accountability in U.S. Govern-
as many at 70 million veterans and their families. ment staffing overseas through the Presidential Man-
The U.S. Overseas Staffing Presence agement Agenda initiative on a Right-sized Overseas
Presence. A component of this initiative is developing
There are over 65,000 permanent American and lo- transparent data on overseas staffing, including the
cally hired staff overseas under the authority of Chiefs
cost of maintaining positions overseas, and incor-
of Mission (e.g., Ambassadors or Charge d’ Affairs at
porating these data in the budget process to better in-
U.S. embassies worldwide). The average cost to support
an American position overseas in 2008 is projected to form decisions makers on overseas staffing levels.
Overseas Staffing Under Chief of Mission Authority*

Total Personnel
Overseas Total American
Under COM Average Cost of New Overseas
Personnel
Authority a U.S. Direct American
Overseas Under
(Including American Hire Overseas Positions Funded
COM
and Locally Estimated for in the President’s
Authority Projected
Engaged 2008 2008 Budget
for 2007
Staff) Projected
for 2007
65,250 15,400 $505,000 148

* As reported by agencies in their 2008 Budget submissions.
Table 24–1. FEDERAL CIVILIAN EMPLOYMENT IN THE EXECUTIVE BRANCH

(Civilian employment as measured by Full-Time Equivalents, in thousands)
Actual Estimate Change: 2004 to 2008

Agency
2004 2005 2006 2007 2008 FTE’s Percent
Cabinet agencies:
Agriculture ...................................................................................................................................... 100.5 99.6 97.0 96.9 92.2 –8.3 –8.3%
Commerce ..................................................................................................................................... 34.6 35.1 36.0 37.3 40.7 6.1 17.6%
Defense-military functions ............................................................................................................. 650.4 653.0 661.8 667.4 671.9 21.5 3.3%
Education ....................................................................................................................................... 4.4 4.3 4.2 4.2 4.2 –0.2 –4.5%
Energy ............................................................................................................................................ 15.1 14.9 14.7 15.5 16.0 0.9 6.0%
Health and Human Services ......................................................................................................... 59.3 59.3 59.1 59.5 61.5 2.2 3.7%
Homeland Security ........................................................................................................................ 137.3 143.3 144.4 150.3 157.2 19.9 14.5%
Housing and Urban Development ................................................................................................ 10.2 9.9 9.6 9.2 9.5 –0.7 –6.9%
Interior ............................................................................................................................................ 70.7 70.4 68.7 67.7 69.7 –1.0 –1.4%
Justice ............................................................................................................................................ 101.4 103.0 104.2 117.6 112.6 11.2 11.0%
Labor .............................................................................................................................................. 16.5 16.0 15.8 16.2 16.9 0.4 2.4%
State ............................................................................................................................................... 30.0 30.1 30.0 30.6 30.9 0.9 3.0%
Transportation ................................................................................................................................ 57.3 55.5 53.3 54.4 55.1 –2.2 –3.8%
Treasury ......................................................................................................................................... 113.6 110.0 107.7 108.4 109.0 –4.6 –4.0%
Veterans Affairs ............................................................................................................................. 218.7 222.0 222.6 225.4 226.5 7.8 3.6%
Other agencies—excluding Postal Service:
Agency for International Development ......................................................................................... 2.2 2.4 2.4 2.5 2.5 0.3 13.6%
Broadcasting Board of Governors ................................................................................................ 2.3 2.2 2.1 2.2 2.2 –0.1 –4.3%
Corps of Engineers—Civil Works ................................................................................................. 23.5 22.5 22.1 21.7 21.3 –2.2 –9.4%
Environmental Protection Agency ................................................................................................. 17.3 17.5 17.3 17.5 17.3 .................. ................
Equal Employment Opportunity Commmission ............................................................................ 2.5 2.4 2.2 2.4 2.4 –0.1 –4.0%
Federal Deposit Insurance Corporation ........................................................................................ 5.3 4.9 4.5 4.7 4.7 –0.6 –11.3%
General Services Administration ................................................................................................... 12.6 12.5 12.3 12.3 12.3 –0.3 –2.4%
National Aeronautics and Space Administration .......................................................................... 18.8 18.8 18.3 18.3 18.2 –0.6 –3.2%
National Archives and Records Administration ............................................................................ 2.8 2.8 2.8 2.8 2.8 .................. ................
National Labor Relations Board .................................................................................................... 1.9 1.8 1.8 1.8 1.7 –0.2 –10.5%
National Science Foundation ........................................................................................................ 1.3 1.3 1.3 1.3 1.4 0.1 7.7%
Nuclear Regulatory Commission .................................................................................................. 3.0 3.1 3.2 3.3 3.6 0.6 20.0%
Office of Personnel Management ................................................................................................. 2.8 3.6 4.3 4.9 4.9 2.1 75.0%
Peace Corps .................................................................................................................................. 1.1 1.0 1.1 1.2 1.1 .................. ................
Railroad Retirement Board ........................................................................................................... 1.1 1.0 1.0 1.0 1.0 –0.1 –9.1%
Securities and Exchange Commission ......................................................................................... 3.6 3.9 3.7 3.6 3.6 .................. ................
Small Business Administration ...................................................................................................... 3.4 4.1 5.9 3.2 3.2 –0.2 –5.9%
Smithsonian Institution .................................................................................................................. 5.1 5.1 5.0 5.0 5.3 0.2 3.9%
Social Security Administration ...................................................................................................... 63.9 64.6 63.7 59.9 59.8 –4.1 –6.4%
Tennessee Valley Authority .......................................................................................................... 12.0 12.6 13.1 13.3 13.3 1.3 10.8%
All other small agencies ................................................................................................................ 14.9 14.8 15.4 16.3 16.4 1.5 10.1%
Total, Executive Branch civilian employment * ........................................................................... 1,821.1 1,829.6 1,832.8 1,859.7 1,872.8 51.7 2.8%
Subtotal, Defense .............................................................................................................................. 650.4 653.0 661.8 667.4 671.9 21.5 3.3%
Subtotal, Non-Defense ...................................................................................................................... 1,170.7 1,176.6 1,171.0 1,192.3 1,200.9 30.2 2.6%
* Totals may not add due to rounding.
Table 24–2. TOTAL FEDERAL EMPLOYMENT

(As measured by total positions filled)
Actual as of September 30 Change: 2004 to 2006

Description
2004 2005 2006 Positions Percent
Executive branch civilian employment:

All agencies except Postal Service and Postal Rate Commission:
Full-time permanent ............................................................................................................................................ 1,662,990 1,663,043 1,668,529 5,539 0.3%
Other than full-time permanent .......................................................................................................................... 218,953 209,157 211,474 –7,479 –3.4%
Subtotal ........................................................................................................................................................... 1,881,943 1,872,200 1,880,003 –1,940 –0.1%
Postal Service: 1
Full-time permanent ................................................................................................................................................ 609,579 605,120 602,409 –7,170 –1.2%
Other than full-time permanent ............................................................................................................................... 158,083 159,090 155,058 –3,025 –1.9%
Subtotal ............................................................................................................................................................... 767,662 764,210 757,467 –10,195 –1.3%
Subtotal, Executive branch civilian employment .................................................................................................... 2,649,605 2,636,410 2,637,470 –12,135 –0.5%
Military personnel on active duty: 2

Department of Defense ........................................................................................................................................... 1,426,836 1,389,394 1,384,968 –41,868 –2.9%
Department of Homeland Security (USCG) ........................................................................................................... 40,230 40,710 41,145 915 2.3%
Commissioned Corps (EPA, HHS, NOAA) ............................................................................................................ 6,357 6,363 6,240 –117 –1.8%
Subtotal, military personnel ................................................................................................................................ 1,473,423 1,436,467 1,432,353 –41,070 –2.8%
Subtotal, Executive Branch ............................................................................................................................ 4,123,028 4,072,877 4,069,823 –53,205 –1.3%
Legislative branch:
Full-time permanent ................................................................................................................................................ 11,614 11,389 11,165 –449 –3.9%
Other than full-time permanent ............................................................................................................................... 18,435 19,427 18,321 –114 –0.6%
Subtotal, Legislative Branch ............................................................................................................................... 30,049 30,816 29,486 –563 –1.9%
Judicial Branch:
Full-time permanent ................................................................................................................................................ 30,537 30,765 30,577 40 0.1%
Other than full-time permanent ............................................................................................................................... 3,324 3,299 3,183 –141 –4.2%
Subtotal, Judicial Branch .................................................................................................................................... 33,861 34,064 33,760 –101 –0.3%
Grand total 3 ............................................................................................................................................................... 4,186,938 4,137,757 4,133,069 –53,869 –1.3%
ADDENDUM
Executive branch civilian personnel (excluding Postal Service):
DOD civilians—Military functions ............................................................................................................................ 644,251 648,590 652,716 8,465 1.3%
All other executive branch ...................................................................................................................................... 1,237,692 1,223,610 1,227,287 –10,405 –0.8%
Total .................................................................................................................................................................... 1,881,943 1,872,200 1,880,003 –1,940 –0.1%

1 Includes Postal Rate Commission.
2 Excludes reserve components.
3 Includes Summer Aides, Stay-in-school, Junior Fellowship, Worker-Trainee Opportunity, and disadvantage youth programs.
Table 24–3. TOTAL FEDERAL EMPLOYMENT

(As measured by Full-Time Equivalents)
Estimate Change: 2006 to 2008

2006
Description Actual 2007 2008 FTE’s Percent
Executive branch civilian personnel:

All agencies except Postal Service and Defense ...................................................................................................... 1,171,021 1,192,286 1,200,873 29,852 2.5%
Defense-Military functions (civilians) .......................................................................................................................... 661,789 667,385 671,923 10,134 1.5%
Subtotal, excluding Postal Service ......................................................................................................................... 1,832,810 1,859,671 1,872,796 39,986 2.2%
Postal Service 1 ........................................................................................................................................................... 736,382 716,451 704,645 –31,737 –4.3%
Subtotal, Executive Branch civilian personnel ....................................................................................................... 2,569,192 2,576,122 2,577,441 8,249 0.3%
Executive branch uniformed personnel: 2

Department of Defense ............................................................................................................................................... 1,384,968 1,378,084 1,369,350 –15,618 –1.1%
Department of Homeland Security (USCG) ............................................................................................................... 41,145 41,715 41,997 852 2.1%
Commissioned Corps (HHS, EPA, NOAA) ................................................................................................................ 6,240 6,337 6,603 363 5.8%
Subtotal, uniformed military personnel ................................................................................................................... 1,432,353 1,426,136 1,417,950 –14,403 –1.0%
Subtotal, Executive Branch .................................................................................................................................... 4,001,545 4,002,258 3,995,391 –6,154 –0.2%
Legislative Branch: Total FTE 3 ...................................................................................................................................... 31,294 32,408 32,813 1,519 4.9%
Judicial branch: Total FTE .............................................................................................................................................. 33,098 33,648 34,129 1,031 3.1%
Grand total ................................................................................................................................................................. 4,065,937 4,068,314 4,062,333 –3,604 –0.1%

1 IncludesPostal Rate Commission.
2 Military
personnel on active duty. Excludes reserve components.
3 FTE data not available for the Senate (positions filled were used).
TABLE 24–4. PERSONNEL COMPENSATION AND BENEFITS

Change: 2006 to 2008

2006 2007 2008
Description Actual Estimate Request Dollars Percent
Civilian personnel costs:

Executive Branch (excluding Postal Service):
Direct compensation:
DOD-military functions ........................................................................................................................................ 42,793 43,412 45,011 2,218 5.2%
All other executive branch ................................................................................................................................. 87,130 90,409 96,053 8,923 10.2%
Subtotal, direct compensation ....................................................................................................................... 129,923 133,821 141,064 11,141 8.6%

Personnel benefits:
DOD-military functions ........................................................................................................................................ 11,638 11,814 12,353 715 6.1%
All other executive branch ................................................................................................................................. 35,958 36,981 38,428 2,470 6.9%
Subtotal, personnel benefits .......................................................................................................................... 47,596 48,795 50,781 3,185 6.7%
Subtotal, Executive Branch ....................................................................................................................... 177,519 182,616 191,845 14,326 8.1%
Postal Service:
Direct compensation ............................................................................................................................................... 40,578 41,295 41,476 898 2.2%
Personnel benefits .................................................................................................................................................. 13,989 14,005 14,395 406 2.9%
Subtotal ............................................................................................................................................................... 54,567 55,300 55,871 1,304 2.4%
Legislative Branch: 1
Personnel benefits .................................................................................................................................................. 504 525 573 69 13.7%
Subtotal ............................................................................................................................................................... 2,346 2,392 2,582 236 10.1%
Judicial Branch:
Personnel benefits .................................................................................................................................................. 782 859 926 144 18.4%
Subtotal ............................................................................................................................................................... 3,431 3,719 3,911 480 14.0%
Total, civilian personnel costs ............................................................................................................................ 237,863 244,027 254,209 16,346 6.9%
Military personnel costs:

DOD—Military Functions:
Direct compensation ............................................................................................................................................... 78,325 85,222 88,774 10,449 13.3%
Personnel benefits .................................................................................................................................................. 42,615 40,114 41,673 –942 –2.2%
Subtotal ............................................................................................................................................................... 120,940 125,336 130,447 9,507 7.9%
All other executive branch, uniformed personnel:

Direct compensation .................................................................................................................................................... 2,579 2,709 2,957 378 14.7%
Personnel benefits ....................................................................................................................................................... 987 1,029 1,063 76 7.7%
Subtotal ................................................................................................................................................................... 3,566 3,738 4,020 454 12.7%
Total, military personnel costs 2 ......................................................................................................................... 124,506 129,074 134,467 9,961 8.0%
Grand total, personnel costs ....................................................................................................................................... 362,369 373,101 388,676 26,307 7.3%
ADDENDUM
Former Civilian Personnel:
Retired pay for former personnel ............................................................................................................................... 59,237 62,895 65,593 6,356 10.7%
Government payment for Annuitants:
Employee health benefits ................................................................................................................................... 8,360 8,615 9,138 778 9.3%
Employee life insurance ..................................................................................................................................... 41 41 41 .................. ................
Former Military personnel:
Retired pay for former personnel ............................................................................................................................... 41,233 43,831 45,846 4,613 11.2%
Military annuitants health benefits .............................................................................................................................. 7,076 7,680 8,286 1,210 17.1%
1 Excludes members and officers of the Senate.
2 Excludes reserve components not on active duty.
CURRENT SERVICES ESTIMATES
369
25. CURRENT SERVICES ESTIMATES
Current services estimates or the ‘‘baseline’’ are de- the future. Because such a concept would be nearly
signed to provide a neutral benchmark against which impossible to apply across all segments of the govern-
policy proposals can be measured. Since the early 1970s ment, the baseline has instead become largely a me-
when the first requirements for the calculation of a chanical construct.
‘‘current services’’ baseline were enacted, a variety of Moreover, it is important to discuss what a baseline
concepts and measures have been employed. Shortly is not. The baseline is not a prediction of the final
after enactment of the Budget Enforcement Act (BEA) outcome of the annual budget process, nor is it a pro-
which provided detailed rules for calculating a baseline, posed budget. By itself, the current services baseline
there was a consensus to define the current services commits no one to any particular policy. Instead, the
estimates according to those rules. However, that base- commitments or constraints reflected in the current
line has serious technical flaws, which compromise its services estimates are based on the tax and spending
ability to serve as a neutral measure. This section pro- policies contained in current law.
vides detailed estimates of a baseline that corrects The current services baseline is used in a variety
these flaws. It also discusses alternative formulations of ways: It can warn of future problems, either for
for the baseline. Government fiscal policy as a whole or for individual
Ideally, a current services baseline would provide a tax and spending programs. It is also a ‘‘policy-neutral’’
projection of estimated receipts, outlays, deficits or sur- benchmark against which the President’s Budget and
pluses, and budget authority needed to reflect this other budget proposals can be compared to measure
year’s enacted policies and programs for each year in the magnitude of the proposed changes. Table 25–1
Table 25–1. BASELINE CATEGORY TOTALS

2006 2007 2008 2009 2010 2011 2012
Receipts ...................................................................... 2,407 2,550 2,714 2,831 3,008 3,151 3,348

