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Federal budget estimates, fiscal year 1994.

THE FISCAL year 1994 budget transmitted by the President to Congress proposes higher taxes and increased spending to implement a plan with three basic elements: jobs stimulus, investment spending, and deficit reduction.(1) (Proposals to overhaul and finance the nation's health-care system are not included in this budget.)

If all the budget's jobs stimulus proposals had been enacted, outlays would have increased $8.4 billion in fiscal year 1993 and $8.0 billion in 1994. However, as a result of a Senate filibuster, only the $4.0 billion proposed for the Emergency Unemployment Compensation program for fiscal year 1993 has been enacted. Other proposals that have been rejected include, for fiscal year 1993, summer job training ($0.7 billion) and community development grants ($0.7 billion) and, for fiscal year 1994, Federal aid to highways ($1.9 billion) and community development grants ($1.3 billion).

The investment spending proposals for fiscal year 1994 consist of $7.0 billion in outlays and $12.1 billion in tax incentives. The outlays are mostly for rebuilding infrastructure ($2.2 billion) and for augmenting both "lifelong learning" ($2.0 billion) and health care ($2.2 billion). The largest individual appropriations are for Head Start ($0.8 billion), veterans medical care ($0.5 billion), and discretionary medicaid grants to the States ($0.4 billion).

Deficit reduction would be accomplished by the following major tax changes:

* Raise the top individual income tax rate to

36 percent.

* Repeal the medicare taxable-wage-base limit.

* Raise the top corporation income tax rate to

36 percent.

* Adopt a new broad-based energy tax.

* Restrict deductions for business meals and

entertainment to 50 percent.

* Apply the income tax to 85 percent of social

security benefits for beneficiaries making

$25,000 or more.

* Expand the earned income tax credit (this

proposal is classified in the budget primarily

as a spending increase rather than as a tax


Major changes that would affect outlays include the following proposals:

* Reduce defense spending.

* Increase spending to create jobs through the

stimulus proposals.

* Invest in people, infrastructure, and technology.

* Eliminate the scheduled Federal employee pay raise in January 1994.

This article summarizes the administration's budget estimates and the economic assumptions underlying them, and it provides a translation of the estimates into the national income and product accounts (NIPA) framework.

Economic assumptions

As analyzed in the administration's budget, the spurt in the rate of U.S. economic growth in the second half of 1992 did not fundamentally alter an anemic recovery and abnormally weak labor markets. This recovery has not produced rapid job growth even though inflation has remained mild and interest rates have declined. The slow recovery reflects several structural adjustments in the economy: The layoffs in key industries to improve competitiveness, the scaling-back of the defense sector, the weakness of financial institutions, and the spending reductions and tax increases imposed by all levels of government.

The administration based its budget on the economic assumptions developed by the Congressional Budget Office, which has forecast real gross domestic product (GDP) to increase 2.8 percent in 1993 and 3.0 percent in 1994, compared with a 2.5-percent increase in 1992 (table 1). Inflation as measured by the GDP implicit price deflator is forecast to increase 2.5 percent in 1993 and 2.4 percent in 1994, compared with a 3.3-percent increase in 1992. (These changes are from fourth quarter to fourth quarter.) The unemployment rate is forecast to drop to 6.9 percent in 1993 and to 6.4 percent in 1994 from the 1992 level of 7.3 percent.


Current services estimates

Current services estimates show what receipts and outlays would be without policy change. In concept, these estimates are neither recommended amounts nor forecasts; they form a base with which administration or congressional proposals can be compared. The estimates are based on the same economic assumptions as those underlying the budget.

Budget receipts in 1994 are $36.1 billion more than the current services estimate, reflecting primarily the proposed tax increase on upper income individuals (table 2). Budget outlays are $1.5 billion lower than the current services estimate, as the sharp drop in defense programs about offsets the jobs stimulus and investment spending proposals.


The budget estimates

Under the administration's budget, receipts in fiscal year 1994 increase $105.6 billion--or 9.2 percent--to $1,251.3 billion. Receipts in 1993 are $1,145.7 billion, uP 5-1 percent from 1992. Administration proposals for tax legislation reduce receipts in 1993 from their current services levels and increase receipts in 1994.

Budget outlays in fiscal year 1994 increase (47.7 billion--or 3.3 percent--to $1,515.3 billion (table 3). Outlays in 1993 are $1,467.6 billion, up 6.3 percent from 1992. The 1994 increase is the net result of increases of $69.3 billion and decreases Of $22.6 billion. Increases in outlays for health, medicare, income security, and social security account for most of the 1993 increase and more than account for the 1994 increase. The largest increase in 1993 is for health ($15.8 billion); in 1994, it is for social security ($15.8 billion). The largest decreases in 1994 are for national defense ($13.7 billion) and agriculture ($4.7 billion).


The budget deficit for fiscal year 1993 is greater than the current services deficit because of the jobs stimulus proposals; the deficit for 1994 becomes smaller than the current services deficit because of revenue gains, especially from the income tax proposals. The 1994 budget deficit is $264.1 billion, down $57.9 billion from 1993; of this decrease, $8.1 billion results from a decline in the current services budget deficit, and $49.8 billion results from the administration's proposals.