Outlays:
Discretionary:
DoD-Military ....................................................... 499 511 444 455 464 475 486
Homeland security ............................................. 31 35 36 38 36 37 38
International affairs ............................................ 36 36 34 34 33 33 33
Other discretionary ............................................ 451 450 448 450 454 463 470
Subtotal, discretionary ........................................... 1,017 1,032 961 976 987 1,008 1,028
Mandatory:
Social Security ................................................... 544 582 608 640 678 718 762
Medicare ............................................................ 325 367 391 418 447 493 503
Medicaid and SCHIP ......................................... 186 197 209 224 241 259 279
Other mandatory ................................................ 357 318 330 348 361 381 374
Subtotal, mandatory ............................................... 1,412 1,465 1,537 1,631 1,727 1,850 1,918
Net interest ............................................................. 227 238 254 258 259 258 255
Total outlays ............................................................... 2,655 2,735 2,752 2,866 2,973 3,116 3,201
Unified deficit ......................................................... –248 –185 –38 –35 34 35 147
On-budget .......................................................... –434 –368 –250 –261 –210 –228 –130
Off-budget .......................................................... 186 183 212 225 244 263 277
Memorandum:
BEA baseline deficit ............................................... –248 –186 –81 –104 –34 95 287
Do not extend emergencies .............................. ................ ................ 40 64 72 76 79
Correct growth rates for pay ............................. ................ ................ 2 3 3 3 3
Remove special rule for administrative ex-
penses of selected programs ....................... ................ ................ * * 1 1 1
Extend certain tax provisions ............................ ................ * –1 –2 –14 –146 –225
Related debt service ......................................... ................ * 1 4 7 7 2
Current baseline deficit .......................................... –248 –185 –38 –35 34 35 147
371
shows current services estimates of receipts, outlays, tion), and the underlying statutes generally specify the
and surpluses for 2006 through 2012. They are based tax rates or benefit levels that must be collected or
on the economic assumptions described later in this paid, and who must pay or who is eligible to receive
chapter. The estimates are shown on a unified budget benefits. The current services baseline assumes that
basis, i.e., the off-budget receipts and outlays of the receipts and direct spending programs continue in the
Social Security trust funds and the Postal Service Fund future as specified by current law. The budgetary im-
are added to the on-budget receipts and outlays to cal- pact of anticipated regulations and administrative ac-
culate the unified budget totals. The table also shows tions that are permissible under current law are also
the current services estimates by major component. The reflected in the estimates.
BEA baseline deficits are shown as a memorandum If a baseline is intended to reflect current law, then
in the table. Table 25–2 shows the changes proposed the provisions of law providing spending authority and
in the budget relative to the current services estimates. the authority to collect taxes or other receipts that ex-
Detailed descriptions of the budget proposals can be pire under current law should be assumed to expire.
found in the main Budget volume. However, the current services baseline assumes exten-
sion of several types of authority:
Conceptual Basis for Estimates • Expiring provisions affecting excise taxes dedi-
Receipts and outlays are divided into two categories cated to a trust fund are assumed to be extended
that are important for calculating the current services at current rates. During the projection period of
estimates: those controlled by authorizing legislation 2007 through 2012, the only taxes affected by this
(direct spending and receipts) and those controlled exception are taxes deposited in the Airport and
through the annual appropriations process (discre- Airway trust fund, which expire on September 30,
tionary spending). Different estimating rules apply to 2007, and taxes deposited in the Highway trust
each category. There are numerous alternative rules fund, the Leaking Underground Storage Tank
that could be used to develop current services estimates trust fund, and the Sport Fish Restoration and
for both categories. The next section discusses some Boating Safety trust fund, which expire on Sep-
alternatives that might be considered. tember 30, 2011.
Direct spending and receipts.—Direct spending in- • Direct spending programs that will expire under
cludes the major entitlement programs, such as social current law are assumed to be extended if their
security, medicare, medicaid, Federal employee retire- 2007 outlays exceed $50 million. For example,
ment, unemployment compensation, food stamps and Temporary Assistance for Needy Families and
other means-tested entitlements. It also includes such child care entitlement to States are scheduled to
programs as deposit insurance and farm price and in- expire at the end of 2010. The baseline estimates
come supports, where the Government is legally obli- provided here assume continuation of these pro-
gated to make payments under certain conditions. Re- grams through the projection period. However,
ceipts and direct spending are alike in that they involve programs enacted after the enactment of the Bal-
ongoing activities that generally operate under perma- anced Budget Act of 1997 that are explicitly tem-
nent authority (they do not require annual authoriza- porary in nature expire in the baseline even if
Table 25–2. IMPACT OF BUDGET POLICY
(in billions of dollars)
Total
2007 2008 2009 2010 2011 2012
2008–2012
Current Services Baseline Deficit ........................................................................................... –185 –38 –35 34 35 147 143
Proposals:
Global war on terror and other
emergencies .................................................................................................................... –37 –133 –94 –47 –25 –18 –316
Discretionary policy:
Security ............................................................................................................................ –6 –17 –47 –55 –61 –52 –233
Non-security .................................................................................................................... –7 –8 6 15 28 37 79
Subtotal, discretionary ......................................................................................................... –12 –26 –41 –40 –32 –15 –154
Revenue proposals 1 ........................................................................................................... –10 –53 –36 –63 –60 –55 –267
Mandatory proposals:
Social security personal accounts .................................................................................. ................ ................ ................ ................ ................ –30 –30
Other proposals .............................................................................................................. * 10 19 21 28 32 110
2008 Budget Deficit ................................................................................................................. –244 –239 –187 –94 –54 61 –514
Note: Each line includes debt service.
1 Includes outlay impact of revenue proposals.
25. CURRENT SERVICES ESTIMATES 373
their current year outlays exceed the $50 million Alternative Formulations of Baseline
threshold. Throughout much of U.S. history, budget proposals
• Certain provisions in the 2001 and 2003 Tax Acts were often compared to either the President’s request
that were clearly not intended to be temporary or the previous year’s budget. In the early 1970s, policy-
are assumed to continue past their expiration makers developed the concept of a baseline to provide
date. These provisions include reductions in indi- a more neutral benchmark for comparisons. While the
vidual income taxes on capital gains and divi- Congressional Budget Act of 1974 included a require-
dends, increased expensing for small businesses, ment that OMB and the Congressional Budget Office
and reductions in income taxes and estate and (CBO) provide estimates of a current services baseline,
gift taxes scheduled to sunset on December 31, the definition of the baseline was very general and
2010. Unlike the two extensions discussed above, specific guidance was not provided.
the BEA baseline definitions, developed before the Subsequent budget laws have specified in increasing
enactment of the 2001 and 2003 tax acts, do not detail the requirements for constructing baselines. Cur-
provide for extension of these provisions. rent services estimates for direct spending programs
Discretionary spending.—Discretionary programs dif- and receipts are generally estimated based on laws cur-
fer in one important aspect from direct spending pro- rently in place and most major programs are assumed
grams—Congress provides spending authority for al- to continue even past sunset dates set in law. In the
most all discretionary programs one year at a time. case of receipts, the BEA requires only the extension
The spending authority is normally provided in the of trust fund excise taxes, but otherwise bases the esti-
form of annual appropriations. Absent appropriations mates on current law. For discretionary programs,
of additional funds in the future, discretionary pro- these acts instituted a precise definition of baseline
grams would cease to exist after existing balances were with numerous rules for its construction.
It is clear, however, that a number of baseline defini-
spent. If the baseline was intended to reflect current
tions could be developed that differ for those presented
law, then a baseline would only reflect the expenditure
in this chapter:
of remaining balances from appropriations laws. In-
• Extend provisions affecting parts of mandatory
stead the current services baseline provides a mechan- programs. Currently, mandatory programs that
ical definition for discretionary programs that is some- have current year outlays of over $50 million are
what arbitrary. The definition used here attempts to generally assumed to continue. However, provi-
keep discretionary spending level in real terms. For sions of law that affect parts of mandatory pro-
2007, the current services estimates for discretionary grams, even those that have been consistently ex-
programs are equal to enacted 2007 appropriations for tended in the past, are assumed to expire as
accounts included in the Defense and Homeland Secu- scheduled.
rity Appropriations Acts. For all other discretionary ac- • Do not extend any authorizing laws that expire.
counts, current services estimates are set at the If all mandatory programs were assumed to expire
annualized continuing resolution rate. For 2008 as scheduled, deficits for 2008 through 2012 would
through 2012, funding for most accounts is equal to be $314 billion lower than the current estimates.
this 2007 level adjusted for inflation. The inflation rates (See the section below on major program assump-
used here are similar to those required by the BEA tions for details on mandatory program extensions
but adjusted to remove the overcompensation for fed- assumed in the estimates.) If excise taxes were
eral pay inherent in the BEA definition. Unlike the allowed to expire, the deficit would be $110 billion
BEA requirements, these current services estimates as- higher over the period 2008 through 2012. If cer-
sume that federal pay raises are effective in January, tain provisions of the 2001 and 2003 Tax Acts
as required under current law. At the time the BEA were assumed to expire, the deficit would be $404
was enacted, it ignored the nearly contemporaneous en- billion lower over the period.
actment of the Federal Employees Compensation Act • Straightline appropriations. If all discretionary
of 1991 that shifted the effective date of federal em- budgetary resources were to be the same in each
ployee pay raises from October to January. Also, the year in the projection period as provided for the
estimates presented here exclude the special adjust- current year, total outlays would be $18 billion
ment for administrative expenses for certain benefit lower in 2008 and $381 billion lower over the pe-
programs required by the BEA. This provision is incon- riod 2008 through 2012.
• Do not extend any appropriations. The current
sistent with the baseline rules for other accounts that
treatment of expiring provisions is inconsistent
fund administrative costs. In addition, the baseline esti-
with the treatment of discretionary spending. All
mates presented here assume that emergency appro- discretionary spending continues whether there is
priations enacted for 2007, which primarily provide authorization for the program or not and whether
funding for the Global War on Terror, are one-time funds have already been provided or not. In nearly
only expenditures. The BEA requires that the baseline all cases, funds for discretionary programs have
assume funding for emergencies repeatedly through the not been provided in advance for years beyond
projection period. the current year. If rules consistent with the treat-
ment of other expiring provisions were applied to of tax receipts, unemployment benefits, entitlement
discretionary spending, no new budgetary repayments that are automatically adjusted for changes
sources would be provided. Thus, under a strict in cost-of-living (COLAs), income support programs for
‘‘current law’’ approach, the only discretionary out- low-income individuals, and interest on the Federal
lays that would be included in the baseline would debt. In turn, Government tax and spending policies
be the lagged spending from the current year influence prices, economic growth, consumption, sav-
budgetary resource. If this rule were followed, out- ings, and investment. Because of these interactions, it
lays in 2008 would be reduced by $553 billion would be reasonable, from an economic perspective, to
relative to the current estimates. Clearly this assume different economic paths for the current serv-
would provide an unrealistic estimate of future ices baseline and the President’s Budget. However, this
spending and the government’s future fiscal posi- would diminish the value of current services estimates
tion. as a benchmark for measuring proposed policy changes,
Table 25–3 provides estimates for a variety of because it would then be difficult to separate the effects
changes in baseline definitions that could be considered.
of proposed policy changes from the effects of different
Economic Assumptions economic assumptions. By using the same economic as-
sumptions for current services and the President’s
The current services estimates are based on the same Budget, this potential source of confusion is eliminated.
economic assumptions as the President’s Budget, which The economic assumptions underlying both the budget
are based on enactment of the President’s Budget pro- and the current service estimates are summarized in
posals. The economy and the budget interact. Changes Table 25–4. The economic outlook underlying these as-
in economic conditions significantly alter the estimates
Table 25–3. ALTERNATIVE BASELINE ASSUMPTIONS
2007 2008 2009 2010 2011 2012 2008–2012
Current baseline surplus/deficit ............................................................................................... –185 –38 –35 34 35 147 143

Alternative assumptions (‘‘-’’ represents deficit increase):
Extend provisions affecting parts of mandatory programs 1 .............................................. –* –1 –2 –2 –2 –2 –9
Do not extend any authorizing laws:
Mandatory spending ....................................................................................................... ................ 41 51 55 80 87 314
Trust fund excise taxes .................................................................................................. ................ –12 –13 –14 –16 –55 –110
Certain provisions of the 2001 and 2003 Tax Acts ...................................................... –* 1 2 14 150 237 404
Straightline appropriations ................................................................................................... ................ 18 44 74 106 140 381
Do not extend any appropriations ...................................................................................... ................ 553 863 1,005 1,105 1,193 4,718
1 Estimates provided here are the totals for the illustrative provisions shown in Table 25–5. This is not a completelisting of all provisions that expire.
Table 25–4. SUMMARY OF ECONOMIC ASSUMPTIONS

(Fiscal years; dollar amounts in billions)
2007 2008 2009 2010 2011 2012
Gross Domestic Product (GDP):

Levels, dollar amounts in billions:
Current dollars ............................................................................................................................................................... 13,761 14,515 15,306 16,112 16,938 17,786
Real, chained (2000) dollars ......................................................................................................................................... 11,637 11,985 12,357 12,732 13,114 13,502
Percent change, year over year:
Current dollars ............................................................................................................................................................... 5.4 5.5 5.5 5.3 5.1 5.0
Real, chained (2000) dollars ......................................................................................................................................... 2.8 3.0 3.1 3.0 3.0 3.0
Inflation measures (percent change, year over year):
GDP chained price index .............................................................................................................................................. 2.5 2.4 2.3 2.2 2.1 2.0
Consumer price index (all urban) .................................................................................................................................. 2.0 2.6 2.6 2.5 2.4 2.3
Unemployment rate, civilian (percent) ................................................................................................................................... 4.6 4.7 4.8 4.8 4.8 4.8
Interest rates (percent):
91–day Treasury bills ......................................................................................................................................................... 4.8 4.6 4.4 4.3 4.1 4.1
10–year Treasury notes ..................................................................................................................................................... 4.9 5.0 5.2 5.3 5.3 5.3
MEMORANDUM
Related program assumptions:
Automatic benefit increases (percent):
Social security and veterans pensions ..................................................................................................................... 3.3 1.4 2.6 2.5 2.4 2.3
Federal employee retirement .................................................................................................................................... 3.3 1.4 2.6 2.5 2.4 2.3
Food stamps .............................................................................................................................................................. 2.2 4.1 2.6 2.6 2.4 2.4
Insured unemployment rate ........................................................................................................................................... 1.9 1.9 1.9 2.0 2.0 2.0
sumptions is discussed in greater detail in Chapter 12 programs with enacted non-emergency appropriations
of this volume. in the current year are assumed to continue. However,
specific provisions of law that affect mandatory pro-
Major Programmatic Assumptions grams (but are not necessary for program operation)
A number of programmatic assumptions must be are allowed to expire as scheduled. For example, under
made in order to calculate the baseline estimates. These the Tax Relief and Health Care Act of 2006, Medicaid
include assumptions about the number of beneficiaries Transitional Medical Assistance will expire at the end
who will receive payments from the major benefit pro- of June 2007. The baseline does not assume additional
grams and annual cost-of-living adjustments in the in- spending under this authority beyond that point. Table
dexed programs. Assumptions on baseline caseload pro- 25–6 provides a listing of mandatory programs and
jections for the major benefit programs are shown in taxes assumed to continue in the baseline after their
Table 25–5. Assumptions about various automatic cost- expiration.
of-living-adjustments are shown in Table 25–4. Many other important assumptions must be made
It is also necessary to make assumptions about the in order to calculate the baseline estimates. These in-
continuation of expiring programs and provisions. In clude assumptions about the timing and substance of
the estimates provided here, expiring excise taxes dedi- regulations that will be issued over the projection pe-
cated to a trust fund are extended at current rates. riod, the use of administrative discretion provided
Certain income tax provisions from the 2001 and 2003 under current law, and other assumptions about the
Tax Acts, that were not designed to be temporary in way programs operate. Table 25–6 lists many of these
nature, are assumed to be permanent for purposes of assumptions and their impact on the baseline esti-
calculating revenue estimates. In general, mandatory mates. It is not intended to be an exhaustive listing;
programs with current year spending of at least $50 the variety and complexity of Government programs
million are also assumed to continue. All discretionary are too great to provide a complete list. Instead, some
of the more important assumptions are shown.
Table 25–5. BENEFICIARY PROJECTIONS FOR MAJOR BENEFIT PROGRAMS
(Annual average, in thousands)
Estimate
2006
Actual 2007 2008 2009 2010 2011 2012
Farmer direct payments ......................................................................................................................................... 1,587 1,579 1,571 1,563 1,555 1,548 1,540
Federal family education loans ............................................................................................................................. 5,883 6,173 6,396 6,640 6,909 7,191 7,487
Federal direct student loans .................................................................................................................................. 1,714 1,709 1,767 1,832 1,904 1,978 2,057
Medicaid/State Children’s Health Insurance Program .......................................................................................... 52,273 53,353 53,859 54,400 54,914 55,227 55,622
Medicare-eligible military retiree health benefits ................................................................................................... 1,871 1,903 1,938 1,969 1,995 2,025 2,069
Medicare:
Hospital insurance ............................................................................................................................................. 42,684 43,356 44,190 45,132 46,084 47,153 48,505
Supplementary medical insurance .................................................................................................................... 40,100 40,618 41,335 42,134 42,919 43,749 44,894
Railroad retirement ................................................................................................................................................. 583 573 565 558 552 547 542
Federal civil service retirement ............................................................................................................................. 2,453 2,471 2,488 2,518 2,541 2,564 2,587
Military retirement ................................................................................................................................................... 2,116 2,142 2,162 2,178 2,188 2,193 2,196
Unemployment compensation ................................................................................................................................ 7,538 7,537 7,982 8,372 8,456 8,543 8,574
Food stamps .......................................................................................................................................................... 26,736 26,335 26,245 26,113 25,860 25,661 25,430
Child nutrition ......................................................................................................................................................... 32,748 33,713 34,374 34,942 35,465 35,967 36,416
Foster care and adoption assistance .................................................................................................................... 600 616 638 658 680 703 727
Supplemental security income (SSI):
Aged ................................................................................................................................................................... 1,116 1,113 1,112 1,111 1,113 1,118 1,128
Blind/disabled ..................................................................................................................................................... 5,762 5,932 6,110 6,255 6,378 6,495 6,604
Subtotal, SSI ................................................................................................................................................. 6,878 7,045 7,222 7,366 7,491 7,613 7,732
Child care and development fund 1 ....................................................................................................................... 2,300 2,200 2,100 2,100 2,000 2,000 2,000
Social security (OASDI):
Old age and survivor insurance ........................................................................................................................ 40,264 40,688 41,263 42,007 42,947 43,964 45,074
Disability insurance ............................................................................................................................................ 8,373 8,729 9,056 9,329 9,550 9,764 9,954
Veterans compensation:
Veterans ............................................................................................................................................................. 2,683 2,782 2,879 2,977 3,072 3,164 3,252
Survivors (non-veterans) ................................................................................................................................... 330 334 341 347 353 359 366
Subtotal, veterans compensation .................................................................................................................. 3,013 3,116 3,220 3,324 3,425 3,523 3,618
Veterans pensions:
Veterans ............................................................................................................................................................. 332 326 320 315 309 304 298
Survivors (non-veterans) ................................................................................................................................... 203 198 193 188 183 178 174
Subtotal, veterans pensions ..................................................................................................................... 535 524 513 503 492 482 472
1 Includes children served through the CCDF (including TANF transfers) and through funds spent directly on child care in the Social Services Block Grant and TANF programs.
Table 25–6. IMPACT OF REGULATIONS, EXPIRING AUTHORIZATIONS, AND OTHER ASSUMPTIONS IN THE BASELINE
Estimate
2007 2008 2009 2010 2011 2012
REGULATIONS
EPA pesticides tolerance fee ........................................................................................................................................... ................ ................ –13 –13 –13 –13
Foster care and adoption assistance:
National Youth in Transition Database ....................................................................................................................... ................ 6 6 7 6 5
Impact of Total Case Management ............................................................................................................................. 10 65 68 71 73 75
Medicaid: 1
Payment Reform .......................................................................................................................................................... –120 –530 –840 –1,170 –1,210 –1,250
School-based Services Administration Reform ........................................................................................................... ................ –615 –670 –725 –785 –850
Medicaid Graduate Medical Education Reform ........................................................................................................... ................ –140 –290 –440 –450 –460
Medicaid Services Reform ........................................................................................................................................... ................ –230 –360 –520 –570 –610
Managed Care reform .................................................................................................................................................. ................ ................ ................ ................ ................ ................
Clarifying Regulations .................................................................................................................................................. ................ ................ ................ ................ ................ ................
Payment Error Rate Measurement .............................................................................................................................. 5 5 5 6 6 7
Medicare: 1
Post-Acute Care Provider Reform, Program Integrity, Upcoding Adjustments and other efficiency and produc-
tivity improvements .................................................................................................................................................. ................ –1,000 –1,572 –2,159 –2,637 –2,867
Old age and survivors insurance (OASI) and disabilty insurance (DI):
Reduction of Title II benefits under family maximum in cases of dual entitlement .................................................. 18 19 20 21 23 23
Trial work period .......................................................................................................................................................... 3 2 1 1 ................ ................
Expedited reinstatement of disability benefits ............................................................................................................. NA NA NA NA NA NA
Continuing disability review failure to cooperate process .......................................................................................... –10 –12 –12 –12 –13 –14
State Children’s Health Insurance Program: 1
Payment Error Rate Measurement .............................................................................................................................. 7 8 8 9 9 10
Supplemental security income (SSI):
Title XVI cross-program recovery ................................................................................................................................ –15 –15 –15 –20 –20 –20
Student earned income exclusion ............................................................................................................................... 4 4 5 5 5 5
Expedited reinstatement of disability benefits ............................................................................................................. NA NA NA NA NA NA
EXPIRING AUTHORIZATIONS
Provisions extended in the baseline (effect of extension):
Spending:
Child care entitlement to States:
Child care mandatory .............................................................................................................................................. ................ ................ ................ ................ 1,178 1,178
Child care match ...................................................................................................................................................... ................ ................ ................ ................ 1,674 1,674
Child care tribal ........................................................................................................................................................ ................ ................ ................ ................ 58 58
Training and technical assistance ........................................................................................................................... ................ ................ ................ ................ 7 7
Child nutrition:
Summer food service program ................................................................................................................................ ................ ................ ................ 347 366 386
State administrative expenses ................................................................................................................................. ................ ................ ................ 191 200 208
CCC market access, bioenergy and commodity programs:
Counter-cyclical payment program .......................................................................................................................... ................ ................ 439 949 898 944
Dairy price support program .................................................................................................................................... ................ 60 55 47 47 47
Dairy export incentive program ............................................................................................................................... ................ ................ 3 ................ ................ ................
Direct payment program .......................................................................................................................................... ................ 1,155 5,249 5,249 5,249 5,249
Marketing assistance loan and loan deficiency payment program ........................................................................ ................ 735 1,154 566 656 844
Sugar nonrecourse loan program ........................................................................................................................... ................ ................ 170 129 111 117
Market access program ........................................................................................................................................... ................ 200 200 200 200 200
Export credit guarantee programs ........................................................................................................................... ................ 70 70 70 70 70
Food for progress .................................................................................................................................................... ................ 154 154 154 154 154
Bill Emerson Humanitarian Trust ............................................................................................................................ ................ 140 140 140 140 140
Conservation reserve program .................................................................................................................................... ................ 22 102 228 604 1,002
Farm security and rural investment
Ground and surface water conservation ................................................................................................................. ................ 2 17 26 35 43
Farm and ranch lands protection ............................................................................................................................ ................ 2 37 65 81 97
Food stamps:
Benefit costs ............................................................................................................................................................ ................ 31,875 32,714 33,389 34,115 34,786
State administrative expenses ................................................................................................................................. ................ 2,644 2,754 2,865 2,977 3,092
Employment and training ......................................................................................................................................... ................ 321 330 338 346 352
Other program costs ................................................................................................................................................ ................ 59 61 62 64 65
Nutrition assistance for Puerto Rico ....................................................................................................................... ................ 1,612 1,655 1,698 1,739 1,780
Food donations on Indian reservations ................................................................................................................... ................ 80 83 86 88 90
The emergency food assistance program commodities ......................................................................................... ................ 140 140 140 140 140
Other activities under the Food Stamp Act of 1977 .............................................................................................. ................ 28 27 26 26 27
Promoting safe and stable families ............................................................................................................................. ................ ................ ................ ................ ................ 345
Temporary assistance for needy families (TANF) resources:
State family assistance grants (SFAG) ................................................................................................................... ................ ................ ................ ................ 16,553 16,480
SFAG to territories ................................................................................................................................................... ................ ................ ................ ................ 78 78
Table 25–6. IMPACT OF REGULATIONS, EXPIRING AUTHORIZATIONS, AND OTHER ASSUMPTIONS IN THE BASELINE—Continued
Estimate
2007 2008 2009 2010 2011 2012
Tribal work program ................................................................................................................................................. ................ ................ ................ ................ 8 8

Health Marriage and Fatherhood ............................................................................................................................ ................ ................ ................ ................ 150 150
Contingency fund ..................................................................................................................................................... ................ ................ ................ ................ 91 96
Welfare research ...................................................................................................................................................... ................ ................ ................ ................ 15 15
Trade adjustment assistance—training and income support ...................................................................................... ................ 685 841 918 968 992
Trade adjustment assistance—farmers ....................................................................................................................... ................ 15 15 15 15 15
Veterans compensation—annual cost of living adjustment ........................................................................................ ................ 348 1,132 2,017 2,933 3,876
Revenues:
Excise taxes dedicated to trust funds:
Airport and Airway trust fund taxes ........................................................................................................................ ................ 11,495 12,185 12,906 13,662 14,453
Aquatic Resources trust fund taxes ........................................................................................................................ ................ ................ ................ ................ ................ 516
Highway trust fund taxes ......................................................................................................................................... ................ ................ ................ ................ ................ 35,940
LUST taxes .............................................................................................................................................................. ................ ................ ................ ................ ................ 212
Certain provisions for the 2001 tax cut and 2003 jobs and growth tax cut (includes outlay impact) ................. 188 –690 –1,595 –13,789 –146,193 –224,918
Provisions not extended in the baseline (effect of extension):
Spending:
Abstinence education (Children and Families Services) ............................................................................................ 5 25 44 49 50 50
Biobased product testing ............................................................................................................................................. ................ 1 1 1 1 1
Biodiesel fuel education ............................................................................................................................................... ................ 1 1 1 1 1
EPA
Pesticide maintenance fee ...................................................................................................................................... ................ ................ –15 –15 –15 –15
Pesticide registration service fee ............................................................................................................................ ................ ................ –3 –3 –3 –3
Farm bill programs:
Klamath Basin .......................................................................................................................................................... ................ ................ 2 3 6 7
Grassland reserve program ..................................................................................................................................... ................ 14 38 44 46 48
Milk income loss contract program ......................................................................................................................... ................ 300 185 120 85 70
Small watershed rehabiliation program ................................................................................................................... ................ 38 56 65 65 65
Wetlands reserve program ...................................................................................................................................... ................ ................ 18 200 291 364
Wildlife habitat incentives ........................................................................................................................................ ................ 1 18 31 45 58
Medicare, SMI—medicare low income premium assistance ...................................................................................... ................ 425 440 465 495 525
Medicaid—Transitional Medical Assistance ................................................................................................................. 35 554 580 601 625 650
Promoting safe and stable families—court improvement grants ................................................................................ ................ ................ ................ ................ 20 20
TANF—supplemental grants ........................................................................................................................................ ................ ................ 229 287 302 319
Trade adjustment assistance—alternative TAA .......................................................................................................... ................ ................ 6 18 24 25
Veterans programs:
Income verification match ........................................................................................................................................ ................ ................ 4 –1 –5 11
Medicaid for veterans and spouses in nursing homes .......................................................................................... ................ ................ ................ ................ ................ –576
Adjustable rate mortgages ....................................................................................................................................... ................ ................ 3 ................ 3 ................
Increase loan fees for housing loans ..................................................................................................................... ................ ................ ................ ................ ................ –170
Benefits for on-the-job training or apprenticeships ................................................................................................. ................ 10 14 15 15 16
OTHER IMPORTANT PROGRAM ASSUMPTIONS
Child support enforcement (CSE):
Alternative penalties for Family Support Act systems and Statewide Disbursement Unit requirements ................. –7 –7 –7 –7 ................ ................
Federal family education loan program:
Eliminate voluntary flexible agreements with guarantee agencies ............................................................................. –945 –123 –123 –123 –123 –123
Food stamps:
Tax offset, recoupment, and general claims collection .............................................................................................. –181 –189 –194 –198 –203 –207
Quality control liabilities ............................................................................................................................................... –3 –3 –3 –3 –3 –3
Allocation of administrative costs between public assistance programs ................................................................... –197 –197 –197 –197 –197 –197
Medicare:
Physicians ..................................................................................................................................................................... 59,503 58,634 58,402 57,875 56,708 55,804
Contracting Reform ...................................................................................................................................................... ................ –70 –280 –550 –580 ................
Medicaid:
Financial management recoveries ............................................................................................................................... –656 –704 –759 –819 –884 –954
Vaccines for Children, total program costs ................................................................................................................. 2,905 2,762 2,751 2,704 2,683 2,675
Institutional long term care .......................................................................................................................................... 34,213 36,302 38,262 40,325 42,506 44,808
Home and community based institutional alternatives ............................................................................................... 23,548 25,635 28,836 32,435 36,438 40,983
Pharmaceuticals (FFS, net of rebates) ....................................................................................................................... 9,766 10,533 11,126 12,026 12,966 13,951
Managed care (including Medicaid MCOs, PHPs, PCCM) ........................................................................................ 35,375 40,223 43,738 47,352 51,486 56,030
State Children’s Health Insurance Program (Title XXI) .................................................................................................. 5,647 5,424 5,401 5,497 5,456 5,507
Approved Demonstrations and Pilot Programs: 2
Medicare, HI:
Rural Hospice
Baseline estimate ................................................................................................................................................ 3 3 3 4 ................ ................
Demonstration estimate ....................................................................................................................................... 3 3 3 4 ................ ................
Estimate
2007 2008 2009 2010 2011 2012
Mercy Medical
Baseline estimate ................................................................................................................................................ 6 2 ................ ................ ................ ................
Demonstration estimate ....................................................................................................................................... 6 2 ................ ................ ................ ................
Premier
Baseline estimate ................................................................................................................................................ 2,894 3,047 3,264 ................ ................ ................
Demonstration estimate ....................................................................................................................................... 2,906 3,059 3,276 12 ................ ................
Rural Community Hospital 3
New York Graduate Medical Education
Baseline estimate ................................................................................................................................................ 69 69 69 ................ ................ ................
Demonstration estimate ....................................................................................................................................... 48 35 17 ................ ................ ................
Utah Graduate Medical Education
Baseline estimate ................................................................................................................................................ 8 ................ ................ ................ ................ ................
Demonstration estimate ....................................................................................................................................... 8 ................ ................ ................ ................ ................
Medicare, SMI:
Chronic Care Improvement Program (Medicare Health Support)
Baseline estimate ................................................................................................................................................ ................ ................ ................ ................ ................ ................
Expansion of Coverage for Chiropractic Services
Municipal Health Services Programs
Telemedicine
United Mine Workers of America Prescription Drugs
Coordinated Care Disease Management
Lifemasters Disease Management Dual Eligibles
Medicare Lifestyle Modification Program
Demonstration estimate ....................................................................................................................................... ................ ................ ................ ................ ................ ................
Care Management for High-Cost Beneficiaries
Low Vision Rehabilitation
Cancer Prevention and Treatment for Ethnic and Racial Minorities
Medical Adult Day Care
Demo to Limit Annual Change in Part D Premiums
Demo to Transition Enrollment of ‘‘Low-Income Subsidy Beneficiaries’’
Demonstration estimate ....................................................................................................................................... 360 220 240 140 30 ................
Part D Reconciliation to States (402 demos)
Part D Payment (reinsurance)
Part D Late Enrollment Penalty Waiver 4
Estimate
2007 2008 2009 2010 2011 2012
Medicare: HI and SMI:

ESRD Disease Management
Home Health Third Party Liability
Baseline estimate ................................................................................................................................................ 191 174 187 158 13 ................
Medicare+Choice Phase I
Medicare+Choice Phase II
S/HMO I
Baseline estimate ................................................................................................................................................ 1,731 558 ................ ................ ................ ................
Demonstration estimate ....................................................................................................................................... 1,990 664 ................ ................ ................ ................
S/HMO II
Physician Group Practice
Demonstration estimate ....................................................................................................................................... 1,667 468 77 ................ ................ ................
Medical Savings Account
Baseline estimate ................................................................................................................................................ 1 2 4 6 8 ................
United Mine Workers of America Health
Medicaid (baseline estimates): 5
Alabama Family Planning ........................................................................................................................................ 214 238 ................ ................ ................ ................
Arizona AHCCCS ..................................................................................................................................................... 4,365 4,839 5,356 5,932 6,571 ................
Arkansas (ARKids B) ............................................................................................................................................... 91 102 ................ ................ ................ ................
Arkansas Family Planning Services ........................................................................................................................ 229 249 ................ ................ ................ ................
Arkansas Independent Choices (Cash & Counseling) 6 ......................................................................................... 5 ................ ................ ................ ................ ................
Arkansas TEFRA ..................................................................................................................................................... 32 8 ................ ................ ................ ................
California Family Planning ....................................................................................................................................... 612 ................ ................ ................ ................ ................
California In-Home Supportive Services Plus 6 ...................................................................................................... 325 378 357 ................ ................ ................
California—MediCal Hospital/Unisured Care .......................................................................................................... 766 766 766 702 ................ ................
Colorado Consumer Directed Attendant Support 6 ................................................................................................. 19 3 ................ ................ ................ ................
Delaware—Diamond State Health Plan .................................................................................................................. 335 286 302 76 ................ ................
District of Columbia Childless Adults 50–64 .......................................................................................................... 3 ................ ................ ................ ................ ................
District of Columbia HIV .......................................................................................................................................... 11 14 18 6 ................ ................
Florida Consumer Directed Care Plus (Cash & Counseling) 6 .............................................................................. 61 26 ................ ................ ................ ................
Florida Family Planning ........................................................................................................................................... 910 967 1,068 ................ ................ ................
Florida MEDS-AD Program ..................................................................................................................................... 975 1,072 1,180 1,298 ................ ................
Florida medicaid reform ........................................................................................................................................... 4,875 5,662 6,589 7,683 4,137 ................
Hawaii Health QUEST ............................................................................................................................................. 256 289 237 ................ ................ ................
Illinois Family Planning ............................................................................................................................................ 414 443 ................ ................ ................ ................
IowaCare .................................................................................................................................................................. 109 117 125 134 ................ ................
Iowa Familiy Planning .............................................................................................................................................. 175 189 205 ................ ................ ................
Kentucky Health Care Partnership Program ........................................................................................................... 513 568 48 ................ ................ ................
Louisiana Family Planning ....................................................................................................................................... 445 483 525 569 ................ ................
Maine HIV ................................................................................................................................................................ 7 ................ ................ ................ ................ ................
Maryland (Health Choice) ........................................................................................................................................ 1,610 1,086 ................ ................ ................ ................
Massachusett MassHealth ....................................................................................................................................... 2,757 2,960 ................ ................ ................ ................
Michigan Family Planning ........................................................................................................................................ 425 462 503 547 ................ ................
Minnesota (Prepaid Med. Assist. Project Plus) ...................................................................................................... 186 148 ................ ................ ................ ................
Minnesota Family Planning ..................................................................................................................................... 248 ................ ................ ................ ................ ................
Mississippi Family Planning ..................................................................................................................................... 146 ................ ................ ................ ................ ................
Mississippi—Healthier Mississippi ........................................................................................................................... 71 78 86 ................ ................ ................
Missouri Managed Care Plus .................................................................................................................................. 86 ................ ................ ................ ................ ................
Montana Basic Medicaid for Able-Bodied Adults ................................................................................................... 35 39 13 ................ ................ ................
New Jersey Personal Preference (Cash & Counseling) 6 ...................................................................................... 5 3 ................ ................ ................ ................
New Mexico—Family Planning ................................................................................................................................ 109 114 119 ................ ................ ................
New York (Partnership Plan) ................................................................................................................................... 7,142 7,823 7,685 ................ ................ ................
New York Federal-State Health Reform Partnership ............................................................................................. 10,248 10,907 11,609 12,357 13,153 ................
North Carolina Family Planning .............................................................................................................................. 424 457 494 ................ ................ ................
Estimate
2007 2008 2009 2010 2011 2012
Oklahoma Family Planning ...................................................................................................................................... 159 166 ................ ................ ................ ................
Oregon Family Planning .......................................................................................................................................... 156 169 183 ................ ................ ................
Oregon Independent Choices 6 ............................................................................................................................... 2 ................ ................ ................ ................ ................
Rhode Island Rite Care (Medicaid) ......................................................................................................................... 192 169 ................ ................ ................ ................
South Carolina Family Planning .............................................................................................................................. 54 57 ................ ................ ................ ................
TennCare II .............................................................................................................................................................. 3,124 ................ ................ ................ ................ ................
Utah (Primary Care Network) .................................................................................................................................. 106 110 117 ................ ................ ................
Vermont Long Term Care Plan 7 ............................................................................................................................ 121 135 149 166 ................ ................
Vermont Global Commitment to Health .................................................................................................................. 494 538 586 639 160 ................
Virginia—Family Planning ........................................................................................................................................ 176 ................ ................ ................ ................ ................
Washington (Take Charge/Family Planning) .......................................................................................................... 296 312 329 ................ ................ ................
Wisconsin Badger Care (Medicaid) ......................................................................................................................... 18 ................ ................ ................ ................ ................
Wisconsin Family Planning ...................................................................................................................................... 23 ................ ................ ................ ................ ................
Pharmacy plus (demonstration estimate)
Wisconsin Pharmacy Plus ................................................................................................................................... 100 ................ ................ ................ ................ ................
State Children’s Health Insurance Program (Title XXI) (demonstration estimates): 5
Alaska ....................................................................................................................................................................... 9 10 11 ................ ................ ................
Hawaii ....................................................................................................................................................................... 1 8 9 ................ ................ ................
Maryland Health Choice 8 ........................................................................................................................................ 150 ................ ................ ................ ................ ................
Minnesota Care:
Demonstration estimate (SCHIP funds) .............................................................................................................. 39 41 39 ................ ................ ................
Baseline estimate (medicaid funds) .................................................................................................................... ................ ................ ................ ................ ................ ................
Missouri MC+c 8 ....................................................................................................................................................... 56 ................ ................ ................ ................ ................
New Jersey Family Care 9 ....................................................................................................................................... 167 173 ................ ................ ................ ................
New Mexico SCHIP 8 ............................................................................................................................................... 26 ................ ................ ................ ................ ................
Rhode Island (SCHIP RiteCare) 9 ........................................................................................................................... 34 11 ................ ................ ................ ................
Wisconsin (BadgerCare) .......................................................................................................................................... 88 ................ ................ ................ ................ ................
Health Insurance Flexibility and Accountability (HIFA) (demonstration estimate—SCHIP funds): 5
Arizona HIFA—amendment to AHCCCS ................................................................................................................ 36 29 24 26 28 144
Arkansas HIFA
Baseline estimate (medicaid funds) .................................................................................................................... 1,421 1,604 1,813 2,049 2,318 ................
Colorado HIFA ......................................................................................................................................................... 13 16 18 ................ ................ ................
Idaho HIFA ............................................................................................................................................................... 13 14 11 ................ ................ ................
Illinois HIFA (KidCare Parent Coverage)
Baseline estimate (medicaid funds) .................................................................................................................... 6 ................ ................ ................ ................ ................
Maine HIFA (Maine Care for Childless Adults)
Baseline estimate (medicaid funds) .................................................................................................................... 102 ................ ................ ................ ................ ................
Michigan HIFA ......................................................................................................................................................... 120 112 24 ................ ................ ................
Nevada HIFA ........................................................................................................................................................... 11 16 19 21 17 ................
New Mexico HIFA .................................................................................................................................................... 21 24 27 ................ ................ ................
Oklahoma Sooner Care Demo+HIFA
Baseline estimate (medicaid funds) .................................................................................................................... 998 1,071 1,137 289 ................ ................
Oregon HIFA (Oregon Health Plan 2)
Demonstration estimate (SCHIP funds) .............................................................................................................. 16 ................ ................ ................ ................ ................
Baseline estimate (medicaid funds) .................................................................................................................... 1,603 ................ ................ ................ ................ ................
Virginia HIFA ............................................................................................................................................................ 12 12 13 ................ ................ ................
Joint Medicare and Medicaid:
Minnesota-Dual Eligibles
Demonstration estimate ....................................................................................................................................... 1,213 339 ................ ................ ................ ................
Wisconsin Health Partnership Dual Eligible
Massachusetts SCO Dual Eligible
OASI, DI, SSI:
Performance of continuing disability reviews (baseline levels):
OASDI ...................................................................................................................................................................... –11 –60 –128 –211 –378 –714
SSI (federal) ............................................................................................................................................................. –33 –172 –318 –462 –654 –725
Collection of overpayments:
OASI ......................................................................................................................................................................... –719 –779 –836 –892 –949 –1,009
DI .............................................................................................................................................................................. –691 –769 –843 –915 –984 –1,055
SSI (federal) ............................................................................................................................................................. –928 –986 –1,043 –1,101 –1,155 –1,217
Estimate
2007 2008 2009 2010 2011 2012
Debts written off as uncollectable (no effect on outlays):

OASI ......................................................................................................................................................................... 134 145 155 166 176 188
DI .............................................................................................................................................................................. 474 527 578 628 675 723
SSI (federal) ............................................................................................................................................................. 415 441 467 492 516 544
OASDI:
Payments to states for vocational rehabilitation ..................................................................................................... 80 88 95 104 112 120
DI:
Research and demonstration projects .................................................................................................................... 50 57 30 ................ ................ ................
SSI:
Payments from states for state supplemental benefits .......................................................................................... –4,050 –4,555 –4,755 –4,960 –5,565 –4,965
Payments for state supplemental benefits .............................................................................................................. 4,430 4,572 4,772 4,975 5,137 5,428
Fees for administration of State supplement:
Treasury share .................................................................................................................................................... –128 –143 –146 –149 –164 –141
SSA share ........................................................................................................................................................... –119 –122 –125 –127 –130 –133
Research and demonstration projects .................................................................................................................... 33 28 27 27 27 27
Payments to states for vocational rehabilitation ......................................................................................................... 53 56 59 62 66 71
Performance of non-disability redeterminations (excludes related overpayment collections reported above) ......... 602 239 2 –49 –137 –681
Royalies and offshore minerals management:
Increased deepwater oil and gas leases royalty rates ............................................................................................... ................ 150 60 50 30 10
Royalty-in-kind oil to fill Strategic Petroleum Reserve ............................................................................................... 435 1,102 ................ ................ ................ ................
State grants and demonstrations—health care:
Ticket to work grant programs:
Infrastructure grant program .................................................................................................................................... 17 20 20 32 35 37
Demonstration to maintain independence and employment .................................................................................. 21 22 22 10 10 10
High risk pools:
Initial seed grants .................................................................................................................................................... 2 ................ ................ ................ ................ ................
Operation of pools ................................................................................................................................................... 78 ................ ................ ................ ................ ................
Emergency health services for undocumented aliens ................................................................................................ 200 200 133 200 ................ ................
Katrina relief ................................................................................................................................................................. 1,039 ................ ................ ................ ................ ................
Psychiatric residential treatment demonstration .......................................................................................................... 10 17 28 33 35 ................
Money Follow the Person demonstration .................................................................................................................... 18 57 121 213 320 ................
Medicaid transformation grants .................................................................................................................................... 75 75 ................ ................ ................ ................
Medicaid integrity program ........................................................................................................................................... 55 50 75 75 75 75
* = $500,000 or less.
NA = Not available.
1 Medicare and Medicaid/SCHIP regulations reflect gross outlays.
2 Baseline estimates reflect costs absent the demonstration; demonstration estimate reflects costs of the demonstration. The differences represent the net impact of the dem-
onstration. Any demonstrations are implicity assumed in the current services baseline.
3 Costs of this demonstration are offset annually by a reduction to inpatient hospital prospective payment rates.
4 Costs of this demonstration are estimated to be negligible over 10 years.
5 Baseline estimates reflect costs absent the demonstration. Demonstration estimates reflect cost of the demonstration.
6 Consumer directed program in which ‘‘plan of care’’ is converted to a cash allotment. It is expected that these will convert to DRA State Plan options upon expiration.
7 Adjustments have been made since prior year submission to account for Part D.
8 Estimates reflect costs for SCHIP children under the State’s Medicaid 1115.
9 States project covering a portion of their entire demonstration population with Medicaid funds.
Current Services Receipts, Outlays, and Budget Individual income taxes are estimated to increase by
Authority $117 billion from 2007 to 2008 under baseline assump-
Receipts.—Table 25–7 shows baseline receipts by tions. This growth of 9.9 percent is primarily the effect
major source. Total receipts are projected to increase of increased collections resulting from rising personal
by $164 billion from 2007 to 2008 and by $634 billion incomes. Individual income taxes are projected to grow
from 2008 to 2012, largely due to assumed increases at an annual rate of 6.4 percent between 2008 and
in incomes resulting from both real economic growth 2012.
and inflation.
Table 25–7. BASELINE RECEIPTS BY SOURCE

Estimate
2006
Actual 2007 2008 2009 2010 2011 2012
Individual income taxes ........................................................ 1,044 1,178 1,295 1,349 1,465 1,547 1,657
Corporation income taxes .................................................... 354 342 319 327 334 350 377
Social insurance and retirement receipts ............................ 838 873 926 972 1,027 1,084 1,137
On-budget ......................................................................... 229 239 252 261 274 288 301
Off-budget ......................................................................... 608 634 674 711 753 796 835
Excise taxes .......................................................................... 74 58 69 72 73 78 81
Estate and gift taxes ............................................................ 28 25 26 27 22 2 1
Other ..................................................................................... 70 73 80 83 87 91 95
Total ...................................................................................... 2,407 2,550 2,714 2,831 3,008 3,151 3,348
On-budget ......................................................................... 1,799 1,916 2,040 2,119 2,254 2,356 2,513
Off-budget ......................................................................... 608 634 674 711 753 796 835
Corporation income taxes under current law are esti- an average annual rate of 3.2 percent. October 1 falls
mated to decline by $23 billion or 6.8 percent between on a weekend in both 2007 and 2012.
2007 and 2008, in large part due to economic factors Even though most discretionary spending is assumed
and legislated tax changes. Corporation income taxes to grow with inflation, outlays for discretionary pro-
are projected to increase at an annual rate of 4.3 per- grams decline from $1,032 billion in 2007 to $961 bil-
cent from 2008 to 2012, reflecting higher corporate prof- lion in 2008 because the baseline assumes no additional
its. spending for the war beyond what is already enacted.
Social insurance and retirement receipts are esti- Outlays increase each year thereafter, reflecting in-
mated to increase by $52 billion between 2007 and creases in resources to keep pace with inflation, reach-
2008, and by an additional $211 billion between 2008 ing $1,028 billion in 2012. Entitlement and other man-
and 2012. The estimates reflect assumed increases in datory programs are estimated to grow from $1,465
total wages and salaries paid, and scheduled increases billion in 2007 to $1,537 billion in 2008, and to $1,918
in the social security taxable earnings base from billion in 2012, due in large part to changes in the
$97,500 in 2007 to $123,600 in 2012. number of beneficiaries and to automatic cost-of-living
Excise taxes are estimated to be unusually low in adjustments and other adjustments for inflation. Social
2007 due to refunds of certain telephone excise taxes. security outlays grow from $582 billion in 2007 to $762
They return to normal levels in 2008 and increase by billion in 2012, an average annual rate of 5.5 percent.
$13 billion from 2008 to 2012, in large part due to Medicare and medicaid are projected to grow at annual
increased economic activity and the expiration of var- average rates of 6.5 and 7.3 percent, respectively, out-
ious excise tax credits. Estate and gift taxes remain pacing inflation. Other areas of growth include federal
relatively level until 2010 when the estate tax is re- employee retirement (average annual growth of 3.5 per-
pealed. Other baseline receipts (customs duties and cent), unemployment compensation (5.6 percent) and
miscellaneous receipts) are projected to increase by $22 veterans programs (6.6 percent). Net interest payments
billion from 2007 to 2012. to the public total $238 billion in 2007 and $254 billion
Outlays.—Current services outlays are estimated to in 2008 and remain nearly level through the projection
grow from $2,735 billion in 2007 to $2,752 billion in period.
2008, a 0.6 percent increase. This small increase is Tables 25–9 and 25–10 show current services outlays
in part due to calendar quirks. When October 1 falls by function and by agency, respectively. A more de-
on a weekend, military pay and certain benefit pay- tailed presentation of outlays (by function, subfunction,
ments are paid on the previous Friday, shifting them category, and program) appears on the CD–ROM that
into the previous fiscal year. Between 2007 and 2012, accompanies this volume.
current services outlays are projected to increase at
Budget authority.—Tables 25–11 and 25–12 show cur- tation of budget authority with program level estimates
rent services estimates of budget authority by function appears on the CD–ROM that accompanies this volume.
and by agency, respectively. A more detailed presen-
Table 25–8. CHANGE IN BASELINE OUTLAY ESTIMATES BY CATEGORY