NIPA estimates for the Federal sector

The Bureau of Economic Analysis has prepared estimates of the Federal sector on the NIPA basis that are consistent with the budget estimates. Estimates of the Federal sector, which are integrated conceptually and statistically with the rest of the NIPA's, differ in several respects from the budget estimates; unlike the budget estimates, these estimates exclude financial transactions, such as loans, and they record categories of receipts and expenditures on a timing basis different from that of the budget.(2) Table 4 summarizes the differences between the current services estimates, the administration's budget, and the budget estimates on the NIPA basis. Table 5 shows the relation between budget receipts and NIPA receipts, and table 6 shows the relation between budget outlays and NIPA expenditures.(3) Federal receipts on the NIPA basis increase $95.7 billion in fiscal year 1994, to $1,336.6 billion, reflecting $45.1 billion from higher tax bases and $50.6 billion from other tax changes (table 7). The increase is primarily due to proposed legislation for individual income tax changes and, to a much lesser extent, for corporate profits tax changes and a new energy tax. Chart 1 shows the components of receipts on the NIPA basis for 1984-94.


Federal expenditures on the NIPA basis increase $54.2 billion in fiscal year 1994, to $1,570.6 billion (table 8). Federal expenditures have been decelerating since fiscal year 1991 (chart 2). For fiscal year 1994, the largest increases in expenditures are for transfer payments--$16.7 billion for medicare and $15.5 billion for social security. Other large increases include grants-in-aid to State and local governments for medicaid ($11.5 billion) and net interest payments ($10.8 billion). National defense purchases decline $14.2 billion, and subsidies less the current surplus of government enterprises decrease $2.2 billion. Chart 3 shows the components of expenditures on the NIPA basis for 1984-94.


National defense outlays in the budget differ from national defense purchases in the NIPA's for three principal reasons (table 9). First, some defense outlays, such as disbursements for foreign military sales, are not treated as purchases in the NIPA's. Second, NIPA deliveries of goods and services exceed cash outlays in all 3 years, creating a timing difference. Third, financing of the military retirement program is treated differently in the two series. Defense outlays includes a cash payment from the military personnel appropriation account to the military retirement trust fund; the NIPA's use total military retired pay as the measure of the retirement program's cost. At present, payments to the fund are declining as the military payrolls decline, but the NIPA series increases because of the rising number of retirees and higher benefits.


The deficit for fiscal year 1994 on the NIPA basis declines $41.0 billion. The NIPA deficit is smaller than the administration's budget deficit (chart 4) primarily because lending transactions and payments to residents of U.S. territories and Puerto Rico are removed from expenditures on the NIPA basis.

Quarterly pattern.--Quarterly estimates of NIPA receipts and expenditures that are consistent with the fiscal year receipts and outlays in the administration budget are shown in table 10. Receipts reflect the quarterly pattern of enacted and proposed legislation that would increase personal taxes and contributions for social insurance and the administration's projected quarterly pattern of wages and profits. Expenditures reflect the quarterly pattern of proposed legislation that would reduce defense purchases and the adjustments for cost-of-living increases in social security and in Federal employee retirement benefits.


The Federal deficit declines in the fourth calendar quarter of 1992 (the first quarter of fiscal year 1993), reflecting a rise in corporate profits tax accruals despite offsets for the retroactive effects of proposed legislation for investment tax credits. In the first quarter of 1993, the deficit drops sharply, reflecting a falloff in defense purchases combined with a rise in receipts for personal taxes and contributions for social security. In the second quarter, the deficit increases, reflecting a surge in expenditures for grants-in-aid to States and in transfer payments. The deficit changes little through the rest of calendar year 1993. In the first quarter of 1994, the deficit declines dramatically, reflecting the impact of proposed legislation to increase personal taxes and the relative strength of contributions for social insurance. In the second quarter, the deficit drops, reflecting additional receipts from the proposed increase in personal taxes. In the third quarter, the deficit rises slightly, reflecting a falloff in personal tax receipts. Table 10 follows.

NIPA Volume Errata

National Income and Product Accounts of the United States: Volume 2, 1959-88 contains errors for 1959-88 in the line items shown on this page for tables 5.12, 5.13, and 8.24. The volume also contains errors in certain price indexes: Most detailed structures lines in table 7.6, "Price Indexes for Fixed Investment by Type" (lines 4, 6, 7, 17, 18, and 19 for 1959-64). The corrected estimates for these tables and lines are available on request. Write to National Income and Wealth Division (BE-54), Bureau of Economic Analysis, Washington, DC 20230, or call (202) 523-0669.

Federal Personal Tax Receipts: Differences in the NIPA Estimates

There is an unusually large difference between the fiscal year 1992 personal tax receipts from the budget estimates on the NIPA basis and the corresponding series published in the NIPA tables. The difference is mainly due to the estimate of the impact of the revision of withholding tables that was implemented in March 1992. Actual calendar year collections indicate that the estimate incorporated into the published NIPA series was much too high. When the annual revision of the NIPA's is released in August 1993, the most recent collections data will be incorporated. [Billions of dollars; quarters are seasonally adjusted at annual rates]
 Fiscal Calendar year
 1992 1992:IV 1993:I

Published, NIPA's 472.8 488.2 499.5
Budget, NIPA basis 486.3 503.1 509.7
Difference 13.5 14.9 10.2

(1.) The Budget of the United States Government, Fiscal Year 1994, Office Of Management and Budget (Washington, DC U.S. Government Printing Office, April 1993. (2.) For a detailed discussion of the differences, see Government Transacti NIPA Methodology Paper Series MP-5. In addition, footnote 4 in last year's Survey of Current Business article describes the fiscal year 1993 budget (March issue, page contains information that updates the methodology paper. (3.) Data on the relation of budget receipts and outlays to NIPA receipts a expenditures are shown in NIPA table 3.18B, last published in the September 1993 Survey.
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Author:Galbraith, Karl
Publication:Survey of Current Business
Date:Apr 1, 1993
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