(Dollar amounts In billions)
Change 2007 to 2008 Change 2007 to 2012

2007 2008 2012 Annual aver-
Amount Percent Amount age rate
Outlays:
Discretionary:
DoD-Military .................................................................. 511 444 486 –67 –13.1% –25 –1.0%
Homeland security ....................................................... 35 36 38 * 0.9% 3 1.5%
International affairs ...................................................... 36 34 33 –2 –6.2% –3 –1.7%
Other discretionary ....................................................... 486 482 504 –4 –0.9% 18 0.7%
Subtotal, discretionary ...................................................... 1,032 961 1,028 –71 –6.8% –4 –0.1%

Mandatory:
Farm programs ............................................................ 14 14 15 –1 –3.8% * 0.3%
Medicaid ....................................................................... 192 204 273 12 6.3% 82 7.3%
Other health care ......................................................... 23 24 30 1 3.0% 7 5.2%
Medicare ....................................................................... 367 391 503 23 6.3% 136 6.5%
Federal employee retirement
and disability ............................................................ 105 109 124 4 4.3% 20 3.5%
Unemployment compensation ..................................... 32 34 42 2 7.3% 10 5.6%
Other income security programs ................................. 174 182 193 8 4.8% 19 2.1%
Social Security ............................................................. 582 608 762 26 4.4% 180 5.5%
Veterans programs ...................................................... 39 45 53 6 15.9% 15 6.6%
Other mandatory programs ......................................... 20 13 15 –7 –33.8% –5 –5.7%
Undistributed offsetting receipts .................................. –82 –86 –91 –4 5.0% –10 2.3%
Subtotal, mandatory ......................................................... 1,465 1,537 1,918 72 4.9% 453 5.5%

Net interest ....................................................................... 238 254 255 16 6.7% 17 1.4%
Total outlays ......................................................................... 2,735 2,752 3,201 17 0.6% 466 3.2%

Table 25–9. CURRENT SERVICES OUTLAYS BY FUNCTION

Estimate
2006
Function Actual 2007 2008 2009 2010 2011 2012
National defense:
Department of Defense—Military .............................................................. 499.3 512.4 446.1 457.6 466.0 477.2 488.5
Other .......................................................................................................... 22.5 22.7 23.2 23.6 23.5 23.4 23.8
Total, National defense ............................................................................. 521.8 535.1 469.3 481.1 489.5 500.6 512.3
International affairs ........................................................................................ 29.5 32.7 32.0 31.8 30.8 30.7 31.3
General science, space, and technology ..................................................... 23.6 24.9 25.7 26.6 26.6 27.1 27.7
Energy ............................................................................................................ 0.8 1.8 1.5 1.7 1.9 2.1 2.1
Natural resources and environment .............................................................. 33.1 35.1 33.1 31.9 33.1 33.8 34.9
Agriculture ...................................................................................................... 26.0 20.1 19.8 19.6 20.1 20.8 21.1
Commerce and housing credit ...................................................................... 6.2 0.2 –1.4 0.7 –0.4 –0.2 1.0
On-Budget ................................................................................................. (7.3) (–2.4) (0.9) (–1.0) (–1.7) (–2.1) (0.2)
Off-Budget ................................................................................................. (–1.1) (2.6) (–2.3) (1.7) (1.3) (1.9) (0.8)
Transportation ................................................................................................ 70.2 74.6 78.2 78.1 79.5 80.8 82.7
Community and regional development ......................................................... 54.5 31.4 23.7 20.4 17.4 17.9 14.5
Education, training, employment, and social services ................................. 118.6 94.0 88.2 91.0 94.2 96.0 97.3
Health ............................................................................................................. 252.8 268.5 281.7 300.2 316.4 336.5 359.6
Medicare ........................................................................................................ 329.9 372.3 395.6 423.4 452.4 498.1 508.8
Income security .............................................................................................. 352.5 365.4 380.4 389.4 399.5 415.5 415.0
Social security ................................................................................................ 548.5 586.5 612.5 644.9 683.3 723.0 767.4
On-Budget ................................................................................................. (16.1) (19.4) (20.0) (22.0) (24.2) (27.1) (30.1)
Off-Budget ................................................................................................. (532.5) (567.2) (592.5) (622.9) (659.1) (695.8) (737.3)
Veterans benefits and services ..................................................................... 69.8 72.4 79.5 83.3 87.4 95.9 92.0
Administration of justice ................................................................................ 41.0 45.3 44.7 44.9 45.5 46.2 47.6
General government ...................................................................................... 18.2 18.8 19.8 19.6 20.1 21.0 22.1
Net interest .................................................................................................... 226.6 237.7 253.5 258.4 259.1 257.8 255.0
On-Budget ................................................................................................. (324.3) (343.9) (368.2) (383.2) (395.6) (407.0) (417.9)
Off-Budget ................................................................................................. (–97.7) (–106.2) (–114.6) (–124.8) (–136.5) (–149.3) (–162.9)
Allowances ..................................................................................................... .................... .................... .................... .................... .................... .................... ....................
Employer share, employee retirement (on-budget) ................................. –49.2 –48.8 –51.7 –55.0 –58.4 –62.1 –65.6
Employer share, employee retirement (off-budget) ................................. –11.6 –12.3 –13.1 –13.8 –14.7 –15.8 –16.6
Rents and royalties on the Outer Continental Shelf ............................... –7.3 –6.8 –9.1 –9.9 –9.9 –9.6 –9.3
Sale of major assets ................................................................................. .................... .................... .................... –0.3 .................... .................... ....................
Other undistributed offsetting receipts ...................................................... –0.1 –13.8 –11.8 –2.2 –0.1 –0.1 ....................
Total, Undistributed offsetting receipts ..................................................... –68.2 –81.7 –85.8 –81.3 –83.1 –87.6 –91.5
On-Budget ............................................................................................. (–56.6) (–69.4) (–72.6) (–67.4) (–68.4) (–71.8) (–74.9)
Off-Budget ............................................................................................. (–11.6) (–12.3) (–13.1) (–13.8) (–14.7) (–15.8) (–16.6)
Total ............................................................................................................... 2,655.4 2,735.0 2,752.1 2,865.7 2,973.5 3,115.9 3,200.9
On-Budget ................................................................................................. (2,233.4) (2,283.7) (2,289.6) (2,379.8) (2,464.3) (2,583.2) (2,642.2)

Off-Budget ................................................................................................. (422.1) (451.3) (462.5) (485.9) (509.2) (532.7) (558.7)
Table 25–10. CURRENT SERVICES OUTLAYS BY AGENCY

Estimate
2006
Agency Actual 2007 2008 2009 2010 2011 2012
Legislative Branch ......................................................................................... 4.1 4.3 4.3 4.3 4.5 4.7 4.8
Judicial Branch .............................................................................................. 5.8 5.8 6.1 6.3 6.5 6.8 7.0
Agriculture ...................................................................................................... 93.5 88.6 89.3 90.6 93.2 96.2 98.9
Commerce ...................................................................................................... 6.4 6.2 6.5 6.9 7.0 6.8 6.7
Defense—Military ........................................................................................... 499.4 512.4 446.1 457.6 466.0 477.2 488.5
Education ....................................................................................................... 93.4 68.0 62.8 65.1 67.5 68.8 69.5
Energy ............................................................................................................ 19.6 21.9 21.8 22.7 22.8 22.7 23.2
Health and Human Services ......................................................................... 614.3 671.2 705.4 748.6 794.8 860.3 892.7
Homeland Security ........................................................................................ 69.1 49.1 40.4 38.8 34.6 35.0 35.9
Housing and Urban Development ................................................................. 42.4 42.8 44.2 43.5 42.5 43.5 40.5
Interior ............................................................................................................ 9.1 10.9 10.6 10.4 11.0 11.1 11.4
Justice ............................................................................................................ 23.3 22.9 23.9 24.8 25.2 25.3 26.1
Labor .............................................................................................................. 43.1 47.4 50.4 51.6 54.0 56.3 58.0
State ............................................................................................................... 13.0 15.3 14.5 14.6 14.3 14.2 14.5
Transportation ................................................................................................ 60.1 63.8 66.1 65.4 66.3 67.2 68.6
Treasury ......................................................................................................... 464.7 489.0 519.5 539.5 557.7 575.1 588.7
Veterans Affairs ............................................................................................. 69.8 72.3 79.4 83.2 87.3 95.6 91.8
Corps of Engineers—Civil Works .................................................................. 6.9 7.4 6.4 5.2 5.3 5.4 5.5
Other Defense Civil Programs ...................................................................... 44.4 47.6 49.1 50.4 51.4 52.5 52.8
Environmental Protection Agency ................................................................. 8.3 8.0 7.9 8.2 8.4 8.5 8.7
Executive Office of the President ................................................................. 5.4 2.7 1.4 0.7 0.5 0.4 0.4
General Services Administration ................................................................... * 0.5 0.6 –0.2 –0.3 –0.4 –0.3
International Assistance Programs ................................................................ 13.9 16.5 16.3 16.6 16.3 16.3 16.6
National Aeronautics and Space Administration .......................................... 15.1 16.1 16.8 17.6 17.5 17.7 18.2
National Science Foundation ........................................................................ 5.5 5.9 5.8 5.9 6.0 6.2 6.3
Office of Personnel Management ................................................................. 62.4 58.8 64.2 66.8 69.2 71.2 73.9
Small Business Administration ...................................................................... 0.9 0.7 0.7 0.5 0.5 0.5 0.5
Social Security Administration ....................................................................... 585.7 622.9 654.4 689.0 729.7 775.8 813.7
On-Budget ................................................................................................. (53.3) (55.7) (61.9) (66.1) (70.6) (80.0) (76.4)
Off-Budget ................................................................................................. (532.5) (567.2) (592.5) (622.9) (659.1) (695.8) (737.3)
Other Independent Agencies ......................................................................... 12.9 18.7 15.3 17.6 17.3 18.3 20.1
On-Budget ................................................................................................. (14.0) (16.0) (17.6) (15.9) (16.0) (16.4) (19.2)
Off-Budget ................................................................................................. (–1.1) (2.6) (–2.3) (1.7) (1.3) (1.9) (0.8)
Allowances ..................................................................................................... .................... .................... .................... .................... .................... .................... ....................
Undistributed Offsetting Receipts .................................................................. –237.5 –263.0 –278.1 –286.5 –303.4 –323.3 –342.3
On-Budget ................................................................................................. (–128.2) (–144.5) (–150.4) (–147.9) (–152.2) (–158.2) (–162.8)
Off-Budget ................................................................................................. (–109.3) (–118.5) (–127.7) (–138.6) (–151.2) (–165.1) (–179.5)
Total ............................................................................................................... 2,655.4 2,735.0 2,752.1 2,865.7 2,973.5 3,115.9 3,200.9

On-Budget ................................................................................................. (2,233.4) (2,283.7) (2,289.6) (2,379.8) (2,464.3) (2,583.2) (2,642.2)
Off-Budget ................................................................................................. (422.1) (451.3) (462.5) (485.9) (509.2) (532.7) (558.7)
Table 25–11. CURRENT SERVICES BUDGET AUTHORITY BY FUNCTION

Estimate
2006
Function Actual 2007 2008 2009 2010 2011 2012
National defense:
Department of Defense—Military .............................................................. 593.8 501.2 443.9 457.3 470.6 484.2 497.8
Other .......................................................................................................... 23.4 21.8 22.5 22.8 23.1 23.6 24.0
Total, National defense ............................................................................. 617.2 523.0 466.4 480.0 493.8 507.7 521.8
International affairs ........................................................................................ 32.8 27.1 29.5 31.1 31.9 32.7 33.6
General science, space, and technology ..................................................... 25.1 24.9 25.5 26.2 26.8 27.4 28.0
Energy ............................................................................................................ 0.3 1.2 1.5 1.6 1.8 2.1 2.2
Natural resources and environment .............................................................. 38.1 29.7 31.0 31.3 32.7 33.7 34.9
Agriculture ...................................................................................................... 25.6 19.1 20.0 19.7 20.5 20.9 21.5
Commerce and housing credit ...................................................................... 14.3 11.1 10.4 8.4 8.2 8.8 8.0
On-Budget ................................................................................................. (10.6) (2.8) (6.7) (6.7) (6.9) (6.9) (7.2)
Off-Budget ................................................................................................. (3.7) (8.3) (3.7) (1.7) (1.3) (1.9) (0.8)
Transportation ................................................................................................ 75.7 77.7 83.4 84.3 85.1 86.0 86.9
Community and regional development ......................................................... 31.2 12.7 13.0 13.5 13.8 14.2 14.6
Education, training, employment, and social services ................................. 125.9 91.7 92.2 94.8 97.6 98.6 100.8
Health ............................................................................................................. 295.2 242.3 283.5 303.1 320.5 341.9 364.7
Medicare ........................................................................................................ 365.4 371.9 395.5 423.8 452.1 498.1 509.2
Income security .............................................................................................. 351.1 361.0 377.9 390.3 402.3 421.1 419.0
Social security ................................................................................................ 552.2 589.2 614.6 647.9 686.6 726.3 771.3
On-Budget ................................................................................................. (16.1) (19.4) (20.0) (22.0) (24.2) (27.1) (30.1)
Off-Budget ................................................................................................. (536.2) (569.9) (594.6) (625.9) (662.4) (699.1) (741.2)
Veterans benefits and services ..................................................................... 71.0 74.5 79.5 83.8 88.0 92.4 96.8
Administration of justice ................................................................................ 42.7 43.7 44.7 43.9 45.1 46.6 48.0
General government ...................................................................................... 19.7 18.6 19.0 19.8 20.4 21.2 22.1
Net interest .................................................................................................... 226.6 237.7 253.5 258.4 259.1 257.8 255.0
On-Budget ................................................................................................. (324.3) (343.9) (368.2) (383.2) (395.6) (407.0) (417.9)
Off-Budget ................................................................................................. (–97.7) (–106.2) (–114.6) (–124.8) (–136.5) (–149.3) (–162.9)
Allowances ..................................................................................................... .................... .................... .................... .................... .................... .................... ....................
Employer share, employee retirement (on-budget) ................................. –49.2 –48.8 –51.7 –55.0 –58.4 –62.1 –65.6
Employer share, employee retirement (off-budget) ................................. –11.6 –12.3 –13.1 –13.8 –14.7 –15.8 –16.6
Rents and royalties on the Outer Continental Shelf ............................... –7.3 –6.8 –9.1 –9.9 –9.9 –9.6 –9.3
Sale of major assets ................................................................................. .................... .................... .................... –0.3 .................... .................... ....................
Other undistributed offsetting receipts ...................................................... –0.1 –13.8 –11.8 –2.2 –0.1 –0.1 ....................
Total, Undistributed offsetting receipts ..................................................... –68.2 –81.7 –85.8 –81.3 –83.1 –87.6 –91.5
On-Budget ............................................................................................. (–56.6) (–69.4) (–72.6) (–67.4) (–68.4) (–71.8) (–74.9)
Off-Budget ............................................................................................. (–11.6) (–12.3) (–13.1) (–13.8) (–14.7) (–15.8) (–16.6)
Total ............................................................................................................... 2,841.7 2,675.4 2,755.7 2,880.6 3,003.4 3,149.8 3,246.7
On-Budget ................................................................................................. (2,411.1) (2,215.8) (2,285.1) (2,391.7) (2,490.9) (2,613.8) (2,684.1)

Off-Budget ................................................................................................. (430.5) (459.6) (470.6) (488.9) (512.5) (536.0) (562.6)
MEMORANDUM
Discretionary budget authority:
National defense ....................................................................................... 556.5 519.9 462.9 476.6 490.4 504.3 518.3
International ............................................................................................... 35.9 29.9 30.7 31.4 32.2 33.0 33.7
Domestic .................................................................................................... 404.3 375.4 393.6 404.5 415.4 426.5 437.9
Total ............................................................................................................... 996.7 925.2 887.2 912.6 938.0 963.8 990.0

Table 25–12. CURRENT SERVICES BUDGET AUTHORITY BY AGENCY

Estimate
2006
Agency Actual 2007 2008 2009 2010 2011 2012
Legislative Branch ......................................................................................... 4.2 4.2 4.3 4.5 4.6 4.8 5.0
Judicial Branch .............................................................................................. 6.0 5.9 6.1 6.3 6.6 6.8 7.0
Agriculture ...................................................................................................... 97.3 87.4 91.8 93.1 96.1 99.1 102.0
Commerce ...................................................................................................... 6.6 7.9 6.1 6.4 6.5 6.7 6.9
Defense—Military ........................................................................................... 593.8 501.2 443.9 457.3 470.6 484.2 497.8
Education ....................................................................................................... 100.1 66.3 66.3 68.3 70.5 71.0 72.6
Energy ............................................................................................................ 21.1 20.5 21.2 21.7 22.2 22.8 23.3
Health and Human Services ......................................................................... 684.6 643.3 706.8 751.1 798.3 866.7 897.4
Homeland Security ........................................................................................ 32.4 34.1 33.1 35.5 34.3 35.3 36.3
Housing and Urban Development ................................................................. 52.4 33.8 38.4 39.3 40.3 41.0 41.8
Interior ............................................................................................................ 10.0 9.7 10.1 10.4 11.0 11.2 11.5
Justice ............................................................................................................ 23.1 22.6 24.6 24.1 24.7 25.5 26.4
Labor .............................................................................................................. 45.9 46.7 49.5 51.4 53.7 55.7 57.6
State ............................................................................................................... 15.4 13.0 13.3 13.6 14.0 14.3 14.7
Transportation ................................................................................................ 64.4 65.6 71.0 71.4 71.8 72.2 72.6
Treasury ......................................................................................................... 466.6 490.5 520.4 540.3 558.8 576.2 589.6
Veterans Affairs ............................................................................................. 71.0 74.4 79.5 83.7 87.9 92.1 96.6
Corps of Engineers—Civil Works .................................................................. 11.9 4.7 4.8 5.0 5.2 5.4 5.6
Other Defense Civil Programs ...................................................................... 44.7 47.8 49.2 50.6 51.6 52.7 53.0
Environmental Protection Agency ................................................................. 7.6 7.5 7.7 7.9 8.1 8.4 8.6
Executive Office of the President ................................................................. 0.3 0.4 0.3 0.4 0.4 0.4 0.4
General Services Administration ................................................................... 0.7 –0.2 –0.2 –0.2 –0.2 –0.2 –0.2
International Assistance Programs ................................................................ 18.7 14.5 15.1 16.4 16.8 17.2 17.6
National Aeronautics and Space Administration .......................................... 16.6 16.2 16.6 17.0 17.5 17.9 18.3
National Science Foundation ........................................................................ 5.7 5.7 5.9 6.0 6.2 6.3 6.4
Office of Personnel Management ................................................................. 66.8 62.2 66.9 69.5 72.0 75.5 77.0
Small Business Administration ...................................................................... 1.8 0.4 0.5 0.5 0.5 0.5 0.5
Social Security Administration ....................................................................... 589.5 626.3 655.5 692.0 733.0 778.7 818.1
On-Budget ................................................................................................. (53.4) (56.4) (60.9) (66.2) (70.6) (79.6) (76.9)
Off-Budget ................................................................................................. (536.2) (569.9) (594.6) (625.9) (662.4) (699.1) (741.2)
Other Independent Agencies ......................................................................... 20.0 26.0 25.0 23.5 23.8 24.9 24.5
On-Budget ................................................................................................. (16.3) (17.7) (21.3) (21.8) (22.4) (23.0) (23.7)
Off-Budget ................................................................................................. (3.7) (8.3) (3.7) (1.7) (1.3) (1.9) (0.8)
Allowances ..................................................................................................... .................... .................... .................... .................... .................... .................... ....................
Undistributed Offsetting Receipts .................................................................. –237.5 –263.0 –278.1 –286.5 –303.4 –323.3 –342.3
On-Budget ................................................................................................. (–128.2) (–144.5) (–150.4) (–147.9) (–152.2) (–158.2) (–162.8)
Off-Budget ................................................................................................. (–109.3) (–118.5) (–127.7) (–138.6) (–151.2) (–165.1) (–179.5)
Total ............................................................................................................... 2,841.7 2,675.4 2,755.7 2,880.6 3,003.4 3,149.8 3,246.7

On-Budget ................................................................................................. (2,411.1) (2,215.8) (2,285.1) (2,391.7) (2,490.9) (2,613.8) (2,684.1)
Off-Budget ................................................................................................. (430.5) (459.6) (470.6) (488.9) (512.5) (536.0) (562.6)
THE BUDGET SYSTEM AND CONCEPTS
389
26. THE BUDGET SYSTEM AND CONCEPTS
The budget system of the United States Government uments discuss these amounts and more detailed
provides the means for the President and Congress to amounts in greater depth.
decide how much money to spend, what to spend it The following section discusses the budget process,
on, and how to raise the money they have decided to covering formulation of the President’s budget, Congres-
spend. Through the budget system, they determine the sional action, and budget execution. The next section
allocation of resources among the agencies of the Fed- provides information on budget coverage, including a
eral Government and between the Federal Government discussion of on-budget and off-budget amounts, func-
and the private sector. The budget system focuses pri- tional classification, how budget data is arrayed, types
marily on dollars, but it also allocates other resources, of funds, and full cost budgeting. Subsequent sections
such as Federal employment. The decisions made in discuss the concepts of receipts and collections, budget
the budget process affect the nation as a whole, State authority, and outlays. These sections are followed by
and local governments, and individual Americans. discussions of Federal credit; surpluses, deficits, and
Many budget decisions have worldwide significance. means of financing; Federal employment; and the basis
The Congress and the President enact budget decisions for the budget figures. A glossary of budget terms ap-
into law. The budget system ensures that these laws pears at the end of the chapter.
are carried out. Various laws, enacted to carry out requirements of
This chapter provides an overview of the budget sys- the Constitution, govern the budget system. The chap-
tem and explains some of the more important budget ter refers to the principal ones by title throughout the
concepts. It includes summary dollar amounts to illus- text and gives complete citations in the section just
trate major concepts. Other chapters of the budget doc- preceding the glossary.
THE BUDGET PROCESS
The budget process has three main phases, each of on these guidelines, the Office of Management and
which is interrelated with the others: Budget (OMB) works with the Federal agencies to es-
(1) Formulation of the President’s proposed budget; tablish specific policy directions and planning levels for
(2) Congressional action on the budget; and the agencies, both for the budget year and for at least
(3) Budget execution. the following four years, to guide the preparation of
their budget requests.
Formulation of the President’s Budget During the formulation of the budget, the President,
The Budget of the United States Government consists the Director of OMB, and other officials in the Execu-
of several volumes that set forth the President’s finan- tive Office of the President continually exchange infor-
cial proposal with recommended priorities for the allo- mation, proposals, and evaluations bearing on policy
cation of resources by the Government. The primary decisions with the Secretaries of the departments and
focus of the budget is on the budget year—the next the heads of the other Government agencies. Decisions
fiscal year for which Congress needs to make appropria- reflected in previously enacted budgets, including the
tions, in this case 2008. (Fiscal year 2008 will begin one for the fiscal year in progress, reactions to the
on October 1, 2007 and end on September 30, 2008.) last proposed budget (which Congress is considering
The budget also covers at least the four years following when the process of preparing the upcoming budget
the budget year in order to reflect the effect of budget begins), and program performance influence decisions
decisions over the longer term. It includes the funding concerning the upcoming budget. So do projections of
levels provided for the current year, in this case 2007, the economic outlook, prepared jointly by the Council
so that the reader can compare the President’s budget of Economic Advisers, OMB, and the Treasury Depart-
proposals to the most recently enacted levels, and it ment.
includes data on the most recently completed fiscal In early Fall, agencies submit their budget requests
year, in this case 2006, so that the reader can compare to OMB, where analysts review them and identify
budget estimates to actual accounting data. issues that OMB officials need to discuss with the agen-
The President begins the process of formulating the cies. OMB and the agencies resolve many issues them-
budget by establishing general budget and fiscal policy selves. Others require the involvement of the President
guidelines, usually by the Spring of each year, at least and White House policy officials. This decision-making
nine months before the President transmits the budget process is usually completed by late December. At that
to Congress and at least 18 months before the fiscal time, the final stage of developing detailed budget data
year begins. (See the ‘‘Budget Calendar’’ below.) Based and the preparation of the budget documents begins.
391
The decision-makers must consider the effects of eco- and, in some cases, limits the amount that can be ap-
nomic and technical assumptions on the budget esti- propriated for the programs. Some authorizing legisla-
mates. Interest rates, economic growth, the rate of in- tion expires after one year, some expires after a speci-
flation, the unemployment rate, and the number of peo- fied number of years, and some is permanent. Congress
ple eligible for various benefit programs, among other may enact appropriations for a program even though
things, affect Government spending and receipts. Small there is no specific authorization for it.
changes in these assumptions can affect budget esti- Congress begins its work on the budget shortly after
mates by billions of dollars. (Chapter 12, ‘‘Economic it receives the President’s budget. Under the procedures
Assumptions,’’ provides more information on this sub- established by the Congressional Budget Act of 1974,
ject.) Congress decides on budget totals before completing ac-
Statutory limitations on changes in receipts and out- tion on individual appropriations. The Act requires each
lays also influence budget decisions (see ‘‘Budget En- standing committee of the House and Senate to rec-
forcement’’ below). ommend budget levels and report legislative plans con-
Thus, the budget formulation process involves the si-
cerning matters within the committee’s jurisdiction to
multaneous consideration of the resource needs of indi-
the Budget Committee in each body. The Budget Com-
vidual programs, the allocation of resources among the
agencies and functions of the Federal Government, the mittees then initiate the concurrent resolution on the
total outlays and receipts that are appropriate in rela- budget. The budget resolution sets levels for total re-
tion to current and prospective economic conditions, and ceipts and for budget authority and outlays, both in
statutory constraints. total and by functional category (see ‘‘Functional Classi-
The law governing the President’s budget specifies fication’’ below). It also sets levels for the budget deficit
that the President is to transmit the budget to Congress or surplus and for Federal debt.
on or after the first Monday in January but not later In the report on the budget resolution, the Budget
than the first Monday in February of each year for Committees allocate the total on-budget budget author-
the following fiscal year, which begins on October 1. ity and outlays provided in the resolution to the Appro-
The budget is routinely sent to Congress on the first priations Committees and the other committees that
Monday in February, giving Congress eight months to have jurisdiction over spending. (See COVERAGE OF
act on the budget before the fiscal year begins. THE BUDGET, later in this chapter, for more informa-
tion on on-budget and off-budget amounts.) The Appro-
Congressional Action 1 priations Committees are required, in turn, to divide
Congress considers the President’s budget proposals their allocations of budget authority and outlays among
and approves, modifies, or disapproves them. It can their respective subcommittees. The subcommittees
change funding levels, eliminate programs, or add pro- may not exceed their allocations in drafting spending
grams not requested by the President. It can add or bills. The other committees with jurisdiction over
eliminate taxes and other sources of receipts, or make spending and receipts may make allocations among
other changes that affect the amount of receipts col- their subcommittees but are not required to do so. The
lected. Budget Committees’ reports may discuss assumptions
Congress does not enact a budget as such. Through about the level of funding for major programs. While
the process of adopting a budget resolution (described these assumptions do not bind the other committees
below), it agrees on levels for total spending and re- and subcommittees, they may influence their decisions.
ceipts, the size of the deficit or surplus, and the debt The budget resolution may contain ‘‘reconciliation direc-
limit. The budget resolution then provides the frame- tives’’ (discussed below) to the committees responsible
work within which congressional committees prepare for tax laws and for spending not controlled by annual
appropriations bills and other spending and receipts appropriation acts, in order to conform the level of re-
legislation. Congress provides spending authority for ceipts and this type of spending to the levels specified
specified purposes in appropriations acts each year. It in the budget resolution.
also enacts changes each year in other laws that affect The congressional timetable calls for the whole Con-
spending and receipts. Both appropriations acts and gress to adopt the budget resolution by April 15 of
these other laws are discussed in the following para- each year, but Congress regularly misses this deadline.
graphs. Once Congress passes a budget resolution, a member
In making appropriations, Congress does not vote on of Congress can raise a point of order to block a bill
the level of outlays (spending) directly, but rather on that would exceed a committee’s allocation.
budget authority, which is the authority provided by Since the concurrent resolution on the budget is not
law to incur financial obligations that will result in a law, it does not require the President’s approval.
outlays. In a separate process, prior to making appro-
However, Congress considers the President’s views in
priations, Congress usually enacts legislation that au-
preparing budget resolutions, because legislation devel-
thorizes an agency to carry out particular programs
oped to meet congressional budget allocations does re-
1 For a fuller discussion of the congressional budget process, see Robert Keith and Allen quire the President’s approval. In some years, the Presi-
Schick, Manual on the Federal Budget Process (Congressional Research Service Report
98–720 GOV) and Introduction to the Federal Budget Process (Congressional Research Serv-
dent and the joint leadership of Congress have formally
ice Report 98–721 GOV). agreed on plans to reduce the deficit or balance the
26. THE BUDGET SYSTEM AND CONCEPTS 393
budget. These agreements were reflected in the budget the last enacted appropriations bill, which was the De-
resolution and legislation passed for those years. partment of Defense, Emergency Supplemental Appro-
Once Congress approves the budget resolution, it priations to Address Hurricanes in the Gulf of Mexico,
turns its attention to enacting appropriations bills and and Pandemic Influenza Act, 2006.
authorizing legislation. Appropriations bills are initi- Congress also provides budget authority in laws other
ated in the House. They provide the budgetary re- than appropriations acts. In fact, while annual appro-
sources for the majority of Federal programs. The Ap- priations acts control the spending for the majority of
propriations Committee in each body has jurisdiction Federal programs, they only control about 35 percent
over annual appropriations. These committees are di- of the total spending in a typical year. Authorizing
vided into subcommittees that hold hearings and review legislation controls the rest of the spending. A distinc-
detailed budget justification materials prepared by the tive feature of these laws is that they provide agencies
agencies within the subcommittee’s jurisdiction. After with the authority to collect or to spend money without
a bill has been drafted by a subcommittee, the com- first requiring the Appropriations Committees to enact
mittee and the whole House, in turn, must approve funding. This category of spending includes interest the
the bill, usually with amendments to the original Government pays on the public debt and the spending
version. The House then forwards the bill to the Senate, of several major programs, such as Social Security,
where a similar review follows. If the Senate disagrees Medicare and Medicaid, unemployment insurance, and
with the House on particular matters in the bill, which Federal employee retirement. This chapter discusses
is often the case, the two bodies form a conference the control of budget authority and outlays in greater
committee (consisting of Members of both bodies) to detail under BUDGET AUTHORITY AND OTHER
resolve the differences. The conference committee re- BUDGETARY RESOURCES, OBLIGATIONS, AND
vises the bill and returns it to both bodies for approval. OUTLAYS.
When the revised bill is agreed to, first in the House Almost all taxes and most other receipts result from
and then in the Senate, Congress sends it to the Presi- authorizing laws. Article I, Section 7, of the Constitu-
dent for approval or veto. tion provides that all bills for raising revenue shall
For 23 of the last 26 fiscal years, including 2007, originate in the House of Representatives. In the
some or all of the appropriations bills were not enacted House, the Ways and Means Committee initiates tax
by the beginning of the year. When this occurs, Con- bills; in the Senate, the Finance Committee has juris-
gress usually enacts a joint resolution called a ‘‘con- diction over tax laws.
tinuing resolution,’’ which is an interim appropriations The budget resolution often includes reconciliation di-
bill, to provide authority for the affected agencies to rectives, which require authorizing committees to
continue operations at some specified level up to a spe- change laws that affect receipts and outlays. The budg-
cific date or until the regular appropriations are en- et resolution directs each designated committee to re-
acted. In some years, a continuing resolution has fund- port amendments to the laws under the committee’s
ed a portion or all of the Government for the entire jurisdiction that would achieve changes in the levels
year. of receipts and reductions in direct spending controlled
Most continuing resolutions instruct the Administra- by the laws. The directives specify the dollar amount
tion to take the most limited funding action permitted of changes that each designated committee is expected
by the CR, so as not to impinge on the final funding to achieve, but do not specify which laws are to be
prerogatives of the Congress. Congress must present changed or the changes to be made. However, the Budg-
these resolutions to the President for approval or veto. et Committees’ reports on the budget resolution fre-
In some cases, Presidents have rejected continuing reso- quently discuss assumptions about how the laws would
lutions because they contained unacceptable provisions. be changed. Like other assumptions in the report, they
Left without funds, Government agencies were required do not bind the committees of jurisdiction but may in-
by law to shut down operations—with exceptions for fluence their decisions. A reconciliation instruction may
some activities—until Congress passed a continuing also specify the total amount by which the statutory
resolution the President would approve. Shutdowns limit on the public debt is to be changed.
have lasted for periods of a day to several weeks. The committees subject to reconciliation directives
As regular appropriations acts are subsequently en- draft the implementing legislation. Such legislation
acted, the Executive Branch agencies typically adopt may, for example, change the tax code, revise benefit
operating plans that allow the Congress to enact subse- formulas or eligibility requirements for benefit pro-
quent across-the-board reductions in the final appro- grams, or authorize Government agencies to charge fees
priations act. Every year since fiscal year 2002, the to cover some of their costs. Congress typically enacts
Congress has consistently taken actions in appropria- an omnibus budget reconciliation act, which combines
tions acts to cancel amounts appropriated in previous the amendments to implement reconciliation directives
laws. Typically, these subsequent reductions have been in a single act.
enacted in the latest or last appropriation act. Some- Such a large and complicated bill would be difficult
times the last act has been a consolidated, omnibus, to enact under normal legislative procedures because
or supplemental appropriations act. For fiscal year it usually involves changes to tax rates or to popular
2006, the across-the-board reduction was included in social programs in order to achieve budgetary savings.
The Senate considers such omnibus reconciliation acts crease in receipts for each year that was affected. Oth-
under expedited procedures that limit total debate on erwise, a sequestration would be triggered in the fiscal
the bill. As a result, there are significant restrictions year in which the deficit would be increased.
with respect to the substantive content of the reconcili- Chapter 24, ‘‘Budget System and Concepts and Glos-
ation measure itself, as well as permissible amend- sary,’’ pages 460–461 in the Analytical Perspectives vol-
ments to the measure. Any material in the bill or ume of the 2004 Budget, discusses the Budget Enforce-
amendment to the bill that is not germane, would add ment Act in more detail.
extraneous material, would cause deficit levels to in- The BEA expired at the end of 2002. The Administra-
crease, or that contains changes to the Federal Old- tion proposes to extend the BEA’s mechanisms for lim-
Age and Survivors Insurance and the Federal Disability iting discretionary spending and to establish mandatory
Insurance programs are not in order under expedited spending controls. The Administration also proposes to
reconciliation procedures. establish a new mechanism to measure the Federal
Reconciliation acts, together with appropriations acts Government’s long-term unfunded obligations and to
for the year, often implement agreements between the prohibit increases in those obligations. These proposals
President and the Congress. They may include other are discussed in more detail in Chapter 15 of this vol-
matters, such as laws providing the means for enforcing ume, ‘‘Budget Reform Proposals.’’
these agreements, as described below.
Budget Execution
Budget Enforcement
Government agencies may not spend or obligate more
The Budget Enforcement Act (BEA), first enacted in than Congress has appropriated, and they may use
1990 and extended in 1993 and 1997, significantly funds only for purposes specified in law. The
amended the laws pertaining to the budget process, Antideficiency Act prohibits them from spending or obli-
including the Congressional Budget Act, the Balanced gating the Government to spend in advance of an ap-
Budget and Emergency Deficit Control Act, and the propriation, unless specific authority to do so has been
laws pertaining to the President’s budget (see PRIN- provided in law. Additionally, the Act requires the
CIPAL BUDGET LAWS, later in the chapter). The BEA President to apportion the budgetary resources avail-
constrained legislation enacted through 2002 that able for most executive branch agencies. The President
would increase spending or decrease spending. has delegated this authority to OMB. Some apportion-
The BEA divided spending into two types—discre- ments are by time periods (usually by quarter of the
tionary spending and direct spending. Discretionary fiscal year), some are by projects or activities, and oth-
spending is controlled through annual appropriations ers are by a combination of both. Agencies may request
acts. Direct spending, which is more commonly referred OMB to reapportion funds during the year to accommo-
to as mandatory spending, is controlled by author- date changing circumstances. This system helps to en-
izing laws. However, the BEA required budget author- sure that funds are available to cover operations for
ity provided in annual appropriations acts for certain the entire year.
specifically identified programs to be treated as manda- During the budget execution phase, the Government
tory. This is because the authorizing legislation in these sometimes finds that it needs to spend more money
cases entitles beneficiaries to receive payment or other- than Congress has appropriated for the fiscal year be-
wise obligates the Government to make payment, even cause of unanticipated circumstances. For example,
though the payments are funded by a subsequent ap- more money might be needed to respond to a severe
propriation. Since the authorizing legislation effectively natural disaster. Under such circumstances, Congress
determines the amount of budget authority required, may enact a supplemental appropriation.
the BEA classified it as mandatory. On the other hand, the President may initiate the
The BEA defined categories of discretionary spending withholding of funds. Amounts that are withheld are
and specified dollar limits known as caps on the apportioned as ‘‘deferred’’ or ‘‘withheld pending rescis-
amount of spending in each category. If the amount sion’’ on the OMB approved apportionment form. Agen-
of budget authority or outlays provided in appropria- cies are instructed not to withhold funds without the
tions acts for a given year exceeded the cap for that prior approval of OMB. When OMB approves a with-
category, the BEA required a procedure, called seques- holding, the Impoundment Control Act requires that
tration, for reducing the spending in the category. the President transmit a ‘‘special message’’ to the Con-
The BEA did not cap mandatory spending. Instead, gress. The historical reason for the special message is
it required that all laws that affected mandatory spend- to inform Congress that the President has unilaterally
ing or receipts be enacted on a pay-as-you-go (PAYGO) withheld funds that were enacted in regular appropria-
basis. That meant that if such a law increased the tions acts. The notification allows the Congress to over-
deficit or reduced a surplus in the budget year or any turn the deferral or proposed rescission. The last time
of the four following years, another law had to be en- the President initiated the withholding of funds was
acted with an offsetting reduction in spending or in- six years ago.
Budget Calendar
The following timetable highlights the scheduled dates for significant budget events during the year:
Between the 1st Monday in January and the 1st
Monday in February .................................................. President transmits the budget.
Six weeks later ............................................................... Congressional committees report budget estimates to Budget Committees.
April 15 ........................................................................... Action to be completed on congressional budget resolution.
May 15 ............................................................................ House consideration of annual appropriations bills may begin.
June 15 ........................................................................... Action to be completed on reconciliation.
June 30 ........................................................................... Action on appropriations to be completed by House.
July 15 ............................................................................ President transmits Mid-Session Review of the Budget.
October 1 ........................................................................ Fiscal year begins.
COVERAGE OF THE BUDGET
Federal Government and Budget Totals eral agencies, programs, and activities. In recent years,
Table 26–1. TOTALS FOR THE BUDGET AND THE FEDERAL GOVERNMENT
for example, the budget has included the transactions
of the Universal Service Fund, the Public Company
Accounting Oversight Board, Guaranty Agencies Re-
2006 Estimate serves, the National Railroad Retirement Investment
actual 2007 2008 Trust, the United Mine Workers Combined Benefits
Fund, the Telecommunications Development Fund, and
Budget authority: the transactions of Electric Reliability Organizations
Unified ..................................................... 2,842 2,799 2,941 (EROs) established pursuant to the Energy Policy Act
On-budget ................................................ 2,411 2,340 2,470 of 2005.
Off-budget ................................................ 431 460 471
The budget also reclassifies as governmental the col-
Receipts: lections and spending by the affordable housing pro-
Unified ..................................................... 2,407 2,540 2,662
On-budget ................................................ 1,799 1,906 1,988 gram (AHP) funds created by the Financial Institutions
Off-budget ................................................ 608 634 674 Reform, Recovery, and Enforcement Act of 1989
Outlays: (FIRREA) and includes them in the budget totals.
Unified ..................................................... 2,655 2,784 2,902 FIRREA requires each of the 12 Federal Home Loan
On-budget ................................................ 2,233 2,333 2,439 Banks (FHLBs) to contribute at least 10 percent of
Off-budget ................................................ 422 451 463 its previous year’s net earnings to an AHP fund to
Surplus/Deficit(–): be used to subsidize owner-occupied and rental housing
Unified ..................................................... –248 –244 –239 for low-income families and individuals and to provide
On-budget ................................................ –434 –427 –451
Off-budget ................................................ 186 183 212 assistance to certain first-time homebuyers. Since 1990,
the FHLBs have contributed $2.7 billion to the AHP
The budget documents provide information on all funds, of which $1.9 billion has been spent. Although
Federal agencies and programs. However, because the the funds remain in the possession of the FHLBs, the
laws governing Social Security (the Federal Old-Age deposit of specific amounts into the AHP funds is com-
and Survivors Insurance and the Federal Disability In- pulsory, and the expenditures are to meet specific gov-
surance trust funds) and the Postal Service Fund ex- ernmental purposes.
clude the receipts and outlays for those activities from In contrast, the budget excludes tribal trust funds
the budget totals and from the calculation of the deficit that are owned by Indian tribes and held and managed
or surplus, the budget presents on-budget and off-budg- by the Government in a fiduciary capacity on the tribes’
et totals. The off-budget totals include the transactions behalf. These funds are not owned by the Government,
excluded by law from the budget totals. The on-budget the Government is not the source of their capital, and
and off-budget amounts are added together to derive the Government’s control is limited to the exercise of
the totals for the Federal Government. These are some- fiduciary duties. Similarly, the transactions of Govern-
times referred to as the unified or consolidated budget ment-sponsored enterprises, such as the FHLBs are not
totals. included in the on-budget or off-budget totals. Federal
It is not always obvious whether a transaction or laws established these enterprises for public policy pur-
activity should be included in the budget. Where there poses, but they are privately owned and operated cor-
is a question, OMB normally follows the recommenda- porations. Because of their public charters, the budget
tion of the 1967 President’s Commission on Budget discusses them and reports summary financial data in
Concepts to be comprehensive of the full range of Fed- the budget Appendix and in some detailed tables.
The Appendix includes a presentation for the Board Types of Funds

of Governors of the Federal Reserve System for infor-
Agency activities are financed through Federal funds
mation only. The amounts are not included in either
and trust funds.
the on-budget or off-budget totals because of the inde-
pendent status of the System within the Government. Federal funds comprise several types of funds. Re-
However, the Federal Reserve System transfers its net ceipt accounts of the general fund, which is the great-
earnings to the Treasury, and the budget records them er part of the budget, record receipts not earmarked
as receipts. by law for a specific purpose, such as income tax re-
ceipts. The general fund also includes the proceeds of
Functional Classification general borrowing. General fund appropriation accounts
The functional classification arrays budget authority, record general fund expenditures. General fund appro-
outlays, and other budget data according to the major priations draw from general fund receipts and bor-
purpose served—such as agriculture, income security, rowing collectively and, therefore, are not specifically
and national defense. There are nineteen major func- linked to receipt accounts. Special funds consist of
tions, most of which are divided into subfunctions. For receipt accounts for Federal fund receipts that laws
example, the Agriculture function comprises the sub- have earmarked for specific purposes and the associated
functions Farm Income Stabilization and Agricultural appropriation accounts for the expenditure of those re-
Research and Services. The functional array meets the ceipts. Public enterprise funds are revolving funds
Congressional Budget Act requirement for a presen- used for programs authorized by law to conduct a cycle
tation in the budget by national needs and agency mis- of business-type operations, primarily with the public,
sions and programs. in which outlays generate collections.
The following criteria are used in establishing func- Intragovernmental funds are revolving funds that
tional categories and assigning activities to them: conduct business-type operations primarily within and
• A function encompasses activities with similar between Government agencies. The collections and the
purposes, emphasizing what the Federal Govern- outlays of revolving funds are recorded in the same
ment seeks to accomplish rather than the means budget account.
of accomplishment, the objects purchased, the cli- Trust funds account for the receipt and expenditure
entele or geographic area served, or the Federal of monies by the Government for carrying out specific
agency conducting the activity (except in the case purposes and programs in accordance with the terms
of subfunction 051 in the National Defense func- of a statute that designates the fund as a trust fund
tion, which is used only for defense activities (such as the Highway Trust Fund) or for carrying out
under the Department of Defense—Military). the stipulations of a trust where the Government itself
• A function must be of continuing national impor- is the beneficiary (such as any of several trust funds
tance, and the amounts attributable to it must for gifts and donations for specific purposes). Trust
be significant.
revolving funds are trust funds credited with collec-
• Each basic unit being classified (generally the ap-
tions earmarked by law to carry out a cycle of business-
propriation or fund account) usually is classified
according to its primary purpose and assigned to type operations.
only one subfunction. However, some large ac- The Federal budget meaning of the term ‘‘trust,’’ as
counts that serve more than one major purpose applied to trust fund accounts, differs significantly from
are subdivided into two or more subfunctions. its private sector usage. In the private sector, the bene-
Detailed functional tables, which provide information ficiary of a trust usually owns the trust’s assets, which
on government activities by function and subfunction, are managed by a trustee who must follow the stipula-
appear this year on the Analytical Perspectives CD tions of the trust. In contrast, the Federal Government
ROM as Table 27. owns the assets of most Federal trust funds, and it
can raise or lower future trust fund collections and
Agencies, Accounts, Programs, Projects, and payments, or change the purposes for which the collec-
Activities tions are used, by changing existing laws. There is no
Various summary tables in the Analytical Perspec- substantive difference between a trust fund and a spe-
tives volume of the budget provide information on budg- cial fund or between a trust revolving fund and a public
et authority, outlays, and offsetting collections and re- enterprise revolving fund. However, in some instances,
ceipts arrayed by Federal agency. A table that lists the Government does act as a true trustee of assets
budget authority and outlays by budget account within that are owned or held for the benefit of others. For
each agency and the totals for each agency of budget example, it maintains accounts on behalf of individual
authority, outlays, and receipts that offset the agency Federal employees in the Thrift Savings Fund, invest-
spending totals appears this year on the Analytical Per- ing them as directed by the individual employee. The
spectives CD ROM as Table 28. The Appendix provides Government accounts for such funds in deposit funds,
budgetary, financial, and descriptive information about which are not included in the budget. (Chapter 22 of
programs, projects, and activities by account within this volume, ‘‘Trust Funds and Federal Funds,’’ pro-
each agency. vides more information on this subject.)
Budgeting for Full Costs projects in government, in which the full cost of a cap-
A budget is a financial plan for allocating resources— ital asset as the cash is paid out is compared with
deciding how much the Federal Government should the full stream of future benefits (all in terms of
spend in total, program by program, and for the parts present values). (Chapter 6 of this volume, ‘‘Federal
of each program and deciding how to finance the spend- Investment,’’ provides more information on capital in-
ing. The budgetary system provides a process for pro- vestment.)
posing policies, making decisions, implementing them, There have been a number of proposals to change
and reporting the results. The budget needs to measure the basis for measuring capital investment in the budg-
costs accurately so that decision makers can compare et. Many of these would undermine effective consider-
the cost of a program with its benefit, the cost of one ation and control of costs by spreading the real cost
program with another, and the cost of alternative meth- of the project over time and record as a current oper-
ods of reaching a specified goal. These costs need to ating expense the annual depreciation for each year
be fully included in the budget up front, when the of an asset’s life. No depreciation would be recorded
spending decision is made, so that executive and con- until after the asset was put into service. This could
gressional decision makers have the information and be several years after the initial expenditure, in which
the incentive to take the total costs into account for case the budget would record no expenses at all in
setting priorities. the budget year or several years thereafter, even
The budget includes all types of spending, including though the Government is legally obligated to buy the
both current operating expenditures and capital invest- asset, and the asset is being constructed or manufac-
ment, and to the extent possible, both are measured tured. Recording the annual depreciation in the budget
on the basis of full cost. Questions are often raised each year would provide little control over the decision
about the measure of capital investment. The present about whether to invest in the first place. Control can
budget provides policymakers the necessary information only be exercised up front when the Government com-
regarding investment spending. It records investment mits itself to the full sunk cost. Spreading the costs
on a cash basis, and it requires Congress to provide over time would make the cost of a capital asset appear
budget authority before an agency can obligate the Gov- very cheap when decisions were being made that com-
ernment to make a cash outlay. By these means, it pared it to alternative expenditures. As a result, the
causes the total cost of capital investment to be com- Government would have an incentive to purchase cap-
pared up front in a rough and ready way with the ital assets with little regard for need, and also with
total expected future net benefits. Since the budget little regard for the least-cost method of acquisition.
measures only cost, the benefits with which these costs Chapter 7, ‘‘Federal Investment Spending and Capital
are compared, based on policy makers’ judgment, must Budgeting,’’ pages 157–165 in the Analytical Perspec-
be presented in supplementary materials. Such a com- tives volume of the 2004 Budget, discusses alternative
parison of total costs with benefits is consistent with capital budget and capital expenditure presentations in
the formal method of cost-benefit analysis of capital more detail.
RECEIPTS, OFFSETTING COLLECTIONS, AND OFFSETTING RECEIPTS
In General compulsory user charges, regulatory fees, customs du-

The budget records money collected by Government ties, court fines, certain license fees, and deposits of
agencies two different ways. Depending on the nature earnings by the Federal Reserve System. Total receipts
of the activity generating the collection and the law for the Federal Government include both on-budget and
that established the collection, they are recorded as off-budget receipts (see Table 26–1, ‘‘Totals for the
either: Budget and the Federal Government,’’ which appears
• Governmental receipts, which are compared in earlier in this chapter.) Chapter 17 of this volume,
total to outlays (net of offsetting collections and ‘‘Federal Receipts,’’ provides more information on re-
receipts) in calculating the surplus or deficit; or ceipts.
• Offsetting collections or offsetting receipts,
which are deducted from gross outlays to calculate Offsetting Collections and Offsetting Receipts
net outlay figures. Offsetting collections and offsetting receipts are re-
corded as offsets to (deductions from) spending, not as
Governmental receipts additions on the receipt side of the budget. As explained
Governmental receipts are collections that result from below, they are recorded as offsets to spending so that
the Government’s exercise of its sovereign power to tax the budget totals represent governmental rather than
or otherwise compel payment and from gifts of money market activity and reflect the Government’s net trans-
to the Government. Sometimes they are called receipts, actions with the public. They are recorded in one of
Federal receipts, or Federal revenues. They consist two ways, based on interpretation of laws and long-
mostly of individual and corporation income taxes and standing budget concepts and practice. They are offset-
social insurance taxes, but also include excise taxes, ting collections when the collections are authorized by
law to be credited to expenditure accounts. Otherwise, ple, a permanent law authorizes the Postal Service to
they are deposited in receipt accounts and called offset- use collections from the sale of stamps to finance its
ting receipts. operations without a requirement for annual appropria-
Offsetting collections and offsetting receipts result tions. The budget records these collections in the Postal
from one of the following types of transactions: Service Fund (a revolving fund) and records budget au-
• Business-like transactions or market-oriented thority in an amount equal to the collections. In addi-
activities with the public—collections from the tion to revolving funds, some agencies are authorized
public in exchange for goods or services, such as to charge fees to defray a portion of costs for a program
the proceeds from the sale of postage stamps, the that are otherwise financed by appropriations from the
fees charged for admittance to recreation areas, general fund and usually to spend the collections with-
and the proceeds from the sale of Government- out further action by Congress. In such cases, the budg-
owned land. The budget records these amounts et records the offsetting collections and resulting budget
as offsetting collections from non-Federal sources authority in the program’s general fund expenditure
(for offsetting collections) or as proprietary receipts account. Similarly, intragovernmental collections au-
(for offsetting receipts). The amounts are deducted thorized by some laws may be recorded as offsetting
from gross budget authority and outlays, rather collections and budget authority in revolving funds or
than added to receipts. This treatment produces in general fund expenditure accounts.
budget totals for receipts, budget authority, and Sometimes appropriations acts or provisions in other
outlays that represent governmental rather than laws limit the obligations that can be financed by offset-
market activity. ting collections. In those cases, the budget records budg-
• Intragovernmental transactions—collections et authority in the amount available to incur obliga-
from other Federal Government accounts. The tions, not in the amount of the collections.
budget records collections by one Government ac- Offsetting collections credited to expenditure accounts
count from another as offsetting collections from automatically offset the outlays at the expenditure ac-
Federal sources (for offsetting collections) or as count level. Where accounts have offsetting collections,
intragovernmental receipts (for offsetting receipts). the budget shows the budget authority and outlays of
For example, the General Services Administration the account both gross (before deducting offsetting col-
rents office space to other Government agencies lections) and net (after deducting offsetting collections).
and records their rental payments as offsetting Totals for the agency, subfunction, and budget are net
collections from Federal sources in the Federal of offsetting collections.
Buildings Fund. These transactions are exactly
offsetting and do not affect the surplus or deficit. Offsetting Receipts
However, they are an important accounting mech- Collections that are offset against gross outlays but
anism for allocating costs to the programs and are not authorized to be credited to expenditure ac-
activities that cause the Government to incur the counts are credited to receipt accounts and are called
costs. Intragovernmental offsetting collections and offsetting receipts. Offsetting receipts are deducted from
receipts are deducted from gross budget authority budget authority and outlays in arriving at total budget
and outlays so that the budget totals measure the authority and outlays. However, unlike offsetting collec-
transactions of the Government with the public. tions credited to expenditure accounts, offsetting re-
• Offsetting governmental transactions—collec- ceipts do not offset budget authority and outlays at
tions from the public that are governmental in the account level. In most cases, they offset budget
nature (e.g., tax receipts, regulatory fees, compul- authority and outlays at the agency and subfunction
sory user charges, custom duties, license fees) but levels.
required by law to be misclassified as offsetting. Proprietary receipts from a few sources, however, are
The budget records amounts from non-Federal not offset against any specific agency or function and
sources that are governmental in nature as offset- are classified as undistributed offsetting receipts. They
ting governmental collections (for offsetting collec- are deducted from the Government-wide totals for budg-
tions) or as offsetting governmental receipts (for et authority and outlays. For example, the collections
offsetting receipts). of rents and royalties from outer continental shelf lands
A table in Chapter 21 of this volume, ‘‘Outlays to are undistributed because the amounts are large and
the Public, Gross and Net,’’ shows the effect of offset- for the most part are not related to the spending of
ting collections and receipts on gross outlays for each the agency that administers the transactions and the
major Federal agency. subfunction that records the administrative expenses.
Similarly, two kinds of intragovernmental trans-
Offsetting Collections
actions—agencies’ payments as employers into Federal
Some laws authorize agencies to credit collections di- employee retirement trust funds and interest received
rectly to the account from which they will be spent by trust funds—are classified as undistributed offset-
and, usually, to spend the collections for the purpose ting receipts. They appear instead as special deductions
of the account without further action by Congress. Most in computing total budget authority and outlays for
revolving funds operate with such authority. For exam- the Government rather than as offsets at the agency
level. This special treatment is necessary because the passes proceeds from the sale or use of government
amounts are large and would distort measures of the goods and services, including the sale of natural re-
agency’s activities if they were attributed to the agency. sources (such as timber, oil, and minerals) and proceeds
User Charges from asset sales (such as property, plant, and equip-
ment). User charges are not necessarily earmarked for
User charges are fees assessed on individuals or orga- the activity they finance and may be credited to the
nizations for the provision of Government services and general fund of the Treasury.
for the sale or use of Government goods or resources. The term ‘‘user charge’’ does not refer to a separate
The payers of the user charge must be limited in the budget category for collections. User charges are classi-
authorizing legislation to those receiving special bene- fied in the budget as receipts, offsetting receipts, or
fits from, or subject to regulation by, the program or offsetting collections according to the principles ex-
activity beyond the benefits received by the general plained above.
public or broad segments of the public (such as those
See Chapter 18, ‘‘User Charges and Other Collec-
who pay income taxes or customs duties). Policy regard-
tions,’’ for more information on the classification of user
ing user charges is established in OMB Circular A-
25, ‘‘User Charges’’ (July 8, 1993). The term encom- charges.
BUDGET AUTHORITY AND OTHER BUDGETARY RESOURCES, OBLIGATIONS, AND OUTLAYS
Budget authority, obligations, and outlays are the pri- below) provided in authorizing statutes, even though
mary benchmarks and measures of the budget control the obligation limitations enacted in annual appropria-
system. Congress enacts laws that provide agencies tions acts restrict the amount of contract authority that
with spending authority in the form of budget author- can be obligated.
ity. Before agencies can use the resources, OMB must In deciding the amount of budget authority to request
approve their spending plans. After the plans are ap- for a program, project, or activity, agency officials esti-
proved, agencies can enter into binding agreements to mate the total amount of obligations they will need
purchase items or services or to make grants or other to incur to achieve desired goals and subtract the unob-
payments. These agreements are recorded as obliga- ligated balances available for these purposes. The
tions of the United States and deducted from the amount of budget authority requested is influenced by
amount of budgetary resources available to the agency. the nature of the programs, projects, or activities being
When payments are made, the obligations are liq- financed. For current operating expenditures, the
uidated and outlays recorded. These concepts are dis- amount requested usually covers the needs for the year.
cussed more fully below. For major procurement programs and construction
projects, agencies generally must request sufficient
Budget Authority and Other Budgetary
budget authority in the first year to fully fund an eco-
Resources
nomically useful segment of a procurement or project,
Budget authority is the authority provided in law even though it may be obligated over several years.
to enter into legal obligations that will result in imme- This full funding policy is intended to ensure that the
diate or future outlays of the Government. In other decision-makers take into account all costs and benefits
words, it is the amount of money that agencies are fully at the time decisions are made to provide re-
allowed to commit to be spent in current or future sources. It also avoids sinking money into a procure-
years. Government officials may obligate the Govern- ment or project without being certain if or when future
ment to make outlays only to the extent they have funding will be available to complete the procurement
been granted budget authority. or project.
The budget records new budget authority as a dollar Budget authority takes several forms:
amount in the year when it first becomes available. • Appropriations, provided in annual appropria-
When permitted by law, unobligated balances of budget tions acts or authorizing laws, permit agencies to
authority may be carried over and used in the next incur obligations and make payment;
year. The budget does not record these balances as • Borrowing authority, usually provided in perma-
budget authority again. They do, however, constitute nent laws, permits agencies to incur obligations
a budgetary resource that is available for obligation. but requires them to borrow funds, usually from
In some cases, a provision of law (such as a limitation the general fund of the Treasury, to make pay-
on obligations or a benefit formula) precludes the obli- ment;
gation of funds that would otherwise be available for • Contract authority, usually provided in perma-
obligation. In such cases, the budget records budget nent law, permits agencies to incur obligations in
authority equal to the amount of obligations that can advance of a separate appropriation of the cash
be incurred. A major exception to this rule is for the for payment or in anticipation of the collection
highway and mass transit programs financed by the of receipts that can be used for payment; and
Highway Trust Fund, where budget authority is meas- • Spending authority from offsetting collec-
ured as the amount of contract authority (described tions, usually provided in permanent law, permits
agencies to credit offsetting collections to an ex- gated balance. Most of this budget authority is ear-
penditure account, incur obligations, and make marked for specific uses and is not available for new
payment using the offsetting collections. programs. A small part may never by obligated or
Because offsetting collections and receipts are de- spent, primarily amounts provided for contingencies
ducted from gross budget authority, they are referred that do not occur or reserves that never have to be
to as negative budget authority for some purposes, such used.
as Congressional Budget Act provisions that pertain Budget authority that has been obligated but not paid
to budget authority. constitutes the account’s unpaid obligations. For ex-
Authorizing statutes usually determine the form of ample, in the case of salaries and wages, one to three
budget authority for a program. The authorizing statute weeks elapse between the time of obligation and the
may authorize a particular type of budget authority time of payment. In the case of major procurement
to be provided in annual appropriations acts, or it may and construction, payments may occur over a period
provide one of the forms of budget authority directly, of several years after the obligation is made. Unpaid
without the need for further appropriations. obligations net of the accounts receivable and unfilled
An appropriation may make funds available from the customers orders are defined by law as the obligated
general fund, special funds, or trust funds, or authorize balances. Obligated balances of budget authority at
the spending of offsetting collections credited to expend- the end of the year are carried forward until the obliga-
iture accounts, including revolving funds. Borrowing au- tions are paid or the balances are canceled. (A general
thority is usually authorized for business-like activities law cancels the obligated balances of budget authority
where the activity being financed is expected to produce that was made available for a definite period five years
income over time with which to repay the borrowing after the end of the period, and then other resources
with interest. The use of contract authority is tradition- must be used to pay the obligations.) Due to such flows,
ally limited to transportation programs. a change in the amount of budget authority available
New budget authority for most Federal programs is in any one year may change the level of obligations
normally provided in annually enacted appropriations and outlays for several years to come. Conversely, a
acts. However, new budget authority for more than half change in the amount of obligations incurred from one
of all outlays is made available through permanent ap- year to the next does not necessarily result from an
propriations under existing laws and does not require equal change in the amount of budget authority avail-
current action by Congress. Much of the permanent able for that year and will not necessarily result in
budget authority is for trust funds, interest on the pub- an equal change in the level of outlays in that year. 2
lic debt, and the authority to spend offsetting collections Congress usually makes budget authority available
credited to appropriation or fund accounts. For most on the first day of the fiscal year for which the appro-
trust funds, the budget authority is automatically ap- priations act is passed. Occasionally, the appropriations
propriated under existing law from the available bal- language specifies a different timing. The language may
ance of their receipts and equals the estimated annual provide an advance appropriation—budget authority
obligations of the funds. For interest on the public debt, that does not become available until one year or more
budget authority is automatically provided under a per- beyond the fiscal year for which the appropriations act
manent appropriation enacted in 1847 and equals inter- is passed. Forward funding is budget authority that
est outlays. is made available for obligation beginning in the last
Annual appropriations acts generally make budget quarter of the fiscal year (beginning on July 1st) for
authority available for obligation only during the fiscal the financing of ongoing grant programs during the
year to which the act applies. However, they frequently next fiscal year. This kind of funding is used mostly
allow budget authority for a particular purpose to re- for education programs, so that obligations for grants
main available for obligation for a longer period or in- can be made prior to the beginning of the next school
definitely (that is, until expended or until the program year. For certain benefit programs funded by annual
objectives have been attained). Typically, budget au- appropriations, the appropriation provides for advance
thority for current operations is made available for only funding —budget authority that is to be charged to
one year, and budget authority for construction and the appropriation in the succeeding year but which au-
some research projects is available for a specified num- thorizes obligations to be incurred in the last quarter
ber of years or indefinitely. Budget authority provided of the current fiscal year if necessary to meet benefit
in authorizing statutes, such as for most trust funds, payments in excess of the specific amount appropriated
is available indefinitely. Only another law can extend for the year. When such authority is used, an adjust-
a limited period of availability (see ‘‘Reappropriation’’ ment is made to increase the budget authority for the
below). fiscal year in which it is used and to reduce the budget
Budget authority that is available for more than one authority of the succeeding fiscal year.
year and not obligated in the year it becomes available Provisions of law that extend the availability of unob-
is carried forward for obligation in a following year. ligated amounts that have expired or would otherwise
In some cases, an account may carry forward unobli-
2 A separate report, ‘‘Balances of Budget Authority,’’ provides additional information on
gated budget authority from more than one year. The balances. The National Technical Information Service, Department of Commerce makes
sum of such amounts constitutes the account’s unobli- the report available shortly after the budget is transmitted.
expire are called reappropriations. Reappropriations Obligations Incurred

of expired balances that are newly available for obliga- Following the enactment of budget authority and the
tion in the current or budget year count as new budget completion of required apportionment action, Govern-
authority in the fiscal year in which the balances be- ment agencies incur obligations to make payments (see
come newly available. For example, if a 2007 appropria- earlier discussion under ‘‘Budget Execution’’). Agencies
tions act extends the availability of unobligated budget must record obligations when they enter into binding
authority that expired at the end of 2006, new budget agreements that will result in immediate or future out-
authority would be recorded for 2007. lays. Such obligations include the current liabilities for
For purposes of the Budget Enforcement Act (dis- salaries, wages, and interest; and contracts for the pur-
cussed earlier under ‘‘Budget Enforcement’’), the budget chase of supplies and equipment, construction, and the
classifies budget authority as discretionary or man- acquisition of office space, buildings, and land. For Fed-
datory. This classification indicates whether appropria- eral credit programs, obligations are recorded in an
tions acts or authorizing legislation control the amount amount equal to the estimated subsidy cost of direct
of budget authority that is available. Generally, budget loans and loan guarantees (see FEDERAL CREDIT
authority is discretionary if provided in an annual ap- below).
propriations act and mandatory if provided in author- Outlays
izing legislation. However, the BEA requires the budget
authority provided in annual appropriations acts for Outlays are the measure of Government spending.
certain specifically identified programs to be classified They are payments that liquidate obligations (other
as mandatory. This is because the authorizing legisla- than the repayment of debt). The budget records them
tion for these programs entitles beneficiaries to receive when obligations are paid, in the amount that is paid.
payment or otherwise legally obligates the Government Agency, function and subfunction, and Government-
to make payment and effectively determines the wide outlay totals are stated net of offsetting collections
and offsetting receipts for most budget presentations.
amount of budget authority required, even though the
(Offsetting receipts from a few sources do not offset
payments are funded by a subsequent appropriation.
any specific function, subfunction, or agency, as ex-
Sometimes, budget authority is characterized as current
plained previously, but only offset Government-wide to-
or permanent. Current authority requires congressional tals.) Outlay totals for accounts with offsetting collec-
appropriations action on the request for new budget tions are stated both gross and net of the offsetting
authority for the year involved. Permanent authority collections credited to the account. However, the outlay
becomes available pursuant to standing provisions of totals for special and trust funds with offsetting re-
law without further appropriations action by Congress ceipts are not stated net of the offsetting receipts.
after transmittal of the budget for the year involved. The Government usually makes outlays in the form
Generally, budget authority is current if an annual ap- of cash (currency, checks, or electronic fund transfers).
propriations act provides it and permanent if author- However, in some cases agencies pay obligations with-
izing legislation provides it. By and large, the current/ out disbursing cash, and the budget records outlays
permanent distinction has been replaced by the discre- nevertheless for the equivalent method. For example,
tionary/mandatory distinction, which is similar, but not the budget records outlays for the full amount of Fed-
identical. Outlays are also classified as discretionary eral employees’ salaries, even though the cash dis-
or mandatory according to the classification of the bursed to employees is net of Federal and state income
budget authority from which they flow (see ‘‘Outlays,’’ taxes withheld, retirement contributions, life and health
below). insurance premiums, and other deductions. (The budget
The amount of budget authority recorded in the budg- also records receipts for the deductions of Federal in-
et depends on whether the law provides a specific come taxes and other payments to the Government.)
amount or specifies a variable factor that determines When debt instruments (bonds, debentures, notes, or
the amount. It is considered definite if the law speci- monetary credits) are used in place of cash to pay obli-
fies a dollar amount (which may be an amount not gations, the budget records outlays financed by an in-
to be exceeded). It is considered indefinite if, instead crease in agency debt. For example, the budget records
of specifying an amount, the law permits the amount the acquisition of physical assets through certain types
to be determined by subsequent circumstances. For ex- of lease-purchase arrangements as though a cash dis-
ample, indefinite budget authority is provided for inter- bursement were made for an outright purchase. The
est on the public debt, payment of claims and judg- transaction creates a Government debt, and the cash
lease payments are treated as repayments of principal
ments awarded by the courts against the U.S. and
and interest.
many entitlement programs. Many of the laws that au-
The measurement of interest varies. The budget
thorize collections to be credited to revolving, special, records outlays for the interest on the public issues
and trust funds make all of the collections available of Treasury debt securities as the interest accrues, not
for expenditure for the authorized purposes of the fund, when the cash is paid. A small portion of this debt
and such authority is considered to be indefinite budget consists of inflation-indexed securities, which feature
authority. monthly adjustments to principal for inflation and semi-
annual payments of interest on the inflation-adjusted income tax credits) that exceed the taxpayer’s tax liabil-
principal. As with fixed-rate securities, the budget ity as outlays. Refunds of overpayments by the Govern-
records interest outlays as the interest accrues. The ment are recorded as offsetting collections or offsetting
monthly adjustment to principal is recorded, simulta- receipts.
neously, as an increase in debt outstanding and an Not all of the new budget authority for 2008 will
outlay of interest. be obligated or spent in 2008. Outlays during a fiscal
Most Treasury debt securities held by trust funds year may liquidate obligations incurred in the same
and other Government accounts are in the Government year or in prior years. Obligations, in turn, may be
account series (special issues). The budget normally incurred against budget authority provided in the same
states the interest on these securities on a cash basis. year or against unobligated balances of budget author-
When a Government account is invested in Federal debt ity provided in prior years. Outlays, therefore, flow in
securities, the purchase price is usually close or iden- part from budget authority provided for the year in
tical to the par (face) value of the security. The budget which the money is spent and in part from budget
records the investment at par value and adjusts the authority provided in prior years. The ratio of a given
interest paid by Treasury and collected by the account year’s outlays resulting from budget authority enacted
by the difference between purchase price and par, if in that or a prior year to the original amount of that
any. However, two trust funds in the Department of budget authority is referred to as the spendout rate
Defense, the Military Retirement Trust Fund and the for that year.
Education Benefits Trust Fund, routinely have rel- As shown in the following chart, $2,313 billion of
atively large differences between purchase price and outlays in 2008 (80 percent of the outlay total) will
par. For these funds, the budget records the holdings be made from that year’s $2,941 billion total of pro-
of debt at par but records the differences between pur- posed new budget authority (a first-year spendout rate
chase price and par as adjustments to the assets of of 79 percent). Thus, the remaining $589 billion of out-
the funds that are amortized over the life of the secu- lays in 2008 (20 percent of the outlay total) will be
rity. The budget records interest as the amortization made from budget authority enacted in previous years.
occurs. At the same time, $628 billion of the new budget au-
For Federal credit programs, outlays are equal to thority proposed for 2008 (21 percent of the total
the subsidy cost of direct loans and loan guarantees amount proposed) will not lead to outlays until future
and are recorded as the underlying loans are disbursed years. In general, the total budget authority for a par-
(see FEDERAL CREDIT below). ticular year is not directly indicative of that year’s out-
The budget records refunds of receipts that result lays since it combines various types of budget authority
from overpayments (such as income taxes withheld in that have different short-term and long-term implica-
excess of tax liabilities) as reductions of receipts, rather tions for budget obligations and outlays.
than as outlays. However, the budget records payments
to taxpayers for refundable tax credits (such as earned
Chart 26-1. Relationship of Budget Authority

to Outlays for 2008
(Billions of dollars)
New Authority To be spent in 2008 Outlays

Recommended in 2008
for 2008 2,313
2,941 To b 2,902
e
in fu spent
ture
yea
rs 589
t
en 62
sp 8 8
be 00
To in 2 Authority
written off,
Unspent Authority expired, and adjusted
Unspent Authority
Enacted in 9 (net) for Outlays in
Prior Years Future Years
To be spent in
1,443 Future Years 1,474
846
As described earlier, the budget classifies budget au- The bulk of mandatory outlays flow from an equal
thority and outlays as discretionary or mandatory for amount of budget authority recorded in the same fiscal
the purposes of the BEA. This classification of outlays year. This is not the case for discretionary budget au-
measures the extent to which actual spending is con- thority and outlays. For most major construction and
trolled through the annual appropriations process. Typi- procurement projects and long-term contracts, for exam-
cally, only a little over one-third ($1,017 billion in 2006) ple, the budget authority covers the entire cost esti-
of total outlays for a fiscal year are discretionary and mated when the projects are initiated even though the
the remaining nearly two-thirds ($1,639 billion in 2006) work will take place and outlays will be made over
are mandatory spending and net interest. Such a large a period extending beyond the year for which the budg-
portion of total spending is nondiscretionary because et authority is enacted. Similarly, discretionary budget
authorizing legislation determines net interest ($227 authority for most education and job training activities
billion in 2006) and the spending for a few programs is appropriated for school or program years that begin
with large amounts of spending each year, such as So- in the fourth quarter of the fiscal year. Most of these
cial Security ($544 billion in 2006) and Medicare ($325 funds result in outlays in the year after the appropria-
billion in 2006). tion.
FEDERAL CREDIT
Some Government programs make direct loans or of expected collections exceeds the present value of ex-
loan guarantees. A direct loan is a disbursement of pected disbursements over the term of the loan 3. In
funds by the Government to a non-Federal borrower such cases, the financing account makes a payment
under a contract that requires repayment of such funds to the program’s receipt account, where it is recorded
with or without interest. The term includes equivalent as an offsetting receipt. In a few cases, the receipts
transactions such as selling a property on credit terms are earmarked in a special fund established for the
in lieu of receiving cash up front. A loan guarantee program and are available for appropriation for the
is any guarantee, insurance, or other pledge with re- program.
spect to the payment of all or a part of the principal The agencies responsible for credit programs must
or interest on any debt obligation of a non-Federal bor- reestimate the cost of the outstanding direct loans and
rower to a non-Federal lender. The Federal Credit Re- loan guarantees each year. If the estimated cost in-
form Act (FCRA) prescribes the budget treatment for creases, the program account makes an additional pay-
Federal credit programs. Under this treatment, the ment to the financing account. If the estimated cost
budget records the net cost to the Government (subsidy decreases, the financing account makes a payment to
cost) when the loans are disbursed, rather than the the program’s receipt account, where it is recorded as
cash flows year-by-year over the term of the loan, so an offsetting receipt. The FCRA provides permanent
direct loans and loan guarantees can be compared to indefinite appropriations to pay for upward reestimates.
each other and to other methods of delivering benefits, If the Government modifies the terms of an out-
such as grants, on an equivalent basis. standing direct loan or loan guarantee in a way that
The cost of direct loans and loan guarantees, some- increases the cost, as the result of a law or the exercise
times called the ‘‘subsidy cost,’’ is estimated as the of administrative discretion under existing law, the pro-
present value of expected disbursements over the term gram account records obligations for an additional
of the loan less the present value of expected collec- amount equal to the increased cost and outlays the
tions. 3 As for most other kinds of programs, agencies amount to the financing account. As with the original
can make loans or guarantee loans only if Congress cost, agencies may incur modification costs only if Con-
has appropriated funds sufficient to cover the subsidy gress has appropriated funds to cover them. A modifica-
costs or provided a limitation on the amount of direct tion may also reduce costs, in which case the financing
loans or loan guarantees that can be made in annual account makes a payment to the program’s receipt ac-
appropriations acts. count.
The budget records the estimated long-term cost to Credit financing accounts record all cash flows to and
the Government arising from direct loans and loan from the Government arising from direct loan obliga-
guarantees in credit program accounts. When a Fed- tions and loan guarantee commitments. These cash
eral agency disburses a direct loan or when a non- flows consist mainly of direct loan disbursements and
Federal lender disburses a loan guaranteed by a Fed- repayments, loan guarantee default payments, fees and
eral agency, the program account outlays an amount interest from the public, the receipt of subsidy cost
equal to the cost to a non-budgetary credit financing payments from program accounts, and interest paid to
account. The financing accounts record the actual or received from Treasury. Separate financing accounts
transactions with the public. For a few programs, the record the cash flows of direct loans and of loan guaran-
estimated cost is negative, because the present value tees for programs that provide both types of credit.
The budget totals exclude the transactions of financing
3 Present value is a standard financial concept that allows for the time value of money,
that is, for the fact that a given sum of money is worth more at present than in the
accounts because they are not a cost to the Govern-
future because interest can be earned on it. ment. However, since financing accounts record cash
flows to and from the Government, they affect the cash basis in credit liquidating accounts, the same
means of financing a budget surplus or deficit (see as they were recorded before FCRA was enacted. How-
‘‘Credit Financing Accounts’’ in the next section). The ever, this exception ceases to apply if the direct loans
budget documents display the transactions of the fi- or loan guarantees are modified as described above.
nancing accounts, together with the related program In that case, the budget records a modification subsidy
accounts, for information and analytical purposes. cost or savings, as appropriate, and begins to account
The FCRA, which was enacted in 1990, grandfathered for the associated transactions as the FCRA prescribes
direct loan obligations and loan guarantee commitments for direct loan obligations and loan guarantee commit-
made prior to 1992. The budget records these on a ments made in 1992 or later.
BUDGET DEFICIT OR SURPLUS AND MEANS OF FINANCING
When outlays exceed receipts, the difference is a def- In 2006, the Government borrowed $237 billion from
icit, which the Government finances primarily by bor- the public. This financed nearly all of the $248 billion
rowing. When receipts exceed outlays, the difference deficit in that year. The rest of the deficit was financed
is a surplus, and the Government uses the surplus pri- by the net effect of the other means of financing, such
marily to reduce debt. The Government’s debt (debt as changes in cash balances and other accounts dis-
held by the public) is approximately the cumulative cussed below. At the end of 2006, the debt held by
amount of borrowing to finance deficits, less repay- the public was $4,829 billion.
ments from surpluses. Borrowing is not exactly equal In addition to selling debt to the public, the Treasury
to the deficit, and debt repayment is not exactly equal Department issues debt to Government accounts, pri-
to the surplus, because of the other means of financing marily trust funds that are required by law to invest
such as those discussed under this heading. The factors in Treasury securities. Issuing and redeeming this debt
included in the other means of financing can either does not affect the means of financing, because these
increase or decrease the Government’s borrowing needs transactions occur between one Government account
(or decrease or increase its ability to repay debt). For and another and thus do not raise or use any cash
example, the change in the Treasury operating cash for the Government as a whole.
balance is a factor included in other means of financing. (See Chapter 16 of this volume, ‘‘Federal Borrowing
Holding receipts and outlays constant, increases in the and Debt,’’ for a fuller discussion of this topic.)
cash balance increase the Government’s need to borrow
or reduce the Government’s ability to repay debt, and Exercise of Monetary Power
decreases in the cash balance decrease the need to bor- Seigniorage is the profit from coining money. It is
row or increase the ability to repay debt. In some years, the difference between the value of coins as money
such as 2003, the net effect of the other means of fi- and their cost of production. Seigniorage adds to the
nancing is minor relative to the borrowing or debt re- Government’s cash balance, but unlike the payment of
payment; in other years, such as 2002, the net effect taxes or other receipts, it does not involve a transfer
may be significant. of financial assets from the public. Instead, it arises
from the exercise of the Government’s power to create
Borrowing and Debt Repayment money and the public’s desire to hold financial assets
The budget treats borrowing and debt repayment as in the form of coins. Therefore, the budget excludes
a means of financing, not as receipts and outlays. If seigniorage from receipts and treats it as a means of
borrowing were defined as receipts and debt repayment financing other than borrowing from the public. The
as outlays, the budget would be virtually balanced by budget also treats profits resulting from the sale of
definition. This rule applies both to borrowing in the gold as a means of financing, since the value of gold
form of Treasury securities and to specialized borrowing is determined by its value as a monetary asset rather
in the form of agency securities (including the issuance than as a commodity.
of debt securities to liquidate an obligation and the
sale of certificates representing participation in a pool Credit Financing Accounts
of loans). The budget records the net cash flows of credit pro-
Two alternative financing methods employed by the grams in credit financing accounts. They are excluded
Tennessee Valley Authority (TVA) to finance the acqui- from the budget because they are not allocations of
sition of TVA assets are considered to be agency debt. resources by the Government (see FEDERAL CREDIT
The budget records the cash proceeds from a contract above). However, even though they do not affect the
to lease some recently-constructed power generators to surplus or deficit, they can either increase or decrease
private investors and simultaneously lease them back the Government’s need to borrow. Therefore, they are
and the cash proceeds from prepayments for power that recorded as a means of financing.
TVA sells to its power distributors as a type of bor- Financing account disbursements to the public in-
rowing from the public. These transactions are dis- crease the requirement for Treasury borrowing in the
cussed in more detail in Chapter 16 of this volume, same way as an increase in budget outlays. Financing
‘‘Federal Borrowing and Debt.’’ account receipts from the public can be used to finance
the payment of the Government’s obligations and there- purchase. Since investments in non-Federal securities
fore reduce the requirement for Treasury borrowing consume cash, fund balances (of funds available for obli-
from the public in the same way as an increase in gation) normally exclude the value of non-Federal secu-
budget receipts. rities. However, the Railroad Retirement and Survivors’
Improvement Act of 2001 (Public Law 107–90) requires
Deposit Fund Account Balances
purchases or sales of non-Federal assets by the Na-
The Treasury uses non-budgetary accounts, called de- tional Railroad Retirement Investment Trust to be
posit funds, to record cash held temporarily until own- treated as a means of financing in the budget.
ership is determined (for example, earnest money paid Earnings on investments by the National Railroad
by bidders for mineral leases) or cash held by the Gov- Retirement Investment Trust in private assets pose
ernment as agent for others (for example, State and special challenges for budget projections. Equities and
local income taxes withheld from Federal employees’ private bonds earn a higher return on average than
salaries and not yet paid to the State or local govern- the Treasury rate, but that return is subject to greater
ment or the Thrift Savings Fund, a defined contribution uncertainty. Sound budgeting principles require that
pension fund held and managed in a fiduciary capacity estimates of future trust fund balances reflect both the
by the Government). Deposit fund balances may be held average return and the cost of risk associated with
in the form of either invested or uninvested balances. the uncertainty of that return. (The latter is particu-
To the extent that they are not invested, changes in larly true in cases where individual beneficiaries have
the balances are available to finance expenditures and not made a voluntary choice to assume additional risk.)
are recorded as a means of financing other than bor- Estimating both of these separately is quite difficult.
rowing from the public. To the extent that they are While the additional returns that these assets have
invested in Federal debt, changes in the balances are received in the past are known, it is quite possible
reflected as borrowing from the public in lieu of bor- that these premiums will differ in the future. Further-
rowing from other parts of the public and are not re- more, there is no existing procedure for the budget
flected as a separate means of financing. to record separately the cost of risk from such an in-
vestment, even if it could be estimated accurately. Eco-
Exchanges with the International Monetary
nomic theory suggests, however, that the difference be-
Fund (IMF)
tween the expected return of a risky liquid asset and
Under the terms of its participation in the IMF, the the Treasury rate is equal to the cost of the asset’s
U.S. transfers dollars to the IMF and receives Special additional risk as priced by the market. Following
Drawing Rights (SDR’s) in return. The SDR’s are inter- through on this insight, the best way to project the
est-bearing monetary assets and may be exchanged for rate of return on the Fund’s balances is to use a Treas-
foreign currency at any time. These transfers are like ury rate. This will mean that assets with equal eco-
bank deposits and withdrawals, where the government nomic value as measured by market prices will be treat-
exchanges one type of financial asset (cash) for another ed equivalently, avoiding the appearance that the budg-
(bank deposit), with no change in total financial assets. et could benefit if the Government bought private sector
Following a recommendation of the 1967 President’s assets.
Commission on Budget Concepts, the budget excludes The actual and estimated returns to private securities
these transfers from budget outlays or receipts. In con- are recorded in subfunction 909, other investment in-
trast, the budget records interest paid by the IMF on come. The actual year returns include interest, divi-
U.S. deposits as an offsetting receipt in the general dends, and capital gains and losses on private equities
fund of the Treasury. It also records outlays for foreign and other securities. The Fund’s portfolio of these as-
currency exchanges to the extent there is a realized sets is revalued at market prices at the end of the
loss in dollars terms and offsetting receipts to the ex- actual year to determine capital gains or losses. As
tent there is a realized gain in dollar terms. a result, the Fund’s end-of-year balance reflects the
current market value of resources available to the Gov-
Railroad Retirement Board Investments
ernment to finance benefits. Earnings for the current
Under longstanding rules, the budget treats invest- and future years are estimated using the 10-year Treas-
ments in non-Federal securities as a purchase of an ury rate and the value of the Fund’s portfolio at the
asset, recording an obligation and an outlay in an end of the actual year. No estimates are made of gains
amount equal to the purchase price in the year of the and losses for the current year or subsequent years.
FEDERAL EMPLOYMENT
The budget includes information on civilian and mili- provides two different measures of Federal employment
tary employment. It also includes information on re- levels-actual positions filled and full-time equivalents
lated personnel compensation and benefits and on staff- (FTE). Agency FTEs are the measure of the total num-
ing requirements at overseas missions. Chapter 24 of ber of hours worked by an agency’s Federal employees
this volume, ‘‘Federal Employment and Compensation,’’ divided by the total number of workhours in one fiscal
year. In the budget Appendix, only the FTE measure ment, temporary employment, and vacancies during the
is used because it takes into account part-time employ- year.
BASIS FOR BUDGET FIGURES
Data for the Past Year Data for the Outyears

The past year column (2006) generally presents the The budget presents estimates for each of the four
actual transactions and balances as recorded in agency years beyond the budget year (2009 through 2012) in
accounts and as summarized in the central financial order to reflect the effect of budget decisions on longer
reports prepared by the Treasury Department for the term objectives and plans.
most recently completed fiscal year. Occasionally the
budget reports corrections to data reported erroneously Allowances
to Treasury but not discovered in time to be reflected The budget may include lump-sum allowances to
in Treasury’s published data. In addition, in certain cover certain transactions that are expected to increase
cases the Budget has a broader scope and includes fi- or decrease budget authority, outlays, or receipts but
nancial transactions that are not reported to Treasury are not, for various reasons, reflected in the program
(see Chapter 20 of this volume, ‘‘Comparison of Actual details. For example, the budget might include an al-
to Estimated Totals,’’ for a summary of these dif- lowance to show the effect on the budget totals of a
ferences). proposal that would actually affect many accounts by
relatively small amounts, in order to avoid unnecessary
Data for the Current Year
detail in the presentations for the individual accounts.
The current year column (2007) includes estimates
of transactions and balances based on the amounts of Baseline
budgetary resources that were available when the budg- The budget baseline is an estimate of the receipts,
et was transmitted, including amounts appropriated for outlays, and deficits or surpluses that would occur if
the year. For accounts that are funded by appropria- no changes were made to current laws during the pe-
tions bills that have not been enacted, the current year riod covered by the budget. The baseline assumes that
estimates are the annualized amount provided by Pub- receipts and mandatory spending, which generally are
lic Law 109–289, Division B, as amended. authorized on a permanent basis, will continue in the
future as required by current law. The baseline as-
Data for the Budget Year
sumes that the future funding for discretionary pro-
The budget year column (2008) includes estimates grams, which generally are funded annually, will equal
of transactions and balances based on the amounts of the most recently enacted appropriation, adjusted for
budgetary resources that are estimated to be available, inflation. For accounts that are funded by appropria-
including new budget authority requested under cur- tions bills that have not been enacted, the baseline
rent authorizing legislation, and amounts estimated to estimates are based on the annualized amount provided
result from changes in authorizing legislation and tax by Public Law 109–289, Division B, as amended.
laws. The baseline represents the amount of resources, in
The budget Appendix generally includes the appro- real terms, that would be used by the Government over
priations language for the amounts proposed to be ap- the period covered by the budget on the basis of laws
propriated under current authorizing legislation. In a currently enacted. (Chapter 25 of this volume, ‘‘Current
few cases, this language is transmitted later because Services Estimates,’’ provides more information on the
the exact requirements are unknown when the budget baseline.)
is transmitted. The Appendix generally does not include The baseline serves several useful purposes:
appropriations language for the amounts that will be • It may warn of future problems, either for Govern-
requested under proposed legislation; that language is ment fiscal policy as a whole or for individual
usually transmitted later, after the legislation is en- tax and spending programs.
acted. Some tables in the budget identify the items • It provides a starting point for formulating the
for later transmittal and the related outlays separately. President’s budget.
Estimates of the total requirements for the budget year • It provides a ‘‘policy-neutral’’ benchmark against
include both the amounts requested with the trans- which the President’s budget and alternative pro-
mittal of the budget and the amounts planned for later posals can be compared to assess the magnitude
transmittal. of proposed changes.
PRINCIPAL BUDGET LAWS
The following basic laws govern the Federal budget • Article 1, section 8, clause 1 of the Constitu-
process: tion, which empowers the Congress to collect
taxes.
• Article 1, section 9, clause 7 of the Constitu- (including ‘‘sequestration’’) designed to eliminate

tion, which requires appropriations in law before excess spending.
money may be spent from the Treasury and the • Budget Enforcement Act of 1990 (Title XIII,
publication of a regular statement of the receipts Public Law 101–508), which significantly amend-
and expenditures of all public money. ed key laws pertaining to the budget process, in-
• Antideficiency Act (codified in Chapters 13 cluding the Congressional Budget Act and the Bal-
and 15 of Title 31, United States Code), which anced Budget and Emergency Deficit Control Act.
prescribes rules and procedures for budget execu- The Budget Enforcement Act of 1997 (Title X,
tion. Public Law 105–33) extended the BEA require-
• Chapter 11 of Title 31, United States Code, ments through 2002 and altered some of the re-
quirements. The requirements, generally referred
which prescribes procedures for submission of the
to as BEA requirements (discretionary spending
President’s budget and information to be con-
limits, pay-as-you-go, sequestration, etc.), are part
tained in it. of the Balanced Budget and Emergency Deficit
• Congressional Budget and Impoundment Con- Control Act. The BEA expired at the end of 2002.
trol Act of 1974 (Public Law 93–344), as • Federal Credit Reform Act of 1990, as amend-
amended. This Act comprises the: ed (2 USC 661–661f), a part of the Budget En-
—Congressional Budget Act of 1974, as amended, forcement Act of 1990, which amended the Con-
which prescribes the congressional budget proc- gressional Budget Act to prescribe the budget
ess; and treatment for Federal credit programs.
—Impoundment Control Act of 1974, which con- • Government Performance and Results Act of
trols certain aspects of budget execution. 1993 (Public Law 103–62, as amended) which
• Balanced Budget and Emergency Deficit Con- emphasizes managing for results. It requires agen-
trol Act of 1985 (Public Law 99–177), as cies to prepare strategic plans, annual perform-
amended, which prescribes rules and procedures ance plans, and annual performance reports.
GLOSSARY OF BUDGET TERMS
Accrual Method of Measuring Cost means an ac- Budget means the Budget of the United States Gov-
counting method that records cost when the liability ernment, which sets forth the President’s comprehen-
is incurred. As applied to Federal employee retirement sive financial plan for allocating resources and indicates
benefits, cost is recorded when the benefits are earned the President’s priorities for the Federal Government.
rather than when they are paid at some time in the Budget authority (BA) means the authority pro-
future. vided by law to incur financial obligations that will
Advance appropriation means appropriations of result in outlays. (For a description of the several forms
new budget authority that become available one or of budget authority, see ‘‘Budget Authority and Other
more fiscal years beyond the fiscal year for which the Budgetary Resources’’ earlier in this chapter.)
appropriation act was passed. Budget totals mean the totals included in the budg-
Advance funding means appropriations of budget et for budget authority, outlays, receipts, and the sur-
authority provided in an appropriations act to be used, plus or deficit. Some presentations in the budget distin-
if necessary, to cover obligations incurred late in the guish on-budget totals from off-budget totals. On-budget
fiscal year for benefit payments in excess of the amount totals reflect the transactions of all Federal Govern-
specifically appropriated in the act for that year, where ment entities except those excluded from the budget
the budget authority is charged to the appropriation totals by law. The off-budget totals reflect the trans-
for the program for the fiscal year following the fiscal actions of Government entities that are excluded from
year for which the appropriations act is passed. the on-budget totals by law. Under current law, the
Agency means a department or other establishment off-budget totals include the Social Security trust funds
of the Government. (Federal Old-Age and Survivors Insurance and Federal
Allowance means a lump-sum included in the budg- Disability Insurance Trust Funds) and the Postal Serv-
et to represent certain transactions that are expected ice Fund. The budget combines the on- and off-budget
to increase or decrease budget authority, outlays, or totals to derive unified or consolidated totals for Federal
receipts but that are not, for various reasons, reflected activity.
in the program details. Budgetary resources mean amounts available to
Balances of budget authority means the amounts incur obligations in a given year. The term comprises
of budget authority provided in previous years that new budget authority and unobligated balances of budg-
have not been outlayed. et authority provided in previous years.
Baseline means an estimate of the receipts, outlays, Cap means the legal limits for each fiscal year under
and deficit or surplus that would result from continuing the Budget Enforcement Act on the budget authority
current law through the period covered by the budget. and outlays provided by discretionary appropriations.
Cash equivalent transaction means a transaction teria for eligibility. Examples include Social Security,
in which the Government makes outlays or receives Medicare, Medicaid, and Food Stamps.
collections in a form other than cash or the cash does Emergency appropriation means an appropriation
not accurately measure the cost of the transaction. (For that the President and the Congress have designated
examples, see the section on ‘‘Outlays’’ earlier in this as an emergency requirement. Such spending is not
chapter.) subject to the limits on discretionary spending, if it
Collections mean money collected by the Govern- is discretionary spending, or the pay-as-you-go rules,
ment that the budget records as either a receipt, an if it is mandatory.
offsetting collection, or an offsetting receipt. Federal funds group refers to the moneys collected
Continuing resolution means an appropriation act and spent by the Government through accounts other
that provides for the ongoing operation of the Govern- than those designated as trust funds. Federal funds
ment in the absence of enacted appropriations. include general, special, public enterprise, and
Credit program account means a budget account intragovernmental funds. (Cf. trust funds.)
that receives and obligates appropriations to cover the Financing account means a non-budgetary account
subsidy cost of a direct loan or loan guarantee and (its transactions are excluded from the budget totals)
disburses the subsidy cost to a financing account. that records all of the cash flows resulting from post-
Current services estimate—see baseline. 1991 direct loan obligations or loan guarantee commit-
Debt Held by the Public means the cumulative ments. At least one financing account is associated with
amount of money the Federal Government has bor- each credit program account. For programs that make
rowed from the public and not repaid. both direct loans and loan guarantees, there are sepa-
Debt Held by Government Accounts means the debt rate financing accounts for the direct loans and the
the Treasury Department owes to accounts within the loan guarantees. (Cf. liquidating account.)
Federal Government. Most of it results from the sur- Fiscal year means the Government’s accounting pe-
pluses of the Social Security and other trust funds, riod. It begins on October 1st and ends on September
which are required by law to be invested in Federal 30th, and is designated by the calendar year in which
securities. it ends.
Forward funding means appropriations of budget
Debt Limit means the maximum amount of Federal
authority that are made for obligation in the last quar-
debt that may legally be outstanding at any time. It
ter of the fiscal year for the financing of ongoing grant
includes both the debt held by the public and the debt
programs during the next fiscal year.
held by Government accounts. When the debt limit is
General fund means the accounts for receipts not
reached, the Government cannot borrow more money
earmarked by law for a specific purpose, the proceeds
until the Congress has enacted a law to increase the of general borrowing, and the expenditure of these mon-
limit. eys.
Deficit means the amount by which outlays exceed Intragovernmental fund—see revolving fund.
receipts in a fiscal year. It may refer to the on-budget, Liquidating account means a budget account that
off-budget, or unified budget deficit. records all cash flows to and from the Government re-
Direct loan means a disbursement of funds by the sulting from pre-1992 direct loan obligations or loan
Government to a non-Federal borrower under a contract guarantee commitments. (Cf. financing account.)
that requires the repayment of such funds with or with- Loan guarantee means any guarantee, insurance,
out interest. The term includes the purchase of, or par- or other pledge with respect to the payment of all or
ticipation in, a loan made by another lender. The term a part of the principal or interest on any debt obligation
also includes the sale of a Government asset on credit of a non-Federal borrower to a non-Federal lender. The
terms of more than 90 days duration as well as financ- term does not include the insurance of deposits, shares,
ing arrangements for other transactions that defer pay- or other withdrawable accounts in financial institutions.
ment for more than 90 days. It also includes loans (Cf. direct loan.)
financed by the Federal Financing Bank (FFB) pursu- Mandatory spending means spending controlled by
ant to agency loan guarantee authority. The term does laws other than appropriations acts (including spending
not include the acquisition of a federally guaranteed for entitlement programs) and spending for the food
loan in satisfaction of default or other guarantee claims stamp program. Although the Budget Enforcement Act
or the price support loans of the Commodity Credit uses the term direct spending to mean this, mandatory
Corporation. (Cf. loan guarantee.) spending is commonly used instead. (Cf. discretionary
Direct spending—see mandatory spending. spending.)
Discretionary spending means budgetary resources Means of financing refers to borrowing, the change
(except those provided to fund mandatory spending pro- in cash balances, and certain other transactions in-
grams) provided in appropriations acts. (Cf. mandatory volved in financing a deficit. The term is also used
spending.) to refer to the debt repayment, the change in cash
Entitlement refers to a program in which the Fed- balances, and certain other transactions involved in
eral Government is legally obligated to make payments using a surplus. By definition, the means of financing
or provide aid to any person who meets the legal cri- are not treated as receipts or outlays.
Obligated balance means the cumulative amount fund charges for the sale of products or services and
of budget authority that has been obligated but not uses the proceeds to finance its spending, usually with-
yet outlayed. (Cf. unobligated balance.) out requirement for annual appropriations. There are
Obligation means a binding agreement that will re- two types of revolving funds: Public enterprise funds,
sult in outlays, immediately or in the future. Budgetary which conduct business-like operations mainly with the
resources must be available before obligations can be public, and intragovernmental revolving funds, which
incurred legally. conduct business-like operations mainly within and be-
Off-budget—see budget totals. tween Government agencies.
Offsetting collections mean collections that, by law, Scorekeeping means measuring the budget effects
are credited directly to expenditure accounts and de- of legislation, generally in terms of budget authority,
ducted from gross budget authority and outlays of the receipts, and outlays for purposes of the Budget En-
expenditure account, rather than added to receipts. forcement Act.
Usually, they are authorized to be spent for the pur- Sequestration means the cancellation of budgetary
poses of the account without further action by Congress. resources provided by discretionary appropriations or
They result from business-like transactions or market- mandatory spending legislation, following various pro-
oriented activities with the public and other Govern- cedures prescribed by the Budget Enforcement Act. A
ment accounts. The authority to spend offsetting collec- sequestration may occur in response to a discretionary
tions is a form of budget authority. (Cf. receipts and appropriation that causes discretionary spending to ex-
offsetting receipts.) ceed the discretionary spending caps set by the Budget
Offsetting receipts mean collections that are cred- Enforcement Act or in response to net costs resulting
ited to offsetting receipt accounts and deducted from from the combined result of legislation affecting manda-
gross budget authority and outlays, rather than added tory spending or receipts (referred to as a ‘‘pay-as-you-
to receipts. They are not authorized to be credited to go’’ sequestration).
expenditure accounts. The legislation that authorizes Special fund means a Federal fund account for re-
the offsetting receipts may earmark them for a specific ceipts or offsetting receipts earmarked for specific pur-
purpose and either appropriate them for expenditure poses and the expenditure of these receipts. (Cf. trust
for that purpose or require them to be appropriated
fund.)
in annual appropriation acts before they can be spent.
Subsidy means the estimated long-term cost to the
Like offsetting collections, they result from business-
Government of a direct loan or loan guarantee, cal-
like transactions or market-oriented activities with the
culated on a net present value basis, excluding adminis-
public and other Government accounts. (Cf. receipts,
trative costs and any incidental effects on governmental
undistributed offsetting receipts, and offsetting collec-
tions.) receipts or outlays.
On-budget—see budget totals. Surplus means the amount by which receipts exceed
Outlay means a payment to liquidate an obligation outlays in a fiscal year. It may refer to the on-budget,
(other than the repayment of debt principal). Outlays off-budget, or unified budget surplus.
generally are equal to cash disbursements but also are Supplemental appropriation means an appropria-
recorded for cash-equivalent transactions, such as the tion enacted subsequent to a regular annual appropria-
issuance of debentures to pay insurance claims, and tions act, when the need for funds is too urgent to
in a few cases are recorded on an accrual basis such be postponed until the next regular annual appropria-
as interest on public issues of the public debt. Outlays tions act.
are the measure of Government spending. Trust fund refers to a type of account, designated
Outyear estimates means estimates presented in by law as a trust fund, for receipts or offsetting receipts
the budget for the years beyond the budget year (usu- earmarked for specific purposes and the expenditure
ally four) of budget authority, outlays, receipts, and of these receipts. Some revolving funds are designated
other items (such as debt). as trust funds, and these are called trust revolving
Pay-as-you-go (PAYGO) means the requirements of funds. (Cf. special fund and revolving fund.)
the Budget Enforcement Act that result in a sequestra- Trust funds group refers to the moneys collected
tion if the estimated combined result of legislation af- and spent by the Government through trust fund ac-
fecting mandatory spending or receipts is a net cost counts. (Cf., Federal funds group.)
for a fiscal year. Undistributed offsetting receipts mean offsetting
Public enterprise fund—see revolving fund. receipts that are deducted from the Government-wide
Receipts mean collections that result from the Gov- totals for budget authority and outlays instead of offset
ernment’s exercise of its sovereign power to tax or oth- against a specific agency and function. (Cf. offsetting
erwise compel payment and gifts of money to the Gov- receipts.)
ernment. They are compared to outlays in calculating Unified budget includes receipts from all sources
a surplus or deficit. (Cf. offsetting collections and offset- and outlays for all programs of the Federal Govern-
ting receipts.) ment, including both on- and off-budget programs. It
Revolving fund means a fund that conducts con- is the most comprehensive measure of the Govern-
tinuing cycles of business-like activity, in which the ment’s finances.
Unobligated balance means the cumulative amount charge must be limited in the authorizing legislation
of budget authority that is not obligated and that re- to those receiving special benefits from, or subject to
mains available for obligation under law. regulation by, the program or activity beyond the bene-
User charges are charges assessed for the provision fits received by the general public or broad segments
of Government services and for the sale or use of Gov- of the public (such as those who pay income taxes or
ernment goods or resources. The payers of the user custom duties).
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ANALYTICAL

BUDGET OF THE UNITED STATES GOVERNMENT

Fiscal Year 2008

1. All years referred to are fiscal years, unless otherwise noted.

U.S. GOVERNMENT PRINTING OFFICE

For sale by the Superintendent of Documents, U.S. Government Printing Office

List of Charts and Tables ............................................................................................. v

Performance and Management Assessments

2. Budget and Performance Integration .............................................................. 9

3. Homeland Security Funding Analysis ............................................................. 19

4. Strengthening Federal Statistics ..................................................................... 37

5. Research and Development .............................................................................. 45

6. Federal Investment ........................................................................................... 55

7. Credit and Insurance ........................................................................................ 67

8. Aid to State and Local Governments ............................................................... 101

9. Integrating Services with Information Technology ........................................ 153

10. Federal Drug Control Funding ......................................................................... 159

11. California-Federal Bay-Delta Program Budget Crosscut (CALFED) ............ 161

Economic Assumptions and Analyses

12. Economic Assumptions ...................................................................................... 165

13. Stewardship ....................................................................................................... 175

14. National Income and Product Accounts .......................................................... 203

Budget Reform Proposals

15. Budget Reform Proposals .................................................................................. 211

Federal Borrowing and Debt

16. Federal Borrowing and Debt ............................................................................ 223

Federal Receipts and Collections

17. Federal Receipts ................................................................................................ 239

18. User Charges and Other Collections ............................................................... 271

19. Tax Expenditures .............................................................................................. 285

Dimensions of the Budget

20. Comparison of Actual to Estimated Totals ..................................................... 331

21. Outlays to the Public, Gross and Net .............................................................. 339

22. Trust Funds and Federal Funds ...................................................................... 341

23. Off-Budget Federal Entities and Non-Budgetary Activities .......................... 357

24. Federal Employment and Compensation ........................................................ 361

Current Services Estimates

25. Current Services Estimates .............................................................................. 371

The Budget System and Concepts

26. The Budget System and Concepts ................................................................... 391

Detailed Functional Tables

Federal Programs by Agency and Account

28. Federal Programs by Agency and Account ...................................................... CD–ROM

2–1. Program Ratings are Improving ........................................................................................................ 15

Strengthening Federal Statistics:

8–21. Child Care and Development Block Grant ............................................................................. 135

National Income and Product Accounts:

Purpose of This Volume on each of the assessments can be found at

Program,’’ are on the enclosed Analytical Perspectives Other

II. HOW THE BUDGET AND PERFORMANCE INTEGRATION INITIATIVE WORKS

Draft PART Tested on 67 Programs

External Review of PART -

PMC Approves Final PART/First List of Programs

Aug. 2002 PART Assessments Conducted with Agencies**

First Congressional Hearing Held

First Interagency Review Panel Conducted

Feb. 2003 Published First Set of PARTs

June 2003 Established Annual OMB Consistency Check

PCIE = President's Council